Limited Government and Political Realism

by Sven Larson

Friends of economic freedom are good at criticising big government, they are even better at expressing outrage over growing government, and many of them are outstanding at demanding a return to "limited government". The criticism of big government and its growth very often rests on solid grounds, but it is never more than the opening salvo of any serious attempt at actually returning our economy and our country to "limited government".

The hard analytical work is the formulation of reforms that reverse the growth of government, expand economic freedom and replace tax-funded spending with private consumption. Given the complex relationship between our modern government and the private sector, it is not possible to simply pull out a fiscal chainsaw and with one swift stroke sever the ties between government and the rest of the economy. Whether we like it or not, almost every American depends on government one way or the other for his life. Every major reform to reduce the size of government must provide a replacement solution based in the private sector.

In some cases, that private-sector replacement emerges easily and swiftly, thus minimizing the reform process. In those cases, government spending programs can be terminated virtually over night. However, in other cases, such as with tax-paid health care and K-12 education, the reform process is far more complicated. In a state like Wyoming, for example, private alternatives to our children's education are almost non-existent (not counting home schooling which for practical reasons will never be an alternative for the majority of parents). Here, a reform process will stretch out over several years and require meticulous analytical, political and legislative commitment.

Medicaid and health care is another conglomerate where replacing government spending with private-sector solutions is a journey down a long road with lots of sudden turns and bumps.

Part of the reason why education and health care require major reform efforts is that they are major expenditure systems. K-12 education in partiuclar is a system that literally touches every family in Wyoming. A private replacement plan, so to speak, would have to be capable of producing education that, at current value, is worth $1.7 billion per year.

From the economist's viewpoint, this is by no means impossible. On the contrary, there is an enormous amount of economics - as well as well-documented practical experience - that the private sector can do anything it wants to, better than government, except in the core areas of the minimal state.

In other words, the main hurdle in the way of complex reforms such as privatization of the K-12 education system is not the alternative solution. It is the prevailing perception of what is politically realistic.

Conventionally, the term "politically realistic" means "what incumbent legislators are likely to want to pass". In other words, you do not bring legislators anything they think will fail to gain support among a sufficiently large number of their colleagues. Otherwise the idea is a waste of their time, right?

From a strictly legislative viewpoint this is, of course, correct. But should legislators - as a collective - really be the ones who decide what is "politically realistic"? More importantly, should efforts to reform away big government spending programs be limited by a definition of realism provided by people who currently hold legislative offices?

There are two reasons to answer no to both these questions. First, there is an implicit assumption under the strictly legislative definition of "politically realistic", an assumption that says that today's legislators share the same long-term goal for the size of government as those who want reforms in the direction of economic freedom. If a legislator says no to the idea of privatizing K-12 education, it is implied that his answer is based exclusively, or predominantly, on a practical judgment; were it not for the practical problem of getting this bill through the legislature, he would definitely support it.

In reality, the legislative definition of "politically realistic" is almost always an excuse for the fact that a predominant number of lawmakers actually do not share the vision of economic freedom that underlies such reform visions as privatized education and health care. Very few incumbent legislators - even in an allegedly conservative state like Wyoming - support the traditional libertarian definition of a minimal state. Therefore, the resistance to major reforms often found in legislative circles is one of ideology and vision, not of political realism.

The second reason why efforts to reform away big government should not be limited by the legislative definition of political realism has to do with economics. Today's big government - here in Wyoming just as elsewhere in the country - is a burden to the private sector. It consumes resources, labor and capital alike, that could have been put to more productive work in the private sector. The larger government grows, the bigger the inefficiency gap between the current economy and the minimal-state economy.

In short: it is economically necessary to reform away big government - and that necessity trumps any resistance based on legislatively defined political realism.

The only long-term realistic foundation for any efforts at reforming away big government is the following three questions:

• What is the morally and economically desirable alternative?
• How does the desirable alternative work?
• What will it take to get there?

In my book Ending the Welfare State I explain how reforms, guided by these three questions, can actually lead to legislatively actionable solutions.

Starting this week, and over the next few months, I will roll out a series of papers explaining what similarly guided reforms would look like here in Wyoming.