Tuesday, October 13, 2009

Mayor Dickert and the Money Cycle

I went to the Racine Taxpayers Association meeting today to listen to Mayor Dickert. It was a nice speech that didn't really cover much new territory, except it shed some light on how Mayor Dickert thinks about economics. Mayor Dickert spent a fair amount of time discussing the money cycle. It was a term that he didn't define but did describe in some detail. Faced with rising costs and a decrease in state shared revenue, Dickert asked aloud whether he should let some city employees go to shrink the deficit. No was the answer because of the high unemployment and the money cycle. If the city employee keeps his job, he will spend the money in local businesses, eat at local restaurants etc... which in turn allows the local business the keep their employees on board who will then in turn spend money in local businesses etc... and so on and so on. If the city employee is laid off, he will not be spending in local businesses that will in turn have less revenue and will perhaps have to lay off an employee who will then not spend in local businesses etc... and so on and so on.

It is certainly true that money is spent again and again and that people who don't have jobs will probably spend less money as they have less to spend. The problem I have with Dickert's money cycle theory is the implied importance of government jobs. Without the government job, the laid off city worker starts a downward spiral that affects local businesses and individuals. But you can think of the same phenomenon in an entirely different way. It takes money to employ a city worker. That money is taken from the profits resulting from private sector economic activity. The taxes required to pay for the salary, insurance and pension of city employees results in less money circulating in the private sector. With less money, individuals and businesses will spend less, hire less, eat less at local restaurants etc... with the same downward spiral described by Mayor Dickert.

So which is better, public sector spending or private sector spending? Generally speaking, money is better spent in the sector that creates wealth rather than the one that takes wealth. That would be the private sector. Private sector activity creates additional wealth which in turn will cycle in much the same way that Mayor Dickert described. The public sector squeezes money out of the private sector, thereby posing a threat to private sector wealth creation.

Now this is not an argument for anarchy. There is a need for a very limited government. Unneccessary government spending slows the spending cycle and wealth creation. I hope Mayor Dickert reads this post.


Dickert observer said...

I was at the same meeting. Economics is a complicated subject that most people do not understand (unfortunately) and neither does John Dickert, Racine's mayor.

I have been aware of this argument for some time now, but this is the first time I have heard it in public.

I will say this about Dickert: he is at least thinking—albeit incorrectly—but at least thinking.

His “cycle of money” theory with regards to getting rid of excess baggage in government sounds plausible and is difficult to disprove (with the exception of, “Well then why not just hire everybody?”).

But if you start your investigation with workers in the free market earn money through voluntary exchange, whereas people in government get money through forced extraction, and proceed from there, and be diligent about it, you will find the discrepancy.

Anonymous said...

He is clueless and anything he says that sounds like it makes sense is practiced.

Anonymous said...

Amongst Carthage, UMP, Gateway, and RUSD, isn't there someone who can set the Mayor straight on simple economics?
He should be ashamed of spouting his "money cycle" dribble.
In his 12hours/day he should find time to read, "Economics in One Lesson", by Hazlitt. It is not rocket science.

Downtown Brown said...

Based on that theory of economics. Every Realtor in town should increase the number of agents by 3-4 or even 5 fold. If there is lot's of people selling real estate, that means there will be lots of people to buy real estate.

Since our city population has shrunk over the past 20 years we shouldn't reduce our city or school staff's because we need to keep these people in there public "welfare" position otherwise they will move out of our city.

Caledonia Unplugged said...

I hope Mayor Dickert reads this post.

I hope quite a few more elected officials just than Mayor Dickert read this post! Thanks, Denis.

Anonymous said...

I doubt he will read this post. He and his secretary are off on a trip. How many is that since he was elected? Is he ever in town?

Anonymous said...

Aaaahhhhh, Aaaaahhhh!

Great Post Dennis. One of your best.

George said...

Great post Denis...here - here!!!