BENJAMIN: The Trump budget for fiscal year 2018 has been described widely as dead on arrival.
JOHN MCCAIN: We are facing challenges on a level we haven't seen since the Cold War and this
budget is totally inadequate.
BENJAMIN: It attempts to cut only $30 billion from total federal discretionary spending
of almost 1.2 trillion, so one would think that that small a cut would not be difficult
to achieve or even controversial.
But in fact, it is difficult to achieve and that raises an interesting question.
Why is it so hard to cut federal spending or to say the same thing a bit differently,
why does government grow?
One explanation for the increasing size of government is been the fact that government
produces mostly services produced heavily with human capital - policing services, education
services.
Those kinds of services are not affected as much by technological advances, as, for example,
manufacturing in the private sector which has been affected in important ways by robotics
and computer-assisted processes that have improved its efficiency markedly.
The second factor has been a decline in the importance of families, particularly in terms
of providing social insurance for period during which some family members experience economic
downturns.
As the role of families has declined, it is not very surprising that the demand for government
as a source of social insurance has increased as a substitute.
The third hypothesis is the increasing role of international trade as a share of the economy
in the aggregate.
That is increase the effect of exchange rate risk and it's not very surprising to believe
that a demand for social insurance from government is increased as a result of the increasing
risks introduced in the economy by the increasing role of international trade.
Another factor is the effect of rising taxes which has the effect of reducing work effort
but not uniformly across the economy, so those who work less as a result of higher taxes
rationally vote for more redistribution through government as a means of preserving their
incomes in a world in which higher taxes has had the effect of reducing their work effort.
Another factor, ironically enough, is the effect of the increasing size of the economy
which has yielded more specialization, which has a good effect - increasing productivity,
and also another effect, which is more hidden, the increase in the number of interest groups
demanding favors from government.
One factor that I think undoubtedly plays a role is the increasing cost of government
combined with what is likely to be the inelastic demand for government.
In other words, the demand for government that is not very responsive to its cost.
When cost rises, in the context of inelastic demand, the size of government total spending
will grow.
Another factor is the role that bureaucracy is an interest group.
The bureaucracy has a preference for budgets bigger rather than smaller.
As budgets get bigger and more complex, it's more difficult for Congress and Congressional
committees to monitor the minimum cost for the bureaucracy to provide a given basket
of output.
And so as that monitoring cost rises, it is easier for the bureaucracy to hide from Congress
the efficient budget that would be required to produce its required output.
And so the size of government grows because of this preference for the bureaucracy to
hide the cost of government from Congress.
Another factor is the decline in agricultural employment relative to the economy as a whole
as workers have moved from farms into cities into manufacturing, in other words, in the
sectors that is easier for government to monitor, it is easier for government to collect taxes.
And then finally, one factor I think has received insufficient attention is the effect of the
17th Amendment ratified in 1913 which provided for the direct popular election of senators.
Before the 17th Amendment, U.S. senators were appointed by the state legislatures and hadn't
had very powerful incentives to defend state prerogatives.
Once senators were elected popularly, they had much more powerful incentives to respond
to the demands of interest groups.
Those are the hypotheses that relevant literature offers to us.
I think each of them has some validity in terms of explaining why government grows,
although we certainly do not know their relative importance.
One thing that can be noted is that to the extent that we believe that these are the
hypotheses that can explain why government is so difficult to cut, they do not offer
much hope for those of us who prefer to see smaller government rather than larger.
Let us know in the comments what you think about the growth of government and about the
explanations that I've provided.
Also, let us know what other topics you'd like AEI scholars to cover on reTHINK TANK
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