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Monday, August 31, 2009
10:55 AM EDT
Tim Andrews

How Big Government Prolonged The Economic Downturn

In an op-ed that appeared in last week's Wall Street Journal, world-renown economist Alan Reynolds showed how "recessions have become longer as the U.S. government (and the Fed) became larger, more expensive, and more involved in the economy. Foreign countries in which government spending accounts for about half of the economy have also suffered the deepest recessions lately, while economic recovery is well established in countries where government spending is a smaller share of GDP than in the U.S."

He then proceeds to demonstrate how in 13 major world economies, the countries with the largest government suffered the most in the the recent economic downturn (see chart to the left).

Running regression models over these numbers, a strong statistical correlation is demonstrated between the size of government in 2007, and economic growth over the last 4 quarters.

In order to demonstrate that this sample holds true accross all economies, we expanded the analysis to include all remaining OECD countries for which data was availiable.

The results should surprise no-one:

 

 

Posted by Tim Andrews on Monday, August 31, 2009 10:55 AM EDT
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