Yet Another Reason for Smaller Government

German factory orders fell 5.7% in August, real GDP is stagnant or falling in many European countries, Standard & Poor’s has downgraded France to AA from AA+….

There’s more.

[T]he 18 euro area countries had zero real growth in the volume of production during the second quarter of 2014. Euro area real GDP grew only 0.5% in 2013 after falling 1% in 2012. In other words, output was lower in mid-2014 than it was at the end of 2011.

And yet—or because:

Euro area government spending was 49.8% of GDP in 2013 versus 46.7% in 2006. In other words, euro area governments have co-opted an additional 3.1% of GDP (roughly €300 billion, or $383.6 billion) compared with before the crisis—about the size of the Austrian economy.

France spent 57.1% of GDP in 2013 versus 56.7% in 2009, at the peak of the crisis. This is the opposite of austerity—but the French economy hasn’t grown in more than six months. It is no wonder S&P downgraded its debt rating.

Italy, at 50.6% of GDP, is spending more than the euro area average but is contracting faster.

And so on.

There seems to be a pattern developing. An old, old pattern.

You can’t take money out of the private sector of an economy and give it to government without both growing government and shrinking the private sector. Government is simply incapable of spending the money as efficiently as the private sector (if only from a confluence of greater internal friction due to bureaucracy and an in-built lack of concern for the cost of money, with which the private sector must always contend, while leaving aside a system of graft that grows faster in a bureaucracy than in a private sector entity that will surely be punished by the market).

Redistribution of money from the private sector to government holds back growth, at best. As we’re seeing in Europe. Smaller governments have a harder time doing that than Big Governments.

2 thoughts on “Yet Another Reason for Smaller Government

  1. Interestingly, in the 16 Oct Wall Street Journal was this (subscription required, I believe) —

    When the U.S. sneezes, the world catches a cold, an old saying goes. But now it’s China’s health that matters most. In 1998, when the world expected the Asian financial crisis to cause trouble world-wide, the trouble never came. Emerging Asia, including China, contributed little to global growth at the time, and the U.S. economy was accelerating. That was enough to prevent the Asian crisis from slowing global growth, which held steady at around 2.5% in 1998.

    China has since replaced the U.S. as the main engine of the global economy. Its contribution has more than tripled to 34% of global growth this decade from 10% in the 1990s. The U.S. contribution has fallen to 17% from 32% in the 1990s, and the European contribution dropped to 8% from 23%. Europe may be a weak link in global growth, but that is beside the point, unless there is an outright crisis there. Europe’s contribution is roughly where China’s was in the 1990s, and it no longer matters as much.

    • And wait until that vast market figures out true capitalism, while the American Progressives continue our degradation into European social “democracy.”

      Unless the American Conservatives can retrieve our country.

      Eric Hines

      PS-it’s possible to use basic HTML tags in the comments; for instance, italics to indicate quoted passages can be achieved with [i]passage[/i], using angle brackets instead of square ones.

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