Today’s believers in small government face challenging circumstances: stopping further growth of government in the coming decades will be close to impossible
America’s government spending remains somewhat below the developed-world average. But this change is not just a matter of catching up; the target is moving. Government spending as a share ofas a whole has consistently inched higher in the six decades since the club was formed in 1961.in 2019 was the same as it was in 2006, Angela Merkel’s first full year as chancellor. But the stable level was also a pretty high one. And German attempts to impose frugality elsewhere were short-lived.
Governments have not grown more powerful by all measures. Bureaucrats no longer, as a rule, set wages or prices, nor impose strict currency controls, as many did in the 1960s or 1970s. In recent decades the public sector has raised hundreds of billions of dollars from privatisations of state assets such as mines and telecoms networks.
Governments and bureaucrats are at least partly self-interested: “public-choice theory” says that unrestrained bureaucracies will defend their turf and seek to expand it. A good recent example would be central banks. Their mandates typically compel them to control inflation and see off bank runs. Yet in recent years, with a cursory and often unconvincing nod to those mandates, central bankers have taken on fresh responsibilities.
Others have extended Baumol’s ideas, arguing that government intervention inhibits productivity growth. A recent report by Steven Teles, Samuel Hammond and Daniel Takash of the Niskanen Centre, a think-tank in Washington,, warns of a vicious cycle in which subsidies for services the supply of which is constrained by regulations, such as housing and education, push up prices, creating demands for further subsidies.
While other forces behind the growth of government can be taken to be pretty steady, the demographic factors are strengthening. Over the next 40 years the share of the total rich-world population over the age of 65 will rise by half. The share of the very old, who according to British data demand four times as much health care per person per year, will grow far more rapidly.