Is the Welfare State Crowding Out Government's Basic Functions? An Update.

• Author: Patton, Sydney

What should the proper role of government be? The question is an old one, surely dating to the origins of human societies. In today's world, views range from anarchy to totalitarian socialism, with most people preferring a role for government between these extremes. Since the twentieth century, government' s role in most Western societies has expanded, with this expansion rationalized by (purported) market failures (Bator 1958), the Great Depression, and the subsequent Keynesian Revolution, which stipulated the need for government policies to stabilize macroeconomic fluctuations. (1)

In the United States specifically, the tide of history is on the side of expanded government. Robert Higgs (1987) documents the increased role of government from the late nineteenth century through the 1980s, focusing in particular on the crises of the two world wars and the Great Depression as impetuses for larger government. Taking a longer view, Alan Greenspan and Adrian Wooldridge (2018) trace the economic history of the republic from its origins, telling the story within the broad contexts of productivity, creative destruction, and politics. The latter expands to dampen the downsides of creative destruction, and, like Higgs, Greenspan and Wooldridge find that the Progressive movement and the New Deal "put an end to the era of laissez-faire" and ushered in a "much more activist government" (25).

In an earlier issue of The Independent Review, Jody W. Lipford and Jerry Slice (2007) appealed to Adam Smith and his landmark work An Inquiry into the Nature and Causes of the Wealth of Nations ([1776] 1976) as a benchmark of the proper roles of government in society. Smith argued that government's roles, though vitally important, must be limited to three: national defense, the administration of justice, and the provision of public goods. Examining national and state/local government expenditures, Lipford and Slice found that the share of government spending going to the duties of government that Smith advocated was declining, while the share of government spending on social welfare was increasing.

In this paper, we extend the Lipford and Slice analysis of estimates of spending shares for the national government through 2024 and for state and local governments through 2016. We find that the trends Lipford and Slice documented more than a decade ago have continued unabated. This finding reiterates the central question that Lipford and Slice raised in their paper: Will government expenditures on social welfare crowd out expenditures on the functions of government that Smith deemed essential to a well-functioning country?

We begin by looking briefly at...