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Posts Tagged ‘Big government’

What if we can’t make government smaller?” the Niskanen Center’s Will Wilkinson asks. He says that the evidence, particularly Wagner’s Law, shows that government spending is impervious to political assault, and libertarians should make their peace with big government. Instead, libertarians should focus on reforming regulations to foster competition and the market process.

I have a different read of the evidence from Will’s. At the Learn Liberty blog, I write,

Governments do have a tendency to grow. However, the U.S. has cut government consumption significantly in the past and could do so again. The drivers of welfare spending are the aging of the population and rising health care costs, not political support for new programs.

I support those claims with a series of charts. Check it out!

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Tyler Cowen makes the case that a large, inefficient public sector can be a good thing:

we should not be trying to squeeze the entire economy into the shoebox of the dynamic but risky “Economy I.” For public choice reasons, as well understood by Karl Polanyi (an underrated public choice theorist if there ever was one), the polity requires some respite from Economy I, whether we like that or not… Furthermore the more “sluggish” Economy II, by operating under different principles, often serves as a useful R&D lab for Economy I. Think MIT and Stanford, or note that Adam Smith ended up as a customs commissioner, as his father had been. Goethe and Bach worked for governments for much of their lives. It’s about balance and synergy, though it is perfectly fair to see contemporary Western Europe, especially in the periphery, as a region which has far too much Economy II and too little Economy I.

The first point in particular reminds me of Dani Rodrik’s argument for the welfare state under conditions of globalization: the government sector is relatively “safe” and can buffer dislocations due to global markets. Cowen isn’t referring exclusively to the public sector as “Economy II,” since the latter also includes labor-intensive, service-sector occupations, but he does imply here that the university system is a desirable public subsidy in part because it is inefficient and gives researchers respite from the private market.

I never really grasped that argument from Rodrik, and I still don’t. It seems to me that if you want inefficiency as a risk hedge, you could just bury some boxes of money and set fire to some of it in good times, then dig up what’s left in bad times. Less facetious: why not invest in a global equities index? Even better: why not push for globalization as a solution to its own problems? After all, there’s nothing about the economies we live and work in that’s inherently national. I live and work in the Erie County, New York economy. It’s a highly open economy. Why doesn’t Erie County, New York have an even bigger welfare state than the U.S.? Because we can buffer risk by investing in or, in the limit, moving to other parts of the country. So labor mobility and capital mobility are themselves solutions to the very risks posed by globalization of the merchandise trade combined with volatility in the terms of trade.

And you don’t have to set fire to any money.

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In a period (probably a short one) in which big government is under siege, it is unsurprising to see Leviathan’s advocates attempting to defend that mighty beast.  However, they’ve really gone overboard into the realm of indefensible hyperbole of late.  And I say that as someone who does not deny that the state has a proper role to play in a free society.

Exhibit A:  Vice President Joe Biden

Every single great idea that has marked the 21st century, the 20th century and the 19th century has required government vision and government incentive.  In the middle of the Civil War you had a guy named Lincoln paying people $16,000 for every 40 miles of track they laid across the continental United States. … No private enterprise would have done that for another 35 years.

Exhibit B:  Laurie Fendrich, of Hofstra University and the Chronicle of Higher Education, who thanks the federal government for everything from the lack of “lots and lots of plane crashes” to the prevention of “Endless Love Canals, without anyone or any company ever being held accountable.”  Her love letter to big government ends this way: “Me, I like having a big and powerful federal government.”

I’m not sure which argument is more problematic, though we probably should give Fendrich more slack since she is a painter and arts professor and so probably hasn’t spent a lot of time thinking about and studying these issues. 

So, Biden first.  His argument is so obviously false that debunking it is like shooting fish in a barrel.  Think about some of the defining inventions and discoveries of the last 200 years: refrigeration and the refrigerator, the sewing machine, combine harvestors, baseball, the dishwasher, etc, etc.  Did these require government vision and incentive?  Maybe patent protection helped, but I’m pretty sure that Biden was not talking about this governmental role (and there are many who would question how effective patents are at promoting the general good anyway).  Moreover, if we grant that government has recently played a larger role in the development of new ideas, that would be hardly surprising given how much money the federal government dispurses in general for research, education, infrastructure, etc.  The question is how efficient this effort has been compared to alternative uses of the scarce resources conscripted for the tasks.

As for the railroad argument, Nobel Prize winning economist Robert Fogel essentially debunked the notion that the railroad was such a big deal.  According to one summary:

[Fogel’s] master’s thesis, which later grew into a doctoral dissertation and the subject of his second book, tested the notion, he says, that railroads constituted “the greatest technological innovation of the 19th century, the engine that pushed forward the whole of the American economy.” Initially expecting to find numbers to bolster that consensus, Fogel uncovered the opposite. In Railroads and American Economic Growth: Essays in Economic History (Johns Hopkins Press, 1963), he used data on 19th-century agricultural commodities, transport costs, land value, and canal usage to dismantle what he called the “axiom of indispensability.” Even if the first rail had never been laid, he argued, the per capita income that America reached on New Year’s Day 1890, about the time the United States became the world’s largest economy, would have been delayed by only about three months.

Of course, this does not mean that the government does not have a role to play in building large-scale infrastructure like roads.  However, it does suggest that Biden’s argument about the wisdom of government pushing certain ideas or technologies that the private sector would not is overrated (especially when they come with such large price tags).

Now for Fendrich.  Do we really think that, in the absence of a large federal government, planes would today be regularly falling out of the sky?  Don’t airlines have a special incentive to make sure that this scenario does not come to pass?  Planes are expensive.  The things they hit and damage/destroy are expensive.  And imagine all of the lawsuits that would be filed by the owners of those things hit and destroyed, not to mention by the families of dead passengers (and a tort system necessary for such suits does not require the kind of big and powerful federal government Fendrich supports).  Of course, these airlines would hardly exist the way they do today if they didn’t help develop safe skies on their own, as passengers would choose alternative transportation if the cost of flying could frequently include death!  My guess is that the NTSB makes the skies marginally safer because it has powers to investigate crashes that airlines on their own or attorneys doing discovery in trials would not have.  But I think the self-interest of airlines and passengers alone makes Fendrich’s counterfactual unlikely.

As for Love Canal, the Niagara Falls Board of Education played a big role in the disaster (see here on page 2), and state government enforcing liability and performing its other proper duties could certainly handle these cases in the absence of the Federal Government.     

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A new USA Today/Gallup poll asks people about their views on the size of government today and the ideal size of government. They categorize respondents into five, roughly equal groups: “keep it small” (favors small government in economic and moral matters), “morality first” (favors small government in economic matters but big government on moral questions), “the mushy middle” (self-explanatory), “Obama liberals” (big government on economic issues, small on moral ones), and “the bigger the better” (self-explanatory). Right now, 58% of Americans see the federal government as too big. The mushy middle leans toward thinking the government is too big, which creates that majority for smaller government. I’m always skeptical of attempts to divine the “will of the people,” heedless of Arrow problems, but to the extent that the majority of Americans have a firm view on the size of government today, they think it is too big. Hence the approaching Republican wave, as many voters see a Republican Congress as the best way to restore equilibrium.

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Conor Friedersdorf says no, but at Mother Jones Kevin Drum totes up the scorecard and says, pretty much, yes:

If you can find liberals who favor charter schools, less regulation of small businesses, and an end to Fannie Mae, that’s well and good. But that’s 10% or less of my worldview. I also favor high marginal tax rates on the rich, national healthcare, full funding for Social Security, more spending on early childhood education, stiff regulations on the financial industry, robust environmental rules, a strong labor movement, a cap-and-trade regime to reduce carbon emissions, a major assault on income inequality, more and better public transit, and plenty of other lefty ambitions… If we lived in Drum World I figure combined government expenditures would be 40-45% of GDP and the funding source for all that would be strongly progressive.

The only problem with this is that Drum underestimates the expense of what he wants to accomplish. According to usgovernmentspending.com, total government spending in the U.S. in 2009 was about 42% of GDP (up from 36% the year before), and we aren’t anywhere close to Drum World. He mentions Sweden favorably – well, Sweden has government spending around 60% of GDP.

Now, I think total government spending somewhat overestimates the true fiscal impact of government on the economy, because much of that spending consists of direct transfers to individuals, who then spend their money in the market, and some of it also consists of building things like roads. Government consumption is a very conservative estimate of the fiscal burden of government, consisting of government spending on its own operations (wages and goods). (Of course, it excludes regulatory burden.) According to the OECD, in 2008 government consumption was 16.7% of US GDP, compared with 26.0% in Sweden and 26.7% in Denmark. The lowest in the OECD? Mexico (10.6%) and Switzerland (10.8%). Switzerland – that land of impoverished people starving in the streets, that dystopia of megacorporations enslaving and brutalizing their employees – has a government more than 35% smaller than that of the U.S… in 2008.

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Controlling for everything else, a government employee can expect to make 12% more than a private employee. This shouldn’t be a surprise, since private firms face a profit constraint: if they pay more than employees are worth, they go out of business. Government can always foist extra costs on the taxpayer, who doesn’t have much recourse.

HT: Hit & Run

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I was struck yesterday by a reader’s comment on David Brooks’ recent column.  Self-identified “liberal” Elizabeth Fuller of Peterborough, NH gave a defense of leftist politics that was articulate, if not persuasive.   Among other things, she said:

We love government not because it is always good, but because it is our only hope.

Really?  Government is the only thing we have to hope in?  Not our churches, our families, our neighbors, our work colleagues, our clubs and associations, ourselves?  No, just government.

Fuller’s point is basically that life is hard and unfair for many hard-working people, and government can help.  Fair enough.  But what she doesn’t seem to get is that the more government steps in to fulfill the traditions of churches, families, neighbors, colleagues, clubs and associations, the less people feel a moral obligation to others, the less they have the ability to help others because of high taxes, and the less they feel a personal responsibility to provide for themselves.   She and many other leftists see government providing hope.  I see the heavy boots of government stamping out hope, as well as faith and charity and the social bonds that connect people together and lead them to depend upon themselves and upon one another.

I was told a story a few years ago about a situation in Finland where a religious group was doing a service project that involved cleaning up some public space to make it more usable and attractive.  Some local citizens were angered because they felt that this volunteer effort might take away jobs from government workers.

Most libertarians (except for the anarchist whack-jobs) see a vital and necessary role for a strong but limited government.  We don’t hate government.  We just hate it when government stomps out our humanity.

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