What Bernie Sanders Gets Right

I came across this post today on Facebook:

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I’d like to applaud Bernie for this moment of economic clarity (at least in the first sentence; I object to the idea that allowing an organization to keep more of its earned money is a cost, but that’s a discussion for another time).  What he is discussing here is a concept known as “opportunity cost” in economics.  Opportunity cost is exactly what is listed here: every time you spend a resource or cash, it means there are now fewer resources/cash to spend elsewhere.

Governments, like individuals, firms, and other organizations, face the problem of scarce resources.  In other words, there simply are not enough resources to satisfy all demands.  If a government spends resources on war, it means there are fewer resources to spend on education or the judicial system.  If a government spends resources on health care, it means there are fewer resources to spend on roads and bridges.  If a government spends resources on green energy, it means there are fewer to spend on law enforcement.

Government’s ability to raise funds via taxation is limited (Tax receipts as a percentage of GDP remain remarkably sable: around 19%, see Table 1.3).  When someone running for office (or currently holding office) makes a promise that the government should provide something, remember to ask the important question: “where are the resources coming from?”

5 thoughts on “What Bernie Sanders Gets Right

  1. Jon, I’m not totally convinced governments are constrained (if that’s the right word) by opportunity costs.

    Maybe they are on the local level, but I’m not aware of any federal government decisions where they’ve said, “OK, we spent this much money on this, therefore we can’t spend money on that.” That’s how the private sector works, not the public sector. The idea that the government can’t or won’t spend more on healthcare because it is spending too much on war seems like a false dichotomy to me.

    If I remember correctly, Tom Woods speaks about this issue here:

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    • And just to clarify, of course you are totally correct that there is a limited amount of tax revenue to go around… But as we know, the government finds many other ways to spend money outside of this revenue. I think that’s why their “opportunity costs” aren’t really the same as in the private sector.

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      • No, they still face the same issues. It’s partly why they fail so often: too few resources spread over too many projects.

        Remember that money is not a resource, but just a method of obtaining them. Resources are land, labor, capital. The government only has so much labor, so many regulators, so much time in a day.

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