Three statistics:
Overall Gross Domestic Product of the United States: $14.2 trillion (2008 figure).
Size of the Budget of the United States Government: $3.5 trillion (2009 figure).
Expected Federal Budget Deficit in 2010: $1.5 trillion (Congressional Budget Office estimate).In percentage terms, the federal budget is about 25% of the GDP of the United States, and the projected 2010 federal deficit is about 10% of the GDP. Given the United States population of about 307 million, that amounts to about $46,000 per person GDP; $11,400 per person in federal spending; and $4,900 per person added to the federal debt.
This is a libertarian-leaning blog, so most of the bloggers here (myself included) think that the federal government is much too big, and the federal deficit is a major national problem. But I realize our readers are a very politically diverse group, and some will disagree.
I’d like to ask those who disagree a question: In your view, what’s the right size of the federal budget, and the federal deficit, in terms of proportion of the overall Gross Domestic Product of the United States? If a federal budget that is 25% of GDP is too low, what is about right? (Also, please note that I’m just asking about the size of the government, not the many possibly related issues such as whose fault it is, past budgetary decisions you agree or disagree with, etc.)
UPDATE: If you feel that you need to break down the budget into specific categories of spending to have the overall answer make sense, please feel free to do that.
rpt says:
I don’t think you can answer the question without relating to circumstances and priorities. For example, one can say the size of the budget deficit was just fine as of the end of 2000, that is, there was a budget surplus. Others felt that the deficit should be larger, and so it did.
March 6, 2010, 1:43 pmHarold says:
Size the cost of the military based on our world wide requirements, double that number and that’s as big a government as we need.
Security after all is the primary responsibility of any government. Almost everything else should be done privately or at the state or local level of government.
So that’s about a trillion dollars now. I’d like it smaller, much smaller but I’m being expansive.
March 6, 2010, 1:43 pmOff Kilter says:
Harold: Military spending by the USA is now half of all military spending on earth. And you want to double it? Good to know it’s only for defensive purposes…
I agree with Friedman that the deficit isn’t the problem, the size of government is. I’d be happier with a larger deficit if it came with a smaller government (though it never does.)
And of course the financial costs of the government is only the tip of the iceburg. Many very liberty-destructive regulations cost the government nothing, but cost society greatly.
March 6, 2010, 1:51 pmAlan Gunn says:
You might throw some sort of measure of the size of state governments into the mix, too.
March 6, 2010, 1:56 pmMike McDougal says:
So, if you toss in state and local government, the government cost of running society is probably around 40% of GDP.
March 6, 2010, 1:58 pmAdam Kamp says:
I guess I’m not really in the disagreement camp; I’m a progressive, but on the local level only. Nevertheless, I’d say that this is asking the wrong question: The federal government should take whatever portion of GDP is necessary to most ably provide the services that society needs. Since I think that works best at the state and local, I’d rather that the federal government be smaller, but that’s a pragmatic, not an ideological choice. The idea that the proper size of the budget and therefore the government is contingent not on efficacy but as an arbitrarily-chosen percentage of GDP is nonsensical to me.
March 6, 2010, 2:09 pmbyomtov says:
I agree with rpt. There is no magic percentage of GDP that is the right size of the budget. It depends on the needs at the time. To take an extreme example, during WWII the budget was in excess of 40% of GDP.
Similarly, but less extremely, the figure will go up, as it should, during recessions, and down during better times.
Even averaging over the business cycle, and ignoring special cases like WWII, it’s not clear to me why there should be an ideal percentage. It’s a question of what activities the government should undertake. Good ideas shouldn’t be rejected because the percentage is “too high,” bad ones shouldn’t be implemented because it’s “too low.” And of course cost is a part of deciding which ideas are good or bad.
March 6, 2010, 2:09 pmMalvolio says:
I believe Harold is saying you should double numerically the ideal military budget to calculate the ideal total budget, not that the current military budget should itself be doubled.
March 6, 2010, 2:11 pmSarcastro says:
[Agreed that specifying a government spending target puts the cart before the horse.
The issues between progressives and libertarians are more fundamental than numbers - i.e. what should the role of government be in our society.]
March 6, 2010, 2:19 pmSpitzer says:
The right size for the federal government – assuming we took federalism seriously (we we don’t, for the most part) would probably be more in the 5-10% range (defense would be the largest department, state and treasury would consume most of the remainder, and the only other departments in existence would be justice (but far, far smaller) and interior (to oversee federal lands and to transfer most of those lands to the states or to privatize them)). With a proper 50 state system of federalism, there would likely be some states whose governments would essentially grow to match the proportional size of the federal government today, and others that would choose a leaner or more modest course. But that would be OK, because people would be free to choose for themselves.
But if we’re talking about the “right” size of the government from a different perspective, I would say that the right size would be somewhere between 200 and 1000% of GDP. No government in history (perhaps setting aside a small blip or two that quickly disappears) has ever suggested that it had enough money. Government, after all, derives from bandits who realized that it was more profitable and secure (for them) to stop raiding farming villages, and instead to set up shop as a kind of protection racket. Theft and violence (sometimes called taxes and justice) are the root of all government, and I am continually surprised that anyone believes that governments exist to serve anyone’s interests other than their own (and especially the private interests of the governing class, their allies, and their clients).
March 6, 2010, 2:25 pmOff Kilter says:
Malvolio: “I believe Harold is saying you should double numerically the ideal military budget to calculate the ideal total budget, not that the current military budget should itself be doubled.”
If I misunderstood Harold, my apologies. But if your understanding is correct, Harold’s comment is pretty vacuous. Even a pacifist anarchist could agree with it: 0 doubled is 0.
March 6, 2010, 2:26 pmjiffy says:
Budget should be 27.953% of GDP; deficit should be 1.244% during peaks in the business cycle and from 5.994% to 11.623% during recessions, depending on severity. These numbers are plus or minus .002%
March 6, 2010, 2:26 pmRichard Riley says:
Orin’s question is a good example of a point made by Jonathan Chait: that conservatives (and I’m lumping Orin in that group for present purposes, recognizing he’s still the most “liberal” VC blogger) just assume liberals support “government” as a general matter, and therefore can fairly respond to a question like “how big do you think the federal government should be?”
But conservatives are wrong about that. Liberals are interested in the actual goals that government can, in their view (whether rightly or wrongly), accomplish, and the particular activities in which they think (whether rightly or wrongly) government should be involved. So the correct way to respond to Orin’s question is not, “Oh, the federal government shouldn’t be 25% of GDP, it should be X% instead.” Rather, the right answer is “The federal government should be doing the following things [assume list follows], and however big that makes it as a percentage of GDP, that’s how big it should be.” And sure, the Peter Orszags of the world can add up all those costs if you really need to know. But again, the ultimate percentage is not the right question – or at least not the right starting question.
March 6, 2010, 2:27 pmFrank Drackman says:
Whatever it was during that last year of the Johnson administration when there was a budget Surplus despite 600,000 Troops in Vietnam, Moon Program, Medicare, and more Nuclear Missiles and Jet Bombers than anytime in modern history….
Frank
March 6, 2010, 2:28 pmDangerMouse says:
Richard is right, libs don’t treat this as a budgetary issue. The question is really asking how much they’d limit the influence of government over our lives. And as history has proven, to them there is no limit. It’s a psychological problem they have, not a budgetary problem. So the answer is: the government will grow to the extent they feel that they need to control the masses, or enslave them through dependency, by any means possible.
March 6, 2010, 2:32 pmJoe Kowalski says:
I’m of the opinion that total state/local + Federal shouldn’t be larger than a 1/3 when the economy is growing. In recession years though, that percentage should go up, even to as much as half depending on the severity of the recession. As for deficits, a rolling 5 year balanced budget that accounts for GDP growth should be a target worth pursuing.
But as Sarcasto says, this is largely putting the cart in front of the horse. If you think government is too big, how big should it be and what should be cut to get to that target? If you think government isn’t big enough, at what point would it become too big, and what priorities justify that growth?
March 6, 2010, 2:33 pmPintler says:
There is an interesting book by Paul Kennedy called ‘The Rise and Fall of Great Powers’. His thesis is that powers become great because they have the agricultural/industrial wealth to support large armies and far flung military requirements. They then spend their wealth doing that, while their non great power neighbors spend a couple of percent less on their military. A couple of percent difference compounded over a century or two adds up, and thus eventually the non great power neighbors become wealthy and become the next great powers, and the cycle repeats. When you compare the historical spending patterns as the cycle went through Portugal, Spain, Holland, France, England, and so on to the data for modern America, it makes a pretty compelling case for reevaluating just how far flung and extensive our military commitments should be.
As far as Orin’s question, doesn’t it depend on what you think the gov’t should provide? If you think the gov’t should provide old age pensions, aid to the needy, health care, education, free internet, and a pony for every little girl then the gov’t is going to take a big slice of the pie. So maybe the question should be what the gov’t should/should not provide?
March 6, 2010, 2:34 pmMike McDougal says:
That says virtually nothing. It’s really not that hard a question. What is the cost of what society needs? Divide that by GPD. Multiply by 100. Report your answer.
March 6, 2010, 2:38 pmMike McDougal says:
In related news: 47% of households pay no income tax.
March 6, 2010, 2:42 pmJR says:
Are you asking ceteris paribus, or in the context of a global financial meltdown with @10% unemployment? Because I think the answers may vary.
March 6, 2010, 2:43 pmJoseph Slater says:
Richard is right, but not in the way Dangermouse suggests. The question isn’t what “liberals” think the government should be doing, but what consistent, significant majorities of the American people think the government should be doing. The overwhelming majority of government spending is on programs that enjoy very broad support.
March 6, 2010, 2:44 pmMike McDougal says:
Go ahead and give two answers, one for the typical situation and one for the present situation.
March 6, 2010, 2:45 pmSarcastro says:
This is key – all liberals love them the nanny-state, AND high taxes. Plus government waste just plain turns them on. It’s part of their plan to make us all veal-calf like to control us. I know this, due to some unique truths I have discovered:
Yep, all liberals have been the same throughout history. See, I find life easier when I lump all my bad-guys together. Thus there is the Atheist-Muslim-liberal-Commie-Nazi-Mexican Evilness cabal. Note that Jews have not made the evil cut lately, but they remain mostly liberal, so I keep them on notice!
They all act and think the same way, which I know based upon my study of bad people in general.
As a special bonus this means every crazed killer, from the Holocaust Museum guy, to the Unibomber, to the latest Pentagon kook, are all clearly liberal, as proven by their badness!
March 6, 2010, 2:48 pmOff Kilter says:
There is a problem with the approach advocated by Richard Riley.
Consider that you listed all the things you think government should do. And the accountant responds, “OK. That would take 97% of GDP.” Is your response, “OK, if that’s what it takes, that’s what it takes.” Or is your response, “Whoa! OK. Let’s regroup. Maybe the government doesn’t have to provide daily nursing supervision of lactating mothers after all…?”
Orin’s question is not that hard. There’s a trade off. The more you want the government to do, the more the percentage of GDP it will take. Granted, there are some things on the list that appear sacrosanct, that can’t be removed. But is anyone seriously arguing that NOTHING can be removed, that one’s wish list is the same as one’s bare necessity list? Is anyone really arguing that 90% of GDP is acceptable if that’s what one’s list requires? Riley’s underlying assumption seems to be there is no trade off between what’s allowed on the list and cost.
March 6, 2010, 2:52 pmHarry Eagar says:
How come Sarcastro is getting all serious and thoughtful in recent days? And where will VC readers go for their daily cup of snark?
I have no particular opinion about the overall size of government. If a program is desirable — like, say, the yellow fever quarantine, which was taken over by the national government when state governments repeatedly failed to be effective — then it’s desirable. Who wants yellow fever back? Not me.
Being for low taxes, in itself, is just silly. Depends what services you get back for them.
March 6, 2010, 2:56 pmNot My Leg says:
I agree with everyone who said that deciding an arbitrary percentage doesn’t really work. I believe that the proper approach is to decide what we want to accomplish as a society, decide which of those activities are best done by the private sector and which are best accomplished by government activity, and budget accordingly.
I think a little more can be said about the size of the deficit. Generally I would say that the goal should be to run a fairly substantial surplus during good economic times, under the assumption that we will be running a deficit during bad times (whether that’s from increased spending or reduced taxes.) Basically, we should recognize that over the short term economic conditions will dictate precise levels of spending and taxing, but over the long term the goal should be to be deficit neutral.
However, I don’t think that the ideal deficit is expressible in terms of a percentage of GDP. I actually think the ideal percentage changes based on GDP growth. As GDP falls, the percentage of GDP that is deficit spending should increase.
I think part of our problem is that everyone basically agrees about running a higher deficit during the downtime, but nobody wants to cut back during good times. During downtimes conservatives cut taxes to stimulate the economy and liberals increase spending, but when things turn around nobody wants to give up what they accomplished during the downtimes. (Any conservatives believe that the Democrats are going to just let the stimulus spending vanish)? This leads to the current situation of ever growing federal deficits, as one side increases spending while the other decreases revenues.
March 6, 2010, 3:01 pmravenshrike says:
Bzzt, wrong. There was a projected surplus, compiled with numbers from before the tech bubble popped, which it did before Bush took office. If you’re going to take partisan potshots, at least make sure you’ve got your facts correct.
Oh, and outside of a major crisis a la WWII, 15% Federal, 5-10% State.
March 6, 2010, 3:04 pmAdam Kamp says:
Mike McDougal said:
You mean this isn’t ironic? Tell me it’s ironic. Please? Because that question is essentially unanswerable without an extraordinary amount of expertise.
I’m suggesting a principle–the number should be whatever comes out of that principle.
March 6, 2010, 3:10 pmMike McDougal says:
Mostly, you’re avoiding the question.
March 6, 2010, 3:19 pmMichael Benson says:
It depends very much on what the government is doing. How much you are willing to spend for something depends–pretty obviously I think–on how much you get for that spending. For example, if the government were providing all Americans with basic health services, spending at a higher percent of GDP would be acceptable. The proponents of a vastly more encompassing healthcare plan that we are considering argue that overall Americans would be paying less money for healthcare than they do now. If healthcare expenses are going down at a rate close to the rate at which taxes are increasing then–purely from the cost/benefit point of the tax payer–it’s tough for me to see what the problem would be.
My point isn’t about whether or not that’s true of healthcare in particular. My point is that–as a general rule–I can’t see any useful point in picking some arbitrary percent of GDP and saying that it’s the amount the government “should” be spending.
Do you have some notion of what the government should be spending abstracted from what it would provide professor Kerr?
March 6, 2010, 3:25 pmConstantin says:
Some guys already did this. In 1787.
March 6, 2010, 3:27 pmCrisisMaven says:
These sordid figures mean: a) GDP is overstated by about 25% as states are not productive. No wonder, forecasts are flawed if they report 3% growth where they’d need to report 22% contraction etc. b) If you left that money in the economy (at EXACTLY where it was looted from) it would drive staggering growth rates, after all, the money is extracted most from where growth (or profitability) is largest. It’s like clipping the longest shhots always and wondering why the tree isn’t growing any taller. And naturally this doesn’t contain the UNFUNDED future entitlements, so the deficit is (discounted to today) five to fifty times larger depending on what future revenue streams are projected. Sanity anyone? So the US is bankrupt as most other OECD states are.
March 6, 2010, 3:35 pmtroll_dc2 says:
I am posting a link that, technically, is not responsive to the questions posed but that illustrates why I think that the questions are not helpful. You can come up with all sorts of percentages and all sorts of lists as to what are proper government activities, but until you control the process by which government spending occurs, everything else is only of academic interest.
We do not have that control. Instead, we have interest groups that stoke the spending and resist cutbacks and legislators who are responsive to them. Now we have a Supreme Court ruling that, carried to its logical conclusion, would make it unconstitutional to do anything about this problem.
“In e-mails, lobbyists perceive ties between campaign cash, earmarks”
March 6, 2010, 3:44 pmCrazyTrain says:
Wow, Sarcastro is Glenn Reynolds.
March 6, 2010, 3:47 pmJohn Burgess says:
I think the US Foreign Affairs budget (latest request was $52.8 billion, including foreign assistance) should be at 20% of the total military budget (in the area of $653 billion currently).
While I wouldn’t argue for a doubling of foreign assistance (though that would be good PR-wise), I do think State needs to seriously upgrade and expand its staffing, facilities, and capabilities.
March 6, 2010, 4:10 pmBruce Boyden says:
I have long believed that the federal government should cost no more than $11,401 per person (in 2010 dollars), so everything is just fine.
March 6, 2010, 4:10 pmpireader says:
Professor Kerr —
Most (88%) of the Federal government’s outlays go four places:
Defense 36%
Social security 22%
Medicare+Medicaid+SCHIP 21%
Interest on the national debt 8%
Any serious effort to reduce spending and the deficit has to focus on those. Talk about the rest is just cocktail-party chatter.
In my opinion, three of the four could be substantially smaller without cutting services or quality.
Defense. The US government spends as much as the rest of the world combined. It could spend substantially less without endangering ourselves or our allies.
Health care in this country is outrageously over-priced (and spiralling upwards) for mediocre results. Changing to a system like France’s would give better results at much lower costs. The change would give Medicare + Medicaid + SCHIP a much lower (and stable) budget.
Interest payments on the national debt are the result of past deficits. The Federal government should run surpluses in good times and deficits in bad. The cumulative surpluses would pay down the national debt and eliminate much of the interest payment. (We were on our way there at the end of the Clinton administration; and could be again.)
In short, the US government’s spending could be substantially smaller, and deficits could be surpluses over the business cycle, without reducing services.
A question back to you–Do the conservatives and libertarians on this blog, who allegedly favor less government spending and elimination of the deficit, support such a program? As a daily reader for several years, I’d have to say “No”. (Which suggests that their real priority isn’t a smaller government or deficit elimination.)
March 6, 2010, 4:16 pmCurmudgeon Geographer says:
Even better, imagine if the US had to run a budget so as to become a member of the EU. Right now we could not qualify for entry to the EU based on our out of control government spending.
March 6, 2010, 4:24 pmLeeW says:
The unfortunate aspect of this is that the GDP is inflated due to the credit carry forward nature of our economy. If you were to remove that part of the GDP, I am guessing that the true measure is actually in the neighborhood of 15% or so less, which makes the budget and deficit numbers even more alarming (at least from a Libertarian point of view).
March 6, 2010, 4:24 pmOrin Kerr says:
Pireader,
The form of your argument is
a) I personally think plan X would solve problem Y.
b) If you disfavor plan X, I conclude you do not really want to solve problem Y.
Isn’t that obviously a logically flawed argument?
So for example, I could say:
a) I personally think all of America’s problems would be solved by making me dictator,
March 6, 2010, 4:29 pmb) If you do not want to make me dictator, you do not want to solve America’s problems.
Kirk Parker says:
Harry,
Not quite silly, given the fact that they are not voluntary, and the universal experience of less-than-efficient (and sometimes not-even-desired-at-all) government services.
John,
Well, let me respond with an enormous “that depends”. Would we be better off with a larger and much more vigorous effort in this area? Without a doubt. But would our existing folks in State hire the right kind of folks for the job, rather than the sort more like themselves (and could they even find enough qualified ones to hire in the first place?)
March 6, 2010, 4:34 pmMatt says:
“Changing to a [healthcare] system like France’s would give better results at much lower costs”
Well, why didn’t you say so! This solves everything!
March 6, 2010, 4:43 pmOff Kilter says:
To put things in context, from Wikipedia: “The serf also had to pay taxes and fees. The Lord decided how much taxes they would pay from how much land the serf had, usually 1/3 of their value.”
March 6, 2010, 4:52 pmMike McDougal says:
Cut defense by half.
March 6, 2010, 4:57 pmCut SS, Medicare, Medicaid, and SCHIP by 20%.
There. I just lopped off a bit more than 1/4.
ThompsonR says:
GDP is a highly flawed concept for many reasons.
Gauging opinion on the maximum desired size of government spending… is easier done by asking individuals the maximum percentage of their personal income — that they would freely transfer to the government for public spending (e.g. taxes). That number lets one roughly calculate the ‘satisfactory’ maximum government spending level.
Formal public polling of that question over the years… usually gets a median response of about 10% maximum of income to government.
Of course, a typical middle class taxpayer now ends up paying 40-50% of his income in various taxes at all the levels of government.
A hundred years ago, the equivalent number was less than 10%. There are lots of hidden taxes: taxes account for 31% of the cost of a loaf of bread; 28% of the cost of a restaurant meal; 38% of the cost of a pizza; 43% of the cost of a beer; 72% of the cost of liquor; 40% of the cost of an airline ticket; 54% of the cost of gasoline; and 26% of the cost of electricity.
How much of your income would ‘you’ routinely give to government politicians & bureaucrats… if you could decide that percentage ??
Those who now feel they are under-taxed are free to immediately send generous contributions to the U.S. Treasury… which has a special account and a simple procedure for that purpose; most states have similar procedures for those who deem themselves under-taxed.
March 6, 2010, 5:10 pmAllan Walstad says:
I’d like to see some commenters on the left-liberal side step up and take a fair shot at Prof. Kerr’s question, at least to this extent: if the feds are spending 25% of GDP and government at all levels is up around 40%, is this pretty much enough or not? If not, can you offer any sense (or, say, any limit short of 100%) of how much higher would you go? Relate to circumstances if you wish.
As a libertarian/classical liberal, I’ll take a swing from the other direction. Military spending needs to fall by at least half within a decade or so, together with a diplomatic initiative to make clear to other liberal democracies that defense of their parts of the world is primarily their responsibility. Eventually, we should be looking at no more than 1% or 2% of GDP there. With regard to domestic spending, the only legitimate question about Social Security, Medicare, and the other unconstitutional federal programs of organized robbery and cross-subsidization is how to terminate them in the least disruptive manner. Once the feds are back within their constitutional limits, state and local spending will be more effectively limited by the ability of productive people to escape to less kleptocratic jurisdictions. In the long run, with government at all levels limited to a few core functions like defense, police, adjudication of disputes, reasonable monitoring and protection of the shared environment, and some infrastructure, the cost should be no more than, say, 5% of our economic output.
Sure, you can criticize my position. More to the point, what’s your position?
March 6, 2010, 5:15 pmSarcastro says:
Yep, our society is exactly like Medieval Europe, and thus we are all serfs! No freedom here, it’s all scrabbling for food, bubonic plague, and watching our betters jousting!
March 6, 2010, 5:15 pmgeokstr says:
Perhaps we could instead try some common sense things like take a bite out of that $60 billion dollars of fraud in Medicare every year. Or do away with the need to do every test in the book in order to protect the physician from the trial lawyers lottery. Or do away with union first dollar coverage, where there is no incentive whatsoever for the patient to control his usage of the system. Or maybe if the Medicare/Medicaid system didn’t shortchange providers, there wouldn’t be as much cost shifting to private insurance patients. Or…etc, etc, etc, ad infinitum.
Or maybe if the me-me-me boomer generation would just grow old gracefully instead of trying to botox and nip/tuck themselves into faux youthfulness…
March 6, 2010, 5:16 pmJ. Aldridge says:
Actually it is a political and judicial (allowing such things as prohibited commerce interpretations) problem since they are responsible for creating the problem.
March 6, 2010, 5:43 pmtroll_dc2 says:
What is the operational point of comparing the yearly deficit to the gross domestic product? That sort of assumes that we could cover the deficit by taking more from GDP, but our recent history is that raising taxes is a hard sell and cutting spending is an even harder sell. Hence, while the comparison makes for decent rhetoric and can provide some sort of perspective, I question whether it means anything in terms of what to do.
March 6, 2010, 5:49 pmrpt says:
No plaintiffs’ lawyers! No unions! No medicare! Charles Dickens’ paradise!
March 6, 2010, 6:04 pmMike McDougal says:
I once read, IIRC, that all tort awards are about 2% of GDP. Even if you eliminated all of them, that’s pretty small compared to the size of the federal government.
March 6, 2010, 6:20 pmjccamp says:
pireader -
The budget numbers change pretty dramatically from year to year. This would be the proposed 2010 U S Budget:
Defense spending – 18.74% of the total
Social Security – 19.6%
Unemploy/Welfare 16.13%
Medicare 12.79%
Medicaid/SCHIP 8.19%
Interest on Natl Debt 4.63%
Everything else roughly 20%
It may not change anyone’s position, but combine entitlements and you have more than half of the budget, while, as Mike pointed out, nearly half of all households pay no U S income taxes. So, it would seem that roughly half of the electorate pay no taxes, while more than half of the national budget goes toward entitlements. This is a recipe for disaster.
So, another way to consider the best size of the Federal government might be, rather than consider what is essential, or what percentage of GDP works, would be to consider how much of a tax burden is spread across what base? We run the risk of resembling an inverted pyramid on the present course of wealth transfer.
March 6, 2010, 6:28 pmbyomtov says:
I once read, IIRC, that all tort awards are about 2% of GDP. Even if you eliminated all of them, that’s pretty small compared to the size of the federal government.
I don’t understand what tort awards have to do with the size of the government.
March 6, 2010, 6:29 pmpireader says:
Professor Kerr –
Actually, my argument was of the form …
(a) Here are the main budget areas
(b) Here is external benchmark data showing that each budget area could be much lower without eroding service
(c) Therefore, there’s a significant opportunity here
It’s a pretty common way for business people to reason
March 6, 2010, 6:34 pmJon Rowe says:
In percentage terms, the federal budget should be no more than 5% of GDP. There should be no deficits either.
March 6, 2010, 6:34 pmbyomtov says:
Allan Walstad,
I’d like to see some commenters on the left-liberal side step up and take a fair shot at Prof. Kerr’s question, at least to this extent: if the feds are spending 25% of GDP and government at all levels is up around 40%, is this pretty much enough or not?
Again, depends on circumstances, etc. Twenty-five percent is clearly a high number by historical standards, but is driven up by the recession, which both lowers GDP and increases spending. Note that even without the stimulus lots of spending goes up – unemployment insurance (once someone shuts Bunning up) and various other sorts of assistance.
OTOH, an increase in government programs – notably health care – would drive the share up. So I’d accept a higher than historical share depending on what it was paying for.
Though I disagree with much of what you say, I’m glad to see you are willing to make cuts in defense. Too often every defense dollar is regarded as sacrosanct, even by those who see themselves as fierce budget hawks.
March 6, 2010, 6:45 pmtroll_dc2 says:
The problem with these statements is not just that they do not explain why their pronouncements are correct. Rather, they use the word “should,” which offers no guidance on how any change in the direction that the statements advocate is to be achieved. The role of “should” is merely to support the expression of a desire, without regard to the real world.
March 6, 2010, 6:51 pmPerseus says:
To be fair, the vast majority of people contribute to
March 6, 2010, 7:00 pmPonzi schemesentitlement programs such as Social Security and Medicare (allowing them to be called “social insurance”), which are unsustainable nevertheless.rpt says:
Tort awards–to injured individual plaintiffs only, and excluding business torts–are regarded by conservatives as of the major causes of deficits, societal unrest and other ills. As Tom Coburn describes, the plaintiff trial lawyers–there are no defense trial lawyers–are the ones who force him to order unnecessary tests and charge higher fees in order to protect himself.
March 6, 2010, 7:04 pmOff Kilter says:
Off Kilter: To put things in context, from Wikipedia: “The serf also had to pay taxes and fees. The Lord decided how much taxes they would pay from how much land the serf had, usually 1/3 of their value.”
Sarcastro: Yep, our society is exactly like Medieval Europe, and thus we are all serfs! No freedom here, it’s all scrabbling for food, bubonic plague, and watching our betters jousting!
March 6, 2010, 7:08 pm—-
It seems Sarcastro has difficulty with the concept of “context,” which I’m sorry to inform him is not equivalent to “identity.”
Butternut says:
As the author points out currently the size of the federal government is 25% of GDP. That is too small. I would hope that the percentage can quickly exceed 30% of GDP, for our own good.
The role of government in both the percentage of GDP it consumes and the control it exerts of the citizenry is to expand at a rate just below the tolerance threshold of that citizenry. As the history of the 20th century clearly shows us, what the federal government does with the percentage of GDP it consumes is of little import. Likewise, what it does with the additional control it exerts of the governed does not appear to concern government. Growth in what it consumes and what it controls is all that government seeks.
I figure once the federal budget tops 30% of GDP people will start going hungry on a regular basis. The experience has a tendency to improve concentration and focus.
March 6, 2010, 7:12 pmHercules says:
The United States is Bankrupt. What I find very funny is how the rest of the world is finding out what happens when the United States doesn’t or can’t buy their goods and services. This is hurting our enemies much more than it is effecting us.
One thing I would like to tell Obama and his “share the wealth charlatans” that no matter if they spread the wealth around by taking from Peter to pay Paul, the smart ones will eventually end up with the money anyway.
My personal view is our treasury is being looted on a scale never before seen in world history. Billions are being spent without any oversite whatsoever. So of course billions are being siphoned off from other Americans who see the writing on the wall. We are bankrupt. One day we will all wake up and smell the coffee and ask ourselves……what happened.
March 6, 2010, 7:19 pmbyomtov says:
rpt,
Tort awards–to injured individual plaintiffs only, and excluding business torts–are regarded by conservatives as of the major causes of deficits, societal unrest and other ills. As Tom Coburn describes, the plaintiff trial lawyers–there are no defense trial lawyers–are the ones who force him to order unnecessary tests and charge higher fees in order to protect himself.
Yeah. I know.
I wish conservatives would make up their minds whether the tort system is a threat to the Republic or a wondrous contrivance that makes regulations unnecessary.
March 6, 2010, 7:19 pmAllan Walstad says:
How does that make sense, really? If productive output is down, there is less to go around. The more resources are commandeered by government, the less is left for people to spend on their own. If, in particular, government spending diverts resources that would have gone into restructuring capital investment along more sustainable lines, we’re hurting ourselves today AND tomorrow.
The other thing you might consider is whether it really is possible for government to increase its spending beyond where we are now (or whether we may have even exceeded the maximum already). At 100% taxation, obviously no one has an incentive to work (except for the firing squad, but I know you don’t want that), so revenues are zero and government spending will have to level out at zero. You can borrow, and you can print money, but those options have sharply diminishing returns.
March 6, 2010, 7:22 pmElliot says:
We’ve heard about all that fraud for years. It’s usually paired up with “waste.” It never gets fixed. Maybe it’s time to simply accept that government is powerless to do anything about it.
March 6, 2010, 7:23 pmJohn Neff says:
A history of the federal budget from 1900 to 2009 shows that the view that it is not so bad to have a small deficit needs to be balanced by the view that it is not so bad to have a small surplus (if the surplus is used to reduce the debt). Unfortunately some people think a surplus is proof that we are overtaxed. At the present time there are no political consequences for increasing the debt limit.
One possible outcome is if the debt is considered to be too high our creditors will demand higher interest rates because of what they consider to be increased risk. Unless spending is reduced or revenues increased a rate increase will increase the debt (an example of positive feedback). One of the factors that resulted in the small surplus during the Clinton administration was a decrease in the average interest rate.
One possible approach would be to have a surcharge on income taxes that is proportional to the debt and a social security supplement that is inversely proportional to the debt. The idea is to make everyone mad at congress at the same time.
March 6, 2010, 7:40 pmaeolius says:
Well its very easy to be like the Red Queen and yell “Off with their heads”
March 6, 2010, 7:41 pmBut who”s Ox to gore?
Lets start with that awful idea subsidy. The govt should not give away
money to anybody. Agreed. No welfare no etc.
But money not collected is also a subsidy. No tax gimmicks. No agriculture subsidy. No leasing out Federal land for grazing or timber or mining claims. No granting water leases. Federally financed research is given away. So all the money goes to the researcher and university.
What about patents? Isn’t that a subsidy? Civil juries are free. Why?
There are many subsidies in civil law. Why should lawyers get a subsidy?
Lobbyists role in life is to get the government to spend its money in a certain way? But is it the most efficient way. Why should we allow them to raise our costs?
Stepped on enough toes yet? :)
FredC says:
This might not be a good answer, but as long as we and the rest of the world keep investing in the US, the size of government does not matter — although since its been roughly 20-30% since WWII, that sounds reasonable to me.
March 6, 2010, 8:10 pmMark Field says:
I’m out of town and can’t even read this thread, so I hope I’m not duplicating someone else’s post. I just wanted to link this chart of British debt from Paul Krugman so people could see what, if any, relationship there was between debt and national success.
In general, the level of debt is irrelevant in my view. What matters is what it’s spent on. Investment in public goods, education, etc. is good. Tax cuts for the rich, paid for with borrowed money, are bad.
March 6, 2010, 8:20 pmjrose says:
Yes, but not the support to pay for them through tax dollars. So, the first question that needs to be answered is how much are the people willing to be taxed. It would appear that anything above 20% of GDP is not possible, and maybe only 19%.
The next question is what level of structural, long-term deficits (forgetting about variations within business cycles) will keep the debt below a level where rising interest rates crowd out private investment and shrink economic growth. The latest figures from the CBO show a structural deficit of over 5% of GDP leads to debt held by the public in excess of 90% by 2020. That’s likely too much. A structural deficit of 3% keeps the debt figure below 70%. Maybe that’s good enough.
So the “answer”, subject to many uncertanties, is spending at about 22% of GDP.
March 6, 2010, 8:37 pmVermando says:
Interesting stuff. I’ll take a shot at better explaining the left-leaning reaction to Professor Kerr’s request – we’re not expressing an opinion on it because it really doesn’t matter to us.
Explained theoretically, Professor Kerr’s number has largely been driven by changes in what items comprise “the federal budget”, by what is provided publicly and what is not. The number is barely moved by the size of the items, and it ignores who gets what and on what terms. Finally, it makes almost no distinction between not providing something at all and not providing it publicly.
Concretely, we can cut the size of government a bit by trimming Medicare waste; we can really decrease it by privatizing senior medical insurance. It barely matters if the privatization is done humanely, or if some folks have to pay more, others suddenly profit much more, and some lose their coverage entirely; off the books is off the books.
If you’re a libertarian whose explanation for why a leftist should care about Professor Kerr’s number is that he feels a “need to control the masses”, that focus may make sense. If you actually do lean left, it likely doesn’t. For us, it’s about how many people are provided the service and on what terms; how many are left unprovided, and why; the long-term sustainability of that service, and how its burden will be distributed. There is a general observation that governments tend to provide some items broadly and efficiently. But, the focus is on the substantive provision of services, not the method for doing so.
As an illustration, Singapore is often praised by fiscal libertarians for its small government budget and low, 0 to 20% individual income tax rates. But, it also has a mandatory private pension scheme into which individuals pay 20% and employers 13% of wages. So, it devotes substantial resources to caring for its citizens’ social security. From the perspective of Professor Kerr’s number, Singapore is in one group of low-tax, fiscally freedom-loving countries; from a leftist perspective, it’s in a different group of developed countries which don’t neglect their vulnerable citizens. We care much more about whether the U.S. is in that latter group and really don’t have strong opinions about where we should be according to the first criteria.
Similarly, the American left right now is trying to expand access to healthcare. This can be done through various combinations of public and private healthcare and health insurance. Professor Kerr’s exercise would fetishize those distinctions. We’re focusing less on these distinctions than their substantive results: how many and who are left uninsured, why, what terms are those with insurance receiving it, at what cost, to whom?
I tend to think that leftists in this regard are like most Americans, and that libertarians, with their focus on Professor Kerr’s number, are the outliers. So, we see libertarian arguments adopted and cast off by both major parties at will and their policies rarely pursued for their own sake. Concretely, the fight against government subsidized health insurance merged seamlessly with a defense of medicare. That’s hard to conceptualize if the battlelines on that issue were being drawn according to Professor Kerr’s terms.
Finally and relatedly, I will add that, in addition to varying with the business cycle, as noted above, Professor Kerr’s number should / will also vary over the longer term with demographic cycles. Older folks depend on the government more than others. So, however big it should be right now, it will need to be much bigger in the future as the ~70 million or so baby boomers retire. This causes me to roll my eyes at ostensibly libertarian spending movements dependent upon angry old people, and at those who believe a pre-commitment to an abstract spending percentage will convince those old people that someone should be able to get his hands on their medicare.
March 6, 2010, 8:42 pmAllan Walstad says:
Mark Field: Mark, I got an error message when I clicked on the link.
March 6, 2010, 8:44 pmEdward A. Hoffman says:
Prof. Kerr has asked a loaded question, since he does not acknowledge that both the budget and the deficit are unusually large this year due to the economic stimulus packages. Just about everyone agrees that this year’s rates of spending and borrowing are not sustainable. That’s why the government does not intend to sustain them. But Prof. Kerr’s question implicitly presumes that it does.
Asking “what’s the right size of the federal budget, and the federal deficit, in terms of proportion of the overall Gross Domestic Product of the United States?” only makes sense if we’re either asking about a typical year or we take into account the things that make this year atypical. Prof. Kerr’s question does neither of these things.
Sometimes in response to an emergency one must spend and borrow more than would otherwise be prudent. If I need major surgery this year that my insurance doesn’t fully cover I will spend a lot more than I otherwise would, but the extra expense (and the borrowing that it would likely require) would be quite sensible under the circumstances. That would not make my decisions unwise. But if someone looked only at my numbers and not the surrounding circumstances, I would look like a spendthrift fool.
I realize many readers think the stimulus plan is a bad idea. That’s really a separate discussion. Whether you agree that the government should have increased spending in response to the crisis has nothing to do with the reality that it did. The numbers Prof. Kerr quotes reflect that reality, regardless of our individual preferences. But his question asks about our individual preferences, regardless of the present reality. That’s why I don’t think it’s a terribly useful exercise.
March 6, 2010, 8:49 pmTNeloms says:
I agree with you about defense and health care, but I think you missed Orin’s point.
As part of (b) you claim that defense can be cut without reduced safety to America or its allies and that a French style health care would reduce health spending without hurting overall health services. Then you say that if VCers don’t support the plan you outlined, then they don’t really care about the budget. But really, they wouldn’t support it because they disagree that reduced defense spending wouldn’t hurt our interests and that French health care would cost less for the same (or better). Surely you’re aware of debates along these lines.
March 6, 2010, 9:04 pmbyomtov says:
Allan Walstad,
How does that make sense, really? If productive output is down, there is less to go around. The more resources are commandeered by government, the less is left for people to spend on their own.
Not so. In a recession resources are idle. Factories operate below capacity, if at all, inventories sit unsold in warehouses, workers are unemployed, etc. So government is not diverting resources from more productive uses, it is putting idle resources to use.
Productive output is down, true, but why? Because no one is buying. No demand. You can give manufacturers, for example, all the tax breaks you want, but if nobody is buying their output they will not bring back laid-off workers.
March 6, 2010, 9:05 pmTNeloms says:
By the way, this issue with pireader sort of gets at why this question isn’t as simple to answer as Mike McDougal claims.
For example, pireader might answer something like 10-15% of GDP under the following reasoning: it’s 25% right now, and about half of that can be reduced in defense and health without hurting services.
But of course many would disagree with the “without hurting services” part. Someone who wants the same services as pireader does, but disagrees that half the budget can be dropped without hurting services, might say 25%. Someone who agrees with pireader’s assessment, but also wants other services, might say 25% (after cutting defense and health but adding elsewhere). Etc.
In addition to the complication of what services you want and how much you think certain things should/could cost, there’s the issue that you might not want spending to vary with GDP linearly (as a percentage). For example, you might think that certain services (e.g., defense) are an absolute necessity no matter what the GDP is, and then other services can be cut or added as GPD varies. This plan would yield a different percentage each year depending on GDP.
Anyway, that doesn’t mean the question can’t be answered, just that there are complicating factors. And since I’m claiming that it can still be answered, here’s my basic answer:
a) I always want to maintain a minimum threshold of services that help the least fortunate, as well as defense, roads, and regulations, all of which help society run. From what I can tell, this can/should cost around 50-75% of our current federal budget.
b) Then, if our GDP is high enough, I want more welfare. While I value economic efficiency and know that government hurts efficiency, for me the bottom line is total utility. So once our GDP is high enough, I’m okay being socialist or whatever you want to call it by reducing overall GDP in order to make the poorest happier, which I think maximizes utility. In the current economic environment I don’t think we can afford to do this very much, so I’d add only a little welfare — say 5% of current budget — to (a). In good times I think this should be more like 10% of the current budget.
c) Certain government programs are wasteful and can be dropped, but I don’t think this accounts for much more than 3-5% of the current budget.
So basically I think that the budget should be around 55-85% of what it is now, which means around 13-20% of GDP given our current GDP. If the GDP grows and the overall economy improves, then I’d say add some welfare, but I don’t know what percentage of GDP that would be.
March 6, 2010, 9:24 pmAllan Walstad says:
byomtov, I’m familiar with the Keynesian paradigm, to which I take it you are appealing. “People aren’t working because people aren’t buying because people aren’t working, etc.” Sorry, but that is and always was pure quackery.
That’s the right question, but you don’t really have an answer. People want stuff, the dollars are still out there somewhere, so why is the economy stagnant? The answer has directly to do with previous government meddling in the economy, mainly through the Federal Reserve jerking around with the money supply. This distorts the information about viability of capital projects that would otherwise be conveyed through interest rates. If unsustainable capital projects are stimulated that later have to be liquidated, then of course there will be a disruption with lower output, until capital is restructured. Monetary and fiscal “stimuli” only frustrate and delay the process.
The housing bubble/bust is a classic example, houses being considered as capital investments for families. The feds’ attempts to prop up that market can only delay the necessary adjustments.
March 6, 2010, 9:45 pmAllan Walstad says:
Vermando:
The problem for you, Vermando, is that the availability and quality of services is not separable from the institutional framework within which those services are created and provided. What you call an “observation” about the efficiency of government is a claim, and one not well substantiated historically. Marx observed that capitalism had generated a vast quantity of goods; now, the only remaining problem was the distribution thereof. John Stuart Mill, the supposed libertarian economist, similarly thought he could neatly separate the production of goods and services from their distribution. Well, it ain’t so. When government delivers the goods, it does so parasitically off the market economy. You need to think a lot more about that, if you are truly concerned with the “long-term sustainability” of such provisions.
Like I said…
March 6, 2010, 10:02 pmchickenpockle says:
I don’t understand why spending as a percent of GDP is the usual metric, as opposed to (say) spending per capita. If the population is held constant but there is a general increase of productivity, then GDP should be up but shouldn’t the overall size of government contract to reflect the increased productivity?
March 6, 2010, 10:23 pmbyomtov says:
Allan Walstad,
byomtov, I’m familiar with the Keynesian paradigm, to which I take it you are appealing. “People aren’t working because people aren’t buying because people aren’t working, etc.” Sorry, but that is and always was pure quackery.
Yes. I am appealing to Keynes.
As for the rest, I think it’s safe to say that our views are so far apart that it’s useless for us to discuss economic issues.
March 6, 2010, 10:25 pmorca says:
What industry today doesn’t depend on or owe its existence to the government?
I think symbiotic is a better term than parasitical to describe the relationship between government and business.
March 6, 2010, 10:25 pmAndrew Hamilton says:
There are distinct competitive advantages for the United States in keeping the federal share of GDP as low as possible. But the government’s managers face a dilemma. The CBO “baseline” budget forecast, a 10-year forward projection of programs already enacted, shows a 3 percent of GDP gap between revenues of around 20 percent of GDP and expenditures of around 23 percent. The dilemma is that in the post-war period, revenues have been cut by Congress every time they reached the 20 percent level; the average revenue base is about 18 percent of GDP. But Congress has enacted programs — social security,Medicare, Medicaid, for example — where spending is governed by formulas and “entitlements” and these programs have pushed spending to the level cited by CBO’s baseline. There are always arguments what programs are responsible for the imbalance, but it is clear that the growth in government spending as a share of GDP is primarily due to entitlements that have grown from a net 6.1 percent of GDP in 1970 to 11.1 percent in 2008 (and 14.7 percent in recession-driven 2009.)
March 6, 2010, 10:30 pmThe logical course for Congress to follow, if it believes these entitlements are essential to the nation’s welfare, is to raise revenues to cover their costs. But logic and politics collide, and Congress has not done that.
President Obama clearly believes more government is better, but he also does not want to pay for it. His 10-year budget, by CBO’s recent estimate, raises spending to 24 percent of GDP pretty much throughout the next decade. Much of the increase is in entitlement spending, which goes from an average of just under 11 percent of GDP during the Bush years to an average of nearly 14 percent during the Obama forecast period. Part of the increase it is in higher interest costs, because borrowing goes up under the Obama budget, which holds revenues around 19 percent of GDP, enlarging the budget gap from 3 percent of GDP to 5 percent.
In standard economic theory as applied to the U.S. economy, the upward shift in government’s share of GDP comes at the expense of economic growth in the long run. There is room to debate this — for example, the German income accounts attribute a small productivity gain to government, which the U.S. accounts do not.
But with the important exception of fiscal policy during a recession, when government borrowing may be the only available engine of growth, there should be little argument that large scale borrowing over an indefinite future will sap the vitality of the economy, as CBO has repeatedly warned.
So the issue to me is not how big government should be, but how much Americans are willing to pay for it, and whether they are willing to accept lower benefits if the revenues are not forthcoming. The tendency of Congress to offer more benefits than it is willing to pay for does not help citizens to focus on this fundamental trade-off.
Mike McDougal says:
Do you REALLY think the relevant distinction is between forcing people to pay private actors and forcing them to pay the government?
March 6, 2010, 11:39 pmMike McDougal says:
Then answer for the typical year. Go ahead.
March 6, 2010, 11:41 pmpireader says:
I think you missed Orin’s point.
Actually, he missed mine. I wasn’t advocating for a particular set of cuts in the Federal budget. Rather, I was responding to the original post’s statement that “most of the bloggers here (myself included) think that the federal government is much too big”.
My point was that neither Righties nor Lefties (nor libertarians) are mainly interested in the size of the federal budget. Rather, they each have certain preferences and objectives … about defense and foreign policy, about the health care system, about tax levels, etc. … that happen to have consequences for the budget.
Offer them a chance to cut the budget/deficit in a big way by taking plausible actions that would go against those root preferences and they’ll decline.
I phrased it as a query about the Righties, since Professor Kerr had mentioned them. But the same applies to Lefties.
Apologies to all, including Professor Kerr. I should have made my point more clearly the first time.
March 6, 2010, 11:52 pmJohn David Galt says:
I don’t see that the budget needs to be any larger in real terms today than it was in 1881, the year Reconstruction ended. After all, I can’t think of a single federal law or spending program enacted since then that passes Constitutional muster.
March 6, 2010, 11:56 pmrequired says:
I haven’t recalculated since I first made my estimates during the Reagan years, but I go by a three eights rule of thumb. 8% of GDP is appropriate government spending for necessary services just to keep the nation around; police, military, fire &C. 8% more of the GDP can be spent profitably in ways which increase the non-government GDP; education, health care &c. 8% more is neutral with regards to non-government GDP and probably a good idea to have since the rule of unintended consequences means that if you cut below that you stand a good chance of accidentally cutting into the two lower categories.
There are some caveats to keep in mind with these percentages though:
1) This is total government spending, not just federal spending in US terms, so you have to throw in the $3 Trillion or so the state and local governments are spending into pot to get the total government spending.
2) This does not count debt. While I am not absolutely opposed to deficit spending, payments on debt are not figured into these percentages.
3) I didn’t figure exceptional circumstances like war or not having to pay for a nations own defense.
4) This was based upon a stable industrial economy, something which doesn’t exist – any little thing like a population which is becoming less productive through aging would change the percentages. Again, it’s intended as a rule of thumb not an absolute rule.
In terms of this debate the first caveat should be applied. If spending is shifted from the federal government to the states or vice versa it would affect the FEDERAL spending but not government spending.
March 7, 2010, 12:32 amDJR says:
Orin,
Isn’t the rule usually “I’ll show you mine if you show me yours”?
What are the “right” numbers from your point of view?
(I haven’t personally studied such things enough to have a view on the right number. I got very worked up about the deficit in the 80s, but then it all seemd okay in the late 90s because of the internet I guess, and now people seem to think it’s bad again. I also got worked up because it seemed like doomsday would happen if we bailed out the failed savings and loans, but I guess we did that and it turned out okay because I didn’t notice any doom along the way. If I knew enough to analogize those numbers to something I understand like a household budget, I might have a view by analogy, like $4K in debt doesn’t sound too bad for someone who makes about $46K and who has a total tax burden of $11K, but I don’t think the numbers you gave fairly line up like that. Ideally you’d have no debt whatsoever, though you might then fail to take advantage of things like homeownership, which for most people is unreachable without debt.)
March 7, 2010, 12:42 amSenatorX says:
Richard is right, but not in the way Dangermouse suggests. The question isn’t what “liberals” think the government should be doing, but what consistent, significant majorities of the American people think the government should be doing. The overwhelming majority of government spending is on programs that enjoy very broad support.
I am sure the same level of support was enjoyed right before the fall of Rome. More Bread and Circus please!
March 7, 2010, 12:53 amOperationCounterstrike says:
Much more important than size is what the government does with all the money. Is it keeping order? Is it using the money in ways that create more wealth or create a field in which more wealth can be created (as in basic science)? Or is it wasting money on big solutions to non-problems or trying to stifle enterprize as in USSR at the end? That’s a much more important difference than pure size.
March 7, 2010, 12:53 amOperationCounterstrike says:
The unfortunate fact is that in a high-tech age a big country needs a big government.
March 7, 2010, 12:54 amrpt says:
Gee, you are using the internet. How 20th Century. To what constitution are you referring, Mr. 19th century man?
March 7, 2010, 1:13 amAllan Walstad says:
orca says:
Not sure quite what you mean by that. Government may be needed to defend liberty against force and fraud and thereby enable people to pool resources for productive means, but surely that role does not imply unlimited power on the part of the pols themselves to rob and coerce us all.
Again, depends on exactly what you mean. If you’re saying that politically connected firms are often in bed with the pols at our expense, I agree. If you’re saying that a vibrant productive economy thrives through symbiosis with pols and bureaucrats, well, I hope you’ll come to see otherwise.
March 7, 2010, 1:35 amAllan Walstad says:
byomtov:
Fair enough, but you know, the posting of comments here is not merely a one-on-one discussion. Where justifications for higher government spending invoke what I take to be faulty–indeed, utterly discredited–economic theories, I’ll point it out.
March 7, 2010, 1:40 amricky says:
Allan Walstad, I think you’re misinterpreting orca. He’s basically saying “all your private industry are belong to us!”
March 7, 2010, 2:07 amjukeboxgrad says:
orca and walstad:
But when government is “needed to defend liberty against force,” then who is really being protected? Who benefits the most?
I wonder if you recall what Karl Marx said about this. He pointed out that it’s the rich who benefit most from the protection provided by government:
Something to think about when we consider the proper role of government, and how it should be financed.
Wait a minute, I’m not sure it was Marx who said that. Could it have been someone else?
March 7, 2010, 2:09 amRicardo says:
As for the deficit, there are three facts that lead me to believe it is not currently too large:
1. Current GDP is about $1 trillion below what a trend line based on the past 30 years or so would predict. That’s a reasonable measure of the depth of the current recession.
2. Unemployment is hovering around 9%, well above the usual average.
3. The yield on the 30-year treasury is 4.64% which is very cheap and low by historical standards.
The deficit will be too large when one of these three facts changes. If inflation or the 30-year treasury yield suddenly jump up, I will transform very quickly into a deficit hawk. Likewise, if the real economy improves drastically over the next two years, I will support bringing the budget back into balance.
As for the size of the government, this simply depends on political realities and what people want the government to spend money on. Social security, Medicare, other entitlement programs, DoD, Homeland Security, and interest on the national debt take up a huge and growing chunk of government spending every year. Show me a realistic and politically viable plan to cut spending in these categories and I might be interested. I have yet to see any such plan, though. The reality is that lots of people like government spending. Take away grandma’s Medicare or Social Security and you are guaranteed to lose the next election.
March 7, 2010, 2:41 amBobDoyle says:
According to the Federal Treasury, the Federal government actually ran deficits every year of the Clinton Administration. The reported “budget surpluses” are entirely attributable to creative accounting regarding what was included or was not included “on” and “off” the Federal budget. However, each year of the Clinton Administration and in fact, each year since 1957, the Federal debt has risen. By definition, if the Federal debt increases, the Federal government CANNOT be running a surplus!
March 7, 2010, 2:41 amAllan Walstad says:
What Smith is pointing out here is basically that civil government is needed to protect property, but not needed so much if people are happy to live hand-to-mouth were there is no extensive property. For every person with 500 times the average amount of property there presumably has to be roughly 500 people with 500 times less. So what? I don’t begrudge Bill Gates and Steve Jobs their wealth–it came as a by-product of creating much more wealth for society. In a free market it’s not a zero-sum game. Go ahead, unleash the looters, and those of us who do survive will live impoverished in the long–perhaps even the short–run.
I don’t see that in the passage in the Wealth of Nations from which the rest was taken.
March 7, 2010, 2:45 amAllan Walstad says:
ricky, you cynic, you!
March 7, 2010, 2:50 amrequired says:
jukboxgrad, if you want to read those parts of smith you should read his theory of moral sentiments first to get a better feel for his attitude.
but one can see the benefits of civil order in an inquiry into the nature and causes of the wealth of nations:
also, you should quote the entire section of smith instead of a portion out of context:
– smith was talking about the only way in which civil government comes about in primitive hunter based economies if it ever does, else they remain without a significant civil government.
March 7, 2010, 3:32 amjukeboxgrad says:
walstad:
Not exactly. The problem is not “extensive property.” The problem is the extremely unequal distribution of property. It is mostly because of the radically unequal distribution that “civil government is needed to protect property.”
You have picked examples of people who got their money the old-fashioned way: by creating something useful. On the other hand, in recent decades we have seen a massive redistribution of wealth into a cancerously overgrown financial sector, where it’s not so clear that anything useful is being created via what they do: the manipulation of financial abstractions.
It’s interesting to compare the federal budget to GDP. Here’s another interesting comparison:
Link, link.
And this process is hard to stop, because of what you said here: “If you’re saying that politically connected firms are often in bed with the pols at our expense, I agree.” We have the best government money can buy.
That’s because it’s in a different part of that book. It can be easily found via the link I provided, if you use the search feature at that site. Like this. You can also see it here.
March 7, 2010, 4:02 amleo marvin says:
OK, you got us with the Adam Smith quote. But try fooling us with something like, From each according to his ability, to each according to his needs, which millions of Americans know comes from the founding fathers.
March 7, 2010, 4:12 amjukeboxgrad says:
Interesting. But maybe not that surprising, when we notice that among Americans under 30, the number who prefer capitalism is not much greater than the number who prefer socialism.
And this kind of thing reminds me of a discussion we had here about the surprising number of American socialists who have said that tax policy should take into account “ability to pay.”
March 7, 2010, 4:56 amDavid M. Nieporent says:
Yes, but Chait was full of crap when he said it, and remains full of crap now. There may be some abstract sense in which liberals think that way, but for all practical purposes, the answer to the question for you guys is just plain old “more.”
Other the military, there is no government program where the liberal answer is, “We spend enough on it.” Yes, deep down you’re not saying “More for the sake of more,” but so what? You still measure the commitment to a program by how much is spent on it, and so liberals’ actual policy positions are indistinguishable from someone who does say, “More for the sake of more.”
March 7, 2010, 8:04 amAnderson says:
I’d like to ask those who disagree a question: In your view, what’s the right size of the federal budget, and the federal deficit, in terms of proportion of the overall Gross Domestic Product of the United States?
I cannot begin to think how one could have a “right answer” to that question. “The $ of federal spending should be __, based on …” — what exactly? History? Do we have enough experience of the modern state to even empiricize here?
March 7, 2010, 8:09 amJohn Neff says:
There was a decrease in the per capita debt corrected for inflation for two years of the Clinton administration and the chart that gives the debt relative to the GDP and that also shows a dip during the Clinton Administration. However (as you pointed out) if you look at the raw debt numbers provided by the US Treasury the debt was essentially constant so dividing by GDP or the population introduced a dip. So I guess a constant debt means Clinton had the first balanced budget since 1957.
March 7, 2010, 8:18 amDavid M. Nieporent says:
Once more: tax cuts aren’t spending. They appear on the revenue side of the ledger, not the expense side. That liberals don’t understand – or refuse to admit – this is really scary. It shows a failure to grasp basic economics – or it shows a worldview in which all money is the government’s, and therefore all money that isn’t taken by the government is actually a government gift to people.
(I suspect the latter is the actual explanation, because it also explains the migraine-inducing claim by liberals that tax cuts somehow are “redistribution” of wealth.)
(Yes, I fully acknowledge that if you hold spending fixed and cut taxes, it has the same first-order effect on the deficit as holding taxes fixed and raising spending does. But that doesn’t make tax cuts “spending.” It’s a category error.)
March 7, 2010, 8:29 amAdam Kamp says:
One last shot: A “target” for percentage of GDP doesn’t even make sense. Hypothesize that we have universal public health care, and that our ideal government is 30% of GDP. If having the best possible health care makes our system so efficient that our budget drops to 29%, does that mean we should spend more on it? NO. We should do whatever works out the best.
So we keep on getting asked, “Well, what _is_ it?” To provide an actual number would be arbitrary and irrational. My ideal budget would reluctantly include a public option for health care (the only thing worse than the government providing health care is the free market), totally privatize Social Security (let the states do it!), and spend money on a military that has limited ability to project power. But how could I put a number on that? I’m not a medical expert, so I don’t know what percentage of GDP the public option would take. I’m not a military expert, so I’m not even going to speculate on how much we should be spending on defense. Mike’s pushing for a number is pretty much begging us all to be intellectually dishonest, and I’m not playing.
March 7, 2010, 8:41 amBob K says:
This has been answered several times in the thread. Apparently the answer (paraphrasing) is: ‘as much as we need to in order to provide the services society requires’.
I’m stymied trying to understand how this jibes with any kind of financial reality. If only we could apply similar logic to our energy problems …. “What does the efficiency of this power plant need to be? Whatever we need it to be to serve the power needs of our customers!”.
March 7, 2010, 8:59 amgeokstr says:
Of course they do, given the leftist propaganda they’ve been subjected to in our “public” schools since kindergarten. For the last two generations, ever since the Ayers’ and Zinns’ have been infiltrating our educational system on the long march through the institutions, they’ve been taught that capitalism is evil, that an imperialistic America is the source of all misery and poverty in the world, and that socialism is the answer to pretty much everything. The 100 million dead from past socialist experiments are consigned to the dustbin of history. They learned that our constitution is an anachronism written by slave-owning Dead White European Males.
And that educational indoctrination is constantly re-enforced by a left-wing media that is hostile to capitalism and romantically involved with Che, and Mao, and Josef, and Fidel, and Hugo. Every day, they are bombarded with images and sounds from the “popular” culture that portray capitalists as greedy profiteers who built their wealth by stealing it from the poor.
Yes, pretty soon all young people will believe we have always been at war with EastAsia, too.
Orwell would be proud that soon NewSpeak will be the only language that we know, and socialism can take its rightful place as the savior of all mankind.
March 7, 2010, 9:08 amAdam Kamp says:
Bob K says:
From my perspective, at least, it’s not so much an absolute answer as an answer based on our own ignorance. We’ve got a budget principle that weighs the costs and benefits of providing X service by the government rather than by individuals or states, and makes a decision based on that cost-benefit ratio. Thus, there’s not a first-principles answer to the specific number, but one based on all these individual calculations, and it takes a serious expert to adequately answer them all–which we blog commenters are largely not.
March 7, 2010, 9:30 amBob K says:
Heh. Just came across this headline today from Reuters:
“LISBON (Reuters) – Portugal’s long-term budget austerity plan encompasses spending cuts via reducing tax breaks and containing public sector wages,”
It’s unclear if the wording comes from Portugal’s socialist government or from Reuters itself.
BTW, “containing public sector wages” does not really mean a cut… it’s a freeze.
Other cuts included raising taxes on profits made in the stock market.
All said with a straight face one presumes.
March 7, 2010, 9:48 amKen Arromdee says:
The flaw in this reasoning is that that assumes that taking the money to do these things has no negative effects whatsoever, and therefore that there’s no need to balance the benefit of whatever you want the government to do against the fact that you’re taking someone’s money to pay for it. Even if you don’t care that high taxes burden the taxpayer himself, surely you recognize that at some point high taxes begin to hurt society. By your reasoning we could raise taxes to 101% and it would be perfectly fine because raising taxes to 101% has no effect whatsoever on anything else.
Saying “whatever it takes” is dodging the question. At what point does “whatever it takes” cost too much? (And if your answer is never, consider that 101% tax again.)
March 7, 2010, 10:02 amAdam Kamp says:
Ken:
That’s why I prefer my “cost-benefit” theory–that there is a sum of questions you’re asking, and with every analysis the cost of further taxing the people goes up and up. Because otherwise, you’re right: simple “What should the government be doing?” is insufficient.
This also means that there is a serious prioritizing that has to go on.
March 7, 2010, 10:12 am1040 says:
Satire is dead.
March 7, 2010, 10:24 amBob K says:
Right. If we were required to balance the budget then costs would actually play an effective role. As it stands now, we get the benefits now but kick the costs can down the street.
From my perspective, a lot of the disillusion among wage earners today is that though we have finally woken up to the fact that we need to balance our personal budgets, our elected representatives are in some bizarre bastardized pseudo-Keynesian world where we can continue to kick the can down the street forever.
The escalating disrespect for the current administration – and more broadly, incumbents – stems from our realization that we need budgetary disciplinarians at the helm, not enablers of continued budgetary sloth.
March 7, 2010, 10:28 amAllan Walstad says:
jukeboxgrad:
If this is an interpretation of Smith, then the most obvious tip-off that it is incorrect is in the part of the passage that you left out: “Where there is no property, or at least none that exceeds the value of two or three days labour, civil government is not so necessary.”
You can’t have it both ways. If you admit there’s nothing wrong with some people acquiring great wealth in a relatively free market, then you can’t claim there’s something intrinsically problematic about great differences in wealth.
You are talking about the financial industry, in which the pols and bureaucrats are involved up to their necks, in practice more for the benefit of the fat cats than the public. This brings me back to your original question, “But when government is ‘needed to defend liberty against force,’ then who is really being protected? Who benefits the most?” When pols and bureaucrats are intimately involved in the industry to the point where the Fed is continually jerking around with the money supply and fat cats are bailed out to the tune of a cool trillion bucks, this is not an example of government limited to defending liberty against force.
Possibly a generational thing, but the first “search feature” I generally turn to is my ability to spot a book on my shelves. Anyway, again, Smith’s comments are all within the context of his the larger point in the Wealth of Nations that the progress of civilization, the increase in economic output that is the only basis for an increase in general affluence, depends on the protection of private property. You might do well to appreciate the lesson, rather than search for passages you can lift out and hold up as somehow scandalous.
March 7, 2010, 10:47 amCornellian says:
For the last two generations, ever since the Ayers’ and Zinns’ have been infiltrating our educational system on the long march through the institutions, they’ve been taught that capitalism is evil, that an imperialistic America is the source of all misery and poverty in the world, and that socialism is the answer to pretty much everything.
I must have skipped class that day. I’m sure if my teachers had told me something like that, I would have remembered it.
March 7, 2010, 10:54 ammattski says:
No, Ken. You’re just reflexively going to the extremes in an attempt to discredit the opposing view. But the opposing view is not at the extremes.
Instead of crazy-talk, how about taking a look at the 25-50% tax range? Taxing income over, say, 1 million at 50% is debatable, but it isn’t unfeasible. Rich folks may not like it, but that doesn’t mean rich folks won’t benefit from it, provided the government spends it wisely.
March 7, 2010, 10:56 amShelbyC says:
What if that’s 150% of the GDP?
March 7, 2010, 10:56 amEli Rabett says:
Looking across the world, it costs 40-50% of the GDP to support a first world government. That includes all levels of government, social security and health care costs. 5-10% and you get Somalia. Enjoy.
March 7, 2010, 10:56 amkentuckyliz says:
God only asks for 10% (the tithe). Government shouldn’t be so arrogant as to think it’s bigger and better than God.
March 7, 2010, 10:59 amKen Arromdee says:
If the opposing view is “whatever it takes”, then they are at the extremes. If they don’t actually think it’s whatever it takes, they can start providing numbers and not say that it’s whatever it takes when they don’t really mean that.
March 7, 2010, 11:04 amMark Field says:
Nor did I say they were. What I said was that tax cuts paid for with borrowed money were spending. As they are.
Allan, try this link.
March 7, 2010, 11:09 amAllan Walstad says:
So, if only Somalians had a government that was more efficient at plundering them, they’d live in the lap of luxury? Give me a break.
March 7, 2010, 11:13 amShelbyC says:
I’m not sure I follow. Don’t most people who pay taxes pay a marginal rate between 25-50% in fed income tax? Before payroll and state taxes, of course. And keep in mind that when you raise the rate on rich people, it’s the lest rich that end up paying. For example, when you increase the tax on doctors, it’s patients who pay.
March 7, 2010, 11:17 amDan Cornish says:
With single payer option in healthcare, we will all have to deal with one evil insurance company (the government). The big problem here is that we will be replacing many insurance companies with one who happens to have an army, the IRS, the FBI, the CIA, the NSA, and can control local police forces. Who will protect us from the government. I say we allow all of the insurance companies to arm themselves, and then we will truly have real competition.
March 7, 2010, 11:23 ammattski says:
That sounds like Zeno’s paradox to me…
If you want to derail the discussion then just use general phrases as proxies for completely unrealistic assumptions like “101%” tax rates. You’re having a debate with yourself.
March 7, 2010, 11:23 amAllan Walstad says:
Mark Field: From Krugman’s piece,
Yes, and I’m sure teenagers have driven 70 mph down residential streets without killing anybody. That doesn’t mean not to worry. No doubt, the US can liquidate the majority of the debt by debasing the dollar, but what are the larger ramifications? Krugman also makes a deal about how interest rates are low, so it doesn’t cost all that much to maintain a large debt. What happens when interest rates go back up to more typical levels?
Krugman may have done legitimate economic research in the past, but by now he’s made himself into almost a caricature of a propaganda hack for the Dems.
March 7, 2010, 11:30 amNoesis Noeseos says:
If Arthur Laffer is right, then once government spending reaches a certain level, there will be less GDP to tax in the first place. This seems to have already happened, and to keep the entitlements going, the deficit has reached Leviathan proportions and continues to fatten. I wonder how that will promote the general welfare, say twenty years from now.
March 7, 2010, 11:42 ambyomtov says:
Adam Kamp,
One last shot: A “target” for percentage of GDP doesn’t even make sense. Hypothesize that we have universal public health care, and that our ideal government is 30% of GDP. If having the best possible health care makes our system so efficient that our budget drops to 29%, does that mean we should spend more on it? NO. We should do whatever works out the best.
Exactly.
Ken Arromdee,
Saying “whatever it takes” is dodging the question. At what point does “whatever it takes” cost too much?
This is why I wrote, “And of course cost is a part of deciding which ideas are good or bad.”
I think this notion is implicit in the arguments of many who are saying, as I do, that the idea of an ideal percentage is misguided, even if they don’t explicitly say so.
March 7, 2010, 11:43 amSG says:
I think this notion is implicit in the arguments of many who are saying, as I do, that the idea of an ideal percentage is misguided, even if they don’t explicitly say so.
I don’t think the question is “what percentage is ideal?”, it’s “what percentage is too much?”
March 7, 2010, 11:52 amMark Field says:
Ok, I have some time to respond to Prof. Kerr’s question in more detail.
First, Allan — Krugman made that very point about interest rates in the linked piece.
Now to the substance. My public policy concern is that government spending be responsible. By that I mean 2 basic things:
1. Spending and income are in reasonable balance over the course of the business cycle; and
2. No substantial idiocies (the Iraq War, for example).
In my view, the range of responsible government spending is pretty wide: we can have high tax/high spending or low tax/low spending. This decision ought to be made by majority rule, the qualification being that it must be balanced.
Now, if the question is asking for my personal priorities, I’m sure they might differ from the majority view in some wayst. I personally think that we spend far too much on the military (and have far too many overseas military commitments). I believe we could reduce defense spending and have greater security by concomitant reductions in spending and commitments.
I personally favor a social safety net. Thus, I think we need programs which provide for things like retirement security, health care, and unemployment programs (whether re-training or simply insurance to deal with temporary downturns).
I also favor public goods, including public schools and transportation. I think these are appropriate government activities.
I agree with Vermando that I’m less concerned with exactly how these programs are accomplished. If there’s some mix of public/private, that’s no problem for me. Funding for them is perhaps a separate question, so I’ll just say that I favor a strongly progressive system of taxation, but I have lots of probably unusual views about how to restructure taxes which I’ll save for another day.
March 7, 2010, 12:31 pmKen Arromdee says:
I’m not claiming you want a 101% rate, I’m pointing out that you don’t mean what you say. If you really thought there was no limit it would lead to absurdities like 101% tax rates. Obviously you do think there’s a limit, and you’re dodging the question when you answer it by saying there isn’t. Come on, answer the question: what is your limit, now that we’ve established that you’ve got one?
March 7, 2010, 12:37 pmAdam Kamp says:
I think this is an interesting question. I’ll sharpen it a little bit: Hypothesize that the majority has approved of a lightly progressive, 60-75% tax rate, and that with this revenue the government provides a bunch of services more efficiently than the free market could. (Since you’re asking progressives how big the government should be, I think you need to run with that premise instead of complaining about it).
Is that level of taxation nonetheless somehow “wrong?”
I don’t–like Mark, I think “What is effective?” is the primary goal, though in my view _too_ progressive a tax rate is inherently confiscatory. And that might be met by high-spending/high-taxing or by low-spending, low-taxing. “Wrong” is a question of efficacy and efficiency, not inherently tied to the size of the budget.
March 7, 2010, 12:42 pmOff Kilter says:
Here’s a nice little story by economist Steven Landsburg about how taxes actually work:
“Once upon a time, a man went to work and earned a dollar. He used the dollar to buy a share of stock. The stock paid a dividend of 10 cents a year, 10% being the going rate of return in the land.
Thanks to wise corporate management, the dividend eventually doubled to 20 cents a year, causing the stock price to double as well. The man sold his share for $2, which he put in the bank. Eventually, his children inherited the money and reinvested it in the same company. They used their 20-cent annual dividend to purchase goods and services, happily ever after.
That was a fairy tale. Here is the reality:
Once upon a time, a man went to work and earned a dollar. After paying state and federal income taxes, he was left with 50 cents. He used the 50 cents to buy half a share of stock. When the stock price doubled, he sold his half-share for a dollar, paid a 10-cent tax on the capital gain, and put the remaining 90 cents in the bank. Eventually, his children inherited the money, paid 50 cents in inheritance tax, and reinvested the remaining 40 cents in the original company.
The company continued to earn a 10% rate of return, of which half went to pay corporate income and excise taxes. The children therefore received an annual dividend of 5%, which came to two cents a year. After paying personal income tax on the dividend, they were left with a penny a year in income. They used part of that penny to purchase goods and services, and the rest to pay sales taxes.”
So by taxing the same income multiple times, we have an effective tax rate of 95%, from 20 cents down to a penny.
And yet some of the commenters here think we may not yet be paying quite enough for good government…
March 7, 2010, 1:31 pmPeter Namtvedt says:
If we asked, rather, what the total impact of the U.S. government was, or the burden thereof, the correct answer would be much worse than 25% of GDP. First of all, remember that the total expenditure of the government is included in the domestic product, making it a bit gross to begin with. Perhaps you should begin by excluding most of that from GDP. Then please include the impact of regulations, crowding out other borrowers in the credit market, etc., etc. (http://adabyron.net/index.php?issue=200809).
Carrying out the three legitimate functions of a proper government, the total cost ought to be from five to ten percent (5-10%) of GDP: police, courts and national defense.
March 7, 2010, 1:55 pmbyomtov says:
Carrying out the three legitimate functions of a proper government, the total cost ought to be from five to ten percent (5–10%) of GDP: police, courts and national defense.
Is that definition of “legitimate” written in stone somewhere? Or could you more modestly write,
Carrying out the three functions I, Peter Namtvedt, consider appropriate, of a proper government, the total cost ought to be from five to ten percent (5–10%) of GDP: police, courts and national defense.
March 7, 2010, 2:35 pmmattski says:
I’m not sure on what basis I could spit out numbers, honestly. As a rule I’d like to decide these kinds of questions empirically. Try different rates and see how they work.
But, like Mark Field, I believe strongly in progressive taxation. When JFK took office wasn’t the top marginal rate something like 90%? I’m prepared to agree that might be too high. Nevertheless, that rate only kicked in at a pretty substantial level of income, I have to believe.
But it is very difficult to have a rational debate about questions like these in America. To paraphrase I.F. Stone from the 1960′s:
March 7, 2010, 2:37 pmHarry Eagar says:
Kirk Parker sez: ‘he universal experience of less-than-efficient (and sometimes not-even-desired-at-all) government services’
Come on, tell me you’ve never driven on a public road. Besides, I already instanced the history of yellow fever control. I know, nobody alive remembers when yellow fever was a problem, but that’s because federal yellow fever control was desired and effective.
State and local efforts failed. There’s an excellent history of this by Margaret Humphreys, ‘Yellow Fever and the South’
March 7, 2010, 2:51 pmDavid Nieporent says:
You did say they were, and you continue to say it here. You talk about “paying for” tax cuts. But since tax cuts aren’t spending, they aren’t something that can be “paid for.” You don’t “pay for” not taking money.
It’s the spending that’s paid for with borrowed money (and I certainly agree that this is generally a problem), not the tax cuts.
March 7, 2010, 3:47 pmAllan Walstad says:
byomtov, I have to wonder what you intended to contribute to the discussion by emphatically pronouncing what no one would have doubted, namely, that Mr. Namtvedt was expressing his opinion. At least he was willing to offer an answer to the question posed by Prof. Kerr to the left-liberal commenters, in response to which they have spent the entire thread either dodging the question or attacking it.
March 7, 2010, 4:02 pmDuffy Pratt says:
It all depends on whether more money will go to Silly Walks or not. Last year the government spent less on Silly Walks than it did on National Defense!
March 7, 2010, 4:19 pmrequire says:
Yellow fever control is a pretty poor example of federal as opposed to local efforts, if the federal government had tried to control yellow fever prior to the end of the 19th century they would have failed also. A federal quarantine on yellow fever victims to prevent the spread would have been just as ineffective state ones because yellow fever isn’t spread from victim to victim. The failure of previous efforts was not due to their federal/non-federal nature but due to the simple fact that until the end of the 19th century no one attempted to control them through the mosquito vector because no one knew that mosquitoes caused yellow fever.
It can be used as a good example of useful government programs because the effective means of control used, draining swamps then and spraying insecticides now, are pretty hard to do effectively without the coercive power of government. There are few cases where this cannot (is not with regard to spraying now) be handled by state and local governments instead of the federal government.
March 7, 2010, 4:30 pmPeter Namtvedt says:
Thank you, David Nieporent and Allan Walstad
To byomtov:
When I asserted that the three legitimate functions of a proper government were police, courts and national defense, I was drawing on two sources: the limited functions stated in article I, section 8, and on “The nature of government” chapter in Ayn Rand’s book Capitalism the Unknown Ideal.
These sources outline a moral and a practical case:
1) The wealth being spent on illegitimate functions, welfare for rich and poor and excessive regulation would not be there if it had not first been taken from us by force, depriving us of our individual rights. Contrary to that if I were to summarize the purpose of government into one statement, it would be “to protect individual rights.”
2) As long as our leaders and justices continue to interpret “the general welfare” as “the specific welfare” of every group on significant strength and collect or print enough green-backs to dole out, we will build a pile of debt on which they can only end up defaulting. Our wealth in resources will then become prey to the military force of any country holding the worthless bonds.
March 7, 2010, 4:44 pmAri Tai says:
Perhaps we should try to define what a required size is by examining other institutions’ overhead – how does the headquarters staff (and costs) of say, Wal-Mart, compare to government. Or the most efficient local government of a recently incorporated, well-run city. Corporations drastically downsized their headquarters staff’s in the 70s and 80s – when IT made most central services redundant to what the divisions were doing and the CEO and a small staff could do for themselves (when did CEO salaries sky-rocket? When automation allowed them and a small staff to match if not better the work of 1000s of accountants, planners, paper-pushers required by information-challenged Sloan and Carnegie command-and-control organizations).
Since it’s going to take a lot of effort to reset the black-hole and corrupting effects of D.C., shouldn’t we aim a bit higher, perhaps a restructuring of the republic so we don’t have this or an equivalent issue for another 200 years? Consider that almost all of government is one service or another, most can be automated especially if the law and regs are restructured to ease automation (and a service industry will emerge to support the non-literate).
With 22 million government workers, we should aim to come up with a design that reduces this number to 10% or less (2 million sounds like 1 million too many). This by itself (moving 20 million from a below-the-line cost to an above-the-line economic add) might just pay for social security, especially after we write down the excessive pensions, double-and-triple dippers on the public tit.
I’m thinking radical restructuring. Something true to the founders but with the “misunderstandings” restated in absolute form, federalism and subsidiarity defined concretely, with local control (and local responsibility) pre-eminent, in the form of “new” states along the lines of the original – perhaps regularly redrawn, opt-in, state political boundaries of ~300,000 citizens, drawn by algorithm and elections, with an absolute right to vote with your feet and tax and regulation competition guaranteed between the new states. Where rent-seekers have to convince 100s-1000s of state governments, not 1 that their needs be met, and/or settle for a few states where their argument makes sense and encourage like-minded citizens to vote with their feet.
Does anyone know of a current on-line effort to define something similar, including principles, terms and even documents? Federalist Papers Version 2010?
Call it an end-goal, something that we can point the political class at as a statement of what we-the-people will do if they don’t return to the founders’ intention for limited and small (< 10% of a citizen’s life) government, where the free citizen and their enterprise are largely left alone by those who would use coercion (the power of government) and not civil society (including the market, ability to vote with a wallet) to change their behavior.
March 7, 2010, 5:25 pmbyomtov says:
Peter Namtdevt,
If those are your opinions, then fine. But:
1. Ayn Rand was entitled to her opinions as much as the rest of us, but to identify her as the authoritative source on the “legitimate” role of government is not really justified.
2. Article I Section 8 in fact lists a number of items, such as regulating interstate commerce, not on your list. While you may think that Congress has overstepped its limits here, you cannot deny that it has broad regulatory power.
March 7, 2010, 6:06 pmrpt says:
But we know based on experience that Laffer is not right. Again, but for the Bush top end tax cuts, and the unfunded Iraq-Afghanistan wars of choice, and the deregulated Wall Street operations, the budget deficit would be minimal to nonexistent. This is significant because it demonstrates that the notion of R/cons as favoring small government and a balanced budget is simply fiction.
March 7, 2010, 6:23 pmHuggy says:
No taxes. The Feds create money electronically, like they do now, and spend it. Or give it away. As the law allows. This would cause all kinds of distortions. But so does current tax codes. With eminent domain, legal tender, and other laws I’m sure the Feds would get by. By giving away money to the States the Feds could finish taking control. That way taxes can be more than 100%.
March 7, 2010, 7:20 pmHarryEagar says:
Sorry, require, you don’t know the history. It actually is interesting, especially for people who believe markets are the answer to almost anything.
Who would have guessed there was a free market in quarantines, but there was.
March 7, 2010, 8:04 pmMark Field says:
DMN, I have no interest in your word games. I understand why you want to paint taxes as some sort of “theft”, but they are simply the price we pay for living in society. We owe taxes in every sense of that word. It makes just as much sense to criticize the reduction in taxes as it does the failure to curb spending. This isn’t libertarian fantasyland, this is the real world in which the 2 are equivalent.
March 7, 2010, 8:34 pmMark Field says:
Perhaps the most surprising thing I’ve learned from reading this blog is how abysmally ignorant most libertarians are of history. It’s shocking and depressing.
In every way they are like Marxists: their theory says it can’t be so, therefore it wasn’t. They’re impervious to facts.
March 7, 2010, 8:38 pmJohn Skookum says:
“Awards” is a lousy way to account for the true costs of the plague that is our legal establishment. You also have to take into account out-of-court settlements, insurance company profits and overhead, and tax monies wasted on a bloated judicial apparatus. That’s all measurable expenditure, and doesn’t even take into account the myriad of unquantifiable ways that the productive segment of society attempts to shield itself from the locusts, such as offshore incorporation or ludicrous over-utilization of medical diagnostic tests.
If the insatiably greedy and corrupt legal mafia steal less than 10% of GDP out of the mouths of the rest of us, I’ll eat my hat.
March 7, 2010, 8:56 pmJohn Skookum says:
Horse sh!t. Hong Kong and Singapore get by on less than 20%, and so did the USA as recently as 2007.
March 7, 2010, 9:02 pmShelbyC says:
Well, what about your own word games? The two are not equivalent, one increases the size of government, the other does not.
March 7, 2010, 9:18 pmDavid Nieporent says:
A rather puzzling knee-jerk response from you and Harry, given that require said nothing that was remotely libertarian. He didn’t say a word about “markets.” He pointed out — correctly — that yellow fever was not spread from person to person through contact, but through mosquitos, and that this wasn’t known until the end of the 19th century. He argued that this knowledge, rather than the federal government being magical, is what caused federal efforts to be more effective than state efforts, and further argued that once the science was discovered, state governments could have been just as effective as the federal government. At no point did he suggest that governmental effort wasn’t needed; he argued to the contrary that it was.
March 7, 2010, 9:25 pmJohn Skookum says:
There was no AMT then, and the top rate pertained only to earned income. Dividends and long term capital gains have almost always been taxed at a lower rate, except for 1986-1990 when they were both at 28% after Reagan’s big tax overhaul. Pension contribution limitations and depreciation allowances were much looser. And you could deduct an unlimited amount of mortgage interest, and offset active income with passive losses, and a whole bunch of other loopholes that have since been closed.
The effective tax rate for anyone with a decent accountant has never in history come close to 90%, even at the margin. It’s laughable to think that a 90 percent marginal tax rate under today’s much more stringent rules would fall anywhere but the tail on the right end of the Laffer Curve.
March 7, 2010, 9:30 pmDavid Nieporent says:
Now that’s a “word game.” Taxes are not spending. Period. I am not denying that if you decide you want to spend a certain amount of money, then taking in fewer revenues than that will lead to deficits. Duh. That’s just accounting. But that doesn’t mean that taking in fewer revenues is “spending” anything. Spending is spending. Taxes are revenues, not expenses. I understand why you want to elide the difference between these. The left has been doing that for a few decades now, in an attempt to convince people that tax cuts are somehow bad.
We “owe” taxes because the biggest gang on the block says so; they’re the price we pay for keeping away the armed guys who say, “Nice place you’ve got here; shame if anything were to happen to it.”
March 7, 2010, 9:37 pmRicardo says:
The government of Singapore owns the vast majority of real estate within the city-state and maintains a huge system of public housing for the working and even middle class. Welfare probably is a lot cheaper when people live in apartment blocks in a big city. Is that the model for the U.S.?
March 7, 2010, 10:36 pmJohn Skookum says:
Horse sh!t. What is the nature of that expertise, and where is it acquired, and how much is “an extraordinary amount”, and how are we to know who possesses it ? You can’t answer those questions with any amount of expertise.
This regrettable inclination to allow those claiming nebulous and often self-anointed “expertise” to decide what is in our own self-interest is the source of much misery and evil.
Hayek said that the most unjust and irrational world would be one in which the leading experts in each field were given free rein to realize their most cherished ideals, and I think the history of the 20th century proves this pretty conclusively.
March 7, 2010, 10:45 pmAllan Walstad says:
Well c’mon, Mark, SOME taxes might be the price we pay for living in a relatively free, functioning society, for such things as defense and adjudication of disputes. But why should I or anyone accept that the same applies to the wholesale robbery, redistribution, and cross-subsidization such as we have now?
March 7, 2010, 10:53 pmHarryEagar says:
Well, the history of high finance over the last few years certainly proves it as regards the University of Chicago School of Economics.
Unusual as it would be for me to say anything positive about Eli, if you’re going to compare First World governments, you’d have to subtract all the medical expenses for most of them before meaningfully comparing them to the US.
And, for many, educational expenses, too, since most First World countries, unlike ours, finance those nationally, not locally.
March 7, 2010, 10:58 pmMike McDougal says:
The type where nearly 50% of households have no income tax liability, leaving the top 20% of earners to pay 86% of income taxes?
March 7, 2010, 11:19 pmMike McDougal says:
Why don’t you give me that number? Surely you could do some minimum amount of work and find articles like this.
March 7, 2010, 11:33 pmRicardo says:
What do you think is the appropriate tax rate for a household earning less than $30,000 per year? Please provide a number and a justification.
Even the most ardent “flat tax” advocates still tend to favor keeping a deduction that means people earning under 20k-30k pay less of their total income in tax.
March 7, 2010, 11:40 pmMark Field says:
No. To spend is to tax; the alternative is to default. By spending money (borrowed money) to finance the tax cuts, Bush and the Republicans in Congress irresponsibly committed us to tax to make up the difference.
Here’s the thing. I know from your posts that you and I agree that a lot of government spending could be cut. But the fact that you and I agree doesn’t end the inquiry. Our government is a democracy (or a republic, if you prefer). It runs on majority rule. The fact that you and I personally want to cut expenses doesn’t mean we get to decide.
So, yeah, we live in a system of majority rule. That system, even when we disagree with the majority, provides most of us with unparalleled opportunities and advantages. We don’t personally “earn” money all by ourselves, we do so within an evironment which gives us the opportunity and we take advantage of whatever luck we’re dealt. Taxes are the price we pay for that system, those advantages and that luck.
March 8, 2010, 12:28 amTom DeGisi says:
Milton Friedman thought we should replace welfare with a negative income tax. That’s progressive, isn’t it?
Yours,
March 8, 2010, 12:28 amTom
zuch says:
I agree that we’re spending too much money. And it sucks to have to pay our way out of a huge hole that we were left in by the previous maladministration.
What say we decide we no longer need to pay for a military as big as that of the next ten countries combined?
Cheers,
March 8, 2010, 1:29 amyankee says:
To bring things back to the point of the OP: phrasing this in terms of a percentage of GDP is completely the wrong question. The issue is to ask what government should be doing, and the appropriate size of government is whatever it takes to do that. The calculation has to consider the distortionary effects of the government comprising an enormous sector of the economy; at some point the disadvantages associated with the distortions outweigh the advantages of whatever the government would be doing by being larger. But there’s no magic percentage of GDP that’s the appropriate size of government as a matter of first principles.
Economists and public policy experts can probably do calculations to determine what the effects of increasing the government by X amount through spending on program Y would be. We could then consider whether the value of program Y would outweigh the disadvantages associated with making the government larger.
I personally support a considerably larger welfare state that provides more social services. I also support spending much less on what we euphemistically refer to as “defense” (i.e., worldwide American military hegemony). So if I am to guess about the amount the government would spend if it provided the services I think it should, I would base my guess on European social democracies. That would put total government spending (not just federal spending) somewhere between 45% and 60% of GDP. But the U.S. isn’t Europe, so my guess could be completely invalid.
March 8, 2010, 2:09 amThomas Brownback says:
I’m a little late to this game, but hopefully my answer is a little different.
The government or an individual should borrow whenever the expected return from the use of those borrowed monies exceeds the rate of interest.
If the U.S. government could borrow 300% of GDP at a 1% interest rate, but meanwhile expect to employ that money in some sort of infrastructure investments where each dollar would likely earn 3% return, the government should borrow that amount.
There’s a lot of heavy lifting left to do here, this is just a framework. Kevin Murphy can argue that the natural inefficiencies of the state will eat away at expected returns from the investment of this debt. Paul Krugman can argue returns on government investment are higher that Murphy expects. The analysis could be enhanced if you adjusted for inflationary considerations.
Either way, percentage of GDP is not directly relevant to the calculation. Certainly higher % of GDP makes it less likely sound investments will be found, and more likely the interest rate is higher. But it’s not a direct consideration.
March 8, 2010, 4:30 amStephen Lathrop says:
I don’t know, what’s the right size for my straitjacket? This is a question about political liberty presented as a question about fiscal policy.
Libertarians, by and large, seem to oppose political liberty, maybe because, like conservatives down through the centuries, they see political liberty as a threat to private property. They are right of course, but seem reluctant to come to grips with the notion that political liberty has a good side to go with its dangers.
If you support the broad assertion of political liberty set forth in the Declaration of Independence, then you simply can’t answer Kerr’s question. And failure to answer is not an evasion, it’s an assertion of principle. People have the right to form a government which seems to them most likely to “effect their Safety and Happiness.” It can be whatever they want. It can be wise or unwise. Most important, it can be different today than it was yesterday.
If the general welfare of the citizens requires large public expenditures now, and smaller ones later, or vice versa, then the freedom to make those changes is a key component of political liberty. It would be foolish to throw that away, however reassuring the owners of property might find the result.
This radical freedom to govern puts a heavy, perhaps too heavy, burden of wisdom and sensible restraint on America’s system. Libertarians have offered useful critiques of how failures of wisdom and restraint can make the American system go wrong, and are in fact making it go wrong. In my experience, libertarians haven’t offered many solutions that seem compatible with the American notion of political liberty.
Granting Kerr his sense of himself as a conservative, it still seems reasonable to note that, in reference to the historical American system of government, libertarians look like radicals. Libertarianism as a counsel of wisdom makes more sense to me than libertarianism as a political program. Indeed, it’s difficult to see in the libertarianism now on offer anything that even looks like an independent political program, as opposed to a negation of something else.
If I’m not sufficiently schooled in libertarianism, perhaps someone who knows it better can explain how to reconcile Kerr’s question with the notion that people have the continuous right to organize government to suit themselves, and to pursue their own ideas of their own welfare, however much those ideas might change. Please try to do it without asserting that a system offering a 230-year record of notable successes can’t possibly work.
March 8, 2010, 8:22 amMark Field says:
I’m in substantial agreement with both Stephen Lathrop and Thomas Brownback.
March 8, 2010, 9:46 amAndyM says:
This libertarian says “Heck yeah”. I definitely support a reduction in military spending, and wish we’d actually try to run a surplus during the peaks of the business cycle to cut the debt and thus interest (and as a bonus, showing that you can eventually pay off the debt is likely to help keep interest rates low).
I suspect my particular preferences on how to reduce government spending on health care are different than yours, but I do think the current system is too expensive for the results we’re getting.
I’m surprised you listed social security as a big expenditure and then said nothing about cutting it. I’d be in favor of cutting net spending there too (by removing the limit on income subject to the tax; by increasing the retirement age slowly (when it started, most people expected to be collecting for a year or two; now people expect to be collecting for decades…); and by reducing payments to wealthy seniors (
March 8, 2010, 10:29 amAndyM says:
It is possible to support political liberty while at the same time pushing a particular agenda. I don’t think many libertarians would say “I think government should be small, therefore I’ll take away people’s right to vote themselves a larger government”. Most libertarians think you should try to persuade people to support a smaller government. By, for example, making blog posts that imply government is too large. Or getting people to think about what size would be ideal (hopefully with the corollary that the current government is larger than that idea).
March 8, 2010, 10:33 amMPS says:
You ask these questions as if there were some “theory of government” that tells you how much it should cost as a fraction of GDP.
I would say the obligations of govt depend on the state of society — some obligations we can hope to decrease: raising overall wealth and creating a more open society decreases demand for subsidizing equal opportunity — while other obligations will almost certainly increase: as society becomes more complex, the demands of regulation increase.
I understand many libertarians / conservatives take a dim view of govt regulation, but you don’t have to say the present state of regulation is perfect to admit that regulation is necessary. If you think regulation is unnecessary as a matter of principle, I’d say you haven’t thought about it enough (or you’re willing to take society backwards to less sophisticated times).
The most expensive govt programs are obligations we might agree could be cut, but our political system does not allow. I personally think massive cuts are possible in defense spending. Perhaps many libertarians think we could cut social security / medicare. But these things aren’t happening soon.
Anyway, I would say by and large our govt should do what it is presently doing, it should be funded to what extent is necessary to do those things well, and that this figure is probably pretty close, possibly more, than the current cost of govt. Meanwhile I think deficits should be set so that, at least outside of severe recession, interest payments on debt decrease with time, which means, outside of severe recession, taxes will need to increase.
March 8, 2010, 10:57 amAllan Walstad says:
Mark Field:
Well, I do prefer a republic, and it is not the same thing as a democracy. If the Founders had given us simply a democracy, then there would be no place for a Bill of Rights, which is very explicitly a limit on the scope of majority rule, at least as far as the feds are concerned (and, with 14A, a similar limitation on the states, or so it would seem). As I recall, the Federalists’ original argument against a Bill of Rights was that the feds had no authority beyond the powers granted, so there was no power, say, to infringe free speech. But again, that means rather strict limits on majority rule.
Unparalleled opportunities compared to what and when? The US went from near-nothing to massive prosperity compared with the rest of the world when government was smaller and less intrusive. To what extent does the increasing expense and coercive meddling of government at all levels stifle opportunity, innovation, and growth? Of course we all operate within an environment of interaction with others, but how does that justify unlimited taxation and coercion by government, versus a more limited role that emphasizes defense of liberty precisely so that people can pursue their goals in non-coercive interaction with others?
While democratic institutions remain viable, I agree that we need to work through them, at least to the extent of educating public opinion to change the political climate. But that does not legitimate the general practice of peoples’ using democratic institutions to vote themselves shares of others’ wealth.
March 8, 2010, 11:05 amCJColucci says:
Here’s how I’d figure out the numbers:
1. Decide what services we want
March 8, 2010, 11:19 am2. Estimate cost of (1)
3. Present estimated tax bill to pay for (2)
4. If taxpayers object to (3), return to (1) and revise
5. Repeat as necessary
Don Meaker says:
10 % of GDP would be about right for the Federal govt.
that includes 3% of GDP for Defense
It doesn’t include 5% more for the states
March 8, 2010, 11:31 amAllan Walstad says:
Stephen Lathrop:
No, it’s not. Even taking for granted that there were some majoritarian right to extract unlimited taxation and impose unlimited government spending and regulation, you might still ponder and render an opinion about what level of such taxation and spending and regulation might be self-defeating or counter-productive for the majority to decide on.
Libertarians oppose (or would place rather strict limits on) what you seem to be calling “political liberty” because it conflicts with individual liberty, which we support. The whole idea that “liberty” encompasses using the political process to vote oneself a share, coercively extracted, of others’ earnings, is flat nonsense. Find another word, please, this one is taken.
As for private property, here’s the point: somebody has to decide how things will be used. If goods and services came down in fully usable form like manna from heaven, then equal or majority-rule initial distribution might make sense. Even there, though, free trade from that initial distribution would be most consistent with individual liberty and most likely to allocate available goods to best serve people’s needs, by and large. The reality is that goods and services are created by human ingenuity and labor; freely transferrable private property is most consistent with individual liberty and (not coincidentally) generally most conducive to the highest output, most efficient use of resources, and rapid development of new and more desirable goods and services.
It’s the Declaration of Independence, not the “Declaration of Unlimited Majority Rule.”
March 8, 2010, 11:32 amMark Field says:
I’m happy to accept that terminology even though I think there’s no real difference. And I fully understand the point of limitations on government.
But here’s the thing: I see no evidence in US or English history to suggest that tax and spending decisions should be made by some process other than majority rule. In fact, they are the quintessential examplars of when majority rule should operate — it was those issues which Parliament fought kings over for 400 years until Parliament won the precise right to decide such questions by majority.
By the same token, the taxing authority under the Constitution is unlimited as to amount, and in the ratification debates the Federalists didn’t hide from this point, they celebrated it as one of the strengths of the new Constitution. Again, ours is a system designed to operate by majority rule in this context even if there are limits to majority rule in other contexts.
Pretty much any time anywhere. From a purely material perspective, there’s nowhere and nowhen I’d rather live.
I agree with this in concept, though I’m sure we might disagree on the application in particular cases. My only point above was the one that I think you agree with: we’re in a system of majority rule and we need to accept that we won’t always like the outcome, but we just have to keep trying to persuade.
March 8, 2010, 1:47 pmStephen Lathrop says:
I’m content to share the word, if you please, despite concern for the peremptory, not to say greedy, manner with which you demand it. The word “liberty” is surely not the sole property of libertarians. It has appeared with not-quite-perfect uniformity on the coinage of the United States since 1793. Libertarianism doesn’t date to 1793, and until the Libertarians got hold of the word, the meaning connoted political liberty (specifically, the right to self government as expressed in the Declaration) first and foremost—within which a thread of economic liberty no doubt coexisted. Wise counsel might suggest that it would be a mistake to try too much to disentangle those threads.
As I suggested, some libertarians seem to want to make political liberty go away. That is a radical position, and they should own up to it.
March 8, 2010, 1:53 pmAllan Walstad says:
Of course. What else is there, realistically? But part of persuading is persuading on moral grounds. If 51% of the population voted to murder the other 49% and take their property, you wouldn’t say, well, them’s the breaks, the majority have spoken. You would exclaim in outrage about the injustice. You might even take up arms (particularly if you were in the 49%). Now you may not agree with me that the current level of taxation and particularly of redistributive spending and interference with liberty constitutes a moral outrage (as well as ultimately counterproductive bad policy), but I don’t see how you can simply dismiss the legitimacy question on the grounds that majority rule trumps all. Which is what it seems to me you are doing. Correct me if I’m wrong. I’ll come back for one more look.
March 8, 2010, 2:14 pmAllan Walstad says:
…in roughly the manner of someone wishing to share the word “blue” by including wavelengths of 650 nanometers.
Of course it does, just not under that word. After “liberal” was co-opted by advocates of watered-down socialism and welfare-statism, people who actually supported individual liberty were reduced either to being chronically mis-categorized or adopting new terminology. Perhaps you’re not familiar with the story. But yes, we libertarians are more than a little touchy about people abusing the word “liberty” by taking it to mean almost its precise opposite.
Again, the Declaration of Independence had to do with separating from British royal rule; neither it nor the Constitution were manifestos for unlimited majoritarian rule.
March 8, 2010, 2:26 pmHarryEagar says:
‘people who actually supported individual liberty were reduced either to being chronically mis-categorized or adopting new terminology.’
I am reading Hayek, St. Hayek I suppose I should call him here, and I find your remark hilarious.
In ‘Road to Serfdom,’ Hayek refers to Acton more than to anybody else, but Acton, in both is personal and political behavior, was never a friend to individual liberty. There does, indeed, seem to be some confusion about the meaning of the word ‘liberty’ around here.
March 8, 2010, 3:01 pmAllan Walstad says:
HarryEagar: So, because you’re reading Hayek and Hayek refers to Acton, it makes my comment hilarious. Wow.
March 8, 2010, 3:06 pmKamal says:
Let me preface this by stating up until recently I was a Libertarian who longed for the days of Bary Goldwater (AU H20!).
Since the government in a democracy (or democratic republic) is just a collective of people, I don’t think that it is right, or necessary, to place a lower or upper limit on the amount people choose to work towards common goals.
Also, since your implied argument is “Why doesn’t everyone just trust the invisible hand of the market”, i respond that people need to wake up and realize we don’t live in a world where capitalism is a viable option anymore. It was a great idea when I could go claim land for myself and make my living without any interference. Now that all land is accounted for (if you can point me to a place in the united states that i can go make a land grab, please let me know) we are born slaves to those with land and vast reserves of wealth in banks and must work to attain our freedom.
So while our debt is great, the bigger problem is that we are not taking more money from the unproductive members of society (rich people) and paying it down.
March 8, 2010, 3:14 pmHarryEagar says:
Hilarious because it isn’t obvious that the people you seem to be referring to really did support individual liberty. Get it now?
March 8, 2010, 4:45 pmohwilleke says:
The measures in the original post are not very good measures of the scope of the federal government.
The federal criminal justice system’s scope is too large. We don’t need two general purpose criminal justice systems. For example, it should not be tasked with dealing with bank robbers, or with local drug deals, no matter how large. It should limit itself to inherently federal crime (e.g. immigration offenses) and crime where participants cross state lines or communicate across state lines in the course of the crime. It also devotes more resources to many crimes (like drug crime and immigration and porn and marijuana) than are justified. On the other hand, it underenforces criminal law in Indian Territory. This doesn’t cost very much, but impacts unfavorably how the criminal justice system operates.
The federal civil justice system would also be better off not handling disputes involving purely private parties, regardless of their citizenship or amount in controversy or the fact that some federal claim can be stated, at least if the defendant can be subjected to the jurisdiction of any state. Private sector employment disputes, contract disagreements, automobile accidents, etc. do not need to be in federal court. There may be select private law cases where the uniformity involved in a federal forum may be appropriate (perhaps intellectual property or bankruptcy), but generally speaking, there isn’t a need for federal involvement. The is a federalism role for federal courts, but that isn’t it.
When it comes to taxes and spending, the number that matter is total government spending, not federal government spending. It is rarely important as a matter of principle who collects the taxes and who spends it. There is nothing inherently good or bad about spending being federal or state and local. The biggest virtue of decentralized taxing and spending is that it makes a nationwide government shutdown less likely. The biggest virtue of taxing and spending nationally, is that it is easier for multistate ventures and multistate political interests to comply with the law and keep on eye on where spending is going. Overall, the government in the United States is too small. Our overall tax levels approach Third World levels and we underinvest in things government would do better. An economically insecure populace makes us a less economically efficient, less productive and less humane nation. There are particular programs we do spend to much upon like farm subsidies, housing tax credits, and defense. But, those are fundamentally micro, not macro, issues.
In the U.S., there are functions that we allocate to the private sector (like big ticket defense contracting) that would be better done by government owned enterprises. There are also matters, like land use decision making, where we give government too great a role at something that the private sector actually does rather well. Our current mixed economy is also very bad at some important activities that the private sector mythically does well, but actually does poorly like negotiating health care provider prices; where a different division of labor and better structured marketplace would work better. Many of the main reasons to do things in the private sector rather than the public sector (civil service and government contracting laws, for example) aren’t well enough crafted, but aren’t fundamental to the ownership of who is providing the service.
The charitable deduction from income taxes (but not the non-profit status of charities) and the business expense deduction for meals and entertainment (but not the exclusion of business meals and entertainment provided by employers or vendors from income) are both bad because they are highly intrusive in areas that are better off less regulated. The AGI limitation on medical expense deductions is bad, not because it is a subsidy but because it doesn’t prohibit the deduction, it just requires more red tape (through an HSA or FSA, for example) to receive its benefits. Section 199 (the domestic activities deduction) and the AMT system are not good or bad because they raise or reduce taxes, but because they require two sets of books for tax accounting purposes. The main problem with the tax code is that it is intrusive and complex, not that it is too high.
March 8, 2010, 5:17 pmohwilleke says:
So, I assume you favor higher taxes in exchange for no new government services.
March 8, 2010, 5:22 pmohwilleke says:
Federal, state and local taxes combined are very nearly flat.
March 8, 2010, 5:24 pmAllan Walstad says:
HarryEagar says:
Oh I get it all right. I get it that if presumptuous mind-reading and vacuous sneers are all you have to contribute, you’re content to toss them in.
March 8, 2010, 9:12 pmDesiderius says:
MarkField,
“I’m in substantial agreement with both Stephen Lathrop and Thomas Brownback.”
Even when the political liberty of one generation comes at the expense of those following?
March 8, 2010, 9:22 pmMark Field says:
The generational issue is an important one (global warming, anyone?), no doubt. Those of us with kids are especially sensitive to generational equity issues.
I really can’t do better in response than to give Madison’s answer to Jefferson, who raised the same issue, was that “The improvements made by the dead form a charge against the living who take the benefit of them.” In short, the world our kids inherit depends entirely on what improvements we make in it. If they value those improvements, they won’t begrudge us if they pay for some of it.
March 8, 2010, 10:18 pmDesiderius says:
Mark Field,
Two questions:
What percentage of the federal budget do you figure is going toward making a better world for succeeding generations?
Would you have any qualms borrowing money at a certain interest rate if you were confident that you could generate a better return on the money, with the stipulation that your five-year-old son would be legally bound to pay the money back when he reached voting age?
March 9, 2010, 12:12 amSG says:
In short, the world our kids inherit depends entirely on what improvements we make in it. If they value those improvements, they won’t begrudge us if they pay for some of it.
But what if they don’t value those improvements? Or what if they’re not getting improvements at all but rather just the bill for our generation’s consumption (entitlement spending)? Are they justified in repudiating the debt that we’ve assigned to them without their consent?
Our kids and grandkids are getting a spectacularly raw deal. They will have every right to begruge us.
March 9, 2010, 3:31 amDesiderius says:
“The government or an individual should borrow whenever the expected return from the use of those borrowed monies exceeds the rate of interest.”
Project for a New American Century, stateside edition.
Here’s hoping that this is the last gasp of 20th Century style gigantism.
March 9, 2010, 7:19 amMark Field says:
I have 2 basic responses to this. First, as I said above, I’m happy to live in a republic in which these decisions are made by majority rule. What I personally would do with the income of the federal government isn’t the same as what’s being done now (as I’ve made clear above), but if the American people believe that the money is being spent beneficially, then it’s likely that it is.
As for me personally, I’d have to sit down and figure it out to give you any kind of percentage answer. About all I can say in general terms is that I think our military budget is way too high; I favor a social safety net, but am open to funding it in various ways; and I’d like to eliminate a lot of the distortions of the tax system and make it more neutral economically.
Then we didn’t do our jobs well enough.
But that’s really not the issue. No generation does its job “well enough”. The Founders — for whom I have an enormous respect — failed on the slavery issue and saddled Lincoln with a Civil War. I guess I can criticize the Founders, but I might also note that they created a system which survived even that.
The larger point is that we’re nearly certain to get some things wrong, just as we’ll (I hope) get a lot right. If the overall result is progress, then we’ve given our kids nothing to complain about.
First, I think there are serious doubts whether our children actually pay our debts, but to the extent they do, they also get the benefits.
Second, no, I don’t think they get to repudiate the debts. We don’t get to repudiate the debts incurred by the stupidities of our parents — Vietnam, segregation, lots of others — so our kids get to gripe, but they also get the overall benefit of living in a society we’ve created for them. That’s been for the better in the US for 400 years now and I don’t think the process is over.
March 9, 2010, 11:03 amMark Field says:
Ah. Your comment caused me to recognize an implicit qualifier to my agreement with Thomas’s original statement. In my view, government should borrow whenever 2 conditions are met:
1. The return on the investment exceeds the interest paid; AND
2. The return to the government and/or society at large is greater than the return would be if the same money were invested privately.
March 9, 2010, 11:44 amDesiderius says:
Mark Field,
“they also get the overall benefit of living in a society we’ve created for them. That’s been for the better in the US for 400 years now and I don’t think the process is over.”
Don’t underestimate the influence wielded by someone with the courage to say this with no trace of irony. It’s almost too terrible a truth to face, what with the pressure of not being the ones to finally mess it up, but the surest route to doing just that is to deny that truth and to miss learning from it.
You remind me here, if not elsewhere, of Julian Simon. High praise in my book.
“Your comment caused me to recognize an implicit qualifier to my agreement with Thomas’s original statement. In my view, government should borrow whenever 2 conditions are met:
1. The return on the investment exceeds the interest paid; AND
2. The return to the government and/or society at large is greater than the return would be if the same money were invested privately.”
Well, that and reducing human beings to variables in a rate of return calculation rather than agents in shaping their own destinies. Hence the Project parallel.
See also: epistemological humility.
“First, I think there are serious doubts whether our children actually pay our debts, but to the extent they do, they also get the benefits.”
But do they? Seems to me that most of the people getting the benefits just now are on golf courses or in nursing homes. Just because a majority can rig the system for their own benefit, it does not follow that they are therefore justified in so doing or that efforts to hightlight past safeguards against such behavior are necessarily anti-political liberty.
March 9, 2010, 2:32 pmMark Field says:
I don’t think this is right. First, if you believe in republican government, as I do, then we do share in shaping our own destiny. Not, perhaps as much as we do in our private lives, but as much as is possible with the worst form of government except for all the others. This segues into point 2,
namely that our control over our private lives is itself less than complete. “We are all slaves to fate, chance, kings, and desperate men.” And to corporations which are themselves quite fond of reducing human beings to variables in a rate of return calculation.
Unfortunately, there’s no way to know this except from hindsight. All we can do is make our best efforts. Which certainly doesn’t rule out “efforts to hightlight past safeguards against such behavior”.
March 9, 2010, 3:52 pmmattski says:
Allan, although we usually disagree strongly I’ve come to respect your intelligence, civility and independent mindedness. I have two responses to this—rather central—position of yours.
1) Private property, which is a legal construct, is inherently murky around the edges. I do not for a minute deny the validity of the idea, but I don’t accept that it is a black & white question. Proof of this, to my mind, is the necessity for taxation of some sort. Once we grant that civilization is not possible without some taxation then the only question is “how much.” It is baseless to try claim exclusive rights to all your income.
2) Just because an employee agrees to a certain wage does not mean that the wage is legitimate in the sense of being fair or equitable. The lower we go on the income scale the greater is an inherent distortion, call it the distortion of “desperation.” Where job opportunities are few and job-seekers many wages, especially for low-skill work, will be bid down. This doesn’t necessarily have anything to do with the value such workers will produce.
And while there aren’t any formulas available for deciding what is a fair wage-to-profit ratio, perhaps even you would agree that at a certain point it is wrong for an employers windfall profits to not be shared with the workforce.
If it were not true that freely entered contracts do not guarantee legitimacy then “usury” would be a meaningless word.
March 9, 2010, 4:04 pmmattski says:
***Also, a caution re extreme hypotheticals: 51% of the population is not so stupid as to declare war on such an ignoble basis. There is too much to lose. Regrettably, there have been some miserable, unjust wars which were supported by a plurality.
March 9, 2010, 4:23 pmleo marvin says:
Good questions, Des.
Good answers, Mark.
March 9, 2010, 4:58 pmAllan Walstad says:
mattski:
Well, I would argue that there’s another, more fundamental question: taxation for what? Taxation for defense, police, courts to adjudicate disputes if private arbitration doesn’t work, protect the environment as really necessary, provide some carefully circumscribed sorts of infrastructure? Maybe so. Taxation simply to take some people’s property and give it to others? I think not. That’s where I believe we cross a fairly bright line into the realm of robbery.
Thanks for the friendly sentiments, by the way. And congratulations to all who helped push this thread over 200 comments, which I think it deserved.
March 9, 2010, 5:44 pmDesiderius says:
Mark Field,
“I don’t think this is right. First, if you believe in republican government, as I do, then we do share in shaping our own destiny. Not, perhaps as much as we do in our private lives, but as much as is possible with the worst form of government except for all the others.”
You miss my point. To borrow to the extent that we are borrowing robs future generations of the opportunity to shape their own destiny, whether that shaping is individual or collective. Just as our decision to “remake the Middle East” robbed Middle Easterners of the opportunity/responsibility to make their own bed, and lie in it.
However good the numbers look, it’s not ultimately our call. It’s theirs’.
It’s one thing to invest on margin.
Another to do so on another person’s tab.
Another when that other person is one’s own child.
Another when a big chunk of that tab is due to a rival.
Another when that rival has every reason to treat that child with mercies not the most tender.
Where was I when Bush was doing it?
Voting for Obama.
March 10, 2010, 12:20 pmDesiderius says:
The ultimate tragedy being that we are in fact using the money so borrowed in the greatest part not to invest, but to dodge our own destiny, rather than to shape it at all.
March 10, 2010, 12:22 pmjukeboxgrad says:
And how did you vote in 2004? Just curious.
March 10, 2010, 12:53 pmDesiderius says:
jbg,
Bush. With some enthusiasm. I would again. Obama appeared to be a game changer. He might still.
March 10, 2010, 2:32 pmjukeboxgrad says:
Despite him passing an “unfunded drug benefit, which added $15.5 trillion (in present value terms) to our nation’s indebtedness” (link). Even though you think that “to borrow to the extent that we are borrowing robs future generations.”
I find that hard to follow.
He might turn out to be one of our greatest Republican presidents, like Clinton.
March 10, 2010, 6:52 pmDesiderius says:
“I find that hard to follow.”
Consider the alternatives.
“He might turn out to be one of our greatest Republican presidents, like Clinton.”
That is exactly my hope.
March 11, 2010, 12:37 am