Size of Government

In a study done in 1988, Philip Grossman investigated the size of the American government and its effect on economic growth using data for 1929 to 1982. He found that:

Government spending would initially contribute positively to overall economic growth but that the decision-making processes of government would lead to incremental expenditures that result in an inefficient quantity of public goods. Grossman’s analysis confirmed his hypothesis that there was indeed a negative relationship between growth in government and the rate of economic growth. [1]

On the flip side, Richard Vedder and Lowell Gallaway found that downsizing government had a positive impact on the economy as well as its overall growth:

Among their many findings were that large transfer payments had negative consequences for economic growth, that the moderate downsizing of the federal government between 1991 and 1997 had resulted in increased rates of economic growth, that the marginal effect of government activities is negative, and that further downsizing of government would be growth-enhancing (Vedder and Gallaway 1998). [2] In fact, Vedder and Gallaway recommended reducing the size of the US government to 17.45% of GDP in order to gain sizable and permanent increases in GDP. [3]

Now I can understand the arguement coming from social activist who believe spreading government programs and services into areas of social welfare and increased income subsidization can be rationalized as a public good, especially if it achieves greater social progress. In other words, advocates of bigger government argue that society could handle higher tax burdens in order to achieve more social progress. But let's be honest, that arguement is another kettle of fish as the data is overwhelming, in that, bigger government does not lead to increased rates of economic growth. However, there are still those who cling to the notion that we as a society are willing to give up some economic growth in order to achieve greater social progress. That's fine because at least these advocates realize that increasing the size of government does lead to a decrease in economic growth, not to mention, economic progress.

Which brings me to today's mini cabinet shuffle in New Brunswick where the premier announced a few additions and changes. Now don't get me wrong here, it wasn't the fact that the Liberals increased the size of government (widening responsibilities and adding stand alone ministries and staff) that bothered me the most, it was the manner in which they tried to spin these changes as sound fiscal policy leading to self-sufficiency. Judge for yourself:

"Today, I'm proud to put before New Brunswickers the team that will make the changes we need to put our province firmly on the road to a self-sufficient New Brunswick," Graham said. "We will soon be unveiling our government's action plan in response to the Self-Sufficiency Task Force report. Today we have realigned our cabinet to support the four pillars of this transformation: our government, our relationships, our workforce and our economy."

Let me get this straight, is the premier actually trying to suggest that increasing the size of government while making it [more] socially active will indeed be a positive thing for the future of economic growth and development in NB? Well, it completely goes against the entire arguement which I made above, but let's give him the benefit of the doubt here and take a look at what was actually shuffled around.

First of all, there were two new ministers, Eugene McGinley and Wally Stiles, that were sworn in. Not that I am a huge expert on the subject of NB politics, however, I think it's safe to say that either one of these guys were huge advocates of economic development in the past. Not to mention, they're heading into portfolios that intervene and increase income subsidization to those no longer participating or contributing, on a full-time basis, to the economy.

So what about the ministries? At first glance, none of the portfolios mentioned, especially community non-profit organizations, appear to be anything more than your typical reaction to increased bureaucracy (i.e. Bradshaw Commission). Not exactly a pillar to self-sufficiency, IMHO. But wait, there is more.

Other ministries mentioned in the press release were Wellness, Culture and Sport, Seniors and Housing, Status of Women and Family and Community. Now did I miss something? How are any of these ministries, most of which have to do with social aspects of society, a pillar for economic development? As I see it, adding to the size of government to achieve greater social balance (in an already bloated bureaucracy) will only lead to one thing, higher taxes and greater reliance on government.

It's far from putting the province firmly on the road to self-sufficiency (whatever that means?).

Endnotes

1. Grossman, Philip J., Federalism and the Size of Government, Southern Economic Journal, Vol. 55, No. 3 (Jan., 1989), pp. 580-593

2. Gallaway, Lowell and Vedder, Richard. 1995. The Impact of the Welfare State on the American Economy.

3. Gallaway and Vedder find that the optimal level of federal government spending is 17.57 percent. ibid.