Why does government grow? | reTHINK TANK


BENJAMIN: The Trump budget for fiscal year 2018
has been described widely as dead on arrival. JOHN MCCAIN: We are facing challenges on a level
we haven’t seen since the Cold War and this budget is totally inadequate. BENJAMIN: It attempts to cut only $30 billion
from total federal discretionary spending of almost 1.2 trillion, so one would think
that that small a cut would not be difficult to achieve or even controversial. But in fact, it is difficult to achieve and
that raises an interesting question. Why is it so hard to cut federal spending
or to say the same thing a bit differently, why does government grow? One explanation for the increasing size of
government is been the fact that government produces mostly services produced heavily
with human capital – policing services, education services. Those kinds of services are not affected as
much by technological advances, as, for example, manufacturing in the private sector which
has been affected in important ways by robotics and computer-assisted processes that have
improved its efficiency markedly. The second factor has been a decline in the
importance of families, particularly in terms of providing social insurance for period during
which some family members experience economic downturns. As the role of families has declined, it is
not very surprising that the demand for government as a source of social insurance has increased
as a substitute. The third hypothesis is the increasing role
of international trade as a share of the economy in the aggregate. That is increase the effect of exchange rate
risk and it’s not very surprising to believe that a demand for social insurance from government
is increased as a result of the increasing risks introduced in the economy by the increasing
role of international trade. Another factor is the effect of rising taxes
which has the effect of reducing work effort but not uniformly across the economy, so those
who work less as a result of higher taxes rationally vote for more redistribution through
government as a means of preserving their incomes in a world in which higher taxes has
had the effect of reducing their work effort. Another factor, ironically enough, is the
effect of the increasing size of the economy which has yielded more specialization, which
has a good effect – increasing productivity, and also another effect, which is more hidden,
the increase in the number of interest groups demanding favors from government. One factor that I think undoubtedly plays
a role is the increasing cost of government combined with what is likely to be the inelastic
demand for government. In other words, the demand for government
that is not very responsive to its cost. When cost rises, in the context of inelastic
demand, the size of government total spending will grow. Another factor is the role that bureaucracy
is an interest group. The bureaucracy has a preference for budgets
bigger rather than smaller. As budgets get bigger and more complex, it’s
more difficult for Congress and Congressional committees to monitor the minimum cost for
the bureaucracy to provide a given basket of output. And so as that monitoring cost rises, it is
easier for the bureaucracy to hide from Congress the efficient budget that would be required
to produce its required output. And so the size of government grows because
of this preference for the bureaucracy to hide the cost of government from Congress. Another factor is the decline in agricultural
employment relative to the economy as a whole as workers have moved from farms into cities
into manufacturing, in other words, in the sectors that is easier for government to monitor,
it is easier for government to collect taxes. And then finally, one factor I think has received
insufficient attention is the effect of the 17th Amendment ratified in 1913 which provided
for the direct popular election of senators. Before the 17th Amendment, U.S. senators were
appointed by the state legislatures and hadn’t had very powerful incentives to defend state
prerogatives. Once senators were elected popularly, they
had much more powerful incentives to respond to the demands of interest groups. Those are the hypotheses that relevant literature
offers to us. I think each of them has some validity in
terms of explaining why government grows, although we certainly do not know their relative
importance. One thing that can be noted is that to the
extent that we believe that these are the hypotheses that can explain why government
is so difficult to cut, they do not offer much hope for those of us who prefer to see
smaller government rather than larger. Let us know in the comments what you think
about the growth of government and about the explanations that I’ve provided. Also, let us know what other topics you’d
like AEI scholars to cover on reTHINK TANK and be sure to subscribe for more videos and
research from the AEI.

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  1. Kenneth Weiland says:

    This video discusses the growth of government from an economic or budgetary perspective and in relation to that the actual number of government employees and therefore the literal size (physical size) of government. But, I am less concerned about this aspect of the size of government than the power of government. Granted if the power of government would decrease or at least stop there would most likely be a related decrease in the economic or physical size of government as well. But if the government needs to be larger to deal with the limited powers it should be limited to I would be less concerned about the economic size of the government. But what we need to really address is the power that the government has and its ability to control the individual citizens of the nation. If we were to get the demand for power under control then the economic size of the government would naturally decrease. So the real issue is the demand for more power and control that our elected officials are seeking for the government particularly at the federal level. And this I believe comes solely from the desire of these elected officials to be in charge of everything.

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