Chris Giles and Simon Briscoe in the FT have a beautifully produced flash-data feature describing the state of the UK economy. Their basic message would not have sounded out of place in 1980: the state has become too large; taxpayers are unwilling to fund it; public spending will have to give.
But their message is too crude for their graphics. We now understand better than we have for 50 years what the "mixed economy" really is: it is a mixture of centralised and decentralised decision-making processes with all the fundamental parameters of markets relying on explicit or implicit social choices. The financial sector has effectively been socialised in "capitalism" ever since the lender of last resort interventions of central banks became the norm (1825); technology has been set by the social choices of the strength of patent protection; basic R&D occurs mostly in non-market institutions; entertainment economics has been underpinned by access to scarce broadcast media, content-related law, and copyright; land-use and house prices have been determined by planning politics; agriculture has been socialised ... The list goes on.
The truth of the mixed economy is not that it is a little bit pure capitalism and a little bit pure socialism. It is that the significant, parameter-setting choices are all made socially and varying usage is made of decentralised decision procedures thereafter.
Our understanding of the mixed economy, now clarified by financial crisis, illuminates the question of government expenditure that Giles and Briscoe try to address.
Start with the last chart in their sequence. The state is forecast to spend 48% of national income in 2010/11. It was spending 44% in 1979; it spent a 3-decade low of 36% in 1999; and just before the economic meltdown, it was around 40%, more or less the average of the Thatcher/Major years.
But Giles and Brisoce mix too much chalk and cheese in their numbers. Look at their beautiful first chart which slides through the composition of public expenditure between 1987 and 2007.
(On a data-visualisation quibble, it would be nice to have a "fade" from previous years that dissipates at a rate that is a funciton of the speed of the slide --- that way you could zoom through the years and have a ghostly image of the proportions that have preceded).
It is simple to re-categorise their spending categories into those that are basically service provision and those that are redistributive. General public services, education, health, defense, public order and safety, recreation, culture and religion, environmental protection and economic affairs are, at least as a first approximation, instances of service provision. Social protection and housing are mostly redistributive. The purely redistributive function of the state accounts for 33% of government expenditure (so 14% of national income) today; the same function accounted for 32% in 1987 (so also about 14% of national income at that time).
The importance of the distinction is clear: if the state were not providing health services, households would still be spending a good portion of their budgets on health. Indeed, if we take the US -- mostly private -- system as a benchmark, we can assume that they might be paying substantially more. So rising state expenditure on these services poses in itself no problem for anyone - except in so far as paying for anything valuable poses a problem.
There are two very distinct social choices relating to these different types of expenditure: a) how much redistribution to have after the market has done its preliminary allocation of spending power and b) which elements of what goods should be determined socially and which elements should be decentralised through the market. Only the first of these has the 80s-style taxpayer incentive arguments attached (and the redistributive element of spending is not only small, it has not changed much since the heyday of Thatcherism). The second type of expenditure has more subtle political questions of what in the goods is collective and what is private---where we draw that line must itself be a social choice.
When Giles and Briscoe join in the griping about the size of the state---however obliquely---on the second of these, they are like the grumpy customer at the restaurant who manages to complain both that the food is bad and that the portions are too small. Of course we don't like spending more on health if the benchmark is both good health and more income. But it isn't.
Granted, there is some social use to the grumpy customer---it keeps the kitchens on their toes. But journalists, especially at the FT, should not be a chapter of the Tax Payer's Alliance: they should be able to engage in informed deliberation about the social choices we have, the institutional mechanisms we have to make them and the role of decentralisation in their provision. Let's fast forward 30 years and not be condemned to repeat these arguments in a nightmarish loop as dull as a Joy Division drumbeat.
