Daniel J. Mitchell

The only sustainable way of achieving more prosperity and higher living standards is to increase the quality and quantity of labor and capital in the economy.

This may sound like boring econo-speak, but labor and capital are the two “factors of production” and our ability to consume is limited by what we can produce.

That’s one of the reasons why it’s important to reduce the burden of government spending.

People sometimes assume it’s important to reduce the budget to lower the threat of tax hikes. That is a good reason to impose fiscal discipline, but it’s presumably even more important to restrain spending because we don’t want labor and capital being misallocated by fiscal policy.

A big public sector, after all, presumably means a large bureaucracy. And when you have lots of people employed by government, that means that they’re not working in the private sector. In other words, they’re consuming economic output rather than adding to economic output.*

Or, as these cartoons illustrate, they’re riding in the wagon rather than pulling the wagon.

This is why advocates of economic growth should strive to limit the amount of bureaucrats and how much they’re paid. The bad news is that the public sector is far too large in the United States, and that means (as explained in this video) we have too many over-compensated bureaucrats.

The good news, however, is that we’re not Denmark, which has the most expensive bureaucracy of all developed nations.

Daniel J. Mitchell

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.

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