Government spending v. economic growth

Geoffrey Lawrence

Cato’s Steve Hanke has a great article today detailing the impact of federal spending policies on the nation’s economic performance (although Rothbard and I would diverge somewhat from his outlook on monetary policy). Hanke demonstrates how the historical evidence confirms that government spending restraint is directly related to economic growth – to the chagrin of Washington’s growing population of Keynesian apologists.

Many WriteOnNevada readers, however, might be most interested in the statistics Hanke provides on different presidential administrations’ record on fiscal discipline. Hanke examines federal spending as a percentage of GDP and shows how that percentage has changed under each post-war administration. I’ve reproduced the results below:

1. Clinton -3.9
2. Eisenhower -1.6
3. Nixon -0.9
4. Reagan -0.4
5. Carter 0.3
6. Kennedy/Johnson 0.6
7. H.W. Bush 0.8
8. Nixon/Ford 1.8
9. Johnson 2.0
10. W. Bush 2.5
11. Obama 3.1

From this table, one might conclude that the Clinton Administration presided over the most fiscally conservative period of the post-war era, while the Bush and Obama Administrations have been the most frivolous. Of course, there are a number external factors that affected each administration. The Clinton Administration, for instance, benefitted from the end of the Cold War and the resulting reduction in military spending facilitated by that event, among other factors.

Not coincident to the spending policies enacted by each administration, however, is the record of economic growth. The economy grew rapidly and living standards skyrocketed during the 1990s whereas the record of economic performance under the administrations that oversaw an increase in federal spending, as a percentage of GDP, has been dismal.

Hayek wins again.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.