This post by economist Jeffrey Dorfman at RealClearMarkets is sure to raise some hackles. To give you the Readers Digest Version of Dr. Dorfman’s post, he finds that from an empirical standpoint the idea that increased government spending leads to faster growth is a pretty hard case to make. And the incentives may work the other way:
Politicians have an obvious interest in larger government. More spending means more power, through the ability to direct the spending to the politicians’ chosen priorities and often supporters. Regardless of the impact of government spending on economic growth, government will inherently want to be large and to spend as much money as possible. However, this look at data from around the world suggests that government spending comes with a cost. If a country wants to get richer, it should reduce its government spending.
Sounds like he’s poking a bull in the eye with a sharp stick to me. Let the feces flinging begin! I’d really like to see an empirical challenge to Dr. Dorfman’s position.
Just look at your own state of Illinois. Has government spending, helped it’s growth? What about Detriot? How has government spending worked for that city? Examples of high government spending are replete with government waste, fraud corruption, malaise and even decay.
But, we keep plugging along with those supporting government’s role growing, being the head of everything. Just look at the expenditures involved in the IT part of the ACA — cited as being anywhere from $300-$600 million dollars to construct a deeply flawed program. Private sector IT people, however, have estimated they could have built a working, secure system for $5-$10 million dollars — including both the front and back ends, unlike what the government is struggling to repair today.
Like Dorfman implied, more government money is about the concentration of power, not being more productive.
He is clearly correct that at some point, increased govt spending slows down growth. That should be balanced with the knowledge that inadequate govt spending also means slower growth. Finding the correct balance is difficult, but I would prefer it be done by the voting process. In the ideal, we balance spending against revenues. When people feel that they are not getting an adequate return on govt spending they vote out the spenders. If there are services the want for which the are willing to provide the revenue, they vote in the spenders.
Not to sound all popish or anything, I am also not sure that fastest overall economic growth is really our goal.
Steve
Finding the correct balance is difficult, but I would prefer it be done by the voting process. In the ideal, we balance spending against revenues.
Agree with this, but….
More spending means more power, through the ability to direct the spending to the politicians’ chosen priorities and often supporters
Which reduces the ability of voters to vote out the spenders. Therein lies the rub, no?
If a country wants to get richer, it should reduce its government spending.
What if a country wants to get richer and more equitable?
but I would prefer it be done by the voting process.
The voting process works well when the voting public is an informed one. However, today people are becoming more and more government-dependent, looking less for a fair, functioning governmet than for one who keeps the goodies rolling their way. In the meantime, civil rights, freedom to succeed and/or fail, are being routinely traded for guarantees of government bliss taking care of you. Consequently, it’s difficult to achieve a balance, allowing a country to thrive, in the long-term, under these conditions.
The point about finding the right balance applies to so many economic policies, and is almost always ignored, IMO. Does raising tax rates increase revenues or not? Depends on what the starting and endpoints are, of course. It’s mind-boggling how many people think they can offer a prescription that would cure all ills, instead of examining the existing conditions and then arguing why a particular change might help.
However, today people are becoming more and more government-dependent, looking less for a fair, functioning governmet than for one who keeps the goodies rolling their way.
Uh, that sounds like a well-informed person voting in their self-interest to me. And why not? It’s not like the bankers and financiers on Wall Street don’t get their interests looked after, and for fuck-all more money spent than goes to Obama phones. Or SNAP, for that matter. If you’re poor and you see the rich getting richer by looting the government, why not vote for your own slice of the pie?
NO social contract left whatsoever, everyone is in it for themselves. We’re returning to a Hobbesian state, and most of the people at the top of the heap are THRILLED by this. I would include the three wealthiest people that comment here, especially, who all love lording it up over others, though with differences in style, to be sure. Fuck ’em all. Eat the rich and slaughter the poor, ’cause there ain’t no middle left to bother with.
Have I mentioned the latest trend in ghetto entertainment? It isn’t the knockout game. It’s a mob fight game. I have no idea if it has a name or not. But a bunch of kids will get together and start beating the Hell out of each other for no reason. Two guys will just jump in and start punching each other. When they stop three girls will start. Then maybe two girls. Then ten guys. There are no sides, mind you, or gangs. The ten guys will likely each be trying to hit all of the other nine in their scrum before it is over.
There are no scores being settled. It’s not about anything. It’s like fight club but with no rules whatsoever. This goes on regularly next to the high school I went to, and elsewhere around town. It also happens right up the street from me. Anywhere from 50 to 100 kids getting together, and then the pseudo-riot starts. It used to be one police cruiser would show up and everyone would scatter. The last time it happened, though, the kids stood their ground. Eventually it took about seven cruisers to break it up: four blocking the top of the street and the other three advancing slowly from the bottom of the street. The kids reluctantly scattered. I’m wondering what happens when the kids don’t back down at all. As the shooting of a 15 year-old around noon a couple of blocks from here yesterday, and the shooting at a local high school last week show, some of these kids are likely packing.
Now, what good is reasoned debate with people like that? Or the parents of people like that? That’s what’s going on now, and so far I’ve only seen one news story about it. But I can look out the window and see it a couple times a month. And increasingly that seems to be the attitude of everyone in the country. The forms of the harm done to others are just different higher up the socio-economic scale.
I hope that doesn’t include me since I’m far from well-to-do and do my level best not to “lord it over” anybody.
Sounds like the neighborhood I grew up in.
Ice,
“Informed” and “self-interest” are not the same thing. In my own view, when you look at the world only through your own self-interest than it becomes narrowed, and one that easily can run out of oxygen once your self-interest changes, but the circumstances created by it haven’t.
I hope that doesn’t include me since I’m far from well-to-do and do my level best not to “lord it over†anybody.
It is clear that at least two commenters here are wealthier than you. I think it is clear that at least a third is wealthier than you, if one pays attention to details (which I occasionally do).
Sounds like the neighborhood I grew up in.
I’ve never seen anything like it. Not even the shit-kicker rednecks I knew when young behaved like this.
“Informed†and “self-interest†are not the same thing.
Tell that to the guys on Wall Street, and their hired lackeys in DC.
“Informed†and “self-interest†are not the same thing.
More importantly, short-term self-interest and long-term self-interest are not the same thing.
if one pays attention to details (which I occasionally do).
When it comes to the wealth of another — I personally don’t care. What does interest me is if they exploit their wealthy status — creating an aura of self-importance. Wealth, IMO, is simply a fortunate vehicle of exchange in goods, services, and hopefully voluntarily sharing with others in need. However, what it is not, is a cloak of superficial goodness or human superiority.
Tell that to the guys on Wall Street, and their hired lackeys in DC.
There will always be greed and insensitivity in the world. But, there are also those who quietly disburse support to needy precincts in the world. I try to acknowledge those people more than the ones who take the oxygen out of the room with what essentially is transient means.
More importantly, short-term self-interest and long-term self-interest are not the same thing.
True….same as short term and long term goals are not the same thing, oftentimes rendering far different outcomes, as well.
Just a drive comment by from an airport layover.
Ice – you really need to see a shrink. You are angry to the point of self destruction. I once wondered to myself if there was something I could do to help you. We have owned companies in Florida. But you are almost unemployable at this point, and I really wish you would look into the mirror and do some soul searching. You are your own worst enemy.
I lord over no one. Only you can lord over yourself. Only you. You just don’t like the fact that I am brutally honest and tell it like it is, as best I am capable. I know it can annoy, but it is the very same brutal honesty I brought to myself in understanding the shortcomings I had in climbing the ladder, and that I bring to investment decisions. I went to New York to refine my game. Do you think Michael Jordan said to himself at 21 yrs old “I’ve got it all?” Phil Mickelson? Tiger Woods? They all know its a long journey and there is always someone there to take their place the moment they let up. Shorter: as I like to say “we ain’t in Kansas anymore.”
ice, I really wish you the best, but here is the brutally honest part – you need an attitude adjustment; its destroying you. Hate me if you want. But better to think long and hard about that advice.
More importantly, short-term self-interest and long-term self-interest are not the same thing.
If you don’t think there is a long-term, then there’s no reason to plan for it. Similarly, if you can’t get through the short-term, there is no long-term.
There will always be greed and insensitivity in the world. But, there are also those who quietly disburse support to needy precincts in the world.
jan, the greedy people have won.
What jumps immediately off the page:
1) No differentiation between monetary systems.
2) No accounting for budgetary balances.
3) No taking of savings rates into account. Spending isn’t stimulatory if it does not overcome the private sector’s desire to sock it all away.
4) Ignores employment levels. The size of government’s share of GDP is irrelevant if GDP is being constrained below that necessary for full employment. Doesn’t really matter how much government spends if it taxes it all back, does it?
5) Using absolute dollars suffers the same problems.
6) Ditto with per capita.
7) I’m not aware of a single economist making the argument that “more” is always better without consideration of other variables, so Dorfman is tilting at his own straw man.
8) No foreign sector in his model. If government A is spending lots of money while its private sector is sending as much or more overseas, no one would expect to see improved domestic growth.
8) Dorfman spends all his time looking at what governments are putting in and no time looking at what governments are taking out. All inputs and no outputs makes for a rather incomplete model, does it not?
Dave Schuler: Does More Government Spending Lead to More Growth?
It depends. If you are talking about countercyclical policy, government stimulus can increase growth (at the expense of wealth), when the economy is working below capacity.
If you are talking about long term investment, then again, it depends. If the money is wisely used for increasing long term productivity; e.g. roads, science, technology; then it can increase long term growth.
It’s possible to combine countercyclical policy and long term investment.
@jan
… informed …
I submit that the majority of “informed voters” are anything but. Reading third, fourth, or fifth hand sources commenting on other such sources does not make one informed.
Most of the “professional” commentators are clueless. They simply regurgitate nonsense, and they use each other as sources. Few of these idiots have any knowledge of primary or secondary sources.
The amount of dumb ass shit that gets repeated is mind boggling. Pick a topic: Israel bombing Iran, Global Warming, banking, insurance companies, N. Korea/China relationship, Chinese military expansion, yada, yada, yada.
The smartest people on the right assure me that doctors are going to quit their practices to flip burgers. The smartest people on the left assure me that the insurers, hospitals, pharmaceuticals, doctors, etc. are going to be brought to heel. “Gimme a fuckin’ break.”
When the scales fall from your eyes, you realize you have been played, and you realise that “ain’t nothin’ gonna change”. I do not know @Icepick, but I get where he is coming from.
The core problem with Dorfman ‘s “model” is that it is not stock-flow consistent. He tracks only a portion of flows and ignores monetary stocks (savings) altogether.
A criticism which can be made of most mainstream economists, unfortunately.