State shows government can shrink

| February 7, 2019 | 0 Comments

by John Hood, Syndicated columnist and NC SPIN panelist, February 4, 2019.

I am a fiscal conservative. I recognize that government at all levels has important tasks to do, tasks that make us all better off if done at a reasonable cost. I think the list of such defensible tasks is necessarily short, however, for both constitutional and practical reasons, and that American government as a whole has expanded far beyond its proper scope.

Therefore, my fellow conservatives and I consider it to be a high priority for policymakers to reduce the size of government. We typically measure progress toward our goal by looking at government expenditure as a share of the overall economy.

Is it realistic to expect that proportion to fall over time? Some say no, including some conservatives who would welcome smaller government but simply don’t think it is politically possible in today’s world.

There are reasons for skepticism, to be sure. Once a spending program develops a political constituency — made up of those who either receive direct payouts or who derive income from delivering government services to others — it can be exceedingly difficult to reduce or eliminate funding in the future. Those beneficiaries are a discrete group with strong incentives to know what they are getting and to protect their stream of income.

The taxpayers who foot the bill may be more numerous, but in a legislative context that’s not necessarily a plus. While the total cost of the program may be large, the cost per taxpayer isn’t. Lacking personal financial incentives to work against the expenditure, or to join an interest group to do so, taxpayers get out-lobbied. It’s a problem of “concentrated benefits and dispersed costs,” as scholars of public-choice economics put it.

This kind of collective-action problem in government finance is challenging, to say the least. But it should not lead to undue pessimism if you are fiscally conservative. In the real world, government doesn’t always get bigger. In recent years, in a number of places, it has actually shrunk.

One of them is our own state of North Carolina. I recently compared the state’s General Fund operating budgets to gross domestic product for every year since 1997. After bouncing around within a fairly narrow band, the proportion surged right before the onset of the Great Recession in 2008-09, then snapped back. From 2010 to 2017, it went down by 9 percent and is now at its lowest level in at least two decades. According to a broader measure that includes local as well as state spending, the relative size of government has declined in most states since 2010, but North Carolina’s decline has exceeded the national and regional averages.

Because we are talking about a fraction, both the numerator and the denominator are explanatory factors. Fiscal discipline as practiced by the Republican-led General Assembly has certainly played a role. So has growth in the denominator, North Carolina’s economy.

Setting aside partisan differences, which are quite real in state and local fiscal policy at least, constitutional limits and other institutional safeguards can deliver victories for taxpayers against powerful spending lobbies. For example, states and localities are more fiscally responsible than Washington because most of the former have balanced-budget requirements and limitations on the issuance of government debt, while some offer additional tools to executives such as item-reduction vetoes to disrupt “logrolling” deals that expand budgets.

Pessimists who think government can’t be shrunk must also confront evidence to the contrary from recent international experience. For a recent Regulationmagazine article, Southern Methodist University professor Ryan Murphy examined government spending in 24 industrialized countries from 1980 to 2015. “The idea that government spending cannot ever be reduced is not supported by the analysis,” Murphy wrote, as the results differed substantially by country and spending category.

With regard to the size of government, as with any other political dispute, no victory is permanent. Perhaps North Carolina’s future leaders will try to go on a spending spree. I will do my part to stop them, comforted by the knowledge that they aren’t destined to prevail.

John Hood (@JohnHoodNC) is chairman of the John Locke Foundation and appears on “NC SPIN,” broadcast statewide Fridays at 7:30 p.m. and Sundays at 12:30 p.m. on UNC-TV.

https://www.carolinajournal.com/opinion-article/state-shows-government-can-shrink/

Category: NC SPIN Perspectives - Opinions from NC Leaders & Organizations

Leave a Reply