More evidence that overspending is the problem

If you’ve not yet reached the conclusion that government overspending holds back economic growth, Gene Epstein‘s latest “Economic Beat” column in Barron’s might help convince you.

After crunching the numbers, Epstein labels the outlook for future growth “a bit unsettling.”

As of 2012, government’s total share of current-dollar GDP is estimated at 35.4%, with federal spending accounting for 23.5 percentage points, and state and local for the remaining 11.9.

By 2050, a mere 38 years from now, the share will jump to 57.2%, based on the [U.S. Government Accountability Office] projection (14.4 percentage points) and the [Congressional Budget Office]’s (42.8), drawn from its “alternative fiscal scenario” — its best educated guess about where things are probably headed. …

… Underlying its projections, the CBO assumed that real GDP between now and 2050 would grow at an annual rate of 2.3%, a fairly conservative assumption we needn’t challenge. Over the 38 years ended in 2011, annual GDP growth ran 2.7%, and that included three serious recessions.

But if, over the next 38 years, government’s share of GDP jumps, as we have indicated, from 35.4% to 57.3%, then the nongovernmental share will shrink from 64.6% to 42.8%. Thus, according to straightforward calculations, nongovernmenal GDP will grow not by 2.3% a year, but by a far punier 1.2%.

We aren’t done. According to Census Bureau projections, the U.S. population will grow by 0.9% a year from now to 2050. So at 1.2% for nongovernmental GDP, growth of nongovernmental per-capita GDP will run a mere 0.3%.

I venture a final prediction: This won’t be the future most Americans want.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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