The Case for Big Government

This post is by Jeff Madrick of the Schwartz Center for Economic Policy Analysis.

My recent book, The Case for Big Government, argues that America has been the victim of an anti-government ideology that has grown more intense, even under a Democratic president, Bill Clinton, since the late 1970s. It has long been part of the American national character to look with suspicion on government. After all, its very origins were a rebellion from central government tyranny.

But, in truth, America when it worked best, in my view, America used government robustly to embed its social and political values but also to create a foundation and capacity for economic growth and prosperity. The case against big government has always been ahistorical. There is no wealthy nation in the world today that does not have a big government.

Of course, some governments are bigger than others as a proportion of GDP. But the cross-country evidence is now clear. There is no statistical relationship between the size of government and the rate of growth of GDP per capita or productivity. The implication is that in many nations where government spending constitutes up to 50 percent of GDP, spending and outer social programs must in some ways significantly enhance productivity and build foundations for prosperity.

Because of America’s anti-government ideology, there is now a long and urgent to-do list in the nation. Too much has been neglected because of an over-reliance on markets and a distaste for taxes and new government programs. The list includes health care reforms, transportation and communications infrastructure, pre-K education, equal funding of k-12 education, alternative energy research and national energy policies, family work policies, among other issues. These are now at a critical stage. In time, when crisis passes, they will require an increase in taxes to pay for them.

The list also includes the need to focus serious attention on re-regulating American business. The dependence on financial markets to support growing overall demand through the issuance of debt, and also to remunerate CEOs and other high executives through the equity markets, is a direct reflection of faith-based ideology, not practical empiricism.

Despite the American mythology, there has never been laissez faire government in the U.S. Neo-classical economics provides much justification for government intervention and spending. But the extent is a matter of debate. Other economic theories are perhaps more relevant today.

America’s history may provide the stronger empirical case for government. Time and again, government changed in America to meet new needs. Even Jefferson, the heroic defender of laissez faire, bought Louisiana and demanded that there be regulations to control the sale of land. His party’s successors built the nation’s canals and free primary schools. The list goes on: grants of land to build colleges; land donations to subsidize the railroads; the building of sanitation systems, critical to the development of cities; the development of high schools; the building of roads and highways and parks; the subsidies of college and healthy research, and of course a century’s worth of laws to protect workers, make products safe, and, since the early 1900s, with many additions along the way, to regulate finance.

Most important, government is the nation’s key agent of change. There are no permanent rules as to where it can go and what it can do. These must be fluid, because societies and economies grow, and knowledge and expectations evolve.

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