Let’s start with two basic facts:
• Governments in all thriving, prosperous countries tax/spend 25–50% of those countries’ GDP (averaging around 40%).
• Governments in non-prosperous countries — those that haven’t suffered a recent crash in the numerator/GDP — are all below that range.
There is not a single thriving, prosperous country that does not tax at these levels, or engage in massive quantities of redistribution. Not one.
For me, this raises the conundrum:
If policies eschewing such redistribution are so economically efficient — as claimed by libertarians/conservatives/Republicans/neoclassical economists — one would expect at least one country to have emerged that eschews those policies, and to see that country surge ahead of all the rest.
It hasn’t happened. Not once.
So it’s easy to jump to the post hoc ergo propter hoc conclusion:
Redistribution is necessary for a prosperous country to emerge and thrive. It is at least a necessary (though of course not necessarily sufficient) cause of that prosperity.
But of course you can argue the opposite causation:
Prosperity causes bigger government.
I see two possibilities there:
1. Government services are “normal goods” — as people get more prosperous, they want more of them. Giving people what they want is not a bad thing.
2. The growth of government is an emergent property of a prosperous economy, and is not actually an expression of, does not provide, what individuals want. It just happens because of the inherent dynamics of the system. (Dynamics that are easy to imagine but that I won’t describe here.)
#2 is, I think, the the argument that libertarians would make to explain the correlation between government size and prosperity.
I don’t know how to adjudicate in any definitive way between these two conclusions, or between [one of them] and the redistribution-”causes”-prosperity conclusion.
Given some correlation (necessary to even assert causation), the only way to convincingly demonstrate causation is to tell a coherent and convincing story about the process by which the causation happens. That’s what I did in my first Angry Bear post (well, you can judge for yourself how convincing it is).
Absent any definitive way to decide, for the time being I’m going to stick with the first-blush conclusion suggested by the correlation, and supported by my theories of causation:
Larger government and a significant dose of redistribution are necessary for a prosperous, modern country to emerge and thrive.
Cross-posted at Asymptosis.