A Bug’s Life: Crowding Out

There is a great animated movie, A Bug’s Life, a play on one of Aesop’s Fables, The Ant and the Grasshopper, which tells the story of a hard-working group of oppressed Ants and their oppressive “leaders”, the Grasshoppers.  From time eternal, the Ants work hard every year growing food but when it comes time for the harvest they must set aside a substantial offering for the Grasshoppers who, after spending the growing season vacationing, fly in to claim their “fair share”.  This is a story of slaves, their masters, inter-generational conflict, and for our purposes here, is instructive in understanding the concept of “crowding out”.  In particular, the crowding out of private investments, goods, and ultimately, of private wealth, in favor of public or State government “investments”.

In the movie, the Ants are farmers and they grow several varieties of food.  They are the private sector.  The Grasshoppers provide “security” services.  It is clear, as clear as it is in real life, that the biggest threat to the Ants are the Grasshoppers, but none the less, the Grasshoppers are the public or State sector.  Any amount of food, no matter how small or large, confiscated by the Grasshoppers, will necessarily reduce the amount of food available to the Ants.  The Grasshopper’s consumption will crowd-out consumption available to the Ants.  Without the Grasshoppers in their lives, the Ants might, alternatively, decide to grow less food.  After all, they no longer must feed the Grasshoppers.  Instead, they might decide to spend that extra time and effort gathering sticks to build better houses for themselves.

The Ants might work all year gathering sticks, 1,000 of them (their savings or wealth), to build new housing, only to have the Grasshoppers fly in and take every last stick, a tax, to build a new palace for El Presidente Grasshopper.  The palace is part of a “public infrastructure” plan to bring jobs and glory to the nation.  When all is said and done, El Presidente has a new palace, but the Ants have no new houses.  This is an example of crowding out and it doesn’t matter, incidentally, if the sticks are stolen, “taxed”, or borrowed.  Even if the sticks are eventually repaid, the Ants will not have access to their real savings, and their new houses, for quite a while.  This is not part of the movie mind you, but there is a parallel concept between the crowding out of food consumption in our movie and the crowding out of savings, and ultimately the benefit of that savings, in real life.  Any time a State government confiscates taxpayer savings for infrastructure, military spending, space programs, research, etc., they are spending resources not available for private use.  Contrary to claims otherwise, and popular belief, more often than not, public spending reduces private wealth.

This problem is not exclusive to Republicans or Democrats.  Spending human and natural resources on building missile systems, for example, instead of housing, crowds out private investment and decreases the amount of housing and other consumer goods available for the citizens to enjoy.  How about a current example?  The United States federal government is projected to spend $824.7 billion in fiscal 2018 on military related expenses, commonly referred to as defense spending.

(For fiscal year 2018) Military spending is budgeted at $824.7 billion. The biggest expense is the Department of Defense base budget, at $574.5 billion. Overseas Contingency Operations will cost $76.6 billion.

Military spending should also include $173.6 billion for defense-related departments. These include Homeland Security, the State Department and Veterans Affairs. For more on military spending, see War on Terror CostsWar in Iraq Costs and Economic Impact of 9/11More 

U.S. Federal Budget Breakdown, the balance

This amounts to $2,553 per year for each of the 323 million men, women and children currently residing in and outside U.S. borders.  With $824.7 billion, U.S home builders could construct over 4 million $200,000 housing units per year.  At $10 per meal, that same $824.7 billion would provide over 82 billion meals annually to low income and disadvantaged youth.  The possibilities are endless.  Now, the government economist might complain that by cutting defense spending, we are sending millions of military personnel, support staff, contractors, and others, to the unemployment line.  We are doing no such thing.  The military personnel would still be working, but at different jobs.  They might be building houses, working in food production, manufacturing cars, developing life-saving medical technology, etc., instead of bombs.  They would be “stationed” in the United States, with their families, providing valuable services to local consumers instead of fighting conflicts in foreign lands.

Where most people get confused is focusing on the money that is being spent, not the resources or wealth, both natural and human, being utilized.  Every increase in State government,  either a new hire or use of scarce natural resources, robs from what can be produced in the private sector of the economy.  A metric ton of minerals mined from the earth and used in building a State government spacecraft is a metric ton of minerals not used for consumer goods or capital equipment in the private sector.  A new hire in the Consumer Product Safety Commission is a hire not available to the housing industry or technology sector.  Necessarily, the cost of housing will be greater and new private innovations in technology will be less¹.  As can be seen in these examples, and what would be true for the entirety of State government spending, is that when government marshals resources for its own ends, private goods become more scarce and more expensive.  It really comes down to scarcity and whether it is State government or not, where there are limited resources, the consumption of one without a commensurate increase in production of real consumable goods, will necessarily crowd out the consumption of another.

To be clear, and to summarize my position, a certain level of military and other spending is prudent.  We need roads, utilities, communication development, and security to protect us from those who wish to do us harm.  Every investment in infrastructure or military, however, must be self-liquidating, or must pay for itself.  In other words, the investment must increase productivity such that the increase in production returns more than what was invested in the first place.  If it does not, the resources to build the infrastructure, natural and human, were wasted, were consumed.  My concern with State-government-directed and taxpayer-funded spending is that most often political, not economic, analysis is decisive in determining when and where resources will be utilized.  These resources represent the hard-earned savings of tax-paying producers and it is in private hands that these resources are most efficiently, effectively, productively, and most importantly, morally, spent.  If there is to be a State government at all, it should be there to ensure a peaceful and tranquil environment in which producers can pursue life, liberty and happiness.

Generation after generation of Ants accepted their lot in life, their role in society, as a lower form of life.  They accepted their unnatural and unequal role as slave, and maintained a life of scarcity that can only come from such a condition.  It was not until a brave young warrior, to the dismay of his elders, was able convince a much larger population of Ants, compared to Grasshoppers, that their position in the natural order was theirs to take.  All they had to do was fight for it.  A Bug’s Life ends with a resourceful, motivated, and angry, throng of Ants, soundly defeating their masters.  No longer would their productive efforts be subjected to the whims, aggrandizement and avarice of the State and its public servants, the Grasshoppers.  Popular discourse would have it that it is too little, not too much, State involvement that leads to poverty.  And far from crowding out production in favor of private individuals, it is only through State involvement that wealth can accrue to the masses.  If a bunch of Ants can see through this example of a real-life fable, perhaps it will not be long, and will not be asking too much, before we humans come to the same realization.

Footnotes

¹ It is often argued that State endeavors like The Space Shuttle program, the United States government’s manned launch vehicle program, administered by NASA from 1972 to 2011, can act as a kind of incubator for technology and innovation that can then be transferred in to the private sector and ultimately benefit individual consumers.  Thus, they will argue, those resources were not wasted, they were invested.  Let us ignore, for this analysis, the immorality in using force to confiscate property for anything, but the total cost, in 2011 dollars, of The Space Shuttle Program was $196 billion.

To analyze the true return on “investment”, it is helpful to consider the multitude of alternatives that $196 billion of natural and human resources, could have supported in the private sector of the economy.  For example, $196 billion could have purchased nearly 2 million (1,960,000) $100,000 housing units.  So, instead of nearly 2 million additional homes for people, that would exist to this day and well in to the future, we have a mothballed Space Shuttle Program.  Further, while it is true that certain technologies are developed in State laboratories and make their way to individual consumers, there is no telling what alternative or additional technologies might have emerged in the process of building an additional 2 million homes.  Given the shortage of homes that is reported today, is there any doubt we would have been better off with the houses, than the junked shuttles?

First flightApril 12, 1981
Last flightJuly 8, 2011
Cost$196 billion (2011)

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