Why Government Must Be Small

WHY GOVERNMENT MUST BE SMALL

What should be the size of the government? Should it be big or small? Liberals want a big government that provides a lot of generous welfare schemes to as many people as possible. Conservatives want a small government that only performs its core functions of maintaining law & order and providing public goods (because a big government has to be funded by high taxes - and taxes reduce the social surplus). And centrists/realists say that the government must be neither big nor small - but of the optimum size: ie, the size that maximises the long-term growth rate.

These ideological preferences aside, there is one argument in favour of a small government. And we are seeing it in today's Indian politics. The Congress Party is promising the expensive and wasteful Old Pension Scheme (OPS) in every state election - and government workers are voting for it. In theory, democracy is the rule of the majority - and must work for the good of the majority. But as the economist Mancur Olson showed in his 1965 classic 'The Logic Of Collective Action' (for which he shockingly did not get the Nobel Prize) small groups can hijack a democracy. And the voting behaviour of government workers in India is a perfect example of this phenomenon.

Thus if the government becomes big, then government workers will become a big and powerful lobby - and will vote for wasteful government programs like the Old Pension Scheme (OPS). So this is a good reason for keeping the government small . . .