A nice, long Sunday thread about the importance of profit and loss and why all government spending is dubious at best.

Entrepreneurs seek profit and avoid losses for obvious reasons. Profits allow entrepreneurs to buy more consumption goods and more factors of production, depending on their preferences and anticipations.
Losses hurt because it means entrepreneurs have lost the ability to buy...

the things that satisfy their wants and needs, and large losses may remove the entrepreneurs’ ability to continue production entirely.
The essential calculation is revenue minus cost. If revenues exceed costs, it means the entrepreneur has succeeded in acquiring more money.

If costs exceed revenues, it means the entrepreneur has failed – has lost money.
So, “more money = I can buy more stuff” explains the entrepreneur’s desire for profits and aversion to losses. But what does profit mean for everybody else? What do losses mean?

Consider those two variables: revenues and costs. Revenue = price times quantity. Consumers decide revenues for the producers of final consumer goods. Consumers pay prices they are willing to pay for a quantity they are willing to acquire, and this decision carries an ...

opportunity cost. The opportunity cost is what the consumers would have bought if they didn’t buy the goods they did.
This means that firm revenues indicate something meaningful: consumers are willing to buy this good over all other possibilities.

Costs are also price times quantity. This time, the quanitities are the amount of factors of production used to make the firm’s output and the prices are the prices of those factors. Entrepreneurs will buy the factors of production they need to produce something they think ...

they can sell for a profit.
The prices of factors of production are based on what all the entrepreneurs think is the most profitable use of the factor of production.

For one entrepreneur to acquire a factor from another entrepreneur, the buying entrepreneur must have a higher anticipated profit use for that factor compared to the seller and all other potential buyers.

Therefore costs are meaningful too. The costs of production indicate the anticipated value of some productive factor in terms of its ability to turn out consumer goods that consumers want.

Combining the meaning of revenue and the meaning of cost, we can formulate the meaning of profit. Profit indicates that entrepreneurs correctly forecasted consumer demands and met them by using factors of production in the least wasteful way possible.

Profit means that the entrepreneur converted stuff with lower value to all other buyers into something of higher value in the minds of consumers.
Government spending, however, has no such meaning.

There is no way to know if what the government is doing is socially beneficial like we can with firms on the market.
No matter how funds are raised by the government (income tax, flat tax, sales tax, progressive income tax, inflation, etc.), it cannot be compared to ...

firm revenues because the funds are taken coercively and not in proportion to any alleged services received by the government.

Government spending also has no limiting factor. Entrepreneurs are limited by their own ability to pay and their willingness to pay is limited by the anticipated revenues from selling output.

What is the upper limit on what the government is willing to pay for anything? The answer can only be phrased in a way that refers to a vague moral duty to be good stewards of tax money, or (more practically) based on what will garner votes or indirect income (corruption) for ...

the spending politician.
We should focus on this aspect of government spending more than the particulars of how funds are raised. No matter what tax plan is, or how much debt is issued in relation to tax revenue, government spending has no feedback mechanism.

At best, resources are somewhat wasted by government. At worst, they are used to aggress upon private citizens. There is no measure, however, that would allow us to say that the government is economizing resources like we know would happen in an unhampered market economy.