Imagine the government payed 10% of the population to dig holes and then fill them up again. Would that be bad?
Yes, of course .. but why? If you think that this would be bad because the private sector tax payers would lose lots of money for nothing, you're wrong.
What would happen if the government took the money it used to pay the diggers, doesn't pay them, and instead burned the money? Would that be bad? Well, as long as the central bank would print and properly distribute enough money to prevent a deflation, no. That wouldn't be a problem. Sure, most people would feel cheated if the government took their money and then burned it, but they would look into the money mirror; and this mirror is flawed.
What ultimately determines our welfare is not money, but which and how many goods and services are produced and how they are distributed. This is very important to understand. The money is just a tool we use to distribute the goods and services and to provide incentives to create those goods and services the people want.
If everybody payed 50% taxes and then the money would get burned, we would all have 50% less money, which is why prices would be half as high and everybody would do just the same thing he did now. Goods and services were produced and distributed the same way.
In fact, some years ago the German government did exactly that. It ordered by law that everybody would have to (roughly) cut his prices and wages in half and then call his money 'Euro' from now on. If it had been practicable, the government could just as well have taxed the other half of our money away, burned it, and then ordered us to call the rest 'Euro'. It wouldn't have made a difference!
On the other hand, if the government didn't do anything, but some aliens used a mind-control device to make 10% of the population dig holes and then fill them up again, and if the aliens then made the rest of us offer them goods and services for free, that would be very bad - for everybody. (Except for, maybe, the aliens - who knows :).
The point is: money itself doesn't matter. What matters is its effect on the creation of goods and services and their distribution.
Today I read an article in a big German newspaper about how we all need to save more so that we have enough money when we are old. This makes perfect sense for each individual. But it doesn't necessarily make sense for a society! Here's the reason.
How many goods and services we will be able to ask for when we are old is determined by how many of those goods and services, which we want when we are old, are available when we are old. Now, the supply of those goods and services is determined by how attractive the wages of the people supplying these goods and services are when we are old. But, in Germany, these wages are kept artificially low by laws and regulations.
The politicians look into the money mirror and think that if the wages of carers for the elderly are low, they are easier to finance. But the only thing this will lead to, is not enough people working as carers for the elderly. And it doesn't matter how easy they are to finance: if there are not enough carers for the elderly, there aren't enough !
If lots of people take their money and save it now, this means that they supply goods and services to the rest of society, but don't consume as much as they give away. These savings, in Germany, go to investors who produce goods and services for people outside of Germany; that's exports. The flip side is that Germany, as a whole, in the future owns claims against the citizen of other nations. When we are old we can then use these claims to request goods and services from them (if they haven't gone bankrupt), so that we are able to employ more of the young German citizen as carers for the elderly and have other nations' citizen produce the cars we drive. But this will only work if the wages of carers for the elderly rise. It is the only way (except for force) to attract more young people to be a carer for the elderly.
There's another problem with saving money. How much goods and services of other currency zones our money buys is determined by the exchange rate. If, in the future, there's suddenly much more Euros, but the same (or even less) number of goods and services that can be bought with these Euros, the exchange rate will suffer. Our Euros will buy less goods and services. The same is true inside a currency zone. If, when we are old, there's suddenly more money around because old people access their savings, this only causes inflation.
Saving the money and then throwing it at the market when we are old makes sense for the individual, but not necessarily as a society.
The lesson is: don't look at the money, but look at what it does!
Do private sector employees have less money because public sector employees receive it? Yes. Do private sector employees enjoy less prosperity because public sector employees receive part of their money? Not necessarily.
It is true that the private sector is forced to pay taxes to finance the public sector. But this doesn't mean that without these payments the private sector would be better off. Don't look at the money! Instead, look at which and how many goods and services are created and how they are distributed with the help of our financial system!
If public sector servants produce useful stuff and if this stuff is distributed well, their work is just as valuable as if private sector citizen produce useful stuff and if this stuff is distributed well. The flow of money is often enlightening but, ultimately, it is always irrelevant. What matters is .. well I hope you could finish this sentence by now ...