The latest ongoing debate amongst our political nomenklatura is about the $14 billion hard-earned tax dollars that are being spent on knocking down and rebuilding school buildings. When you consider that fourty-two percent (yes, 42%) of Australian families either don’t pay tax or receive more in government benefits than they pay in tax, this amounts to a significant ‘investment’ in education – but is it actually going to provide any long-term benefit for Australia or is it simply yet another example of the broken window fallacy [see Bastiat or Hazlitt], in other words a colossal waste of resources?
I’ll spare you the banter that’s being thrown around in parliament (a brief summary: Labor is defending the spending, saying it will “…modernise school facilities and support jobs in the local community,” and that it represents “…value for money;” the Liberals are calling it “wasteful and reckless spending.”) and instead focus purely on the numbers and whether or not it will ‘stimulate’ the economy – which was, after all, the whole point of it.
Fourteen billion dollars ($14,000,000,000) equates to almost $1,800 for every tax-paying Australian (assuming only 8million people pay tax). Now that’s a significant amount of money those taxpayers no longer have to spend or save – in other words, our omnipotent government has decided that they know how to spend the money better than you, the person who earned it. Whereas the taxpayer earns their income by satisfying the infinite and ever changing wants and needs of the consumer (whether as an entrepreneur or employee of an organisation that does), the government is under no such obligation. They’re not bound by profit or loss; indeed, on the contrary, all they care about are the various interest groups to whom they sold their souls to move up the political ranks.
The stimulus spending on education will not help our economy one iota. Yes, it will create, or rather maintain jobs in the building and construction industry. But at what cost? Going back, what about the $1,800 that taxpayers no longer have to spend or save? Lets assume this money was saved in a bank – that money would added to the national pool of savings which, due to supply and demand (and the subsequent reduction in the interest rate), would lower the cost of borrowing for businesses who would then been able to expand (invest) and spend on ‘productive’ consumption – that is, consumption that will enable future production and increase the total productivity and wealth of the nation. Not only that but it would create jobs in the process; jobs allocated by the market rather than through bureaucratic whims. The difference? One is sustainable while the other can only continue for as long as the stimulus does.
To answer my initial question, will the ‘stimulus’ of knocking down and rebuilding schools help the economy? Will it enable an increase in future production? Will promoting malinvestment and creating jobs in areas where they’re simply not needed achieve anything other than furthering political careers by gaining support from certain unions and interest groups? Unfortunately, no.
“Experience shows that nothing is operated with less economy and with more waste of labour and material of every kind than public services and undertakings. Private enterprise on the other hand naturally induces the owner to work with the greatest economy in his own interest,” Ludwig von Mises
Aside from boosting GDP statistics in the short term, the only thing that will be achieved by this stimulus (aside from shiny new school buildings for the kids of course) is a delay in the necessary reallocation of scarce resources from areas of malinvestment to areas where they’re most urgently needed. The reckless spending embarked on by this government is incredibly short-sighted and there is no doubt that in the process they have lowered the standard of living for all future Australians.
