The ‘Ratchet Effect’: Why It’s So Hard To Shrink The Government – OpEd

By Jane L. Johnson

The Spring 2025 issue of the Independent Review—a quarterly journal published by the libertarian-leaning Independent Institute in Oakland, California—features several papers presented at a retrospective symposium on Robert Higgs’s contributions to our understanding of government expansion during times of upheaval or crisis. Higgs’s original work—and the symposium’s comments on it—can help economists and historians looking ahead to possible future trajectories for the country.

Higgs’s Background and Legacy

Robert Higgs received his academic education in economics from Johns Hopkins University, and was a member of the economics faculty at the University of Washington from 1968-1983 (where I knew him briefly in the 1970s), and later joined the faculty of Lafayette College in a chaired professorship. He later taught at Seattle University and, in 2015-16, as the inaugural Friedrich von Hayek Distinguished Visiting Professor at the Mercatus Center of George Mason University. He has published several books and numerous scholarly articles, and is now retired and living in Mexico.

He has been a senior fellow at the Independent Institute, and also at the Mises Institute. Much of his work aligns with the traditions of the Austrian School. Some of his Mises Institute publications can be read here, here, and here.

Higgs’s “Ratchet Effect”

In 1987, he published what is arguably his seminal work, Crisis and Leviathan: Critical Episodes in the Growth of American Government. Its major thesis is that government grows in scale and scope during periods of crisis such as war and depression, a thesis that has become the dominant paradigm for understanding the “ratchet effect” leading to permanent increases in government authority during such times, growing during crisis, and then retrenching afterwards, but never to the same level as before. Thus, government typically enlarges, ratchet-style, over time.

Twentieth century examples of this ratchet effect include the following crises that led to government expansion:

• The Great Depression from 1929-1941, during which the federal government authoritatively created many “alphabet agencies,” and large programs such as Social Security, to pump government funds into the economy in order to raise consumption and national product. These fiscal strategies were later scaled back, but government never returned to its pre-Depression size.
• World War II, in which most food and many other essential items were strictly rationed, income-tax withholding was instituted on wages and salaries, tax levels were increased significantly, nighttime blackouts were enforced amidst fears of Japanese or German attacks, young men were conscripted into military service with few deferments, automobile companies produced only defense-related vehicles, and daily life was difficult for many. After the war ended in 1945, rationing and blackouts ended, and automobile companies again produced private passenger cars. Taxes and withholding, however, remained in effect. Government remained larger than in pre-war times, and conscription remained in place until public pressure led to its end in 1973.
• The Great Society began in 1965, in which Congress passed several large entitlement programs such as Medicare, Medicaid, and college student financial aid programs. These entitlements—having proved very popular with the American public—remain in place and are now causing fiscal consternation as these programs comprise about 2/3 of the federal budget, making deficit reduction difficult.
• The Post-9/11 War on Terror, in which Congress passed the intrusive Patriot Act and began spending large amounts on “forever wars” in Iraq, Afghanistan, and other Middle-eastern. Congress failed to fulfill its role as a check on the war-making powers of the executive branch.
• The Great Recession of 2008-09, which resulted in the 2010 passage of the Dodd-Frank Act that aimed to prevent the risk-taking that many thought responsible for the recession, imposing stricter regulations on banks and other financial institutions. Dodd-Frank restrictions remain in effect, with the exception of the apparently ill-fated Consumer Financial Protection Bureau, now scheduled to end.
• The passage of the Affordable Care Act (Obamacare) in 2010 amidst increasing concerns over rising healthcare costs, significantly increasing the federal government’s role in healthcare, subsidizing health insurance premiums and guaranteeing coverage to people with preexisting conditions. The hotly-contested individual mandate to purchase health insurance remains in the law, though reduced to zero percent penalty by Trump’s 2017 Tax Cut and Jobs Act.
• The covid pandemic 2020-2023, during which governments at various levels imposed lockdowns and vaccine mandates, forced unemployment in “non-essential” occupations and industries, closed schools long enough to cause serious gaps in student reading and math achievement, and dictated ineffective “distancing” requirements that generally destroyed or restricted religious gatherings and social interactions among Americans.

Extensions and Expansions of the Ratchet Effect

Given current concerns about the ever-increasing scale and scope of governments at all levels (and increasing budget deficits and debt to fund these ever-larger governments), the Higgs symposium focused on three currently potential crises that portend future ratcheting effects:

• The nuclear weapons ratchet effect, in which the US created and expanded nuclear weapons in response to Nazi Germany’s wartime efforts, and later the Soviet Union’s Cold War aggression, leading to a larger US federal government. After these crisis-level efforts, countries de-escalated by declaring the mutual non-use of nuclear weapons after 1945 and the drawdown of nuclear arsenals beginning in the 1960s. Parenthetically, however, future nuclear weapons outbreaks could, at some future time, occur in such countries as Iran and North Korea.
• The foreign policy ratchet effect—currently detected in US-China relations—in which two nations’ interventionist expansions create crises for each other, leading to cyclical government expansion. As these respective crises reinforce one another, there is less opportunity to “un-ratchet” the effect on increasingly greater government size and scope in each nation.
• A possible emerging ratcheting effect from Operation Warp Speed—in which the federal government created a public-private partnership to develop a covid vaccine. The government invested heavily in this vaccine creation and marketing, and the partnership funding remains in effect even after the end of the emergency, despite the relative ineffectiveness of the vaccine and a drop in public usage.

Drawing Conclusions: Might Current Disturbances or Crises Lead to Ratcheting?

One may wonder whether the US may currently be in a crisis that might lead to government expansion and ratchet effect and, if so, what might be done to avert an increasingly larger government.

Fulfilling his 2024 campaign promises, President Trump has attempted to cut federal expenses, dismiss thousands of federal employees, and eliminate or scale back several federal departments and agencies, including the Department of Education, the Consumer Financial Protection Bureau, and the Environmental Protection Agency.

These efforts have incurred public wrath, as well as intervention by federal inferior courts to impede or end the exercise of executive power, offering opponents the opportunity to claim that the country is already in a “constitutional crisis,” pitting executive and judicial branches against one another.

The eventual outcomes in at least two ongoing highly political controversies—climate change and immigration policy—are unclear, since President Trump’s preferred positions put him at odds with sizable numbers of Americans.

Consider that the dire warnings of global warming and climate-change during recent decades are, to some extent, based on contrived fear-mongering as governments and NGOs spend massive efforts and financial resources to reduce carbon, offer cash incentives to purchase electric vehicles, and eliminate consumer choices of household appliances and light bulbs. Depending on who is in leadership positions, could this result in even greater government restrictions that then lead to public backlash and a ratchet effect?

Also, consider Biden’s de facto open borders policy from 2021-24, flouting current immigration law, as the federal government invited massive migration across the US southern border, affecting labor markets and imposing financial burdens on “sanctuary” jurisdictions to care for migrants at local taxpayer expense. Again, could public backlash ensue that may lead to larger government and a ratchet effect?

How ironic it would be if unresolved potential crises might arise from the very attempts that Trump is now making to de-emphasize climate issues and control the country’s borders in order to reduce the scale and scope of the federal government?

• About the author: Jane Johnson is a retired college economics instructor who currently teaches economics at the Osher Lifelong Learning Institute in southern California. She is a graduate of Vassar College, and has graduate degrees from UC-Berkeley, and the University of Washington.
• Source: This article was published by the Mises Institute