Prevailing wisdom among politicians, media talking heads, and a sizable number of economists is that a downpour of government money is needed to “stimulate” the economy into recovery. (To understand why this belief is bunk, please see Dan Mitchell’s helpful video here.)
But isn’t spending tons of money exactly what government at all levels has been doing in recent years? According to U.S. Bureau of Economic Analysis numbers, combined federal, state, and local expenditures in 2000 were an already unhealthy 30% of GDP. Eight years and two recessions later, government spending now sucks up 35% of the nation’s economy and is trending higher. During that time we have witnessed the first $2 trillion federal budget and the first $3 trillion dollar budget.
With all the money federal, state, and local governments have been spending shouldn’t we be experiencing a boom? It would seem to me that proponents of government spending as a cure for our economic cold have it backward.