 My name is Chris Coyne and I am the F.A. Harper Professor of Economics at the Mercatus Center at George Mason University and the Associate Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics. Today I'm joined by Dr. Robert Higgs who's a senior fellow in political economy for the Independent Institute and the editor-at-large of the Institute's Quarterly Journal of the Independent Review. Bob, thank you for taking the time to talk to me today. Glad to be here, Chris. I'd like to spend a few minutes talking about one of the main themes in your work, which is the growth of government, and I want to focus on your 1987 book, Crisis of the Leviathan. And in that book you put forth this idea of the ratchet effect. You develop this framework and then you apply it to a host of historical episodes in the growth of government. And so can you tell me a little bit about the ratchet effect framework, what it entails, and also how it helps to explain the growth of government both historically but also how it applies to more contemporary issues as well? The ratchet effect in the abstract is the idea that something is moving in only one direction, at least to the extent that if it moves in that direction it can't be fully returned to the direction or location where it was before. Most people know about ratchet wrenches for tightening nuts on bolts, and so you keep moving the lever in the same direction and pulling it back and forth, but you don't loosen the bolt you only tighten it or vice versa. A ratchet effect in relation to the growth of government is a phenomenon in which government grows perhaps during some discrete episode, and I've focused on national emergency periods, but it grows abruptly and then it later declines, but it doesn't decline back to where it was before the episode or even to where it would have been had the previous growth trajectory continued instead of being displaced by the events of the the the Lurch. Now a lot of economists have studied the growth of government and the general tendency has been to study it as a trend phenomenon. If we look back a century or more we can measure in various ways how big the government was and we now see by those same measures that it's much bigger, and so the idea is more or less to connect the dots or in order to put in all the intervening data and then draw a trend line through them, and then the objective is to explain why that trend slopes upward as it does. Now if one if one does look at all the intervening observations in a long period of growth of government such as that, what one sees is not however a movement along a smooth trend line. There are some economic and social data that do move smoothly like that. If you look for example at the growth of population over the last century or so in the United States you'd see a very very smooth growth trend. It's rate of growth may shift a little bit from time to time, but you could draw a trend line through the population values for the United States over the last century and it would fit very closely the actual yearly observations. But if you looked at any of the common measures of the size of government during that same period you would not find a trend line tracked closely the actual movements of the size of government. You would find instead that there were a number of discrete episodes especially those associated with the two world wars and the Great Depression of the 1930s and to some extent later a period from the early 1960s to the early 1970s and then later than that a period from 2008 for the next several years through four years at least in which once again you had a discrete lurch in many measures of the size of government. So I was drawn to try to understand what relation if any exists between these aberrant periods of sudden growth in the size of government and the fact that there's a long run upward trend. Are they just independent for example? Many economists had treated them as independent. In fact some economists had performed their analyses by excluding these periods from the analysis especially the war years. They said well that's that's not what we're trying to understand. We're trying to understand why over the long run the government has grown bigger and it won't help us if we look at statistical outliers. That was how they conceived of these these particular episodes. As an economic historian I had learned a good deal about the details of what happened during these particular national emergency periods and it seemed to me right away that to throw them out of the analysis was to throw out information that was actually critical to understanding the long-run movements that indeed what happened during these national emergency periods was critical to the fact that there was a long run upward trend in the growth of government that without them that trend might have leveled off even or even reversed itself conceivably at some point. So I began to work with a focus on the national emergency periods to try to integrate them into the study of the long-run growth of government and my book Crisis and Leviathan which you mentioned published in 1987 was the product of about five years of work along those lines in which I studied the period from the late 19th century to the late 20th century when the book was published. Now there's a way to stylize one's conception of the ratchet effect which is divided into phases. Actual historical processes don't fall into patterns nearly so neatly but it's very helpful to stylize the conception of the ratchet effect and so the five phases I identify are the the pre-crisis normality that's when nothing unusual is happening. Government may be growing but if so it's probably growing fairly slowly. Then at the onset of a national emergency a government begins to take actions that result in quite significant unusual growth of government's size scope and power. That is government begins to do a lot of things it wasn't doing before or it begins to do some of the things it was doing before at a much higher level. Then the third phase is the crisis phase itself the crisis it takes a while to to play out before it passes away and during that phase the government remains at a high level of operation. Crises in the past have always ended and when they've ended as say the wars ended then there's always been some retrenchment. Some of the government actions taken during phase two the upward lurch are abandoned or scaled back but the retrenchment has in all these major episodes been incomplete so that when we arrive at phase five the post-crisis normality government may be growing no faster than it was before the crisis but even if so it's growing from a higher level. So the trajectory of the long-run growth of government is displaced upward by each of these crisis episodes and in my historical work I've tried in a variety of ways to discover why it is that the retrenchment is incomplete and there are several reasons why I believe that it's the case. Now other economists had studied ratchet effects perhaps the most notable previous study was by Peacock and Wiseman to British economists who had used this notion to describe the growth of fiscal variables in Great Britain during the early part of the 20th century and Peacock and Wiseman had discovered for example that British spending government spending or British government taxation revenues had all been displaced tremendously upward during each of the world wars and they had fallen back after the wars but not back fully to the pre-crisis level and so there there'd been a definite ratchet effect in Britain as a result of each of the world wars. Almost everybody who studied ratchets or thought about them before my work had thought about them in terms in terms of fiscal variables because that was the normal way economists had measured and continue to measure the size of government. How much money does it spend? How much tax revenue does it collect? How many people does it employ? Sometimes how much money does it borrow? How much does it guarantee in private loans or whatever? There are many ways to measure the magnitude of government's current activity but all of these are ways that economists like because there are quantitative data that can be found to describe what's happened and to analyze it econometrically. As I've said before many economists think if you can't model something you don't have anything so if you're going to fit an econometric model to to the growth of government you need some quantitative data that will facilitate your doing so. Now my conception of the ratchet effect in the growth of government is it's quite different because of my conception of what we mean by the size of government is more complete I think. I'm interested not only in the level at which government operates how much does it spend for example. I'm interested also in the scope of government activity. How many questions that were previously answered by private parties in the private sector of the economy have now come to be answered by government officials, legislators or bureaucrats. When there's an increase in government's decision making that displaces that same kind of decision making previously made by private parties without interference from government then we have an increase in the scope of government. So government over time has become involved in many many things that was not previously involved in and that widening of the scope is a very important way in which government changes the operation of economic life. Even though it may not necessarily spend a great deal more money and sometimes it won't necessarily spend any more money. It simply broadens the authority it exercises over private decision making and it may use that authority in ways that show up in private accounts. For example if government takes responsibility for for pollution control it may pass laws or create agencies like the EPA that tell people they have to take certain actions to to prevent pollution or to moderate the extent of it. But when private parties undertake those compliance actions that's money spent on the account of firms or individuals not money spent on the EPA's account. So an increase in the scope of government activity is is critically important as well as an increase in the amount of money spent or the number of people hired on the government payroll. And the third aspect of government that I include in my notion of the size of government and therefore in my notion of the ratchet effect is government's power. Sometimes a government exerts its power changes the degree of power it exerts in ways that don't show up either in measures of scope or scale. Recently for example the government is undertaken to to impose mass surveillance on the entire population and not only the entire population in the United States but many people in the rest of the world as well. So the activities of government agencies like the NSA and have placed people's electronic communications under surveillance in a massive way. And the government is now exercising this power of surveillance which places all private actors under a cloud of suspicion. They're being watched by government because government thinks they are potential criminals. They're potential terrorists. They're potential wrongdoers of some kind. Cow molesters, taxi voters, drug dealers. You name it. But it turns out that once you put people under mass surveillance and you're watching everybody and accumulating information on their emails and their phone calls and any other form of communication that leaves an electronic trail, you put the government in a position to be very selective about whom it prosecutes, whom it goes after, in some cases whom it kills peremptorily as it does now killing people in many parts of the world with drone rockets. So this increase in the power of government through use of surveillance is a critically important thing but if you were looking at normal measures of government's scale or scope, you might miss it altogether. So I've been at pains throughout my work to pay attention to the size, scope, and power of government and to see how all of those things have changed during episodes I characterized as eventing the ratchet effect.