With Government, Less Is More

Any true commitment to economic growth must start with humility from the state.

Photo by Charles Forerunner on Unsplash

All over the world, governments speak of growing the economy. They display statistics. They build roads, bridges, schools, and call it progress. They enact regulations, collect taxes, and redistribute resources, all in the name of development. But what truly makes wealth? The answer cannot be found in bureaucrats reallocating other people’s savings. True economic growth is a private affair: it arises when individuals save, invest, produce goods and services, and voluntarily exchange them.

The common measure of growth - gross domestic product (GDP) - fails to distinguish wealth-creating activity from mere redistribution. When the state taxes citizens and spends the proceeds, it is simply shifting resources from some hands to others. That amount of spending may show up in GDP statistics, but it does not represent a net increase in real wealth. Building a bridge or a highway by taxed resources does not create new goods or services; it only moves resources around. If I take money from you and use it to build something for someone else, I haven’t increased humanity’s productive capacity; I have only reshuffled existing resources.

Governments often treat economic growth as a problem that can be solved by more spending, more regulation, or more monetary manipulation. That approach misunderstands the true source of prosperity. When the state invests, it does not mobilise latent savings; it expropriates them. When it expands the money supply, it dilutes the value of existing money and misleads people into thinking economic activity is rising, even when nothing real has improved.

A better path is counterintuitive for many: the state should step back. It should create room for individuals and businesses to save, take risks, borrow, lend, produce, without the burden of arbitrary spending, regulation, or enforced redistribution.

History offers concrete lessons. Take, for instance, the perverse consequences of rent control. In many places governments cap rents to make housing more affordable. This well-intentioned intervention typically reduces landlords’ incentives to maintain their properties or build new ones. Studies show that rent-controlled units tend to deteriorate; in the United States, nearly 29 percent of rent-controlled housing was reported to be dilapidated, compared with only 8 percent in uncontrolled housing^[i].

Once profits from rent are artificially suppressed, owners often convert rental units into owner-occupied apartments or sell them altogether, shrinking the rental housing stock. In one well-documented case, the removal of rent controls in a city led to a property-value increase of two billion dollars over a decade, a signal that rent regulation had earlier suppressed true value and clogged the market^[ii].

What was meant to help the poor ended up reducing the supply of affordable housing, degrading quality, creating waiting lists, black-market deals, and crowding in segments exempt from regulation^[iii].

Similar lessons unfold in agriculture, where governments often subsidise farmers, inputs, and production to “support” the sector. According to a recent report by Organisation for Economic Co-operation and Development, governments worldwide provide hundreds of billions of dollars annually in subsidies, including input subsidies and price supports that distort markets^[iv].

These subsidies do not necessarily raise agricultural productivity. In many cases, subsidised inputs merely substitute inputs that would have been used anyway, meaning the subsidy does not add production, it only shifts incentives

Moreover, such distortions often benefit large agribusiness at the expense of small farmers. What begins as a policy to stabilise farming income quickly becomes a system of rent seeking and inefficiency

In the financial sector the lesson is no different. Governments have repeatedly bailed out collapsing banks and large institutions, often arguing that failure would bring systemic collapse. But these bailouts engender moral hazard: firms learn that bad risks may be rewarded rather than punished, which encourages reckless behaviour. A recent study of bailout policies across emerging economies since the early 1990s confirms that recurrent bailouts exacerbate moral hazard and undermine long-term financial stability^[v].

Even when financial crises are contained, bailouts distort corporate governance. Decisions about stewardship of corporations are shifted from market actors to regulators, often guided more by political pressures than by efficient use of resources

These examples share a pattern. Government interventions, whether in housing, agriculture, banking, or infrastructure, rarely produce net growth. Instead, they shift resources, distort incentives, and reduce the natural, voluntary genesis of wealth.

Prosperity is not created by government fiat. It springs from the tacit knowledge of individuals: what to build, how to build it, for whom, and when. Central planning, regulation, and forced redistribution can never substitute for this dispersed, decentralised intelligence.

Any true commitment to economic growth must start with humility from the state. The government should stop trying to “make growth happen” by spending more or controlling more. Instead, it should preserve the conditions for savings and investment, protect property rights, allow free exchange, and refrain from punishing success or subsidizing failure.

When the state gets out of the way, individuals and businesses will spontaneously deploy capital, create goods and services, build infrastructure, not because of government edict, but because of profit, need, foresight, risk, and entrepreneurial imagination.

Econ Bro (@EconBreau and @EconBreau2 on Twitter/X) is a Nigerian Austrolibertarian economist and an apprentice at the Mises Institute. Under the organisation name “The Freedom Institute” he teaches individual liberty, personal responsibility, private property rights, free markets, and sound money to mostly young people across Nigeria. Econ Bro is an Associate of the Free Market Foundation.

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[i] https://www.econlib.org/library/Enc/RentControl.html

[ii] https://www.brookings.edu/articles/what-does-economic-evidence-tell-us-about-the-effects-of-rent-control/

[iii] https://fee.org/articles/rent-controls-a-well-intentioned-disaster/

[iv] https://www.oecd.org/en/topics/subsidies-and-government-support.html

[v] https://www.mdpi.com/1911-8074/18/2/101