Tuesday, February 26, 2013

Government Spending and Economic Stability

A very simple way to look at government spending is that the government is just another consumer and producer of useful services like the private sector. In fact, it constitutes about 20% of GDP, so when it cuts back on spending it's just like any employer or consumer cutting back, only with much greater effect. When the private sector is increasing its spending is the time for the government to cut back. When the private sector decides to save, it's time for the government to increase spending to make up the difference. If we want a stable economy, overall spending must increase at a rate comparable to the rate of increase in population. Government is not the problem. It's the solution in times of trouble in the private sector.

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