of this and the political economy mechanisms that might lead to a change in policy. As such, the IEA commends this collection.
Philip Booth
Editorial and Programme Director
Institute of Economic Affairs
Professor of Insurance and Risk Management
Cass Business School, City University
March 2014
The views expressed in this monograph are, as in all IEA publications, those of the author and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council members or senior staff.
Acknowledgements
The Institute of Economic Affairs would like to thank CQS for its very generous sponsorship of the 2013 Hayek Memorial Lecture and of this publication.
Summary
•There is a growing coalition of people in the US who hold a strong view that they would like the government to ‘leave us alone’. The coalition includes home-schoolers, those who run small businesses and taxpayers. These groups do not want special favours from government and their priorities are very different from each other. However, the coalition is united in its desire for the government not to interfere in their lives.
•There is a coalition opposed to the ‘leave us alone’ coalition. This is the ‘takings coalition’ that views the proper role of government as taking money from others and giving it to them. All tax increases feed the ‘takings coalition’ and increase its strength and appetite.
•However, if taxes cannot be increased, the interest groups that wish to increase spending on their own favourite causes will only be able to do so if spending is decreased on other programmes – choices will have to be made and the ‘takings coalition’ will become fractious.
•Because there is a significant degree of fiscal decentralisation in the US, the states can lead the way in reducing government spending, taxation and regulation.
•In the US, states can copy each other’s successful policies. States are, in a sense, in competition with each other. Those that follow policies that discourage business will see an exodus to states that have lower taxes and regulatory burdens. This is already happening.
•Currently, a majority of people live in states that have governors and legislatures that would be sympathetic to an agenda of lower taxation and less regulation. This provides reason for optimism.
•At the federal level, the Ryan budget plan provides
hope that there will be a significant reduction in government spending compared with current projections. The plan would lead to lower and simpler taxes and the decentralisation of responsibility for welfare programmes. Ponzi Medicare and pensions schemes would be replaced by funded, individually controlled, defined contribution plans. If nothing changes in the US, spending at the federal level
alone will increase to around 40 per cent of GDP
from around 20 per cent today. The Ryan budget plan would bring the spending ratio back down to below
20 per cent.
•In order to maintain – and increase – momentum towards a free economy, we need to create favourable demographic trends. This can be done through radical reforms that give families control over education, pensions and welfare. When such reforms are carried out, those affected will tend to support economic policies that involve a less substantial role for the state.
•Detailed analysis of government spending around the world shows that there have been very rapid increases in the share of national income taken by the government. Since Ronald Reagan’s election as president in 1980, the proportion of national income spent by the US government at various levels has increased by around one third to 40 per cent. This increase will have had a significant impact on economic growth. Indeed, if government spending had remained at the same proportion of national income as in 1960, the evidence suggests that national income in the US would now be around 70 per cent higher than its current level.
•There are differences between European countries and the US. In particular, the UK has a very centralised fiscal system that does not provide the same opportunities for competition as the US federal system. However, there are similarities between Europe and the US when it comes to the dynamics of reform. There are a number of examples in Europe – for example, in health and education reform in Scandinavia – of reform leading to interest groups developing that are averse to reversing policy changes and, indeed, that promote further radical policy change.
A U-turn on the road to serfdom: prospects for reducing the size of the state
Grover Norquist
I am delighted to deliver this year’s Hayek lecture. I ran the campaign in the United States to get President George Herbert Walker Bush to award the Presidential Medal of Freedom Award to Friedrich Hayek, and was delighted when that happened in 1992. Friedrich Hayek wrote The Road to Serfdom describing both the forces that drove the growth of government and the dangers of socialism by any name. Hayek argued in 1944 that it was not just a German problem, it was our problem as well. He predicted the future too well – the recent past we have lived.
Margaret Thatcher promised ‘no U-turn’ in her drive to limit government. What I want to talk about today is this: how do we execute a U-turn and reverse direction on our present road to serfdom here in Britain, in the United States and throughout the world? In the United States, in 1774, when we were still a colony, the government spent 2 per cent of the American colonists’ income. At the same time, the nice people of London had 20 per cent of their income taken in taxes. Over the last several centuries, things have become rougher on both sides of the Atlantic as far as liberty is concerned. The state has grown. In the United States a third of people’s income, on average, goes to the government, and here it has grown as well. How do we turn this around? How do we get from heading in the wrong direction, decade after decade, in terms of the size and scope of government, and begin to move towards more limited government?
In the United States, one of the first things that was important was to get the political parties aligned in a way that made sense. We have two parties in the United States. In Europe, a party can get 2 per cent of the vote in some countries and it can then decide who the prime minister is and be very important. In the United States, if you get 2 per cent of the vote in an election, you’re officially a ‘nut’. You may get to be a radio talk show host after the election, but you don’t fly in the big aeroplane, and you don’t get to serve in Congress. So we divide up into two teams. For many decades, the two teams, the Republicans and Democrats, were largely regional parties.
If somebody told you they were Republican, the only thing you knew about them was that they were born north of the Mason–Dixon Line. You didn’t know if they wanted a bigger government or a smaller government – or anything else. There were conservatives who were Democrats, and liberals1 who were Republicans. There were quite a number of little old ladies in Mississippi who agreed with Ronald Reagan on absolutely everything and voted for George McGovern, because Sherman had recently been quite unpleasant to Atlanta.
1 Editor’s note: this refers to ‘liberals’ in the US sense of the word.
The
