GOVERNMENT SOCIAL PROGRAMS AND ECONOMIC GROWTH: VERDICTS FROM ECONOMIC HISTORY PETER H. LINDERT UNIVERSITY OF CALIFORNIA – DAVIS June 21, 2012

THREE BIG QUESTIONS (A.) “Does a Big Welfare State Impede Growth or Promote it?” (B.) Why is there a tie game – zero net GDP cost – between the social policies of the US and Europe? (C.) Why does tax-slashing anti-government politics gain so much traction? (1) Why in the US, more than other OECD? (2) Why now, since the 1970s?

(A.) DOES A BIG WELFARE STATE IMPEDE GROWTH OR PROMOTE IT? The free lunch puzzle: Comparing existing practice, rather than theories, European welfare-state policies have no clear net effect on GDP. Yet with this zero cost in GDP, they improve equality, life expectancy, and clean government, without greater budget deficits of public unhappiness.

With no clear losses GDP –

– yet clearly better reduction of poverty –

– longer lives, partly due to better health insurance –

– and exceptionally clean governments.

(B.) WHY IS THERE A TIE GAME – ZERO NET GDP COST – BETWEEN THE SOCIAL POLICIES OF THE US AND EUROPE? Answer: There is a balancing of growth advantages to the real- world social alternatives. Some show growth advantages of free-market (e.g. US) institutions, and these advantages should be reinforced. Some show advantages of European welfare states, and the US should learn from these.

(B.) WHY IS THERE A TIE GAME – ZERO NET GDP COST – BETWEEN THE SOCIAL POLICIES OF THE US AND EUROPE? Only one advantage of the large social states can be mentioned here: Lower bureaucratic costs in the provision of social services, thanks to economies of scale and insurance pooling. Lower costs in providing social insurance and family assistance (see handout), and lower costs in raising funds 

(C.) WHY DOES TAX-SLASHING ANTI- GOVERNMENT POLITICS GAIN SO MUCH TRACTION?

(1) Why in the US, more than in other OECDs? The United States has always had above-average distrust between regions, races and ethnic groups. Distrust made our Constitution a barrier to collective action. (2) Why especially now, since the 1970s? Declining concern about deficits, since WWII and especially since the 1964 tax cut leaving gold in Since 1970s, conservatives can hit two targets with one shot: Unions became public-sector. Since 1970s, rising income inequality  lobbying power for tax-prone rich, even before Citizens United.

(C.) WHY DOES TAX-SLASHING ANTI- GOVERNMENT POLITICS GAIN SO MUCH TRACTION? (1) Why in the US, more than in other OECDs? The United States has always had above-average distrust between regions, races and ethnic groups. Distrust made our Constitution a barrier to collective action. (2) Why especially now, since the 1970s? Declining concern about deficits, since WWII and especially since the 1964 tax cut leaving gold in Since 1970s, conservatives can hit two targets with one shot: Unions became public-sector. Since 1970s, rising income inequality  lobbying power for tax-prone rich, even before Citizens United.