President Obama’s economic ideas hold that government spending on construction, alternative energy sources welfare will inspire long term growth. But this theory has a big problem: Government is a terrible allocator of resources. Spending borrowed money on public infrastructure and even more state employees creates jobs wholly dependent on… government spending. Expanding the welfare state also increases dependency and does nothing to expand economic growth in the long term.
This “demand-side” philosophy rests on the claim that some 70 percent of gross domestic product (GDP) is consumption. Hence boosting consumption—by pouring borrowed money into more food stamps, Obama-phones and extended unemployment benefits—will prime the economic pump.
In fact, however, sustained growth comes from the force underlying consumption: increased productivity. Productivity feeds on private-sector investment. Money spent on government programs is money taken from the private sector. Hence, the best way to spark private sector investment and growth is to reduce government. Less government spending is a pro-growth policy.
Last year I labeled the President’s economic philosophy “Trickle-Down Obamanomics.” In last Wednesday’s debate, Governor Mitt Romney rechristened it as “trickle-down government,” which he characterized as the view that “bigger government, spending more, taxing more, regulating more… would work.”
During the debate, the President doubled down on his trickle-down approach. “[W]e've got to invest in education and training,” he said, by hiring “another 100,000 new math and science teachers, and create 2 million more slots in our community colleges so that people can get trained for the jobs that are out there right now.” He also recommitted to “investing” in “the energy sources of the future, like wind and solar and biofuels.” These are expensive ideas paid for by tax hikes and borrowed cash.
Romney argued that borrowing more to expand government more is are not merely “an economic issue, … it's a moral issue. I think it's, frankly, not moral for my generation to keep spending massively more than we take in, knowing those burdens are going to be passed on to the next generation and they're going to be paying the interest and the principal all their lives.”