That is the topic of my latest Bloomberg column, here is one excerpt:
Recently the CBO issued a working paper considering what would happen if U.S. government expenditures were to consume an additional 5% to 10% of GDP. The results are pretty grim: By 2030, because of higher taxes and higher borrowing, the level of GDP would be 3 to 10 percentage points lower. The largest losses are suffered by young Americans, who would go through more of their lives with a lower capital stock, leading to lower wages. Worse yet, the losses are highest when the spending is financed by progressive taxation — a very popular idea in today’s Democratic Party.
As with the CBO’s minimum-wage analysis, you may not agree with every aspect of this study. The authors themselves note that it neglects any productivity gains that might follow from the expenditures. Still, these estimates represent a real challenge to those who favor more government spending.
This analysis has mostly been ignored rather than attacked, which is unfortunate for those of us who would prefer a robust debate. In the meantime, “If you can’t even convince the CBO” seems like a good standard of proof for Democrats to accept — and one they themselves insisted on not very long ago.
For the pointer to the new CBO study I thank Corey Frederick Kallen.