The modern growth of government springs more from ideas than from vested interests.

• Author: Tasic, Slavisa
• Position: Report

Adam Smith famously argued that the creation of opulence comes in the natural course of things, provided that the state does little more than ensure peace, easy taxes, and a tolerable administration of justice, and later economists have reached a considerable level of agreement that in the normal state of affairs, markets work better when government leaves them alone and focuses instead on maintaining order and administering justice. Robert Barro (1997), in a cross-country analysis, finds that smaller government consumption and the rule of law help economic growth; Xavier Sala-i-Martin (1997) finds that the rule of law and openness of the economy contribute to growth; and Simeon Djankov and his colleagues (2002) show that complex business regulation restrains growth. These studies are empirical, but as Ludwig yon Mises ([1949] 1996) pointed out, there is no need for extensive empirical research to determine how humans respond to incentives. When left alone to pursue their own goals and plans, individuals do well and create prosperity that spreads to everyone else in the society. Institutional structures that enable individuals to follow their personal goals are most likely to result in widespread economic prosperity.

In practice, however, government intervention in market affairs grew in the twentieth century to unprecedented levels and remains persistent. The governments of the developed Western countries started the twentieth century spending less than 10 percent of their gross domestic product and ended it with spending much more-from approximately 35 percent in the United States to more than 50 percent in many European countries. More important, although the share of government consumption stabilized after World War II, the scope of government regulation and government's overall involvement in private choices continued to grow. At the same time, however, in the political realm, democracy blossomed in multiple dimensions. It was consolidated in places where it was formerly fragile, and where it had already existed, suffrage was extended to erase boundaries of race, sex, and property ownership. The development of civil society and mass-media technology worked toward a greater inclusion of the masses in political affairs and enabled information of greater quality and depth to reach an increasing number of people. These changes arguably should have contributed to the improvement of collective decision making and increased government accountability. We might have expected that governments would have answered these developments with improved representation of public preferences and their more faithful translation into formal institutions and policies. All of the changes, however, did not result in a reduction of government involvement in the economy, but rather in an increase of it. Why did this increase happen?

Public-choice theorists have developed a number of useful concepts to explain the motives for government intervention in the economy. At the core of public-choice theory is the assumption that public officials, like other people, respond to incentives and pursue their own interests, which naturally leads governments to shape legislation and policies in ways that maximize politicians' power. Public-choice analysts also assume an uninformed, gullible voter, which logically follows from the premise of the poorly motivated voter, as described by Anthony Downs (1957). The individual cost of voting is greater than the possible benefit of any individual vote, and unless political information is acquired for its own sake, voters do not acquire it because gathering it does not serve their interest. The resulting ignorance allows politicians constantly to cheat on voters not only by being corrupt or shirking on responsibilities, but also by adopting legislation that voters might not want or would oppose if they knew about it. Landmark concepts in public-choice theory--such as log rolling, rent seeking, budget-maximizing bureaucracy, and powerful interest groups (Buchanan and Tullock 1962; Olson 1965; Tullock 1967; Niskanen 1971)--rest on the assumptions that individuals are rational and selfish and that voters are deeply ignorant about political issues.

The public-choice explanation is widely accepted among economists today. A survey by William Davis and Bob Figgins (2009) shows that a large majority of the members of the American Economic Association believes that special interests play a major role in policy formulation. (1) However, although public-choice scholarship explains the role of private interests in policymaking, it fails to explain other important forces that define the structure of institutions. The interest groups and rent seeking that public choice takes on were known long before governments started to grow rapidly. James Madison warned as early as 1787 that "the regulation of these various and interfering interests forms the principal task of modern legislation" ([1787] 1937, 56), clearly pointing to the dangers of interest groups' activities to the operation of limited government. Throughout the eighteenth century and a large part of the nineteenth century, however, the government's role in the United States remained largely unchanged. Predatory interest groups alone, therefore, do not suffice as an explanation. If anything, with the rise of democratic control and political transparency, their role should have been diminished, and the government should have shrunk. In practice, the opposite has happened.

What Public-Opinion Surveys Tell Us

Instead of looking for a political conspiracy in every piece of legislation that seems unreasonable to economists, an alternative approach to understanding the rise of big government is to examine the ideas that underlie the actions of voters and politicians alike. Public choice usually focuses on the supply side of government growth, but the demand side is at least equally important. A glance at politicians' behavior in electoral campaigns indicates that people not only tolerate but indeed actively seek government involvement in many different areas. If we consider what voters actually think, it is less clear that politicians are cheating them. It seems that the demand for government involvement in general and for flawed policies in particular has been underestimated.

This claim is by no means an attempt to explain comprehensively the causes behind big government. The point is not that special interests are unimportant, but only that their direct impact on policymaking is commonly overstated. They may act in alternative ways, such as by influencing public opinion to become amenable to their interests. Also, the relationship between public opinion and government policies is not simply that of an independent and a dependent variable. Political elites may autonomously introduce policy changes that consequently launch path dependences in mass opinion. Once a government program is in place, people exhibit a status quo bias and a tendency to follow default options rather than to consider alternatives. (2) The true causes of big government, therefore, range from special interests and politicians' instinct to grab increased power to the general public's passive acceptance and status quo bias and to the elites' influence in what Walter Lippmann (1922) called the "manufacturing of consent." I do not seek here to explain all of these elements, but rather to point out that the impact of some of them, especially rational self-interest, have been overestimated at the expense of the impact of others, especially the honest beliefs of both intellectuals and the general public.

Consider the public's responses in two surveys of the preferred general level of government involvement in the economy. The most striking impression one gets from public-opinion surveys about the size and scope of government is that people want significant government involvement in many areas of life. One poll pertaining to different areas of the economy and society asked respondents whether they would like more, about the same, less, or no "federal government involvement in that area." (3) When we add the percentages of the respondents who think the government should continue to operate at the same level of activities in certain areas and those who think that it should do even more, the results are remarkable: 86 percent for "ensuring access to affordable healthcare"; 65 percent for "promoting values and morality in the society"; 95 percent for "making sure that food and medicines are safe"; 83 percent for "reducing poverty"; 92 percent for "providing a decent standard of living for the elderly"; and 81 percent for "setting educational standards for schools."

The same survey asked respondents whether the amount of government regulation in various areas is not enough, the right amount, or too much. When the "right amount" and "not enough" answers are added, the results with regard to the following categories are: 86 percent for automobile safety; 77 percent for prescription drugs prices; 63 percent for cable TV access and cost; 78 percent for health care; and 90 percent for food and drug safety.

Another survey shows that Europeans have similar attitudes. A 1990 International Social Science Programme (IPSS) survey asked citizens of different countries what they think government responsibilities should be. (4) The exact question was: "On the whole, do you think it should be or should not be the government's responsibility to ...?" with the alternative answers being "definitely should be," "probably should be," "probably should not be," and "definitely should not be." When results giving the first two answers are added, the mean percentages of respondents in five European countries (Germany, United Kingdom, Italy, Ireland, and Norway) who think that government definitely or probably should have responsibility are as follows: 98 percent for "provide health care"; 98 percent for "provide for...