The cost of government

The mainstream media must eventually come around to highlighting some of the glaring absurdities inherent in our socio/economic construct, albeit in piecemeal fashion.

What the mainstream media cannot do or does not want to do is to place the how and why in its appropriate context. That’s why you have people like me to do it for you.

This is a recurrent theme in the pages of this blog.

Once a government makes the deliberate choice to adopt a fiat monetary system, the path is dialed in.

In choosing a fiat monetary system, the inherent implication is that government reserves the right to expand the monetary base faster than underlying economic activity would justify.

Fiat money precludes any reference to intrinsic value thus there are no capital or temporal restraints to the expansion of the monetary base. Thus politicians of all stripes perceive fiat money to have no intrinsic cost. Hence government spending will always and everywhere increase year on year regardless of economic trends or conditions.

By implication, as the trend of government spending always follows a positive slope, GDP progression gradually and inevitably becomes ever more dependent on more government spending.

But as it is arithmetically impossible to increase spending ad infinitum, in order to maintain spending on a positive trajectory, government must perforce progressively become the largest actor in the economy so as to spend as much money as possible itself.

Hence the reason of government inherent inefficiency – inefficiency that is in large part due to the necessity to circulate money no matter for what reason and regardless of efficiency, return on investment or productivity.

Hence the reason that as the fiat monetary logic progresses, government becomes the largest and most inefficient actor in the economy.

As a side note here, I would like to also draw your attention to unions.

Although at the outset unions served a truly social and economic purpose, like all entities  as union clout progresses then it follows that at some point the main focus of the union becomes its own survival and perpetuation regardless of the greater good of its members or society.

Also note that in the past thirty years unions have moved from the private sphere of business into the public sphere of government. This is of course a logical progression for a union because government offers a more secure and more coddled work environment. However, as government can only be financed by the individual citizen, expanding government means an increase in taxes and/or an increase in borrowing. But even if government opts to finance itself via borrowing, government still needs to pay interest on the debt which means that at some point this money must still be extracted from society.

Thus as unions expand into government, government finds itself locked in the death grip of runaway national debt and runaway debt service costs. This is all fine for as long as the expansion of the monetary base brings about at least nominal GDP expansion.

However, as the expansion of the monetary base  explodes but GDP progression stalls or, Ye Gods!, turns negative, the monetary system is broken; thus government is broke and broken too.


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