NCPA - National Center for Policy Analysis

As Government Grew, Private Economy Faltered

June 11, 2002

The latest figures from the Commerce Department indicate that U.S. gross domestic product grew some 5.6 percent. But often overlooked is the fact that government is the fastest-growing component of the economy.

  • Government purchases are up by more than 9 percent this year.
  • In 2001, government at city, state and federal levels grew by 6 percent.
  • But the private sector eked out a growth rate of only 0.5 percent.
  • The Cato Institute's Stephen Moore, who is also president of the Club for Growth, estimates that federal spending will rise $150 billion to $200 billion this year -- more than twice the amount raised by the entire venture capital industry.

In the past 12 months, Congress has passed the most expensive education spending bill ever, the most expensive farm welfare bill ever and it will soon enact the most expensive foreign aid bill ever. It is also poised to pass the costliest new entitlement program -- prescription drugs for seniors, with a potential price-tag of $400 billion over 10 years -- since Lyndon Johnson created Medicare 35 years ago.

Moreover, Congress has larded up anti-terrorist spending bills with billions of dollars for projects ranging from skating rinks to casino industry bailouts.

So instead of money flowing to entrepreneurs who are good at multiplying wealth, resources are requisitioned by Congress so they can be spent by federal agencies - resources that can come from only three sources: taxes, debt or inflation. The buildup of any one of these funding sources can have influenza virus effects on a capitalistic economy.

Source: Stephen Moore (Cato Institute), "Government Spending Grows Faster than U.S. Private Economy," Investor's Business Daily, June 11, 2002.


Browse more articles on Tax and Spending Issues