Academic journal article The Cato Journal

Trust and the Growth of Government

Academic journal article The Cato Journal

Trust and the Growth of Government

Article excerpt

An important part of post-World War II economic history is the growth of government. In the United States, much of this growth has taken the form of an increased scope of federal involvement in the economy via income redistribution programs and in regulatory activity. However, it has been accompanied by a large decline in trust of government. Pew Research Center (2010) reports that respondents who indicate that they trust government "most of the time" or "just about always" fell from 76.6 percent in 1966 to 21.5 percent in 2010. (1) A good deal of anecdotal evidence is consistent with the simultaneous growth in and mistrust of government (e.g., see Lewis 2010, who discusses the decline of trust and civic life in Greece as government has grown).

The decline in the public's trust of government, given its increased importance in society, has caused great unease among many commentators. A concern often raised is that trust is an important aspect of social capital and its decline may detract from the performance of government, as well as in the ease and efficacy of economic and social interactions. Moreover, the simultaneous growth in government and deterioration in trust in government presents something of a paradox: How does a mistrusted institution grow and become so large? This article develops a framework to understand this paradox as well as related issues.

To do so, we utilize key findings in the economics, psychology, and experimental literatures that illuminate the interrelationships among trust in government, productivity, rent seeking, and government growth. A good deal has been written about each of these phenomena separately--and the fundamentals that underlie them--and this has produced a number of important findings. We bring many of these findings together in a unifying framework regarding trust, reciprocity, and cooperation; social capital and productivity; and rent seeking and political economy/public choice to understand equilibria and interactions among them.

A basic outcome from our modeling is the mutual dependence of the public's mistrust in government and the extent of political/rent-seeking activity fostered by government. It seems straightforward that trust in government is a declining function of government actions that generate rent seeking and reward special interests--and indeed this is an aspect of our model. However, a less apparent implication is the feedback mechanism that generates greater rent seeking as the degree of mistrustfulness grows; essentially, the returns to rent seeking are relatively higher in a mistrustful environment. It is this feedback effect that leads to a situation where government growth and mistrust might perpetuate one another. Thus, an initial small change in government policy that encourages rent seeking can produce mistrust and multiply itself, leading to further growth in government activity and mounting mistrust. This may help provide an explanation of the historical comovement of government size and mistrust in government.

Good government activity also occurs and we incorporate it into our model. However, it is simply not plausible for government growth to be regarded as predominantly good while leading to less trust in government. Thus, much of our focus is on government action that fosters rent seeking/political activity and rewards interest groups.

Extensions of our basic model also contribute to models of Leviathan, i.e., how government growth may sustain itself and rarely reverse. Important frameworks in this regard are developed by Higgs (1987), Olson (1982), and Caplan (2003), but ours brings in the role of the public's trust in government. In particular, a version of our model has two equilibria--where one equilibrium is good, with high trust and low rent seeking, and another is bad, with the converse--in which an economy can become trapped in a big government/high rent-seeking/low trust equilibrium. Once policies are adopted that move the economy from the former to the latter equilibrium, moving back is difficult. …

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