A short primer on where governments spend their money (received from taxes, service fees, etc.):
In 2021, the US federal govt collected $4.05 trillion in revenue (and spent about $6.82 trillion… yup. The ‘deficit’ is usually covered by debt, or sources such as operating cash.)
What’s the expenditure for?
Theoretically, govt is supposed to do primarily three things — defend territory (contemporarily called ‘national security’), maintain order in it (law enforcement), and improve well-being of subjects (generate public goods/services). The ‘form’ of govt varies among monarchy, aristocracy, and democracy, but let’s keep that aside. The bulk of the govt money usually goes in that last category — delivering public goods/services.
What’s a public good?
Definition is imperfect. Roughly, a public good satisfies two criteria: (a) my consumption should not diminish your ability to consume it [consider music-on-FM-radio vs a-bowl-of-rice]; and (b) no one can be ‘prevented’ from consuming it [consider streetlights vs my-garden]. Markets cannot deliver public goods efficiently mainly because of free-rider problem: if Escobar cleans the river water, Ahmad pays him per use, while Bianca doesn’t (while remaining able to consume, and, err, in no way being prevented from consuming).
Govts supposedly come in when there is a ‘markets failure’ (in an ideal world). They spend money on public goods: no-toll roads, cleanliness in cities, education and research, public health… (yes, applying the two basic criteria doesn’t remain black and white for complex goods).
That $6.82 trillion spend of federal govt? Here is the money trail: https://lnkd.in/eMzMtnnY
Beyond this point of naïve simplicity, things get complicated. Very. Here are some interesting questions I shall leave you with –
1. An implicit assumption above was the word ‘good’ in govt’s expenditure, i.e. on things that are ‘desirable’ and make everyone (most?) better off. How about expenditure on building statues and places of worship? Providing access to reproductive rights?
2. Humans usually know their preference, and govt policy (‘public policy’) should be grounded in people’s preferences. How about uninformed preferences? How much should govt spend on policing when people prefer gun ownership?
3. Govts can get paternalistic. That is, state might exert control on subjects motivated by a claim that the person interfered with will be better off or protected from harm. How about govt spending money on enforcing a liquor ban (and more money to sanction violence on those who defy)?
4. Govts can spend on club goods, which directly benefit only a few. How about money spent on space exploration? Developing a special economic zone? Airline connectivity?