Let’s Debate How To ‘Right Size’ Government, Not How To Make It Bigger

While Congressional Democrats struggle internally over their totally crazy $5 trillion budget buster, and their slightly less crazy $1 trillion phony infrastructure plan, America is getting robbed of the real debate that needs to happen to restore freedom and advance American prosperity.

President Joe Biden and his socialist allies in Congress should not tax Americans more for the Reconciliation Bill. The national debate should not be focused on more spending, higher taxes, and larger government but on the proper size – the “right size” – and functions of government.

Government at all levels in the U.S. has now grown to about 40% of our economy and must be “right sized” to about 20% – to maximize the economic growth rate of our private sector economy.

In 2018 Ralph Romer, an economist at the University of Chicago, won the Nobel Laureate in Economics for his “Romer Rule” examining private sector economic growth of a nation. By dividing the average annual growth rate of a nation into the number 72, he observed, one can determine how long it takes to double the size of the economy.

Applying that rule to Ronald Reagan’s administration when he achieved a 4% annual growth rate it would have taken 18 years to double the size of the American economy. Conversely, when Obama-Biden left office in 2016 the annual economic growth rate they achieved at 1.2% would have required 60 years to do the same. (President Donald Trump had laid the groundwork for a 4% growth rate before America returned to leftist economic policies and the malaise that it produces.)

Biden-Bernie Sanders-AOC and the socialists and Marxists around them are seeking a much larger, more comprehensive federal government that will suppress economic growth. That is not our Founders’ conception of our nation nor do the nation’s voters see it as the American way. In fact, there is no mandate from 2020 to even suggest America wants any part of this new “Great Society Bill.”

It is urgent that we stop the spending and tax increases that are proposed in the bills pending before Congress, Reconciliation and otherwise. We must return to common sense and unleash free enterprise in Washington and across the nation rather than head down this dark road to socialist serfdom and a death spiral of debt.

It is time to review everything government does at all levels and end and/or re-allocate many of those functions. For example, the federal Department of Education is completely duplicative of state, local government, and private sector functions and should be completely eliminated. Government should never compete with private sector providers for services and goods as Biden is trying to do through climate change mandates and his attack on energy independence.

The pathway to smaller, less expensive government is already being charted for us as Californians, New Yorkers, and citizens of other high tax/regulation states move to Florida, Texas, South Dakota, and other “red,” more common sense, traditional valued American states.

Republicans, who have long argued for controlling the size of government but have nevertheless allowed it to expand enormously in recent years, can now stake out the high ground in pursuit of limited government.

The late economist Gerald Scully, who studied the “optimal” or “right size” of government for years, has shown that 35% of GDP (his number in 2008, which has since grown to nearly 40%) is far beyond the 20% he discovered as optimum. Here are the key elements of Scully’s analysis:

• Beyond the optimal size of government, every dollar of government spending is a net drain on the economy.
• Total spending by the U.S. government in 1948 was about 23% of GDP which had grown to 35% by 2008 (now 40%). During that time the average annual growth rate of the economy was 3.5%. If the government had not increased its shares of GDP, the annual growth rate of GDP would have been 5.8% per year or $37 trillion more real GDP by 2004, increasing the average American family wealth by three times.
• Going forward, if spending were reduced to 20% of GDP and tax rates equally constrained, by 2030 real GDP would be double what we anticipate under current spending/taxing plans.

Other economists have urged even lower government shares. After all, total government spending as late as the 1920s represented only 10% of the Nation’s income: 7% for state and local, about 3% for Washington. The allocation of spending authority between levels of government in today’s world has changed. Of the total, probably two-thirds would be national, with one-third state and local. But as Milton Friedman was fond of reminding us, if 10% was the right church tithe, why should government be entitled to more?

Several nations – Ireland, New Zealand, and the United Kingdom – actually shrunk the sizes of their government at some point in recent years. Their private sector economic growth rates, during government shrinkage versus government expansion, were totally consistent with the Scully and the “right size” of government thesis. It is now time to follow suit in the USA.

“Right sizing” government must be our next objective if we are to restore the America we love and cherish, where We The People are once again the driving force and true masters of our nation’s future.

Lew Uhler is founder and chairman of the National Tax Limitation Committee and the National Tax Limitation Foundation (NTLF). Uhler was a contemporary and collaborator with Ronald Reagan and Milton Friedman in California and across the country.

Peter Ferrara served as a member of the White House Office of Policy Development under President Reagan, associate deputy attorney general of the U.S. under President George H.W. Bush, and the Dunn Liberty Fellow in Economics at the King’s College New York.

Joe Yocca is NTLF’s national policy director. A long-time political and policy consultant, Joe served in the California State Senate as chief of staff to the Republican leadership for decades and directed statewide, legislative and congressional campaigns throughout his career.