Free Republic
Browse · Search
Topics · Post Article

Skip to comments.

Cutting Government Would Boost Economy
FFF ^ | 3/7/2013 | Sheldon Richmond

Posted on 03/08/2013 1:12:45 PM PST by IbJensen

Budget sequestration is as modest a step toward cutting Leviathan as one can imagine. Further progress will be difficult as long as people believe that slashing the size of government conflicts with reviving the economy. Nothing could be further from the truth.

In his recent debate on Charlie Rose, Nobel Prize-winning economist and New York Times columnist Paul Krugman said that even wasteful government spending should not be cut, because it would undermine job creation and economic recovery. This view isn’t quite as popular as it once was, but it is still influential.

The logic of the argument is that insufficient consumer spending caused the Great Recession, the anemic recovery, and persistent high unemployment. If people aren’t spending, so goes the argument, businesses lay off workers. And when the newly unemployed workers reduce their spending, more workers are laid off. This ripple effect puts the economy into recession. To end the recession, consumer demand must grow again, but it can’t grow because unemployment is high. It’s a vicious circle: people don’t spend enough because they don’t have jobs, but they can’t find jobs because people aren’t spending enough.

Therefore, says Krugman, government must spend. This is why he supports more debt. And this is why he thinks cutting spending to rein in the deficit is precisely the wrong thing to do now. Keep the deficit spending going to create jobs, Krugman says, and worry about the debt later. There’ll be plenty of time for that.

If this were really how things worked, we’d be in a fix. But they don’t work that way. Business cycles — the boom and bust — don’t happen because consumers all mysteriously decide to cut their spending, throwing people out of work. And since that’s not the cause of the downturn, increased government spending is not the cure.

In other words, the spending frenzy, the deficit, and the debt all can be addressed while the economy is recovering. In fact, radically downsizing government is the key to recovery.

Recessions begin because a string of large-scale business investments prove to be unsustainable in light of real economic conditions. Why would so many entrepreneurs make the same mistake at the same time? Because the government and its central bank — the Federal Reserve — create misleading signals in the form of artificially low interest rates and (before the most recent recession) artificially high demand for housing. These policies fool entrepreneurs into thinking that consumers are saving rather than spending, that is, deferring consumption until the future. Businesses then use the easy credit for long-term interest-rate-sensitive projects, such as housing and stages of production remote from the consumer-goods level. Yet consumers have not curtailed spending.

The recession sets in when interest rates rise and the cluster of errors is revealed. The malinvestments are liquidated, and workers are laid off. If the economy is to recover, the structure of production must be realigned with real economic factors, including people’s consumption/saving preferences. This is a costly and time-consuming process because workers may need retraining, buildings may need modifying, and machinery may need to be moved or junked. Government policy misshaped the economy, which now must be reshaped into something more appropriate.

Government’s only proper task is to get out of the way so that the recovery can be as fast and painless as possible. In the past, when government cut spending and taxes with the onset of a recession, recovery was sure and swift. What the economy needs is resources — savings — to recover. If the government consumes scarce resources, they are unavailable for private efforts. And if the Fed keeps interest rates low, it discourages saving.

Krugman and other Keynesians are wrong when they call for more deficit spending, because that would transfer scarce capital from recovery efforts to politicians, who can have no idea what they are doing. Since government spending faces no market test, it is unlikely to be what is needed. Only investment guided by the price and profit/loss system can make things right. But that requires government to relinquish its claim on private resources.

We can have a vibrant economy and much less government.

TOPICS: Business/Economy; Constitution/Conservatism; Crime/Corruption; Government
KEYWORDS: centralsocialistgovt; evilobamaregime; ourofcontrol
25 cents of every gdp dollar goes to govt spending. 11 cents of every gdp dollar goes to funding govt regulations. These should be eye opening numbers.

With a complete idiot occupying the White Hut America has a slim to none chance of winning this war against Congress and a burgeoning spending problem. They are mostly all drunk with their own power.

1 posted on 03/08/2013 1:12:46 PM PST by IbJensen
[ Post Reply | Private Reply | View Replies]

To: IbJensen

Cut, cut, cut...

...and then CUT MORE!

2 posted on 03/08/2013 2:50:19 PM PST by PGalt
[ Post Reply | Private Reply | To 1 | View Replies]

To: PGalt
Cut, cut, cut...
...and then CUT MORE!

Cut everything except what is explicitly authorized bot the Constitution:

  1. The IRS (congress is authorized to collect taxes)
  2. The secret-service (they investigate counterfeiting, one of the few crimes listed in the Constitution)
  3. The DOT (congress does have the authority to make trade regular, as well as make roads, bridges, and the like)
  4. The Navy (sorry, but the [regular] Army needs to be dissolved, going back to Congress raising troops for specific purposes [hence the limit of 2-years for Army funding]; Air force needs to be dissolved, returned to the Army, or given to the several States)
  5. The post Office

That's all I can think of; it would get rid of the ATF, DEA, FDA, USDA, FBI, INS, HHS, DOE, other DOE, EPA, and so forth.

3 posted on 03/08/2013 3:00:32 PM PST by OneWingedShark (Q: Why am I here? A: To do Justly, to love mercy, and to walk humbly with my God.)
[ Post Reply | Private Reply | To 2 | View Replies]

To: OneWingedShark

Exactly. Cut NGOs, foreign governments, corporate welfare, subsidies to public education, etc., etc. Much more to

With drone technology used for good some kids in a room manning drones could track all bank robbers, rapists, child molesters, murderers in the major crime areas and reduce police, detective and alphabet agency work. We could even track criminals in banking and congress. The pentagon and armed forces could be reduced by ABCD (America’s Best Citizen Droners). There is no end to the tax savings and tax reductions. America would become a more safe, prosperous, free country.

4 posted on 03/08/2013 3:31:42 PM PST by PGalt
[ Post Reply | Private Reply | To 3 | View Replies]

To: OneWingedShark; IbJensen; All

Socialism Is Legal Plunder - Bastiat 1801-1850


Socialists are criminals.

5 posted on 03/08/2013 3:33:28 PM PST by PGalt
[ Post Reply | Private Reply | To 3 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794 is powered by software copyright 2000-2008 John Robinson