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Recipe for Growth: Smaller Government

May 22, 2012 by Matthew Denhart

Paul Krugman, writing for The New York Times, takes issue with an Op-Ed by Edward Lazear that appeared recently in The Wall Street Journal. Lazear is a member of the advisory board of the George W. Bush Institute, and chairman of the board of overseers of the Becker Friedman Institute at the University of Chicago. In his blog, Krugman defends broader government spending as a method for boosting growth. Yet too much emphasis on government stimuli neglects the ample evidence that smaller government is good for growth. In his Op-Ed, Lazear mentions the economists Andreas Bergh and Magnus Henrekson who find that an increase in the size of government relative to GDP by 10 percentage points is associated with a half to one full percentage point decrease in the annual growth rate of a country. Bergh and Henrekson's analysis ranges over a wide period. In U.S. history, there have been a number of moments when strong growth followed budget cuts, as the Bush Center's Amity Shlaes has noted in several articles. One instance was in the 1920s, when the federal government cut the budget in half. More than five years of strong growth followed. Yes, there was an intervening recession, that of the early 1920s. It was sharp, but so short almost no one remembers it.


Author

Matthew Denhart
Matthew Denhart

Matthew Denhart is an expert on immigration policy and is the author of the Bush Institute’s America's Advantage: A Handbook of Vital Immigration and Economic Growth Statistics, now in its third edition. He currently serves as executive director of the Calvin Coolidge Presidential Foundation and is a founder of the Coolidge Scholars Program which provides full-ride merit scholarships to America's most promising college students. A summa cum laude graduate of Ohio University, Denhart has written and spoken widely on a variety of policy topics including the economics of higher education, labor, and taxes. He has contributed articles to numerous national publications including The Wall Street Journal, Forbes.com, CNN Opinion, and Bloomberg View. 

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