Living with Leviathan: Public Spending, Taxes, and Economic Performance.

• Author: Brady, Mark
• Position: Book review

* Living with Leviathan: Public Spending, Taxes, and Economic Performance

By David B. Smith

London: Institute of Economic Affairs, 2006.

Pp. 187. 12.50 £ paperback.

David B. Smith's Living with Leviathan examines how public spending--and the taxes required to finance it--affects a country's economic performance, especially the level and growth of gross domestic output (GDP). The author focuses on the United Kingdom and offers several policy prescriptions to reduce the role of government, which, if adopted, would in his estimation increase economic growth. He states that his arguments "come from an unashamedly classical liberal or libertarian direction" (p. 22), which he identifies with F. A. Hayek, Margaret Thatcher, and Tony Blair's public persona in 1997. As many writers have pointed out, however, most notably Simon Jenkins in Accountable to None: The Tory Nationalization of Britain (London: Hamish Hamilton, 1995), Thatcher privatized and centralized at the same time, so her policies were by no means unambiguously classical liberal in character.

Smith explains that during the twentieth century, public spending, including transfers, both in absolute terms and as a proportion of GDP, grew hugely for all developed economies, especially for the member states of the European Union since 1960. Furthermore, this growth and its inevitable concomitant, great increases in taxes, have been accompanied by a correspondingly large growth in economic regulation.

Unfortunately, Smith's analysis of British government policy, its ideological foundations, and its economic consequences leaves much to be desired. Moreover, his defense of private property and free markets is stale and weak. His arguments about the proper size of government have not advanced beyond those that the Institute of Economic Affairs (IEA) presented forty years ago. Indeed, in some respects they are less compelling than the arguments the IEA once made. Smith accepts without any serious discussion the idea that the state has a crucial role in the provision of "public goods," which for him constitute a large share of GDP. The irony is that his advocacy of smaller government rests on undebated assumptions just as much as does the advocacy of bigger government that he criticizes so vigorously, if not very successfully. Thus, the exponents of big government and the exponents of little or no government will find his book equally unconvincing.

Citing econometric research by Antonio Afonso (who has become "Alfonso" in this book)...