The Phony Big Government Debate

by: OpenLeft

Thu Jul 22, 2010 at 13:30


During Netroots Nation, we are running Golden Oldies plus a few surprises.  Regularly Scheduled programming will resume on July 26.

A Chris Bowers Golden Oldie
April 27, 2009.
Original HERE.

Rasmussen has a new poll out this morning showing that support for a "free market" economy is up to 77%, while support for a "government managed" economy is down to only 11%. Such a poll is a good example of the phoniness of the debate over the role of government in our economy. Instead of offering a perspective on the percentage of the economy that the government currently manages, and asking people if they would prefer a higher or lower percentage of management, the poll posits there is a switch governments decide to flip to make an economy either entirely "free market" or "government managed."

Of course, there is no such switch. Every economy is a mixed economy where both markets and the government manage a certain percentage of the overall whole. The question is where the balance should be. 80-20? 50-50? Something else?

A true ideological debate over the size of government would argue for a drastic shift away from current levels. However, no matter the rhetoric of Reagan, Clinton, Gingrich, both Bushes or Tom Delay, that simply is not an debate we have engaged much over the last 30 years. Apart from a brief flare-up over Social Security in 2005, there simply has not been a significant argument over the long-term size of government in either the United States of America, or other wealthy democracies, over the past thirty years. Our debate over the size of government, recently manifested in the "tea party" protests, is a phony, hollow ideological debate that, at best, is nibbling around the edges of a broad economic consensus.

To demonstrate this point, consider the following chart (PDF, pages 13-14), which measure the actual size of government management of the economy within what are now wealthy democracies over the past 140 years. It shows that the size of government reached a stasis point of roughly 40-50% around 1980, and hasn't changed much since that time:

More in the extended entry

OpenLeft :: The Phony Big Government Debate
Government spending as a percentage of GDP, 17 current wealthy democracies, 1870-1960
Country 1870 1913 1920 1937 1960
Mean 10.7 12.7 18.7 22.8 27.9
Australia 18.3 16.5 19.3 14.8 21.1
Austria 10.5 17.0 14.7 20.6 35.7
Belgium --- 13.8 22.1 21.8 30.3
Canada --- --- 16.7 25.0 28.6
France 12.6 17.0 27.6 29.0 34.6
Germany 10.0 14.8 25.0 34.1 32.4
Italy 13.7 17.1 30.1 31.1 30.1
Ireland --- --- 18.8 25.5 28.0
Japan 8.8 8.3 14.8 25.4 17.5
Netherlands 9.1 9.0 13.5 19.0 33.7
New Zealand --- --- 24.6 25.3 26.9
Norway 5.9 9.3 16.0 11.8 29.9
Spain --- 11.0 14.6 18.0 27.6
Sweden 5.7 10.4 10.9 16.5 31.0
Switzerland 16.5 14.0 17.0 24.1 17.2
UK 9.4 12.7 26.2 30.0 32.2
USA 7.3 7.5 12.1 19.7 27.0

Government spending as a percentage of GDP, 17 current wealthy democracies, 1960-2007
Country 1960 1980 1990 1996 2007*
Mean 27.9 43.1 44.8 45.6 48.6
Australia 21.1 34.1 34.9 35.9 43.6
Austria 35.7 48.1 38.6 51.6 54.3
Belgium 30.3 57.8 54.3 52.9 56.0
Canada 28.6 38.8 46.0 44.7 48.2
France 34.6 46.1 49.8 55.0 61.1
Germany 32.4 47.9 45.1 49.1 48.8
Italy 30.1 42.1 53.4 52.7 55.3
Ireland 28.0 48.9 41.2 42.0 41.5
Japan 17.5 32.0 31.3 35.9 30.9
Netherlands 33.7 55.8 54.1 49.3 54.7
New Zealand 26.9 38.1 41.3 34.7 46.6
Norway 29.9 43.8 54.9 49.2 58.8
Spain 27.6 32.2 42.0 43.7 47.3
Sweden 31.0 60.1 59.1 64,2 58.1
Switzerland 17.2 32.8 33.5 39.4 37.8
UK 32.2 43.0 39.9 43.0 50.0
USA 27.0 31.4 32.8 32.4 35.5

* = Numbers for 2007 are derived from here, and are not as solid as the 1870-1996 figures.

This chart shows, broadly speaking, that after a long period of slow growth from 1870-1960, the percentage of the economy managed by the government in wealthy democracies dramatically increased from 1960-1980. From 1980 to 2007, the slow growth pattern returned. One reasonable conclusion from this is that, along with the defeat of fascism, the end of colonialism, the rise of universal suffrage, the extension of equal rights, and the end of Soviet communism, the great ideological debate over the proper size of government functionally ended in wealthy democracies about 20 or 30 years ago.

An actual, significant ideological debate over the size of government would include conservative parties advocating for along-term return to 1960 levels of government spending as a percentage of GDP, along with left-wing parties advocating for a long-term increase of at least 10% or more. However, there are simply no mainstream advocates to alter the current percentage of the economy managed by the government by even 10%. To put this in perspective, a 10% shift would mean a either $5 trillion, or a $2.1 trillion, federal budget instead of the current $3.55 trillion. No significant block of federally elected officials is advocating for budgets of those sizes. As I explain in the extended entry, right-wing Republicans and left-wing Democrats are about 5% apart from each other on how much the economy they believe should be managed by the government. That 5% is the reality behind the sham of our supposed great debate over the size of government.

In their real and proposed budgets, neither President George W. Bush, nor the Congressional Progressive Caucus, have advocated for anywhere close to a 10% shift in government management of the economy:

  1. President Bush submitted a budget of $2.4 trillion to an all-Republican Congress in for fiscal year 2004 (in 2004 dollars and GDP size, too). Further, that didn't even include the supplemental funding for Iraq and Afghanistan. The final budget that he submitted to an all-Republican Congress was $2.77, and also didn't include money for Iraq and Afghanistan. With the exception of Social Security, Republicans simply were never advocating to reduce the overall percentage of the economy managed by the government, much less reducing it by 10%.

  2. The Congressional Progressive Caucus is advocating for a budget that, according to their own documents, "is $469 billion over the President's budget." That is an increase of only 3.3% of GDP, $300 billion of which is listed as short-term stimulus. Their proposed increase in long-term programs is only 1.2% of GDP.
While we keep pretending that a great ideological debate is raging in America over the size of government, the truth is that the right-wing of the Republican Party and the left-wing of the Democratic Party are, in terms of their actual proposed spending, about 5% apart on the percentage of the economy they are advocating for government to manage. In the United States, government spending as a percentage of GDP has been about the same under Carter and Clinton as it was under Reagan and both Bushes. While it will increase a bit under President Obama, most of that increase will actually come from the recession shrinking the size of the GDP. Almost the entire $158 billion difference in discretionary spending between the 2009 and 2010 budgets comes from including Iraq and Afghanistan spending in the budget rather than as supplemental funding.

Over the past decade, the largest debates over the size of government this decade were, with one exception, pretty small bore:

  1. Defense spending, including both overseas wars, increased from 3.8% to 5.8% of GDP under Bush. That spending argument was only over 2.0% of the economy.

  2. President Obama's new health care investment, totaling $634 billion over ten years, will represent only about 0.4% of the national economy over those ten years. In percentage terms, that is five times smaller than the change Bush made to defense spending.

  3. The Wall Street bailout, in the form of the TARP / TALF and PIPP programs, did represent nearly 5% of GDP. However, it is a temporary increase in government spending, and not a long-term program that will be renewed annually.

  4. The public spending portions of the stimulus / jobs package represented roughly 3.5% of GDP. However, most of them are also temporary, and also spread out over multiple years.
The main arguments in the United States over the size of government have been either small-bore (a fluctuation of 2-3%), or temporary. The one exception was the 2005 push by Republicans to privatize Social Security, which would have pushed 5% (and growing) of the economy from the public sector to the private sector over the long-term. Of course, that push was quickly defeated, and sent Republicans into a slow tailspin from which they have yet to recover.

In their 2000 book, Public Spending In the Twentieth Century, Vito Tanzi and Ludgar Schuknecht predicted that government spending as a percentage of GDP would decline in the early decades of the 20th century. However, even at the end of the decade with the most pro-corporate rhetoric of all-time, they were still forced to conclude the following:

With some noteworthy exceptions, relatively few countries have so far accompanied their anti-government rhetoric with successful shifts in their policy regimes toward less state involvement and cuts in public expenditure. In part because of the tyranny of past commitments, and because of the power and resistance of groups with strong entitlements on public spending, on average, public expenditures levels have continued to rise, but the pace has definitely slowed down.

We now stand one decade distance from this book, and the pace still has not reversed itself. In fact, due to the global recession last year, the pace is actually starting to pick up again.

As much as we pretend otherwise, there is no great ideological debate in America over the percentage of the economy that should be managed by the government. Right-wing Republicans and left-wing Democrats are about 5% apart from each other in their proposed budgets. In the United States, and really most other wealth democracies, there just is no longer a great ideological debate on this topic. We are just nibbling around the edges, no matter how we are pretending otherwise. Honestly, we really seem to be entering Francis Fukuyama's "last man" territory.


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