Friday, March 19, 2010
This is a partial response to a reader's post (by DouglasR) that raised a number of issues regarding the proper role of government in our economy. This chart shows total government spending (federal, state and local) as a % of GDP. It is thus a good measure of the "size" of government, since it tells us how much of the economy's total spending is managed or controlled by government.
Note that just over 100 years ago, government represented only 8% of the economy, and now it has reached just over 40%. I think this is an alarming number. When I and other fans of limited government urge a reduction in the size and scope of government, we are not talking about going back to 8% that prevailed in 1900. Most of us would be happy with getting government to shrink back to the level of 30% or so that prevailed in the 1950 and 60s. Even that implies that almost one-third of all the money spent in the economy would pass through the hands of government, or that one-third of all the money that is earned is taken (by taxes) by the government. Surely one-third of GDP is not too small a role for government, and many would argue that it is still way too much. Our Founding Fathers, of course, would have been apoplectic at the mere thought that government could one day consume or command one-third of the economy's resources.
There is a maxim worthy of repeating here. For every increment in the size and scope of government, there is a corresponding decrease in the liberty of the individual. Government cannot expand without encroaching on individual freedom. With Obamacare we are seeing close up the extent to which the government seeks to control our lives. Mandating that everyone purchase healthcare insurance, deciding how much insurance companies can charge, prohibiting insurance companies from denying coverage, attaching the wages of those who refuse to cooperate, mandating what types of insurance coverage we must purchase; this is all frightening, something that would put us on a slippery slope that has no foreseeable end.
What about future growth? I would say that we have achieved the status of the greatest nation the world has ever seen in spite of the growth of our government. I think that if we rolled back the size of goverment just a few decades we could see continued economic expansion that would lift the welfare of all citizens, both here and around the world. I believe that only the private sector is capable of creating new and productive jobs, and new and creative ideas. The private sector is abundantly capable of creating solutions to all kinds of scarcities, should they exist. Silicon, one of the most abundant elements on earth, was only recently harnessed to do the drudgery work of hundreds of millions of workers, who might otherwise be at work switching phone calls, etc., thus freeing up those workers to do countless other things that contribute to the general prosperity. Without computer chips, the internet would be impossible, and the internet itself was an unimaginable concept when I was born.
To paraphrase the great Julian Simon, the only scarce resource on our planet is human ingenuity. If government is prevented from smothering productivity, entrepreneurship, and ingenuity, our future can be as bright and as big as our imaginations.
Posted by Scott Grannis at 7:43 PM