Excessive Government Spending Weighs Down the Economy

In the midst of economic turmoil, much like we have seen recently, many politicians believe that government spending needs to increase. But is increased government spending truly beneficial to the economy? Again, many will conclude the answer is yes. According to a theory developed by Richard Rahn, however, the answer is most definitely no – not after government spendine as a precent of GDP exceeds the level necessary to provide its core functions.

Rahn developed the Rahn curve, explained in the video below. According to Rahn’s theory, lessening the burden of government spending would be more beneficial to the economy.

What’s concerning is that government spending is rapidly growing – it already accounts for nearly 45% of GDP in the U.S. According to a study by Burton Abrams, reducing government spending to 23% would lower the unemployment rate by 2.9%. Keep in mind that when Burton wrote this, government spending accounted for 36.7% of GDP.

The spending of many Western European nations accounts for a much greater percentage of their GDP and look what’s happening over there. Increased government spending is slows economic growth. Even the Europeans have begun to realize this, consequently announcing spending cuts. If the United States does not learn this lesson from Europe, she may have to learn this lesson the hard way. Let’s reduce the burden of government spending on our economy now so that we don’t have to learn the hard way.