Chris Edwards: Government Spending Up, Private GDP Down

It drives a lot of us at Cato nuts to read news stories almost every day which simply assume that government spending is good for the economy. Any defense or nondefense spending restraint will hurt economic growth, it is assumed.

Chris has a nice chart. Here.

There is another reason government spending does not provide a durable, long-term economic recovery. The “equation” spending proponents use is actually an accounting identity:

GDP = consumption + investment + (government spending) + (exports − imports)

An accounting identity “is an equality that must be true regardless of the value of its variables, or a statement that by definition (or construction) must be true.”

There is no net gain from government spending because an increase in government spending must be offset by a decrease in one or more of the other variables on the right side of the equal sign.

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Market Triumphalism? Where?

Market triumphalism exists in the minds of Paul Farrell and Michael Sandel, but not in reality.  Farrell reviews Sandel’s book in a polemical commentary.  Sandel:

And in the 1990s with the “market-friendly liberalism of Bill Clinton and Tony Blair, who moderated but consolidated the faith that markets are the primary means for achieving the public good.”

Today “almost everything can be bought and sold.” Today “markets, and market values, have come to govern our lives as never before. We did not arrive at this condition through any deliberate choice. It is almost as if it came upon us,” says Sandel.

Well, yes markets are the primary means, but, yes we did arrive at this condition through a deliberate choice. What short memories these men have. We need to rely on markets because the old way caused made life miserable for most people, sort of like now, what with the Federal Reserve financially repressing us, and politically inspired stimulus spending.  The old way was let politicians and regulators allocate resources was based on top-down control from government.  That leads to favoritism, corruption, and general misery.

No, the dead hand of government still distorts our lives. And what about government-imposed health care? Not much market friendliness there, even before the Affordable Care Act we had to get approval from a doctor and have insurance pay for routine visits. We should be able to buy health care like we buy other products and services. Insurance is for catastrophes. How about agriculture? We suffer through higher taxes and restricted imports on sugar, cheese and other foods. Taxes are ridiculous. And the list goes on. Market triumphalism? Yeah, right.