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Posted: 8:28 a.m. Wednesday, Jan. 28, 2009

STILL DON'T BELIEVE ME? 

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By Neal Boortz

If you don't believe me when I say that government spending isn't going to stimulate the economy, you must believe the Heritage Foundation. Now this report is a bit long, but let me bring you some of the highlights .. this information is available to your Congressmen and Senators. Too bad they busy working on their re-election campaigns, rather than working to stimulate the economy.

Most government spending has historically reduced productivity and long-term economic growth due to:

  1. Taxes. Most government spending is financed by taxes, and high tax rates reduce incentives to work, save, and invest--resulting in a less motivated workforce as well as less business investment in new capital and technology. Few government expenditures raise productivity enough to offset the productivity lost due to taxes;
  2. Incentives. Social spending often reduces in­centives for productivity by subsidizing leisure and unemployment. Combined with taxes, it is clear that taxing Peter to subsidize Paul reduces both of their incentives to be productive, since productivity no longer determines one's income;
  3. Displacement. Every dollar spent by politicians means one dollar less to be allocated based on market forces within the more productive pri­vate sector. For example, rather than allowing the market to allocate investments, politicians seize that money and earmark it for favored organizations with little regard for improve­ments to economic efficiency; and
  4. Inefficiencies. Government provision of housing, education, and postal operations are often much less efficient than the private sector. Government also distorts existing health care and education markets by promoting third-party payers, resulting in over-consumption and insensitivity to prices and outcomes. Another example of inefficiency is when politicians earmark highway money for wasteful pork projects rather than expanding highway capacity where it is most needed.

And then, you might want to take a look at some of these:

Mountains of academic studies show how government expansions reduce economic growth:

  • Public Finance Review reported that "higher total government expenditure, no matter how financed, is associated with a lower growth rate of real per capita gross state product."
  • The Quarterly Journal of Economics reported that "the ratio of real government consumption expenditure to real GDP had a negative associa­tion with growth and investment," and "growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment."
  • A Journal of Macroeconomics study discovered that "the coefficient of the additive terms of the government-size variable indicates that a 1% increase in government size decreases the rate of economic growth by 0.143%."
  • Public Choice reported that "a one percent in­crease in government spending as a percent of GDP (from, say, 30 to 31%) would raise the un­employment rate by approximately .36 of one percent (from, say, 8 to 8.36 percent)."
 
 

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