NCPA Study: Government Intervention Slows Economic Growth

Reduced Spending and Lower Tax Rates Increase Economic Stability

Dallas, TX (Oct. 2, 2012) –To turn the economy around, Washington needs to stabilize the dollar, freeze and reduce its spending, cut tax rates, and let the markets set interest rates freely, according to a new study from the National Center for Policy Analysis (NCPA).

“One side argues that we must do much more of what has failed. The opposite view is that we should reverse direction,” said National Center for Policy Analysis (NCPA) Senior Fellow R. David Ranson. “Though politicians do not want to hear what history can tell us about how to break out of the malaise, the solution, found in a careful analysis of economic history, is amazingly simple.”

So-called stimulus spending doesn’t work because:

  • The faster government spending increases relative to the economy, the more slowly the economy grows; thus, excessive public spending “crowds out” spending by the private sector.
  • The average dollar spent by government results in about two-thirds of a dollar of reduced private sector spending.
  • As a result of stimulus spending, since its lowest point in the second quarter of 2009, real gross domestic product (GDP) has been growing at a rate far below that of previous cyclical recoveries: 1.75 percent per year through the first quarter of 2012. 

“Copious evidence covering many decades shows that activist policies such as government spending, government employment, and the creation of money tend to restrain the performance of output, employment and stock prices,” said Ranson. “If so, the current failure of the economy to recover rapidly from the 2008 recession is easy to explain, since policies advertised erroneously as ‘stimulus’ have been pursued on an unprecedented scale.”

Which Federal Policies Help or Hurt Economic Growth?