I think I have enough material now to outline what the government should be spending big bucks on. I’m assuming that about 7% of GDP goes to relatively small things like infrastructure and scientific research, in order to concentrate on the big items on the budget.
1. Every country needs a military. However, some countries overspend on it, usually for no good reason. In today’s world, the only developed country that is militarily threatened by anyone is Israel. The rest just fake it to placate irate Generals. A good rule of thumb is that if you spend more than 1.5-2% of GDP on defense, including military intelligence and weapon R&D, you’re wasting money.
2. Health spending is typically 8% of GDP. But most health spending is on things that don’t usually cost more when national income goes up by a little bit, like building and equipping hospitals, or buying prescription drugs, or maintaining hospital staff. So a better figure than 8% would be $2,000-$2,500 per capita. In the US, 6% would be about right, as it would in Norway, the number two public spender on health care in the world.
3. Education spending averages about 5% of GDP, but rises faster than GDP. In the US, which spends almost 7%, the main sources of wasteful spending are the need to provide teachers with health insurance, which costs $1,000 per student; overall educational disparities, which reduce performance on their own and require a higher average spending to compensate; and out of control college tuition. Note that just making college free costs 0.25% in the US. Tacking on free daycare adds another 1% or so.
4. Welfare costs money. The exact amount depends on the poverty line and the ability of unions, worker retraining, etc. to get people out of poverty without handouts; in the US, a good guaranteed minimum income program will cost 4.5-5%, and unemployment insurance costs another 2%. Finally, social security spending ranges from 2% in Canada to 9% in Sweden. Part of it is explained by the difference in dependency ratios, but it’s also due to Sweden’s paying a lot more than Canada. The US is somewhere in the middle with 4.5%, which will be perfectly fine if health spending takes care of prescription drugs.