Jeffrey D. Sachs Wants an Expensive European-Sized Government, Which We Already Have


Jeffrey D. Sachs
Columbia University

Done with mucking about in Eastern Europe, Prof. Jeffrey D. Sachs has taken his message that the United States government is neither big enough nor sufficiently control-freaky with regard to the economy to the April issue of Esquire magazine. In a piece touted on the contents page with the blurb, "our government is ready to do great work … just as soon as we get out of its way," Sachs argues that government is responsible for pretty much all good things and, if fed a higher-calorie diet, Washington, D.C. would shit rainbows and caviar as it leads us into a glorious future. Apart from brushing aside the bad stuff that governments often do (hrrumph, drone-assassinations … hrrumph, puppycide), Sachs way understates the proportion of GDP that government already spends in the United States as he argues that D.C. is just a tad … inadequate when compared to its European counterparts.

After tallying up a long wish-list of must-have government programs, including state-run healthcare and "active labor-market policy," Sachs writes in "How Not To Make America Great":

On net, I figure that we need around 24 percent of GDP in total federal outlays in order to have the prosperous, fair, and environmentally sound economy we aspire to. That, in short, is our fiscal bill, or what I have recently called "the price of civilization."

How does it stack up compared with other well-run countries? If we add in state and local spending, we'd have around 38 percent of GDP by governments at all levels. Germany is at 45 percent, the Netherlands at 50 percent, and Sweden at 49 percent. In other words, I am low-balling the estimates given American frugality and bias against government. It's hard to see how we'd get by with any less, unless of course we really decide to live through the twenty-first century with broken twentieth-century infrastructure and technology.

Whoah … Is that all? Such a bargain! But what is the federal government currently spending? Well, according to the Heritage Foundation, the feds are already cutting checks for 22.9 percent of GDP, and rising fast since "In the past 20 years, federal outlays have grown 71 percent faster than inflation." Commendably, Sachs wants to cut $250 billion in military spending, but he's also counting on savings from a vague "overhaul" of Medicare and Medicaid, and "at least 20 percent" in magical savings from a government takeover of healthcare that would seem to fly in the face of the inefficiencies he sees in Medicare and Medicaid.

Sachs also gets fuzzy with his numbers when comparing oh-so-paltry U.S. government spending to the generous levels in Europe. A peek at the Index of Economic Freedom shows that he has the numbers about right for Germany, the Netherlands and Sweden, but it's hard to see how his vision of an expanded, more active federal government spending "around 38 percent of GDP by governments at all levels" in the United States can possibly come to pass when shriveled U.S. governments are currently spending 42 percent of GDP without his grab-bag of new programs.

Government Spending as a Percentage of GDP

So, the U.S. isn't so far out out of the ballpark as Sachs suggests when it comes to achieving paradise here on Earth with European levels of government spending. But wait! There's more!

When governments engage in the kinds of hands-on management that Sachs favors, and try to extract taxes to pay for it all (or at least most-ish of it), people tend to start working and doing business out of public view. That is, economies are larger than official GDP numbers. Putting aside completely illegal activities and just looking at legal trade conducted out of reach of tax collectors and regulators, the countries Sachs mentions have sizeable shadow economies estimated at the following percentages of GDP:

  • United States: 7.2 percent
  • Germany:14.6 percent
  • Netherlands: 10.1 percent
  • Sweden: 15.6 percent

Add those percentages to the total economies and government spending as a percentage becomes:

  • United States: 39.1 percent
  • Germany: 39.8 percent
  • The Netherlands: 45.5 percent
  • Sweden: 44.4 percent

You can't really see daylight between the U.S. and Germany in terms of total government expenditures as a percentage of the economy. Paradise achieved, right?

I'm sure Sachs would say that federal expenditures are going to the wrong places, and he's right on some points — military spending could certainly be slashed. Government programs certainly are inefficient and mismanaged, too. Good luck with that, Jeff. But American government is already bigger and more expensive than he lets on. And not only is the U.S. running deficits, but so are those European governments — everybody is spending more than they can afford and running into trouble as a result.

Sachs's solution is to raise taxes to a minimum of 22 percent of GDP, but as Nick Gillespie has pointed out, "Since World War II, the government has raised more than 20 percent of GDP in taxes exactly once." That's despite great efforts to haul in as much cash as possible.

In terms of the size of our government, the U.S. is already far more European than Jeffrey Sachs wants to admit. Just like our friends across the Atlantic, we can't afford what we have, bureaucrat-and-regulation-wise. And that's without even getting into the desirability of government-managed … everything.