Big Spending By Government Not The Answer

It will be interesting to see how Barack Obama is going to be able to justify higher taxes and more government spending when a study by Keith Marsden of the Centre for Policy Studies in London shows that countries with lower government spending and lower taxes have better economies and higher tax revenues than countries with higher government spending and higher taxes.

As Keith Marsden exaplins:

In the early 1980s, Ronald Reagan embraced the ideas of a small group of economists dubbed "supply-siders." They argued that lower taxes and slimmer government would stimulate growth, enterprise, harder work and higher levels of saving and investment. These views were widely ridiculed at the time, dismissed as "voodoo economics."

My study, "Big, Not Better?" (Centre for Policy Studies, 2008), looks at the performance of 20 countries over the past two decades. The first 10 have slimmer governments with revenue and expenditure levels below 40% of GDP. This group includes Australia, Canada, Estonia, Hong Kong, Ireland, South Korea, Latvia, Singapore, the Slovak Republic and the U.S.

I compared their records to the 10 higher-taxed, bigger-government economies: Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Portugal, Sweden and the United Kingdom. Both groups cover a representative range of large, medium and small economies measured by their gross national incomes. The average incomes per capita of the two groups are similar ($27,046 and $30,426 respectively in 2005).

The early supply-siders were right. My findings firmly reject the widely held view that lower taxes inevitably result in cuts in public services, slower growth and widening income inequalities. Today's policy makers should take note of how tax cuts and the pruning of inefficient government programs can stimulate sluggish economies.

While Obama and the Democrats might try to dispute the conclusions of Marsden's findings, there's too much evidence that says frugal lean government is far better and more efficient than big spending bloated government.

The problem with any government, and national government is that the bureaucracies that take care of the day to day operations have the unfortunate tendency to expand in size and cost over time. The “mission” of any bureaucrat is to expand their portion of the bureaucracy and hence, their power. The main purpose of any bureaucracy is to be self-sustaining and grow as large as possible to ensure its own survival. It is not, as many believe, to serve the public (meaning the taxpayers).

While any government agency had as its original reason for beingto serve the public as efficiently as possible, bloat and creeping inefficiency is inevitable. It's a natural progression that very few bureaucracies are able to avoid. Every so often they must be trimmed back, made leaner and more responsive to the needs of the people and the government. One of those ways is to do away with the excess staff and functions the particular government agency has taken upon itself in its effort to make itself indispensable.

But there are plenty holding elected government positions that have come to believe bigger is better, and that throwing more and more money at a problem will cure it. In reality all any of that extra money does is perpetuate the problem while increasing the size of the government agency or department whose duty it is to deal with the problem. The problem won't be solved, but there will be plenty of people employed by the department that's supposed take care of it.

Claiming income inequalities can be solved by higher taxes and more government programs only exacerbates the very 'problems' Big Government proponents say they can remedy. Every time it's been tried it has ended in dismal failure, in the process making things far worse than if they'd left things alone. The situation then causes them to call out for even more taxes and more programs to solve the problems their first efforts created. It's a vicious cycle that can only be broken by showing the people the folly of such claims and getting them to demand action. It's something Ronald Reagan did and, despite the best efforts of the Democrats in Congress, proved that making government smaller and less expensive would bolster the economy while increasing revenues at the same time.

It's a shame the Democrats haven't learned that lesson, or worse, have chosen to ignore it.