Question

Why do you think government expenditures as a percentage of GDP have increased in the U.S. and other countries?

Answer 1

Crises promoted the growth of government in other countries, as well. During both world wars, all the belligerents adopted extraordinary measures of economic control to mobilize resources and place them at the government’s disposal for war purposes. These measures included price, wage, and rent controls; inflationary increases in the money stock; physical allocations of raw materials and commodities; conscription of labor; industrial takeovers; rationing of consumer goods and transportation services; financial and exchange controls; vast increases in government spending and employment; and increased tax rates and the imposition of new kinds of taxation. On each occasion, the war left institutional and ideological legacies that promoted the subsequent resort to similar measures even during peacetime. As Bruce Porter wrote, “The mass state, the regulatory state, the welfare state—in short, the collectivist state that reigns in Europe today—is an offspring of the total warfare of the industrial age.”

The Great Depression elicited similar responses, especially in the United States under Franklin D. Roosevelt’s New Deal. Many current welfare-state and regulatory institutions—the Social Security system, the Securities and Exchange Commission, the National Labor Relations Act, to name but a few—originated with the New Deal. Later crises, such as the social and political turbulence associated with the civil rights revolution and the Vietnam War between the early 1960s and the early 1970s, likewise contributed significantly to the expansion of the welfare state, spawning, for example, Medicare, Medicaid, and a host of welfare, antidiscrimination, and environmental regulatory programs that remain in force today.