By Matthew Yglesias
Nobody on the left ever really talks about the issue of exactly how big we can envision big government getting down the road. So I’m glad Kevin Drum took this important subject on even though I don’t really agree with his answer:
I am, oddly enough, not really in favor of vastly increased funding for other social programs. Some increased funding is OK, but it should be kept under pretty strict scrutiny — and not just on the generic grounds that all spending ought to be monitored carefully to make sure it’s effective and pruned away when it’s not.
Here’s why. I’m obviously more open to high government spending than most conservatives, but even liberals think there’s a limit to how much of the economy ought to be under government control. Speaking for myself, I’d put that limit at 40-45% of GDP. Somewhere in the low 40s, anyway. Currently, total government spending (state/local/federal) is in the low 30s, which means we can afford to increase spending by about 10% of GDP. I figure that changes to Social Security will eat up about 2% of GDP and funding a true national healthcare plan will eat up around 7-8%. That doesn’t leave room for very much more, and even reductions in defense spending only give us another point or so to work with. So we should be pretty careful with other long-term spending commitments.
The way I think about this goes back to a root dispute I would have with the right about the nature of public sector work. A lot of people on the right point to things being done not-so-efficiently in the public sector and say—aha! government is inefficient, we need to let the market in. I look at it the other way around. Where markets work well—primarily in the field of producing consumer goods—they create incredibly efficiencies. But there are lots of fields of endeavor in which markets don’t work well. Since well-functioning markets are the best method we know of creating efficiency, this is a problem. It tends to leave those fields of endeavor plagued by certain kinds of inefficiencies. But since some of these things are very important, they wind up getting taken over by the public sector. Which is, yes, less efficient than the private sector. But not because the public sector “doesn’t work” and its responsibilities need to be turned over to the market but because the things that belong in the public sector are precisely those things for which turning it over to the market isn’t a realistic option.
Meanwhile, one needs to understand that, somewhat counterinuitively, when you have a very efficient economic sector what happens is that it tends to go away. Consider agriculture. Our modern-day agricultural technology is way better than what was available 200 years ago. But agricultural progress hasn’t meant that everyone goes to work in the super-charged high-tech agriculture of the future. It’s meant that more food than ever is grown with fewer person-hours of labor than ever. We should expect this to continue apace. For all the talk of trade’s impact on American manufacturing, the bigger issue has been automation and robots. But either way, even though people will continue to consume manufactured goods—just as we still eat—manufacturing will be a less-and-less important part of the economy. Not because manufacturing “isn’t important” but because it’ll get more efficient. And that’s how the whole private sector part of the economy will go. Markets, doing their work, will make those sectors more and more efficient leading them to shrink as a share of the overall economic pie.
What will be left is big government. Or, rather, bigger and bigger government. Teaching kids. Taking care of the elderly. Patrolling the streets. Making the SUPERTRAINS run on time. And it’s going to be fine.
Which isn’t to say we should crank spending up to 93 percent of GDP next year. But it does mean I don’t think we should set an arbitrary limit. And it also does mean that it’s always important to find ways to make the public sector more efficient and more effective. It can be done. Public agencies are better-and-worse managed and offer better-and-worse performance. But it’s difficult to do and it doesn’t happen automatically the way it does in a well-functioning market. And it also means, as I’ve been taking to saying lately, that we need to think about garnering more revenue in ways that have non-revenue benefits. For example, market-rate prices for street parking not only raise revenue, but allow for more efficient allocation of parking spaces. Similarly with congestion pricing on crowded roads. Auctioning carbon permits will keep the planet habitable and raise some money. Taxes on alcohol and sweeteners would have public health benefits. And on and on down the road.