Marc Faber Asks: Is "Big Government" Thwarting Economic Growth?

Tyler Durden's picture

Submitted by Marc Faber of The Gloom, Doom, and Boom report,

Science fiction author Frank Herbert opined that,

“All governments suffer a recurring problem: Power attracts pathological personalities.”

Friedrich Hayek thought that,

“the more the state ‘plans’ the more difficult planning becomes for the individual,”

and John Stuart Mill wrote already in Principles of Political Economy (1848) that,

“In all the more advanced communities the great majority of things are worse done by the intervention of government, than the individuals most interested in the matter would do them, or cause them to be done, if left to themselves.”

Economist Richard Rahn, the eponymous creator of the Rahn Curve, makes the connection between the rate of economic growth and the size of government.

The Rahn Curve suggests there is an optimal level of government spending (as a share of GDP) that maximizes the rate of economic growth. As government begins to rise from zero percent of GDP, initially it spends to protect life, liberty and property; as this happens the economy surges. When government makes people safe, enforces contracts, protects liberty and enforces property rights great things begin to happen. As government continues increasing, it next spends on infrastructure. Such spending further accelerates economic growth. It is clear that a little government does a lot of good. At this point government’s share of GDP is between 10% and 20%. From its founding to circa 1930, total US government spending was around 10% on the Rahn Curve.

In general, I have great sympathy for the Rahn Curve, which essentially states that the larger the government becomes beyond a certain point (about 20% of GDP) the slower economic growth will be.

Under the influence of the neo-Keynesian interventionists and the professors at the Fed, the public has been brainwashed into believing that governments can revive economic growth. But as Ronald Reagan pointed out,

“Government is not a solution to our problem, government is the problem.”

Barry Goldwater warned that,

“The government that is big enough to give you all you want is big enough to take it all away."

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stant's picture

They have mostly got already what's not nailed down, and are now looking for a crowbar

Newsboy's picture

System complexity reaches a point that efficiencies of added complexity become negative, yet complexity increases typically go on and on until systemic collapse.


knukles's picture

Is it thwarting economic growth?

Do people ask dumb questions?

economics9698's picture

The federal government is limited in size to about 20% of the GDP.  That does not mean it cannot get to 25% of the GDP, it has, but the unpleasant truth is with the current tax system there is an inverse relationship between taxes collected as a percent of the GDP and spending as a percentage of the GDP. 

During WWII federal spending was 42.7% of the GDP but tax collections only 20.5%.  The 20.5% is the most ever collected in taxes at the federal level.  Recently Clinton collected 19.9% while in a boom, spending only 17.6% of the GDP.  Obama spent 24.4% but collected only 14.6%.  And so it goes there is a negative, although certainly not absolute R2 1.00, relationship between spending and taxes collected.

Note, during WWII the deficit was financed by printing, hence the need for ration cards for consumers, to prevent hyperinflation.

As federal spending goes up it removes resources from the productive private sector, there is less positive economic activity, less taxes are collected. 

All the debate about raising taxes is political bull shit.  Politicians know they will not collect more taxes but they will increase their leverage to sell political favors, which is really what it is all about for the sociopaths.

At the federal, state, and local level government spending has gone up from 26% of the GDP in the 1950’s to 43%.  Zero Hedge readers in NYC know the number is 50% or even 60%.  This increase in overall government burden plus additional regulations is why the economic growth rates of the 1950’s deviate so much from today.  Yes the top tax rate in the 1950’s was 91% but deductions and the minimum tax was much more generous than today.

If Zero Hedge wants a blog on this feel free to contact me.  John Aziz knows my facebook profile.

FYI the max size of federal, state, and local should never exceed 20% of the GDP, and that is obscene. 

Sudden Debt's picture

That 20% is not a revenue but a cost so you should subtract that 20 from the gdp and not adding it.
But what's 20% when you see in europe regions where it's over 70%...

Thanks for the complex taxation systems they can fund the interest on the loans to keep the game going.

So all you need to know is that for every % the government grows, the economy goes down 1 also.

And they say your country is in shit when debt is over 100%.
You can change the numbers but it's still over 100% after you change the way you do math and bring it down to 90% and 100 is 100 when you need to service the debt.

TeethVillage88s's picture

ttp:// (Total Debt as percent of GDP)

Federal Debt: Total Public Debt as Percent of Gross Domestic Product 2014:Q1: 103.43927 Percent of GDP

But that must be a standard to compare National Government Debt to GDP, but hey... what is 60 Trillion to 17 Trillion =

= 352% Debt to GDP for USA

economics9698's picture

The 103% is federal debt, the 352% is total debt.  250% is fatal.  

0z's picture

That graph is wrong.

It should start from the upper left to the lower right, like in inverse exponential function.

No government (Monopoly of Judication) has the most prosperity.

Headbanger's picture

It's the Laffer Curve that was part of "Supply Side Economics" from the Reagan years.

But now the "Evil Empire" strikes back and we have Bonzo in office instead of The Gipper!

Way to fucking go America!

Angus McHugepenis's picture

If you like your taxes (slavery), you can keep your slavery...

If you like freedom, you won't like your taxes...

Can't recall who said it, but this is very true... and I paraphrase. "Humans are the only species on this planet that pays RENT to live here". Only a fucking Bankster could come up with that shit.

We must all be insane. Grizzly bears and wolves laugh at us when they're not eating us on our camping trip. I'm sure if the .gov could figure out a way to tax wildlife they would do it. In the meantime, the grizzly bear has not been, nor will ever be, TAXED and forced to hand over its Swiss bank info.

And neither will I. Going on 14 years now.

ThirteenthFloor's picture

Keep in mind that the Govt. spending is paid for by unstearlized bond monetization paid to a PRIVATE bank cartel, that sets interest rate and money supply as it pleases.  As such govt. debt (i.e., spending) grows OUTSIDE control of the free-sovereign state.  Our economy as envisioned by Franklin, Hamilton and others was completely broken by the treasoness act of the Federal Reserve Charter. We sold control of our country's economy in 1913 and became sycophants to corporatism and the banking cartel.

Regarding the 91% tax rate - John Kennedy a Democrat cut that in 1962, as the largest tax cut ever.  Please see Kennedy responds to Krugman.  A brilliant move by Kennedy.



TeethVillage88s's picture

Corporate Taxes are disappearing

Not sure what you feel about corporations paying

I'm not far off on my data, but show Corporate taxes South of 15%. We can talk about different kinds of taxes but the big categories are Individual and Corporate. My corporate tax payments are taken from 3th Quarter FISCAL YEAR for Corporations, but 4th quarter doesn't look much better. (corporate profits, 1-1-2014)

Corporate Taxes end of 2013 = 273.5 Billion (Treasury data end of Fiscal year Sept 2013)
Corporate Profit end of 2013 = $1.9045 Trillion

$273.5/1,904,5 = 14.4% Corporate Tax

economics9698's picture

Corporate taxes are passed on in the form of lower wages, less profit, less R&D, corruption, and so forth.  The perfect corporate tax rate is zero.

TeethVillage88s's picture

Thanks. But large corporation also pass on huge expenses for perks, benefits, compensation for executives, nice new office buildings, teleconference centers, cafeterias, it all addes up and Frankly I see it at Administrative Cost that are a problem to Investors and to the articles of incorporation.

If you are a non-profit and you admin cost exceed like 22%, then you lose a place on the Combine Federal Campaign, where you get to publish and solicit for federal employees to contribute to your charity. This is significant since one of the great charities fell to earth in the 1970s as it was revealed that they had huge admin expenses to pay executives.

This is a conservative principal.

This is where people draw the line.

Today we don't know where to draw the line.

And no one cares to look, to monitor, to watch, to track, and to supervise the corporations that run our lives.

Costs to High Admin Cost in a Corporation:

1) Investors
2) Bond Holders (I think)
3) Customers
4) Governments that supervise in taxes
5) Citizens who pay for products and services

TeethVillage88s's picture


Heard that Even Private Universities Take Federal OR State Funding, SO WE SEE MORAL HAZARD (IMHO).

Your point about Mansion for University President makes additional issues:

-Under Reform US Government
-Under Tea Party Government
-Under Libertarian Government

Maybe rules of incorporation could be interpreted quiet differently to reduce Executive Pay, Executive Compensation, Executive Perks (like cars & housing), and high admin costs/high overhead.

(I'm not a Tax guy or Financial Mgr)

-Section 501(c)(3) Nonprofit entity
-Section 509(a)(1) 1/3 of support from gifts, grants from public
-Section 170(c)(1) state or government entity

Many Charities got whacked in the 1970s as it was uncovered that either March of Dimes or UNICEF has huge Admin Costs (forcing them to report & disclose & even reduce admin costs to below 23% of expenses)

990 EZ Form Instructions:

-2) The Council of Better Business Bureaus "Standards for Charitable Solicitations" states, "Reasonable use of funds requires that, a) at least 50% of total income from all sources be spent on programs and activities directly related to the organization's purposes; b) at least 50% of public contributions be spent on the programs and activities described in solicitations, in accordance with donor expectations; c) fund raising costs not exceed 35% of related contributions; and d) total fund raising and administrative costs not exceed 50% of total income."
-5) Is the organization paying its Board Members inappropriately, or are its staff salaries unreasonable?
-6) Section 4958 (Line 40b) - Excess benefit transactions
(Nice Chart on Top Salaries for Universities)

-Instructions for Application of Tax Exempt (IRS Form 1023) Status as 501(c)(3) state that the PRIMARY PURPOSE can not be for Trade OR Business, but College is an Capitalist Industry these days formed to Capture Funding & Provide Jobs.

TeethVillage88s's picture


Interesting about the Rationing.

I think we could use that kind of Idea in the future of the USA and controlling capital from going overseas or to gambling of some kind. I guess we call that Capital Controls.

I remember that in Vietnam they used Script instead of money to control the Black Market.

Perhaps TBTF Banks using TARP, QE, Operation Twist, and ZIRP to gamble in the financial markets is like the Black Market. It takes money out of the US Economy and like occupation forces they are spending money overseas, ... Capital Flight, Stagnant Capital(financial), money sitting in bank accounts of wealthy or big banks....

ThirteenthFloor's picture

Yes the unstearilized bond monetization (FRB operations, QE and MBS creation) remove money from investment side of economy.

Add to that multi-nationalization, off-shore, immigrant workers, they basic destroyed the US production economy.

economics9698's picture

TeethVillage88 also during WWII the bond drives were to remove money from consumers and park it where it would not be spent.

TeethVillage88s's picture

Speaking of Taxes interesting looking at recovery from the Recession between Individual Tax Revue & Corporate Tax Revenue. I may not be as well read as others. Maybe someone can explain how Individual Taxes took a Dive, then recovered, but Corporate Taxes Did not???

Corporate Income Taxes Receipts 1998 = $ 188.7 Billion
Corporate Income Taxes Receipts 2002 = $ 148.0 Billion (Recession)
Corporate Income Taxes Receipts 2006 = $ 353.9 Billion
Corporate Income Taxes Receipts 2007 = $ 370.2 Billion
Corporate Income Taxes Receipts 2008 = $ 304.3 Billion
Corporate Income Taxes Receipts 2009 = $ 138.2 Billion (Recession)
Corporate Income Taxes Receipts 2012 = $ 242.3 Billion
Corporate Income Taxes Receipts 2013 = $ 273.5 Billion

Individual Income Taxes Receipts 1998 = $ 828.6 Billion
Individual Income Taxes Receipts 2002 = $ 858.3 Billion (Recession)
Individual Income Taxes Receipts 2006 = $1.044 Trillion
Individual Income Taxes Receipts 2007 = $1.163 Trillion
Individual Income Taxes Receipts 2008 = $1.146 Trillion
Individual Income Taxes Receipts 2009 = $ .915.3 Trillion (Recession)
Individual Income Taxes Receipts 2012 = $1.132 Trillion
Individual Income Taxes Receipts 2013 = $1.316 Trillion

ThirteenthFloor's picture

Local corporations park short term funds in the market, and borrow cash for short term needs.   However in 2008 there was a business capitol crunch that caused businesses to pull cash from the market to maintain operation cash flows.  This reduced income and revenues and of course corporate taxes.  This same did not apply for households.  I suspect corporate stock buybacks have reduce corporate income taxes to a large degree as well recently.

Democratic koolaid's picture

Paying for your sex change operations thrawrts economic growth, literaly sometimes, and insuring risky investments that safeguard already wealthy intrests.

$30,000 on discount for gender reassignment surgery, I googled it so it must be true. that adds up and macklemores new CD is due out soon so buisness should pick up.


ThirteenthFloor's picture

US Economy went bust in 2008.  We fell off the cliff then.  We are now in freefall.  The stock market euphoria is the freefall and the unstearilized bond monetization by the FRB since 2005.

Late last year we lost the Saudi support, Russia and China and other BRICS moved quickly to create their own development bank to reduce damage from the pending USD collapse.  China starting buying US assets left and right including JPM Chase.  G20 discusses this danger of divergence in Jan '14.

Obama tried to apease Saudis in Syria but failed.  Saudis last week tried to set it's own dev bank off USD.

IMF and World Bank are in US Courts trying re-consolidate under a proposed global redev economic plan using OITC GOLD (Global Debt Facility) this going on since '11-'12.

Ground is now approaching fast including a new US Currency of some sort.

TeethVillage88s's picture

The [yuan] has effectively already become a de facto reserve currency because so many central banks have already invested in it," he said. "The [yuan] may become a de facto reserve currency before it is fully convertible."

Thanks for the Replies Thireenthfloor.

I've had to look up some terminology.

Still looking for Minutes or agenda for G20 Meeting in January. (US Treasury Holdings)

Renminbi Trading Hubs

1 London
2 Luxembourg
3 Moscow
4 Paris
5 Singapore
6 Tokyo
7 Australia

JustObserving's picture

Q1 GDP shrank by 2.9% even as the US BLS faked the US inflation rate lower by 4% to 8%.  So real US GDP declined by 6.9% to 10.9% in Q1 2014.  Forward.

Winston Churchill's picture

According to Williams GDP has been negative since 2005, with the correct deflator.

Now its just achieved terminal velocity, is all.

Everything is fine so far.



TeethVillage88s's picture

"Endo" used to be a term for this. Actually reminds me of the Rahm Chart Above.

They must have stopped teaching the Bureaucratic Paradox in college and universities. It was like Organizational Behavior 101. Obviously as things get complex, you have to go back and organize. This is like a Reoganization with Layoffs, but also applies to Legislation & Paperwork.

Streamlining and Simplification is a known tool in legislation.

But in our US Congress they can't think for themselves they are just order-boys for Lobbyist.

-Flat Tax is a good example of simplification Federal Acquisition Streamlining Act of 1994

TeethVillage88s's picture


Maybe the Balloon of Financial Instruments indicates Ballooning Opportunity, and so the dollars 40 years ago that would have been either invested in the economy are going to Financial Paper Investments (and in cycling them through).

IN fact in a Recession the decision to loan or investment capital is either to hold the dollars till there is more certainty, invest in derivatives, invest in FOREX, Invest overseas, buy equities, or Invest in US Domestic Businesses and their expansions.

Late add:

Continuing Resolutions have merely accelerated the spending increases that GWB put in place. Pretty much all across federal agencies, except for job training and HUD. But look... double digit budget increases should have jump started the Economy (in a normal government(not corrupted)) and this should have seen 5% GDP Growth if not 7% since Federal government has grown to double in spending (not so much in employees unless they were NSA or covert employees)

disabledvet's picture

" a machine." Platoon.

The PTB cannot turn it off. That includes more than just the USA..but Russia, Germany, Britain, Saudi name it. "These things will get out of hand and there is nothing we can do to stop it!" (Hunt for Red October.)

Ol Man's picture

Actual Quote...


"This business will get out of control. It will get out of control and we'll be lucky to live through it."



Umh's picture

On;y big companies can survive the paperwork and others hassles that come from big government.

TeethVillage88s's picture


-Capital is Stagnant
-Capital is Flight from the USA
-Bailouts, TARP, QE, Operation Twist only provided more corruption to the stinking system
-Free Trade is not Free Trade
-We compete with Slave labor with no Auditing

-Monetary Policy failed since it only serves Bankers (big ones)
-Fiscal Policy failed since it was just expanding the usual spending programs and budgets.
-Now we are screwed with No Representation in Congress and Exponential Growth of Debt.

Fed Money Data updated from Jan 2014

M1 Money Stock, 2014-06-16: $2.83 Trillions of Dollars (Exponential Growth, but doesn't include Dollars overseas)
M2 Money Stock, 2014-06-16: $11.32 Trillions of Dollars
MZM Money Stock, 2014-06-16: $12.54 Trillions of Dollars (Money with zero Maturity)

Looks like 1981 was the Money Velocity high, note manufacturing plunged 1979. (Top was 2007 Q4 at 10.7, now down to 6.3) (Top was 1997 Q3 at 2.2, now down to 1.5) (Top was 1981 Q1 at 3.5, now down to 1.4) (Top was January 1987 at 3.1, now down to .7) (Employees: Manufacturing 12.1 M Persons)

M1V M1 Velocity of M1 (6.305 Ratio)
M2V M2 Velocity of M2 (1.540 Ratio)
MZMV MZM Velocity of MZM (1.386 Ratio)
MULT M1 M1 Money Multiplier (0.705 Ratio)

BobTheSlob's picture

69% of the feral guvmint's budget is wealth redistribution in the form of SS, healthcare, welfare, food stamps, pensions, and guvmint employee paychecks. So no, government isn't big enough yet. We need MOAR MOAR MOAR.

ThirteenthFloor's picture

Actually at this point 51% of government deficit is ROLLED over INTEREST payments on unpaid previous year debts.  Interest PAID to BANKERS that have TAX LOOPHOLES themselves and collect big BONUS and KUDOs from people that support unfettered Wall Street cronies.

Debt that came originally from Politicians that act like a public Santa Claus to collect votes.  The entire food stamp budget is less that the electric bill for the NSA facility in Utah.

The new gun pointed to all our heads is USD distruction, and distruction to our PRODUCTION economy as a result of corporations seeking lower costs and tax/regulation asylum by moving off-shore.  Our govt. is bankrupt, while the rest of world knows this, the US is about to find out.


BaghdadBob's picture

Socialism is a dirty word in the US, but you've managed to achieve it. Albeit an extremely fascist version of it. Well done.

BobTheSlob's picture

We're going to make the Nazis look like pikers.

MayIMommaDogFace2theBananaPatch's picture

You just don't like the president because he's black! </sarc>

WTFUD's picture

Is BG Thwarting EG?
Does the Pope shit on little children in the woods?
Are bears catholic?

FreedomGuy's picture

Asking if Big Government thwarts economic growth is like asking if the Pope is Catholic or if it rains in the Amazon, but only to people who do not have a deep seated near relgious belief in the goodness, wisdom and efficency of government. To them criticizing government methods and programs is like insulting the Pope to Catholics.

WTFUD's picture

Me I am big enough and ugly enough to fuck harder those who try to fuck me BUT I object to the Down Arrow on BEHALF of the KIDS being sodomised and mutilated by the pope, cohorts of the pope, royal families, politicians, ruling elites and the general scum albeit that the latter usually do jail time.

Bunga Bunga's picture

Like Ronald Reagan said: Government is not the solution, government is the problem. Anarchy is the logical answer.

an = without

archy = ruler

We have the technology to govern ourselves, we don't need central rulers anymore. The blockchain is just the beginning.


TeethVillage88s's picture

But look with Exponential Debt

Where can we go from here?

Seems like we have to break down big units into small units. I know states and cities try to operate with transparency and balance their budget. But they have mostly failed in the areas of pensions and financing. I hear Universities also bought in to zombie hedge funds.

Just kicking this around in my mind. I'm for anti-trust law and thing that lobbying and corruption of regulator has under cut laws to prevent oligopolies... like in the media and all big corporations that can twist our federal government for whatever if wants regardless of what you think of corporate taxes and that citizens will soon have to pay all the taxes.

-Anti Federalism is an idea
-Cut off revenues to federal government by legislative action in order to strengthen states & cities power
-Anti-Privatization is another idea (expensive, Cost Benefit Analysis doesn't work)
-Maybe States as sovereign countries would be small units responsible for debts, expenditures, and jobs
-Maybe Federal Debt & Obligations are too far reaching for anyone to understand at this point
-Maybe the settlement of debt & Credit issues should now be pushed to the State level to get the Federal Government out of Control

Herdee's picture

Here is part of the scenario for the coming global currency reset.It sees the American Dollar as no different from the Mexican Currency and being included in a large basket of world currencies with a difference in them of only 5%.That means that right now,countries around the world are using the U.S. Dollar a lot less and getting are gradually getting out of it so that they are not included in U.S. policies.When Great Britain was deadbeat bust after two world wars and the U.S. took over as the world's reserve currency,it didn't mean that right away that countries stop using the British Pound.It took time.All countries know now that the reset is eventually coming and are now planning by diversifying out of the Dollar and into Chinese Currency.It is because of very large deficits and trillions of dollars of debt that cannot ever be paid back.That is called high risk.Interest rates will eventually become very high for Americans because of out of control deficits.More folks won't be able to afford gas,food and a home and will give up the last of what they own to Communists.The manufacturing sector in America was purposefully gutted by politicians in America to finance war.That means international players like the Communist Chinese can will come in full force eventually and buy up and take away what's remaining.Property and hard assets being the big two things.It's already happening but still on a small scale.The big Chase Manhatten building in New York is a good example.It was sold too cheap because they owe the Chinese a lot of money.You also have to understand that The Fed on a mark-to-market basis is insolvent just like their European counterparts.Europe is being held up by Fed swap lines of printed fiat after the EU took over 2 trillion of extremely high real estate off of the hands of the European Banks.They're all bust too.It's basically simple and because of endless war spending by the U.S. and 900 military bases worldwide.The Chinese right now already control General Motors through all the patents that they own.They're doing the same to all other major corporations.They also control Boeing.The world is waking up to the fact that it no longer wants useless fiat paper dollars printed by Uncle Sam and will demand a seperate U.S. currency that needs to be backed by gold for trading.It's a lack of confidence in the Currency.You have to understand that this economic war has already been won by the Communist Chinese.Do you really think that the Chinese that have basically free education and health care in their society and who are very smart people would just finance and buy up trillions of U.S. debt without some kind of hedge or collateral?That's why most economists now think that all of the gold that the U.S. has held has all been pledged to China as insurance but the U.S. is never going to get it back now.It's all been leased out.The Chinese will sit at the table during the coming monetary reset with a position of power and Congress will be helpless in stopping them coming in and buying everything in site while a depressed economy and its' people get hosed by The Fed who sold out America.It's the only way to restore manufacturing in America and the rebuilding of its' infrastructure.After the reset and social unrest,Americans will all be working for foreigners.It's all been blown by your friends in Washington,D.C..

Winston Churchill's picture

Thats JC Collins theory over at

Its too elegant, and relies on honor amongst psychopaths.Fatal flaws.

The Chinese haven't been buying all that gold because its price will stay  the same

in USD's.Gold is money to Asians,not paper.

No system(like SDR,SDRM),that leaves the USA able to pillage, and rape the rest of the world,

will,or could last but 12 months.

I just don't buy it,sorry.Not going to happen.Its doomed from the getgo.

The Tylers seem to agree.

Sam Spade's picture

Per Lacy Hunt, academic studies from just the past three years have documented that economic growth slows dramatically when combined public and private debt exceed 260% to 275% of a country’s GDP.  From 1870 to the late 1990’s, real GDP in the US grew by an average of 3.7% annually.  Since the year 2000, annual GDP growth in the US has averaged only about 1.8%.   2000 was the year that total debt in the US breached the critical 260% level (it’s now around 350%).  This debt overhang sucks oxygen out of the economy, and will continue to do so.  The Fed's "solution" to this problem, of course, has been to encourage more debt!


Colonel Klink's picture

My answer is a resounding YES.  Because I'm not doing shit to contibute to the economy or government coffers until they reduce the size of the Federal government by 50% and get the fuck out of controlling everything in our lives.