Great Steven Pearlstein column based on William Baumol’s new book The Cost Disease:
From a political perspective, Baumol’s most important insight is that government spending must grow as a percentage of the economy. Most of the services that are provided by, or financed by government — health care, education, criminal justice, national security, diplomacy, industry regulation, scientific research — are those that suffer most acutely from Baumol’s disease. That’s not because of incompetence or self-interest on the part of public servants or even the socialist instincts of Democratic politicians — it’s in the nature of those activities.
To demand, as Republicans do, that government be held to some historical average as a percentage of the economy stubbornly ignores this reality. It would condemn the country, as John Kenneth Galbraith once put it, to a future of “private affluence and public squalor.”
This is a key reason why I think people need to start paying much more attention to questions of tax efficiency. It’s overwhelmingly likely that we’re going to want the public sector to be a larger share of the economy in 10, 20, 30, 40 years than it is today and we need to find relatively growth-friendly ways to make that happen.