A new video from the Center for Freedom and Prosperity gives four reasons why big government is bad fiscal policy.
I particularly like the explanation of how government spending undermines growth by diverting labor and capital from the productive sector of the economy.
Some cynics, though, say that it is futile to make arguments for good policy. They claim that politicians make bad fiscal decisions because of short‐term considerations such as vote buying and raising campaign cash and that they don’t care about the consequences. There’s a lot of truth to this “public choice” analysis, but I don’t think it explains everything. Maybe I’m an optimist, but I think we would have better fiscal policy if more lawmakers, journalists, academics, and others grasped the common‐sense arguments presented in this video.
And even if the cynics are right, we are more likely to have good policy if the American people more fully understand the damaging impact of excessive government. This is because politicians almost always will do what is necessary to stay in office. So if they think the American people are upset about wasteful spending and paying close attention, the politicians will be less likely to upset voters by funneling money to special interests.
For those who want additional information on the economics of government spending, this video looks at the theoretical case for small government and this video examines the empirical evidence against big government. And this video explains that America’s fiscal problem is too much spending rather than too much debt (in other words, deficits are merely a symptom of an underlying problem of excessive spending).
Last but not least, this video reviews the theory and evidence for the “Rahn Curve,” which is the notion that there is a growth‐maximizing level of government outlays.