Hi all. A little change of pace from the coffee mug guy today. I've been reading Peter Lindert's Growing Public: Social Spending and Economic Growth Since the Eighteenth Century again. It's a troubling book that kicks economic received wisdom in the teeth, and I am puzzled at the lack of attention it's gotten in the blogosphere. (Two posts of Tyler Cowan's, here and here.) Why is it such a troubling book? Well, here is Lindert's seventh of his nine conclusions:
The net national costs of social transfers, and of the taxes that finance them, are essentially zero. They do not bring the GDP costs that much of the Anglo-American literature has imagined. Accordingly, differences in those costs play almost no role in either the rise or the deceleration of social spending's share. No Darwinian mechanism has punished the bigger spenders.Readers of The Economist know that one major theme in the Anglo-American literature is that welfare kills economic growth. It's widely used to explain Eurosclerosis (as opposed to, I dunno, core-periphery issues in EU policy), and it's become something of a conservative-libertarian shibboleth in the United States. "There ain't no such thing as a free lunch", or TANSTAAFL, a phrase the influential Missouri-born science fiction author Robert Heinlein countrified from the writings of the economist Alvin Hansen. Turns out there might actually be a free lunch. Lindert's regressions are pretty good, unlike a lott of ideologues I could name. I suspect much of the silence has to do with Lindert's interpretive framework, which follows Albert Hirschman's little book, Exit, Voice, and Loyalty, and is rather different from the simplified models of public choice theory and class interest that many people, either consciously or unconsciously, use. There's some food for thought for this US election year as well. As Lindert comments,
Nor is the puzzle strictly international. Within the United States since the 1960s, social transfers have taken a rising share of state product, and the variance in their generosity has also risen -- and has been positively, not negatively, correlated with the level and growth of state product per capita. How can the generous states, like Connecticut, New Jersey, and California get away with giving out more generous welfare and other transfers year after year? Why haven't they grown more slowly than other states? Why haven't businesses deserted them, leaving them with fewer firms and more welfare families?Like I said, I'm surprised at the lack of commentary Lindert's book has received on the Internet. More on it later.
Here are Lindert's nine conclusions, from pages 20 and 21 of Growing Public: 1. There was so little social spending of any kind before the twentieth century primarily because political voice was so restricted. 2. The central role of political voice is shown by an exceptional case. Both Britain's relatively high poor relief in 1782-1834 and its cutbacks in 1834 and 1870 fit the changing self-interest of those with voice. 3. Similarly, just noting the interests of those with voice helps to explain Chapter 1's education puzzles: Why did Germany and laissez-faire North America lead the way in tax-based public schooling, and why did Britain lag behind in the nineteenth century? How did the United States remain a leader in educational attainment, yet end up ranked about fourteenth in students' test scores? Again, the concentration of voice was the enemy of education. 4. The great advance of social spending since 1880 is explained partly by the same political-voice motif, partly by population aging, and partly by income growth. Roman Catholicism was a negative influence on taxes and transfers before, but not after, World War II. 5. Postwar welfare states developed more fully in countries where the middle and bottom ranks traded places more and were ethnically homogenous. 6. The same forces that explain the growth of social spending until the 1990s carry implications for the future of social spending in all regions - in the affluent OECD countries, in the transition countries, and in Third World countries. In Western Europe, the political power of the elderly and the generosity of their public pensions have already matured and will fade. The social transfers that aging societies have supported will not decline as shares of GDP, but the generosity of pensions per elderly person will decline. Support for the elderly will also be under pressure in the formerly communist countries. Among prospering countries in the Third World, however, pensions will probably become more generous as income grows. 7. The net national costs of social transfers, and of the taxes that finance them, are essentially zero. They do not bring the GDP costs that much of the Anglo-American literature has imagined. Accordingly, differences in those costs play almost no role in either the rise or the deceleration of social spending's share. No Darwinian mechanism has punished the bigger spenders. 8. That large social programs have cost little in practice is consistent with the rise of European unemployment since 1970. Differences in social insurance did play a role in the OECD differences in unemployment over time and space, but only a partial role. Furthermore, the loss in output was less severe because those who remained out of work tended to be less productive workers anyway. Therefore any percentage loss of output tends to be much smaller than the percentage of jobs lost. 9. Two general principles seem to explain why the welfare state does no net damage to GDP per capita and why welfare states will not collapse. The first is that high budget democracies show more care in choosing the design of taxes and transfers so as to avoid compromising growth. The second is that broad universalism in taxes and entitlements fosters growth better than the low-budget countries' preference for strict means testing and complicated tax compromises.