Let’s Debate It

One of the research services that my colleagues and I subscribe to is called Mauldin Economics, authored by John Mauldin. This week Mauldin writes “As we saw last week, in research I cited from Europe, there is a correlation between government size and GDP growth. Which makes sense, in that jobs really come from the private sector. Government jobs depend on taxes, which come from the private sector. Please note that this is not the same as saying that we should get rid of all government costs to increase economic efficiency – that is clearly not true. But we should recognize the costs of government spending and taxing of the private sector.”

I think it is interesting that some “truths” end up getting politicized to the point of discredit. The truths don’t disappear though. I have seen this same data that Mauldin cites and accept the conclusion. After reading the analysis quoted above, I implored my colleagues at Sigma in an internal email to let me know if any of them dispute that larger government results in lower GDP growth. Interestingly, I had begun a blog the prior week wherein I suggested that higher taxes and regulation (a staple of republican orthodoxy) hampered GDP growth but was advised not to run the blog as it was “too political.” Huh? Because an observed correlation causes discomfort for a particular ideology, it should not be spoken? It seems an informed debate might be in order. Eventually, policy related to taxes and regulations impact corporate profitability, which ultimately impacts stock prices and investment returns, so this is a topic of great importance for investors.

All comments and questions are welcomed.

Bob Bilkie, CFA