Sunday, November 7, 2010

Size (Of the Government) Matters

When it comes to the size of government, smaller is better: better for the economy; better for the taxpayer; better for freedom.

What politicians decide will be the size and scope of the government is of great importance to our economic recovery. It would have helped two years ago—when Obama first got into office—if we had discussions about what to cut. But since we didn’t we are now more in debt because of government deficit financing and other big government ventures.

If we shrunk the size of the government, which means unproductive jobs—and all government jobs are unproductive because they drain the private sector—are lost, labor will be free to pursue productive jobs in the private-sector. Moreover, the taxpayer would not be on the hook for the excessive benefits government workers receive that have no parallel in the private sector.

The Cato Institute has been very helpful in outlining which Departments—yes whole departments—of the U.S. Government to cut. They proposed 15 different departments that could be cut in a very short document. This short work is important because Democrats always stick the same question to Republicans, "Well, what would you cut?", as sort of a defeater for Republicans; and when they can't, and usually don't answer, they get big Democratic eggs on their faces (The non-answers, of course, don't justify the persistence of Democrats keeping projects like Social Security and Medicare publicly-funded; nor does it justify expanding the size and scope of government). When Republicans do answer, it is usually something small; something that would hardly fix anything. (I am reminded of the response a few weeks ago that they will cut spending to 2008 levels, as if that is hardly enough!)

If I were a Republican, I'd begin where everyone is criticizing me at: Defense Spending. That means immediately ending the wars, closing the 100+ overseas bases, and, in a Jeffersonian move, shrinking the size of the military as well. Then I'd move on to privatizing Social Security and Medicare. As for cutting out American's unemployment insurance, I would not. Unemployment insurance is just a fraction of the budget. It can stay for a while.

I'd also cut those 15 departments that the Cato Institute recommended. And while many people will hurt short term, because of the release of the thousands of government and military employees, overall the economy will get better just like it did after World War II ended. For those who don't know, the Great Depression ended because government cut spending, and the year after we had the most productive year in all of U.S. history.

The guys at Cato also have produced a book called “Downsizing Government” that is now available on their website and is free for a limited time only. Also, they have a website of the same name, which serves as a "department-by-department guide to cutting the federal government's budget," that I highly recommend.

It is worthy to note that "Big Government" in itself is not the cause of our current economic downturn. However, it is making the recovery a lot harder because resources are not being freed to go where the private sector would have otherwise put them. The culprit of the current economic crisis is Federal Reserve System and our fractional-reserve banking system.

Big Government can, however, bankrupt us, which is why many economists in the Austrian School (and some outside, I guess) believe that a "Great Default" is coming.


  1. An interesting exercise is to look at the Statistical Abstract,which has spending by all levels of government. Then, compare this number to GDP. Then consider the impact of regulation-- money we spend because the government says we must. You can compute a sort of economic freedom index, an indicator of the amount of our annual output that the private sector controls.

    The real issue isn't whether government jobs are productive or not. They usually are. Two more important questions are a/ are they as efficient and effective as they would be if the same job were performed in the private sector? and b/ is this job a legitimate function of government? This second question can be answered on legal and theological grounds. Legally, the role of the federal government is limited by the almost completely ignored constitutional issue of "enumerated powers." Theologically, the Bible recognizes three legitimate forms of government. Ecclesiastical government has to do with matters of salvation and church discipline, civil government has the responsibility of protecting us from enemies, domestic and foreign, promoting justice, and prosecuting criminals. Matters like education and charity fall under the jurisdiction of family government. The three forms of government are intended to reinforce one another, but not compete. That is, the church may speak out on matters of justice, but they have no business punishing criminals. One of the gray areas, legally and theologically, is the role of the federal government in "promoting the general welfare," as it's put in the Preamble to the US Constitution. Some look at that very narrowly, in terms of ensuring justice and safety. Others would include large scale civil works projects that are beyond the capacity of the private sector. However, our public sector is so well-organized now that even interstate highways and inland and deep-draft navigation are not beyond the means of private financial markets. Enough for now, but the bottom line as I see it-- it's pretty clear that the US federal government is doing a lot of things that are outside the scope of the powers enumerated in the US constitution, in some cases encroaching on the legitimate powers of the family and the church.


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