Thursday, December 15, 2011
Posted by dkuehn at 11:12 AM
In this graph that I made on the St. Louis Fed website, we have government employees divided by population in blue, with the scale on the left, and government spending divided by GDP in red, on the right. Any thoughts?
A lot of the narrative we are still fighting out today about government first got written in mid-century, when the role of government in society was changing rapidly (something that's quite clear from the figure). My view is that free people in a free society did what free people do: they evaluated how they wanted to live their lives and acted on it, and the market and democratic forces that allow for self-regulating orders to emerge from the interaction of free agents generated a new order, which has been fairly stable since around the early 1980s. In the 1980s the whole processes slowed down, universally recognized excesses resulting from the growing pains of mid-century were cleaned up as the years went on, and the system stabilized.
That's what I see here, and I think people who act like we're on some trajectory dating from mid-century are muddying the analysis. I think they would be less confused if they realized that emergent orders aren't always libertarian orders.
The red line is a little trickier, of course, because neither the numerator nor the denominator are as stable as the blue line. In addition, the numerator and denominator of the red line have a short term negative relation, while the numerator and the denominator really only have a long term positive relation. Most of the gyration in that red line after 1980 is attributable to the business cycle and fiscal policy. Once you recognize that, I think the red line tells the same story as the blue line of transition to a new order.
Going forward, we may see another transition related to health care. We may make the transition to socialized health care that Europe made earlier, and that will cause another blip up to a new equilibrium. I'm personally one that hopes that doesn't happen - I hope we can invest in health research and provide a safety net without socialization. But we'll see what happens.
Barely anyone alive today really lived in the old equilibrium. Many people alive today lived during the transition to the new equilibrium, and the new equilibrium itself. I haven't even lived in the transition - I've only lived in the new equilibrium. I rather like it, I don't think it's unreasonable, and I feel a little put off by people who tell me I don't like freedom because I won't relent and demand the sort of world they want to live in. I recognize I'm demanding the same thing of them, and I accept that I am, but they never quite seem to recognize that's what they're demanding of me.