noemon wrote:The public sector bonus is a way to redistribute money in an economy and it is also subject to the law of diminishing returns.
Rich countries form large public sectors as a consequence of becoming rich. Not prior I believe. Cheap money allowed booty-less countries to form large public sectors until interest caught up with them.
While poor countries often can't afford a large public sector, the example of Japan is instructive.
At the time of the Meiji Restoration, Japan was a poor, stagnant, feudal backwater with almost no public sector. Tax revenue was tiny and land rents were devoted to the samurai landowners' personal luxury consumption and maintenance of their own private armies of retainers, construction of fortifications, etc. The new Meiji government taxed away most of the land rents and spent the money on infrastructure projects, education, and creation of a modern national citizen army and navy on the Western model. The samurai did not like losing the land rent, and thought that they would easily be able to handle the new citizen army of "peasants." They rose in armed rebellion against the Meiji government, and were duly annihilated.
In a single generation
, and from a standing start, diversion of land rent from parasitic private
landowners to public
purposes and benefit turned Japan into a modern industrial, economic and military power that was able to defeat first China and then Russia in war. If the strong and highly capable Meiji emperor had not been succeeded by his mentally deficient son, whose weakness allowed the fascists to take power with disastrous consequences, Japan might have eclipsed the old European powers economically after WW I and mounted a strong challenge to the USA.
In today's world even the opportunity for plunder has been diminished, along with the opportunity to make an honest living with an honest day's work.
The plunder just takes a different form. Consider how Western -- especially US -- banks have used debt to gain ownership of poor countries' natural resources and public infrastructure.