As the U.S. Government Grows, American Prosperity Slows | WHAT REALLY HAPPENED

As the U.S. Government Grows, American Prosperity Slows

By Richard M. Salsman

Myopic accounts of American economic performance are common today, permitting political partisans to cite whatever period they wish to prove any case they want. Republicans today insist that President Trump’s policies have revitalized U.S. economic growth after years of supposed stagnation under President Obama, while Democrats say Obama’s policies started the recent revival, reversing the disastrous “Great Recession” of 2008-09 which was caused by President Bush’s policies. If you pick your own period, you can “prove” almost anything.

Let’s reject partisan analysis for a moment, look back 150 years (from the end of the Civil War), ignore whatever party or president was dominant, and try to discern a relationship between the size, scope and power of the U.S. federal government and America’s economic growth rate. Let’s consider U.S. federal spending, tax revenues and debt as a share of GDP and use the longest, most reliable time series for output: the U.S. Industrial Production Index (IPI). Unlike GDP...