Bo Statham, writing in the Appeal, “posits that President Reagan overstated the case when he said ‘Government is not the solution to our problem; government is the problem.’”
He recites a litany of government’s good intentions, overlooking the damage it does via tax, legal and regulatory burdens. Ignoring the arguments supporting Reagan’s point that are based on careful logic, extensive facts and sound empirical evidence, he concludes, “Ideologically driven demands to shrink the size of government … are irresponsible.”
Consider the natures of private- and public-sector transactions. Private relations are mutually voluntary, so they improve the well-being of both parties; they are win/win by nature. When two people marry, it’s because both expect to be better off as a result. A private employer hires an employee because he values the service more than his cost; the employee values the pay more than her time and effort. Both parties are improved by a private transaction or they don’t make it, because coercion is prohibited.
But transactions involving government either directly entail coercion or require a facilitating coercive transaction. When government spends on public goods, it must sooner or later collect taxes (a destructive facilitating transaction) to pay for them. When it promotes my desires by limiting a neighbor’s use of his property, the single transaction both diminishes my neighbor’s well-being and enhances mine. With coercion always being destruction of human well-being, government is a win/lose matter.
Government can do good, but there is no assurance a public-sector action will do so. We have to weigh the hoped-for and always contingent and uncertain social benefits of a government activity against the damage from it that is inescapable to determine whether it actually serves the public interest.
So, private transactions generally serve the public interest because they increase societal wellbeing by bettering both parties — and, being mutually voluntary, they should proceed without interference until they are shown definitively to be contrary to the public interest. Public-sector activity, however, always involves some human and social damage (coercion), and so any increment of it should be eschewed until it is shown definitively to result in more good effects (not just good intentions) than social damage.
Thus, careful logic shows we need both private and public sectors, and that the fact-based and empirical question is: Where’s the balance point between them, and where are we operating relative to it?
A wealth of studies shows that the balance point requires much less government and much more freedom from its burdens than has been the case in our society for a half-century. Moreover, government as a factor in our lives and businesses has been growing for well over a century, and after passing optimal levels in the mid-20th century, the excess has continued to grow and now threatens our children’s future.
As the prime example, economic growth — and thus aggregate human wellbeing — is maximized when government spending is roughly 22 percent of the overall economy, a level we passed in the 1950s. The past five years, it has been 35 percent to 38 percent! By objective measures, government regulation in many areas has also metastasized in recent years. And policy has fostered public and private debt levels relative to the economy about twice the levels of the 1970s. My space limits preclude offering more, but the net effect of all of this is that we face long-term economic growth rates perhaps only half our historic average.
So, Statham’s claim that calls to shrink government are ideologically driven and irresponsible is false. Reagan was right.
Ron Knecht is an economist, law school graduate and Nevada higher education regent.