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Spending Cuts And Economic Growth

Published 02/27/2013, 02:33 AM
Updated 07/09/2023, 06:31 AM
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In the past 100 years, total US government spending has only fallen more than 1% in six years: 1920, 1921, 1922, 1946, 1947, and 1948. From 1920 – 1922, spending was cut by almost 60%. From 1946 – 1948, it was cut 53%.

Two of the US’s biggest economic growth cycles of the 20th Century came in the 1920′s and the 1950′s, right after these major spending cuts. It’s not a coincidence. Large government spending takes resources away from private sector investment. Private sector investment is by far the largest driver behind sustainable job growth.

The sequester is a small pittance. Not only would it be beneficial, but we need to go much, much further. Military spending needs to be cut down to no more than 3.5% of GDP. We spend almost 6 times as much as China, the next biggest military spender. There’s no need for our military budget to be this high.

Even more importantly, Medicare and Medicaid need to be reformed significantly, and Social Security should to shifted over to a 401(k)-style system. If we took these actions, we’d began to see economic growth again.

Not only would these reforms create more growth, they’d also allow us to keep more beneficial Federal programs. As Democrats and Republicans have fought tooth and nail to keep the status quo on the entitlements, it’s forced them to cut things like national parks. Essentially, we’re gutting every useful program we have in order to save unsustainable military and entitlement spending.

Excessive spending does not merely stifle sustainable growth; it also leads to inflation. Inflation is a stealth tax on the middle class. The easiest way to lower the cost of living and create jobs is to lower government spending. It might cause a year or two of minor pain, but we will be vastly better off in the long-run.

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