What is waste exactly? Waste in this context happens whenever someone who could be doing something productive, ends up doing something non-productive instead. Waste results in wealth that’s taken out of the economy, and consequently, everyone suffers as goods and services become less abundant.

How is wealth taken out of the economy? Let me illustrate with a silly but effective example:

Suppose we have country with a very simple one-product economy consisting of 100 loaves of bread produced and consumed daily, costing $1 each, with $100 in total circulation. One day some politicians come along and decide that the bread making industry is just too crucial to leave to the whims of the free market, and decide to nationalize it, i.e. take it over. But now, since the government is bad at running an industry efficiently, only 50 loaves of bread are getting produced each day. With $100 in total circulation it means that now each loaf costs $2 instead of just $1. So every dollar bill can now buy exactly half of what it could before.

Do you think this scenario is far fetched? Except for the one product economy, it has all transpired before in the Soviet Block. Many Soviet Block nations had full employment. Everybody worked and had a job. But nonetheless, people were literally starving. How could that be? It’s because the government-run industries lacked the efficiencies and innovation of the free market. Full employment is useless if things are so inefficient that barely the life’s necessities are being produced.

The End Result of Government Waste

This is how it plays out:

Taxes -> Money Goes to Government -> Waste -> Less Production -> Everyone Has Less

Notice that I didn’t just write “The Rich Have Less”. Ah, yes, government waste is one reason why when the rich are taxed, everyone ends up with less, as in:

Taxes (On the Rich or Anyone Else) -> Everyone Has Less

For more on the subject of government waste, read this excerpt from Milton Friedman’s book, Free to Choose.