International Monetary Fund Concludes That Government Spending Is Poor Economic Stimulus
Economist John Taylor has a short summary of the finding:
The paper is quite technical, but the bottom line summary is that a one percent increase in government purchases (as a share of GDP) increases GDP by a maximum of 0.7 percent and then fades out rapidly. This means that government spending crowds out other components of GDP (investment, consumption, net exports) immediately and by a large amount.
Now, remember that Obama and his fellow liberals tell us that government spending spurs job growth and economic activity. But, per the IMF, in order to grow the economy .7%, the government must spend an amount equivalent to 1% of the economy. Meaning that government “stimulus” efforts grow government faster than they grow the economy.
Hardly a sustainable economic policy. In fact, a policy that grows government faster than the economy could actually be said to be moving us backward by destroying economic activity.
What’s more, the economic impact is largely meaningless. Which is exactly what we critics of the “stimulus” spending spree have been saying all along. “Stimulus” from government spending only lasts as long as the spending does. In order to keep the stimulus, such as it is, in place we must keep spending. Given that our national government is already bankrupt, that’s hardly something we can do.
Finally, this government spending crowds out private investment and economic activity of the sort that creates prosperity, and sustainable economic growth.
This report from the IMF destroys, completely, the basis for Obama’s economic strategy. In short, Obama’s approach to economic policy doesn’t work.
Tags: Barack Obama, Economy, government stimulus, international monetary fund, jobs
