The Wall Street Journal had an interesting article yesterday by Stanford economist John Taylor (of Taylor Rule fame) looking at three different U.S. budgets as a percentage of GDP over the next decade. Here is a chart which nicely tells the tale:
My chief quibble with the article is that this sentence is misleading: “And if GDP and employment grow more quickly, as they would if private investment increased as a result of lower government spending and debt, then that 19% to 20% share of GDP could provide much more in the way of public goods.” Yes, that extra revenue could theoretically provide much more in the way of public goods — but most of what government does is not public goods provision and so that extra spending is probably not very likely to be on public goods. Moreover, the US government could pay for a heck of a lot of public goods with a lot less spending than 19-20% of GDP.
As you can guess, I have a big problem with the use of this term outside its narrow economic sense because to use it more loosely is to do so either in a sloppy fashion that doesn’t tell us much or as a political weapon swung against those who don’t think certain things are legitimate targets of government action.
Here is a nice short discussion of public goods by Tyler Cowen. The defining characteristics of public goods are that they are non-excludable and non-rival. As you might guess, this means there are very, very few public goods or things that are even close. If only government focused its spending on these things!