The Hidden Effects of Government Spending

Over the weekend, Fired Up! Missouri offered a succinct comparison:

Here is a case study in priorities.

There are 121,000 kids without health insurance in Missouri.

And Matt Blunt and Peter Kinder are spending $1 million dollars on… a bike race.

Of course, I agree that health care is a critical priority for the Missouri government — even though Fired Up! is unlikely to agree with me that the best way to get people the care they actually need is through providing tax incentives for individual policies and eliminating red tape that gums up the workings of the market.

Fired Up! is right on the money, though, that a bike race is a ridiculous government expenditure. There may be many good reasons for a prominent race in Missouri — prestige, tourism, competition with neighboring states — but, as economist Frédéric Bastiat would have pointed out, every action has both effects that are obvious and effects that are hidden. An exciting race is an effect that we can see, but every dollar taken from taxpayers to spend on a bicycle race is a dollar that can’t go toward filling up a gas tank, buying groceries, taking a child to piano lessons, or, say, buying a bicycle — all effects that we can’t see.

Thanks to the diffuse costs and concentrated benefits of special interest politics, these hidden effects go almost entirely unnoticed by the general public. But a $1 million expenditure that seems measly in political terms is actually a huge aggregate amount, sucked from the economy and redistributed to politically favored recipients. Frankly, a state-sponsored bicycle race is a bad idea for the same reason that HB 327 was a bad idea — government spending on favored economic ventures makes everybody else a little bit poorer.