Fall 2014 Rockefeller Center Direct Line - The Theory and Practice of Public Policy in the United States

The start of each term brings a direct line from Rockefeller Center Director Andrew Samwick.

With the arrival of the Fall Term, the faculty and staff of the Rockefeller Center welcomed the Class of 2018 to Dartmouth. Over the next four years, the curriculum and programs at the Center will engage them in the theory and practice of public policy. Public policy is relevant in all areas in which stakeholders are diffuse, problems are complex and interdisciplinary, and solutions must mobilize market and non-market resources.

In the United States, as in no other country, solutions to public policy challenges include but extend well beyond the public sector. To see just how unusual the U.S. is, I present below a graph based on research I did with Don Casler ’14 while he was a presidential scholar research assistant of mine. All data are found in publications of the Organization for Economic Cooperation and Development (OECD). The data are for 2007, the last year before the Great Recession and thus a good indication of longer-term trends.

Source: Author's tabulations of OECD data.

Each point on the graph shows two measures of the size of a country’s “public sector,” with each country identified by a three-letter abbreviation. A country’s horizontal distance from the origin indicates the ratio of the expenditures of its federal, state, and local governments to the size of its economy, measured by Gross Domestic Product (GDP). This is the size of the public sector as conventionally measured. According to this measure, the United States is near the middle of the pack. (Note that in analogous comparisons that look only at the size of the federal government, the United States is relatively lower, given the unusually large size of our state and local government sectors compared to other countries.)

The vertical axis provides a different measure of the size of the public sector. It adds private expenditures on health, education, and social welfare to the expenditures of federal, state, and local governments. The vertical distance from the origin is the ratio of all of these expenditures to GDP. The vertical distance from the 45-degree line shows the size of the private sector expenditures as a share of GDP. Two aspects of the graph are noteworthy.

First, many European countries are very close to the 45-degree line. They have almost no private expenditures on health, education, and social welfare. Whatever they spend in these areas, they spend through government entities. Second, the United States has by far the largest private sector focused on these issues. Indeed, the nonprofit sector in the United States accounts for over $1 trillion per year in expenditures. When private expenditures in areas that in other countries are handled almost exclusively by the government are considered, the US has a “public sector” that is as large as France and thus the second largest in the world.

This uniquely American approach to public policy certainly reflects a difference in tastes and culture across countries. But it may also reflect inefficiencies in the American system. Our expenditures in health and education, in particular, are large relative to the economy, handled in no small part through the private sector, and in general not correlated with better outcomes compared to other countries. For all of these reasons, the interplay between government and private entities focused on improving outcomes in health, education, and social welfare is an important part of both the theory and practice of public policy in the United States.

--Andrew Samwick, Director of the Nelson A. Rockefeller Center for Public Policy and the Social Sciences

Andrew A. Samwick is the Director of the Nelson A. Rockefeller Center for Public Policy and the Social Sciences, the Sandra L. and Arthur L. Irving '72a, P'10 Professor of Economics at Dartmouth College, and a research associate of the National Bureau of Economic Research. In 2003 and 2004, he served as chief economist on the staff of the President’s Council of Economic Advisers.

Since joining the Dartmouth faculty in 1994, his scholarly work has covered a range of topics, including pensions, saving, taxation, portfolio choice, and executive compensation. Professor Samwick has been published in American Economic Review, Journal of Political Economy, Journal of Finance, Journal of Public Economics, and a number of specialized journals and conference volumes. He graduated summa cum laude with a degree in economics from Harvard College and received his Ph.D. in economics from the Massachusetts Institute of Technology. He blogs about economics, politics, and current events.