The Facts Don't Lie - So, Let's Look at the Facts
The US has grown to be the largest economy in the world with one of the highest standards of living among all countries. But we are slowly losing our advantage as big government continues to grow. Spending is outpacing our income by ever increasing amounts (and massive debt accumulation), and the sprawling bureaucracy seems to control our lives as well as the life of the government in DC.
Here is the fundamental logic of how the size of government affects an economy:
A larger government means more funding to finance it.
Funding comes from one of three sources - taxes, borrowing, or printing money.
When we tax or borrow money, it is taken from the private, productive sector and given to the unproductive sector, namely government. This reduces the funds available to private enterprises to invest and grow output.
When we print money, to the extent that we print it faster than output is growing, it results in inflation. What we have experienced over the last few years is the result of excessive money printing in 2020 and 2021.
Government has continued to grow as a percentage of our economy while our growth has declined, and the government has gotten bigger. Numerous studies have consistently shown this for the U S, and many other countries. The wealthy countries in the European Union got wealthier when the government was smaller, and now, with very high taxes and big government, their growth has slowed.
To compound the problems we see coming, much of the big government has been financed by debt. The world has seen debt grow by $15 trillion over the last year, and by $103 trillion in the last 10 years, from $210 trillion to $313 trillion, an increase of 49 percent in 10 years.
There are several institutions that publish indices of economic freedom, the one that Heritage Foundation does is called the Index of Economic Freedom - here is the link to the 2024 edition. It shows that countries with smaller governments and more economic freedom consistently rank highest in income per capita. Sadly, the U S has continued to decline on this Index, now ranked 25th overall, the lowest in 30 years. We are barely considered ‘mostly free’ with a score of 70.1 (scores under 70 are not ‘mostly free’, and it takes a score of 80 or more to be ‘free’. There are only four countries that are ‘free' - Singapore, Switzerland, Ireland, and Taiwan. There is much to learn from this, please take a close look.).
The Mises Institute published a recent article by Daniel Lacalle, 'Global Debt Levels Are a Ticking Time Bomb', here are a few excerpts:
“The relentless increase in global debt is an enormous problem for the economy…Bloated public debt is a burden on the economy, making productivity stall, raising taxes, and crowding out financing for the private sector. With each passing year, the global debt figure climbs higher, the burdens grow heavier, and the risks loom larger.”
“In the Congressional Budget Office (CBO) projections, the United States deficit will fluctuate over the next four years, averaging an insane 5.8 percent of GDP without even considering a recession. By 2033, they still expect a 6.9 percent GDP budget hole. Unsurprisingly, the economy, even using optimistic scenarios, stalls and will show a level of real GDP growth of 1.8% between 2028 and 2033, 33% less than the 2026–2027 period, which is already 25% lower than the historical average.”
“Citizens are led to believe that lower growth, declining real wages, and persistent inflation are external factors that have nothing to do with governments, but this is incorrect. Deficit spending is printing money, and it erodes the purchasing power of the currency while destroying the opportunities for the private sector to invest. The entire burden of higher taxes and inflation falls on the middle class and small businesses.”
“The implications of this debt binge are significant, including weaker economic growth and a danger to financial stability.”
BOTTOM LINE
The facts are clear cut, yet the government ignores them and continues to grow and control our lives, a complete contradiction to what our country’s Founders intended. We grew richer when sound economic principles were in place - the government was smaller, and we were freer. Now, we grow much slower as the government has grown enormously and, even worse, we have piled on so much debt to finance the big government, we are endangering our very existence.
The only solution lies with ‘we the people’. The government will not fix this unless we demand that they do. That requires us folks on Main Street to understand the issues and the real dangers ahead if we stay on this course. Speak up and speak out to let our representatives know we must fix this problem before it is too late.
LEARN ECONOMICS, THEN VOTE SMART
Comments