Limiting Government Spending to 25% of GDP to Encourage a Vibrant Economy

/Limiting Government Spending to 25% of GDP to Encourage a Vibrant Economy

Limiting Government Spending to 25% of GDP to Encourage a Vibrant Economy

Limiting  Government Spending to 25% of GDP to Allow a Vibrant Economy

Does the headline scare or excite you?  Do you find it responsible or cruel?  Instead of bringing your prejudices with you, read this blog, the report linked to this blog, and look at the budgets available on the web.  A democracy needs an informed electorate. The theme of this article is that it is necessary to limit government spending to 25% of GDP in order to have a vibrant economy.

Total taxation in the United Staes is excessive  and exceeds 39%.  This is too much.  San Francisco based Pacific Research Institute (PRI) recently published a 23 page report analyzing this  which you can download “The 15 Percent Solution: Defining the Affordable Level of Government” by Dr. Wayne Winegarden. I have heard him speak and he gives a very compelling case. This is required reading for anybody who is going to vote on taxation, bonds, or government spending, which is all of us.  The URL is below.

The 15 Percent Solution: Defining the Affordable Level of Government

“Growth in the economy is measured as the growth in inflation-adjusted median family income (Y). In measuring how much spending is excessive, the studies reviewed above measured the optimal size of the government relative to U.S. GDP, finding that total federal, state, and local spending should be (at most) about 25 percent of GDP. Federal expenditures were 21 percent of GDP as of 2016, indicating that current federal expenditures are well past an affordable level.” (See ibid p. 10.)

Simply, the conclusion is that total government spending can’t exceed 25% of GDP without depressing the economy.  This includes Federal, State and Local Government.  If the Government takes 15%, then that leaves 10% at the state and local level.  Unfortunately, our taxes are well beyond that level.

How many Firehouses does your town need?

The example of Firehouses provides an interesting discussing for balancing government spending and services.  Winegarden writes,

In Beyond the New Normal: Accounting for Government, we illustrated this point using the example of a firehouse. Establishing a firehouse in a town without one provides tremendous value. Now, trained professionals can fight fires and reduce the dangers and damage created by fires. If the town is large, a second firehouse will also provide tremendous value, although slightly less value than the first. There comes a point where funding an additional firehouse does not sufficiently improve the town’s safety, relative to the cost of establishing the firehouse. Paying for firehouses beyond this level detracts from the town’s welfare. (ibid p. 7.)

My town of Los Altos chose to have two fire houses, due to the response time.  Further, they decided to outsource them to the county.  There were many argument for having the county run the fire department. First, it was less expensive since there was an economy of scale to having a large organization such as the county manage the fire department; they can backup and shift resources as needed without additional hiring.  Additionally, managing more public employees comes with quite a burden and risk.  Due to the large unfunded pension liability for public employees in CA, public employees pensions put a city at great financial risk. See our previous blog Pension Reform.

It was not without a few missteps.  They county personnel did not know the city geography well, and managed to drive a brand new half million dollar fire truck over a light wooden bridge, and everyone ended up in the creek!  Nonetheless, it has bee a good partnership. This just brings up another wasteful government practice, which is driving a fire truck when it is simply a medical emergency and all that is needed is an ambulance.  If this were a business, they would not likely do this.

Los Altos chose to outsource fire services to the county, minimizing cost and putting some of the risk for the employees unfunded pension liability back on to the county.  Simply, Los Altos minimized expense and risk, while maximizing service.  This is generally how government should be managed.  Getting local government spending down to 10% of GDP will require a lot more than this, but it is a start.

I endorse Dr. Alex Glew for the California Assembly District 24 Seat and you can use my name in public.

I am interested in the Following:
Posting a Glew 2018 sign in my yard or businessTalking to my neighbors about AlexHosting an event for AlexVolunteering to help in the campaign officeWriting "dear friend" postcardsWalking my own precinctVolunteering to make calls from the campaign officeVolunteering to make calls from homeJoining the eyes and ears teamHelping install/deliver signsOther

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Does the State of CA spend to much causing you to pay too much CA State tax?

Read More about the CA Budget

Do we need a defined debt limit in order to put a brake on government debt accumulation?

Read More about Defined Debt Limit

Does the United States Federal Government spend too much causing you pay too much Federal Tax?

Read More about the Federal Budget

Does the Santa Clara County Government spend too much causing you pay too much County Tax?

Read More about the Santa Clara County Budget

Does the San Mateo County Government spend too much causing you pay too much County Tax?

Read More about the San Mateo County Budget

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