Government Spending Continues No Matter What

(Note: The following was posted as a blog entry on the Students for a Free Economy Web site. SFE is a nonpartisan campus outreach project of the Mackinac Center that promotes the benefits of free markets, civil society and individual liberty.)

Let’s say we believe government needs to provide a certain set of services to the public, services that cannot be handled any other way but through confiscatory taxation and government management.

Let’s also say that as people increase in wealth and standard of living, the number of things the government must do increases. (I know, this seems counter-intuitive, because as people gain wealth they can do more things for themselves, but just play along.)

Let’s also say that as population grows, government needs to increase its level of involvement as well, and may even need to do more proportionately because more people add new challenges. (Again, put aside the counter-intuitiveness of this assumption. I know it reversed the concept of economies of scale, but forget that for now.)

OK, so we are now assuming that:

Government must provide a certain number of services that cannot be provided by voluntary means;
The level of government services must increase as the economy grows;
The level of government services must increase as the population grows.

But is the converse also true? If certain government services begin to be offered by the private sector, should government stop providing them? If the economy begins to shrink, should government services also shrink? If the population begins to shrink, should government services as well? Let’s see what we do in to our personal lives...

Say you pay someone to mow your lawn every week. A new neighbor moves in, and he decides to mow your lawn for free, because he likes using his riding mower so much. Would you continue to pay for a service already being provided by your neighbor?

Say you pay for a cable TV plan that offers 300 channels. Now, your personal budget shrinks — maybe because your insurance rates go up, you get a pay cut or you can't work as many hours. Would you continue to purchase the luxury cable package until creditors came knocking at your door?

Finally, say you pay $400 a week on groceries to feed your family of five. Two of your children move out. Do you now spend $500 on food for just three, or do you reduce your spending as you have fewer mouths to feed?

The answers to all of these are obvious in our personal lives. We adapt our spending habits based on need of services, ability to pay and quantity needed. Government does not.

Even if you accept our three (rather dubious) claims for the need of government growth, how could you accept the inability of government to shrink when the opposite conditions exist? How could you accept the need of government to grow during such times?

Public Choice Theory explains how government, unique among institutions, will grow not only when there is a perceived need for its services, when economies grow and when populations grow, but when these conditions are reversed. New spending programs are created when government revenues are large because, "We can afford them." They do not go away when revenues decline because, "We cannot afford to lose them." (Even though they were more or less luxury services added only when government had more money than it knew what to do with.)

Examples of this abound. The state owns a ski facility and a conference center; local governments own golf courses. Luxury expenditures are everywhere in government. This is the natural result of budgets flush with money. Yet when the private sector provides equivalent services, when the revenue stream slows with the economy, and when the population "served" by these services declines, government still pays for them and often increases such expenditures.

Ronald Reagan seemed to understand this tendency when he said, "The closest thing to eternal life on earth is a government program."

#####

Isaac M. Morehouse is director of campus leadership for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.