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When governments spend big, taxpayers do not

The grand projects are in full flow, and the media applaud enthusiastically. A new railway, laptops for the children, roads for the counties, WiFi for the towns. All of this is described as largesse, generosity on the part of enlightened government, freebies from our favoured development partners. The money is flowing, and boom times are coming. This is not unique to the current government; all our governments like to think of development as spending, and spending that is somehow a ‘gift’ to the people…

Let me take you back to an essay written many years ago by one Frédéric Bastiat, a political economist who laid some of the early foundations for the Austrian school of economic thought. He penned “The Parable of the Broken Window,” which asks us to observe what is not seen in economic life, not just what is seen.

Imagine a shopkeeper’s window is broken by some careless shopper. The angry shopkeeper immediately has to cough up a few thousand shillings to replace the window. A glazier duly arrives to do the work, and is paid. This is a good thing, right? The shopkeeper has his window back; the window man goes home with money he did not have before, which he will now spend on something else; the economy is stimulated. So what’s the problem here?

The problem lies in what is not seen. The window is seen; the money in the glazier’s pocket is seen. What’s missing is the expenditure that never happened. The thousands of shillings spent on the window is what the shopkeeper was about to spend on shoes for his children. The children will now not get new shoes; and the shoemaker will lose a sale.

It sounds simple enough, but Bastiat’s intention was not to discuss shopkeepers – it was to attack the prevailing ignorance in government circles regarding public spending. More than a century later, governments still get carried away when describing the benefits of what they are about to spend on. Every project will stimulate the economy in some way; incomes will be created; spending will flow.

The fallacy, of course, is this, in Bastiat’s words: “Do millions of francs descend on a moonbeam into the (public) coffers?” Why do we always rejoice over the disbursement of funds, rather than discuss their collection? The billions and billions of shillings that are about to flow through our economy are not arriving from nowhere: they are coming from the pockets of taxpayers. Those taxpayers will now have less money to spend on things of their choice.

To clarify: I have no problem with public projects that are necessary and that will generate a collective economic return. But we must not rush into every huge spending spree imagining it’s all ‘free’ money. There is an opportunity cost to every investment made; there is something left not done every time we spend money. It’s never a win-win.

The bigger problem is where all this money goes. Projects that enrich a few fat-cats while purporting to boost the economy should be questioned. Spending that adds pomp and splendour to the lives of public officials is especially egregious. In Kenya today, we have every other governor trying to become a mini-president, complete with all the trappings of royalty, funded by additional taxes on every imaginable thing.

This was true in Bastiat’s time as well, when the holders of public office would argue that their positions came with a certain esteem and prestige, and must be seen to be elevated. In today’s Kenya we seem to think that spending on cars and offices and mansions and furnishings and security is a good thing, as it stimulates many an industry…

We’re back at that window, you see. The taxpayer is being asked to fork out more and more, to support the projects and accoutrements of officialdom. Remember, please, what is not seen: the missing school fees, medicines, or even entertainment that so many are asked to forgo. Public money must be spent only on what is truly necessary, and on what is good for everyone.

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