Today is Tax Freedom Day. This should draw attention to a fascinating paradox - that the powerful intellectual case for shrinking the state has only rarely
translated into successful political programmes.
This intellectual case is not just theoretical. Asian countries like Japan and South Korea show us that relatively small governments are consistent with equality and good health and educational outcomes. And a recent paper by Ludger Schuknecht and Vito Tanzi has found that countries that did cut spending a lot generally benefited from doing so. They say:
Countries [that cut government spending] did not seem to have suffered from these large reductions either in a macroeconomic sense, or in terms of lower values for socio-economic indicators. On the contrary, ambitious expenditure reform coincides with improvements in fiscal, economic, human development and institutional indicators.
And yet, despite all this, there have been remarkably few ideologically-driven cuts in government spending in developed countries. Granted, as Tanzi and Schuknecht show, cuts in spending have been more widespread than you might imagine. But these have generally been prompted by economic crises rather than by intellectual conversion.
What's more, in the UK, public spending has largely resisted ideological efforts to cut it. During Thatcher's premiership, Tax Freedom Day actually got later. Falls in the ratio of taxes to GDP have come as much through rises in the denominator as cuts in the numerator.
So, why has the powerful intellectual case for smaller government not led to a similarly powerful political case?
One possibility lies in the dynamics of pressure group politics, as described by Mancur Olsen in this classic. Self-interested and narrowly focused pressures for higher spending defeat widespread but less intense pressures for lower spending.
The problem with this view is that some countries have been able to slash spending. This alone, say Tanzi and Schuknecht, "contradicts the pessimistic view that political economy constraints render ambitious reforms virtually impossible."
Another possibility is that government spending, like private consumption, is habit-forming. Maybe voters see high spending as the risk-free option, and just aren't brave enough to support cuts, unless some crisis jerks them out of their complacency.
A third possibility is that the people calling for limited government have simply failed to make their case well. In one sense, the very existence of big government shows that this is trivially true.
But what exactly have they done wrong? My theory is that they've failed to address the case for egalitarianism. Rather than show that small government is consistent with equality - because it allows tax cuts or higher benefits - they have preferred to rubbish the notion of equality. In doing so, they have given the impression - which is wholly incorrect - that limited government is merely the self-interest of the rich.