There's a declining marginal utility to government just like there is to everything else


We are perfectly happy to agree with the idea that government is a good thing to have. We are not, after all, anarcho-capitalists around here. However, we are at least economically informed, and are aware that there's diminishing marginal utility to pretty much everything. And thus, inevitably, there's also diminishing marginal utility to more government. Thus we have no objection to this basic statement from Noah Smith:

There’s a good argument that quality of government in North America, Europe and Japan improved dramatically in the 19th and early 20th centuries. Government became steadily more participatory and less predatory. Bureaucracies became more professional. Spending on infrastructure dramatically increased, funded by taxes. Public services such as urban sanitation -- which Gordon counts among the Great Inventions, but which is dependent on government efficiency -- curbed disease and improved health dramatically. Health and safety regulations helped as well. Public education greatly increased the skills of the workforce.

Libertarians often portray the state as a parasite, but there is a good argument that big government -- and, more importantly, good government -- was responsible for a significant amount of the growth in developed nations between 1870 and 1970.

That kind of improvement was probably a one-off.

We wouldn't, perhaps, emphasise it in quite that manner but the underlying idea is to us clearly true. Some part of the improvement in life over the past century or two was indeed because government became less predatory, more efficient and so on. However, we would also insist upon thinking about Maslow's Hierarchy (as Smith does in part) a little more with reference to government. Maslow's point being that some needs or desires become satiated and then our ever increasing wealth gets turned to sating other and different needs and desires. And we are really pretty certain that our need and or desire for more government has been sated.

Note the important point at the heart of Maslow's thinking: it is that at any point of income or wealth we have superior, normal and inferior goods. A superior one is where if our income (or wealth) increases then we will spend a greater portion of that new income on that good than we have previously being paying of our total incomes. Normal goods claim the same proportion of that extra income, inferior ones less than that average rate. And given that, the real point is that all goods are, at some income level, superior, normal or inferior. Yes, even including government and or governance.

We're entirely happy with the idea that at some level of income more government is a superior good. Medieval government was lucky to get hold of 5 perhaps 10% of the economy in any one year and yes, we do think that rather more than that devoted to a basic welfare safety net is entirely reasonable. But note again that at varied income levels absolutely everything becomes a superior, normal and inferior good over time.

All our contention is is that at this level of income government is an inferior good again. As our incomes rise we should be spending a smaller portion of our incomes on it. We've beaten the big problems that more government can beat: so, let's have less of it into the future as a portion of our incomes.