this is partially correct, but not correct when it says "mostly" revenues dropped as a % of GDP, which is what everyone focuses on when attempting to make that claim - what they don't reference is that government spending
spiked as a % of GDP at the same time, and the government does not typically tax itself.
note for example, that the revenues collected in 2010 roughly match what we collected in 2005, and we are projected to come in above 2005 in 2011. (constant dollars); yet our deficit in 2005 was
$318.62 Bn. This year our deficit is projected to be about $1.5-1.6
Trillion. What's the $1.2 Trillion difference? Increased (drastically increased) spending.
So, yeah, the loss of revenue hurt - but as we recover we are increasing our revenues and approaching our former high-water mark. But not as bad as spending - which also grows every year, and typically grows
faster than revenues. That's what Obama's "federal spending freeze" meant - he wanted to solidify the much larger
base from which spending would grow in line with inflation - figuring that by offering a potemkin solution he could drain support from the Republicans calls for cuts.
History begs to disagree. The US has cut spending twice in the last century in response to economic turmoil - and both times it was rewarded with booms. The experience of other industrialzied nations confirms this. You want to "stimulate"? Cut taxes. you want to
really stimulate? Cut taxes
and spending.
Lengthy but worth it:
Data from the OECD indicates that if you separate the "stimulus" plans that were - in fact - followed by robust economic growth from those that were not, and compared their characteristics, you find that the stimulus packages that appeared to be successful had cut business and income taxes, while those that evidently did not succeed had increased government spending and transfer payments.
the "oh the government can stimulate the economy through spending" models always forget that government
got that money from somewhere. Yes, if Government had a magic money tree that could produce endless wealth somehow through breaking the laws of economics without causing inflation, then that might be possible. In the real world, unfortunately, every dollar the government spends it either, taxes (taking from producers), borrows (taking from investors), or prints (taking from everyone who owns dollars). Now, if you take wealth from the people who would otherwise use it to produce, you reduce production. If you take it from the people who would otherwise invest, you reduct investment. If you take it from everyone... well, our gas and food prices rise.
And Golly Gee Willickers, wouldn't you know it, the government took it from investors and everyone, and we saw a dramatic fall in investment and gas and food prices are rising....
BS: Bush hadn't stopped the economy from wrecking. A whole host of factors (fed policy, deficit spending, the CRA, Freddie and Fannie, the failure of the ratings agencies, a compliant congress) caused the crash of 2008.
BUSH was actually the FIRST one to try to "stimulate" the economy, you may recall - in early 2008, he wanted to "jumpstart" the economy "so that we could avoid a recession". It failed for him, too. Then Obama came around and promised us that if we didn't just triple, but sextupled down, it would be
sure to work, and we could "stay below 8% unemployment".... and it didnt' for him, either.
Because the Government is not all-knowing, all-wise, able to predict the future, nor possessing of a magic money tree. If any of these things
were true,
THEN keynesian stimulus theory would work... and so would state socialism (popularly known as "communism").
Instead, virtually every Keynesian prediction has failed. They told us in 1932 that if we just ramped up spending we could be recovered by 1935 (we didnt' fully recover until the 1950's). They told us in 1946 that if we reduced federal spending we would go back into the Great Depression (instead our economy boomed). They told us in the 1970's that we needed inflation to reduce unemployment (instead we got stagflation). They told us in the 80's that cutting taxes would reduce revenues and potentially harm growth (it didn't). They told us in 2001 that a large tax rebate would fix the Tech Bubble (Bush listened to them, tried it, and it didn't), they told us in 2008 that if we spent 2% of the economy in a "stimulus" package we could "jumpstart the economy" and avoid a recession (Bush listened to them
again, and we didnt'). Then they told us in 2009 that if we only spent 9% of our GDP "stimulating" the economy we would be able to break the fall of the recession and keep unemployment under 8%. So we tried
that and what was the result?
Had the U.S. economy recovered from the current recession the way it bounced back from the other 10 recessions since World War II, our per-capita gross domestic product (GDP) would be $3,553 higher than it is today, and 11.9 million more Americans would be employed.
History has not been kind to the "we can spend our way to prosperity" crowd.
