Time for a Budget Game-Changer; Assurance that current tax levels will remain in place would provide an immediate stimulus. House Republican budget planners are on the right track.
Author: Gary S. Becker, George P. Shultz ; John B. Taylor</br></br>Wanted: A strategy for economic growth, full employment, and deficit reduction--all without inflation. Experience shows how to get there. Credible actions that reduce the rapid growth of federal spending and debt will raise economic growth and lower the unemployment rate. Higher private investment, not more government purchases, is the surest way to increase prosperity.</br></br>When private investment is high, unemployment is low. In 2006, investment--business fixed investment plus residential investment--as a share of GDP was high, at 17%, and unemployment was low, at 5%. By 2010 private investment as a share of GDP was down to 12%, and unemployment was up to more than 9%. In the year 2000, investment as a share of GDP was 17% while unemployment averaged around 4%. This is a regular pattern.</br></br>In contrast, higher government spending is not associated with lower unemployment. For example, when government purchases of goods and services came down as a share of GDP in the 1990s, unemployment didn't rise. In fact it fell, and the higher level of government purchases as a share of GDP since 2000 has clearly not been associated with lower unemployment.</br></br>To the extent that government spending crowds out job-creating private investment, it can actually worsen unemployment. Indeed, extensive government efforts to stimulate the economy and reduce joblessness by spending more have failed to reduce joblessness.