How government gets its money

A little diversion here, but necessary in this day and age of goverment and administrative centralization. There are three ways that the federal government can obtain the funds it desires for its expenditures. It utilizes all three, but most do not realize the consequences of each.

1) It can directly tax. This takes money from the citizens or corporations (and thus from their stockholders) to use for expenditures. This means the funds in the overall economy shift from the private to public sector. No increase in expenditures happen, they are just shifted from individuals (who would spend the money on their desires/wants) to the federal government.

2) It can borrow money. The government can issue bonds that investors can purchase to obtain their principal + interest. This has the effect of driving up interest rates in the economy (all else being equal) since government bonds are competiting with private bond or stock offerings. Higher interest rates affect individual borrowers as they must pay a higher rate to finance their purchases.

3) It can 'print' money. The government can sell their bonds to the central bank, in essence printing money. This has the effect of lowering interest rates and is the way that the federal reserve keeps their interest rate targets. Printing money leads to a larger money supply and eventually price inflation which makes the prices we pay for goods increase. All are worse off (long-run) when this happens.

Hope that provides a little primer for you on how the government gets its money.

Centralization of Government

I think a few words are needed about what I mean about centralization of government. Based on my observations, there are two kinds of centralization, administrative and governmental. Administrative centralization is the concentration of power to direct interests special to certain parts of the nation (like local projects, etc.). Governmental administration is the concentration of power to direct the enactment of general laws and other items common to all parts of the nation. The latter was very much in evidence when I wrote my treatise on Democracy in America and the former was almost non-existant as local administration (primarily at the township level) was the norm.

As I observe America today, more and more local administration is taken up at the state or federal level. This has the effect of causing indifference among the people and a reduction in patriotic sentiment. Although administrative centralization may be more efficient in some cases in the short-run, long-run, it erodes the national character and moral fiber of a nation. This leads many folks to idleness as they wait for 'government' to solve their (and the nation's) problems. I think we all can agree that this is occurring in our nation today. We just don't all agree on the cause. Hopefully, this post gives some "food for thought" on the cause. In my opinion, the chief cause is more administrative centralization at the state and federal levels.

Tempering the tyranny of the majority.

For my first post, I thought I'd revisit what I wrote in Democracy in America about administrative centralization (better yet, the lack of). In early America, one of the ways that the "tyranny of the majority" was tempered was the lack of administrative centralization. Most of the administration of government was done at the town level. This had the effect of limiting the most "advanced instruments of tyranny," i.e. central government administration of policies. I'll leave you to judge where we are now on the scale of local vs federal administration/control.