WSJ.com - How Big Government Hurts the Average Joe

 

WSJ.com - Opinion: How Big Government Hurts the Average Joe

 

During the debt-ceiling debate, President Obama characterized his push for higher taxes and less aggressive budget cuts as being helpful to the middle class. The claim was that failing to raise taxes on high-income earners would place a disproportionate share of the pain on the rest. But it is our record-high government spending, not the failure to raise taxes on the rich, that is the typical American's largest long-term problem.

Workers do well only when the economy grows at a healthy and consistent pace. The biggest threat to long-term economic growth is government growth of the magnitude that characterized the past two years and that is forecast for our future.

Our current problems are not a result of acts of nature. They stem from policy choices that dramatically increased the size of the government. In the past two years, the federal budget has grown by a whopping 16%.

The budget for Health and Human Services, for example, home to Medicare and Medicaid, rose a hefty 22%, as compared with 12% for Defense.  The sum of 11 other agencies experienced an increase of more than 50% over the two-year period. Some of the budget increases should disappear when the economy rebounds, but much of the addition is permanent and is reflected in the president's projected future budget numbers.

The price of the stimulus is what appears to be a permanent increase in the size of government that will continue to slow economic growth. Most economists believe that high debt and high taxes each contributes to slow economic growth, which hurts workers both in the short and long run.

In the short run, job growth is very closely linked to GDP growth. If the economy is not growing, then jobs are not being added.

In the long run, wage growth suffers when GDP growth is weak. Labor productivity grows when technology advances as a result of capital investment, human or physical. But high taxes and the increased interest rates caused by high government debt reduce investment, which in turn impedes growth in labor productivity.