Tuesday, August 12, 2014

DAP and the PH Economy

A Facebook friend shared an article from GMA News online explaining to us what DAP is. The article summarized DAP as a government "program to accelerate public spending and boost the economy." 

And then I asked a question: "How does public spending boost the economy?" "By pump-priming the economy, infusing money in the marketplace", my friend responds. And then he adds, "by building the needed infrastructure."

"I agree as a short-term solution." And the I asked another question: "How about as a long-term solution? What is the long-term impact of public spending on the economy?" He replied: "If the spending is focused on infrastructure, education and health, it will benefit the economy in the long-term."

This friendly exchanges reminds me of an article I wrote last January this year based on the The Freeman article, "Abundance Down There, and Back Up". 

And then I gave a longer response: 
"That's why I think understanding Henry Hazlitt's 'Economics in One Lesson' is very important. In that book, he talks about short-term/long-term and visible/invisible results of any economic policy or activity. I believe that the government has the authority to spend taxpayers money within its sphere of legitimate functions. However, concerning health and education, and add to it, energy, I don't think they are within the legitimate duties of the government. Of course, in case of health and education, we have been used to them and it's now difficult to break the customary ways of doing things. But for free market advocates, I think it is part of their idealism that somehow one day these sectors of the economy will be liberated from the political class. The Freeman article exactly touched this subject. For the writer, government interference in healthcare, education, and energy is exactly the reason why the products and services in these industries 'are getting worse. slower, and more expensive.'" 

And then I searched for another article and I found Jonathan M. Finegold Catalan's "Government Spending Is Bad Economics". In it, he identified several features and setbacks of government spending. They include the following: 


1. Government spending brings about the negative side effect of discouraging production. 



2. Government spending is inherently inferior to private spending.



3. Though the government is the biggest economic player, it does not play according to the rules of the market (my paraphrase version).



4. The reason why the state does not need to economize, because it can borrow, tax, and simply print more money.



5. Public spending distorts the entire notion of scarcity, because government can acquire any economic good at any cost. 



6. Government spending is not a method of improving the market's efficiency, nor is it a method of employing allegedly idle resources (This reminds me of the sources of DAP). 



7. The result of government spending is foregone opportunities; the cost is the gain in wealth that would have occurred had economization been allowed to take place.



8. Government, in fact, is a large disequilibrating force on the market. It forcibly redistributes economic goods, removing them from a process of economization and instead investing them toward the realization of less important, or less preferred, ends. 



9. We can safely conclude that government spending causes more harm than good; it redistributes the means of production toward the attainment of ends considered inferior by the individuals who make up the society that government is allegedly acting to improve.