State ranks high in restraint


John Hood Columnist


North Carolina has made another top-10 list — one that should make fiscal conservatives particularly happy.

The topic is government spending. As a share of gross domestic product, average state and local expenditures in the United States have fallen from 9.7 percent in 2010 to 9 percent in 2014 (the latest year available). The 10 states with the largest relative declines in the size of their governments are, in order: North Dakota, Oklahoma, Michigan, Nebraska, New Hampshire, Ohio, Texas, North Carolina, Florida, and South Dakota.

State and local expenditures as a share of North Carolina’s GDP fell by nearly a full percentage point, by the way. That doesn’t mean counties, municipalities, and the state spent less in 2014 than in 2010, as a whole. It means the increase in government expenditures during the period — necessitated to some extent by population growth — was significantly smaller than the increase in the overall economy.

If you think government in America is too large, cumbersome, and costly — and you should — then you want to see the relative size of government falling over time. At the federal level, spending as a share of GDP fell significantly during the same period, from 23.4 percent in 2010 to 20.4 percent in 2014.

Unfortunately, this represented primarily the wind-down of federal bailout and stimulus spending, not some newfound fiscal conservatism on the part of the White House or big-spenders in Congress. That 23.4 percent rate in 2010 was the second-highest level of federal spending since World War II. In modern times, federal expenditures have averaged 19 percent of GDP. So the 2014 figure was still above average. What’s worse, federal spending has gone back up since then, to an estimated 21.4 percent of GDP in 2016.

Debates about government spending in North Carolina must be understood in that context. Our country has staggering fiscal imbalances. The federal government has an accumulated debt ranging from the trillions (if you count only bonds held by the public) to the hundreds of trillions (if you include unfunded liabilities for Social Security, Medicare, and other entitlements carried out into the far future).

Thus every dollar “sent” to North Carolina from Washington, for expanding Medicaid or building roads or anything else, is either collected first from North Carolinians or borrowed. It’s not free money. It’s not smart money. And when interest rates finally rise back to normal levels, it will be very expensive money.

As I have previously argued, states and localities have a responsibility to their own constituents, and to the country as whole, to help address the fiscal imbalance. While spending wisely on high-priority items such as combatting crime, upgrading infrastructure, and improving education, states and localities need to economize, to reduce their overall footprint in relative terms. Higher productivity, growth, and income gains in our economy will come primarily through greater private initiative and investment, not central planning and public expenditure.

North Carolina has been doing its part to economize. So have the likes of Ohio, Texas, Florida, and Michigan. Interestingly, this is an issue about which there is an increasingly pronounced partisan divide. Nearly all the states that outperformed the national average on spending restraint have Republican governors and legislatures.

That’s not to say all GOP politicians have made fiscal prudence a priority. Some clearly haven’t. In the recent past, there also used to be a fair number of Democratic politicians — governors, state legislators, and members of Congress — whose records on the issue were commendable. Their ranks have thinned of late, I fear.

To favor spending restraint and balanced budgets is not to elevate ideology over practicality. It is precisely the reverse. If you think raising taxes to pay for current or even higher government spending is a reasonable idea, your real argument is not with some long-dead philosopher or long-cloistered economist. Your argument is with the empirical evidence — most studies find that higher government expenditures don’t boost economic growth and that higher taxes discourage it — and with basic math. You are destined to lose it.

John Hood is chairman of the John Locke Foundation and appears on the talk show “NC SPIN.”You can follow him @JohnHoodNC.

John Hood Columnist
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