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Market Myth 2: Government always spends money less effectively than the private sector

“The debate in Congress over taxes ultimately comes down to this: Who knows best how to use your money -- the politicians in Washington or you? I believe the money we spend in Washington is your money, not the government's money. I trust you to make the best decisions about what to do with your hard-earned dollars, because when you do, your family is better off, our economy grows, and prosperity and opportunity spread throughout our great land.”

- President Bush, Radio Address, April 1, 2006

“We've got great faith in the people's ability to spend their money wiser than the federal government can do.”

- President Bush, July 11, 2006

First, let me start with taxes. We have a clear philosophy. This philosophy says this: We believe you know how to spend your money better than the federal government does. (Applause.) I know that the Democrats want to raise your taxes because they think they can spend your money better than you can.

- President Bush, November 4, 2006 at Colorado Victory Rally

Beginning with the Reagan administration, conservatives have hammered this theme into the heads of Americans: individuals will spend their money more wisely than the government. This claim justifies their seemingly insatiable appetite for tax cuts, but it is also designed to reinforce public concerns that government is wasteful and inefficient.

If the right can convince people that government is inevitably ineffective, then they have won the political battle. They can assure that promises by liberals and progressives to use government to solve problems will be dismissed as unrealistic or worse. Moreover, their preferred solutions—greater self-reliance and turning responsibilities over to the corporations—will sound far more plausible.

But this claim that citizens always know the best way to spend money makes no sense. In fact, George W. Bush and Dick Cheney demonstrate on a daily basis that they do not actually believe it. Clear majorities of the public believe that the United States should not be spending hundreds of billions of dollars waging war in Iraq, but Bush and Cheney insist that they know better how to defend the nation.

But even beyond foreign policy, the idea that individuals will always make better spending decisions is ridiculous. Here are a few simple comparisons that suggest how far-fetched the claim is:

In 2006, Americans spent an average of around $117 per person on weight loss techniques; the government spent just $6 per person to ensure food safety
In 2005, the government spent about $184 per person on non-military research and development; Americans spent an average of $426 per person on alcohol
Americans spent $288 per person on tobacco in 2004; State governments spent around $2 per person on anti-smoking education
The Federal government spends $280 per person on public education; Americans spend around $215 per person on illegal drugs
The Federal government spent $42 per person providing Pell grants to send low-income children to college; the average American spent about $56 on Valentine’s Day.
Many similar comparisons can be made. Pressed to narrow the Federal deficit that was created by his tax cuts, the President has proposed to reduce Federal spending for the State Children’s Health Care Program (SCHIP), which provides health insurance to the children of low-income parents. This important program costs us only about $20 per person—about the amount the average American gambles away in a month.

We face this “tough choice” over children’s health care because of the President’s tax cuts. President Bush, like President Reagan before him, argued that the tax cuts would more than pay for themselves by producing more rapid economic growth. However, this has not happened; the deficit has grown and it threatens future economic growth (See these articles from the Economic Policy Institute and the Center for Budget and Policy Priorities.)

Sure, some government spending is wasteful and we have chosen the most favorable comparisons to debunk the President’s claims. Still, it matters that government’s priorities are set by public discussion and debate. Democracy, after all, gives us the opportunity to discuss what our shared priorities ought to be, and that creates the possibility of learning and correction. Our individual preferences and compulsions are often considerably harder to change, as those outlays on weight loss programs testify.

Sources:

(2005). Consumer Expenditures in 2005. Washington, DC, U.S. Department of Labor.

(2005). "Gaming Provides Solid Revenue Stream for State Government." The Council of State Governments Eastern Regional Conference Retrieved March 7, 2007, from http://www.csgeast.org/page.asp?id=weeklynewsbulletin63.

(2006). "Diet Industry Is Big Business." Retrieved March 7, 2007, from http://www.cbsnews.com/stories/2006/12/01/eveningnews/main2222867.shtml.

(2007). "Tobacco Settlement Bonus Payments: A Second Chance to Keep the Promise and Fund Tobacco Prevention." Campaign for Tobacco-Free Kids Retrieved March 7, 2007, from http://www.tobaccofreekids.org/research/factsheets/pdf/0296.pdf.

Aberman, S. (2001). "The War on Drugs." Newshour Extra Retrieved March 7, 2007, from http://www.pbs.org/newshour/extra/features/jan-june01/drug_war.html.

Bridges, A., and Seth Borenstein. (2007). "Government decreases food inspections nearly 50% since 2003." Retrieved March 7, 2007, from http://www.timesfreepress.com/absolutenm/templates/health-beat.aspx?articleid=11363&zoneid=92.

Chantrill, C. (2007). "2004 US Federal, State, and Local Government Spending." Road to the Middle Class Retrieved March 20, 2007, from http://www.roadtothemiddleclass.com/oped230_2004_us_federal_state_and_local_government_spending.html.

Mahoney, S. (2007). "Countdown To Cupid: Valentine's Day Spending To Grow 20%." MediaPost's Marketing Daily Retrieved March 7, 2007, from http://publications.mediapost.com/index.cfm?fuseaction=Articles.showArticle&art_aid=54811&art_type=16.

Silver, M. (2006). "How to Earn a Degree Without Going Broke." NPR: Education Retrieved March 7, 2007, from http://www.npr.org/templates/story/story.php?storyId=6376591.

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