The quasi-libertarian idea that we would be much richer if we had very minimal government is becoming more popular, especially among some young people. When I hear this asserted, I always ask myself, “Where are all the rich libertarian countries?”
If really minimal government is great for unleashing economic activity, we should see tangible evidence in the form of wealthy countries with very small government. We don’t. If one looks at the high-income countries of the world, government spending is equivalent to from 30 percent to over 55 percent of the value of their output as measured by Gross Domestic Product.
Summing across all levels of government, the United States and Canada are in the high 30 percent range while Germany and the Netherlands in the mid-40 percents and the United Kingdom a bit above that. France and the Scandinavian countries are all above 50 percent.
These percentages include “transfer payments” like Social Security in the U.S. The U.S. government spending component of GDP that represents things like teachers’ salaries, gas for police cars or new aircraft carriers only make up about 20 percent. So private consumption, investment and net exports, the other three components of GDP, are larger than one might think. In our country, household consumption (augmented by Social Security, Medicare, Medicaid, SSI, farm subsidies, etc.) alone makes up about two-thirds of actual GDP.
There are some poor and mid-income countries that also have large government sectors. Brazil is over 40 percent. But one cannot find a high income country with very low government spending. Among countries with very low expenditures, there’s Paraguay at 15 percent, Turkmenistan at 12 percent, Burma at 8 percent and Bangladesh at 16 percent.
Libertarians will reply that my implied causation is backwards. Countries with minimal government get rich, Ayn Rand might argue, but then the parasites in society get government to enact laws that wrest money from the productive few to give to the lazy many. The northern European countries I cited are teetering near collapse, they would say, from the weight of their excessive social programs.
Perhaps. But I think it’s clear that, over the past decade, the Netherlands and Germany, for example, have pursued far more prudent economic policies, particularly in regard to government finance, than we have here in the United States. I personally would not bet that their stars are doomed to fall, while ours would get brighter, if we jettisoned government.
Instead consider an explanation that most economists would make. Free private markets are very efficient at transforming resources into many different goods and services to meet people’s needs. But there are some goods and services, economic theory and history demonstrate, that private markets never will produce, at least not in optimal quantities.
Such “public goods,” which include national defense, public safety, much education, a legal system, highways, water and sewer systems and basic medical and scientific research, among other things, would never be produced if government did not act. Government does not have to produce all of these things directly by itself, however.
Moreover, if government does not produce these things, private producers in free markets are hindered from producing many other things efficiently.
Rand enthusiasts see heroic John Galts creating wealth out of nothing. But even the most energetic, hard-working entrepreneur has a hard time building a business if there are not educated people to employ, if there are not roads over which to receive raw materials or to ship products.
Moreover, financial capital won’t be cheap if there are no clear and enforced securities laws. Dealing with other businesses will be fraught with risk if there is no commercial code. Without policing, the entrepreneur would have to spend much on private security measures.
It isn’t all on the side of servicing businesses. People are less well off if there are no public parks, playgrounds and other amenities.
Nearly all economists would agree with this so far. But then they would start to bicker about details.
Virtually no one sees much “public good” in farm subsidies. Liberal economists see social insurance programs like Social Security and unemployment compensation as greasing the wheels of labor markets; conservatives don’t. Liberals may like public funding for Big Bird and Downton Abbey; conservatives could argue that if this TV has value, viewers or advertising would pay for it.
The libertarian argument that minimal government increases individual human autonomy is plausible. If that is your supreme value, be a libertarian. But how much income, how much satisfaction of material needs and wants are we willing to give up for an increment in individual autonomy from what we enjoy already?