The world is entering a new era of great government
“KEXHAUST YOUR eye on one thing and only one: how much is the government spending, ”Milton Friedman once said. Today his eyes would burst. Governments spent $ 17 billion on the pandemic, including loans and guarantees, for a combined total of 16% of the global total GDP. According to current forecasts, government spending will be higher in proportion to GDP in 2026 than in 2006 in all major advanced economies. America is on the verge of spending $ 1.8 billion to expand its welfare state; Europe distributes an investment fund of 750 billion euros (850 billion dollars); and Japan promises a “new capitalism”, with even more government largesse.
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In the decades to come, the state’s economic footprint will further expand. Four-fifths of the global economy is now subject to a target of net zero emissions, a target which in Britain is expected to increase the public debt ratioGDP ratio of 21 percentage points by 2050 as the state subsidizes decarbonization and growth slows. And many countries have aging populations that will demand much higher spending on health care and pensions.
It would be easy for classic liberals like this newspaper to despair of the government’s relentless march. As the state has grown during the pandemic, its failures have been fully exposed. At the start of the crisis, US public health authorities prevented private laboratories from developing their own tests for the virus; this year, they took until October to approve rapid tests that might have been available before the summer. For months, the deployment of vaccines in Europe has been too slow. China once celebrated its response to the virus as a victory for a strong state model. Now its zero covid strategy illustrates the inflexibility of uncontrolled centralized power. One of the scandals in which British politics is mired is whether its leaders have taken advantage of the crisis to award lucrative contracts to their friends.
The long-term threat of a great state is that this bureaucracy, institutional failure and corruption will become routine and pervasive, impoverishing people and limiting individual freedom. But these dangers come with an opportunity. To understand how, think about why government is growing.
As our Briefing this week explains, the state almost always stretches from GDP overtime. Three forces are at work. The first is obviously clever. The inertia and drift of the mission make the government difficult to reduce. Voters and lobbyists who benefit from a regulation or expense item have every reason to work hard to preserve it, while the many taxpayers who pay pork barrels have better things to do than ask politicians to to get rid of. The bureaucrats in charge want to defend their territory and their careers. When a program fails, its supporters say it could still be successful if only it was given more money.
The second force is a fact of life. The prices of services provided by welfare states, such as health care and education, are growing faster than the economy due to their high labor intensity and low rates of increase in labor. the productivity. While government inefficiency can make matters worse, this “cost disease” plagues both the private and public sectors. It comes with the territory.
The third force is that governments today have more to do. As voters got richer during the 20th century, they demanded more education and more expensive health care that takes advantage of the latest scientific advances. Today, as they get older, they want to continue spending on the elderly. And, more and more, they want governments to take action on climate change.
These three forces are evident in the real impact of Margaret Thatcher and Ronald Reagan, the most prominent anti-government liberals in the public imagination. It is often said that they laid the foundations for the “neoliberal era”. In fact, they did not leave a lasting legacy of smaller government. In 2019, the U.S. federal government spent a higher share of its GDP than in any of the ten years leading up to Reagan’s presidency. Three decades after Thatcher’s departure – one of those decades being defined by austerity – the British Conservative government will soon chair the highest sustained spending as a proportion of the economy since the pre-Thatcher era.
The lasting victory of Reagan and Thatcher – and other reformers in Sweden, New Zealand, and elsewhere – got the better of the great government’s first force. They have realized that the state is at its worst when inflated by distorted incentives by insiders to seek ever more control. Governments have rightly sold nationalized businesses, reduced regulations, simplified some taxes, and encouraged competition. There was consensus on the limited role of government in liberal societies. Its adherents have welcomed markets in much of the economy, but have allowed redistribution and spending in public services to make the world a fairer place.
Today, this consensus is threatened when it is most needed. As aging and climate change irresistibly increase the size of government, it is essential to recognize what the state can and cannot do well and to prevent Leviathan from wielding its power for the benefit of insiders and cronies. . The argument for limited government today should be about the nature of state intervention, not the need to limit global warming or to care for the elderly.
One task is to maximize the role of markets and individual choices. Climate change must be fought with a price on carbon, research and development subsidies and tightly controlled public investment, not by rationing flights, promoting national green champions or calling on central banks to distort financial markets. The welfare state should focus on redistributing the money and letting those in need choose what to do with it, not on setting up new bureaucracies such as the federal child care system proposed by the government. President Joe Biden. Taxes should be broad and favorable to investment.
The oversized condition
The state must also seek to be agile and efficient. Household income support should be automated to the extent possible as the financial sector becomes more digital. Much of the form filling can be eliminated, as Estonia’s war on paperwork has shown. If there were fewer better paid bureaucrats, the public sector could attract more talented staff. And politicians should be prepared to start from scratch when tackling new problems, rather than relying on lackluster incumbent ministries. The biggest government successes during the pandemic have come from internal startups like Operation Warp Speed, which helped develop vaccines in the United States.
The state must strive to be impartial. Narrow interests, whether it is the unions and anointed victims’ groups favored by the left, or the right-wing cronies in business, will always seek to seize it. To resist, bureaucrats do not need relentless cynical and self-serving attacks on their integrity by politicians, but transparency and support for public service ethics. While the increase in total spending on elders is justified, a large-scale gerontocracy is not. Retirees with deep pockets do not need public documents. Rather, they should bear a heavier burden as taxes shift from wages to property, inheritance and consumption.
The price is enormous. The difference between good and bad government will be measured not only in the rapid transition to net zero and the provision of a lasting safety net for the elders, but in more just and much more prosperous societies. In the 20th century, classical liberals ensured that the growth of government accompanied the progress of mankind. The same could still be true in the 21. ■
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This article appeared in the Leaders section of the print edition under the title “Le triomphe du grand government”