Government spending doesn’t buy happiness

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Appeared in the Toronto Sun, September 6, 2023
Government spending doesn’t buy happiness

Whether or not money buys happiness has long been disputed, but whether government money buys happiness needs not be asked—it clearly does not. In fact, as Milton Friedman once wrote, often government spending does not even result in more of whatever the spending is meant to produce. His example—in California, government spending on higher education was among the highest in the United States, but California’s quality and quantity of education was vastly inferior.

Today in Canada we find many similar cases including the health-care system, which unlike in other developed countries with universal health care does not allow private insurance markets or out-of-pocket payments for medically necessary services.

Compared to 29 peer countries, after adjusting for the age of the population, Canada ranks highest on health-care spending as a percentage of GDP and eighth-highest on spending per person. But on doctors per person (28th out of 30), hospital beds per person (23rd out of 28) and wait times for specialists (10th out of 10), Canada performs poorly.

Child care is another example. The Trudeau government has budgeted almost $36 billion in child-care spending over five years, but this is unlikely to result in more child care. Both before and after this federal spending explosion, children were cared for—the government program simply shifted the form of care away from parents’ preference (what they would have chosen in a free market without a government distortion) and towards the government-preferred, government-subsidized option.

This distortion and expansion of government control has thrown the child-care sector into crisis from coast to coast. To make matters worse, much of the money said to be for caring for children will likely end up funding bureaucratic expansion instead of providing actual child care.

Finally, consider federal, provincial and municipal government spending on business subsidies, totalling more than $350 billion from 2007 to 2019 (after adjusting for inflation but excluding tax expenditures, loan guarantees, direct investment and regulatory privileges). Politicians handing out this money like to say they’re creating good jobs and improving economic growth, but scant evidence for such claims.

This is not surprising. It would indeed be unrealistic to think politicians—who did not earn the money, to whom the money does not belong, who are not financially rewarded if they invest wisely and pay no price for wasting the money—would spend $350 billion better than the people who earned the money and whose livelihoods depend on investing it wisely.

Far from increasing economic growth, business subsidies discourage productive activity through taxation, shift capital to relatively unproductive uses, and encourage businesses to dedicate resources to chasing public money instead of producing valuable goods and services.

We see the same trend of more government spending but worse results in other areas. Over the past two decades, public school spending in Canada has gone up. Meanwhile, test scores in reading, mathematics and science have trended steadily down, suggesting that more government spending on education does not necessarily lead to better education.

Thus whether in education, health care, child care, the business sector and many other areas, it’s abundantly clear government money does not buy happiness. On the contrary, leaving more money in the hands of individuals by cutting government spending may well make many people happy.

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