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Video: Spending Hurts Economic Growth
Tuesday, July 13, 2010 2:37 PM
by Renae Bartusch At a time when government spending is out of control, our friends at the Cato Institute have released a great video detailing what impact this profligacy will have on the economy. Below, Dan Mitchell explains the basics of the Rahn Curve. It shows that government spending can promote economic growth when it is used for “public goods” such as protecting private property rights. However, when spending exceeds the growth maximizing level, economic performance slips. This helps illustrate why the economy has failed to recovery in the wake of the “stimulus” boondoggle. Right now government spending is 40% of GDP and economic performance is maximized when government is spending 15-25% of GDP. This means that government is too big and is hurting growth. The Rahn Curve tells us that we need to reduce the burden of government spending because it hurts the economy. This basic economics lesson is one that Congress and the Obama administration needs to learn before they try to fix the economy by spending. Watch the entire video to learn more about why Congress won’t be able to spend its way to economic solvency.
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