Evidence that big government hurts the economy

June 30, 2010

In this Center for Freedom and Prosperity video, Dan Mitchell provides graphic evidence that government growth beyond a certain point actually hurts a nation’s economic performance:

While Mitchell doesn’t explain why this is true (something he does in other videos), the reason seems clear: government spending is inherently wasteful as money is often diverted to sub-optimal, politically oriented  purposes (such as vanity airports and bridges to nowhere), and that money is not disciplined by market forces. In other words, national governments’ wasteful deployment of capital is not punished by those governments’ going out of business. Furthermore, this money is taken out of private hands and consequently is no longer available for productive uses such as investing, saving, and job creation.

That isn’t to say all government is bad. By providing open markets, the consistent rule of law, and a strong protection of property rights, government actually helps create the conditions for prosperity. Beyond that point, however, it becomes a parasite, sucking the lifeblood from its host, the private sector.

If Mitchell and other free-market economists are right (and I strongly suspect they are), then one of the best things the federal government could do would be to reduce federal spending from its current 40% of GDP to about 15-20 percent.  That, however, is something that will not happen under the Democrats, and I have to wonder if even a Republican government would have the courage to make the needed cuts, given all the political oxes that would have to be gored.

Probably not, until the national consensus itself changes. And that may not be as far off as you think.

(via International Liberty)