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Are we entering an era where we need bigger government?

The scale of global issues we are facing require greater planning and resources than many governments are currently able to deploy


Rewind to the 1980s. You are now watching neoliberalism in action. You will observe western governments cutting back big time on public sector spending and creating more market space for private corporations. Among the economic and political left, this is widely criticised as a bad move. Something like sacrificing your queen for a pawn. The economic philosophy of Keynes (a personal hero) was fading in favour of Friedman and Hayek. What's to come is one of the biggest economic shifts of the 19th century (which had many substantial shifts).


Welcome to the era of neoliberalism.


The last 30 years or so have seen the ascendency of free-market capitalism. In brief, this means less government regulation, more private ownership of capital, and trickle-down economics. COVID-19 aside, it feels like we are entering a period in history where this doctrine is being increasingly challenged by the scale of the global problems in front of us. Many governments as they are today can't achieve what is asked to solve these problems without scaling up. Previously I have written about how COVID-19 isn't the end of capitalism, I still believe that. This post is about why we could be entering a period where bigger government is more necessary, but not inevitable. Some of the ideas here tie closely to my post on public policy and the role of government.



The signs that bigger government would be useful are there...


Inequality and wealth immobility has been growing since the 1980s. If free market capitalism was going to be any good at redistributing wealth, we would know by now. I doubt anyone truly believes in trickle-down economics given the evidence. People might say they do but I suspect that's a self-interest thing or they are simply living in denial. To reduce inequality without government we would need a tectonic cultural shift in the relationship between shareholders, companies and employees. That is unrealistic. To truly tackle inequality, redistribution needs to happen through taxation.


New technology could play a big role in driving greater government involvement in welfare and the labour market. AI and automation are driving people into new jobs or out of work. Sophisticated AI and automation have the potential to get rid of people entirely from particular lines of work that are now commonplace - think truck drivers or taxis. This destruction of jobs is one of the main arguments behind a Universal Basic Income (UBI). With a UBI people would be supported in the event that many jobs become obsolete in a high-tech future. However, it remains to be seen the extent to which the market will evolve to create new jobs.


Climate change is a classic example. Free markets won't save us from climate change - prioritising shareholders and profits over the planet. Free markets can't solve climate change because the major costs of climate change are felt in the future and prices today don't fairly reflect environmental damage. Efforts have been made with emissions-trading schemes but it is too little too late - we are well on the way towards a sweltering planet. The risk of failure is too high so greater central control and planning to ensure we reach objectives is needed. Unfortunately, governments also continue to amble around the issue for fear of economic damage. Stronger government with more of a mandate and the ability to impose tough restrictions is critical to meaningfully address climate change - though I'm not even sure that will be enough.


The aging population is driving the need for greater funding for health, pensions and aged-care as people get older, and the dependency ratio increases. For those of us living in countries where pensions and healthcare are publicly funded, that'll mean higher taxes, short of some amazing new technology driving greater efficiency. Alternatively, it could also mean reduced services for the elderly, but that seems unlikely in democracies given the number of older voters. To cater to the needs of an aging population you can expect larger government investment, potentially at the expense of other priorities.


...and there appears to be some support...


Young people tend to support left-wing politics anyway, but recent prominent socially-minded politicians like Bernie Sanders and Jeremy Corbyn have been more successful at mobilising youth. Particularly Bernie in 2016 got close to securing the Democratic nomination, in no small part because of the youth vote. Youth voter turnout remains lower than for older people, which wouldn't help when it comes to electing left-wing parties. It is also worth recognising that as people age there is a tendency to become more conservative, so demographics don't favour a shift towards bigger government as populations age. Nevertheless, there appears to be support for more left-wing parties.


When was the last time you heard someone say "why doesn't the government..."? That. That sentiment right there is part of why I feel like we could be entering an era of bigger government. People are increasingly turning to governments to solve problems. The protests over austerity measures, COVID-19 and climate change among others suggest people want the government to step in more. My opinion on this is still forming as I have limited evidence, it's an observation from what I hear and read in the news.


So what's stopping it?


There is a multitude of factors that could be hindering bigger government. To name several. Mistrust in government and inefficiency. Vested interests protecting businesses. Fear of the unknown and what could happen if government does expand and take more of our hard-earned cash. Voter preference capitalism to socialism. The appeal of money. Politicians getting people to vote against their own interests. Or perhaps people don't think about it as they are focused on their day to day lives.


Or maybe its because the system mostly works ok in developed countries. Seriously if you think about everything that has to go right in the economy for you to merely read this post, its a miracle.


I don't have an answer for why we haven't hit the rewind button on neo-liberalism. But I do feel like we are at a pivotal moment in history where we might see systemic change. That being said, it would be brave to think the whole system needs to be torn apart. My big question is what elements of the current system should be kept and what should change?

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A New Zealand based politics and economics blog

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