Throughout his first 100 days President Obama has amply demonstrated his fundamental belief that government knows best. His rash and intrusive decisions intended to return the U.S. economy to prosperity illustrate that his instincts are all wrong. Consider the following telling actions: President Obama spent more time pondering who should be the “first dog” than how $2 trillion of taxpayers’ money should be spent; he fired the head of GM; and, he suggested to the BCS how the national college football champion should be determined.
The Obama administration’s doctrine that only a large activist government – one that spends large sums of money as fast as possible – can ensure that the U.S. will have a prosperous future is sadly at odds with economic history. Excessive government spending and economic growth are like oil and water – they do not mix. Economic growth in the U.S. will be meager at best if Obama’s policies are implemented, even after the current financial and mortgage crisis passes. And, if the spending spree is not arrested, we could then be facing a Japanese-style lost decade.
Governments raise money by taking resources away from the private sector through taxes and borrowing. Because all borrowed revenues must be paid back in the future, money borrowed today simply represents additional tax burdens tomorrow. All government revenues, therefore, represent a tax on the productive sector. Taxes create a divergence, or wedge, between people’s efforts and their reward for that effort. The separation of reward from effort diminishes incentive to work, save and invest.
Since the end of World War II, there has been 6 distinct periods where government’s role in the economy changed course. These periods provide stark examples of the adverse impact from high and/or rising total federal, state and local government spending on the economy’s growth rate. Reciprocally, they illustrate the beneficial impacts from low and/or falling government spending on the economy.