Tuesday, September 15, 2009

Big Government

When government gets too big, economic growth slows.  Here is the Rahn Curve, developed by Richard Rahn.

Even during the just ending world wide recession, Americans enjoyed more income than almost everyone else.  However...

under Obama, our government is quickly approaching the relative size of our Western European neighbors. The bigger the government gets from here, the slower our relative growth will be. The best guesstimates for  maximum growth is governments of 15 to 25% of GDP. The USA has shot up to 37% or better in recent months.

On the other hand, those who currently see the economic glass as half empty are making the mistake of believing growth will end as government gets bigger. Coming out of this recession, we will see very high rates of growth, perhaps even 4% in the current quarter! Because we are clearly on the downward sloping portion of the Rahn Curve, the growth will not be what it should be.

We are already in the early stages of a massive investment cycle. Over the next few years, huge amounts of money will be invested in things such as LTE high speed Internet equipment  One can see the pending surge in investment by looking at inventories. Inventories to sales are very low. Indeed, even total inventories of houses for sale are low! There has been an increase in home construction for 5 months in a row but we have a long way to go to reach levels were homes are being built as fast as households are being formed, therefore the massive backlog of "excess homes", that shows up as months supply, is falling quickly.

Enjoy the prosperity that living in America allows, but speak out against big government programs designed for political payoff of the few rather than the economic well being of the many!