The Era Of Shrinking Government Sucks

Karl Smith explains the latest GDP revisions:

1) The downward revision was driven primarily by a faster shrinking government sector than originally estimated.

2) The decline in government spending now essentially matches the rise in personal consumption spending. Thus right now, all of the growth in the economy is coming from business investment.

Because people overrate the importance of the federal government vis-a-vis the whole structure of the American state, and then overrate the importance of the president vis-a-vis the rest of the federal government, people have a hard time getting their heads around this. But the American public sector is undergoing an essentially unprecedented period of real shrinkage — i.e., not just percentage of GDP. According to one theory of the economy, smaller government should lead to a boom in productive business investment that creates prosperity. According to reality, business investment is going up, but not by nearly enough to produce prosperity. And yet the main prescription for the economy that I hear is that we should reduce government spending to spark a boom in business investment.