Libertarians are always going on about making the state smaller and the economy larger. A regular reader (and personal friend) asked a while back whether this was a realistic desire, given that, in his view, the state and the economy are inevitably yoked together. What the question really points to is another question: are the state and the economy inextricably conjoined because they have to be, or is it merely the case that the majority think this has to be the case?
Economist Adolph Wagner certainly thought so – he came up with a law that went on to be known as "The Law of Increasing State Activity" - or Wagner's Law as it was also more popularly called. Wagner's Law states that as the economy develops over time, the activities and functions of the government increase. As progressive nations expand their economic growth, the proportion of money that goes into the public sector grows too, and this is largely due to the electorate's perceived need for increased state activity, increased administrative costs and an expanding welfare sector.
I have a hunch that Wagner's Law will continue to play out in the short term, but longer term the morbidly obese state will get swallowed up by its own gluttony and then begin to decay. And just like when a parent pulls a splinter out of their child's finger, I think the people will have to wise-up and help the state go through its initial pain in order to help with the necessary decline. The main reason for this is to help promote the understanding of what a rough deal we get from the state overall.
In the market of trade, I am going to give you money and you are going to plaster my walls - that is a mutually beneficial exchange of money for services, and it involves free choices. The relationship we have with the state is not of this kind - we are compelled to consent to the state's laws and regulations, or else we have to leave its geographical jurisdiction. Unlike the plastering job, it isn't a contract we signed because we agree to all its costs and benefits - it was one we had to sign to carry on living in the place of our birth. There is no analogous relationship in the free market. No plasterer or newsagent or car salesman ever assumes on your behalf that you want these things and that you will pay for them or else go to prison.
The principal retort to this line of thinking is that the state doesn't just take our hard earned money - it gives us services in return. True, it does - but I don't get much of a say about which services the state provides - for I can conceive of numerous services the state provides that the private sector could provide more cheaply, more efficiently and only to those who want them. I expect to pay for a plasterer if I need one, or give money to a car salesman when I need a new car. But I wouldn't choose to live in a system whereby I have money taken from me to pay for trains other people use or rent subsidies because the government has artificially inflated housing prices.
In this system I have to fund my own preferred mode of transport to work (not to mention all the other concomitant taxes associated with car ownership) plus subsidise other people's rail journeys. A market system would see costs of travel more closely linked to types of travel for the consumer - and ditto numerous other services that are currently funded for across the wider population.
What you have to remember is that while all these public services may be proximally funded by the state, they are distally funded for by the market transactions throughout society. Some services may be better off with some state involvement for the time being (though not necessarily indefinitely), but the idea that there are not plenty of services that could be more efficiently funded and performed by letting us keep more of our money and spending it on more freely made consumer choice-driven decisions is remiss.
You only have to think that the historically unprecedented progression-explosion in well-being, living standards, reductions in poverty and economic growth had virtually everything to do with trade and competition and very little to do with state-spending programmes (a truth that's compounded by the fact that any successful state interjections during that time were themselves paid for by the fruits of trade and competition in the first place).
Not only does the state force us to obey all its strictures by threatening to incarcerate or deport us if we don't obey, it also runs on an engine of economic oppression whereby it protects its existence and fattens up its own stomach by the self-serving rules it creates to achieve this. The misdemeanours for which the state punishes its citizens most readily are the misdemeanours that subvert its own authority and compromise its own bounty.
Consequently, then, we shouldn't be surprised that Wagner's law continues to be hold its water - nor that our authorities have gradually been shaping its citizens and its media to embrace the narrative that it exists for our own good and that we need to do our bit to perpetuate its gluttony.
The plasterers, the newsagents and the car salesmen justify their existence for our own good only by the continued provision of goods and services that bring value to our society. Except for the important services it provides, particularly for the elderly and the vulnerable, the state does not. In fact, given that the market is the state's biggest rival in competition for efficiency and value, it is no surprise that it looks to create a narrative that undermines its rival. The state tries to engender a nationwide Stockholm Syndrome through fear, distortions and parent-like manipulations, until the majority of its population blithely accedes to the theory of its own legitimacy.