The Washington Times - November 25, 2010, 08:47AM

By J.D. Thorpe

Conservatives are cautiously optimistic that the Republican controlled House will reverse the Big Government trend. Before the new crop of politicians is sworn in, it is important to examine historical precedents and establish basic standards that should be met to offer the best chance of restoring smaller government.


On Fox News Sunday, Congressman Paul Ryan, the soon-to-be Budget Committee Chairman in the House, discussed his plans of cutting $100 billion in non-defense discretionary spending next year. This is a solid start to addressing the Nation’s fiscal problems, but it is not enough by itself. The Obama administration has left a notable mark on the size of government in its first two years.

Government spending as a percentage of GDP was 42.3% in 2009 and 43.9% in 2010; both significant increases from the 36.9% level in 2008. If this ratio had remained at the 2008 level, government spending would have decreased by almost $2 trillion over the past two years.

How do these figures compare with the broader historical trend? Economic historian Robert Higgs developed the “Ratchet Effect” theory to explain the growth of government over the past century. Without detailing all its nuances, it shows that the rise of Big Government is the legacy of various crises in American history. In times of crisis, government intervenes and increases spending significantly. Spending stabilizes at this level for a brief period of time and then decreases to a level that is above the pre-crisis spending trajectory.

Demagogic politicians have used this strategy to push through statist legislation by frequently using terms like crisis and emergency when selling their agenda. Between the years 1920-1929, the government spending to GDP ratio held consistent at approximately 11 percent. Government expansion initiated by Herbert Hoover and continued under FDR’s New Deal increased the ratio to 20% for most of the decade. After further expansion during WWII, the figure settled at its new norm of 23% in 1947.

In 1975, as a result of further crises, namely the Korean War and Vietnam, government expenditures comprised 33.6% of our annual output. This level would remain consistent over the next 33 years. Despite its sterling record on tax cuts, and solving the inflation problem that plagued the 1970s, even the Reagan administration was not able to impact spending levels. Similarly, the Republican Revolution in 1994 had only a minor impact on the broader trend.

The negligible shift during the Reagan years and the Gingrich Congress present problems for liberty advocates. If these two movements, largely viewed as successful by conservatives, were unable to decrease the overall size of government, how can we win this fight?

An alternative approach to nickel and dime cuts, is to change the dynamic of the Ratchet Effect. Conservatives must go on the offensive by linking the necessity of truly significant spending cuts to the debt crisis our nation faces. Why should statism hold a monopoly on this theory? With a national debt eclipsing $13 trillion, this is not a spurious strategy either. This country is facing a catastrophe resulting from out of control spending and $1 trillion plus annual deficits.

Whatever avenue conservatives pursue, it must be dramatic and it must be revolutionary or they risk ceding further territory in this battle. Temporarily halting the march of Big Government is not enough. If the new conservative legislators are sincere about fighting for individual liberty, major structural changes need to take place.

Something analogous to reverting back to 2008 spending levels and cutting an additional 5 percent from the budget per year would help remedy the situation. Without a structural change, we are just treading water until the next tidal wave of statism drowns us.


J.D. Thorpe is the Assistant Director of Programs at the Patrick Henry Center for Individual Liberty