Thursday, April 20, 2006

The Importance of Deficits

Here's the conclusion of "Deficits: Do They Matter?" by Brian S. Westbury and Bill Mulvihill of First Trust Portfolios L.P.:

The one worry we have is that government spending has soared – from 18.4% to 20.1% of GDP between 2000 and 2005. This spending represents resources shifted from the private sector to the public sector. With entitlement spending set to rise dramatically in coming decades, this spending is the real threat to the economy.

Precisely. The focus on deficits is misplaced; the real threat to the economy is the amount of government spending. The more government spends, the less there is for the private sector to consume and invest.

Related posts:
The Destruction of Income and Wealth by the State
Curing Debt Hysteria in One Easy Lesson
Understanding Economic Growth
The Real Meaning of the National Debt
Debt Hysteria, Revisited
Why Government Spending Is Inherently Inflationary
Joe Stiglitz, Ig-Nobelist
Professor Buchanan Makes a Slight Mistake
More Commandments of Economics
Productivity Growth and Tax Cuts
Do Future Generations Pay for Deficits?
Liberty, General Welfare, and the State
Starving the Beast, Updated
Trade, Government Spending, and Economic Growth
The Causes of Economic Growth