Why “Big Government” is Not the Problem

In his 1996 State of the Union Address, President Bill Clinton confronted the problem of how the United States could continue making economic opportunities available to all Americans in the midst of a growing world economy with rapidly changing technology and robust competition from abroad. Many on the left had called for government to expand its role in the economy and to provide jobs and protection for Americans who felt that opportunities were bypassing them. In a masterstroke of political re-branding, Clinton instead announced that “big government does not have all the answers” and that “the era of big government is over.”1

The now-famous speech sparked an interesting, if ultimately hollow, debate about the proper size of government. Politicians and pundits on the left alleged that Clinton took the position for purely political reasons, coming as it did in an election year when he would win a second term in office. Many on the right hailed the move at the time—only to lament the continuation of “big government” as changing world events, including 9/11 and the 2008 financial crisis, seemed to underscore the necessity of “big government” once again. Now, a decade and a half later, President Obama and Congress bicker over fiscal cliffs and debt ceilings, and federal and state politicians continue to bloat budgets, increase spending, and raise taxes. Arguments about “big government” and its ills have returned with a vengeance, but, at its root, the discussion is misguided.

The idea of “big government” has been vague and imprecise since its introduction to the English lexicon in the 1920s.2 Those who use it leave the term undefined and throw it around as a rhetorical joust, counting on what everyone who is against the idea seems to “know”—that “big government” is bad—yet no one can specify how big is too big or even what “big” means in this context.

We who wish to defend liberty need to dispense with the shibboleth of “big government.” Size is not an essential aspect of government’s propriety or impropriety. The proper measure of government concerns its function. A government—or any aspect thereof—is good or bad depending on whether it is directed toward the proper end of government: the protection of individual rights by means of banning physical force from social relationships. Insofar as size matters at all, its significance lies in whether a given government or department or program is the optimal size for the ultimate purpose of protecting rights.

To begin making this clear, consider an analogy. A doctor observes that a patient’s weight has been increasing steadily for some months. The doctor announces that either a weight-loss diet or weight-reduction surgery will be necessary. The growth, he says, must not only be stopped; it must be reversed, and the patient returned to a previous size.

Is the doctor right? We cannot know unless we ask and answer crucial questions. What is the cause and nature of the growth? Is the patient a child going through a natural growth spurt? Is the patient pregnant? Is the patient suffering from a rapidly growing cancerous tumor? Has the patient regularly been eating pizza for breakfast, lunch, and dinner while abstaining entirely from exercise? Has the patient been eating a high-protein diet, lifting weights, and building muscle? Without investigating and diagnosing the cause and nature of the growth, a doctor who simply declared that all gains in size are bad and must be reversed would be guilty not only of gross negligence but of malpractice.

It would, of course, be a caricature to suggest that all arguments about the size and growth of government follow the pattern of the doctor in our example. But the analogy is useful in clarifying the importance of focusing not on the size of government but on its function. To evaluate any government or aspect thereof, we must ask what it aims to do: whether that aim is necessary to the proper function of government, the protection of rights; and whether the policy or program effectively serves that purpose. Likewise, to evaluate any instance or trend of growth in government, we must understand what specific aspect is growing, why it is growing, and what this means with respect to rights.

To further illustrate the problem with focusing on the size of government, consider some of the difficulties in trying to measure it.

Apart from the standard of protecting rights, how is government to be measured? Should it be compared to some earlier size? Should it be compared to governments in other developed nations? Should its budget be compared with its respective country’s economic growth or gross domestic product (GDP)? All such measures, although perhaps interesting for certain specialized purposes, draw us away from the question of what a government is actually doing and whether those actions are within the scope of its legitimate function.

Consider more closely the popular approach of measuring government by comparing its expenditures to GDP. Take countries A and B, which are extremely similar in almost every way—population, demographics, GDP, industrial development, geographic size—such that they could be doppelgängers, or the same country in an alternate universe. Despite their nearly identical conditions, the government in country A spends 15 percent of its GDP annually whereas the government in country B spends only 8 percent of its GDP. Which country is freer? Which has a government that is the appropriate size or at least closer to it?

The “clear” answer to anyone concerned primarily with the size of government is that country B is freer because its government consumes a smaller proportion of the total economy. But suppose the reason for the difference is that in country B some essential government function is missing or insufficient. Suppose, for example, the police departments are understaffed such that fewer criminals are arrested, or the judicial system is insufficiently funded such that fewer criminals are brought to justice and more innocent men are convicted. Or suppose that in country A, all government spending is allocated to rights-protecting functions; whereas in country B, 90 percent of the government spending is allocated to rights-protecting functions while 10 percent goes to interferences with its citizens’ religious liberty. Can we say, by reference to government spending relative to GDP, whether a given country has an appropriately sized government? The answer, clearly, is no.

It is no coincidence that the American Founders did not make a big deal about the size of government. The Founders knew that what matters in government is not its size but the extent to which it violates or protects rights, which is why they established the idea of individual rights as the bedrock of American government. The genius of the revolutionary generation consisted in large part in the discovery and application of the idea that government is only legitimate when its actions are restricted to upholding and protecting the rights to life, liberty, property, and the pursuit of happiness. Whatever deficiencies in their understanding of the ultimate source of rights, and whatever inconsistencies in their application of the principle of rights, the Founders knew that a proper government is one strictly limited to the protection of rights.

For a government to protect rights is not simple; it is a highly complex process involving a system of courts, to provide an objective arena in which individuals can resolve their disputes; an adequate police force, to protect citizens from rights violations perpetrated by other citizens and to enforce the laws of the society; and a sufficient military, to defend citizens and the country against foreign aggressors. But the complexity of the process does not alter the simplicity of its purpose, and getting the purpose of government right is essential to advocating freedom.

Remaining focused on the proper purpose of government enables us to achieve clarity on political matters—and to help others do so. Losing sight of this standard leads to confusion in our own minds and in the minds of others.

Countless confusions arise from undue concern with the size of government. Observe, for instance, the logical implication that, if smaller government is always better, then the ideal size of government is no government at all. To advocate ever-smaller government is to advocate anarchy. Observe further that if bigger government is always worse, then there is never any need or justification for expanding any aspect of government. This assumption can blind people from seeing the ways in which more robust government in certain areas can be more protective of individual rights and the ways in which smaller government in certain spheres can fail to adequately protect rights. Consider some historical examples.

Advocates of “small government” often find a model in the state and federal governments of late 19th-century America. With few national business regulations, an open employment market, and a relatively unhindered financial sector, America during this era experienced prodigious rates of growth, wondrous advancements in technology, and rising standards of living. Yet the period also witnessed significant limitations of individual freedoms, including state-sanctioned segregation against blacks, disfranchisement of blacks and poor whites, and a prohibition on Chinese immigration.

In 1890, for instance, the state of Louisiana passed the Separate Car Act, requiring railroads to provide at their own expense separate cars for blacks and whites. The notorious Plessy v. Ferguson case of 1896, in which the Supreme Court upheld the Separate Car Act, allowed for states and municipalities to force private businesses, many of which were otherwise unwilling, to uphold segregationist policies at private expense.3 Segregation laws also made it necessary for blacks to open and operate their own banks, separate from the national capital markets and other financial institutions. In violating the rights of blacks, these laws caused significant economic inefficiency, not only in the black-owned banks, but across the whole banking system.4 Another massive violation of rights during this era, the Chinese Exclusion Act of 1882, not only outlawed immigration from China; it also forbade existing Chinese immigrants from becoming U.S. citizens. The Scott Act of 1888 went further and prohibited reentry of existing Chinese immigrants if they left the country.

All of these state-sanctioned rights violations and many more happened during a time when the government was likely the smallest it has ever been. If we myopically focus on the size of government and fail to identify its proper purpose, we will see this era as entirely good, when, in fact, it was substantially mixed.

Consider also that the size of government appropriate for a 19th-century society, with relatively primitive forms of communication and technology and relatively simple forms of property, is necessarily different from the size of government appropriate to a modern, 21st-century society, with the Internet, highly advanced technology, and various complex forms of property. The development of new technologies requires a government to expand and provide the institutional framework for protecting rights, especially property rights, within this new context.

Likewise, the rise of foreign enemies and their increasing access to weapons of mass destruction and advanced means of transportation give rise to the need of greater military capacity to defend against such threats. The United States benefited for decades, if not a century, from the natural borders and protection offered by the Atlantic and Pacific Oceans. In these years, especially as relations with land neighbors Canada and Mexico became nonmilitarized, the U.S. government was able to manage with miniscule defense budgets. In the 20th century, let alone the 21st, the ability of hostile powers to extend destructive force to American soil from across the globe, the rapidity with which they can do this, and the widespread destruction possible from such an attack, require that the United States expend considerably more resources on its military. Leaving aside whether the U.S. military is overextended or underfunded at present, there is no doubt that defense spending in the modern era of nuclear warheads and rockets is necessarily greater than in the era of wooden ships and muskets.

Advocates of liberty often marvel at the economic vibrancy and development in the 19th century and note the very small size of government relative to later periods, but if the proper purpose of government is to protect rights, then government during this period was in some respects too small. Some of the most vital functions of the new government were, in many cases, conducted without adequate funding or staffing. For instance, because courts were substantially understaffed, judges had to “ride circuit,” or travel from town to town adjudicating many cases on relatively little rest—not an ideal situation for prosecutors or the prosecuted.

Similarly, when Thomas Jefferson was secretary of state, there was no dedicated patent office, so the job of patent inspector was included as a subsidiary responsibility of the secretary of state. As brilliant as Jefferson was, and as deeply interested in science and technology as he was, executing his responsibilities as patent inspector while simultaneously handling the international tensions between the United States and Britain and France undoubtedly diminished his overall effectiveness.

A contemporary example of how focusing on the size of government rather than its proper function causes problems can be seen in today’s criminal justice system. It is likely that this aspect of government—at least as it pertains to dispute resolution and violent crimes—should be bigger than it currently is. The court system experiences clogs in its dockets; criminals often slip through the hands of justice; individuals seeking impartial resolution to their disputes may not have their day in court or may be insufficiently heard because the system is underfunded. It is neither inexpensive nor easy to operate a proper judicial system, with extensive and impartial reviews of evidence, an incarceration system that properly punishes but does not abuse inmates, and proper laws and procedures that provide for the objective resolution of contractual disputes.

And then there are the opportunities afforded to seedy politicians when the focus is on the size of government rather than its proper purpose. By highlighting numerical measures of government while ignoring its proper purpose, politicians often claim to be serving the interests of the American people when they are, in fact, only minutely tinkering with the degree to which government violates or fails to protect our rights. Consider, for instance, some of the typical measures of big government: the number of government employees, the amount of government spending, the number of laws and regulations, the number of Americans who “depend” on the government. Although politicians notoriously distort, manipulate, and obfuscate these numbers, the fundamental problem is worse: Focusing on these numbers distracts us from focusing on the proper purpose of government and thus enables politicians to get away with all that they do—from McCain-Feingold to Sarbanes-Oxley to ObamaCare.

One commonly used measure of the size of government is the number of people who work for the government. As historical tables indicate, the number of people who work for the United States government, in both civilian and military capacity, has grown not only in absolute terms as the country has grown, but also as a function of the total employment base of the nation. The employment share of the government has risen considerably during periods of major military conflict and subsequently declined, as one would expect. The government’s share of total employment also trended upward over the course of the 20th century. These trends hold true for state and local government as well. Surely these measurements tell us something, but they miss as much as they account for. Consider just two substantial factors that such measurements miss entirely. One is the marked growth of “shadow government employment”—employment ostensibly in the private sector but ultimately for government purposes. Another is the fact that the data in such measurements are, for the most part, aggregated—not differentiated by what these employees actually do. Take these in turn.

Shadow government employees include everyone from university biochemistry professors whose budgets and graduate student employees are funded by grants from the National Institutes of Health, to employees of concrete factories whose product is purchased predominantly for government road building. Countless contractors, grant recipients, suppliers, service technicians, and dozens of other kinds of recipients earn their basic living from government outlays. The best current estimate is that inclusion of the “shadow government” would render total federal employment ten times larger than the officially listed numbers produced in Washington, D.C.5

Because of political pressures and partisan jockeying, politicians from both parties and across the branches of government have a strong incentive to make the government appear smaller in employment terms than it actually is. In the past thirty years, more government activity has been outsourced to workers who do not hold official federal jobs, but who nevertheless effectively work full-time for the government.

Even within the narrower realm of “official” government employees, however, a sheer head count means little, unless it is accompanied by a standard specifying the legitimate functions of government. Government comprises hundreds of agencies, thousands of offices, and millions of employees. Which ones should stay, and which should go? It depends on what government is supposed to do.

Political wrangling and posturing have long plagued the debate about the magnitude of government taxing and spending. For as long as government has used taxes to raise revenue, politicians and pundits have attempted to distort or hide the true extent of spending. The government now maintains both on-budget and off-budget items; separates transfer payments and government “insurance” programs, grants-in-aid, and other categories; engages in “quantitative easing,” the latest euphemism for printing money; and takes countless other measures to obscure the extent and details of its spending. Data provided by the government about government spending radically understate the true extent of it.

Further, much of the cost of government manifests in private expenditures necessitated by government mandates. To take one example, the time, money, and effort required to comply with the tax laws are left uncounted by official records of federal outlays, but these amount to billions, if not trillions, of dollars annually—all paid for by private business and private citizens. And that’s just tax compliance. Implementation of and compliance with the tens of thousands of regulations amounts to a massive “shadow cost structure” that goes unmeasured in conventional accounts of government taxing and spending.6 The Securities and Exchange Commission, for instance, estimates the annual cost of compliance with Sarbanes-Oxley for the average applicable firm in excess of $2 million. Given the thousands of businesses in the United States that must comply with the law, the annual cost of this law alone is easily in the billions.7

Another common approach to measuring the size of government recognizes the problems involved in merely counting employees or measuring expenditures, and attempts to account for the scope of government by identifying how much of the life of the citizen is “controlled” by government policy, whether directly by a rule-enforcing bureaucrat or indirectly through choice-thwarting laws or regulations. The rough proxy typically used for assessing how broadly the government has affected our everyday lives is the number and variety of laws and regulations it passes and enforces and the number of different agencies it creates. Comparing an organizational chart of government agencies and offices over time provides an arresting visual. All the departments, agencies, and offices of the original U.S. government could be listed on a single page. Now, enumerating the tens of thousands of agencies, offices, and commissions that form the government requires dozens of pages. Likewise, the code of federal laws and regulations has grown dramatically. Study after study has shown the virtual sea of paper and ink that flows from Washington and the state capitols each year. New laws can encompass hundreds of pages of print, then tens of thousands more to spell out the rules and regulations required to administer and enforce them.

Yet even this kind of measurement does not reveal the whole truth. Consider antitrust laws, which originated in 1890 with the Sherman Antitrust Act. In its original conception, the Sherman Act was a brief and simply stated law with a potentially unlimited scope. Compare that with a new law involving mandates about the storage, transport, and use of a hazardous chemical compound—a law that, on paper, might extend over a thousand pages, detailing a multitude of technical areas and implications. Which law is more an artifact of “big government”? The fact is that twenty laws of the latter variety would not amount to the rights-violating, market-throttling nature of the Sherman Act.

Finally, some people argue that the best means of measuring the size or growth of government is to identify the extent of individual and business “dependence” on government. We see increasing rates of dependence on government in the form of increasing welfare rolls, increasing employment by government, increasing government contracting, increasing corporate bailouts, and the like. Certainly there is something to this. Even so, although studies about “dependency” can be useful, they suffer from the same problems discussed above with respect to measuring government employment and spending: They leave unanswered important questions about why the government acts as it does in different areas, and, most fundamentally, whether its actions protect or violate rights.

Each of the above approaches to measuring government reveals important information about government. But none of these approaches, and no combination thereof, has much meaning if divorced from an understanding of the proper purpose of government. The notion that the size of government can serve as the determining factor in assessing the propriety of government or any aspect thereof is beyond salvation.

Yet data about the size and growth of government should not be dismissed out of hand. Instead, recognizing that these data will only take us so far, advocates of liberty should embrace a more fundamental approach that will help make sense of such data and shed a full spectrum of light on the problem. We need to focus, as the Founding generation did, on the proper role and legitimate functions of government.

For those who spend the time and effort to grasp the significance of how large the government is today and how fast it is growing, the natural and entirely understandable tendency is to try to shrink it. This is also what our politicians perpetually promise to do: cut back government and keep it lean. But they never do because the American people don’t hold them to an objective standard of what proper government is. This is what we must now do. We must stop advocating small government and start advocating properly limited government—government limited to the protection of individual rights.

The author would like to thank Brad Thompson and Eric Allison for extensive conversations and suggestions about this article and its arguments.

About Eric Daniels

Eric Daniels earned his PhD in history from the University of Wisconsin in 2001. He serves as Assistant Director of Clemson University’s Institute for the Study of Capitalism. He has lectured internationally and has published work on intellectual, economic, and political history.

View all articles by Eric Daniels →