The economy of government: It’s the spending

We all know that a good economy means prosperous government. When the nation’s economic engine is roaring, unemployment is low, and growth rates are at a healthy clip. Tax revenues flowing into government make it possible for the good times to roll for big spenders everywhere.

Instead of acting responsibly, paying down debt, and setting priorities, most elected officials decide to ramp up by increasing the number and size of government programs. So, when the slow-downs come, the perennial talk of “structural deficits” also kicks into high gear.

Steven Malanga, one of the people I find myself quoting regularly, had a piece today in Real Clear Markets titled “Self-Inflicted Pain Hobbles States.” Below are a few excerpts.

“Politicians, the bureaucrats who serve them and the media who cover them often blame government’s fiscal woes chiefly on the problems of the larger economy. Underlying this way of thinking is the notion that it is rarely the actions of those in government itself which produce budgetary crises. Rather it is external forces-a souring economy, bad policy on the part of someone else-that are mainly the root of their troubles.”

The focus of most media attention, Malanga writes, is on revenues instead of spending, the “other half of the budgetary equation.”

“That’s a pretty big omission, considering the way our states have been splurging. Judging by figures compiled by the National Association of State Budget Officers, our state governments went on a spending spree for the last several years, as collections poured in from a variety of taxes, including some volatile sources like realty and mortgage recording taxes that were bound to turn down.”

Get this stat:

“From 2004 through 2007, states collectively increased their spending by almost 25 percent, a far larger gain than inflation plus population growth.”

Malanga notes that there was a 9.3 percent increase in 2007 alone, “even as warning signs of a possible economic slowdown were emerging.”

While states often cry to the feds for a bailout, Malanga says they only have themselves to blame for supposed shortfalls. To give just one example, forty states expanded their State Child Health Care Insurance Programs to subsidize coverage for families earning two and a half times the poverty rate.

The fundamental economic principles referred to by this website and outlined in detail by dozens of free market think tanks across the country are more often than not ignored by elected officials. When they reap the consequences of their bad decisions, even then most politicians refuse to admit the truth.

Unfortunately, the problem is bipartisan. Until the Republicans decide they’ve had enough, expect more of the same. At the end of the article, Malanga provides a good suggestion for Republicans to grab onto:

“As the Tax Foundation notes, perhaps somewhat naively, ‘state officials should be champions of substantial cuts in the federal tax corporate tax rate’ to improve America’s competitiveness.”

Click here to read Malanga’s entire piece.

©2008 John Francis Biver