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.
Harry and Barry just don’t get it.
WOW! Talk about an understatement. Now if only the FOOLS, MORONS and IDIOTS that voted for them would wise up!
I won’t hold my breath!
Holding your breath could prove fatal, Bruce.
Well made motors have a governor in them to prevent fly apart due to high RPM’s.
A governor in a motor is very much the same as government in an economy, necessary to prevent an economy flying apart from to high a growth rate.
In some instances a governor will speed a motor up to an optimal RPM.
Well run government is very similar to this in a case of a down economy. In a well run government we would save the money during up economies, much like a well balanced governor will use the energy to to regulate the motor, this saved money removed from an up economy will regulate that economy and create a fund that can be used to speed up a down economy much like that governor releasing the engine to run faster when it has slowed to far.
Unfortunately our government is showing how off balance it has become. Instead of storing that energy/money, it spends or wastes it on useless generation of things not needed, it could have spent it on infrastructure but it didn’t, it built lavish palaces in North Las Vegas for one example. Now it has to borrow from another source using precious fuel to attempt speeding up a damaged engine again. Once that engine gets back to speed it will have to run harder to pay back the borrowed fuel, in the form of useable energy someone else will want and pay us enough to keep our engine running while it pays off its debt.
This is throwing the economy into convulsions just like an off balance governor will do to a motor. Wild swings in either direction will cause the whole thing to fly apart and we are witness to that almost daily. Just watch the DOW for a while and it becomes truly visible.
That is precisely what is wrong with Keynesian economics, Steve. Keynes called for spending in down times and savings in up times. But the savings were never accrued. Government simply spends everything it gets its hands on and then demands more from those who have less in those down times. Or, in Obama’s case, declares class warfare.
Thank-You for that Tom,
It is so hard to get anyone to understand it. That is why I try to show that comparison. At least amongst technical types it can be understood. Even if it remains muddy among the more stubborn liberal engineer/technicians. Believe it or not there are a few of those with the brains to understand technology but not economics, those tend to be todays liberals in my experience.
Keynes was not wrong, the worlds governments are once again. Keynes was hoping for something outside human nature, self control and common sense.
I can’t believe you’ve hit on the same Rahn’s Curve that I posted on another blog, Tom. Rather telling, isn’t it?
Steve, I don’t believe Keynes had a clue. Our Founding Fathers did. The overpowering temptation of running the worlds largest economy has got to be close to impossible to resist. Look how crazed Steve Wynn became running Las Vegas in the 90s! He was buying $65 million paintings with company money, and hanging them in his home. (and his home was located in the middle of the Shadow Creek golf course, which was owned by THE COMPANY). And he was only dealing in billion$.
I would like to think, that as moral, honest and principled as I’ve become in my later life, that I would do the right thing, if I was in Harry THE CROOK Reid’s shoes.
I can’t say for sure that I would.
I know that I wouldn’t stand a chance resisting if I were there for 30 years.
Smaller government is the only solution. Not the top down model we’ve morphed into over the last 200 years.
Athos maybe I should re word that.
Keynes THEORY was not wrong, just unworkable due to human nature.
Machines respond well to being governed, people are not machines.
If men were angels, Athos, if men were angels … Federalist Paper No. 51.
See comment about angels …
Thus the fitting reference to Ø as “the Chosen One”.