Economists: More Government Spending = Fewer Jobs | Speaker.gov

According to a new report released today by First Trust Chief Economist Brian S. Wesbury and Senior Economist Robert Stein, the new House majority’s commitment to cut spending and enact budget reforms to prevent another debt crisis is exactly what is needed to help spur private-sector job growth. From the report:

“The reason it [the economy] isn’t doing better is quite simple – excessive government spending. Federal spending in 2000 was about 18% of GDP. Today it is close to 24%. This means that 6% of private sector GDP has been ‘crowded out.’ It’s simple  – a bigger government = a smaller  private sector = slower job growth. …

“In other words, in contrast to the view that government spending and bailouts saved the US from another Great Depression, we believe government spending has been a headwind for both growth and job creation. It’s created uncertainty, and that’s not good.”

Wesbury and Stein’s analysis echoes the views of several other economists who warn that economic growth and job creation will continue to struggle without real spending cuts and long-term budget restraints: 

  • A recent House Budget Committee report, titled “The Debt Overhang and the U.S. Jobs Malaise,” cites several economists who confirm that the skyrocketing debt brought on by Democrats’ spending binge is “significantly holding back a robust recovery and sustained job creation.”
  • In a New York Post op-ed this week, Small Business & Entrepreneurship Council Chief Economist Raymond J. Keating said “federal debt certainly has crept into the economic equation in recent years; how could it not, given its rapid jump? But the problem from entrepreneurs’ point of view is the increased taxes that such government debt levels threaten to make inevitable.”
  • A statement signed by 150 economists last month warned that “increasing the debt ceiling without significant spending cuts and budget reforms . . . will bring further harm to private-sector job growth in America.” 
  • In a Wall Street Journal op-ed, Stanford economist John B. Taylor explained that “if politicians just increase the debt limit now without simultaneously correcting that rapid spending growth, then they will be expected to do so in the future. In contrast, if they tie any increase in the debt limit to a halt in the explosion of spending, then people will give them better odds that they will control spending in the future.”
  • Several economists have testified that skyrocketing debt portends higher taxes for American job creators, creating economic uncertainty that makes it harder for small business owners to plan, grown their businesses, and hire new workers. 

At a press conference yesterday, House Speaker John Boehner (R-OH) made clear that there will be no votes in the House for a debt hike agreement that does not include significant spending cuts and reforms (like spending caps or a Balanced Budget Amendment), or that raises taxes on the very people we expect to create more American jobs.