Cowen and Crisis Reconsidered By Bryan Caplan

Robert Higgs famously blames the growth of government on crises – especially wars and depressions. I firmly believed in this story for over a decade until I read Tyler Cowen’s critique:

The ratchet effect becomes much stronger in the twentieth century than

before. Furthermore most forms of governmental growth probably would

have occurred in the absence of war. The example of Sweden is

instructive. Sweden avoided both World Wars, and had a relatively mild

depression in the 1930s, but has one of the largest governments,

relative to the size of its economy, in the developed world. The war

hypothesis also does not explain all of the chronology of observed

growth. Many Western countries were well on a path towards larger

government before the First World War. And the 1970s were a significant

period for government growth in many nations, despite the prosperity and

relative calm of the 1960s.

Tyler’s words swiftly changed my mind. The Swedish case seemed devastating… so devastating I never bothered to check the data. Last night, however, GMU prodigy Nathaniel Bechhofer informed me that the key facts were right in Econlib’s own Concise Encyclopedia of Economics. Gordon Tullock’s article on “Government Spending” provides the shocking Swedish statistics:

Yes, Sweden stayed out of the actual fighting during the two world wars. But you’d never know it from their budget! Sweden spent almost as much avoiding the war as the combatants spent participating.

For the sake of comparison, check out the U.S. numbers for the same era. World War II led to a 25 percentage-point spike in government’s share of GNP in Sweden, versus 35 percentage-points for the U.S.:

Of course, the history of Sweden is not final proof that Higgs was right all along. But the seemingly devastating Swedish counter-example is a red herring. The Swedes didn’t fight, but they were still terrified, and they still turned to government to save them.