I think we need to distinguish between a government that finances long-term investment and a government that finances present consumption. Hamilton, the Whigs, Lincoln, and TR sought to improve American infrastructure and level the playing field so that young men of talent could overturn entrenched market incumbents. Growth was the result. Yet the American welfare state, as presently composed, is devoted almost entirely to consumption in the form of Social Security, Medicare, Medicaid, and interest on the debt. The money spent on education, R&D, and infrastructure is a pittance by comparison. The one place where we actually do massively invest in (global) public goods is defense. But of course that’s where everyone wants to cut.
So I’m generally in favor of anything that softens conservative rigidity on the question of “big government.” And I take the spirit of the suggestion here to be the right one—we ought to think about how much value we’re getting rather than how much we’re spending, per se.
But I think the consumption/investment dichotomy doesn’t capture value all that well. For one thing, in operational practice this is largely semantics. Since Bill Clinton emerged on the scene the political convention is to use “investment” to mean “spending I favor” whereas “out-of-control spending means “spending I oppose.” Hence to John McCain we invest in nuclear missiles but merely spend on bear DNA research, whereas I would say we’re spending on nuclear missiles and investing in scientific research. One man’s high speed rail investment is another man’s pork-barrel scheme. This is particularly true because the closer a public expenditure comes to resembling a private capital investment the more vulnerable it becomes to public choice critique. There’s no issue of government being “bad at” disbursing Social Security checks, whereas the skill with which a national high-speed rail network would be managed is open to question.
Last, though not least, lines are hard to draw. Medicare is obviously a heavy subsidy for old people’s consumption of health care services. But that, in turn, constitutes a heavy subsidy for medical-related R&D spending. America has the world’s most bloated health care sector but we’re also world leaders in pharmaceuticals, biotech, medical equipment, etc., and I doubt this is a coincidence. Any kind of in-kind social welfare provision is in part a form of industrial policy. In the classic Milton Friedman critique of the welfare state, this is a problem. But in the Continetti/Brooks/Salam reformulation of the critique, it ought to look more like a feature. I wouldn’t swing 100% to the “just send money” side of the argument, but on the whole I think Friedman has the better of the argument.