Friday, October 17, 2003

The Mission of Goverment: Curbing the appetite for spending

Richard Rahn says government spending has dramatically increased under George W.:

Did you know total federal government spending grew 17 percent during the last three years (inflation adjusted)? This compares with 6.8 percent, 8.3 percent, and 3.5 percent for the first three years respectively of the Reagan, Bush I, and Clinton administrations.

During the latter Bush I and Clinton years, defense spending was falling as a percent of GDP, which, in part, explains the modest growth in spending during 1991-2001. What is particularly troubling now is that nondefense discretionary spending (leaving out Social Security, Medicare, and Medicaid) has grown by 23.2 percent during the last three years, as compared to minus 13.5 percent, plus 11.6 percent, and minus 0.7 percent of the first three years of the Reagan, Bush I, and Clinton administrations. (My colleague, Dr. Veronique de Rugy of the Cato Institute, prepared this and a much more detailed spending analysis that may be found on www.cato.org.)

Federal spending has risen to a little more than 20 percent of GDP, up from only slightly more than 18 percent of GDP three years ago. High levels of government spending are dangerous both to our fiscal health and our liberties.

All government spending must be financed either by taxing or borrowing, both of which hurt economic growth and job creation. Many politicians and others focus on the benefits of government spending while ignoring the huge extraction cost of obtaining the funds to spend. There is not only the direct cost of collecting the tax from the taxpayer by both government and the private sector but, more importantly, taxation discourages the productive activities of working, saving and investing. Economists refer to these costs as the dead-weight loss of the tax system, which many estimates now show may exceed 100 percent of the tax collected.

Few government programs have real rates of return exceeding or even approaching 100 percent and, in fact, many government programs, such as most transfer payments and subsidies, actually have negative returns.

This explains why those economies with very large government sectors tend to grow much more slowly and have higher unemployment rates than those economies with more modest government sectors.

President Bush is vulnerable to charges of being irresponsible on the spending front because of the spending hemorrhage on his watch. He can argue he inherited an economy sliding into recession and the September 11, 2001, attacks — both out of his control. But he has in fact supported many questionable domestic spending programs and has failed to veto any spending bills, even though some contained items most reasonable people would view as wasteful, unnecessary or counterproductive.
With a Republican in the White House and Republicans controlling the Congress, perhaps its time to acknowledge that the real enemy of progress are big government Republicans.

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