Why more is not always better: potholes and economic growth

More economic output is not always a good thing. This will come as no surprise to many from the green wing of politics, but it is often easy to forget that increased private sector activity may not be associated with increased economic and social welfare. Under capitalism, many of us, including economists, can forget that continued economic growth, punctuated by booms and recessions, is a relatively recent phenomenon in world history. It has not always been with us, and who is to say that it always will be?

As an example of rising private sector output and income resulting from damage, a simple example, relevant to current drivers all over the UK, is the phenomenon of potholes. The latter is a serious problem on many roads after a considerable period of neglect.

Central government recently allocated extra money to local councils for repair to potholes. Whether or not it will be enough remains to be seen.

If potholes are sufficiently deep and numerous, they have the potential to cause damage to some vehicles, which will itself need repair. A replacement wheel requires private spending and contributes to the incomes of a private firm. This will show up in the economic statistics as added value and ultimately as part of economic growth. But apart from any small benefits accruing from an improved quality of wheel, it is clear that welfare has not been improved. In this way, insufficient taxation and spending on the part of government, whether central or local, has led to a greater level of GDP, or private sector output.

Other examples of this idea include higher pollution levels from firms increasing their output which, if cleaned up by another private firm, will contribute to recorded growth. Alternatively, private sector healthcare providers have an incentive to sell unnecessary or excessive treatments to ‘consumers’ who lack sufficient information to make the best choice.

These examples and others make the case for public provision of particular goods and services in a capitalist economy and the regulation of private sector activity. It is easy to complain about the ‘costs of government’, and public activity can be wasteful too, but in a democratic society it is surely at best an unalloyed good, or a necessary evil.

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One thought on “Why more is not always better: potholes and economic growth

  1. I agree with your general conclusion that public spending is important and that a good society cannot do without it.

    You will probably not disagree when I add that the public purse can count itself lucky to be able to spend its money on the products and services of private companies rather than exclusively on its own agencies as used to be the case in the socialist world.

    Potholes happen everywhere. They tend to be less of a problem when government is able to employ firms from a vibrant private sector.

    To the extent that potholes are a serious problem rather than a passing nuisance, it would appear to me that government is not doing its job properly – which might include collusion with corporate buddies. (I sometimes wonder why it is that so little progress is being made in producing materials that make for streets without potholes.)

    While the belief in laissez faire is untenable, it is no less problematic to absolve the public purse from commanding a huge potential to harm the economy, such as spending massive amounts of money on ruining a country’s energy industry, as appears to be happening in Germany from where I write.

    Among the things I appreciate in J.M. Keynes: unlike his detractors (often laissez faire fans) and his zealous adepts (often fervent anti-capitalists), he does not tend to favour one side of the mixed economy’s equation at the expense of the other.

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