A while back I saw a piece about the sort-of-new Milton Friedman bio, and thought, I have to read that. But then I couldn’t find it at my local bookstore—I live in Berkeley—and by the time I got to another bookstore, I’d come to think I could live without reading it. Of course he was a hugely influential figure and must have had an interesting life, what with all the stuff he did, and his great taste in architecture. But I don’t love biographies and feel as though I know plenty about him and his ideas. And anyway, what interests me most about him is a certain paradox, one that he himself noted: his ideas have been incredibly influential, but arguably, his political project was a failure. Around 1980, i.e. right before The Reagan Revolution That Changed Everything, government sucked up around 40% of US GDP. And now, after said Revolution, which, we all know, Totally Reigned In Government Spending But Good, how much of GDP does government suck up? About the same amount.
Tyler Cowen proposes an interesting explanation for this. He argues that because anti-wasteful-spending rhetoric has been so successful, i.e. everyone uses it, and believes it, politicians have worked hard to improve the quality of government services, knowing that if they don’t, they’ll be tossed out of office. And as government services have gotten better, people have decided to buy more of them.
I think this is mostly true, but in order to understand why government is still so big, we need to look at two other things. First, the role of people I’d call policy entrepreneurs, the people who come up with new government programs, then convince taxpayers to buy them. Second, the relationship between the size of government and taxpayers’ sense of their own material well-being.
To take the latter first, I’d argue that as long as voters mostly feel they’re getting better-off, they’re open to spending more on government, so long as this increased spending doesn’t require taxes to be raised so much that they start feeling worse-off. That is, as long as economic growth outpaces tax hikes, people aren’t bothered about the latter. And yes, at least in part, they want high-quality services for their money—which is why tony suburbs the country over have high property taxes, which pay for great public schools, well-kept parks, and cops who crack the nuts of anyone who so much as looks at you cross-eyed.
But when buying from national government, over which they have much less leverage, voters, of late, mostly want something else: transfer payments, tax breaks, subsidized loans, and such. Cash in hand, or a cash equivalent. Entitlements, which make up an enormous chunk of the federal budget. And a chunk that’s growing as fast as politicians can find new ways to use it to buy votes. The most obvious case in point: the Medicare prescription drug benefit, which is a huge wealth transfer from the desultorily voting taxpaying public to a large group that can be counted on, every election day, to go to the polls in very high numbers, come rain, snow, gloom of night, or what have you.
So are entitlements these ‘quality services’ Cowen writes about? Of course not. In fact, I would argue, the entitlements explosion shows that people don’t trust government, at least the federal government, to do a good just of providing anything but cash and drugs. Which I guess could be the libertarian success he’s looking for.
But government is growing in other ways too, and if we look at those ways, we’ll see that Cowen is, to a real degree, right. Though ‘quality,’ I think, means something different than what we might expect. And we’ll see as well that this high-taxes-for-quality-governement-programs exchange couldn’t take place without either strong, ongoing economic growth, or the existence of a large, politically sophisticated group of policy entrepreneurs.
What type of government growth am I thinking of? Increased regulation, in part. Regulation of all manner of stuff no one ever thought of regulating, until someone convinced us it was bad, or, if we already believed it was bad, until someone convinced us that government could deal with whatever problem this It creates, so long as we understand that this is a service, for which we have to pony up. ‘Stuff’ including all manner of activities, from drug use to tobacco use to polluting, eating fatty food, and driving on busy streets. And of course hot on the heels of regulations are taxes, on all those things, and others to boot.
Where does this come from? As people get wealthier, their wealth creates an opportunity not only for private entrepreneurs who create and sell new luxury goods, but also for policy entrepreneurs, who create and sell new government programs. Both types of entrepreneurs make hay by getting people to spend money they didn’t expect to have, on goods and services that fulfill needs they didn’t know they had. The key, of course, is convincing them they have those needs, and that same are unfulfilled, and can only be fulfilled by buying a the thing or service in question. The thing, perhaps, being a cell phone, which no one ‘needed’ until about ten years ago, or a PC, which we all had to have starting around, when was it, 1990? And Medicare, and subsidies to all manner of industry, and so on and so forth, which sure cost a lot of money too, and weren’t essential until suddenly they were.
O.k., but if people are getting wealthier all the time, and can afford more of everything, and we have this vibrant private sector, why don’t private entrepreneurs step in to sell these things or services government winds up providing? The answer is that in the US, since the time of the New Deal, the private sector has been continually outflanked by the public sector, and specifically by its ruling class, the innovative, politically sophisticated policy entrepreneurs. Why? In some cases, because policy entrepreneurs have the ability to tilt the playing field against their private-sector counterparts. But more importantly, they have three killer sales lines. First, ‘I’m giving this to you free!’—to be said when arguing for, say, the aforementioned enormously expensive Medicare prescription drug benefit, because there’s a bit of money sitting around now and let’s just assume it’ll always be there, and anyway if it’s not, later, someone else will pay for it, right? Second, ‘We’ve got to do this for the children’, or its various variants, ‘…for the poor’, ‘…for the elderly’, ‘…for the historically discriminated-against’, and so forth. Which we can do because not only will someone else pay for it later, but anyway, you’re so rich—here comes number three—you would only spend that money on a boat.
And this is the key one. Government grows the fastest, and policy entrepreneurs, like their private-sector counterparts, do the best, when there’s a lot of recently made money around, and the people whose money it is, having already paid for digital cable and the kids’ Suzuki classes, and not sure what else to buy, are starting to think, What the heck, maybe I’ll buy a boat. Big government—‘fairness,’ ‘caring,’ ‘homeland security’, and so on and so forth—is, at least in its comtemporary US variant, the equivalent of that boat. Which is to say, a luxury good. The market for which explodes during times of economic expansion.
And being a luxury good, if it has no practical value… Well, no sweat. And if you never use it—no worries there either. Buying it, and having it, and thus being the kind of person who has a boat—that’s enough.
To wit: postwar American history, which shows that voters, when they feel flush, are quite willing to pay government to provide, at increased direct cost to them, new services whose only clear value is to make them feel good about themselves. These services don’t even have to deliver what they’re supposed to, at least not until voters start to feel like their standard of living is stagnating or declining, and so, in order to improve it, want, sensibly, to cut back on luxury spending. This is how we got the Great Society, and then, some years later, the reaction against the Great Society. The Great Society, after all, was of no direct benefit to most voters, and yet what with the humungo postwar economic expansion, everybody pretty much felt flush, and so what the heck, let’s shell out and see what happens, maybe we’ll lick this poverty thing. And who convinced them to do this? The policy entrepreneurs of the day, the people who created AFDC and Medicare and Medicaid, as thoroughly convinced as Jobs and Gates ever were, that their creations would change the world for the better—and as interested in making a living by getting someone to buy said creations. Which were, of course—like the personal computer, circa 1980, and the cell phone, circa 1995—no mere luxury goods, but things essential to the living of a truly modern life. And only in the late 70s and early 80s did their customers start to worry, maybe we shouldn’t be spending so much to keep that boat up, given that it leaks and the navigational system is so screwy, it never once took up where we thought we were going. Heck, let’s get rid of the boat—everyone will be better off, having to find their own way, rather than always wanting to hitch a ride on our boat, then tearing the place up and complaining all the while that the bar is understocked and the thing moves too slow. Maybe later, when we’ve got a bit of cash to spare, we’ll buy another boat. Or there will be somebody else selling something cool, something we just have to have, even if it’s hugely expensive and we’re not sure it’ll work, to fulfill some need we never knew we had. Something like universal health care. Or total homeland security. Or carbon neutrality, or a national war on the evil of sprawling transfatty profiling.