The Economist on the growth of government
The Economist devotes its last cover to “The triumph of big government”. The brief is an interesting piece on governments getting bigger all the time. A citation of Bob Higgs’ Crisis and Leviathan would have been nice, as the piece deals with the core ideas of that, marvelous book, but to its credit The Economist interviewed and quoted a couple of libertarians, like John Cochrane, Johan Norberg and Mark Littlewood of the IEA. Mark is credited with the only thing which looks like a proposal in the entire piece, albeit a vague one. He suggests allowing people to pay less in taxes in return for renouncing some state services. If the tax cut is attractive, but still less than the cost of supplying the service, that saves money”. But, writes The Economist, “because the people keenest to step out from under the umbrella of the state will always be those who already rely least on its protection, the state’s tax revenue would probably decline by a lot more than demand for its services.”
The article insists on the many forces behind government growth and quite correctly puts the decade of the 1980s in perspective. Though Reagan and Thatcher’s rhetoric produced such a shock on the international left that they are still dreaded by many, in fact the cases in which government spending was reduced are very few:
Examples of genuine state retrenchment in developed countries are few and far between. Sweden managed it in the 1980s. In the early 1990s Ruth Richardson, then New Zealand’s finance minister, cut the size of the state drastically. Wags called her plan “Ruthanasia”. The patient did not die. State spending is now six percentage points lower as a share of GDP than it was in 1990. But this is a rare achievement, and perhaps one doomed to pass. Grant Robertson, the current finance minister, pledged to “address the most inequitable of the changes made 30 years ago” as he promised a large boost to welfare payments.
Even austerity, The Economist writes, has been little more than a left wing scapegoat:
Some countries buck the trend, a bit, for a while. Germany’s spending as a share of GDP in 2019 was the same as it was in 2006, Angela Merkel’s first full year as chancellor. But the stable level was also a pretty high one. And German attempts to impose frugality elsewhere were short-lived. Spain and Italy both went on courses of strict austerity during the euro-zone crisis of the early 2010s. But in both cases public-sector spending, relative to GDP, was higher in 2019 than in 2006.
The magazine’s editorial asks how classical liberals should respond to the new era of Big Government which has been ushered by the pandemic and generous fiscal policies made possible by non-conventional monetary policies. Its response is a catalog of good intentions:
One task is to maximise the role of markets and individual choice. Climate change should be fought with a price for carbon, research-and-development subsidies and highly scrutinised public investments, not by rationing flights, promoting green national champions or enlisting central banks to distort financial markets. The welfare state should focus on redistributing cash and letting those in need choose what to do with it, not setting up new bureaucracies such as President Joe Biden’s proposed federal child-care system. Taxes should be broad-based and friendly to investment.
The state must also seek to be nimble and efficient. Income support for households should be automated where possible as the financial sector becomes more digitised. Much form-filling can be eliminated, as Estonia’s war on paperwork has shown. If there were fewer, better-paid bureaucrats, the public sector could attract more talented staff. And politicians should be willing to start afresh when tackling new problems, rather than relying on lacklustre incumbent departments. The biggest successes of governments during the pandemic have come from internal startups like Operation Warp Speed, which helped bring about America’s development of vaccines.
The state should strive to be impartial. Narrow interests, whether the unions and anointed victim groups favoured by the left, or the right’s chums in business, will always seek to capture it. To resist, bureaucrats do not need relentless cynical, self-serving attacks on their integrity from politicians, but transparency and support for the ethos of public service. Though rising total spending on the old is justified, a full-scale gerontocracy is not. Retirees with deep pockets do not need public handouts. On the contrary, they should bear a heavier burden as taxes shift from wages, towards property, inheritance and consumption.
We have here something which is often troubling in classical liberal accounts of current affairs. Classical liberals tend to be realists: they see the “objective” forces behind government growth (pressure groups but also, for the Economist, “prices of the services welfare states provide, such as health care and education, grow faster than the economy because of their high labour intensity and low rates of productivity increase”) but then, when it comes to a positive program, they come up with a few good ideas which would nonetheless require a profound modification in the very system of politics which produced bigger government in the first instance. We tend to be (me included) consistent realists when it comes to the reason why we got here, but idealists when it comes to how to move forward, by appealing to the best sense of the people and leveraging the rationality of our message. Does this work? I would have expected, in the Economist’s piece, some attempt at creative constitutional engineering. Tipping points could be searched for to make the growth of government at least a bit more difficult. When it comes to how (if) the growth of government could be slowed or stopped, there are two relevant questions the Economist seems not to consider.
The first one is to what extent is the growth of government economically harmful. Are people suffering, and will they be poorer because of it? Who will it harm the most? Answering this question will be useful to try to identify who could be the next constituency for limited government. The Economist seems to think that, since the world is more complex, governments needs to do more, hence the case for classical liberalism is intellectually more challenging now than it was at Thatcher’s time. I don’t think that is the case. Actually, perhaps the sophistication of the argument of statists would be an interesting test for that assumption. Do we find contemporary advocates of bigger governments to be more sophisticated than, say, John Maynard Keynes or William Beveridge? My impression is that the argument for government is actually less sophisticated and simply assumes that government is the best answer to a whole series of problems, without proving very much. I think the problem is different. In Thatcher’s time, it was pretty clear that the constituency for reducing the scope and action of government lay within the productive middle class that saw itself as penalized by taxation and regulation and which retained a strong culture of autonomy and self help. Is that still the case now? It seems to be that it is now, but another constituency for a smaller government hasn’t been found yet.