Brian Riedl has written an excellent new 'Backgrounder' for the Heritage Foundation, entitled Why Government Spending Does Not Stimulate Economic Growth.
He points out that in the last 12 months, the US government has " Increased total federal spending by 11 percent to nearly $3 trillion" and " Pushed the budget deficit to $455 billion in the name of 'stimulus.'"
But despite the enormous sums involved, these policies have failed to boost the economy. This is hardly unprecedented: "massive spending hikes in the 1930s, 1960s, and 1970s all failed to increase economic growth rates". And yet politicians still believe that more Keynesian deficit spending is the answer.
They are wrong. As Riedl puts it:
Government spending fails to stimulate economic growth because every dollar Congress "injects" into the economy must first be taxed or borrowed out of the economy. Thus, government spending "stimulus" merely redistributes existing income, doing nothing to increase productivity or employment, and therefore nothing to create additional income. Even worse, many federal expenditures weaken the private sector by directing resources toward less productive uses and thus impede income growth.
[Hat-tip to the National Center for Policy Analysis]
