There’s a very interesting post at The Conversation considering the empirical evidence of whether “big government” is good or bad. The authors’ conclusion?
We found only partial support for the idea that the size of government has an effect on economic growth. Specifically, our research suggests that the effect of government size on economic growth is negative in developed countries but insignificant in less developed countries (LDCs).
Put differently, while we find evidence of a negative effect of government size on economic growth in developed countries, we find no effect in the case of LDCs. This is the case irrespective of whether government size is measured as the share of total expenditure or consumption expenditure in GDP. It also suggests that big government is usually bad for growth in developed countries but not in LDCs.
I think I’d frame the question a little differently, something along these lines:
- In an environment of big business, big labor, and so on big government is inevitable and probably even necessary.
- Over time every organization either grows or dies.
- Over time self-interest always overwhelms the public interest.
- The deadweight loss resulting from bad or self-serving decisions inevitably reduces economic growth.
It’s not merely big government that presents a problem. Bigness per se presents a problem. The system of permanent revolution set up 200 years ago is no longer effective in diminishing the role of self-interest and, since those most interested are those who’d need to reform the system, there’s no way to accomplish that.
The general dissatisfaction going back to 2008 is not feigned. We’re just doomed to disappointment.
Semi-interesting piece which touches on some of the same issues. (Bored waiting for case to start and internet cranky.) Makes the claim that we deliberately chose policies that chose for big business (big labor is essentially gone), and recently, big finance. As a side bit, the author notes that as a reaction to the inflation of the 70s/80s, we have so prioritized efforts to avoid inflation that we accept relatively high rates of inflation. That benefits business, but not so much workers. (Actually started reading it because of the comparison between other populist movements that failed, especially William Jennings Bryan, and Trump. Probably has too much of his own bias in it, but entertaining. Trump probably loses just like Bryan did, if Trump was running against almost anyone else.)
https://poseidon01.ssrn.com/delivery.php?ID=756021072024123106112084094010020069015032009051054004022004113025030125094099069078007052003023030014055090125098098081071115056022088032093120091122087065095030071033004090093081097009079084088098028075080090126108122085066027076016086064111124094&EXT=pdf
Steve
I have a quibble with the idea that we set up a permanent revolution 200 years ago given the effort put into ensuring that at no time would that ‘revolution’ involve the people most in need of revolution: slaves.
But on the larger question I’ve long believed that we basically have as much government as we need. (Give or take 5%) Are you going to have a military? Then you’ll need the Pentagon and the defense contractors. Is the population sufficiently dense that dumping your waste upstream kills people downstream? Then you need an EPA. We have regulations because life is far more complicated than it was 200 years ago, the world is far more interconnected. That’s not to say that we couldn’t trim here and there, but the ‘small government’ shibboleth is silly and outdated. Perhaps that’s why the second largest group of voters chose to dump ‘conservatism’ in favor of Trumpolini’s random acts of ass-clownery.
I thinking you’re forgetting how remarkable regular elections and peaceful changes of government were 200 years ago. That’s the “permanent revolution” I was talking about. Now it’s not so revolutionary.
I don’t think you can seriously argue that we have exactly the right amount of government. How did we get it precisely correct? In some areas we have a lot more government than we need; in some less. That there is no deadweight loss of government spending is unsupportable. There’s reasonable argument about where and how we’d be better off without it but not whether there is deadweight loss associated with it.
I do not claim that my views are mainstream by any means. For example, I think our military should be a lot smaller than it is (and its mission commensurately reduced). Half the size. Lots of federal departments have their own police forces; they shouldn’t. There’s an almost endless list of federal government excess.
And that’s just the federal government. The State of Illinois has nearly 7,000 independent taxing bodies—the most of any state. Most of those bodies have elected commissioners. I find it incredible that can’t be streamlined.
Ah, I thought you were referring to the watering the tree of liberty thing.
Anything can be improved – government, business, you, me, nothing is ever perfect. (Though sunrise today was damned close.) My suggestion (and it certainly does not rise to the level of a theory) is that as no nation has both prosperity and a small government, it is likely that the two are inseparable, that you cannot have a prosperous nation-state without a hefty government. I don’t think you can have prosperity without stability, and you can’t have stability without a reasonable social safety net which requires a big bunch of government.
Then there is the fact that no matter which new president or Congress makes noise about reducing government they inevitably find they can’t. Yes, of course that is in large part because of entrenched rent-seekers, but again I suspect what we are seeing is a co-dependency that may be necessary to keep the organism functioning. I’m sure someone has written a thesis on the positive aspects of corruption.
All government in the US combined was 38% of GDP (OECD numbers) in 2014 (lower now as we recover from recession), and in that same year Japan was at 42%, Germany and the UK around 44%, Switzerland 34%, France 57%. I worry a bit about those stats since cross-national comparisons can be weird, but given the sheer physical size of the US, and given that we are a military superpower, 38% looks pretty good.
I would quibble with the “size of government” which always seems to revolve around government spending. I’m not sure that’s the most important metric, particularly if the bulk of the spending is relatively simple transfers.
Again, a first order approximation although I’m open to alternative metrics. Number of government employees isn’t a particularly good metric because so much is done via contractors and there is no good enumeration of the total number of contractors.
I’m not sure there is a good single metric. How does one compare, for instance, SS payments to compliance costs for EPA regulations. The EPA budget is tiny compared to SS, but it’s effect is significant.
And then there is state and local government.
Our government is basically a pension and insurance plan with an army. Take everything else away and total spending doesn’t change that much. Given a choice, do you think anti-government types would rather eliminate Medicare, SS, Medicaid and defense spending, getting rid of 75â„… of govt spending, or would they rather get rid of everything else?
Stece
Returning to Michael’s point, I don’t think the present 38% of GDP is a good baseline, either. Rather than looking at the amount of government we have it might be profitable to look at the amount of government we’re willing to pay for.
Michael’s prediction (or at least implication)
that federal spending will decline relative to GDP is not borne out by the CBO, cf. p. 3. Unless state and local spending declines, which seems pretty unlikely, total government spending is expected to increase from here as far as the eye can see.
BTW, we’ve now been in recovery for nearly eight years. If you’re a Keynesian, that means that you think that structural changes have occurred in the economy. If you’re not a Keynesian or an MMT, you think that we should be spending a lot less at the federal level than we are. If you’re an MMT, you think we should be spending more at the federal level but not taxing any more.