Government Spending Conservatively Half the Economy

Government spending in the US is always on the rise, and following spikes for crises, levels never return to former baselines.

Asheville – According to the World Economic Outlook Databook of the International Monetary Fund, total government spending as a percentage of gross domestic product (GDP) in the United States in 2020 was 46.18. That would be easy to dismiss since much of the government kept operating after it shut much of the private sector down for COVID. However, various measures recorded values over 40 percent for Obama’s first term, with percentages in the interim mostly in the high 30s. 

It is important to note reports of government spending as a percentage of GDP consider different quantities. For example, some might only include spending on final goods and services, and others may or may not include different classifications of persons doing government work. Most do not attempt to measure government spending in the form of non-tax liabilities passed on to the private sector. For example, the government requires people to spend their own money on things like catalytic converters and non-incandescent lightbulbs. It also requires the private sector to comply with COVID orders and spend earned income on floor stickers, acrylic shields and masks; and even reduce earnings with abbreviated hours and lower capacities.

In his classic book, Crisis and Leviathan: Critical Episodes in the Growth of American Government, Robert Higgs attempted to spur further research into the causes of government expansion. While measures such as government spending to GDP are typically used, Higgs cautions the Leviathan in question is not so much government spending as, in not so many words, the government’s consumption of more and more pieces of the power pie. More government spending could, for example, make sense during a war when national defense is at immediate risk. The same level of spending could also be worthless if managed unskillfully. Also, the same allotment of funds to something as basic as the US Supreme Court could lead to radically different outcomes.

Going back to 1900, Higgs observed that “total” government spending as a percentage of GDP was trace until the onset of World War I, and then it immediately returned to former levels with only two more spikes, all under 14 percent, until the Great Depression, when it jumped up to around 20 percent. Except for a spike of almost 50 percent for World War II, spending continued on a jagged incline until 1983, the latest data available for the somewhat dated book. Higgs also noticed spending after the spikes never returned to the old line of growth but resumed its upward trek from a starting point a few notches higher.

Many other students of economics have noticed what is called the ratchet effect, and most have explained it in terms of bureaucrats looking after their own selfish interests, justifying their programs’ budgets by spending what is available, and hiring more people to create more levels of management and thus increase salaries and prestige. Also, most politicians, citizens, and media outlets are more interested in calling attention to new crises and responses than addressing boring dead weight. Higgs argued things are more complicated.

He agreed that at first, leaders with the authority to enact wartime powers or natural disaster responses are under pressure from the public to “do anything.” To be responsive, they skip due diligence. One thing they definitely don’t do is try to procure the materials and services they need in the free market economy; raising taxes in wartime is generally construed to be politically damaging, too. So, the government comes up with off-the-books ways of funding the war, like forcing a draft, imposing price controls, and commanding factories to retool. 

As Higgs knew, and Americans are now savvier about, crises are also recognized by elite opinion leaders as opportunities to further their agendas that have been abjectly dismissed by the public in normal times. Unlike other analysts, whom he criticizes for assuming a citizenry and leadership with access to all pertinent facts and possessed with perfect logic; Higgs says it is an ideology that drives public policy. Worse, charismatic ideologues can speak jabberwocky and still manipulate the masses’ heartstrings and purse strings with imagery and emotion. While this is a sad statement about the world in general, it is good news for analysts and activists seeking the root of the problem; ideologies large enough to have political pull are typically led by only one or a very few mavens.

For what follows, Higgs likes to refer to sociologist/economist William Graham Sumner’s observation that once an “experiment” has entered into society, it can never be removed. Reasons for public complacency, again, are many. For example, some will find it more comfortable to let the government take over certain of their former personal responsibilities. Others, like hard-core defenders of the Constitution, will see that everybody didn’t die when America took another step closer to the cliff of socialism, and will not feel the need to be so guarded about their values in the future. Still, many will see that big government intervention proved successful, so they have no interest in trying to solve problems any other way.

Higgs closes on a somber note, saying he sees no reason to expect the trend to stop. (Libya’s spending rate is 165 percent.) The only hope he could see, though very slim, was, “if ideas can gain sway through rational consideration in the light of historical evidence and moral persuasion … the American people may rediscover the worth of individual rights, limited government, and a free society under a true rule of law.”

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