Governments Have Gotten Bigger
Many People Are Mad (And Some Are Paranoid)
It seems like the last 22 years, starting with 9/11, have continuously required herculean efforts by governments of the world. Despite the governments’ good intentions, their firefighting efforts have not always been met with widespread sympathy. While people welcome the financial support that comes with crises — the American Recovery and Reinvestment Act in 2009, the CARES act in 2020, regional bank rescues in 2023 — they object to money going to financial institutions, growing government debt and certain restrictions on their freedom, especially during Covid. A growing minority seems to be convinced that central governments have embarked on a nefarious plan to use every crisis (or even generate one) to disenfranchise them from their right of self-determination. Covid restrictions left many people literally insane, supported by a cottage industry of pundits and politicians.
First, a coalition of Western nations embarked on a 20-year war to fight Al-Quaeda and the Taliban in Afghanistan. 125,000 soldiers[i] (of whom 3,200 lost their lives) “protected our freedom at the Hindukush” at a total cost of about $780B.
In 2003, a smaller coalition of allies (US, UK, Australia, South Korea, Italy, Poland, Australia) extended the war to Iraq, deploying 180,000 troops (90% from the US) at the peak in 2006. Commensurate with the size of troops, 4,725 lives were lost. Iraq proved to be a dangerous and inhospitable country and the wisdom of that war was questioned by many people, even in the military. The numbers on spending vary widely[ii], but direct military spending only slightly exceeded expenses for Afghanistan (about $800B) — multiples of the Bush government’s initial projection of $50–60B. So much for accuracy of government budgeting.
In December of 2007, the world went into the Big Financial Crisis, first slowly and then at full speed:
The financial effects of the Great Recession were similarly outsized: Home prices fell approximately 30 percent, on average, from their mid-2006 peak to mid-2009, while the S&P 500 index fell 57 percent from its October 2007 peak to its trough in March 2009. The net worth of US households and nonprofit organizations fell from a peak of approximately $69 trillion in 2007 to a trough of $55 trillion in 2009.
Estimates for the bailout cost in the US vary widely, ranging from a government profit of $96B (ProPublica tracker) to actual spending of $498B (Prof. Deborah Lucas, MIT Sloan) to $16.8T in “economic cost” (Forbes magazine). For comparison, US GDP for 2023 is projected at $26T (in current US$), which is the total of all spending in 2023 — by government, consumers, and businesses, minus imports.
The following decade was marked by relative calm and consistent efforts to overcome the long-lasting aftershocks of the financial crisis — until the world got hit by Covid. A government that had pledged to reduce its size had to step in with the CARES act and other programs — $3.3T under Trump and then a $1.8T top-up under Biden. Although the US economy contracted by an unprecedented 31.4% in the 2nd quarter of 2020, unemployment only climbed to 5.4%. Not far behind, the European Union member states dished out Euro 2.4T to businesses and consumers to keep everyone afloat. The universal willingness to accept government money — whether legally or illegally — confirmed the old saying of “everyone is a socialist in a crisis”.
Some of that money is getting blamed for today’s global inflation which led central banks to increase interest rates to 20-year highs — to most people’s strong disliking. Russia invading Ukraine in February of 2022 exacerbated the problem, especially for Europe. And I haven’t even touched the topic of climate change here.
This is an almost uniquely economic Western World view, and for the purpose of my story I am leaving out the many other aspects of the big crises of the last 20 years. There are collective experiences in Asia, Africa, Latin America, or Oceania that differ somewhat or a lot from ours. The Middle East has experienced suffering and deaths that far outnumber our victims. Chaos persists in some of those countries due to our ill-conceived strategies, as we know now.
“May you live in interesting times” is supposedly an ancient Chinese curse, but it may also be a Western invention from the 20th century. Wherever it originated, so far we have lived through very interesting times in the 21st century.
Economic outcomes
When the US government (or any other one) spends $500B to avert a crisis, it’s a cost to the government but it comes with benefits to the immediate (i.e., companies like banks or manufacturers) and subsequent recipients (i.e., companies’ employees, customers or shareholders). Usually, those $500B would increase our GDP by the same amount, unless that money flows into the reconstruction of foreign landscapes that were destroyed by our wars.
Some spending has the potential to increase the wealth of the nation. We have estimates for multipliers — for instance, $1 of the 2009 American Recovery and Reinvestment Act led to 64cts in additional consumer spending[iii]. The government could also decide to buy 1M NFTs of stoned cats for $800 each, and while even that would raise GDP short term by $800M, it would probably not have a positive multiplier long term.
The “economic cost” of crises (i.e., Forbes estimate of $16T cost of the BFG) is a vaguely defined concept, and it may include all sorts of estimates, assumptions, and opportunity cost on a societal level, such as “how high would our standard of living be if none of this had happened?”.
The United States and the European Union have both enjoyed decent economic growth in the period of 2002 to 2022 (2.0% per year for the US in real terms[iv], and 1.4% for the European Union of 27 countries):
Sadly, the European Union experienced almost all of this growth in the period of 2002 to 2008 and saw complete stagnation in the next 14 years. Some of this is due to statistical forgery in earlier years (i.e., Greece) and a prolonged recovery from the European debt crisis of 2009/2010.
There is a good indicator that the US’s steady growth and current economic prosperity is partially owed to government largesse (each US president to a different degree[vi]): Central (federal) government debt in % of GDP shows the correlation:
Would the US be better off with less government debt, or would it be more like Europe then? Even poorer European countries tend to offer pockets of high quality of life (Greece), whereas poorer US states (Mississippi) often bring a collection of miseries with them (i.e., low life expectancy, high poverty rates, low level of education, crime etc.). GDP per capita in Italy is half of the US, but a low income goes a long way there, and the food is excellent.
I don’t know the answer — but the US level of debt shows signs of unsustainability, unless we want to go down the way of Japan (224% government debt/GDP), a country that has lived with complete stagnation for the last 30 years, but people still love it.
People are angry about many things
The role of government has increased in the last 20 years, because the markets couldn’t fix it on their own. In some wildly Darwinian form, life would have gone on without government invention — the Taliban would have continued to run Afghanistan (they do it anyway now), Saddam Hussein (born in 1937) would have died of natural causes by now; J.P. Morgan might be the only surviving and thriving commercial bank in the country today; excess mortality from March 2020 to February 2022 would have been somewhat higher than 1.17M (and pharma companies would now deliver the first FDA approved Covid vaccine to willing patients); we may or may not have experienced inflation, and Russia would rule Ukraine as they did for 72 years until 1991.
One problem with this is that nobody — left or right, conservative or progress, liberal or illiberal, uneducated or educated — wants the government to remain absent in battle. As a society, we are not prepared to accept the loss of our standard of living, of lives on a large scale, or a disruption to the supply of goods that comes from a globally interconnected economic system.
Unfortunately, many people need to see widespread damage to society before acknowledging the need for a rescue, and some people will even deny the existence of damage in the face of 1.17M excess deaths[vii].
The other problem is that people like to pick from the menu of interventions and would like to design each intervention according to their personal preferences:
- Punish Al-Quaeda in Afghanistan, but don’t get involved in nation building
- Protect the bank deposits, but don’t provide money to failing banks
- Fight Covid, but don’t mandate masks or vaccination
- Provide financial support to businesses and the unemployed, but don’t increase government debt (or taxes)
- Ensure low gas prices
- Maintain American hegemony in the world, contain China, but tolerate Russian aggression towards others
- Keep central government small and nimble
- Don’t interfere with our lifestyles (as in choice of cars, homes, guns, travel, education etc.)
Hence, there are many arbiters of government intervention, and there is no shortage of critics who claim to know that all government action was a series of willful mistakes with one objective — to deprive citizens of their freedom and impose a new social order — like this guy who was obviously left traumatized by Covid[viii]:
The motive force of Brownstone Institute was the global crisis created by policy responses to the Covid-19 pandemic of 2020. That trauma revealed a fundamental misunderstanding alive in all countries around the world today, a willingness on the part of the public and officials to relinquish freedom and fundamental human rights in the name of managing a public health crisis, which was not managed well in most countries. The consequences were devastating and will live in infamy. The policy response was a failed experiment in full social and economic control in most nations. And yet the lockdowns are also widely considered a template of what is possible.
People fear for their freedom
“Just because you’re paranoid doesn’t mean they aren’t after you” (Joseph Heller, Catch-22).
As Isaiah Berlin wrote, freedom has at least two dimension: freedom from and freedom to. As much as we would like, there is no unlimited freedom, not even in New Hampshire (live free or die is the official state motto), otherwise our societies would cease to exist[ix].
As I wrote before, strongly held opinions come in packages. Rare is the person who was against mandatory Covid protections who approves of Western support of Ukraine. It goes without saying that such people are no friends of (even controlled) immigration and are no advocates of climate protection measures. Strangely, maintaining a regular diet of red meat seems to be a heartfelt concern too.
In all of us, there is a psychological resistance to sacrifices in the face of unknown or unknowable risks or such that we don’t want to know about; to the inconvenience of fighting something that may not affect us personally, and the intrusion of being forced to make sacrifices — like tolerating a needle prick, or wearing a mask, or seeing a share of our taxes finance the defenses of a foreign nation. For some people, one leads to another and both are reinforcing their aversion.
That is not to say that there isn’t the potential for overreach, in the words of two of my favorite writers:
George Will in the Washington Post: Under the Leninist brutality of dictator Xi Jinping’s “zero-covid” policy, a single covid-19 case could cause the lockdown of a city of millions, with devastating economic consequences.
Janan Ganesh in the Financial Times: In cast of mind, the Democrats are less Marxist than most parties of the left. They tend not to believe that our species is on an ordained path towards something and (the more grandiose conceit) that we can somehow know where we are on that course. This is changing, though. Even mild US progressives now say, as though reading from some Hegelian flowchart, that we have come to the end of a stage called Neoliberalism and are now proceeding neatly to the dialectical counterblast.
Unlike other people, I have no desire to be the arbiter of government power and size. There is no way of knowing what the appropriate size of government is. My inkling is that the size and complexity of our challenges — from deteriorating demographics to climate change — necessitate rather more than less attention by government (and a competent one). I am skeptical of catchy, simplistic slogans, like “tax filing on the back of an envelope” or “government is not the solution but the problem”. But I am convinced that overly broad and forced changes to society go “against the grain of humanity (Adam Smith)” and have led to plenty of horrible outcomes in the past century.
[i] “The Costs of War to United States Allies Since 9/11”, Jason W. Davidson (2021), Watson Institute, Brown University
[ii] Harvard Kennedy School estimates the total cost, including the impact on the US economy, at $3T
[iii] Federal Reserve Bank of Richmond, Econ Focus, Jargon Alert — Fiscal Multiplier, Q4 2018
[iv] Based on 2012 prices — real growth rates vary quite a bit, depending on which base year is chosen
[v] https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2022&locations=US&start=2002
[vi] +10% points under Bush, +34.7% points under Obama, +27.7% points under Trump and +6.8% percentage points under Biden so far (when the prospective increase of 2023 is included)
[vii] Interestingly, this was not the case during the 1930s polio epidemic: Remote learning during the 1937 polio epidemic in Chicago was necessitated by the absence of a polio cure, coupled with its high contagiousness. As a result, school openings were postponed, and students were required to remain at home. Over 300,000 students in grades three to eight received their education through radio broadcasts. According to David M. Oshinsky, a history professor at NYU, “The public was horribly and understandably frightened by polio. There was no prevention and no cure. Everyone was at risk, especially children. There was nothing a parent could do to protect the family. I grew up in this era. Each summer, polio would come like The Plague. Beaches and pools would close due to the fear that the poliovirus was waterborne. Children had to stay away from crowds, leading to bans on movie theaters, bowling alleys, and similar places. My mother gave us all a ‘polio test’ each day: Could we touch our toes and put our chins to our chest? Every stomach ache or stiffness caused a panic. Was it polio? I remember the awful photos of children on crutches, in wheelchairs, and iron lungs. And returning to school in September, seeing the empty desks where the children hadn’t returned.” (From the Twitter account of Historic Vids)
[viii] Clayton J. Baker, MD from the “Brownstone Institute” — Brownstone Institute plays an essential role in preventing a recurrence by holding decision makers, media elites, technology companies, and intellectuals accountable. This is especially true given the ubiquity of tech censorship. In addition, Brownstone Institute hopes to shed light on a path to recovery from the devastating collateral damage, while providing a vision for a different way to think about freedom, security, and public life.
[ix] John Locke in his “Second Treaties of Government” (1689) developed the concept that is at the foundation of most of our constitutions: Men being, as has been said, by nature all free, equal, and independent, no one can be put out of this estate and subjected to the political power of another without his own consent, which is done by agreeing with other men, to join and unite a community for their comfortable, safe, and peaceable living, one amongst another, in a secure enjoyment of their properties, and a greater security against any that are not of it. This any number of men may do, because it injures not the freedom of the rest; they are left, as they were, in the liberty of the state of Nature. When any number of men have so consented to make one community or government, they are thereby presently incorporated, and make one body politic, wherein the majority have a right to act and conclude the rest. For, when any number of men have, by the consent of every individual, made a community, they have thereby made that community one body, with a power to act as one body, which is only by the will and determination of the majority.
