The Biggest Engine of Economic Growth? 8 Ways Taxpayers and the Government Are Necessary to Capitalism

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5.  Massive Purchasing That Supports Businesses

Massive amounts of military and government purchasing account for a significant component of large and small business in production and service sectors. This happens at all levels -- from federal to local, from schools to fire departments. For example, Starbucks is a significant recipient of military contracts. Such purchasing is the very essence of "pork barrel" economy.

6.  The Infrastructure in Which Everything Operates

At least since Alexander Hamilton’s plan for the Erie Canal, government has been key to the creation of national infrastructure. This is true for rail, road, sea and air travel. National electric power, too, is the result of government’s role via coal and gas subsidies, dam design and construction. Through such investment, government actually created commercial markets that didn’t otherwise exist. This huge order of spending virtually built whole states (e.g. Texas) where public investment and planning triggered modern growth. 

7. The Labor Pool: Preparing Employees for the Private Sector

Labor rules are designed for the generation of an effective workforce. So are laws enacted to directly shape the character and timing of workforce availability. The GI Bill following WWII and including both Korea and Vietnam wars re-integrated some 3-4 million workers into the economy. Through subsidized university tuition payments and mortgages, both the real estate and higher education sectors grew exponentially as part of the socio-economy. Similarly, through both foreign and domestic trade policies: e.g. NAFTA, immigration law and foreign aid, government expenditures all directly impact private sector annual and seasonal labor flow, capital markets, and profits. 

8.  Stimulus for Just About Everything

Government provides stimulus to for-profit enterprise via tax codes, tax subsidies exemptions and the application and/or release of fiscal and monetary controls. Government loan guarantees for deposit bank accounts are central to American fiscal health; the FDIC insurance program has freed banks to invest with the public as the creditor of last result. Currently, tax abatements are used to entice business and to attract it to particular locations. The film industry receives major abatements for bringing filmmaking to particular states. In some instances, the value of this allowance reaches 42 percent of the overall production costs of a movie. The rationale for these tax credits is that jobs will be developed locally.

9. Direct Investment in the Creation of Key Innovations 

This is perhaps the most unseen of government’s functions. As a silent partner, government brought massive capital investment to the advancement of technological research and development with no return on investment beyond tax revenue growth to capture it. Phone, radio, TV, computers, the satellite system, nylon (invented in place of silk as war with Japan loomed), Velcro, and breakthrough drugs were all the result of intense public investment in university and corporate research and development.

R +D is a key aspect from this sphere of activity. Most recently and quite typical is the long-term government investment in drilling technologies, 3-D imagining and geological mapping. All have now been given over to the private profit through fracking to produce natural gas.   

So government, then and now, serves as a venture capitalist. But the government does not get a return on investment or equity stake—the very conditions Warren Buffet required for his “bail out” investment in Goldman Sachs. (TARP is actually the first government investment to return any interest on investment at all; but of course, with no equity stake.) Further, public debt itself, while a mind-boggling size, actually adds enormous profit to the lenders— many of whom also benefit in the current crisis climate from Federal Reserve no interest loans, which were used for relending at a profit.