Friday, December 16, 2011

Big Government spending and the Economic “Wreckovery”

Chris Edwards, director of tax policy studies at the Cato Institute and editor of, points out that “[d]ata from the Organization for Economic Cooperation and Development (OECD)  show that total federal, state, and local government spending in the United States this year (2011) is a huge 41 percent of GDP [Gross Domestic Product]. That compares to the average of the 32 advanced economies in the OECD of 45 percent. Until the big-spending Bush and Obama years, we enjoyed a government size advantage compared to the OECD average of about 10 percentage  points of GDP. But that advantage has now shrunk to just 4 points, and we are fast becoming just another bloated welfare state.” (Cato Policy Report, Nov/Dec 2011)

What this means is that more and more of our economic resources are being shifted from producers (those who produce goods and services for consumption) to non-producers (those who produce no goods or services for consumption).

“What difference does this make?” I hear you ask? “Doesn’t government spending ‘stimulate’ the economy?”

The answer is a resounding, “No!”

If the economy is stimulated by government spending, then we should not restrict ourselves to building four-lane highways. We should build eight- and 16-lane highways everywhere. In fact, we really should invest in “bridges to nowhere” and even in “highways to nowhere.” Maybe would should even start a program where four lanes are being jackhammered away while the citizens use the other four lanes. Then, when the jackhammered lanes have been rebuilt, shift the traffic onto those lanes and jackhammer the first four lanes and rebuild them. Then just keep repeating that cycle.

If a little bit of spending by the government is good for the economy, then all that spending should have the economy skyrocketing.

However, with all that money is being taken out the private sector economy and more and more workers and money being used to build roads and bridges and whatever government decides to undertake, that leave less money in the economy and fewer workers to produce what consumers (read: citizens and taxpayers) need day-to-day. There would be less food produced, less gasoline being refined and delivered, fewer automobiles being produced, fewer coffee shops to go to, fewer movies being made and fewer theaters in which to watch them—in short, less of everything.

And, since supply influences prices, that also means that the prices of all those goods and services would be going up. There might be more money circulating due to the wages being paid for all the public works projects, but all that money would be chasing fewer and fewer goods until no one could afford to buy anything.

Edwards tells us: “Stanford University’s Michael Boskin calls government spending a ‘leaky bucket’ because the benefits are a fraction of the cost. For every $1 spent on a government program, the required taxes cause about $1.50 of damage to the private economy. And because programs are so inefficient, every $1 of spending may only produce a return of perhaps 50 cents. Thus, ‘it costs taxpayers $3 to provide a benefit worth $1 to recipients,’ notes Texas A&M University’s Edgar Browning.”

Let’s get real! Tell your Congressman and Senators that you’re onto the scheme and know that all that “stimulus” just leads to “wreckovery,” not recovery.

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