John Hood: Don’t overdose on government

Mar. 05, 2013 @ 03:45 AM

RALEIGH — Do you take vitamins? You probably should. It ensures that even if you don’t always maintain a varied and healthful diet, your body gets the baseline level of nutrients.
But vitamins are worth taking only at normal doses. If you take three or four times the recommended daily dose, you don’t get three or four times as healthy. You just waste your money, give your bodily fluids an interesting hue, and in some cases risk a dangerous condition known as hypervitaminosis.
In other words, there really can be too much of a good thing. In public policy, the distinction between what is valuable on average and what is valuable at the margin often mirrors the distinction between progressives and conservatives.
Take higher education. There is no question that, on average, college graduates receive hundreds of thousands of dollars more in income over the course of their working lives than do those who lack college degrees. But this statistical fact does not prove that sending additional people to college today would significantly boost their incomes or economic productivity in general.
Most high-school graduates who are likely to finish college with an income-enhancing degree are already there or headed there. Others who might be induced to go to college with additional tuition subsidies or lower admissions standards are unlikely to achieve the average result. That is, many will either fail out of college or pursue degrees in less-demanding fields with low rates of return in the job market.
When conservatives argue that adding new government programs is unlikely to generate sufficient benefits to offset the cost, that does not mean that they deny the value of government as a whole. The past two decades has produced an explosion of new research on the effects of government taxes and spending on economic growth. A key insight from these studies is that the question can’t be answered by a simple yes or no. The right answer is often “it depends.”
If a given economy has no infrastructure to speak of, for example, then building roads, bridges, and water systems can have huge effects on productivity and thus on income growth, even after subtracting taxes or fees. But once you get to a certain level of infrastructure, additional projects often generate too little benefit to justify their cost.
The same can be said for other services traditionally monopolized or dominated by state and local government, such as public safety and public education. General increases in public budgets reach a point of diminishing returns.
Are we at the point of diminishing returns? Remember that all North Carolina taxpayers are also federal taxpayers. Total government spending is now at a post-World War II high as a share of GDP. Moreover, a higher share of that spending is devoted to transfers – to Social Security, Medicare, Medicaid, and other consumption subsidies rather than public investment – than ever before in the history of the country.
That’s not a vitamin. It’s a poison pill.

John Hood is president of the John Locke Foundation and author of “Our Best Foot Forward,” a book on North Carolina’s economy. It is available at Representations of fact and opinions are solely those of the author.