Wagner’s Law is the simple idea that as an economy develops, state spending as a proportion of that economy rises. This is due to the electorate demanding a standard of social services the market cannot provide. With a society’s increasing wealth, widespread destitution, inadequate pensions, a lack of good schools and a backward military become intolerable. In the absence of an expanding government, a large proportion of the country’s wealth would be concentrated in the hands of a select few, while the levels of quality of life and standard of living increase at a far slower rate. In every developed nation, industrialisation was accompanied by a demand for social insurance provision, even in the United States where an explicitly socialist political movement failed to gain traction.
The economist Larry Summers has updated Wagner’s Law for the situation facing the present-day United States. He argues that the combination of an ageing population, increasing inequality, the rising cost of government-provided services (healthcare, education) and the need to match the defence spending of other world powers- all means that the Federal Government must increase in size. http://larrysummers.com/2017/09/12/leading-with-tax-cuts-is-dangerous-policy/. For Summers’ defenders at the New York Times, even if one of his factors can be dismissed, his overall case is overwhelming. None of this is to say that capitalism itself has had its day, but that the wellbeing of the capitalist economy will come to depend more heavily on the state due to these insurmountable structural changes.
When applied to the United States specifically, Wagner’s Law is very useful. The United States does spend less of its GDP on social services, even if its military spending is higher. As a result, absolute poverty is far worse than the country’s GDP per capita would suggest. America is the only country in the world not to have universal healthcare, and the generosity of its state-run pension and retirement schemes is unusually low. Republicans have long misled working class Americans, promising them better public services and lower taxes at the same time. When this contradiction at the heart of the Republicans’ appeal becomes apparent, demand for greater state spending will grow. We’re already seeing this in healthcare, where the Affordable Care Act is far more popular than any Republican alternative.
However, Wagner’s Law has some crippling limitations, both in theory and in practice. In theory, the idea of a perpetually expanding state is just as deluded as the 19th century ideal of perpetually expanding empire. Eventually, the state will run out of room to grow. This can be seen in France, where state spending has increased well beyond the point where it is genuinely useful. Much of what the French state spends goes on overly-generous public sector pay and pension schemes that do little to better the lives of the French people as a whole.
I strongly disagree with the application of Wagner’s Law to military spending. If anything, the amount we need to spend on the military has been reduced. America spends vast sums of money on conventional warfare- tanks, helicopters, etc, but there is very little evidence to suggest that this is making the country safer. Rather than spend money on traditional weapons and vehicles, military spending should be reduced and focused more on intelligence, cyber security and counter-terrorism. Israel is an excellent example of how this can be done; the country spends far less of its GDP on the military than it used to, despite facing far more conventional threats than the US. In America, military spending is increasing pork-barrel spending. Representatives from various states and districts lobby for military spending for their area, even if they know it comes at the expense of the country at large.
The belief that Wagner’s Law makes more federal spending inevitable is rather weak in my view, largely due to America’s federal system of government. Because it administers such a large area, federal spending on social security is always going to be considerably more inefficient than in the European countries American social democrats wished their country would emulate. For Europeans, it would be a bit like if the European Union tried to run health insurance- it would probably end badly. Rather, Americans- Democrats especially- ought to have more faith in the power of local government to deliver results. We’re already seeing the positive effects of California’s concerted efforts to improve their environment, in contravention to current federal EPA policy. I think a high degree of pragmatism as to which level of government administers the welfare state is needed, if people’s basic needs are to be met in the long term.
In terms of political strategy, Democrats should view Republican proposals for tax reform with an open mind, even if a crude across the board rates reduction should be opposed. There’s nothing progressive about having an excessively complicated tax code. On the contrary, the lack of comprehensive tax reform has allowed large corporations to exploit loopholes, while smaller businesses must pay the high headline rates. Passing tax reform is far harder than changing tax rates, so Democrats should be prepared to compromise and vote for tax reform, even if the initial rates are lower than they would ideally like. Then, in the event of a Democratic presidency and Congress, those rates can always be raised if they see fit. Moreover, even if Democrats embrace Wagner’s Law regarding America’s particular situation, the conclusions of the law should not detract from ordinary voters’ concerns about government waste and mismanagement. The appeal of fiscal conservatism often lies in the view that government can’t spend money as well as individuals, however well intentioned government programmes may be. This has particular appeal in a large and inefficient country like the United States, so Democrats should ensure that taxpayers’ money is well spent before demanding more money from their constituents.
