analyticsbox | Jul 14, 2021
Big Government Vs. Small Government -
Which is the best way to grow our economy?
Growth in our economy benefits everyone. So what is the best approach to maximizing this growth? The study of economics tells us a lot as well as the study of empirical evidence over time. Let’s take a look at both factors.
An economy is not static. It is a dynamic, living organism, which can grow faster, slower, not at all, or can decline; and it is all based on the economic system and policies in place. It is not a zero sum game where if one gets more, another gets less. As the economy grows everyone can gain.
What helps it to grow? Investment. Private Investment. More capital is the key to growth and improvement in an economy. This facilitates growth by having more and better productive assets which enables more output. This is how a growing economy raises the standard of living for everyone. It isn’t going to be equal for everyone, but all will be better off.
How do we get more investment? In a Free Enterprise/Market economy, we leave the capital investment to the business world and let them do their thing. More capital in business hands leads to more growth.
How do we get more capital in the hands of business? By letting businesses keep what they earn. But we have to pay for government, so some must be taken for that purpose. Everyone understands there will be taxes of various sorts to pay for the government. The more we tax, then less is available for private investment and growth. If we want to grow faster and increase the standard of living, then lower taxes and smaller government will facilitate this. (See empirical evidence of this in this article about remarkable transformation of New Zealand).
Currently there are programs proposed with Trillions of government spending proposed and tax increases to go with it. If all of this came to be as proposed, the projections are still for enormous deficits(trillions) for many years. This will take investment capital out of the market by the increased taxes and the borrowing to cover the deficit (thus ‘crowding out’ private investment.) President Biden’s own economic team analyzed the impact and concluded the long term growth rate would be very slow based on these plans, compared to what has been seen in recent years.
The Bottom Line
If our desire is to grow our economy faster and raise the standard of living for all, then taxes must be kept low and the government smaller. It’s common sense!
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