State Shows Government Can Shrink

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RALEIGH — I am a fiscal conservative. I consider it to be a high priority for policymakers to reduce the size of government.

A good measure of progress toward that goal is to look at government expenditure as a share of the overall economy. Is it realistic to expect that proportion to fall over time? Some say no, including some conservatives who would welcome smaller government but simply don’t think it is politically possible in today’s world.

There are reasons for skepticism, to be sure. Once a spending program develops a political constituency, it can be exceedingly difficult to reduce or eliminate funding. Its beneficiaries are a discrete group with strong incentives to know what they are getting and to protect their income.

The taxpayers who foot the bill may be more numerous, but in a legislative context that’s not necessarily a plus. While the total cost of the program may be large, the cost per taxpayer isn’t. Lacking personal financial incentives to work against the expenditure, or to join an interest group to do so, taxpayers get out-lobbied.

This kind of collective-action problem in government finance is challenging, to say the least. But it should not lead to undue pessimism if you are fiscally conservative. In the real world, government doesn’t always get bigger. In recent years, in a number of places, it has actually shrunk.

One of them is our own state of North Carolina. I recently compared the state’s General Fund operating budgets to gross domestic product for every year since 1997. After bouncing around within a fairly narrow band, the proportion surged right before the onset of the Great Recession in 2008-09, then snapped back. From 2010 to 2017, it went down by 9 percent and is now at its lowest level in at least two decades.

Because we are talking about a fraction, both the numerator and the denominator are explanatory factors. Fiscal discipline as practiced by the Republican-led General Assembly has certainly played a role. So has growth in the denominator, North Carolina’s economy.

Setting aside partisan differences, constitutional limits and other institutional safeguards can deliver victories for taxpayers against powerful spending lobbies. For example, states and localities are more fiscally responsible than Washington because most of the former have balanced-budget requirements and limitations on the issuance of government debt, while some offer additional tools to executives such as item-reduction vetoes.

Pessimists who think government can’t be shrunk must also confront evidence to the contrary from recent international experience. For a Regulation magazine article, Southern Methodist University professor Ryan Murphy examined government spending in 24 industrialized countries from 1980 to 2015. “The idea that government spending cannot ever be reduced is not supported by the analysis,” Murphy wrote, as the results differed substantially by country and spending category.

With regard to the size of government, as with any other political dispute, no victory is permanent. Perhaps North Carolina’s future leaders will try to go on a spending spree. I will do my part to stop them, comforted by the knowledge that they aren’t destined to prevail.

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