There’s no convincing the dopey left of what is a basic truth: there’s no such thing as government spending. Governments only have resources insofar as they arrogate to themselves production that always and everywhere takes place in the private sector. Government spending is politicized allocation of wealth created privately.
When Nancy Pelosi promises major programs that always fail to live up to their objectives, she’s not pulling resources from the sky. She’s instead using wealth created privately in order to spend it in the way she wants. Government spending is a frequently wasteful, nearly always sub-optimal allocation of resources.
That it is raises a question of why members of the left are so triggered by tax cuts. Why is it so important to them that “government” be such a size spender? Can they point to huge successes? In their defense, Republicans exist to spend too.
So while tax cuts and the subject of smaller, more limited government triggers members of the left, conservatives are triggered by California. The mere mention of the Golden State elicits shouts of “socialism,” hostility to enterprise, comparisons to Greece, and all manner of other irrationalities.
Up front, this isn’t meant to defend the size of government in California, the regulation, and the various embraces of nanny-statism that are more prevalent out west. At the same time, this piece is a call for reason. Just as tax cuts bring out wild amounts of something that is the opposite of reason among unhinged lefties, conservatives reveal similar qualities when the name of the 31st state is uttered.
This irrationality blinds conservatives to the basic truth that far from a socialist paradise, California is remarkable for all the economic activity that takes place within its borders. Three of the five most valuable companies in the world are headquartered there, plus it’s safe to say that of the 100 most valuable companies in the world, more of them are located in California than any other U.S. state.
While conservatives claim that the state is incredibly hostile to enterprise, venture capitalists who actually have wealth at risk tend to disagree. More than half of the world’s venture capital flows into California.
And while GDP is a backwards, consumption-focused number indicative of growth that’s already occurred, California is a remarkable in a GDP sense too. Indeed, if California were a separate country (as many conservatives surely wish it were), it would be the world’s fifth largest economy.
What about wealth? Every Forbes 400 lists the states with the most billionaires. California is regularly on top.
The billionaire number is useful in consideration of the latest California story triggering conservatives. They don’t want the state bailed out by the federal government as a response to revenue shortfalls born of the tragic lockdowns. To be clear, there shouldn’t be bailouts. Cities and states led by individuals so obtuse as to fight a virus with economic desperation deserve to face up to their reduced revenue fate without the money of others.
The problem is that conservatives aren’t making this argument. They’re making the argument that California is some sort of parasitical state, sucking in the money of others via the feds. As one conservative economist put it, “Taxpayers elsewhere in America shouldn’t have to cough up cash to keep California from committing suicide.” Yes, conservatives believe the rest of the U.S. subsidizes the most prosperous state in the world via Washington. That they do runs counter to their deeply-held, and well-founded beliefs about federal taxation.
Indeed, as they regularly point out, the top 1 percent of U.S. earners account for around 40 percent of federal revenues. So true. That they do should give conservatives pause in their commentary about federal bailouts.
Precisely because California is populated by a high number of the world’s richest, most entrepreneurial people, logic dictates that California as a taxpaying whole accounts for a substantial portion of total federal revenues. If you took California out of the federal taxation picture, federal revenues would be quite a bit lower. It’s a long or short way of saying that for the federal government to errantly bail out California, it would in a very real sense be California bailing out California.
So while the federal government shouldn’t be throwing any more money at the errors of politicians on the local, state and national levels, it’s useful to at least be honest about where the funds Congress spends are coming from. Conservatives know the answer. Really, they can’t have it both ways.
If it’s true that the 1 percent account for the vast majority of federal revenues, and they do, then let’s end the nonsensical talk about “Americans” paying for suicidal economic errors made in California. More than most want to admit, California’s economy very much is the federal budget. For good or bad. Mostly bad.
John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). His new book is titled They're Both Wrong: A Policy Guide for America's Frustrated Independent Thinkers. Other books by Tamny include The End of Work, about the exciting growth of jobs more and more of us love, Who Needs the Fed? and Popular Economics. He can be reached at email@example.com.