The story that started this train of thought is here.
It’s a review of something that happened over 50 years ago, but it’s vitally relevant to us today, especially in light of what is going on with U.S. spending right now. The basic issue has to do with the question of whether the U.S. needs government spending to keep the economy out of trouble.
This is especially relevant because right now our government is spending $5 for every $3 we take in. It would appear logically that we need to immediately cut our spending to $3 for every $3 we take in, so we can at least quit adding to the debt. Then we’d need even further cuts to allow us to pay down some of the debt.
But politicians are worried that cutting government spending in a time of hardship will send the economy into a tailspin, because there is a school of thought which teaches that government spending causes economic prosperity, while reducing spending causes economic hardship. And there’s all sorts of theoretical numbers and letters and terms that can support this view, that a war where massive amounts of resources go into killing people enriches us all.
But it looks to me like history teaches the opposite: government spending increases take away money from people, while government spending cuts leave people with more money, stimulating the economy.
Earlier I talked about the need to cut government spending by at least 40%. Rather than going to theories for what effect this will produce, I suggest we take a look at U.S. history, where there is one notable example of such a spending cut. The following is a year-by-year chronicle of what happened.
In 1945, the US government spent $118 B (billion), and the country’s total income was $223 billion.
In 1946, the US government reduced its spending 32%, to $80 B, and the country’s total income remained almost entirely untouched dropping just $1 B, to $222 B.
In 1947, the US government continued reducing its spending, this time another 28%, to $58 B, less than half of what was being spent two years earlier. And far from collapsing without governmental intervention, the country’s income grew 10%, to 244 B.
In 1948, the U.S. continued cutting spending, now down to $55 B. And the economy grew again, by 10%, to $ 269 B.
Conclusion: if history is any indicator, it appears that massive government spending cuts are not only healthy for government finances, but also provide a massive stimulus to the economy. So I would propose that rather than talking about possible spending caps in the future, we institute significant spending cuts now if what we want is economic recovery.
A more detailed proposal along these lines is by Richard Ebeling, and is entitled, “The Address Obama should have given.”
(Data source for this post: here)
Related Posts:
on government spending and the economy
The story that started this train of thought is here.
It’s a review of something that happened over 50 years ago, but it’s vitally relevant to us today, especially in light of what is going on with U.S. spending right now. The basic issue has to do with the question of whether the U.S. needs government spending to keep the economy out of trouble.
This is especially relevant because right now our government is spending $5 for every $3 we take in. It would appear logically that we need to immediately cut our spending to $3 for every $3 we take in, so we can at least quit adding to the debt. Then we’d need even further cuts to allow us to pay down some of the debt.
But politicians are worried that cutting government spending in a time of hardship will send the economy into a tailspin, because there is a school of thought which teaches that government spending causes economic prosperity, while reducing spending causes economic hardship. And there’s all sorts of theoretical numbers and letters and terms that can support this view, that a war where massive amounts of resources go into killing people enriches us all.
But it looks to me like history teaches the opposite: government spending increases take away money from people, while government spending cuts leave people with more money, stimulating the economy.
Earlier I talked about the need to cut government spending by at least 40%. Rather than going to theories for what effect this will produce, I suggest we take a look at U.S. history, where there is one notable example of such a spending cut. The following is a year-by-year chronicle of what happened.
In 1945, the US government spent $118 B (billion), and the country’s total income was $223 billion.
In 1946, the US government reduced its spending 32%, to $80 B, and the country’s total income remained almost entirely untouched dropping just $1 B, to $222 B.
In 1947, the US government continued reducing its spending, this time another 28%, to $58 B, less than half of what was being spent two years earlier. And far from collapsing without governmental intervention, the country’s income grew 10%, to 244 B.
In 1948, the U.S. continued cutting spending, now down to $55 B. And the economy grew again, by 10%, to $ 269 B.
Conclusion: if history is any indicator, it appears that massive government spending cuts are not only healthy for government finances, but also provide a massive stimulus to the economy. So I would propose that rather than talking about possible spending caps in the future, we institute significant spending cuts now if what we want is economic recovery.
A more detailed proposal along these lines is by Richard Ebeling, and is entitled, “The Address Obama should have given.”
(Data source for this post: here)
Related Posts: