With many of the big-spending nations of Europe in economic shambles — threatening a new recession for the entire European Union — the European Central Bank decided to study the relationship between economic growth and the size of government.
What that study found should be a stern warning not only to Europe but to the United States as well about the danger of runaway government.
The European Central Bank studied 108 countries, ranging from the poor to the wealthy. It considered their economies and the size of their governments in the period from 1970 to 2008.
And what did the bank’s analysis discover? It found that the expansion of government is a threat to economic growth.
“Our results show a significant negative effect of the size of government on growth …,” the study’s authors declared. “[G]overnment consumption is consistently detrimental to output growth irrespective of the country sample considered [whether rich or poor.]”
That should sound alarms in the United States, which has squandered hundreds of billions of dollars the past few years on ineffective “stimulus” spending that has bloated the federal government while failing to create the promised private-sector jobs. The size of the federal workforce has exploded in recent years as well, and government’s reach has grown still further with last year’s passage by Democrats in Congress of costly ObamaCare.
The problem is that government doesn’t create growth and wealth. It mainly just redistributes it — while taking a “cut” for government bureaucracy in the process.
That’s not to say government has no role in the economy. It plays a valuable role when it focuses on upholding private-property rights and preventing fraud.
But government spending and taxation can never duplicate the robust growth that comes only when citizens engage for mutual benefit in the voluntary production, sale and purchase of goods and services.