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Saturday, October 24, 2009

Big Government

A comment on something I read quoted by Digby.

When you comb the serious academic evidence about how and why economies grow, you will find that no case can be made that big government or even high taxes impede economic growth over time.

I hate to type this but I don't agree with "you will find that no case can be made that big government or even high taxes impede economic growth over time. "

In fact, I don't think you can find any case that high taxes impede economic growth. That much is true.

However, high G (government spending other than transfers like social security) is very robustly correlated with low growth in every cross country data set which I checked.

Both can be true. The evidence is very strong that deficits are terrible for growth.

Now these are cross country regressions and most countries are in the third world. It isn't necessarily relevant to the USA.

There is strong evidence that high public spending on education is good for growth (not neutral good). High Transfers (like social security) are correlated with high growth.

Public health care spending is correlated with good health and private health care spending isn't This is not just the result of the USA with huge private spending and not so great health. It is true if you drop the USA from the sample.

High infrastructure spending is correlated with high growth. Believe it or not high military spending is not correlated with low growth.

Huh !?!? so what's left ? Well I'd say some countries actually have bloated bureaucracies. The USA sure isn't one of them. No one proposes bloating up our bureaucracy. We have been fighting bureaucratic bloat for my entire lifetime (born November 9 1960).

We won. The federal government does much more than it did when I was born and Federal civilian employment is a much lower fraction of total employment.

OK sure we got some Blackwater's in the bargain, but basically the USA shows that the public sector can be efficient -- more efficient at many things than the private sector.

This means the sad fate of third world countries with bloated bureaucracies (compared to what they can afford) is not relevant to our case.

But it's there in the cross country data. I could *not* make the apparent effect go away (I checked for my own information. I don't mine data then write it up as if I hadn't mined the data. Honest).

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