With unemployment still hovering near 8 percent, President Obama has
made it a second term priority to increase economic growth. Yet the
president’s own policies, which have lead to a significant growth in the
size and cost of government, may make it difficult, if not impossible,
for the United States to grow at the rate necessary to significantly
increaseemployment.
Much attention recently has been focused on the ongoing struggle
between President Obama and Republicans in Congress over the budget
deficit. And, of course, the deficit is indeed significant. This year
will mark the fifth consecutive year that budget deficits will exceed $1
trillion, and our national debt exceeded $16.4 trillion as of January
2013. The need to increase the debt ceiling in February or March of this
year is expected to provoke another painful legislative battle.
Certainly, the deficit and debt are barriers to economic growth. For
example, the International Monetary Fund looked at the relationship
between federal debt levels and economic growth, concluding that from
1890-2000, countries with high debt levels consistently grew their
economies at slower rates than those with low debt levels (Abbas et
al.).Similarly,Carmen Reinhardt of the University of Maryland and
Harvard’s Kenneth Rogoff conclude that countries with debt ratios above
90 percent of their GDP have median growth rates one percent lower than
countries with lower debt, and average growth rates nearly four percent
lower (Reinhardt and Rogoff). Our debt currently exceeds 102 percent of
GDP, if one considers both debt held by the public and intragovernmental
debt. (Bureau of the Public Debt; Bureau of Economic Analysis)
Worse, that likely understates the true size of our indebtedness. If
one includes the unfunded liabilities of Social Security
and Medicare and the total future debt of the United States, this
country’s real total indebtedness could run as high as $129 trillion (in
current present value). Even under the most optimistic scenarios, our
real debt approaches $80 trillion. Measuredas a percentage of GDP, our
total debt exceeds the total debt of Greece or Spain (Tanner). And, as
we move forward, much of that debt is liable to be converted into new or
higher taxes with even worse consequences.
This creates a devilish sequence of cause and effect. The debt burden
means that economic growth will be lower in the future. This, in turn,
means that without some sort of reduction in the structure of programs
such as health care and retirement, the debt burden will grow as a
percentage of the economy. The larger debt burden will further reduce
economic growth, making the debt still larger relative to GDP, and so
on. Therefore, the longer countries wait to make adjustments to these
programs, the more difficult the problem of balancing long-term budgets
becomes.
As frightening as the numbers discussed above may be, focusing on
taxes and debt is to confuse the symptom with the disease. As Milton
Friedman often explained, the real issue is not how you pay for
government spending—debt or taxes—but the spending itself.
Of course, some government spending is necessary. Governments must
provide certain basic services such as adjudicating disputes,
maintaining police and defense functions, and, arguably, maintaining the
infrastructure necessary for a functioning economy. Thus, under a
scenario with zero government spending there would be little, if any,
economic growth.
But beyond a certain level, nearly all economists would agree that
the costs of government exceed the benefits it provides, leading to
lower economic growth.For example, if governments consumed 100 percent
of GDP there would be little or no economic growth. In between is a
curve, with rising initial growth accompanying increased government
spending, followed by declining growth once government gets too large.
As James Gwartney, Robert Lawson, and Randall Holcombe argue:
As governments move beyond these core functions [of protecting people
and property], they will adversely affect economic growth because of a)
the disincentive effects of higher taxes and crowding-out effect of
public investment in relation to private investment, b) diminishing
returns as governments undertake activities for which they are
ill-suited, and c) an interference with the wealth creation process,
because governments are not as good as markets in adjusting to changing
circumstances and finding innovative new ways of increasing the value of
resources (Gwartney, Lawson, and Holcombe).
Since World War II, the federal government has generally accounted
for about 20 percent of GDP. Under Presidents Bush and Obama, that
amount has increased significantly, hitting a high of 25.2 percent in
2009. Today, the federal government consumes 22.9 percent of GDP, and
while that is projected to decline to 22.4 percent of GDP, it will begin
rising significantly after that. Under current trend lines, CBO
projects that federal spending could reach 46 percent of GDP by 2050.
When one considers that state and local government spending adds an
additional 15-20 percent of GDP to that level, governments at all levels
will likely consume more than 60 percent of GDP, unless significant
changes occur (Congressional Budget Office).
Economists debate the exact relationship between the size of
government and economic growth (the slope of the curve), but few would
argue that governments can consume an unlimited proportion of the
national economy without it having a significant impact on that economy.
For example, Harvard’s Robert Barro found that “public consumption
spending is systematically inversely related to economic growth,” and
that there is a “significantly negative relation between the growth of
real GDP and the growth of the government share of GDP” (Barro). In
other words, as government spending goes up, economic growth goes down.
Similarly, James Guseh found that every 10 percent increase in the size
of government led to a 0.74 percent decline in economic growth in
democratic mixed economies, and a slightly larger 1.11 percent decline
in democratic market-based economies (Guseh). And a study by Stefan
Folster and Magnus Henrekson of Sweden’s Research Institute for
Industrial Economics came to a nearly identical conclusion: a 10
percentage point increase in government expenditure was associated with a
0.7 to 0.8 percentage point reduction in the economic growth rate
(Folster and Henrekson).
A study by Prmoz Pevcin of the University of Ljubljana found an even
larger impact, a decline in economic growth of 0.15 percentage points
for every one percentage point increase in the size of government
(Pevcin). And an older but still relevant empirical analysis of 23 OECD
countries by James Gwartney and his colleagues found an effect of
similar magnitude: a ten percentage point increase in government
consumption as a share of GDP reduced the growth rate of real GDP by one
percentage point (Gwartney et al.).
To be sure, not every study reaches the same conclusion. Perhaps the
most widely cited of these contrary studies is a survey of 115 countries
from 1960-1980 by Rati Ram of Illinois State University. Ram concluded
that the impact of the size of government on economic output was almost
always positive, though the relationship was possibly stronger in lower
income countries (Ram).
However, as Eric Engen of the Federal Reserve Board and Jonathan
Skinner of Dartmouth University point out in a paper for the National
Bureau for Economic Research, “an obvious shortcoming with Ram’s
econometric estimates is endogeneity; countries that grow fast also tend
to increase government spending”(Engen and Skinner). This basically
means that the direction of cause and effect cannot be properly
determined from the selected variables, and raises statistical problems
with the concluding claim. In addition, both Jack Carr of the University
of Texas and Bhaskara Rao of MIT criticize Ram’s model for including
government spending as part of GDP, which means that GDP may grow simply
because government spending grows (Carr; Rao).
Finally, some studies have found ambivalent or contradictory results.
A 2006 study by Marta Pascual Saez and Santiago Alvarez Garcia found
that the relationship between the size of government and economic growth
can be either positive or negative depending on what countries are
included in the sample, the time frame involved, and how the size of the
public sector is measured (Saez and Garcia). But overall, the vast
majority of research concludes that big government is incompatible with
economic growth.
A U.S. government that consumes 46 percent of GDP at the federal
level—and more than 60 percent overall—would clearly seem to exceed any
reasonable estimate for a burden of government compatible with economic
growth.
President Obama seems wedded to an old-fashioned Keynesian philosophy
of trying to revive the economy by using government hiring and spending
to increase consumer demand, but the body of evidence suggests that
those policies are self-defeating. By increasing the size and cost of
government the president is actually slowing economic growth and
reducing the number of jobs available.
Is the every growing government the source of the slow economy?
recently said: “The flight of Christians out of the region is unprecedented and it’s increasing year by year.” In our lifetime alone “Christians might disappear altogether from Iraq, Afghanistan, and Egypt.”
One in 10 Los Angeles County residents is an immigrant living in the country illegally, according to astudy released Tuesday by the USC Center for the Study of Immigrant Integration.
Many of those immigrants have been in the country for more than a decade and are the parents of children who are American citizens, the study found. One in five children in Los Angeles County has at least one parent who is in the country without proper documentation.
One in four of the estimated 11 million people said to be in the United States without legal authorization lives in California. Statewide, the study estimates that about 7% of residents, or more than 2.6 million people, are in the country illegally.
Many of those immigrants have been in the country for more than a decade and are the parents of children who are American citizens, the study found. One in five children in Los Angeles County has at least one parent who is in the country without proper documentation.
One in four of the estimated 11 million people said to be in the United States without legal authorization lives in California. Statewide, the study estimates that about 7% of residents, or more than 2.6 million people, are in the country illegally.
That means the stakes for California are particularly high as Congress debates immigration reform, including the possibility of a mass legalization.
“The share of children with at least one undocumented parent really speaks to the interwoven generations,” said Manuel Pastor, the USC center’s director and a coauthor of the study. “Another thing that’s striking to me is the length of settlement of the undocumented population. Rather than the person who stands in front of Home Depot who just got here a year ago, it’s actually a more settled population.”
In Los Angeles County, 63% of unauthorized immigrants are from Mexico and 22% from Central America, according to the study. Eight percent are from the Philippines, Korea or China.
In the Bay Area, the percentage of Asians in the unauthorized population is much higher, at 23%.
“The share of children with at least one undocumented parent really speaks to the interwoven generations,” said Manuel Pastor, the USC center’s director and a coauthor of the study. “Another thing that’s striking to me is the length of settlement of the undocumented population. Rather than the person who stands in front of Home Depot who just got here a year ago, it’s actually a more settled population.”
In Los Angeles County, 63% of unauthorized immigrants are from Mexico and 22% from Central America, according to the study. Eight percent are from the Philippines, Korea or China.
In the Bay Area, the percentage of Asians in the unauthorized population is much higher, at 23%.
Immigrants residing in Los Angeles County illegally make a median wage of $18,000 a year, compared with $47,000 for U.S.-born residents. Only 33% have health insurance, the researchers found.
Nearly half of the county’s unauthorized immigrants lack a high school diploma, and 60% do not speak English well, according to the study. Twelve percent own their own homes.
The study’s authors expect the earnings of unauthorized immigrants to increase if they are granted legal status. By a conservative estimate, newly legalized immigrants in Los Angeles County could collectively earn an additional $1.5 billion annually, according to the study. Statewide, the income gain could be $4.6 billion annually.
Nearly half of the county’s unauthorized immigrants lack a high school diploma, and 60% do not speak English well, according to the study. Twelve percent own their own homes.
The study’s authors expect the earnings of unauthorized immigrants to increase if they are granted legal status. By a conservative estimate, newly legalized immigrants in Los Angeles County could collectively earn an additional $1.5 billion annually, according to the study. Statewide, the income gain could be $4.6 billion annually.