Realist, not conformist analysis of the latest financial, business and political news

With Government, The Poison Is The Dose

Let’s look at the Rahn Curve.

It tells us that a government should ideally absorb a certain percentage of the GDP of its nation, because the bigger a country gets, the more governing is usually required.

And that’s pretty reasonable – if you have a million more people doing stuff (for example) you might need a thousand more police officers, right?

The Rahn Curve says that a government shouldn’t get too small – if it absorbs less than 15% of its nation’s GDP, it starts to become too small to keep order and the place peacefully ticking over. You get an extra million people doing stuff but can only afford an extra dozen coppers, and suddenly you start to get public disorder as people realise there aren’t enough coppers to stop them doing exactly what they want, when they want.

But the Rahn Curve also says that a government shouldn’t get too big – if it absorbs more than 25% of its nation’s GDP, it starts to become too intrusive to allow people of good will to get on with their lives and pursue health wealth and happiness. You get the extra million people doing stuff but employ an extra 50,000 coppers, and suddenly you start to get public disorder as people resent being kettled every time they go to the shops.

So far so good – anywhere between 15% and 25% is fine, and we can then argue about which end of that spectrum is best for a given set of circumstances.

Here’s the problem.

Britain is WAY outside this range.


That’s right – the British government is eating up almost half the nation’s GDP. It’s a monster, and is twice the size that even quite a large government should be.

So…… might we correct this problem?

Let’s make the maths easy to work with – our GDP is about £1,900 billion and the British government is spending about £790bn – there’s your 41.5%.

It should be noted at this point that the British government only gets in about £750bn and has to borrow the rest.

*clears throat*

Whatever – it’s over twice the size it should be. We need to get the expenditure down from £790bn to £380bn (nicely in the middle of the range at 20% of GDP)

So we need £410bn of “austerity”

Wait – we could sell our schools and healthcare systems off to the private sector for £70bn (saving us an additional £180bn in the process) and then save the remaining £160bn by cancelling the Welfare State! There’s our £410bn!

Calm down – I’m not actually proposing we do this.

I’m merely demonstrating the impossibility of our situation – we have climbed halfway up the wall of Statism and cannot go back.

It’s now communism or bust.

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Quentin Vole
Quentin Vole
5 years ago

Cancel HS2. There’s £100 billion (admittedly, that’s over the next 20 years or so; but still, it’s a start).

5 years ago

How much of that 41.5% is things like state pensions and state healthcare which could be looked at as sort-of personal spending not government spending, you just happen to be “buying” it from the government. Like the old argument: the UK state pension is worse than Chile’s ‘cos it’s only £150 a week – no it’s not, it’s £150 a week plus all the healthcare you can eat.

5 years ago

Where does that percentage come from? This seems quite arbitrary.

The curve is obvious, just as the Laffer curve is obvious. Zero money spent means government has zero effectiveness, 100% also means government has zero effectiveness (everyone has died of starvation), with it being more effective in between. Voila, the curve shape.

The problem comes with determining where the curve tops out. Where is the evidence for it being in the 15-25%?

5 years ago
Reply to  tyrfing

Commenters last weekend ( tended to agree that there is no hard formula except to try it and see; the point at which high tax rates will become a self-defeating disincentive will vary among nations and among income classes within nations. It is a cultural thing how long the reward of doing work beats the punishment of seeing a lot of your earnings thrown at HS2.

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