Mitchell’s Golden Rule

Good idea, but how do we put it into action? [Link]

In some sense, this Golden Rule is a way of trying to help people understand why it is important to limit the growth of federal spending. And based on my recent speeches, it appears that linking government growth and private sector growth is very helpful.

Especially when I point out that the fiscal crises in nations such as Greece are the result of the opposite approach – letting the public sector grow faster than the productive sector of the economy.

Another advantage of the Golden Rule is that it doesn’t matter whether a nation has a budget deficit or a budget surplus. As I’ve explained on several occasions, the fiscal problem in most nations is that government is too big. Deficits and debt are just a symptom of that problem.

Following the Golden Rule doesn’t prohibit tax increases, but it certainly means they will be far less likely. Simply stated, tax revenues tend to track economic performance. So if the private sector is growing faster than the government, that means tax revenues will be growing faster than government spending. So why raise tax rates?