August 19, 2012
The Washington Post devoted a major front page article to the results of a poll that it sponsored along with the Kaiser Foundation on attitudes of the public to the role of government in the economy. The poll purported to find large divides between most Democrats and Republicans on the proper role of government in the economy and whether people preferred bigger or smaller government.
The piece (presumably following the poll) fundamentally misrepresents the role that the government plays in the economy. It implies that “big government” means a government that taxes and/or spends a great deal, ignoring all the ways in which government interventions determine flows of money that do not involve direct taxation or spending.
To take an obvious example, government granted patent monopolies raise the price of prescription drugs by close to $270 billion a year compared to the free market price. In terms of its impact on the economy and people’s lives this has roughly the same effect as if the government were to raise taxes by $270 billion a year (more than $3 trillion over a decade — keeping pace with the growth of the economy) and use the money to pay drug companies to develop drugs.
Similarly, the high dollar policy that the United States has pursued since the Clinton years has the effect of destroying jobs and lowering wages in sectors of the economy (most importantly manufacturing) that are exposed to international competition. The high dollar policy is a major factor redistributing income from the bulk of the workforce to those who have the political power to largely protect themselves from international competition (e.g. doctors and lawyers).
The government also transfers tens of billions of dollars a year to the financial sector through the “too big to fail” insurance that it provides at no cost to the major Wall Street banks. This governmental support provides the basis for many Wall Street fortunes.
The WAPO piece fundamentally misrepresents the importance of government in the economy by reducing it tax and spending policy. The impacts of these policies are trivial compared with the impact that government policies have in structuring markets. It is simply wrong to imply that a government is “small” by virtue of the fact that it does not tax or spend much compared to the size of the economy.
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