Inspecting the Mechanism: Dealing with Sudden Stops, the Euro Periphery, the Exorbitant Privilege-Possessing Floating-Rate Sovereigns of the Global North, and the Debt
Noted for Your Evening Procrastination for October 27, 2013

Ashok Rao: Feed the Beast: The Inevitable Growth of the Government Share of GDP: Noted

Ashok Rao: Feed the Beast:

Since 1988 education (purple) has increased almost seven fold. Healthcare (red) five fold. Food and beverage prices have only doubled, apparel costs have flatlined, while technology and entertainment prices have plummeted. Basically prices for everything the government is good for have a positive slope and everything it’s bad for have a negative slope. I don’t think any other graph could more clearly explode hopes for a smaller, or even flatlined, government.

The past thirty years have not been kind to the median worker. But all inflation isn’t created equal.... Things government can and should spend on (G/GDP) have experienced a disproportionately higher inflation. We can talk about “bending the cost curve” or whatever but a) nothing will bend it near consumer inflation and b) nothing will stop America from aging.... So long as medical and educational price inflation outpaces the GDP deflator, G/GDP must rise.... This is the level at which we must discuss the size of government.... Nothing can halt growth of government. This scares me because one of America’s flagship political parties is hell-bent not only on preventing growth of G/GDP, but also shrinking government....

That scares me because I see no way to reconcile our current social contract with the demands of a smaller government. Needless to say, part of the inflation is secular and will ebb as the population ages into an equilibrium. It will ebb as technology moves from entertainment to medical care. It will ebb as online education revolutionizes the university. But it will ebb at a higher level than 1988--and the size of government must reflect that fact of nature. Without feeding the beast we will be starving ourselves. And it doesn’t take a progressive ideologue to see this.