Governments are bigger than ever. They are also more useless [Because Almost All The Money Goes To Old Age Care and Not Investment]

There’s yet another fake fight brewing in the United States (and across the rich world) about government spending and borrowing. The fight generally focuses on “waste” and “programs” while completely ignoring what is driving the actual increase…which is due to a Very Good Thing – that more people are living longer and are more prosperous than ever!

The Economist had an excellent article framing the issue correctly.

You may sense that governments are not as competent as they once were. Upon entering the White House in 2021, President Joe Biden promised to revitalise American infrastructure. In fact, spending on things like roads and rail has fallen. A flagship plan to expand access to fast broadband for rural Americans has so far helped precisely no one. Britain’s National Health Service soaks up ever more money, and provides ever worse care. Germany mothballed its last three nuclear plants last year, despite uncertain energy supplies. The country’s trains, once a source of national pride, are now always late.

You may also have noticed that governments are bigger than they once were. Whereas in 1960 state spending across the rich world was equal to 30% of GDP, now it is above 40%. In some countries growth in the state’s economic power has been still more dramatic. Since the mid-1990s Britain’s government spending has risen by six percentage points of gdp, while South Korea’s has risen by ten points. All of which raises a paradox: if governments are so big, why are they so ineffective?

The answer is that they have turned into what can be called “Lumbering Leviathans”. In recent decades governments have overseen an enormous expansion in spending on entitlements. Because there has not been a commensurate increase in taxes, redistribution is crowding out spending on other functions of government, which, in turn, is damaging the quality of public services and bureaucracies. The phenomenon may help explain why people across the rich world have such little faith in politicians. It may also help explain why economic growth across the rich world is weak by historical standards.

Governments are bigger than ever. They are also more useless.

In a previous article, they graphed America’s budget.

It’s complicated, but also not. Back in the early 2000s, I remember adults hand wringing about what would happen when all the Boomers retired. Well, they have. It’s here.

The solutions are still well known. Raise taxes, especially the estate tax and investment taxes on rich, older Americans. And reduce insane healthcare spending to normal, peer nation levels.