Running Government Like a Corporation

Former factory site in Flint by Blueskiesfalling

In the wake of the Flint leaded water scandal, we're seeing many decrying "running government like a corporation" or "running government like a business".

It goes deeper than that. The problem isn't just that we've got people trying to run government like it's a for-profit institution with no concern that should be weighed higher than cost savings. The problem starts with that so many of our businesses run that way. It doesn't work for corporations either. At least not in the long run.

Wages account for a lot of the budget the typical businesses. What happens when an employer is consistently stingy with salaries? They have trouble attracting top talent and maintaining morale.

Another big cost is quality materials. What happens when a company skimps on the quality of materials from which to make their goods? The quality of their products suffers, and customers eventually learn to avoid their products.

Then there's research. What happens when a company puts less into research than its competitors? It falls behind and its product line eventually stops appealing to buyers.

The illustrations could go on and on. In so many ways, a business that uses cost cutting and profit maximizing as a large part of its strategy sets itself up for being a short term success that will fold in the medium to long run.

We don't just need to "stop running government like a corporation". We need to stop running government like a mismanaged corporation in which the short-term profits are being maximized to earn big compensation bonuses for the CEO at the cost of the long term strength and stability of the corporation. And maybe just as important, we need to stop running businesses that way too.

Government As The Homeowner, Revisited: To Scrap Or To Invest?

Consider a homeowner who owes a typical mortgage on a house and makes just enough to keep up with the bills and maybe every once in a while treat the family to something nice like a dinner out or a trip to the zoo.

Does it make sense for that homeowner to sell the car he uses to get to work in order to pay down the mortgage faster?

How about if he skips paying for the annual licensing for his field of employment (required for his career) to pay down the mortgage faster?

In order to pay down that mortgage faster, does it make sense for that homeowner to stop buying food for the kids, getting reasonable check-ups and other medical attention as needed, and keeping the house warm enough that the pipes won't freeze?

Should the homeowner cut out all trips to the library for books for the kids so as to save on gas and send bigger mortgage payments? How about toys? Should the homeowner never buy a toy again until the mortgage is payed off, even if it's a just started 30 year mortgage and he has a newborn with no toys beyond a single teething ring?

Does any of that really, truly make sense?

How about investments? Should the homeowner stop contributing a modest sum to his retirement plan and an education savings plan for his kid? Even if both of those investments are expected to have a return higher than the interest on the mortgage?

And if the homeowner can reasonably expect to get significantly higher pay from investing in his career, what then? Let's imagine this homeowner could put $1,000 on his low interest home equity line and get training and certification that on average increases a certified individual's pay by $1,000 a year. Would it be more sensible, rational, and responsible for the homeowner to get this certification or to avoid taking on a little bit more debt?

Our government is this homeowner. Our debt is this manageable mortgage.

When we're at full employment -- unlike now -- there would be no certification we could expect to be a safe bet to increase our income steadily. But we're not there. Not even close.

When we're well below full employment on account of a consumer demand shortfall -- like now -- just about any additional spending we have the government do can typically be expected to add to commerce and help push us that little bit closer to full employment. That means higher revenues. And that's without even focusing it into the most useful spending, which we can and should do to get the most bang for the buck by spending on adding to infrastructure, R&D, and other investments known to build the most revenue.

It should already be an obvious choice. But unlike the homeowner, the government gets an additional win by investing that spending in increasing revenue. Since additional employment means less unemployment, medicaid, and other liabilities, the government reduces its costs by increasing its revenue. That's not just a win-win ... it's a no-brainer. It's stunningly obvious. We should be investing in raising our revenue by engaging some short term spending (preferably including long term investments in that short term spending).

Now if only the budget cutters in Congress could see that.

Updated Job Picture Under President Obama

How's the job picture look under President Obama's term in office so far? Not only did payrolls stop the inherited plummeting but also private sector jobs have strongly, steadily grown since turning around in February 2010. Meanwhile, aside from the Census spike, steady govt cuts -- mainly at the state and local levels -- have taken government payrolls in the opposite direction.

We have here a good, solid private recovery that's impeded by heavy govt cuts diminishing it from how good it'd be otherwise. Below, we can see roughly the hypothetical difference that govt cutbacks (aside from the brief census surge) have made to the overall employment picture by looking at total employment assuming private sector hiring had still followed exactly the path it did and govt payrolls had held steady at February 2009 levels.

The adjusted line likely understates how much it would have helped to avoid the govt cutbacks. After all, those laid off govt workers couldn't buy as many goods and services, so there would arguably have been more demand fueling more private sector jobs and making the private component grow faster if we hadn't had cutbacks. But for the chart above, the only adjustment reflected in the green line versus the blue line is a freezing of govt payrolls at precisely the February 2009 level. A more complete picture of the difference cutbacks made would reflect an estimate of anticipated higher private payrolls resulting from avoiding the govt layoffs.

Our Govt Must Do As We Do

Most of us know what it's like to have to spend money to make money. So why do so many find it counter-intuitive that our nation might have to do the same? We should all know that need from our own lives. Perhaps it's just that our personal vocational spending strikes us as more obvious because we know so directly that we need it.

Oil draining during auto maintenance

We live with many ways we must spend money to maintain our income, let alone increase it. For many, we start by taking out loans for a college degree, but that's only the beginning. Some of us have to purchase training or educational materials every year to keep current. And some must pay annual license or certification fees. Commuters, the vast majority of Americans, must travel to work to keep earning a paycheck, so the car payments must go out every month, the tank must be filled, and the maintenance must be done. Those in snow-prone states must buy shovels and often find ice-melting products an income-preserving investment. Telecommuters have a different set of bills for virtually getting to work, but the costs are no less necessary. Various craftsmen must spend significant amounts on raw materials. Often, the total annual material cost dwarfs the profit from the craft after covering material costs. Most shopkeepers know that story well, as it's a lucky business indeed whose net profits from selling products are significantly larger than the wholesale costs paid year after year.

What's this have to do with our government? Our government's income comes from the economy at large. That economy at large has needs just as we do individually. Commerce grows on better roads and stagnates on worse roads. Businesses thrive on an availability of healthy, qualified workers who can concentrate on their work confident that govt services such as fire and police protection will be there for their homes. And some of those workers are available during the day because after decades of honest work their parents were able not only to retire and get by in a reasonably dignified manner but also with basic medical needs covered. These things cost money. Without them, our nation's commerce would stagnate, reducing tax revenues. We can only maintain our federal income by spending on a variety of national necessities that keep our system of commerce working.

How much spending to make money is reasonable? Individually, that depends on the profession. But the simple answer is: that which at least covers what's necessary to get by but beyond that is not so much we can't profit. With all the attention on our debt, one might think we've been spending more than we can call profit. But there's more than one way to profit. The masters of finance and investment don't focus just on leveraging costs alone but also consider rates of return as well as inflation when deciding where to place bets and for how much. As Ezra Klein pointed out recently, negative real yields on Treasuries can mean "the government is getting paid to keep money safe." This implies that our safe-haven status could -- at least for a while -- mean we're profiting from our borrowing even before considering what we might be doing with that money to increase commerce. But then add in what we can be doing with the money to improve infrastructure, access to healthy, qualified workers, and more. If we do the basic maintenance on our economy plus some efforts at improvement, we should generally expect better growth. If that spending helps national income growth outpace the growth of the debt, what more justification should it need? After all, most of us invest in increasing our own incomes even when it's an ongoing cost.

But how much debt can we manage to juggle to keep oiling the gears? While that's a difficult question to answer, one might consider that historically the full faith and credit of the US govt has been more stable than houses, especially recently. Let's imagine our national govt were looking for a new home loan. We're currently taking what amounts to a voluntary pay-cut with the temporary tax cuts. Given the 2010 GDP of $14.5 trillion and our historical average revenue of 18% of GDP, we should theoretically have had a 2010 revenue around $2.61 trillion. For 2010, playing it safe by using a conservative 28% payment-to-income ratio for affordability, our theoretical govt-as-homeowner loan could have been around $14.5 trillion. In 2010, our debt was $13.5 trillion, around 7% lower than we could have afforded by traditional home purchase standards. And that's not even accounting for the full faith and credit being more solid than houses.

The Second Paradox of Thrift

We generally consider savings good for individuals as a matter of common sense. One would naturally think it would be good for the nation as well. As it was put to me at one point, "But if a household gets ahead by saving, not spending, why don't a million households?" The question requires different answers depending on whether you're concerned with those million households as an aggregate of individual spenders or as a unified spender through a national government.

The traditional answer considering the aggregate of individual spending hails as the paradox of thrift. The typical increase in savings by the average consumer comes via reducing spending rather than from an increased income. Given level income, as one consumer spends less in order to save more, that consumer increases his personal net worth. However, the decrease in spending lowers that individual's contribution to demand. If decreased spending by half the potential spenders is offset by increased spending from the other half, then there's a break even for the overall economy. But if every spender in an economy spends 1% less in an effort to save more, then overall demand for goods and services would be diminished by roughly 1%. When supply and demand happen to be matched, that reduced demand doesn't require as many employees as before to fill the orders. The resulting layoffs mean fewer people can save thus ironically causing reduced aggregate savings from a too aggressive (or panicked) shift towards individual savings.

On the other hand, if we're talking about those million households in the unified sense of a national government, we need to look at a different aspect of the question. At that point, we can shift our focus to that first part about "gets ahead". Almost no household truly ever gets ahead by saving rather than spending in real life. Saving is how households that are already ahead maintain that being ahead. Households get ahead in the first place by spending on tools to increase income (such as job training, education for higher-wage jobs, tools for trades, goods to improve and sell, etc.). Saving foolishly can be far worse than spending wisely.

In that sense that recognizes that certain debts can increase future income by more than the debt, what's good for households can be good for nations. For a nation that's already doing great, saving could do a wonderful job of steadying the already rolling wealth. For a nation that's not doing well, investments in improving the national potential will tend to do much better. In that sense, it's just like an individual. Your high-income CEO would be wise to put enough money into safe investments that he no longer has to have his job to pay the bills and just does it for personal satisfaction. Your broke high-school graduate would be better advised to get an engineering degree on loans than to try to save up from working at a gas station or other low-wage job. A nation in steady growth (or a boom) mirrors the situation of the well-paid CEO or engineer. A nation in low growth (or recession) mirrors the situation of the low-paid laborer who can't quite afford the basic cost of living and will never be able to save up enough to make a difference without taking on debt to achieve a higher income.

Simply put: If you have a high income (strong growth), it is wise to save. If you have a low income (weak or negative growth), it is more wise to spend on increasing your income. The second paradox of thrift: for an individual or nation, you have to already be doing well before thrift makes as much sense as spending wisely.

We Could Pay Off The Debt. But Should We?

We could do it. If we wanted to, we could eliminate the deficit with taxes alone. The real question is whether we should.

Debt in perspective

Yes, you've probably heard that we can't. You've probably heard the claim that the deficit is unmanageable. You've probably heard the claim that the debt is some grand, unapproachable amount that we already can't possibly hope to pay off. You've probably heard the claims that our debt is so high there aren't enough assets or income in the country to cover it.

They're flat-out false. The only question is whether they believe what they're saying or they're purposefully lying.

Here are the numbers from the census data, the treasury, the fed, and the standard deficit projection:

• Number of households in 2010: 118,682,000
• Mean 2010 household income in 2010 dollars: $67,530
• 9/23/2011 current debt: $14.7 trillion
• Projected 2011 deficit: roughly $1.3 trillion
• Household 2010 net worth: roughly $57 trillion

So take those numbers above and we can see that:

• Net worth / household: $480,275
• Federal debt / household: $123,861
• Net worth after US debt / household: $356,414 (far higher than median net worth)
• National income / household: $67,530
• Federal deficit / household: $10,954
• Net income after deficit: $56,574 (significantly higher than median income)
• Deficit / income / household: 16.2%

The particular items of interest here are: 

• $356,414 dollars left over if we were to pay all all federal debt from all household net worth today
• 16.2% as the mean increase required to eliminate the deficit with tax increases alone

As $356,414 is far above the median net worth, most people would say that's far from broke. There would be lots of problems with actually liquidating private net worth, of course, so that's strictly hypothetical. The fact remains, however, that there is enough household net worth in the US to do it and still have quite a bit of wealth. Just because it isn't something we want to do doesn't mean it couldn't be done.

The 16.2% seems like a massive tax increase. But then consider that we've had higher taxes than that before. It wouldn't be all that bad if such an increase were done in a progressive manner. For the bottom 50% of taxpayers, losing 16.2% more of income would be catastrophic. But together they only make about 12.75% of total AGI, so managing without the bottom 50% isn't so hard. For the top 1% such an increase would be easily survivable and still far below what folks with such incomes would have paid in the 1950s and 60s. Based on the AGI's if we taxed the top 1% an additional 40%, that alone would cover over half the deficit. Just for a rough example, if we were to raise effective tax rates by 40% on the top 1%, 15% on the rest of the top 5%, 10% on the rest of the top 10%, 5% on the rest of the top 25%, and 2% on the rest of the top 50%, that would net us an additional $1.38 trillion. That'd be well more than enough to cover the deficit. Whether we want to do something like that or not, the fact remains that it could be done. If we collectively wanted to, we clearly could close the deficit with tax increases alone.

If you don't believe my numbers, please look them up yourself. If you don't believe these basic calculations, please pull out your calculator or spreadsheet and run them yourself. You'll find the same thing. We could cancel out the deficit if we wanted to. And we could pay off the debt if we really wanted to. That's part of why our debt is an international safe-haven investment at very low interest rates. But there's another side to the story. Do we really want to have no national debt?

2010 Intragovernmental Holdings

Of that $14.7 trillion, $4.6 trillion is intragovernmental holdings. Over $2.6 trillion is held by the Social Security trust fund alone. Social Security needs someplace secure to hold that cash till it's needed. We don't want them gambling it on stocks or volatile commodities like gold or oil. Even if the rest of the world weren't seeing lots of instability, U.S. Treasuries are the only reasonable option. That means our federal govt must borrow at least enough to be able give the Social Security trust fund a safe place to invest. The same holds true for at least most of the rest of intragovernmental holdings, many of which are insurance or retirement accounts. We don't want them anywhere less safe; and anywhere else is less safe.

So far, we've identified roughly $4.6 trillion of debt that we want right where it is. It would be senseless to force ourselves to find alternatives less secure than the full faith and credit of our own government for those holdings.

Holders of debt, Dec 2010

The rest? As of the end of 2010, there was $802 billion in pension funds. Shall we tell all the pensioners their funds have to be less secure because our debt hawks don't want us to have govt debt anymore? There's $517 billion held by state and local govts. Shall we force our other levels of govt to engage in risky speculation? Depository institutions (i.e., banks) hold $323 billion. Didn't we already get burned by letting banks increase their risk? Do we really want to go there? Wouldn't that be exactly the opposite direction from where we've been trying to push the financial industry? Insurance companies hold $244 billion. Guess why they've put it into Treasuries ... because they need the stability in order to keep insuring us without entirely relying on risky sources to back up our claims. Then there's another $2,046 billion held among mutual funds, savings bonds, and other investors. All of whom look to Treasuries for low-risk investments to balance out our riskier investments with some safe, guaranteed income. Shall we deny all our investors -- both wealthy folks and the grandmother nearing retirement -- the opportunity to choose additional investment beyond Social Security that's backed by the full faith and credit of our govt? To stop issuing federal debt would be to say, "No, you may be ready to retire and seeking to move your funds out of risky assets, but we're not going to let you have this guaranteed income option." Do we really want to say that? Seriously?

What's that leave? The foreign portion, under a third of our debt. That's the part we could seriously consider. That's the part we could pay off without forcing our own govt institutions, companies, and individuals to shift all of their investments into riskier options. But what does that part mean to us? Foreign investments aren't invested in our debt because of attractive rates to them. Quite the opposite; they could easily choose any number of investments with higher rates. But those higher rates all come with more risk. We're the place nations stow cash in case everything else fails, safer than burying it. It isn't about making money off us; it's about making sure they've got enough money socked away where it is more certain to be available than any other option. It's about stability. That means we're issuing debt at very low rates, lower than ordinary inflation. After factoring for inflation, all the world is literally paying us to hold their money safely for them. Why should we turn that down instead of using it to improve our infrastructure and lower our domestic cost of doing business?

Bastiat's Fallacy In The Parable Of The Broken Window

Frédéric Bastiat

The Broken Window may be the most popular story among today's Libertarians and disciples of Mises. Discuss government spending, and they will almost assuredly bring up Bastiat's parable of the Broken Window as if its mere mention should ward off all thought of govt spending. Unfortunately for Broken Window devotees, Bastiat's bases his conclusion on a false assumption.

For anyone not already familiar with the story, Bastiat presented us with a citizen whose son had broken his window. Bystanders consoled the citizen with the thought that at least some good would come of the broken window in that it would mean business for the glaziers. Bastiat, however, argued that had the citizen not needed to pay six francs to the glaziers to fix the window, then those six franks would have been spent on new shoes or a new book. As such, according to Bastiat's telling, the additional work for the glazier came only at the cost of work for the cobbler, the bookbinder, or some other profession. Bastiat offered up his story as an argument against the trade restrictions of protectionism, although today it is more commonly used as an argument against figures showing an increase in economic activity in the wake of a disaster. It's also rolled out against any govt project on the basis of the opportunity cost of what might have happened otherwise.

Bastiat's fallacy: The six francs would not necessarily have been spent. The shoes might not have been bought. Nor the book. His six francs might well have sat buried in his mattress, his house fell down, and someone built over it. Bastiat and all those who call out "the parable of the Broken Window" depend upon an assumption that does not hold, namely that the citizen must certainly have spent that six francs. Clearly that is not the case. The citizen may or may not have spent the six francs. If they were not spent at that time, the six francs may have been lost or forever stored in a static asset (such as cash or gold physically kept in a safety deposit box). Even if it were spent, there is no guarantee that it would be spent in the region of the window and employ a local cobbler or bookbinder.

The safe or safety deposit box are among many options for static assets representing inactive money for our economy. For a domestic economy, any store of assets outside of that economy (e.g., in a foreign nation) will generally spur no activity whatsoever in the domestic economy while those funds remain outside. If the citizen must withdraw funds from a foreign investment to fix the window and those funds would have otherwise stayed in the foreign investment indefinitely, then activity has been added to the domestic economy. Likewise, funds that the citizen would otherwise have invested in foreign assets can not be said to cause the domestic bookbinder to lose a sale because of those funds going into fixing a window. An event that diverts funds back into the domestic economy has increased the domestic economy from funds that would not otherwise have been put to use in the domestic economy.

In Bastiat's example, this obviously means the son breaking the window did not necessarily hurt the cobbler or bookbinder. That would only be the case if the citizen was sufficiently impoverished by the replacement of the window as to be unable to afford the shoes or the book. That may have been the case for Bastiat's citizen, but will not necessarily be the case whenever a citizen's window is broken by his son. Some citizens will have spare gold in the vault or spare funds in foreign investments that they will bring into the economy in order to replace the window and still get the new shoes or book.

Beyond Bastiat's example, at least some of the funds used to rebuild after a disaster will normally have been sitting in static assets. For the region being rebuilt, it doesn't matter what those static assets were so long as they were not otherwise going to be spent in that region. That's how regions get an economic boost from disaster recovery, such as fixing windows. Of course, recognizing this effect does not mean celebrating the disaster. No reasonable person is happy to see damage just because of the effects of the rebuilding. Among other reasons for non-celebration, the additional activity for repairs will not always be sufficient to more than make up for jobs lost or suspended because of damages. Still, deploring the damage doesn't mean we can't recognize the economic effects of the rebuilding itself.

For govt projects in general, the fallacy shows us that govt spending will generally defy its Broken Window critics and add to the economy so long as the spending draws a sufficient portion from outside the active, domestic economy. Unless too much of the funding comes from taxing those on a tight budget, building a new or expanded road and hiring a construction worker should not be expected to impoverish the taxpayer even before we consider the long term benefit of the road to the taxpayer. Only taxes on those who have the least will necessarily withdraw money from the economy. Upper-bracket taxes can simply mean somewhat less being stored in static assets such as foreign investments that would not benefit the domestic economy anyway. And issuing T-Bills at today's extraordinarily low rates to pay for expanding and improving infrastructure will not tend to divert funds from business investment either. My choice of how much to invest in risky start-ups with high potential return will be determined by my risk tolerance rather than how many bonds the Treasury issues. It's a safe bet that's the case for most other investors too. That risk tolerance isn't likely to increase until we have a credible boost for the economy -- not just some half-hearted nod to the idea. Let's fix some windows. And make those "windows" big infrastructure improvements and lot's of 'em.

The Keynesian Home-owner vs the Austrian School Home-owner

The Austrian School of economics would have us leave our hands off the economy. Get govt out of the picture, they say, and everything will tend to itself better. Let's explore what that would mean from the perspective of a home-owner's lawn.

Under laissez-fair lawn care, no amendments could be applied to the lawn, no fertilizer and not even water. Should there be a drought, the grass will be left to brown. There would certainly be some benefit to this in areas with a water supply shortage, but it could lead to soil erosion if the grass is not replaced quickly enough. If the Austrian School home-owner had pets that left "presents" on the lawn, that raw manure would be left to sit and create patches of dead grass. Through natural secondary succession, soon most of the grass will be replaced by shrubs and trees. Eventually it will become a forest instead of a lawn. While that's great for harvesting timber and for woodland habitat, it's not much good for having space for kids to play in the grass, for a place to set up your grill for the 4th of July (as overhanging trees would be dangerous), or for much else of what most of us want to have and do right outside our houses.

The Keynesian neighbor, on the other hand, does not share the Austrian's faith that a hands off approach is always best no matter what's going on with the lawn. Instead, the Keynesian will consider whether there's some way to help the lawn stay a nice, green area in which to grill, read, work, or play. Depending on his experience -- or means -- the Keynesian will start with some test to determine the health of the lawn. It might be just looking at whether the grass is green and the soil is dark. Or it might involve testing pH and nitrogen levels. When the soil lacks nutrients, opinions will vary among such home-owners whether it is best to use organic fertilizer or manufactured amendments. But most will have studied the options at least enough to know to avoid raw manure, as that will tend to burn the grass. Some will find that all they need to do is spread some extra seed -- perhaps drought resistant varieties -- where the grass is looking a little thin. Some will worry about every little weed, while others will be content to enjoy the dandelion blooms as long as the lawn is more grass than weed. While the occasional such home-owner will experience setbacks, extremely few end up doing their lawn more harm than good. Most will end up with a lush, enjoyable, robust lawn on which their kids may play and they may eat their hot-dogs and hamburgers in satisfaction. Some will even improve their landscape enough to raise the market value of their house.

"But wait,", you might say, "what's this have to do with economics? After all the economy isn't just a lawn." Yes, and there have been metaphors that shot and missed at capturing economic truth. But consider: life lacks perfection. If the base, natural state of humanity were a perfectly functioning economy without government, governments would never have been able to compete with the raw anarchy before that first tiny government. That first bumbling govt meant the group that formed it obviously out-competed neighboring anarchism. Govt is our means to seek the greener economy in which we wish to see our children play. We develop rules that help us succeed.

Beyond that, aside from its competitive ability, govt is our means to push our economy to look the way we want. Without govt, what happens? Some industries left on their own will do the right thing because they're run by someone with a sound moral compass. Others are run by those who care only about wealth. And these -- absent govt -- will do things like Sinclair described in The Jungle and others have recorded elsewhere of the dark days of unfettered industry. Absent child-labor laws, there would again be five year old girls working 12+ hour days in sweat shops. Absent work-safety laws, those same kids would once again very rarely make it to adulthood without being mangled in a workplace accident. Absent food and drug regulation, we would once again have reason to expect not just the occasional problem but rather frequent death and debilitation from our food and the snake-oil that would pass for medicine. These are the dark and dangerous plants that would invade our lawn if it were not for govt regulation and oversight. Were the Austrian School to fully succeed in their nightmarish dream of entirely unfettered markets, we would likely soon see our economic lawn overwhelmed by poison ivy and thorny trees. If we're to have a place to grill safely and for our children to play on fields of grass, we need to tend our lawns.

And as a bonus, it may well increase our property value.

What is Small Government?

What does small government mean? Those calling for massive cuts say we've got big government and they just want us to get back to small government. They say that whoever disagrees with them wants "big government."

Like pretty much all of my fellow Americans, I want govt to stick to its appropriate role. I want a government that does only what we need it to do. But what if that's what we've got now?

Comparing against other modern, industrialized nations would be one way to put it into perspective. In 2009 we had larger than normal expenditures from stimulus and lower than normal GDP from the Great Recession. That year, we had a GDP of roughly $14,258 billion and total Federal spending of $3,518 billion. That's 24.7%. In the same year, the U.K. central government spent around 32.6% of their GDP. Looking back to the more normal levels of a year that doesn't include stimulus spending, in 2007 our Federal spending was 19.38% of our GDP. That same year, the U.K. central government spent 28.44% of their GDP. That's how the general trend goes. Between 1995 and 2010, the our national govt spending undershot their national govt spending by 8.7% on average.

National govt spending as a share of GDP in the US and UK

The U.K. is far from alone among the other industrialized nations in dwarfing our national govt spending.

Expense (% of GDP) in 2004 from data.worldbank.org

By and large -- though some other countries often run budgets proportionally similar to ours -- we have a relatively small government compared to the other industrialized nations.

Perhaps one could argue that maybe the general trend in the other industrialized nations is to maintain giant governments that dwarf our so-called big government. If that's the case, we should easily be able to find vast, expensive programs that we don't really have any use for in our society ... that few of us would want government to do. Where are those programs?

Shall we cut infrastructure spending and let our already crumbling roads and bridges decay further, making it harder for our businesses to transport products? Shall we dismantle Social Security and allow elderly citizens to starve in the streets? Should we stop investing in the medical research that has helped make our biomedical industry such a large contributor to our GDP? Shall we stop funding education and fail to foster skills needed to compete in the modern global economy? Shall we stop monitoring our food supply so that producers can get away with cutting corners and contamination runs unchecked? Shall we cut billions by stopping payments for police, fire-protection, and border security?

These things are all quite necessary from the government. A modern society doesn't function as well without any of that. When you look at charts showing a much smaller government hundreds of years back in our history, keep in mind that we had an entirely different economy back then. We didn't have the transportation system that we have today. We didn't have a social safety net to make it so an elderly miner could retire rather than just working till he died nor workplace regulations to make it less likely for him to die of black lung. We didn't have such a thriving biomedical industry both making our health better and enriching our nation. We didn't have a workforce capable of designing high-tech products to sell to the rest of the world. We didn't have most of the great things about our modern economy that require government programs to work smoothly and in many cases to function at all. One can't expect the economy of the 21st century to operate with the government spending levels of the 18th or 19th centuries. When we had significantly smaller government, we also drove horse-drawn carts, used outhouses, suffered polio, and couldn't reasonably expect to have a chance of ever retiring. Should we really be basing our idea of appropriate government spending on a time to which we wouldn't want to go back in any other way?

Govt And Job Creation

Someone said, "It's not congresses job to create jobs, the market creates jobs."

It is the govt's job to stabilize job creation. Too much growth can be bad (bubbles, inflation). Too little growth is very bad (unemployment, etc.). When the market is over-performing, we need the government to step in and put on the brakes with rate increases and such to limit inflation. When the market is under-performing -- such as now -- we need the govt to step in and do everything it can to accelerate the economy.

The only time the govt should avoid having an impact is when things are humming along at a healthy pace. We're not there right now.

Someone replied, "I disagree, the free market manages job employment, the bubbles and depressions are caused by the government dicking around with the market. Just like how the government pushed sub-prime lending and artificially dropped interest rates, which helped lead to the housing crisis."

History does not seem to agree. When left to itself, the free market has shown itself to be perfectly capable of creating its own bubbles and depressions (see the "Panic of 1857" for starters, but there are plenty of others).

While it seems convenient to blame the govt for "pushing" sub-prime lending, plenty of get-rich-quick lenders were perfectly happy to gamble before getting any "push" from the government. All many of them needed to dive in head first was to see the pool and get the government to step out of the way ... to deregulate and/or avoid sufficiently regulating new products such as CDOs. Indeed, Fannie and Freddie did not lead the charge into risky lending. Fannie and Freddie came late into that game, after the private lenders were aggressively pushing them to the sidelines of the lending market with their sub-prime feeding frenzy. Fannie and Freddie might have been better off staying on the sidelines, but that wasn't the conventional wisdom at the time. Those voices in the wilderness calling out for caution were marginalized by the private sector zeal for profit. Claiming that they only did it because the government was pushing them is like saying a football team would sit in the bleachers for the entire game if the cheerleaders didn't call out for them to score.  Did govt missteps make it worse?  Probably.  That doesn't mean the private sector wouldn't have formed the bubble on their own.

Yes, the government can take the wrong steps and bungle into making matters worse. But that doesn't change the fact that -- whether specific administrations and Congressional sessions do it well or not -- it is the govt's job to strengthen and stabilize the economy, which generally means job creation.

Should you need proof of the govt working to create jobs in our early history: Among the more obvious examples from way back in history to gain any sort of current renown is the 1798 "Act for the Relief of Sick and Disabled Seamen" passed by the 5th Congress (featuring Thomas Jefferson as President of the Senate) and signed by President John Adams. The primary point of the law was to encourage the growth of American commerce (jobs and wealth) by reducing the loss of that specific labor pool to poor health. It also served as an incentive to join that labor pool by making it easier to get health care as a member thereof. More mariners meant more commerce. More commerce meant more American jobs. Voilà. Good job, 5th Congress.