The announcement last week that we are
going to close more military bases in the coming years means we are
going to have an economic boom as a result. Closing military bases
increases efficiency and can result in lower military outlays.
Most people don't know that a major
component of the 1990s boom was the closure of military bases. The
reason is straight-forward. A dollar spent by the government has a
very low multiplier compared to a fresh dollar spent in the market
economy. That means the economy will grow faster in the coming years.
A dollar spent by the government, of
any sort (education, research, military, forest fires) has a low
multiplier because it was originally taken away from someone in the
form of taxes. The taxpayer is more efficient in spending than the
government, a priori.
On the other hand the expenditure of a
dollar in the market, that wasn't forcibly taken away from someone
else (burglary, theft) will generate new growth in the economy. The
new dollar is created when a new consumer need is discovered or a new
way to reduce costs is introduced. The first gives people a new
reason to work harder and better the second reduces the costs of
producing what we already produce.
Admittedly the government can generate output that has both of these effects, but much less government spending is directed toward increasing demand or reducing costs.
Sunny economic prospects ahead. Thanks Rummy.