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The Economic Consequences of Government Spending

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  • Description

    FBN’s Gerri Willis on how government spending impacts the economy.

  • Duration 2:25
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This transcript is automatically generated

Secretary Tim Geithner out trying to promote the administration's.

Free spending policies.

He's pushing back against Republicans who are calling for immediate budget cuts and long term reform for Social Security.

Medicare all those overgrown programs.

And to bolster his camp paper tax increases instead deeper cuts Geithner try to sell you this.

There is a powerful myth today in the American political debate.

Not a particularly the -- debate you know that suggests that the weakness the American -- economy is the result.

Too much spending and too much growth in government and there is no basis and no credible argument.

In support of that.

-- too much spending now when Geithner says spending.

Means government spending.

But this myth isn't busted it's been proven.

Three professors at Harvard Business School -- a huge study on what increase government spending does to the private sector.

Their conclusion and I'm quoting here we find strong and widespread evidence of corporate retrenchment in response to government spending shocks.

Now in English if you wanna know what it really means when the government increases spending companies -- back.

They significantly reduce capital expenditures are in.

And they -- drop in sales growth it's called crowding out.

And it's not just the government dollar's replaced private money.

So much of that spending is anti business here's what University of Maryland economist Peter Marie she told me today he said this.

The growth in government spending in recent years is discouraging investment too much of the increase has been for regulation and compliance the push up the cost of creating jobs.

Same goes for health subsidies and reforms.

Both push up the cost a worker benefits.

So you see the recipe for growth is consistency not a government running around spending money like a headless chicken.

Tax breaks that are here today gone tomorrow sweeping Health Care Reform that could disappear next month short term stimulus.

He's no grounds to be building a business strategy on.

Sadly our Treasury Secretary -- on prayed that -- the government can grow the economy before the government to give.

First it -- to take away and here's where he really misses the point.

-- on the spending -- even bigger problem is the debt it leaves behind dead boosts your costs of down -- line after raise revenue like taxes to pay for it.

And that drags the economy down.

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