John Tamny has another basic lesson in economics for us, spurred on my another conservative commentator who may or may not know what he’s talking about.
Again, government can only spend what it’s taxed or borrowed from us first. Deficits and surpluses don’t matter as much how much government spends. The more politicians spend the less we earn. And that’s true not just because we the taxpayers pay for the waste of the prodigals in Washington.
When governments spend that means there’s quite a bit less private sector saving, and by extension, quite a bit less investment. Investment – whether it be in tractors, computers, faster WiFi, better hammers, saws, and everything else – is what boosts our productivity each day on the way to greater pay. Government spending not only reduces our pay in year one, it reduces it to an exponentially greater degree in years three, ten and fifteen thanks to productivity enhancements that are never invested in or tried in the first place.
Dan Mitchell has a great post, this is just a tease, you really need to go see the post and watch the videos:
But this brings me back to my original point. Yes, Reagan’s policies led to a strong stock market. His policies also produced rising levels of median household income. Moreover, the economy boomed and millions of jobs were created. These were among the reasons he was reelected in a landslide.
But these good things weren’t random. They happened because Reagan made big positive changes in policy. He tamed inflation. He slashed tax rates. He substantially reduced the burden of domestic spending. He curtailed red tape.
In other words, there was a direct connection between good policy, good economy, and good political results. Indeed, let’s enshrine this relationship in a “Fourth Theorem of Government.”
It is hard to believe Larry Kudlow has been off the air nightly for three years already: