Monday, May 05, 2008

A Basic Divide

Greg Mankiw:
If you think it is the job of government to take from Peter to pay Paul, and if Peter can move around the globe, then you need international tax cooperation. Otherwise, some countries will become nations of Peters, leaving all the Pauls to fend for themselves. On the other hand, if you think that the main job of government is to facilitate voluntary exchange by protecting property rights, rather than re-slicing the economic pie as it sees fit, then tax competition is a good check against excessive interventionism. In other words, are you more worried about too little government or too much?
To which Arnold Kling responds:
The question that I would ask Larry Summers (who is on the other side from me on this issue) would be this: how big a share of GDP would the Federal government have to control before you would worry about government being too big? I mean, unless you have a totally romantic notion of government as the embodiment of the will of the people (and I don't think Larry would make that defense), there must be some upper limit. Right now, the Federal government directly controls roughly 20 percent of GDP, and indirectly it controls more through regulation, mandates for state governments. etc. If that's not too much, then what is? 30 percent of GDP? 50 percent of GDP? 75 percent of GDP?

Health care, the fastest growing major sector of the economy, is also the sector that is increasingly being absorbed by the government. Extrapolating current trends, Medicare alone would be most of GDP in another generation or so. It boggles my mind how someone can not be worried about too much government.

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