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The Truth About Spending Cuts and the Economy

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BG-cutting-budget-grows-economy-chart-1Liberal economists like Paul Krugman might be calling for more government spending to help our ailing economy, but federal spending cuts are the better bet for long-term economic growth according to a new study released today by The Heritage Foundation’s Romina Boccia.

Krugman stubbornly argues that government should spend more for the economy to thrive. Last spring as the 2013 sequester took place, he offered “a refresher on the nature of our economic woes and why this remains a very bad time for spending cuts.”

Just a few months after that, Moody’s asserted that the U.S. economy “has demonstrated a degree of resilience to major reductions in the growth of government spending.” It appears Krugman and his big-spending allies are the ones in need of a “refresher”: Spending cuts help, rather than hinder, long-term economic growth.

Heritage’s Grover M. Hermann Fellow Romina Boccia provides this much-needed refresher by showing how spending cuts foster economic growth by encouraging private-sector investment and limiting the negative effects of deficit spending on the economy. Boccia argues that reducing government spending today spurs economic growth in the future and puts America on the path to fiscal well-being.

Here are several key takeaways for lawmakers:

Legislators in the budget conference have a new opportunity to protect the nation’s fiscal future and encourage economic growth. Following basic principles—addressing future debt and enforcing lower levels of spending—will help secure a more prosperous economic future for working Americans.

Michael Sargent is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please click here.

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