As I noted in Republican Myth #1, I am not an economist. I recognize that Ayn Rand and John Maynard Keynes pursued economics academically and came to substantially different theories. I don’t know which, if any, is the most correct.
However on the topic of government spending and its effects on the economy, GOP ideology contains such an obvious contradiction in logic that it must be called out as a MYTH! It can be debunked with two words, defense spending.
GOP talking points often include such phrases as “every dollar the government collects in taxes is a dollar taken out of the economy” and, “the government does not create jobs”. These statements are of course patently false. When the government hires a contractor to build a bridge, the payments go straight back to the private sector of the economy and, a good number of jobs are created. Even when the government “gives” a tax dollar away through an entitlement program, that dollar is almost always spent, thus going back into the economy and certainly helping to create or at least keep jobs at the place it was spent! (Have you ever heard of a welfare mother, or fixed income senior “investing” [sic gambling] their US Treasury check on a collateralized debt obligation?)
In the case of defense spending, the Republican politicians make the point for us. Currently Republicans are up in arms about the potential mandatory trigger cuts that could take place at the end of this year. As usual, they contend that cutting our defense spending will harm national security. But this time, in the depths of the Great Recession, they are also screaming that it would cost jobs. They say that cutting military spending could harm the fragile economic recovery and possible send us back into recession.
I’m sorry but the last time I checked, military spending was paid for with tax dollars. You just can’t have it both ways. If building bombs helps the economy and creates jobs, then so does building bridges, or schools, roads, and even prisons.
The simple fact of the matter is that government spending is simply one sector of our economy. It always has been and it always will be. Or, at least it should be. The amount, or percentage of GDP that it represents will always be debated, and it will rise and fall continually over time.
So the next time you hear one of the GOP candidates proclaim “the government does not create jobs, only the private sector creates jobs”, think about that guy you knew that works at Lockheed or General Dynamics. The next time you hear “government spending hurts the economy” try to remember that is only a myth.