Where Goes the Economy—Friedman’s Law

Hello,

We all try to divine the direction of the economy whether for business or personal gain.

Friedman’s Law, named after the late Nobel economist Milton Friedman, can give us a reliable tool for gauging the economy’s direction.  It states that when the size of government is growing faster than growth in the economy, the national economy at best will stagnate and at worst will decline.   Why?  Government spending extracts real resources from the productive private use and puts them to unproductive public use.

With the latest stimulus package that Congress passed, government spending will be growing at strong double digit rates.   Meanwhile, the economy is heading south.

Don’t expect any miracles.  The business economy, at best, will just limp along.  The real danger coming up is substantial tax increases.