The Relationship Between Government And Growth
October 24, 1995
Government and growth are clearly related. How the two parties differ lies in the way they address that relationship. For over 60 years, Democrats have been Keynesians: more government spending is good for the economy. Republicans believe (although they don't always act as if they do) that less government means more growth.
The Democratic plan worked well as political strategy. As they controlled the Congress for almost 60 years, they made more and more people happy by spending money. But that happiness did not translate into growth. In fact, just the opposite occurred.
- In the four years after World War II, average annual federal spending totaled 15% of output - which grew an average of 4.2% a year.
- Since 1975, while federal spending increased to an average 22% of GDP a year, growth fell to an average of 2.5%.
This spending produced unintended effects:
- The poverty line stopped trending downward, never going below 11% in the last 30 years, despite spending $6 trillion on welfare since 1965.
- Illegitimate births have increased to the point that one baby in three is born to a fatherless household, with two in three black American babies born that way.
- Having bought into "free" medical care through Medicare, a growing number of old people are denied care and choice of doctors.
- The federal regulatory state has doubled its employees since 1970 and increased expenditures 25 times.
Whether Republicans can turn this trend around remains to be seen. Since taking over Congress last year, they have gone a long way towards reducing entitlements and taxes. On the other hand, they have refused to cut funds to public broadcasting, offered public funds to pay for California's immigration programs and failed to kill the pork-ladling Economic Development Administration.
Source: Editorial, "The Answer Is...." Investor's Business Daily, October 24, 1995.
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