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Posts Tagged ‘spending’

Delaware spends more than 46 other states for per-capita spending per resident, at nearly $9,800 per person per year (National Association of State Budget Officers and the Kaiser Family  Foundation). The News Journal decided to explore this topic in an editorial:

Tax dollars not buying progress for Delaware

How much is it going to cost?

That’s a question we ask ourselves almost daily, whether we’re at Wawa for gas or on amazon.com for, well, you name it.

That’s a question we rely upon our lawmakers to answer when it comes to the major issues facing Delaware.

Lawmakers asked those questions on Thursday.

First, the Board of Education declined to approve the Wilmington Education Improvement Commission’s plan in part because board members want clearer cost estimates.

Then, after Gov. Jack Markell’s final State of the State address, some lawmakers wondered if taxpayers are already spending too much on education.

Based on the health of our state, the question shouldn’t be “How much is it going to cost?” Rather, we need to start asking “What are we getting in return?”

Indeed.

Let’s hope this year our public decision-makers figure out how to balance thew budget without negatively impacting our lives or the future of the state.

Do you believe we’re getting our money’s worth from state spending? Why or why not?

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Earlier this week Business Insider UK published an article titled, “Conservatives will hate this: Proof That Government Spending Cuts Hurt Economic Growth”. From the article:

“… austerity subtracted about 0.76 percentage points off the real growth rate of the economy between the middle of 2010 and the middle of 2011. If real government spending had remained constant at mid-2010 levels and everything else stayed constant, (yes we know these are big assumptions) the US economy would now be about 1.2 per cent larger.

There’s a secondary conclusion, too: War is good (economically), it turns out.”

They provided a graph (created by Matt Klein of the Financial Times) with data from the U.S. Bureau of Economic Analysis (BEA) “proving” that Keynesianism works. Without public spending, the author argued, our economy can’t grow.

US govt spending growth contribution detail

Enter the Foundation for Economic Freedom, whose founder Leonard Reed once published the famous short story “I, Pencil.” You absolutely should read this, by the way. An economist named Robert Murphy points out the fallacy in the calculations made for the graph above:

“Edwards (the author of the Business Times UK article) seems to think that the above chart shows at least a correlation between government spending and economic growth. After all, he wrote that the BEA chart “seems to show that government has a pretty straightforward effect on GDP.” But… the chart does nothing of the kind.

Look carefully at the legend. The various colored rectangles are different components of government spending. Specifically, the rectangles indicate how the change in each component — positive or negative — relates to the change in overall GDP. The black line is not GDP growth, but is instead the sum of the various components of government spending… if we take the BEA’s word for how much each component of government spending contributed to GDP growth in each quarter, then we can stack those numbers on top of each other and even add them up! Contrary to Edwards, the FT chart doesn’t “show” anything at all, except that the BEA each quarter announces how much various components of government spending contributed to, or subtracted from, GDP growth.

After this discussion, we can see why pretty charts from the FT showcasing government spending’s “contribution to GDP growth” quarter by quarter don’t really mean anything. It’s the same for the ex post “empirical” analyses that concluded that the Obama stimulus package “saved or created” such-and-such million jobs. The underlying models that generate these estimates assume a Keynesian world, and thus cannot test whether the Keynesian model is correct.”

Even though the government prints and issues money, it’s the private sector (both businesses and consumers) who determine the value of a good or service. The government can only run on money taken from the private sector; printing into eternity is Quantitative Easing, which causes inflation if too much is printed. So they tax or borrow it from the people. If government spending really did save economies, both Delaware and America would have people making record amounts of money instead of seeing wages stagnate. The Federal Reserve would not have to continue holding interest rates low in order to convince people to buy things like homes or cars or take out student loans.

Check out CRI’s analysis here and here.

The bottom line is, Keynesianism does not work in the real world, despite efforts by its supporters to say it does. The less the government spends, the less the government needs. Even The News Journal noted that in a recent editorial.

As we approach 2015, here’s to more free markets and less government spending at all levels.

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