Allan Meltzer dissects Obama’s economic policy in today’s Wall Street Journal:

The administration’s stimulus program has failed. Growth is slow and unemployment remains high. The president, his friends and advisers talk endlessly about the circumstances they inherited as a way of avoiding responsibility for the 18 months for which they are responsible.

But they want new stimulus measures—which is convincing evidence that they too recognize that the earlier measures failed. And so the U.S. was odd-man out at the G-20 meeting over the weekend, continuing to call for more government spending in the face of European resistance.

The contrast with President Reagan’s antirecession and pro-growth measures in 1981 is striking. Reagan reduced marginal and corporate tax rates and slowed the growth of nondefense spending. Recovery began about a year later. After 18 months, the economy grew more than 9% and it continued to expand above trend rates.

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President Bush was a big spender, but President Obama is taking profligacy to the next level. In his first year in office, Obama pushed through a pork-filled “stimulus” that was supposed to increase jobs and prosperity (at least according to the discredited Keynesian theory). Instead, the economy has been weak and unemployment increased. In his second year in office, Obama rammed through a giant new healthcare entitlement, in part based on the absurd claim that bigger government would reduce red ink (the Congressional Budget Office should be abolished for aiding and abetting that fraud). Now we just witnessed the amazing spectacle of Obama actually getting to the left of Europe’s socialist leaders and arguing with them at the G-20 summit that government spending should be even higher.

Unfortunately for taxpayers, government already is too big, and that is true on both sides of the Atlantic Ocean. This new Center for Freedom and Prosperity video explains that there is a spending version of the Laffer Curve, and that it shows that government is much larger than the “growth-maximizing” level. As shown in the mini-documentary, academic research reveals that government spending should consume only 20 percent of gross domestic product. Thanks to the Bush-Obama spending spree, however, total government spending in America now amounts to about 40 percent of economic output.

It is quite likely, by the way, that the real growth-maximizing level of government spending is much lower than 20 percent of GDP. As noted in the video, the academic research is constrained by a lack of data for nations with small government. Free-market jurisdictions such as Hong Kong and Singapore enjoy the fastest growth, and they both have public sectors that consume about 20 percent of economic output,  so it should come as no surprise that scholars conclude that growth is maximized when government is about that size.

But what if there were nations with smaller levels of government? Indeed, the video shows that most nations in North America and Western Europe did have very small governments in the 1800s and early 1900s – often amounting to less than 10 percent of GDP. Does anyone actually think that the United States would have grown faster 100 years ago if the burden of government spending was doubled?

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Barack Obama and Angela Merkel are the two main characters in what is being portrayed as a fight between American “stimulus” and European “austerity” at the G-20 summit meeting in Canada. My immediate instinct is to cheer for the Europeans. After all, “austerity” presumably means cutting back on wasteful government spending. Obama’s definition of “stimulus,” by contrast, is borrowing money from China and distributing it to various Democratic-leaning special-interest groups.

But appearances can be deceiving. Austerity, in the European context, means budget balance rather than spending reduction. As such, David Cameron’s proposal to boost the U.K.’s value-added tax from 17.5 percent to 20 percent is supposedly a sign of austerity even though his Chancellor of the Exchequer said a higher tax burden would generate “13 billion pounds we don’t have to find from extra spending cuts.”

Raising taxes to finance a bloated government, to be sure, is not the same as Obama’s strategy of borrowing money to finance a bloated government. But proponents of limited government and economic freedom understandably are underwhelmed by the choice of two big-government approaches.

What matters most, from a fiscal policy perspective, is shrinking the burden of government spending relative to economic output. Europe needs smaller government, not budget balance. According to OECD data, government spending in eurozone nations consumes nearly 51 percent of gross domestic product, almost 10 percentage points higher than the burden of government spending in the United States.

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When President Obama first announced his desire to rid the world of nuclear weapons, I laughed out loud. After all, what’s not to chuckle at?

Would he next offer future generations the gift of flight, like Britain’s Natural Law Party, or promise to abolish death like would-be Russian presidential candidate Grigory Grabovoi, shortly before he was jailed for accepting money to reincarnate a non-existent victim of the Beslan Tragedy?

Of course not, I thought. It’s just the usual political waffle, nothing to waste time thinking about. The president was striking a pose, attempting to sound statesmanlike, that sort of thing. All politicians indulge in this type of empty, grandstanding rhetoric and Obama’s personal weakness for it is well established. Meanwhile he had presented Russia with an opportunity to get rid of a lot of old weapons they didn’t really want any more, without losing face. Perhaps that was the plan: a conciliatory gesture to the Bear in the hope that it would help in other areas. Good luck with that, by the way.

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