The big government is bad for productivity

The coronavirus pandemic and its devastating effect on the US economy has ensured that big government—the one that’s already spending some $4.7 trillion in the current fiscal year—is poised to get even larger. As in past crises that led to massive government interventions, new initiatives will largely stay in place once the business downturn ends to the long-term detriment of the economy, despite the “temporary” intentions of these programmes.
Ronald Reagan once likened a government program to “the nearest thing to eternal life we’ll ever see on this earth.” A look at history suggests that once a new program or a new agency is established, with few exceptions, it stays established, regardless of whether it was intended to be temporary, whether it’s still needed and whether it actually solved the problem it was created to address.
Before the 1930s economic collapse, there was no federal safety net. State and local governments as well as charities generally looked after the less-fortunate, there were few pension systems in the US and Washington’s role in providing assistance was minimal. The federal budget in 1929 amounted to about $3 billion, or 3% of total output, a fraction of today’s $4.7 trillion budget that accounts for some 21% of gross domestic product. That number will surely grow as federal spending surges, the economy shrinks and tax
collections fall.
The Great Depression marked the start of far-reaching and long-lasting federal government involvement in the economy as Washington strived to blunt the impact of the economic free-fall. The New Deal saw the establishment of numerous “alphabet agencies,” many of which still exist but only bigger and more costly.
The CCC (Civilian Conservation Corps), TVA (Tennessee Valley Authority), REA (Rural Electrification Administration), WPA (Works Progress Administration), FDIC (Federal Deposit Insurance Corp.) and the SEC (Securities and Exchange Commission) were among some of the first New Deal agencies. They were followed by the establishment in 1935 of Social Security, which has grown into a $1 trillion behemoth that is now at risk of running out of money. The first food stamp programme was established in 1939 and ran for four years, followed in 1964 by the establishment of the program that today is called the Supplemental Nutrition Assistance Program and costs close to $70 billion annually.
The 1960s Great Society efforts saw tremendous increases in federal involvement in many areas of American life, almost all of which have survived to this day, starting with the establishment of Medicare and Medicaid, whose costs continue to multiply. These programs eventually widened to include child nutrition, education, rural and urban development, affordable housing, air and water pollution levels, consumer protection and the availability of arts funding. Meanwhile, the Departments of Transportation and Housing & Urban Development were created during the Johnson administration along with the Environmental Protection Agency.
Disdain for government in general was a big factor in Reagan’s election, but despite his declaration that government was the problem and not the solution, the vast federal bureaucracy remained intact during his presidency and has only grown. The Departments of Energy, Education, Veteran’s Affair and Homeland Security are entrenched, and the Consumer Finance Protection Bureau survives despite being a top target of Congressional Republicans.
Meanwhile, Social Security and Medicare benefits have been greatly expanded, and many federal programs created over the past 90 years remain in existence, some with changed mandates and others with questionable results. The REA succeeded in supplying electric power to farms and rural areas, but vestiges of the agency remain in place today.
—Bloomberg