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Nobel Laureate: To Grow Economy, Shrink Government



August 15, 2011

All too often the debate over jobs and the fight over the size of government have been discussed as separate issues. Our policymakers in Washington seem to have forgotten that in reality, jobs and the deficit are two sides of the same coin. Fortunately, Nobel laureate Michael Spence has written a new article to set the record straight:

To restore a stable pattern of inclusive growth—the kind that truly lifts all boats—the first step is to reduce the debt loads in these economies, not suddenly but systematically. That alone won’t be enough. Consumption and government services will have to be reset downward, replaced by public and private investment that is funded by domestic saving. The path we’ve been on is blocked; we need to take a few steps backward to be able to go forward again. Nevertheless, this harsh truth has not yet been accepted by governments or electorates. Instead we appear to be clutching at our past standards of living, hoping for a vigorous but delayed cyclical recovery. The unemployed are the ones paying for this strategy.

"Clutching at our past," seems to be an apt description of the current Administration's plan (or lack thereof) to get our economy rolling again. Sure, President Obama may talk a big game about investing in our future, but this is little more than attempting to put a new coat of paint on the same old spend-happy, big government jalopy. But as Spence rightly pointed out, this path "is blocked." To truly grow the economy in a healthy and sustainable way, Washington must focus on shrinking the size of government.


 

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