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Limited Government Needed Now More Than Ever

Anti-taxation and limited government are virtually the opposite sides of the same coin. While anti-taxation needs little clarification, the meaning of limited government is less clear. Fortunately, Dr. Israel Kirzner, professor of economics at New York University, writing in the November 1985 issue of The Freeman. provides us with:

“the single goal and raison d’etre of limited government in the Misesian system: The pragmatic lessons of economic science, joined with a passionate regard for individual freedom, point unequivocally to the (classically) liberal system of private ownership of the means of production.” (emphasis in the original)

In a paper adapted from a speech at Hillsdale College in January 2008 by Charles Kessler, professor of government at Claremont McKenna College, and published in the March 2008 issue of Imprimus, Kessler says, “Utterly missing in this election season is a serious focus on limited or constitutional government.” He then goes on “to talk about seven proposition related to the problem of limited government in our day.”

A new study, “The Economic Case for Limited Government,” by the Center for Freedom and Prosperity “finds that larger levels of government spending are associated with slower growth and economic stagnation” In commenting on the study, Dan Mitchell of the Cato Institute says:

"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."

Sven Larson, the study’s author, writes in the 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.”

Larson goes on to say, “For much of its history, America had a tradition of limited government,” but shows in the following chart that federal government spending is climbing to “European levels unless entitlement programs are reformed.”

 

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