A liberal and a conservative are having a heated debate. The conservative rails against government: that it’s always the problem, never the solution; that it sucks money out of private enterprise, and squanders it according to the prevailing political winds of the day. Not so, replies the liberal: government gives us public education, infrastructure, and many kinds of insurance that would not be supplied by private markets. Who’s right?
It would be great if we could simply do an experiment: take a country, jack up the size of its government, and then wait around for a few decades to see what happens to economic growth. We’re not talking about a few measly percentage points – we’re talking about tripling, quadrupling, even quintupling the size of government.
Unbeknownst to many, the experiment has already been done – in the US, and practically every other country in the West – and the results are in. Government, it turns out, is really good for growth.
Back in 1900, US government spending on all levels totaled 7.5% of GDP, as it had since the 1870s. By 1928, on the eve of the Great Depression, government spending had crept up to about 11%. By 1950, government spending reached 23% of GDP – triple what it was during most of the 19th century. In 1960 it reached 28%; in 1970, 30%, in 1980, 33%; in 1990, 35% – and remains at about 36% today, almost quintuple what it was in 1900.
How did that impact growth? We look at long-term measures – 25 and 50-year growth rates in real per capita GDP – so that the results dont get skewed by year-over-year ups and downs. During 1870-1928, the growth in per capita GDP for any given 25-year period ranged from a low of 12% (for 1889-1914) to a high of 82% (for 1877-1902). Through the 1920s, 25-year growth rates were below 40% every year except 1904-29, when it touched 42%.
By comparison, 25-year growth rates in per capita GDP during 1950-2008 never fell below 61% (1968-93), and peaked at 88% (1961-1986). Even when looking at 1950-2013 – to see the effects of the Great Recession – 25-year growth rates never drop below 44% – still better than the best 25-year growth rates seen during the so-called roaring 20s. 25-year growth as of 1932, Hoover’s last year in office: negative 8%.
50-year growth rates paint a more compelling picture. Between the 1870s and 1920s, real per capita GDP expanded about 125% over any given 50-year period (ranging from 114% to 143%). Between the 1950s and today, 50-year growth rates never fell below 167%, were often greater than 190%, and peaked at 209%. (50 year growth as of 1932: 36%. Those were the days….)
This isnt a close case. After the US tripled the size of its government – and while it was eventually quintupling the size of its government – economic growth dramatically accelerated. What’s more, the quality of that growth has also been far superior. In the 60 years between 1870 and 1930, the US went through 3 depressions (1873, 1893, 1929). Since then: not one depression. And if you think 2009’s Great Recession was bad, recessions in 1884, 1904, 1908, 1914 and 1920 were worse!
You might imagine an analogous experiment, in which we ask whether a certain food is good or bad for rats. So we feed them hundreds of pounds of the stuff for years on end. At the end of the study, the rats are bigger and healthier in every measurable way. Now imagine some joker standing up in the back of the room to rant about how this food nonetheless is really, really bad for rats. That’s a conservative. It was never about the facts, after all – theirs is just naked belief in a vacuum of fact.
Economics is a science, not a religion. Our theoretical constructs must in the end be based in fact, and surely must yield to the facts once they’re brought to light. Conservatives can bleat all they like about how government is bad for the economy – but they have no scientific arguments to offer; they can only recite their religious beliefs, which are not merely lacking any basis in fact, but persist in spite of them.
data on the size of government:
data on real per capita GDP growth:
The Field Guide wishes a happy birthday to Rose. Have a lovely liberal Labor Day weekend – we’ll return Wednesday.