What is the proper size of government?

Ilya Somin’s book, Democracy and Political Ignorance, ends with a strong thesis statement. Political ignorance is a serious weakness of democracy, but we can reduce its dangers by limiting and decentralizing the role of government in society.

The government that governs least is not always best in every way. Yet it is the form of democracy least vulnerable to political ignorance. Democratic control of government works better when there is less government to control.

But we don’t have to imagine what America would be like with a smaller government. We can just look back at America throughout its history up until 1932.

The steamboat Helen McGregor, Capt. Tyson, on her way from New Orleans to Louisville, stopped at Memphis, on Wednesday morning, February 24, 1830. She had been lying at the wharf about thirty minutes, when one or more of her boilers exploded, with the usual destructive and melancholy effects. The loss of life by this accident was, at that time, unprecedented in the records of steam navigation. In the bustle incident to the landing and receiving of passengers, a part of the deck near the boilers was crowded with people, all of whom were either killed instantaneously, or more or less injured. No person in the cabins was hurt. The number of those who perished at the moment of the explosion is variously estimated at from thirty to sixty. As many of them were strangers whose homes were far distant, and whose bodies were never recovered from the water, into which they were projected, it is very plain that an accurate account of the number of the victims is not to be expected. (Lloyd’s Steamboat Disasters)

Small government means no safety requirements or inspections. Feedback devices to bleed off excess pressure (called governors or regulators, hint, hint) were still in the future.

The 19th century was dominated by the slavery debate. It paralyzed the Federal government and led to the projection of state power over other states through the Fugitive Slave Law, for example. We were unable to avoid the Civil War, massive loss of life and economic disruption.

Towards the end of the century, we saw the rise of monopolies, trusts, and company towns that strangled the free market and freedom to contract with coercive business practices. Patent medicines were peddled from town to town without concern for whether they worked the cures they were touted to produce.

Finally, the capital markets ran right off a cliff in 1929 under the influence of speculation in a new form of financial instrument – the mutual fund. The markets had always been lurching back and forth between runs on banks to crashes of the stock exchanges, but this Great Crash and subsequent Great Depression brought to a close the era of small government in America.

Promote the general welfare

The Preamble of the U.S. Constitution says that among the chief purposes of the Federal government are “provide for the common defense, promote the general welfare…” and these are specifically repeated in Article 1, Section 8. The quick review of one hundred years of history from 1830 to 1929 shows that the small government version of the Federal government active during that period did a spectacularly bad job of promoting the general welfare.

But what about the free market? Didn’t unfettered market capitalism solve the nation’s problems? No. Instead, the market was captive to various interests, including slavery. The capital market careened from ditch to ditch as speculators touted the high technology of the day – canals, railroads, telegraph lines – that ended in bankruptcy after bankruptcy. Far from protecting the country in the absence of a robust government, the markets could not even protect themselves.

Small and limited government is clearly a danger to the economy and nation it is meant to protect and promote if it is too small or too limited. So how do we ‘right-size’ government?

The proper size of government

If ‘small’ isn’t the answer, what is? How do we decide on the proper size of government?

One answer is that the proper size is zero. Various idealist philosophies and economic systems hold to a belief, unsupported by evidence, that human society doesn’t need government, and should move towards such a state.

While there is nothing to support such a belief in history, psychology, or group behavior let’s be charitable and just say that this is probably an ‘unstable equilibrium’. If by chance it was achieved, any perturbation would force society away from this state.

Another view might be that government should be a certain absolute size larger than zero, but not growing or changing as society grows and changes. For example, Congress is now fixed at 2 Senators per state and 435 Representatives. It doesn’t matter if the population grows or the economy grows, those numbers are fixed.

In the area of sports, the number of umpires or referees on the field is also fixed, but so is the number of competitors. For sports with complicated rules, the number of ‘regulators’ on the field can be 25% of the total participants.

While this might work for sports and legislators (and some think it doesn’t work) it obviously doesn’t work for meat inspectors, VA doctors, or weather scientists. Our government needs for these jobs varies with the economy, warfare, and the climate.

Most people accept that the size of government should somehow be proportional to the size of the nation. Here again, we can ask what is the constant of proportionality and what is the variable or variables we should use.

In Political Ignorance Somin usually refers to the ratio of government spending to GDP. He also at times refers to the complexity of government, noting the number of cabinet level departments and independent executive agencies.

The US currently runs a ratio of all levels of government spending to GDP of about 36%. During the response to the financial crisis, this was as high as 41%. For comparison, the ratio was about 7% in 1900 during the small government era.

Smaller economy, bigger government

Somin at times praises other, smaller countries for running capable democracies. He doesn’t present any data on political ignorance in these countries, however, so it is hard to see what the real argument is. Indeed, Luxembourg, Belgium, and Denmark all have higher government to GDP ratios than the US.

chart1502810830616

As the above chart shows, the US Federal government is already one of the smallest in the world relative to the size of the economy it controls. Switzerland is the only appreciably different government, and the difference between the US and Switzerland can be explained in large part by differences in military spending. Indeed, looking at this image it can reasonably be asked if the US government is still too small.

Exponential growth

As noted earlier, the ratio of all-levels government spending to GDP was 7% in 1900, compared to around 36% today. We might reasonably ask if the constant of proportionality is not, in fact, constant. Even taking account of war spending, is the ratio changing consistently over time, and if so, why? And is this a good thing?

One reason the ratio might be changing over time is that we’ve chosen the wrong variable. There are many variables that grow exponentially over time in a growing economy, instead of linearly. The idea of exponential value growth is commonly termed Metcalfe’s Law.

The implication is that as the economy grows, more and more of that growth takes place in the government sector. The total economy continues to grow, but the government is an ever increasing share.

For some people, this might bring to mind smothering and sclerotic bureaucracies that shuffle paper but achieve nothing. Certainly, that is a danger. But it isn’t inevitable.

Regulation of the Body (Not) Politic

As a counterexample, let’s take a look at the growth of regulation in genetics.

Some genes code for the direct production of a protein, the working chemicals of a cell. Since the beginnings of evolution, all cells use the same basic suite of proteins. It is this fact that allows us to trace the genetic relatedness of species.

When the human genome was first being mapped, the expectation was that it would code for up to 100,000 separate and distinct proteins and that these proteins would be what distinguished humans from other living things. It was therefore quite a shock to find that the human genome, as large as it is, only coded for about 25,000 proteins – the same basic repertoire as other animals.

We eventually found that what was different about humans was the gene regulatory networks of the human genome. Humans have hundreds of cell types as adults, and hundreds more exist as intermediate stages between the one cell type we all start as and the end product.

In each of these cell types, the same basic protein manufacturing is turned on or off in varying ways. Neurons build the machinery of synapses, stomach cells build other secretion functions. The big differences are not the proteins, but the regulations of the proteins.

This tremendous regulatory scaffolding allows humans to have large bodies of many different cell types. We couldn’t be who we are without the regulatory apparatus growing more important than the basic protein apparatus. Even the most basic one-celled animals, such as yeast, have ‘operons’ – genetic switches that regulate the production of proteins. The difference between us and yeast is a more sophisticated regulatory network, not some unique protein.

Going even further back into evolutionary time, bacteria have much simpler regulation of genetic copying than eukaryotes, such as plants and animals. The result is that their genetic code is copied with mistakes much more often. Bacteria can use this (“it isn’t a bug, it is a feature!”) to change rapidly in the face of environmental stress, such as anti-bacterial drugs. But when building a body of several trillion cells that has to last 100 years copying errors really are a problem.

Copy errors are corrected (or prevented) by systems that don’t create protein. These genetic regulatory systems are ‘takers’, not ‘makers’. If the human body was run on small government principles, we would still be bacteria.

Novelty

It is also possible that instead of scaling on the number of things (GDP) or the number of connections (Metcalfe’s Law), the government scales on the number of types of things. Every innovation brings with it new cases and distinctions to be made, new kinds of behavior. A recent case had to answer the question of whether sending a text message urging suicide could be considered manslaughter.

Another aspect of novelty is the satiation of previous needs. If a government can help its citizens be well fed and avoid contagious disease, why not move on to avoiding pollution and obesity? We set new expectations of government. Entirely natural, but leading to growth in government nonetheless.

But no simpler

Albert Einstein is supposed to have said, “A theory should be as simple as possible, but no simpler.” I think this applies to government, specifically the size of government, a government being the embodiment of a political theory. Based on the examples given above, it is reasonable to expect that government will scale nonlinearly with some core aspect of society. This means that government may start small in a simpler time and less complicated society, but will grow – should grow – as that society grows and becomes more complicated. This is as close as we can get to answering in a blog post, “What is the proper size of government?”

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