posted at 05:50
Author Name: Jim Edwards
Data: Government Spending Cuts Hurt Economic Growth
It's the oldest battle in politics: Whether cutting government spending helps or hurts economic growth. The Financial Times has done everyone a favour by publishing a series of charts on how US government spending contributed, or detracted from, GDP growth. If real government spending had remained constant at mid-2010 levels and everything else stayed constant, the US economy would now be about 1.2 per cent larger. Liberals take the Keynesian line that government spending acts like an economic multiplier: It not only generates immediate economic activity by guaranteeing that money is spent, but that spending provides an opportunity for private actors to recycle the money into further investment and further spending. Klein has another chart isolating the effect of defence spending on growth. Reduced military spending - the withdrawal of troops from Iraq and Afghanistan, basically - also hurts growth. The chart shows that as military spending went negative in 2011, it truncated GDP growth. Only recently, as non-defence government spending has outweighed defence cuts, has total government spending been a net contributor to GDP again.

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