It Costs $3 for Every $1 that the Government Benefits Someone

Government benefits are basically an inefficient and overpriced way for society to make government do the charity we all should do.

How much do government benefits cost? According to one economist, they cost three times the benefits bestowed on the recipients. The Washington Free Beacon reports this under an incredibly positive headline, “Federal Debt Held by the Public Totals $107,000 Per Household.” I say it is positive because a friend of mind did some counting and says that, if you account for all the real debt, it gets closer to $2 million!

The federal debt held by the public totals more than $13 trillion, or about $107,000 per household in the United States, according to a report released this month by the Cato Institute.

The report, titled “Washington’s Largest Monument: Government Debt,” suggests that growing debt, which has doubled over the past seven years, poses a burden on future taxpayers and could lead to a financial crisis.

According to Cato, financing government debt through tax collection creates distortions since much of federal spending goes to subsidy and benefit programs, which reduce work incentives and savings.

One economist says that “it costs taxpayers $3 to provide a benefit worth $1 to recipients.”

It isn’t just the Cato Institute that is warning of a crisis. The Congressional Budget Office is telling us the same thing.

The distortions go far beyond reducing work incentives and savings. Government debt actually siphons savings into immediate consumption.

In a free society, people would borrow money in order to do things with that money that would make a future revenue stream that would allow them to pay the debt with interest. So entrepreneurs would, for example, borrow money to build a railroad that would make travel cheaper between two points. Then the people who bought bonds from the entrepreneur would get paid back because he didn’t use the money for immediate consumption, but in order to make something that would help people in the future.

The government offers interest rates as if loaning it money (i.e. buying treasuries, etc) is also an investment opportunity. But most of the government’s money is spent on immediate consumption. The ability to pay back the loan rests not on capital development but on future taxes.

Basically, the government competes with other businesses to attract lenders, but it doesn’t actually use the money to increase wealth in society. Rather than building wealth for the future, it creates a financial money pit.