This NY Times review reports on economic historian Peter H. Lindert‘s comprehensive analysis in his new book, “Growing Public” (Cambridge University Press), in which he contends that there is little empirical evidence to support the modern economic maxim that higher government spending or higher taxation necessarily deters economic growth.
In his new book, Professor Lindert examines, among other things, levels of taxes, public investment in education, transportation and health care, and social transfers such as Social Security. In so doing, he concludes that there is a contradiction between conventional economic wisdom and the evidence:
“It is well known that higher taxes and transfers reduce productivity,” he writes. “Well known – but unsupported by statistics and history.”
He finds that high spending on such programs creates no statistically measurable deterrent to the growth of productivity or per capita gross domestic product. As many nations in Europe built welfare states after World War II, they continued to grow faster than the United States, a nation with low social spending.
Read the entire review. As the United States confront the prospect of higher public spending on such programs as health care and education, Professor Lindert’s book appears to be a timely resource for addressing the economic and social implications of such spending.
Color me skeptical. Retrospective statistical analyses are often imperfect, but even if I give the author the benefit of the doubt, the last sentence of the NYT review says it all for me: “Government spending, IF ADMINISTERED WISELY, can have great value for everyone, including but not limited to the especially disadvantaged.” [Emphasis added.] That’s a big “if,” and it encapsulates the small-government mindset in a perfect nutshell.
But I’m still open-minded. I’m a big believer in “outcomes-based” governance, and the NYT review suggests the book is a well-considered set of wisely-gathered statistics. Still, I wonder why the author decided to study only certain taxes (“social programs”), and not the entire tax burden (e.g., defense spending); or why the author dismissed the burdens of decades of defense spending in the WWII and Cold War eras, borne almost solely in the west by the USA; or why the author does not consider things like health and prescription price disparities between the US and other countries to be the equivalent of “foreign aid” to those countries (you don’t think drug companies get the same money per pill from non-US citizens, do you?); or why the author does not consider things like remittances, which American families send to their foreign relatives in unparalleled amounts.
And like your previous entry on this blog, regarding the educational environment in Finland, I wonder whether the author has considered ethnic and cultural homogeneity as a factor. Forgive me if it’s crude to say so, but I’d imagine a country comprised entirely of tall blond blue-eyed people (or any ethnically-similar group) easier to “administer wisely” than one of constantly inflowing immigrants.
I marvel in great awe that this country is able to retain its top position in just about every international statistic depite the massive internal social differences our population has in comparison to the ethnically stable countries of Europe. I apologize if my American Exceptionalism colors my view, but whenever someone tells me there’s a reason other countries are doing something better than us, my snake-oil detectors start to ring, ever so slightly. This book will surely go on my wish list, but I’ll be reading it in the brightest light I can find.