The latest U.S. Government shutdown underscores how calls for “small government” are less about saving money and more about consolidating power, writes David Joy.
HERE WE GO AGAIN. Another U.S. government “shutdown”. Notice that the U.S. government never shuts down because it doesn’t have enough dollars — only because it can’t agree on how to spend them.
The U.S. Government, as a currency issuer (like the Australian Government), is not financially constrained. Every dollar the Government spends is a brand-new dollar. The reason the Government is in shutdown is simply because lawmakers cannot agree on what to issue those new dollars in return for.
There is no shortage of dollars. When the umpires are unsure if a defender got a touch on a football before it crosses the goal line, there is no shortage of points, but the outcome may be an award of six points or an award of one point. Currently, in the U.S., we have two umpires (Republicans and Democrats) who are unable to agree on how many points (dollars) should be awarded and to whom.
Some commentators are pointing out that the Trump Administration has gone out of its way to cultivate the shutdown since it presents an opportunity to “shrink” the size of the Government.
But what do we mean by “small government”? Most economists would measure the size of government according to the size of government spending as a proportion of GDP. During the late 19th and early 20th Century, this number was around 1-2% in both the U.S. and Australia, but now it is around 37% in these countries, including government transfer payments.
Does this really mean that government has about 37 times more influence over the economy now than 125 years ago?
The short answer is “no”. During the “Gilded Age” in the U.S. in the second half of the 19th Century, the titans of industry (the “robber barons” such as Carnegie and Rockefeller) were “well-connected” with government, to put it politely.
Today’s robber barons, such as Musk, Bezos and Zuckerberg, are equally familiar with the corridors of political power. In The Great Transformation, Polanyi exploded the myth that capitalism can persist without significant government involvement. When right-wing politicians call for small government, what they really mean is for government to promote the interests of the 1% at the expense of the rest.
It is not hard to see the hypocrisy — from the irony of the U.S. Government needing to bail out the chainsaw-wielding President Javier Milei, to the disturbing expansion of U.S. law enforcement via Immigration and Customs Enforcement (I.C.E.) in the so-called land of the free.
But back to the economics. In the Gilded Age, when government spending (as a percentage of GDP) was relatively low, inequality was sky-high. After bottoming out in the 1970s in the wake of post-war Keynesian policies, inequality in much of the Western world has climbed back to early 20th-century levels.
Whilst the drivers of inequality are varied and complex, a key element is the extent and particularly the breadth of government spending. As the currency issuer, the government always decides who holds its currency. A small government (as conventionally defined) still decides who the recipients of its monetary creation are.
In a simplified example, imagine the only government spending is $100, perhaps on the “essential” arms industry — payments to Palantir, for example.
Palantir and their ilk (or more precisely the company executives) then get to decide how to spend that $100 — in other words, how to distribute it. Perhaps seven employees receive $10 each, leaving $30 left over as profit, $10 of which is paid as dividends to shareholders. These employees and shareholders then spend (most of) this $80 (say, 80% of it) on goods and services, the providers of which also spend 80% of what they receive on other goods and services and so on.
Via the expenditure multiplier, this makes total GDP equal to $500, with government expenditure representing the original $100, or 20%. Who decides upon the distribution of dollars (and hence resources) in this relatively (so-called) small government economy? Whomever the government pays, in this example, members of the military-industrial complex, including Palantir executives and shareholders.
Some modern monetary theory (MMT) economists refer to this as the currency filter — the government always decides the initial distribution of currency (who it delegates the decision to thereafter). Trump would rather delegate that decision to himself, his family and a small bunch of (br)oligarchs. Others would prefer that these decisions be delegated to a wide range of people, likely making for lower inequality.
As he left office in 1961, President Eisenhower warned about the growing power of the military-industrial complex. The domination of this elite has never been greater, but also never more transparent. Trump’s decision to rename the Department of Defence to the War Department helps to demonstrate clearly what the activities and goals of the elite that run the U.S. really are. They are simply bullies, looking to wield power and crush resistance both inside and outside the U.S.
The hypocrisy of the small government claim is also laid bare by the increasingly centralised and dictatorial nature of the Trump Administration. Indeed, even the manufactured government shutdown itself is a ruthless exercise of government power. There is no choice between big and small government. There is only a choice between good and bad government.
Anyone in Australia attracted by the rise of Trump-lite politicians on the Right should take heed.
David Joy teaches the Foundations of Modern Money, Institutions and Markets subject at Torrens University, is a learning facilitator at Chartered Accountants Australia and New Zealand (CAANZ) and lectures in accounting at the University of Adelaide.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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