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GOVERNMENT SOCIAL PROGRAMS AND
ECONOMIC GROWTH:
VERDICTS FROM ECONOMIC HISTORY
PETER H. LINDERT
UNIVERSITY OF CALIFORNIA – DAVIS
June 21, 2012
THREE BIG QUESTIONS
(A.) “Does a Big Welfare State Impede Growth or Promote
it?”
(B.) Why is there a tie game – zero net GDP cost –
between the social policies of the US and Europe?
(C.) Why does tax-slashing anti-government politics gain so
much traction?
(1) Why in the US, more than other OECD?
(2) Why now, since the 1970s?
(A.) DOES A BIG WELFARE STATE IMPEDE
GROWTH OR PROMOTE IT?
The free lunch puzzle: Comparing existing practice, rather
than theories, European welfare-state policies have no
clear net effect on GDP.
Yet with this zero cost in GDP, they improve equality, life
expectancy, and clean government, without greater
budget deficits of public unhappiness.
With no clear losses GDP –
– yet clearly better reduction of poverty –
– longer lives, partly due to better health insurance –
– and exceptionally clean governments.
(B.) WHY IS THERE A TIE GAME – ZERO NET GDP
COST – BETWEEN THE SOCIAL POLICIES OF THE
US AND EUROPE?
Answer: There is a balancing of growth advantages to the realworld social alternatives.
Some show growth advantages of free-market (e.g. US)
institutions, and these advantages should be reinforced.
Some show advantages of European welfare states, and the US
should learn from these.
(B.) WHY IS THERE A TIE GAME – ZERO NET GDP
COST – BETWEEN THE SOCIAL POLICIES OF THE
US AND EUROPE?
Only one advantage of the large social states can be
mentioned here: Lower bureaucratic costs in the
provision of social services, thanks to economies of
scale and insurance pooling.
•• Lower costs in providing social insurance and family
assistance (see handout), and
•• lower costs in raising funds 
(C.) WHY DOES TAX-SLASHING ANTIGOVERNMENT POLITICS GAIN SO MUCH
TRACTION?
(C.) WHY DOES TAX-SLASHING ANTIGOVERNMENT POLITICS GAIN SO MUCH
TRACTION?
(1) Why in the US, more than in other OECDs?
The United States has always had above-average distrust
between regions, races and ethnic groups. Distrust made
our Constitution a barrier to collective action.
(2) Why especially now, since the 1970s?
•Declining concern about deficits, since WWII and especially since the
1964 tax cut leaving gold in 1971.
•Since 1970s, conservatives can hit two targets with one shot: Unions
became public-sector.
•Since 1970s, rising income inequality  lobbying power for tax-prone
rich, even before Citizens United.
(C.) WHY DOES TAX-SLASHING ANTIGOVERNMENT POLITICS GAIN SO MUCH
TRACTION?
(1) Why in the US, more than in other OECDs?
The United States has always had above-average distrust
between regions, races and ethnic groups. Distrust made
our Constitution a barrier to collective action.
(2) Why especially now, since the 1970s?
•Declining concern about deficits, since WWII and especially since the
1964 tax cut leaving gold in 1971.
•Since 1970s, conservatives can hit two targets with one shot: Unions
became public-sector.
•Since 1970s, rising income inequality  lobbying power for tax-prone
rich, even before Citizens United.