More government spending equates to less prosperity … period. exclamation point! end of discussion

While the bureaucrats and Congresscritters keep dithering inside the Beltway, yammering about how much nose hair can be trimmed from a federal government the size of Chewbacca, Dan Mitchell of the Cato Institute and the Center for Freedom and Prosperity keeps coming up with solid evidence for why government spending must be slashed and slashed now.

It makes no difference whether it is funded by taxes or borrowing, Mitchell writes, it is the spending itself that is a deadweight dragging down the economy.

His latest proof comes from a November study for the European Central Bank by Antonio Afonso and Joao Tovar Jalles called “Economic Performance and Government Size.”

In the abstract of the study the authors state:

“We construct a growth model with an explicit government role, where more government resources reduce the optimal level of private consumption and of output per worker. In the empirical analysis, for a panel of 108 countries from 1970-2008, we use different proxies for government size and institutional quality. Our results, consistent with the presented growth model, show a negative effect of the size of government on growth. Similarly, institutional quality has a positive impact on real growth, and government consumption is consistently detrimental to growth.”

The study also explains how too little government is detrimental, while too much government is too:

“In addition, economic progress is limited when government is zero percent of the economy (absence of rule of law, property rights, etc.), but also when it is closer to 100 percent (the law of diminishing returns operates in addition to, e.g., increased taxation required to finance the government’s growing burden – which has adverse effects on human economic behaviour, namely on consumption decisions). This idea is related to the so-called “Armey Curve”, after Richard Armey, who borrowed a graphical technique popularized by Arthur Laffer, whose crucial underpinnings were already present in Dupuit (1844). Friedman (1997) suggested that the threshold where government’s role in economic growth is between 15-50% of the national income.”

Mitchell prefers to call the concept the Rahn Curve, named for Cato’s Richard Rahn, argues that the threshold is closer to 15 percent.

Let’s allow Mitchell to explain:

Meanwhile, in his Bull Moose speech in Osawatomie, Kan, Barry rails about how our system doesn’t work and calls for still more government spending:

“It’s a simple theory – one that speaks to our rugged individualism and healthy skepticism of too much government. It fits well on a bumper sticker. Here’s the problem: It doesn’t work. It’s never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible post-war boom of the 50s and 60s. And it didn’t work when we tried it during the last decade.

“Remember that in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history, and what did they get us? The slowest job growth in half a century. Massive deficits that have made it much harder to pay for the investments that built this country and provided the basic security that helped millions of Americans reach and stay in the middle class – things like education and infrastructure; science and technology; Medicare and Social Security.”

As The Washington Post noted, that “slowest job growth in half a century” includes the first two years of the Obama administration.

It’s Mitchell’s Law: One bad government policy will be used to justify another bad government policy.

Harry and Barry just don’t get it.