It’s Not about Growth at All

Robert Russell of George Mason University writes of the Obama economic vision:

The short-term vision is that massive amounts of borrowed money can be spent effectively by the federal government to get us out of a recession. . .

The longer-term vision is not just “weird” — it is counter-factual. Countries with a larger share of the GDP devoted to government spending (and corresponding higher tax rates) have lower levels of growth and higher unemployment. There is lots of evidence for this. Honest.

That’s the bait-and-switch here. In the guise of somehow getting through the recession or making sure it doesn’t come back (or something), the Obama team is embarking on a set of policies that almost inevitably will lead to a worse economic outlook. We are now beyond the New Deal temporary stimulus argument because these are permanent (and sweeping) changes which the Obama team is proposing. You can, if you like the model of Western Europe, have a high-tax country with very large domestic spending. Or you can have a vibrant free market, with the benefits of higher personal wealth and low unemployment. But we haven’t seen many (any?) instances in which a country was able to manage both.

If government is going to claim more and more of our resources and restrict business activity through higher taxes and more regulation there will be less resources for the private sector and less wealth generation. So we should be honest. The “longer-term” vision isn’t about growth at all — it’s about the things Obama wants to trade for our opportunity to grow.