Here’s another letter to a long-time correspondent.
Mr. McKinney:
Thanks for sharing John Carney’s tweet in response to my recent open letter to J.D. Vance – a letter in which I document some of the many ways that ordinary Americans’ economic condition is far better today than it was 40 years ago. Mr. Carney writes:
Dear Don Boudreaux,
You have frequently complained that “the state” is too big and argued more should have been done to constrain its growth. You’ve argued that we need a balanced budget amendment to prevent government from financing its growth with debt.
Since 1985, the annual federal budget deficit is about 8.4 times larger in nominal dollars than in fiscal year 1985, roughly 2.8 times larger after inflation. Gross federal debt has grown far more — from about $1.8 trillion at the end of FY1985 to roughly $40 trillion by the start of October 2026.
How curious. Please tell me which of the following results [the ones in the open letter to Vance] of the growth of a growing government and ever-larger debt over the past 40 years do you wish to undo?
Sincerely,
John CarneyPS: See how this works?
Contrary to your prediction, I actually believe that Mr. Carney’s point is fair. I (like many others) have indeed complained for decades that government is too big and intrusive and, hence, harmful to the U.S. economy. And yet despite the continued growth of government on many fronts, ordinary Americans are today much better off economically than they were 40 years ago. Mr. Carney is justified in seeing in my arguments a potential inconsistency.
For two related reasons, however, I plead innocent to the charge of being inconsistent. First, my classical-liberal consequentialist argument against big government is not that such government necessarily makes the economy absolutely worse off over time; rather, the classical-liberal argument is that big government prevents the economy from performing as well as it would were government smaller and less intrusive.
Second, although I’ve no doubt that the increased government spending – especially that which is funded by debt – over the past 40 years worsened economic growth, on other fronts there’s been liberalization which fueled economic growth. For example, much of the Carter-Reagan deregulation of communications, energy, banking, and surface and air transportation remains in place today. The top marginal income-tax rate was cut dramatically starting in the early 1980s and has since remained well below its rate when Reagan first took office. And until 2018, average tariff rates had fallen.
For the above two reasons, the absolute improvement in the U.S. economy is not inconsistent with the arguments that I and other market-oriented economists have made over the years against large and intrusive government.
However, this improvement in the U.S. economy is inconsistent with J.D. Vance’s argument, which is that the U.S. economy has performed abysmally over the past 40 years. Vance repeatedly talks of America’s “hollowed out” industrial base and middle class. Vance describes the economy as having suffered 40 years of “decline” – which is a categorically different claim from saying that the economy has done well over the past 40 years but could have done even better.
In short, my and other market-oriented economists’ complaints about large and intrusive government are that such a government prevents the economy from working even better than it currently does. Vance’s complaint is that the market-oriented policies of the past 40 years have caused the American economy to suffer actual decline. The data are consistent with the former complaint, but disprove the latter.
Sincerely,
Don
