Source: Bureau of Economic Analysis
In a despairing op-ed in the Financial Times, economist Jeffrey Sachs declares that the United States has surrendered to a small government nightmare:
America’s two political parties depend on wealthy contributors to finance their presidential campaigns. These donors want and expect their taxes to stay low. As a result, social divisions, broken infrastructure, laggard educational attainments, high carbon emissions and chronic budget deficits are likely to continue no matter who is elected, even though the public supports higher taxes on corporations and the rich.
Only a big political realignment, perhaps spurred by a third party bold enough to campaign on free social media rather than expensive television advertising, is likely to break the status quo. Until then, the demise of public goods and services will continue apace.
He’s simultaneously right and wrong. Although both campaigns are portraying their differences from their opponents in apocalyptic terms, the difference between freedom and slavery, the reality is somewhat different:
Mr Ryan’s plan calls for federal revenues of 18.4 per cent of gross domestic product in 2016 and 18.5 per cent in 2020 (though his lower tax rates would probably put those targets out of reach). His budget outlays come in at 19.7 per cent and 19.5 per cent in 2016 and 2020, respectively. Of the total outlays in 2016, Mr Ryan targets “discretionary” programmes at 5.9 per cent of GDP; social security, 5 per cent; Medicare, 3.2 per cent; other mandatory spending, 3.7 per cent; and interest payments, 1.9 per cent.
Now consider Mr Obama’s budget unveiled in February. Federal revenues are targeted at 19.1 per cent of GDP in 2016 and 19.7 per cent of GDP in 2020, only about 1 percentage point above Mr Ryan’s revenue targets. In Mr Obama’s 2016 budget targets, discretionary spending is set at 5.9 per cent of GDP; social security, 5 per cent; Medicare, 3.2 per cent; other mandatory spending, 5.8 per cent; and interest payments, 2.5 per cent.
These are minuscule differences. Neither plan reduces the inexorable growth in government spending; they merely change the rate at which spending increases. Each plan achieves its objectives through a combination of hand-waving and wishful thinking.
By Dr. Sachs’s standards this is a triumph for small government.
Consider the graph above illustrating total U. S. government spending as a percentage of GDP. As you can see current spending is actually higher as a proportion of GDP than it was at the height of World War II, when the United States in fact had a command economy, and is more than twice as high as it was in the bad old socialist New Deal days. BTW, the ratio falling below 33% you see between 1995 and 2007 is not due to a decline in spending but rather to a sharp increase in GDP, something I see as illusory since it was the consequence of two successive bubbles. The spending is real but the additional production is bogus.
We’ve seen this debate before in the battle over healthcare reform. Government spending accounting for more than 60% of all healthcare spending, a ratio that the Republican ticket has committed to by default for the foreseeable future (unless you believe that the Ryan plan is a stalking horse for a complete abolition of government spending on healthcare, something not present in the plan itself), is a “free market”. Government spending accounting for something like 85% of total healthcare spending (as in, say, France) is intolerable socialism.
It’s madness. It’s all madness.
We already have socialism in the United States. It’s incompetent, inefficient, self-serving, corrupt socialism that serves mostly to redistribute income among the top 10% of income earners. And the people know it which is why confidence in government is so low and declining.
Our problem in the United States is not that the government isn’t disbursing enough of the country’s production. We’re spending plenty on healthcare, education, pensions, the military, and even infrastructure. We’re spending nearly 40% of GDP and rising. Our problem is that we’re not getting value for our money.