Today, the South Carolina Policy Council unveiled a study: “The Economic Impact of Federal Spending on State Economic Performance: A South Carolina Perspective. This project was done in cooperation with Arduin, Laffer & Moore Econometrics. Remember Dr. Arthur Laffer was Reagan’s chief economist. The findings? The $700 million stimulus that Gov. Sanford has refused would have resulted in job losses for South Carolina; specifically 23,800-34,850 additional jobs lost.
Here are a few highlights. Click to see the full report.
Federal government spending comes with a cost to the private sector, ether higher taxes today or more borrowing which produces higher taxes later.
Total government expenditures relative to the private economy appropriately measures the burden created by total government spending. The government expenditure wedge (GEW) is defined as government expenditures divided by net domestic business output. *(the lower the better)
Increase in Government spending results in an overall downturn in the economy. Examples
–Between 1950 and 1965 GEW was low (32.4%) later it grew 5.5%. Private sector expansion was 3.6% per year.
–Between 1965 and 1983 GEW rose to 49.0% private sector slowed to 2.5%
–1983 – 1988 GEW fell to 45.7% and the private sector grew to 5.1%
–(continues trend GEW up = Private sector down see page 2)
Result: Accepting federal dollars causes a slowing in the private sector. 1.7 million jobs lost in US + 23,800 – 34,85 additional jobs lost in SC.
No such thing as a free lunch.
-More government spending creates lower private sector –
-Lower private sector produces higher unemployment –
-Higher unemployment creates more unemployment benefits.
-More government spending creates greater costs to states in unemployment benefits.
Government spending directly produces higher state taxes.
After the stimulus bill the SC GEW will be 61.0%
The Stimulus plan will be detrimental to SC, causing a slowing in the private sector, higher unemployment, higher state spending and higher state taxes.