As described in Friday's post, that day's Wall Street Journal had several articles filled with economic nonsense coming out of the mouths of Europe's incompetent leaders. On Saturday, the New York Times one-upped them with far more of same. On page 1 we have Andrew Higgins with an article headlined "Europe Pressed To Reconsider Cuts as a Cure," and then on page B-1 Catherine Rampell writing "Federal Cuts Are Concern In Modest U.S. Growth." The fundamental proposition of both articles is that increasing government spending grows the economy while decreasing government shrinks the economy.
Let me pick just a few choice quotes. From Ms. Rampell:
The so-called sequester is scheduled to strip $85 billion out of federal spending before Oct. 1, cuts that will have secondary effects throughout the private sector. Furloughed federal workers, for example, will spend less money at local businesses. While lower government borrowing and spending can help free resources for business when the economy is operating closer to its capacity, that is not the case today.
Ms. Rampell even goes out to find some so-called economists to support the fallacious theory. For example:
“With fiscal tightening weighing on the spring and summer quarters, we expect weaker growth ahead,” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisers, said in a note to clients.
And yet another from a professor at the University of Michigan:
Justin Wolfers, an economics professor at the University of Michigan, said the government’s fiscal policy was a drag on the economy. . . . “The bigger picture is that we have a fledgling recovery which needs help but isn’t getting it,” he said.
These people seem to have no idea that year in and year out the economies that are the most successful are the ones with the lowest government spending and the lowest taxes. The Heritage Foundation compiles the data. Examples:
Hong Kong. Government spending as a percent of GDP, 19%. Top income tax rate 15%. Five year compound economic growth rate 3.6%. Unemployment rate 3.4%.
Singapore. Government spending as a percent of GDP, 17%. Top income tax rate 20%. Five year compound economic growth rate 5.7%. Unemployment rate 2%.
Do you know that both Hong Kong and Singapore have surpassed the U.S. in per capita GDP?
Or how about Switzerland? Government spending as a percent of GDP is 34.7%, far below any of the major European economies (Germany, France, Spain, Italy, U.K.). Top income tax rate is 41.5%, but only 11.5% of that is Federal, and the rest varies by canton. Compound five year economic growth rate is 1.7%. (That compares to 0.5% in the U.S., 0.5% in France -- home of 56% of GDP government spending, and 1.1% in Germany where government spending is 45% of GDP.) Unemployment rate is 4.2%.
Really, this isn't all that complicated. And imagine how much more dramatic these differences would be if they stopped wrongly counting government spending at 100 cents on the dollar in GDP!