In a recently released study from the Joint Economic Committee, the findings overwhelmingly show that cuts in spending grow the economy. The study outlines several key predictors for real economic growth. For instance, the study shows that private investment and private sector jobs increase or decrease in unison. The study also tracked trends from 1971 to 2007 demonstrating that every time government spending and consumptions increased, private employment sharply decreased. The reverse was also shown to be true; every time government spending and investments decreased, private employment increased. When examining government spending as a percentage of GDP, increases lead to the unemployment rate also increasing along with it. As that percentage falls, so does the unemployment rate.
Another highlight of the study was the correlation between successful consolidations of debt and a reliance on at least 85 percent spending cuts, as opposed to attempts to raise revenues. Also supporting this finding, foreign countries were examined to see if the trends matched with data from the United States. Canada, Sweden, and New Zealand were closely studied and the data clearly showed that economic growth was highest when government spending was lowest. Also, their economic growth was lowest (or in some cases even negative) when government spending was at its highest. This is consistent with data from the Organisation for Economic Co-Operation and Development and other reports that have studied the subject.
Ultimately, when government spending is lowered the economy will experience growth. This works because precious resources are not being diverted from the private (and much more productive) sector to feed government overspending. The Joint Economic Committee study empirically demonstrates this principle and concludes with three key findings. First, spending cuts work; tax increases don’t. Second, spending cuts boost the economy in the short term too. And third, spending cuts must be credible to realize short term growth benefits.