Through the Broken Window

Indeed. Not too bad.

After some of the worst fiscal management in 50 years, the economy is doing alright. So that makes me wonder, is America's public sector REALLY that big, scary, and cumbersome?
 

The alternative: How good could it be?
 

Well, I don't know. The economy is doing damn fine now, right? How much better could it be?

I mean I hear a lot of rhetoric about the death grip the government has on the economy. But HOW MUCH better would it be without government intervention in certain places.

Look at tariffs. I think everyone on this board agrees that most tariffs are "bad" for the economy. But every quanitative estimate of the deadweight loss they incur is a pretty small percentage of US GDP. According to a 1990 study (before NAFTA), the benefit of eliminating ALL tariffs in America would ammount to about 1.3% of GDP

When actually start looking at numbers The Leviathan looks more like Oscar the Grouch.


Source:
Check out bottom of page 3 Book form the Institute for International Economics. Second hit on a google scholar search. If anyone has more up to date estimates, let me know.
 

Travis,

Ah, but my question wasn't whether taxes on trade or income were "moral". I would like to know exactly HOW MUCH government is "holding back" the economy.

When it comes to tariffs, the static gains from liberalization are not very high (i can't imagine the dynamic gains being much bigger, but a quick net search didn't reveal any estimates).
 

Travis,

I don't think one could. The scale of the project alone would make it prohibitive. Not to mention the fact that not everything the government does hampers economic growth. In fact, I would argue things like government protection of property rights (intellectual and physical) promote growth. So how does those net out damages?

And then we STILL have to play with the messy question of what measure of growth is meaningful in terms of well-being (GDP? heigth? something else?).

And there are plenty of other questions too, So I wasn't really expecting an answer. I don't think we can "measure" the economy to make an accurate estimate of damage.

But I think it can be instructive to look at pieces of evidence here are there (we can't do anything else). This one piece of evidence says the United States government is not hurting the economy much with trade protection(should be no big suprise).

I'm sure there's more that say different. But I think keeping an eye on the numbers can help us keep our rhetoric from getting too far out of check. When we talk about the American "leviathan" is it really like the beast Hobbes described, or is it more like an annoying pick pocket?