Growth of Government Impoverishes You: Striking Evidence from Research

Growth of Government Impoverishes You: Striking Evidence from Research

Conservatives in both major parties feel an instinctive distaste for large government. It’s contrary to our constitutional tradition for one thing. For another, one does not enjoy paying taxes to a government that gives daily lessons in ineffectualness and in jolly and mild but massive corruption. (The late Democrat Senator Byrd – the repentant Klansman – was eulogized for giving away your money to his poor state of West Virginia. Much of it was spent on nothing, such as an empty highway.)

There is another reason to dislike big government that is at once more tangible, or more concrete, and more difficult to explain. It’s difficult to explain because the evidence for it comes from studies with methods few people understand. I understand those methods (roughly: “regression analysis”). I used them for thirty years of my professional life. I vouch for them.

Here is the third reason to object to big government:

Government expansion deprives us of economic growth.

Note: If you are uncomfortable with the terms GDP/capita and income per capita, don’t blame yourself. Sue your alma mater and refer to the light-hearted explanation linked to this blog: “Dr J’s List of Words that Make you Sound Smart.” (Link is on the lower right-hand side of blog front page.)

Two Swedish scholars, economists, recently gave in the Wall Street Journal (7/12/10) – a summary of their book on the topic. I quote:

…when government spending increases by 10% points of GDP, the annual growth rate [of the national economy] drops by 0.5 to 1 percentage point. This may not sound like much but ….To put it in personal terms ….a dip …from 2% to 3% [in national economic growth] would mean an individual income loss of $464 in the first year. Over 30years, a one percentage point difference in the [annual] growth rate of the national economy] translates roughly to $354.000 in lost income per person.”

The suspension points above are mine. They indicate simplified sentences. The bracket are mine too. They denote clarifications I added. You don’t have to worry about either. I understand the WSJ report perfectly and I never lie or distort.

Here is another way to express the same thing:

If the federal government takes 45% of everything produced by all Americans rather than the current 35% (roughly), it will cost the average American couple the price of two or more houses, depending on the part of the country they live in.

This is not peanuts. This is not erosion at the margin. It’s a whole lifestyle and our capacity for personal autonomy that are at stake.

Such an increase in the share the federal government takes for itself is not out of the question. The Swedish government’s share is about 55%.

Now think of the implications of this robbed economic growth from the standpoint of “social justice,” the excuse liberals give for their dishonest economic policies. The above estimate is a mean, an average. Of course, the rich lose more than the poor in absolute terms when the economy fails to grow. They might be deprived of a new mansion, for example. (I am thinking of Al Gore’s mansions.) The poor lose the ability to buy a home altogether. Who, in your opinion, suffers the most when the economy grows slowly: A rich man who can’t afford a second mansion at the beach or a working family reduced to renting forever?

Of course, the answer is subjective. It does not mean you can’t try. Force your liberal acquaintances to answer. It’s fun to see them squirm, get red in the face, stomp out, or look at you dumbly. (Happens more and more these days, or am I just dreaming?)

The facts for this column are cribbed from: “Lessons from the Swedish Welfare State.” by Swedish scholars Andreas Bergh and Magnus Henrekson, based on their book: Government Size and Implications for Economic Growth. (AEI Press, 2010)

About Jacques Delacroix

I am a sociologist, a short-story writer, and a blogger (Facts Matter and Notes On Liberty) in Santa Cruz, California.
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3 Responses to Growth of Government Impoverishes You: Striking Evidence from Research

  1. Thomas H. says:

    Sir:

    There are a number of reasons why our government needs be as big as possible and in taking as much out of our pockets at this point as is fiscally possible: a. Defense of the Homeland, b. Prosecution of the missions in Afghanistan and Iraq, c. Sponsorship of economic activity, and as you have mentioned, the current account deficit, d. Pork barrel politics, that while it makes for lost / vacant highways in West Virginia, is good for the military and other government departments, e. Perpetuating the self – image of government as guarantor of the will of the people and its civic, political, human and other rights, including the right to government welfare; this includes even things like property rights, public safety, the different branches and departments, and so on; and f. The list goes on.

    No one anyone really knows started out with the idea of big government outside of believers in the ‘old world,’ and not versus the new world whatever that might be. It’s that believers in the old world know the king or tsar had a huge administrative and operations apparatus and this was benevolent to most people. Am not enough a student of the old world to really know this one way or another, but operate on the premise that most governments are poor guarantors of anything, save for those democratic ones (to paraphrase the WWI English Sea Lord among others.) We do have a problem with big government that is exacerbated by self – referential financing on the federal and state levels and to the extent people benefit, they want more of same. This is a poor recipe, not only for the reason “too many cooks spoil the broth,” but Hayek’s admonitions in the “Road to Serfdom” as well that you are driving at without specifically mentioning them.

    • jacquesdelacroix says:

      Well said but:

      Military spending still accounts for less than 4% of GDP. It’s specifically allowed by the Constitution as one of the authorized functions of the federal government. The 4% include benefits earned in the past that are more akin to social security than to the purchase of tanks.

      I admire Hayek but everyone has to chose his own mission. That’s the miracle of the Internet. Mine is not to send others to read books of enlightenment. Member of the Libertarian Party (capital L) have a tendency to give interested people reading assignments. Maybe, just maybe, this is one of the reasons why the LP finds cause to celebrate when it pulls one half of one percent of the vote in any election.

      • Thomas H. says:

        Sir:

        Your point about Libertarian politics is well – taken, even without the literature citations and so forth. One must also agree the problem with government spending is not the military (obviously from the small percentage of the federal budget it consumes,) and the problem with federal spending to me seems like it is with social programs – health, education and welfare; labor; human services; the institutes of health; social security; and health maintenance programs – all these and more are of great concern insofar as their husbanding of federal assets and allocations are concerned. There must be hundreds of federal departments that are larger than “large” businesses in the private sector about which we really know nothing, and this does not include military departments. It does included elements of self – perpetuating and low – profile, but hugely important bureaucrats and bureaucracies, summoning everything from kafkaesque images to the animalistic images of Orwell in his writings: In a way, too shocking and literal to be ‘true,’ so published as fiction.

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