Who wants small government?

A few years ago I was giving an address at a function - a Rotary lunch, I think - and there were questions afterwards. One of the questioners said that I seemed happy with the current state of affairs, but he was alarmed at the growth of government. He wanted to get back to simpler days when there was a free market and not all this regulation that was strangling business. What was wrong with a free market, he went on. People talked about it, but  the truth was we didn’t have one.

‘How free do you want it to be?’ I asked him. He didn’t have an instant response, so I followed my question up with another. ‘I mean, what about hand-guns? Would you be happy for them to be sold over the counter? Or babies?’

He was almost shocked. That wasn’t what he meant at all. It turned out that he didn’t have a clear idea of what it was he wanted, either. Like many people who talk about those matters he hadn’t studied the issue in any detail, but he thought he knew what was wrong.

This little episode would be familiar to Ian McAuley and Miriam Lyons, who have written Governomics. Can we afford small government? published by Melbourne University Press. I have a lot of time for Ian McAuley, who lives round the corner from me and worked at the same university. He writes well, especially about economics. Miriam Lyons, his co-author, is an experienced and able writer herself. Anyone who wants to understand the debate about ‘small government’ will find this a useful primer.

Such a reader will also need to go to the IPA and other supporters of the small government nostrum, because Governomics has a clear and explicit point of view: the authors indeed think Australia would be better off with a larger public sector. I read it from cover to cover, and emerged thinking they had made a decent case, but rather over-egged it. There are choices to be made and Australia has gone one way. Sweden, for example, does it differently, but the situation in Sweden is very different. Sweden has a cradle-to-grave social welfare system, and Australia does not. Australia leads the world in voluntary activity on the part of its citizens. Which is better? I’m not sure. ‘Path dependency’, the way in which past decisions constrain future ones, is an important aspect of the way different nations tackle the same subjects.

McAuley and Lyons seem to be believers in ‘climate change’, and the subject appears again and again as an instance of the important role for government.

Economics is about ensuring that scarce resources are put to their socially best use, and it is becoming increasingly obvious that the capacity of our ecosystems to support human life is a crucial and over-exploited resource. We may not be able to predict the exact consequences of two or five degrees of warming, for example, but most rigorous projections show that it would be costly in the extreme.

I think this is a good example of over-egging, and there are many others. On the evidence, people over the world live longer, are better off, eat better and are bringing more land into national-park use than was the case than was the case thirty or more years ago, while the planet is greener than it was, too. There has been no discernible warming over the past decade and a half, despite continual increases in atmospheric carbon dioxide. I don’t know which ‘rigorous projections’ the authors have in mind, but I trust that Lord Stern’s is not one of them. In fact, the general circulation models on which all these projections rest have proved incapable of predicting global temperature over the past ten years. I don’t think there are any projections of any kind that make great sense.

Indeed, the message of the book would be the same had the authors not talked about ‘climate change’ at all, and it would be more persuasive. Their strongest argument, it seems to me, is that human societies need  to create a balance between natural selfishness and the common good, and modern democratic societies have developed mechanisms to bring this about. One of them is the regulated market, and its outriders. No society known to me has a truly free market. Large private organisations, as we have seen very recently in the case of Volkswagen (and I would add NGOs like Greenpeace and their fellows), need regulation on behalf of society, otherwise they can become overweening, and behave badly.

The authors are in favour of the public service and believe it has been belittled, to everyone’s disadvantage. I agree. The authors have a real thing about economic inequality. I don’t share their view, and I have written about inequality before. Inequality in income is only one form of inequality, and not necessarily the most important form. But economists, understandably, see it as central. The authors make the good point that there is as much regulation by the private sector as there is by government, and they might have gone on to explore the reason — which I think is to do with our historic culture, arising out of the circumstances of a convict beginning. As I’ve said somewhere else, Australia may well lead the world in regulating, and one can get extremely tired of it, wherever it comes from.

The title of the book brings together economics and government, but not all government is about things economic. In the next post I want  to talk about other aspects of ‘big’ government that are only lightly touched on in this book — the use of government by one group of citizens to get all other citizens to behave as the first group wishes. You can see this in areas like racial vilification, gay marriage, carbon tax, people with disabilities — indeed, all the so-called politically correct areas (I make no comment here on the substance of the issues).

What happens is that one party, in this case the ALP, agrees to do certain things if it is elected, gets into power, sets up mechanisms, usually a department or a major section of one, and then tries to enforce the new order. There is a lack of real support for the new order, which is likely to be the desire of a small minority, however passionate the desire is. It is the use of the moral authority of government by small groups that, I think,  underpins some of the discontent about ‘big government’.

Despite my criticisms, this is a book that is worth reading even by those who are sure the authors are wrong. I have my disagreements with them, but I learned a lot, too.