Value added and public spending

The video is on Value Added – which I did many years ago as part of my economics course. Much too long to watch, but it’s there if you are interested. Alas, value added is virtually no longer even mentioned inside an economics course, and even when it is it is never dwelt upon.

This mishmash is how value added is defined at Google. This is about as close to what you might get in an economics course today, and then only if they are discussing the National Accounts. It’s never mentioned as part of macro generally.

1. the amount by which the value of an article is increased at each stage of its production, exclusive of initial costs. “the proportions of both total output and value added fell”

2. the addition of features to a basic line or model for which the buyer is prepared to pay extra. “value-added digital technology”

Value added was once properly understood as the difference between the cost of the resources used up in some production process and the revenue stream generated by selling the products that have been produced. It was about creating economic growth and higher living standards. Government spending is almost never value adding, and I include the word “almost” since occasionally, very occasionally, governments actually create more value then they use up. There is no such government anywhere in the world today.

I am reminded of all of this by the release of the Victorian budget and the shamelessly shallow response in the media. Treasurer goes all in on the Robin Hood approach to funding.

If you ever needed proof of how confident the Andrews government is of winning the next election, look no further than Thursday’s budget.

Handing down his seventh budget, Treasurer Tim Pallas resembled Robin Hood as he hit developers, big business and affluent home buyers with higher taxes to fund billions of dollars in spending on mental health, hospitals and schools.

Boosting taxes is rarely popular at the ballot box. But next year, the state government’s tax revenue will increase 13.2 per cent, with an average annual increase of 6.9 per cent over four years.

Justifying the tax grab, Mr Pallas said he was simply asking Victorians who had done well out of the pandemic – successful businesses and those lucky enough to hold on to their jobs – to help those who had suffered the most. It’s a strong argument.

This was once known as eating one’s seed corn. This is entirely using up your capital base with no replacement in sight. This has gone even beyond Keynesian moonshine, where they used to pretend that the problem they were solving was caused by too much saving. I guarantee you Australians are not saving too much, nor is anyone else. Now it is just spending for spending sake.

And let me thank Rodney for finding this video and alerting me to its existence on Youtube.

2 thoughts on “Value added and public spending

  1. Pingback: Value added and public spending - The Rabbit Hole

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