In an editorial last week entitled, “Shutdown Slows Down the Economy,” the New York Times suggested that President Trump’s partial shutdown of the federal government is hurting the economy. It’s a point that many people on the left are making.
They are wrong. Actually, the best thing that could ever happen, from an economic standpoint, is a permanent shutdown of all of the non-essential and illegitimate functions of the federal government, and there are many.
Keep in mind that we are dealing with two separate sectors — the private sector and the government sector. The private sector produces wealth. It is the cause of rising standards of living. The other sector is the parasitic sector. It reduces standards of living.
Suppose everyone in the private sector was free to keep everything he earned. 100 percent. Assume no federal taxes. The result would be an enormous rise in prosperity and standard of living. That’s because a key to rising standards of living is savings and capital accumulation.
If people were free to keep everything they earned, they would inevitably save some of their money, which they would deposit into banks. Employers would borrow that money to buy tools and equipment that would make their workers more productive. Higher productivity means higher revenues and higher wage rates — i.e., a higher standard of living.
Suppose the government starts taxing people at a rate of 3 percent of their incomes. Now people are worse off because inevitably they are going to save less than they were before. The tax reduces people’s economic well-being.
Now, people might think that the 3 percent tax is worth it because it helps to keep the federal courts working, which enables people to peacefully resolve their disputes. They would say that that’s an important and legitimate function of government.
Let’s say though that the federal government suddenly starts taxing people 33 percent of their incomes and uses the extra money to hire 10,000 people from the private sector, fund forever foreign wars, and provide a welfare dole to some people. In that case, people are now retaining only 67 percent of their income, making them significantly worse off than before. Many of them are now unable to save any money, which reduces the overall level of capital in society, thereby inhibiting the ability of businesses to become more productive.
It’s even worse than that. Think about those 10,000 people. They are now no longer in the private sector producing wealth. They have become dead weight as federal bureaucrats in that they are now dependent on the money extracted from the private sector. The same with the military-industrial complex, whose members are fighting those forever wars. The same with the people on the dole.
All of those functions of government are illegitimate, non-essential, and destructive. Let’s say that one day the American people decide to shut down those illegitimate functions and return to a 3 percent tax rate.
The New York Times and the rest of the mainstream media would go ballistic, arguing that the shutdown was harming the economy. They would point to those 10,000 people, the soldiers and agents fighting those foreign wars, and the people on the dole and say, “Look, look, those people are suffering. They don’t have a paycheck. They have a right to maintain their jobs and their doles.”
But they don’t have such a right. They have no right to plunder and loot their fellow citizens who are producing wealth in the private sector to fund their illegitimate,non-essential, parasitic functions.
Yes, there would be a temporary disruption as these non-essential functions of the federal government were shut down. But the long-term effect would be doubly positive. That’s because the people who were being taxed are no longer being taxed to pay for them and, therefore, are free to keep most everything they earn again. That means, again, increased savings, capital, prosperity, revenue, wage rates, and standard of living.
But notice why the shutdown would be doubly positive: The people in the shut-down sections of the government would now be working in the private sector, which means that they would now be part of the wealth-producing private sector rather than the parasitic government sector. That means even more savings and capital accumulation and higher revenues, wage rates, and standard of living.
Unfortunately, however, there is going to be no permanent shutdown of the federal government’s non-essential functions in Trump’s shutdown-extortion scheme to get his border wall constructed. As soon as Trump’s extortion crisis is over, everyone in the federal government will return to work, including those in the non-essential functions. Even worse, Trump will accede to reimbursing all those non-essential personnel with full back pay, which will essentially mean that they enjoyed a very long paid vacation during Trump’s “shutdown.”