On the Limits of the Public Economy

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Abstract
This article examines the validity of the assertion that low growth, high unemployment, and increasing inflation were all produced by excessively high levels and large increases in public spending. The article presents a systematic analysis of the relationships among 19 nations between increases in spending and lower rates of economic growth, higher unemployment, increases in deficits, and inflation. The article concludes that, contrary to the conventional macroeconomic wisdom, high levels of spending and large increases in spending have not caused stagflation—the obvious implication therefore being that fiscal conservatism will have little beneficial effect on the economy. And the article concludes that, again contrary to conventional wisdom, a large and expanding welfare state may be compatible with, and beneficial to, a capitalist economy.

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