So the taxes I pay on the goods I purchase don't contribute back to the overall economy simply because my check comes from Uncle Sam?
This is actually quite complicated. Unless it is involved in production or a couple of other activities it doesn't but this has to be qualified. There are quite a few government functions that are absolutely needed for a well functioning economy but they don't directly grow the economy.
Taxes don't grow an economy but finance government. Taxes on one hand take away from some economic growth but the fact that are some tasks needed for economic growth to function well in an indirect way they contribute.
I have worked for the government and when I was there I was a tax rebater rather than taxpayer. I gave back some of the taxes that paid me back to the government. What I did created no wealth and I was paid by the wealth created by others then I gave some of that back in the form of taxes.
There are some activities by government that many including me should be done but they don't contribute to growth of the economy. I approve of them because I think they are a benefit but to say they contribute to the economy would be false.
It really depends on what the activity is. Building infrastructure can be a direct growth of the economy but this has to be qualified. If there is not enough invested infrastructure the economy could have benefited by greater government spending. If too much is invested in infrastructure it is a drag on the economy.
It really depends on the activity. In some areas it is cut on tried, in other areas there is disagreement among the people who make it their life's work to understand these things.
In a world with no subsidies the relative value of most things is easy to discern. This is one of the problems Bill Clinton's economist talks about in his government economics teaching.
The government uses what is called a cost benefit analysis but it is very qualitative on how much is the optimum amount. Since there are not market drivers for it they try and do what is called the least worst method. The least worst method is used in a lot of areas where it is impossible to know the right answer so it is an attempt at making a good guess. The merit government workers should be trying to make a good faith effort on this even though they know it is still a guess. The other weakness is politics often gets involved in much of it.
A part of government makes it easier for others to grow the economy, if the benefit it provides to growth is larger than what it takes out of the economy it is helpful. It is impossible to know the right amount.
A part of government is a pure drag on the economy no mater how you cut it. It does not mean that it should or shouldn't be done. These kinds of activities are impossible to quantitatively assign a value to. These can be dangerous areas because there are not any tools to guess what is the optimum amount. They are simply things that someone thinks the government should do.
There are some activities that in of themselves that are a drag on the economy and don't grow an economy but help prevent it from shrinking. Law enforcement would be one of these. Without law enforcement productivity would be taken away, no reason for someone to contribute the growth to the economy if it will be taken away by force by non-producers. Some form of security is needed to keep the economy from shrinking due to certain activities. It is deemed absolutely needed to have it in place even though it does not grow the economy, it protects the economy (thinking only of the economic aspect of law enforcement) It is impossible to know the right amount of law enforcement is optimum so we have to guess.
Again the taxes on government wages goes back to government so government workers are tax rebaters. That does not by itself mean it's a bad thing.
It is impossible to cover this subject in a post or a thread but takes years of study and after years of study you still have not scratched the surface of it.
The private sector creates direct value in the economy but all parts of private sector is not beneficial. The domestic activity that the private sector is the value of the economy. Without a functioning government the private sector would no be productive. This does not mean all parts of government is involved in a functioning economy. Most of government is an economic drag but definately not all of it. Just because a part of government is an economic drag does not mean it shouldn't be done.
The danger is too much government is a drag on the economy, too little government and the economy does not function even if the government does not create real growth directly.
I keep mentioning Bills old economics adviser because it is more palitable to some. In the same text book he wrote on government economics he stated Government agencies have an incentive to grow in size even if not needed. The private sector has an incentive to increase profits.
The reason the private sector has an efficiency advantage is it's profits are tied directly to the work it does. It can efficiently (from a productivity measure) make a bunch of things no one wants (inefficient from an economic measure). It has an incentive to not make these mistakes. A private sector business without subsidy has an incentive to try and produce the right amount and right things that people want in order to make a profit. They make there living trying to serve others. Government activity generally is not tied to the activity they do. A government agency can blow it's budget but it's revenue remain unchanged. A private sector company has hints to start doing less of what people don't want and switch to doing move of something else. Enough mistakes and the company that was actually bad for the economy is bankrupt and is no longer wasting resources. All of this gain is because most businesses have their income directly related to the activity they do. The government has a disconnect between what it does and its revenue.
When people say a government should be run as a business this is false. A government can't and should not run like a business because it is not one. It has to operate on cost benefit analysis using the least worst model to determine how much of it to do. Some parts of government it is impossible to do a cost benefit analysis on.
