Comment 59607

By A Smith (anonymous) | Posted February 11, 2011 at 18:52:14

Pxtl >> the '01 and '09 logic is obvious - spending on health and education didn't ramp up and cause the recession, they ramped up because both of those recessions were caused by empty-money booms.

M3, a broad measure of money supply hovered at very high rates during the seventies (around 10% a year)...

http://goldprice.org/bob/uploaded_images/m3b_long_term-754943.png

And yet, during this time period, after adjusting for price inflation, the U.S. economy averaged 3.2% GDP growth a year.

In contrast, the time period between 1986 and 1996 saw much slower levels of money growth (around 3% a year) and yet GDP growth averaged only 2.9% per year. In fact, in 1991, money supply was only growing at 1% a year and yet there was still a recession.

If easy money causes economic growth to slow, it doesn't show in the numbers. However, the correlation between increased spending on health and education and recessions does seem to be consistent.

If we can't have absolute proof to go on (too many variables), shouldn't we at least pick the best and most consistent correlations to guide our decisions? If that's the case, then Hamilton should start reducing our reliance on government freebies if the goal is a faster growing economy.

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