A little government can do a lot of good. A lot of government can do little good.
Rules protecting life, liberty, and property can create the stable conditions that entrepreneurs need to flourish. It works best when these rules are simple, clear, and few. But problems emerge when government takes on other missions.
Rules that are complicated, opaque, and numerous create instability. Entrepreneurs are less likely to invest or innovate if they fear the rules of the game might change tomorrow on a whim. Complying with regulations takes up time and effort that could be spent creating wealth. When governments get involved in business, businesses will involve themselves with government. This is an invitation to corruption, rent-seeking, and regulatory capture. Many backs get scratched, but economic growth suffers.
Dan Mitchell‘s latest video introduces the Rahn Curve, named after top-notch economist Richard Rahn, to illustrate that concept visually. Most academic studies on the subject estimate that governments that take up 15 to 25 percent of GDP is about the right size. The U.S. government consumes roughly 40 percent of GDP. That wide range is because different government policies have different effects, and because the complexity of even the smallest economies makes any macro-level study uncertain.
The academics might be guessing too high, though. Historical data from the 19th century show that the best-performing economies had governments around 10 percent of GDP. That includes the U.S. and most of Europe.
Returning to that size government wouldn’t even be particularly austere. the U.S. government would have a $1.4 trillion budget. Roughly what we had during the Clinton years.
I hope you’ll take a few minutes to watch. The Rahn curve contains valuable insights.
Ed Crane writes today in the Los Angeles Times that “Limited-government conservatives have been undermined by big-government neoconservatives,” and that “it is difficult to find noninterventionists in either party.”
The Democrats demonstrate a disdain for capitalism, free trade and the validity of contracts. They cheer the restriction of certain types of speech on campus and in federal law….Lately, the Democrats have been popularly associated with principled opposition to waging war in far-flung corners of the globe. But evidence on the ground today tells a somewhat different tale.
As for the GOP, it has outwardly abandoned the limited-government principles of Barry Goldwater and Ronald Reagan. Little other evidence is needed than the Medicare prescription drug benefit — with its $13-trillion unfunded liability — passed with a strong-arm campaign by the Bush White House and a Republican congressional majority.
Crane put some of the blame for the GOP’s shift on the supply-side movement’s emphasis on tax cuts and economic growth: “Supporters of those ideas didn’t talk about spending cuts, much less the proper role of government. They had the effect of replacing ‘liberty’ as the motivating force behind the GOP with ‘growth,’ a somewhat less-inspiring ideal.” Indeed a gigantic government may still periodically balance it’s fiscal budget (as occurred in the U.S. from 1998-2001); so it’s important to maintain liberty itself as the goal, rather than “good government.”
It’s not clear how one votes for limited governement anymore, so I enjoy my “Abstain” shirt. But Non-interventionism–how nice a platform that would be, from either party.
The Washington Post reports that President Bush will be starting something called the “Freedom Institute” as part of his presidential library in Dallas. This institute would focus on a what the Post describes as a “broad portfolio of topics, including the expansion of democracy abroad and education reforms of the kind Bush implemented during his presidency, according to organizers.”
The Post story goes on to talk about the institute’s goal of focusing on debate:
“The president’s vision is for it to become an incubator of ideas, discussion and debate about the issues that were front and center during his presidency, including the controversy,” said Dan Bartlett, a former counselor to Bush who is acting as a spokesman for the project. “The idea here is to have a place where that debate can continue.”
Not surprisingly, many find President Bush creating something called the “Freedom Institute” to be ironic, or even offensive. David Boaz of the Cato Institute had this to say at the Cato@Liberty blog:
The president who launched our longest war, arrogated more power to the executive than ever before, increased federal spending by a trillion dollars, pushed for the biggest expansion of entitlements since Lyndon Johnson, further nationalized education, tried to nationalize marriage, and held Americans in jail without access to a lawyer or a judge has found a theme for his presidential library: freedom.
Surely this is an effort to repair George W. Bush’s reputation—his approval rating is the lowest since Richard Nixon resigned in 1974. But the soon-to-be (at the time of this post) former president insists that the library and public policy institute won’t be about him. Again, from the Washington Post:
“This is not going to be a ‘George Bush Is a Wonderful Person Center,’ or ‘The Center for Republican Party Campaign Tactics,’ ” Bush said during one of his last media interviews as president. “It’s going to be a place of debate, thought, writing, lecturing.”
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