OwlBear: How can we reduce the size of government without causing another great depression?
The government has grown too big and needs to be reduced in order to stop the spiraling deficit. But how can this be done without causing another great depression?
The government is the largest employer in the US, millions of people are employed by it. When its size is reduced by any significant amount, people must be laid off and spending must also be reduced.
However, with the government laying so many people off, two things will happen; the tax revenue the government receives from their salaries will be eliminated, and those newly unemployed people will sharply reduce their spending. With less taxes coming in, the government would have to cut spending even more, further reducing its workforce and spending. With hundreds of thousands of newly unemployed people sharply reducing their spending, businesses will have to start laying people off to remain profitable, resulting in further reduced spending and reduced tax revenues.
The other part of the problem is cutting government spending. Unlike the public, the government spends its money almost entirely on US goods and services. Cutting that spending will reduce the business that government contractors receive, forcing them to lay off a lot of people, resulting in reduces tax revenue (requiring further reductions in spending to prevent greater deficit spending) and still lower levels of public spending.
In a nutshell, cutting the government hurts the economy, which causes further government cuts to be required in order to stay ahead of the deficit, which further hurts the economy, and on and on in a vicious cycle. Is there a way to bypass this, or are we going to have to tighten our belts, grit our teeth and make do until the economy eventually resets itself and recovers…if it ever does?
Answers and Views:
Answer by Influence of Bastiat
you may find your answers in Free Market Economics. https://mises.org
I believe Carl Marx tried to answer this question.
At bottom, government, no matter big or small, supports two core functions:
(1) provide a reliable, predictable framework for transactions / actions of individuals that impact the greater society
(2) provide a reliable, predictable framework for transaction between and among private individuals
So you have a government employing persons in two capacities… first to support the ability of government to deliver 1 & 2 above (this is the overhead, the stuff like police to enforce laws, IT departments that support government function, legislators and staff to study issues and build the actual interaction models in the form of laws), and second, you have government employment that delivers specific benefits to people who play by the rules of the framework, i.e., the “carrot” of a social security check, a park to play in down the street, a subway/bus/transit system, roads to drive on, etc. … these are complements to the government’s “stick” of fining/jailing/exiling/killing you.
Inherently, a government where the “overhead” of its own operations outweighs the social gains from the relational frameworks that it is able to implement will, inevitably, be rejected by its citizens and fail. This is when you have to “reinvent” just what model you have for governing – do you require everyone to have a government employed inspector following them around 24-7 to make sure they aren’t breaking rules, or do you accept gaps in the system.
A government that is delivering lots of carrots to its people in exchange for their desired behavior is basically micro-socialism. This activity crowds out private participation in the system and reductions in these areas should not cause a massive social breakdown to the extent that you have gotten the private party relationships part of the equation right.
Marx basically said, hey, you know, the traditional system where the governmental framework is that rich make the rules and get first preference on advancements, and the overhead of supporting that governmental framework is born by the poor, who, incidentally, derive a nil benefit from the system, is going to implode in class struggle culminating from time to time in revolution. The analysis applies not just to a rich-vs-poor system… think of a continental-colony system where the colonists eventually revolt (e.g., no taxes without representation, etc.) In essence, this would hold that the baseline from which the success of governments must be measured is anarchy, or zero government.
Then someone went on to say, hey, you know, we can speed up these paradigm shifts if we make it very clear to the proletariat that they will do better under a new system, so lets give them lots of carrots. Enter the big government association with socialism.
So, without getting further into the whole problem of why, due to basically the failure of information flows and reputation based accountability in an anonymized “jumbo” nation where individuals cannot readily distinguish between signal and noise, you can’t scale down to an “unsocialized” reality where private parties build the roads, maintain the army, mow the grass in the park, etc., the answer is that the way to reduce government without causing another great depression is to have a civil war / revolution.
Answer by simplicitusROTFL.
I think you are right in noting that we couldn’t reduce the size of the U.S. government _significantly_ without causing another Great Depression, but unlike you, I don’t see this as a problem.
The U.S. used to have a standard of living that was twice as high as anywhere else in the world. Now, countries such as the Netherlands and Switzerland have higher median incomes
https://economistsview.typepad.com/.a/6a00d83451b33869e20133f44756f7970b-popup
they and the Scandinavian countries have higher standards of living. All the northern European countries have higher economic mobility
https://voices.washingtonpost.com/ezra-klein/2010/08/research_desk_investigates_how.html
Their workers are better educated, etc.
Is it an accident that they have such good results with a significantly bigger government (as a percentage of GDP) than the U.S.?
The idea that we have to cut the size of government in order to improve the economy is a joke.
If all you are concerned about is the deficit, then the problem is easy to deal with. The current deficit is mostly a cyclical deficit – it disappears when the economy recovers.
At that point, all you need a mix of small tax increases and small spending cuts – nothing major enough to cause a recession, much less another Great Depression.
The real deficit breaker down the road is health care costs:
https://obsidianwings.blogs.com/obsidian_wings/2010/11/tell-me-why-were-going-broke-again.html
Unless we get them under control, nothing else is important enough to matter. If we do get them under control, then the rest is easy.
The Health Reform bill was a step in getting health care costs under control. But it was only a first step.
If you want my simple and easy first step for cutting government spending in the long term (the only one that counts for the deficit) it is publicly funded day care for every child:
A huge cost to the American economy and to government budgets is dealing with the large number of criminals. The costs include:
– Losses from direct criminal behavior
– Costs of the legal system and incarceration
– The costs of security for households and firms
– The opportunity costs of having so many people not productively employed
etc.
Any actions that reduce the likelihood of people turning to crime is likely to pay off big time. And when there is the fringe benefit of a better-educated work force, mothers who can work instead of having to stay home with the kids, etc. the payoff to government provided day care is huge.
https://trib.com/news/local/article_9b4ec84a-f761-501b-b202-77463481fd5b.html
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