The Great Myth of “Small Government”

“At this point,” says a New York Times editorial column, “even many Republicans acknowledge that the era of small government is over.”

We have no doubt they do. But how can an era end… if it never began?

No Republican in current practice has lived one day in an era of small government.

To visit one he must first climb into a time contraption…

He must then dial the knobs past the Great Recession, past the Patriot Act and the war on terrorism, past the ballooning deficits of the 1980s, past the guns and butter of the 1960s, past the New Deal, past WWI… to perhaps 1900.

A True Era of Small Government

In 1900 total government spending came in under 3% of the gross domestic product.

Government’s reach was so short… it scarcely brushed the individual citizen.

This state of near-nirvana existed for the following 17 years. Then Mr. Wilson ordered the doughboys across the ocean… and into the trenches.

In 1917 government spending — again, as a percentage of GDP — vaulted near 20%.

But the boys were home before long. The cannons were spiked, the fleets mothballed, the swords beaten into plowshares.

America could return to its central business — business. The pendulum never swung completely back to pre-war levels. But in fairness, it did swing back. By 1929 the percentage of government spending to GDP was back under 4%.

Even in the spending-delirious Depression that followed, it never exceeded 11%.

No Turning Back

By the end of the Second World War that figure scaled 45% — the arsenal of democracy was not cheap.

The hot war ended, mercifully. But a Cold War began. And the New Deal was now riveted onto American life. There was no prying it away.

Small government was well and truly dead.

The Great Society swung by later to shovel additional soil upon its grave.

No recent era of small government therefore exists. As well talk of the recent era of Model Ts, of telegraphs — or of honest money.

Government spending as a percentage of GDP has averaged roughly 20% since 1980. That is, it has averaged WWI levels.

The figure has run higher at times. It has run lower at times. But 20% is about par.

Now mix in state and local government spending. You will find that total government spending presently nears 40% of GDP.

But even these figures may soon appear quaint…

A $4.2 Trillion Deficit This Year

GDP is currently contracting at a savage clip — as government spending is expanding at an equally savage clip.

The natural consequence is a vastly higher percentage of spending to GDP.

The Congressional Budget Office projects this year’s federal deficit will come in at $3.7 trillion… vastly eclipsing its pre-pandemic $1 trillion projection.

But Manhattan Institute senior fellow Brian Riedl estimates the true figure at $4.2 trillion:

My models estimate that the 2020 federal budget deficit — just the deficit — will top $4.2 trillion…

CBO projects that the first four coronavirus response bills will add $2.2 trillion to this year’s deficit. The remaining portion of the deficit consists of the economic and technical effects of the economic shutdown — the nonlegislative costs such as fewer workers paying taxes and more people signing up for unemployment and Medicaid benefits. This analysis assumes approximately $1 trillion in these costs (bringing the total deficit to approximately $4.2 trillion)…

A $4.2 trillion deficit would represent nearly 20% of the United States economy — a genuine enormity:

The $4.2 trillion budget deficit would represent 19% of the economy — the largest share in American history, outside the peak of World War II, and double the 2009 level during the Great Recession.

The way ahead promises little salvation, argues Mr. Riedl:

Even if the economy recovers quickly after reopening, the projected budget deficit will still approach $2.2 trillion next year and never again fall below $1.3 trillion. Combined with the mounting costs of Social Security and Medicare, the deficit will rise to $2.6 trillion by 2030 and continue growing thereafter.

Over the full decade, the coronavirus recession is projected to add nearly $8 trillion to the national debt, pushing the debt held by the public to $41 trillion within a decade, or 128% of the economy. This would exceed the national debt at the height of World War II. Although that war ended before the debt could rise further, the expanding Social Security and Medicare shortfalls will keep the current debt increasing.

The Purpose of Republicans

The old Republicans existed for one purpose: to trim both taxes and spending.

They guarded the Treasury reasonably well. And you could trust them with the nation’s purse.

But these Republicans are no more.

They stranded their posts years ago, opened the purse… and got elected.

They no longer worked to limit spending but to channel it their way, to butter their own constituencies.

They sat at the feet of Mr. Arthur Laffer, with his famous curve. Thus they discovered they could spend like Democrats — while taxing like Republicans.

They labeled the dour old fiscal religion “root-canal economics.”

Deficits do not matter was the new catechism.

Only a handful of old-style Republicans hold out today. But their own party regards them as nuisances.

They are akin to policemen raiding a brothel — and resented for much the same reason.

Yet our sympathies are somewhat with the brothel, with the sinners…

“Small Government” Is Boring

The term “small government” is as hollow as a jug. How does one even define it in the 21st century?

Perhaps small government can be likened to Supreme Court Justice Potter Stewart’s definition of pornography — you know it when you see it.

We do not see it. Do you?

Besides, it is a dreadful marketing slogan. You would not want to sell “small government” for a living.

It is duller than the dullest dishwater… and less inspiring than an Alan Greenspan lecture.

Moreover, “small government” is a defensive doctrine. It hunkers in. But no static defense can forever hold against the relentless assaults of “progress.”

Who Marches to “Small Government?”

There were two great orators of antiquity. The Roman Cicero was one, the Greek Demosthenes the other.

“What a great speech,” said the people when Cicero talked. But what did the people say when Demosthenes spoke?

“Let us march.”

Very few march for small government. They may applaud it, politely. They may nod their heads dutifully.

But few will march.

Many will — however — march for “Health Care for All!” or “Save the Planet!” or “Equality Now!”

These are cries that awaken the blood. They pluck up the adrenaline. They rally us to the colors… and inspire us to enlist.

They inspire us to march.

We may march ultimately off a cliff if present trends do not reverse. We are not confident they will.

We are hopeful — but not confident. Yet of this we are confident:

“Small government” is nowhere in America’s future…

Regards,

Brian Maher
Managing editor, The Daily Reckoning