IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
It seems logical: economic growth resumed in the United States, and since the United States used an economic stimulus thanks to budget deficits, it could be believed that public spending lead to recovery. Indeed, but… it is in the sectors that did not benefited from the Federal money that new companies and new jobs were created. And in States that have reduced their public spending (as in some European countries).
During the last days, several analysts and journalists have pointed out the U.S. economic growth compare to the European stagnation. The main reason is, according to them, the extraordinary public stimulus launched by President Obama in 2009. No less than $825 billion were put into the economy. This explanation does not really sustain the true analysis of facts.
First, if in 2014, U.S. growth is estimated between 2.7 % and 3.2 %, some European countries will also experience a GDP growth. This is not France, but Germany (estimated GDP at more than 2% growth) and the UK (+2.5 %). These countries - should it still be reminded? - have made significant economic reforms in recent years. As the United States by the way. Between 2009 and 2013, more than 720,000 civil servant jobs were cut at the Federal, State and local government levels.
If we compare with previous economic crises, it can be seen whether the economic recovery has always been so strong. The early 1980s crisis was followed by an even stronger economic rebound than today: GDP growth then averaged 5% per year compare to 2% between 2009 and 2014. This result was reached without hundreds of billions of dollars of public subsidize. Again, the length of the recession has never been so long: 52 months since 2008 compare to 33 months on average for the previous crises. Despite the unemployment decrease at the end of 2013, the U.S. economy still has 2 million fewer jobs than in January 2008. According to several recent reports, only 41% of companies that received public aid hired people. Most of the jobs were actually created in economic sectors that have not been helped as new technologies, medical sector or even textiles as well as in States that are business-friendly thanks to their taxation and regulation, like Texas, Michigan, Wisconsin or Oklahoma.
To say the truth, American entrepreneurship made the U.S. economic recovery happen, not public stimulus .