Government spending does not create economic growth. Regrettably, many in Congress, Republicans and Democrats alike, have ignored this fact. Just today, Senator Judd Gregg (R-NH), declared in his Wall Street Journal op-ed How to Make Sure the Stimulus Works that, “it is fairly obvious that serious deficit spending is needed immediately.” While his four rules for an effective stimulus bill are generally correct, government spending does not lead to economic growth.
This notion is grounded in the outdated and often disproved Keynesian economic theory that more government spending invariably increases economic growth. Thus, the more the government spends the better. This ignores the fact that every dollar that Congress “injects” into the economy must first be taxed or borrowed out of the economy. Therefore, government spending merely redistributes money from one part of the economy to another.
In reality, economic growth – the act of producing more goods and services – can be accomplished only by making American workers more productive. So the best measure of a policy’s impact on economic growth is through productivity rates.
Numerous academic studies have shown that government spending often does not increase productivity rates and therefore is not correlated with economic growth due to:
Taxes. Government spending is financed by taxes, and high tax rates reduce incentives to work, save, and invest.
Incentives. Social spending often reduces incentives for productivity by subsidizing leisure and unemployment.
Displacement. Every dollar spent by politicians means one dollar less to be allocated based on market forces. Rather than allowing the market to allocate investments, politicians seize that money and earmark it for favored organizations.
Inefficiencies. Government operations are often much less efficient than the private sector. Politicians earmark money for wasteful pork projects rather providing funding for essential projects.
Keynesian economic theory is most prevalent in the development of highway spending policy. The source of the assertion that government spending on highways will create jobs stems from a misrepresentation of a Department a Transportation study stating that for every $1 billion spent on highways, 47, 576 jobs will be added to the economy. The report didn’t actually make this claim, but rather that $1 billion in highway spending would require (not create) 47,576 workers. But before Congress can spend $1 billion on highways, they must first tax or borrow $1 billion from elsewhere in the economy. This type of redistribution creates little, if any, economic growth.
The Congressional Research Service addressed this issue in 1993, stating:
To the extent that financing new highways by reducing expenditures on other programs or by deficit finance and its impact on private consumption and investment, the net impact on the economy of highway construction in terms of both output and employment could be nullified or even negative.
At a time when many American families are struggling Congress should be focused on a pro-growth stimulus package, not a politically driven government spending bill.
But the government will fear American citizens anyway!
The problem is clear: Government officials refuse to grasp reality. They have NO WILL TO GRASP REALITY just everything democracy DOESN'T STAND FOR…
I am so glad that Congress, and not the Heritage Foundation, is running this nation.
It is refreshing to read an article that takes a reasonable approach to the economy. My hope is that Mr. Obama will reconsider putting the country in more debt ($10 trillion is plenty). Tax cuts for everyone, including the rich and corporations, will expand the economy. This has been proven time and again. Thank you for this refreshing article.
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In the 1930's, FDR cabinet loaded with socialists engaged in massive government spending to lift the nation out of depression actually extended it into 1939. The so called tax cuts to people and failing businesses that do not pay taxes is actually transfer of wealth through welfare payments. Obama lingo: Taxcut= welfare payment.
Get ready for a triple double- double digit unemployment, inflation and interest rates in another year.
Senator Judd Greeg says serious deficit spending is needed immediately, eh?
Well, there you have a prime example of a Liberal/Socialist RIPO (Republican In Party Only), not a "Conservative" Republican!
What ever happened to the erstwhile and heretofore horrible "Three-headed monster" of "Deficit spending", "an unbalanced Federal budget", and "the National debt", all blamed, of course, on presumed "Conservative" Republicans???
Indeed, what ever happened to the wrong of "deficit spending by the Republican-controlled Congress", which is what the Democrats used to regain control of Congress?
What, it's only wrong "when Republicans are in control and do it" but not "when Democrats are in control and do it"?
Interesting…When employers engage in such misbehavior, they end-up bankrupt and/or even dragged before Congress and "hung" for such "wrong-doing" (unless certain politicians can use it to go for more votes, power, and money [such as in the so-called "Auto bail-out"]); when we private individuals do so, we'll also end-up bankrupt and perhaps even in prison, yet "serious deficit spending" is "ok" when it suits Liberal/Socialist politicans fancy, eh? Not!!!
News flash! There are already more than enough such "deficit spending" time-bombs to soon enough blow both what remains of both our individual and National budgets into Socialist oblivion. Example: The coming Social Security debacle caused by Federal misappropriation of "payroll contribitions", "deficit spending", and other things which we won't get into here.
In any case, the absolutely true fact of the matter is that it is absolutely wrong and unconscionable to burden and tax any generation, current or subsequent, with deficit spending; no matter what politician's fancy it "suits", and no matter who is doing it, "Democrat" or "Republican"!
Correction: Senator Judd Gregg says serious deficit spending is needed immediately, eh?
Well, there you have a prime example of a Liberal/Socialist RIPO (Republican In Party Only), not a "Conservative" Republican!
What ever happened to the erstwhile and heretofore horrible "Three-headed monster" of "Deficit spending", "an unbalanced Federal budget", and "the National debt", all blamed, of course, on presumed "Conservative" Republicans???
Indeed, what ever happened to the wrong of "deficit spending by the Republican-controlled Congress", which is what the Democrats used to regain control of Congress?
What, it's only wrong "when Republicans are in control and do it" but not "when Democrats are in control and do it"?
Interesting…When employers engage in such misbehavior, they end-up bankrupt and/or even dragged before Congress and "hung" for such "wrong-doing" (unless certain politicians can use it to go for more votes, power, and money [such as in the so-called "Auto bail-out"]); when we private individuals do so, we'll also end-up bankrupt and perhaps even in prison, yet "serious deficit spending" is "ok" for Liberal/Socialist politicians to engage in when it suits their fancy, eh? Not!!!
News flash! There are already more than enough such "deficit spending" time-bombs to blow what remains of both our individual and National economies and budgets into Socialist oblivion. Example: The coming Social Security debacle caused by Federal misappropriation of "payroll contributions", "deficit spending", and other things which we won't get into here.
In any case, the absolutely true fact of the matter is that it is absolutely wrong and unconscionable to burden and tax any generation, current or subsequent, with deficit spending; no matter what politician's fancy it "suits", and no matter who is doing it, "Democrat" or "Republican"!