American Elephants


What Is The Proper Size of Government? by The Elephant's Child

Politicians keep debating the size of government. Republicans believe that government tries to do way too much, and that government is not very good at the things it does try to do. Democrats are inclined to believe that government needs to do more to alleviate the problems of society.

The recovery from “the Great Recession” has been sluggish at best, and way too many people have left the labor force. To encourage growth, the Obama administration relies on government action: the latest is manufacturing hubs, and it has been infrastructure projects,  crumbling roads and bridges, wind farms and solar arrays, job training programs, and they have all done little to change the unemployment rate, or significantly increase the labor force. But the belief in government action to change and improve society remains firm.

Over the years, economists have measured the effect of the size of government on economic growth and social outcomes like life expectancy, infant mortality, homicide rates, educational attainment and student reading proficiency. One recent addition to the studies of the result of government size comes from a study published by Canada’s Fraser Institute, entitled “Measuring Government in the 21st Century” by Canadian economist and university professor Livio Di Matteo.

Di Mateo’s analysis confirms a large body of empirical research examining the relationship between the size of government and economic outcomes. Canada’s recent retrenchment is an example of a country shrinking government without a trade-off in economic and social outcomes.

When governments focus their spending on basic, needed services like the protection of property. His findings also demonstrate that there is a tipping point at which more government actually hinders economic growth and fails to contribute to social progress in any meaningful way. Di Mateo examines international data and finds that, after controlling for disparate factors, annual per capita GDP growth rates start to decline when government spending consumes 26 percent of the economy.  Economic growth rates start to decline when government spending exceeds this level. Government spending becomes unproductive when it goes to things like corporate subsides, overly generous wages, overly generous benefits for government employees, and crony capitalism.

According to data from the OECD, the size of government in the United States was approximately 40 percent of GDP in 2012, Which suggests that a smaller size of government than we currently have would translate into higher annual economic growth.

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