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CF&P Foundation Press Release

Center for Freedom and Prosperity Foundation

For Immediate Release
Tuesday, April 17, 2007
202-285-0244
www.freedomandprosperity.org

Resuscitating the Case for Limited Government
New Study Finds that Small Government is
More Beneficial To Growth Than Big Government

 (Washington, DC, Tuesday, April 17, 2007) The Center for Freedom and Prosperity Foundation today released a research paper, entitled "The Economic Case for Limited Government." Written by Dr. Sven R Larson, a former research fellow with the CF&P Foundation, the study finds that larger levels of government spending are associated with slower growth and economic stagnation. Dr. Larson warns that unchecked entitlement programs put America at risk of becoming an uncompetitive European-style welfare state. If left unchecked, however, the federal government's budget will metastasize, growing from about 21 percent of GDP today to nearly 40 percent of national economic output after the baby-boom generation retires. The new study proposes a radically different approach, outlining a vision of the limited federal government assumed by America's founders.

Link: The Economic Case for Limited Government:
http://www.freedomandprosperity.org/Papers/rahncurve/rahncurve.shtml

Comments on the study:

Andrew Quinlan, CF&P Foundation ~ "Using the Rahn Curve, which illustrates how too much government spending reduces economic performance, Dr. Larson's paper explains why lawmakers should reduce the size of government before America becomes a slow-growth European-style welfare state."

Dan Mitchell, Cato Institute ~ "Regardless of their political affiliation, politicians in Washington behave as if bigger government is desirable. Yet this means economic stagnation. This new study shows that a limited government is the route to more prosperity."

Veronique de Rugy, Mercatus Center ~ "Slow growth and lower living standards in Europe reveal the cost of excessive government. As Dr. Larson's research urges lawmakers should seek to reduce government, not expand it."

Executive Summary

The burden of government spending in the United States has grown considerably since 2000, but this is just the calm before the storm. Thanks to unchecked entitlement programs, America is at risk of becoming an uncompetitive European-style welfare state. Total government spending already consumes about one-third of national economic output, with the federal government spending $2 for every $1 spent by state and local governments. If left unchecked, however, the federal government's budget will metastasize, growing from about 21 percent of GDP today to nearly 40 percent of national economic output after the baby-boom generation retires.

Instead of allowing government to grow, policy makers should focus on how best to shrink the public sector. Academic research clearly shows that government spending - once it reaches above the level needed to finance core responsibilities such as the rule of law - hinders economic growth by misallocating labor and capital. Indeed, there is even a well-established relationship, illustrated by the Rahn Curve, showing how larger levels of government spending are associated with slower growth and economic stagnation. Researchers do not agree on the precise number, but there is general agreement that the growth maximizing level of government is between 15 percent of GDP and 25 percent of GDP, far below current levels.

Most federal spending is unjustified. To cite just a few examples, the Departments of Energy, Education, Commerce, Housing and Urban Development, and Agriculture engage in activities that are not legitimate functions of the federal government. They should be shut down. A substantial share of federal spending is consumed by entitlement programs such as Social Security and Medicare. These programs should be shifted to the private sector. The transition may be lengthy, but the ultimate objective is more freedom and greater prosperity. This requires smaller government.

 

Link to paper:
http://www.freedomandprosperity.org/Papers/rahncurve/rahncurve.shtml

PDF version of paper:
http://www.freedomandprosperity.org/Papers/rahncurve/rahncurve.pdf

 

For additional comments:
Andrew Quinlan can be reached at 202-285-0244, quinlan@freedomandprosperity.org
Dan Mitchell can be reached at 202-218-4615,
dmitchell@cato.org
Veronique de Rugy can be reached at 703-993-4930,
vderugy@gmu.edu

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