Too Much Government Causes Sluggish Economic Growth

October 21, 2013

The reasons for the global economic slowdown are not hard to understand and the solutions are obvious. The tragedy of our time is that most of the global political leaders have a narrow and short-term outlook, where they seek to maximize their own power at the expense of the governed. The solution to that problem is not so obvious, says Richard W. Rahn, a senior fellow at the Cato Institute.

  • TheInternational Monetary Fundannounced recently that it expects world gross domestic product (GDP) growth to be only 2.9 percent this year.
  • This is below the 3.2 percent in 2012, which was below the 30-year average of about 3.6 percent, and far below the one-of-the-best recent four-year periods, from 2004 to 2007, when it averaged 5.1 percent.

The differences may seem small, but the rate of GDP growth determines how quickly global poverty declines and real incomes rise.

  • From the end of the recession in 2009, real economic growth in the United States has averaged less than 2 percent, which means that it will take around 35 years for real income to double.
  • Contrast this performance with the last four years of President Clinton's administration and the four years under President Reagan after the end of the 1981-1982 recession, when growth averaged more than 4 percent per year.
  • If those rates had been sustained, real incomes would have doubled in a mere 17 years.

Bigger government has not led to higher growth and more employment, as those of the left continue to preach. In fact, just the opposite has occurred, because all too much of government spending wastes resources and discourages productive economic activity.

Extreme environmental regulation in Europe has led to a sharp increase in energy prices, causing Europeans to pay two to three times as much for electricity as Americans. High energy prices have led to lower growth, more unemployment and virtually no environmental benefit.

The Obama administration, having learned nothing from the European experience, is pushing these same destructive environmental policies in the United States. The new financial regulations spewing from the United States and Europe have reduced cross-border investment, thus misallocating capital from its highest and best use. Most of these regulations have not even met elementary cost-benefit tests.

Source: Richard W. Rahn, "Government Waste Stifling Growth Worldwide," Washington Times, October 14, 2013.

 

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