Video: Repairing The Nation’s Balance Sheets By Limiting Growth of Government Spending

Cato’s Dan Mitchell has a nice video showing examples of the actual experiences of different nations in restraining government spending which has resulted to a reduction in budget deficits and likewise augmented their respective economic growths.

Says Mr. Mitchell,

These success stories from Canada, Ireland, Slovakia, and New Zealand share one common characteristic. By freezing or sharply constraining the growth of government outlays, nations were able to rapidly shrinking the economic burden of government, as measured by comparing the size of the budget to overall economic output.

Can Governments Be Trusted To Implement Self-Discipline?

If past performance is to be reckoned with, based on the Euro Zone, the answer is NO.

This from Bloomberg, (bold emphasis mine)

``Euro-area governments breached their own fiscal rules more than half of the time since they began trading the single currency, according to data compiled by Bloomberg News.

``With Greece’s debt crisis now exposing the weakness of fiscal oversight in the 16-nation economy, governments missed one or both of the European Union’s two budget requirements 57 percent of the time since they adopted the euro. Those rules limit debt to 60 percent of gross domestic product and budget deficits to 3 percent of GDP, as set out in the 1997 Stability and Growth Pact.

``The pledge by countries to meet their fiscal rules turned out to be “rhetoric rather than reality” and contributed to the debt crisis, David Blanchflower, a Bloomberg News contributor and former Bank of England policy maker, said in an interview from Dartmouth College in Hanover, New Hampshire, where he teaches economics.

``Of the economies that have been in the euro since it started trading in 1999, Belgium and Italy missed one or both of the targets in all 11 years. Greece failed in all nine years in which it used the euro. Finland and Luxembourg satisfied both goals every year."

Read the rest here (hat tip: Professor Antony Mueller)

Here is a Bloomberg interactive graph:

click on the image to direct you to the interactive graph at Bloomberg or click here

As the illustrious Milton Friedman explains about the 4 ways money is spent -where the fourth way is about people spending other people's money on other people,

``In this case, the buyer has no rational interest in either value or quality. Government always and necessarily spends money in this fourth way. This guarantees inefficient public spending because the spenders have no vested interest in efficiently allocating those funds." (bold highlights mine)

So in absence of discipline the next recourse is to print money! So who says we're in a crisis?