Government Size and Prosperity

Examining the effect government spending and size (defined in multiple ways) has on Economic Growth and well being. Too little and markets can’t form and stability and confidence cannot be maintained. Too Big and wealth is extracted from the economy and funneled into various places less effective to growth. The key is the quality of policy and spending, not the quantity.

No government whatsoever (virtually non existence) to virtually none have low levels of growth. A solid, strong, stable government provides the best examples of growth and prosperity. Overwhelming taxation and government provide slower growth. Once again, a moderation seems to be the best course of action, but many people can’t even accept that. They just bitch that taxes are theft as though that settles the argument.

After growth has created a certain level of prosperity and living standards, other things simply become more important to societies in general. When you are starving and living in a tribal world, just being able to food and cloth yourself is the most important thing. When you live in a world where there are apples stores and infrastructure, growth can have diminishing returns in the face of other competing interests such as job security, equality, justice, safety, leisure time, education, and family values.

Many important factors to human well being are not captured by GDP alone. Many social ills, not reflected in market signals, occur in high growth countries that threaten the well being and standard of living provided by prosperity alone.

Growth is by far not the only measure of well being for a society.

So while it might be temping for one to say “A country with 3.11% growth is better off than a country that has 3.10% growth” this is far from necessarily true. If the growth in the “faster” growing country goes only to those at the top and to nearly no one else, while the growth in the “slower” growing country is more broadly shared, the latter may be a more desirable place to live than the former. This is why after a certain level of development, many countries are willing to sacrifice a certain level of growth for other important things. Because we live in a world where not everything is captured by market signals.

Much more to do, but the links to start are here.

Examples of Japan. 

Examples of the Asian Tigers.