Who runs the economy ?

I continue to be amazed by popular perceptions that the economies of North American countries are “run” by governments. They are not. So why do people think a President or Prime Minister is responsible for the economy ? Why is the public perception of “good” versus “poor” leaders linked to economic performance ?

Governments govern, that is their role. The private sector runs the economy, that is it’s role. This is pretty simple fact, rooted in basic economics: governments tax and spend without creating economic value. Most of what they produce is services, many of which actually destroy wealth because they allocate resources to investments that no rational person would invest in. Business create profits, which are incremental economic value by definition. Most value is created through transformation of tangible materials into more valuable products. Some value is created through services that produce profits.At the end of the day, if there is no residual product from a day’s work, there is no wealth created by that work. This is a very simple reality.

So why do people think politicians are responsible for the economy ? I posit three causes:

  1. Ignorance of basic economics
  2. Ignorance of the role of government in a market economy
  3. Dependence on government hand-outs

The first two are failures of public education. Basic economics and civics (and law) need to be taught in schools, with an emphasis on how the private sector creates value and the government takes part of their wealth to ensure public safety, infrastructure, security and the rule of law.  Unfortunately, every employee of public schools is a Union member and government employee, so most have little to no experience or personal knowledge of how the real world works. To fix this we need to fix not only the curriculum (to include economics and civics as core requirements), we also need to fix how this knowledge is delivered. It is no secret that teachers, in general, lean left politically and economically. This imbalanced perspective is  natural for government employee union members for whom collective “bargaining” (aka extortion of the public) is the source of their bread and butter – literally. We need public-spirited members of the private sector to get involved in delivering knowledge to our student populations – volunteer business people and private sector workers who will teach our kids about the real world in which they live. To make this work, we need to open up schools to give these people access to students. My suggestion would be a guest lecturer style program like one sees in Universities.

The other problem, dependency on handouts, is even more serious. If you know history, you will know that social support was primarily a function of Religious organizations until the early 20th Century. When the Great Depression hit, governments took over this key social role from the Church (meant inclusively) and service clubs like the Kiwanis and the Masons. Ever since, “religion” has been in decline… no kidding… it forfeited a cornerstone of its mandate, eroding the basic value proposition of organized religion – the whole social / moral / ethical role.  Governments, with their new and unlimited ability to suck money out of the private sector and borrow has become a bloated “social services” delivery vehicle providing things that are wildly different than governing – e.g. subsidies to the arts, cultural organizations and yes, even subsidies to businesses (which distorts the allocation of economic resources in often disastrous ways).

Expecting government to feed you is akin to eating your own children. Devouring economic capacity to support non-productive activity is a fool’s game…. instead of a zero-sum proposition it destroys wealth.

So who runs the economy ? …. each and every one of us.


Dave McNab



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