Sunday, August 1, 2010

A Look at Federal Spending

At the PerotCharts site we read:

For the past 28 years the government’s share of GDP has fluctuated in a narrow 5% range, with a high of 23.5% in 1983 and a low of 18.4% in 2000.

According to Perot, federal spending "fluctuated" during those years. Varied at random. It is more accurate to say federal spending declined from 1983 to 2000.

The graph at right is my version of the PerotCharts graph, based on the numbers Perot used. For copyright reasons I don't want to use Perot's chart. (That, and his graph color clashes with my blog background.)

Perot has an absolutely beautiful graph that shows a decline in Federal Spending from 23.5% of GDP in 1983 to 18.4% in 2000. You'd think people would be thrilled with that 5-point decline.

But no one was thrilled. No one seemed to notice the victory over federal spending. Everyone just kept calling for more spending cuts.

Why? I think, because we didn't get the economic growth we expected. We didn't get the good results. And since we didn't get results, it's like the reduction of government spending never really happened.

Either that, or the theory was wrong, the theory that says starve the government and the economy will grow:

In Wanniski's view, the Laffer curve and supply-side economics provide an attractive alternative rationale for revenue reduction: that the economy will grow, not merely that the government will be starved of revenue.

If the theory was right, that five-point drop in federal spending should have paved the way for a significant economic boom. But that didn't happen. Instead, we got a recession, a war, an increase in federal spending, and an increase in deficits.

If government spending cuts were the thing we needed to make the economy grow... If government spending really was the thing holding back growth... Then the 17-year decline in federal spending relative to GDP should have had a cumulative, steam-roller effect, making things better and better toward the end of that period.

Things should have been better toward the end of that decline, and better even for some years after the end of that decline. That did not happen. If Wanniski's theory was right, that five-point drop should have positioned us to bounce back strong from the 2001 recession. That did not happen.

We thought the growth of federal spending was the cause of economic problems. We thought federal spending cuts were the solution. But we tried this solution, and it did not work. We may conclude the growth of federal spending is not the cause of the problem, and federal spending cuts are not the solution.

The solution we have not tried is to restore monetary balance -- balance between circulating money and money in savings. Balance between the two sides of M2 money.

1 comment:

The Arthurian said...

My solution -- it sounds sorta like economics, doesn't it? Sure don't sound like politics.