the staff of the Ridgewood blog
For decades, politicians and some economists have pushed the narrative that government spending stimulates economic growth. But is this really true? According to a new study by leading financial experts, the answer may surprise you.
The Myth of Government Spending as Economic Stimulus
As economic uncertainty continues, calls for increased government stimulus through spending are once again dominating headlines. Critics of spending cuts warn they could slow down recovery and hurt job growth. However, recent research challenges the core belief behind these claims.
World-renowned investor Rob Arnott of Research Affiliates, along with colleague Alex Pickard, analyzed more than 40 years of economic data to test the long-standing theory rooted in Keynesian economics — that more government spending leads to greater national prosperity.
The Shocking Truth: More Government Spending, Lower Prosperity
The upcoming research paper from Arnott and Pickard reveals a stark reality: in most cases, higher government spending is associated with lower real per capita GDP.
“Real per capita GDP in a nation is negatively associated with government spending,” their findings show.
In fact, their data suggests that once government spending exceeds 30% of GDP, economic performance begins to decline. Unfortunately, the United States currently exceeds 35%, raising serious concerns about long-term economic growth and individual prosperity.
What This Means for the U.S. Economy
If the analysis holds true, continued high levels of government spending may do more harm than good — leading to lower incomes, slower growth, and reduced individual wealth over time. While short-term spending may provide temporary relief, overreliance on public sector expansion could undermine private sector innovation and productivity.
This research challenges a deeply embedded economic belief and encourages a re-evaluation of how government resources are used — especially as the nation grapples with inflation, debt, and calls for even more stimulus.
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Agree. Look what billions in Government /pending/payments, over many, many decades, have done to the African American community. It is shameful. Cut government spending ( Federal, state, and Ridgewood) to NECESSARY levels, and no more. Can anyone explain why $ 100’s of billions go to Ivy League Universities????
Agree. Look what billions in Government spending/payments, over many, many decades, have done to the African American community. It is shameful. Cut government spending ( Federal, state, and Ridgewood) to NECESSARY levels, and no more. Can anyone explain why $ 100’s of billions go to Ivy League Universities????