Resource Allocation
Resources are always limited, so they have to be allocated properly in order for prosperity to grow. Otherwise, prosperity diminishes and the standard of living drops until more and more people are living in poverty and strife. The 2 main ways to allocate resources are
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(A) through the markets
and
(B) through a top-down, centralized, bureaucratic process--where a panel of elites, who may be a thousand miles away, makes most of your economic decisions for you
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When individuals are free to transact with others to mutual benefit, by adjusting their use and disposal of resources according to their current and local circumstances, waste is minimized and the stock of usable resources continues to grow.
But as a greater fraction of all resource allocation is performed by a centralized panel of bureaucratic elites, more and more resources get wasted, until the economy stagnates and the standard of living begins to fall.
In 1929, the federal government (1) was spending under 3% of GDP (2) and the state and local governments (3) were spending just over 5% of GDP--so that total government spending was only 8% of GDP and 92% of the resources were being allocated through the markets.
Proponents of central planning often argue that the multi-year Great Depression (the protracted recovery after a crash in the stock market) was evidence that we need more centralization of resource allocation, and that it is just too dangerous to leave resource allocation up to the markets.
But this argument ignores the evidence of the even steeper depression of 1920-21, when we recovered in less than 2 years time, merely by allowing the markets to readjust.
In fact, all previous recoveries in history occurred in less than 2 years time. The only times it takes us more than 2 years to recover, are those times when government intervenes and tries to centralize resource allocation.
The protracted recovery of the Great Depression then, is actually evidence against centralization.
We recently went through the Great Recession, another multi-year stagnation which held our living standards down. It turns out we repeated the mistakes of the Great Depression, and centralized even more resource allocation, creating an unprecedented waste of US resources.
The current fraction of all spending controlled by the federal government is around 22% of GDP, and the fraction of all spending controlled by the state and local governments is around 15% of GDP--so that government is allocating 37% of the resources in a wasteful, centralized, bureaucratic fashion.
What we need today in order to ensure a financial future in this country is to return resource allocation back to the people, who will then be allowed to individually adjust to their local circumstances and minimize the waste and maximize the growth.
If we don't reverse the trend toward central planning, then our own generation, as well as the generation of our children, will suffer in protracted squalor and national bankruptcy.
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Reference
(1) U.S. Bureau of Economic Analysis, Federal Government Current Expenditures [AFEXPND], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/AFEXPND, October 19, 2018.
(2) U.S. Bureau of Economic Analysis, Gross Domestic Product [GDPA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/GDPA, October 19, 2018.
(3) U.S. Bureau of Economic Analysis, State and Local Government Current Expenditures [ASLEXPND], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/ASLEXPND, October 19, 2018.
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