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When The Government Spends Trillions Of Dollars It Is Taking It Out Of The Economy Which Diminishes Economic Growth

When the government spends trillions of dollars it is taking it out of the economy which diminishes economic growth

Why this crowding out of private spending? Government spending comes from three sources: debt, new money, or taxes. In other words, the government can't inject money into the economy without first taking money out of the economy.

Take taxation: Taxes simply transfer resources from consumers to government, displacing private spending and investment. Families whose taxes have increased will have less money to spend on themselves. They are poorer and will consume less. They also save less money, which in turn reduces the resources available for lending.
In addition, higher taxation encourages people to change their behavior to avoid taxes. They might switch their efforts to non-taxed activities, such as household production, or to the untaxed underground economy. Economists call this a deadweight loss, because people give up the taxed activity or good they prefer.
There are high costs to the other options as well. If the government borrows money, that leaves less capital for the private sector to borrow for its own consumption. If the government prints new money, it will create inflation, which reduces the value of the money we own and decreases everyone's purchasing power.
Overall, government spending doesn't boost national income or standard of living. It merely redistributes it-minus the share it spends on the bureaucracy that collects and spends our tax dollars. The pie is sliced differently, but it's not any bigger. In fact, it's smaller.

In addition, higher taxation encourages people to change their behavior to avoid taxes. They might switch their efforts to non-taxed activities, such as household production, or to the untaxed underground economy. Economists call this a deadweight loss, because people give up the taxed activity or good they prefer.
There are high costs to the other options as well. If the government borrows money, that leaves less capital for the private sector to borrow for its own consumption. If the government prints new money, it will create inflation, which reduces the value of the money we own and decreases everyone's purchasing power.
Overall, government spending doesn't boost national income or standard of living. It merely redistributes it-minus the share it spends on the bureaucracy that collects and spends our tax dollars. The pie is sliced differently, but it's not any bigger. In fact, it's smaller.

YJ Draiman

http://yjdraimanformayor.org