Fair warning: today is going to be "Budget Day" here at Asymmetrical Information, as we contemplate what's ahead after the elections.
Small point, to start. Libertarians are fond of saying "War is the health of the state". So how does war compare to financial crisis at ratcheting up government spending?
Looking at government spending as a percentage of GDP, only vaguely well. The biggest permanent leap comes not during World War II, but during the Great Depression; spending went from 3.4% of GDP in 1930 to 10% of GDP in 1940, and never again fell below that level. By contrast, in 1948, the federal government's share of GDP had fallen back to 11.6%, after soaring higher than 40% during the war. Thereafter, the permanent increases (rather than temporary war spending) don't track wars very well, unless you define the entire period from 1945 to 1989 as one big war. Spending goes back up to 15.6% by 1950, and hits 20.4% in FY1953 as we wrap up the Korean War--but by 1956, it's back down to 16.5%. By 1966 it has drifted up to a new bottom of 18%, which is not that much lower than the 18.7% we find it at in 1974. It ratchets slightly right around the two Gulf Wars, up to the current 20%--but those wars both occur near recessions, which to judge from the 1970s, do a better job at explaining upward creep than wars.
This makes sense to me. Social Security and Medicare, which together now account for more than half of the budget, were not sold as wartime measures; one does not usually tout spending on the elderly as critical to military preparedness. One could argue that regulation expands during wartime, which it assuredly does . . . but as far as I can tell, it also expands in peacetime. It's hard to quantify, of course, since there's no good proxy for the absolute level of regulation in society. But much regulation is imposed by courts and state governments, neither of which peg most of their activity to the military.
A better term might be "crisis is the health of the state", which seems almost definitionally true; a crisis is something that private efforts have failed to stem. To be sure, the government may be behind the crisis, but even if that's so, we have to look to the government for action.
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