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When it comes to governing, does size matter?: Amanda Lang and Livio Di Matteo on the diminishing returns of big government

Podcast & Video

The Hub is delighted to announce The Business of Government, a special series hosted by award-winning journalist and best-selling author Amanda Lang about how government works and, more importantly, why it sometimes doesn’t work. In this five-part series, Lang conducts in-depth interviews with experts and former policymakers and puts it all in perspective for the average Canadian.

This episode’s featured guest is Lakehead University economist and regular Hub contributor Livio di Matteo. The two discuss the debate between small government versus bigger government, whether there’s an optimal size of government, or even if the size of government ultimately matters.

Read Amanda’s accompanying column on this topic here.

You can listen to this episode of Hub Dialogues on Acast, Amazon, Apple, Google, Spotify, and YouTube. The episodes are generously supported by The Ira Gluskin And Maxine Granovsky Gluskin Charitable Foundation and The Linda Frum & Howard Sokolowski Charitable Foundation.

AMANDA LANG: Welcome to episode two: “Does size matter?” In this episode, we’re asking the question: Is there such a thing as the right size for government? It can be a loaded question because people tend to follow along partisan lines on this; small, being the conservative preference, bigger, the necessary side effect of liberal policies. But like anything else, you can measure the effectiveness of government. And just the same way you would in the private sector, where too few employees would have ramifications on a business’s profit and growth, too many employees would do the same. Well, our guest today has done a fair amount of research on this subject and is well-versed in the body of knowledge that tries to answer the question: when it comes to governing, does size matter? Livio Di Matteo is an economist in Thunder Bay. He specializes in public policy, health economics, public finances, and economic history. Livio, great to have you with us.

Livio, one of the big questions that people talk about when it comes to government is—we talk about big government and small government, and that’s often a partisan thing, and people draw up lines—but there is such a thing as measuring the effectiveness of the size of a government. What has your research found?

LIVIO DE MATTEO: Well, I’ve done research looking at, for example, the role of public sector size and its relationship with economic growth. And so there is fairly vast literature. I mean, it is possible to empirically measure the size of government, and government has grown, not just in Canada but in countries around the world. If you go back about one hundred fifty years, you’re looking at governments that were fairly minimalist, barely five to ten percent of GDP. That has grown in the twentieth century and peaked roughly, depending on the country, in the early eighties, early nineties. And when a lot of public sectors got close to forty to fifty percent—I mean, Canada peaked in the early nineties at almost fifty-two, fifty-three percent. Then, the period from about the early eighties to essentially 2006-2007 was an era of literally shrinking governments. Most government-to-GDP ratios fell over time.

But then there’s been this bump since then. The first major bump was, of course, 9/11 and that increased spending on security. Then, around 2006-2007, you have the bump of the Great Recession and the financial crisis, when there was a lot of government spending to prevent the economy from sliding into recession. And I guess all things come in threes, I suppose. The third bump has been, of course, the COVID bump. There’s been an increase in spending. So, per se, whether the public sector is large or not, is an empirical question, but what is the effect on growth? And there’s been literature looking at the relationship between public sector size and economic growth rates, first done by people like Scully. Then there’s the Scully/BARS/Armey/Rahn Curve. And so they’ve fitted a relationship between economic growth rates and the size of the public sector. And they find that relationship is essentially a hump shape. So there is a range, whereas you increase the size of the public sector, economic growth goes up, but then there’s a peak point. And then beyond that point, increases in the size of the public sector result in lower economic growth rates.

AMANDA LANG: I do want to drill into that data because that’s, of course, the heart of this. But I want to step back first and say, when we talk about the size of government, people can slice and dice that in different ways because it could include, literally, the government’s operational footprint, right? What does it cost to run the government every year, the budget of the government? But I think, and you do this in the big research that you did that actually arrived at an optimal number, we’re also including, I think, direct control, we’re including the parts of the economy that the government has reached into. So just to clarify, when we say size of government, what do we mean by that?

LIVIO DE MATTEO: Basically, expenditures on programs, debt, interest, and goods and services. So Crown corporations, for example, per se, are not necessarily in that, but they are standalone, even though in a sense, they are public agencies. So there’s basically what is reported in things like the public accounts, the expenditure numbers, taxation, et cetera. That is the size of the government. And as I mentioned, it depends on the government. For the federal government, of course, it’s program spending and debt service. But the program spending itself, if you look at what the federal government spends, for example, two-thirds of it is a type of transfer payment.


LIVIO DE MATTEO: And that surprises most people. Most people think that what the federal government is spending money on is civil servants. Which it is, obviously. But if you look at it in more detail, about two-thirds of what the federal government spends is a transfer. It’s either a transfer to individuals, whether it’s old-age security or a child benefit, or something like that. It’s transfers to other governments, which are for health education, federal transfer payments, transfers to bond holders—that’s basically servicing the debt. And then, transfers to firms’ subsidies, of which we’ve seen a resurgence lately. So, I mean, two-thirds of what the federal government spends is essentially, the money comes in, and they write a cheque, and they send it off. And so, I mean, the OECD has done some studies, and they find that larger governments tend to spend a lot more on redistribution, for example, than, say, smaller governments. And so in the Canadian case, a lot of those transfers, whether they’re to individuals or the provinces, are a form of redistributive payment.

AMANDA LANG: Okay. And I will come back to those transfers because, of course, the single biggest line item is transfers to elderly people in Canada, and that’s important as we move forward. So that’s a fairly tidy way to look at the size of government, because some people I’ve seen, Livio, include regulatory reach. And things that are just their reach into the economy. And, to me, that feels—although it’s not irrelevant, of course—it just feels harder to get your arms around and compare it to other countries. Obviously, it’s going to be a messy way to look at it.

LIVIO DE MATTEO: Yeah. I mean, governments affect the economy basically three ways: through their taxation, through their spending, and through their regulatory activity. And the regulatory activity is fairly important. I mean, the cost of doing business transactions, costs that groups or firms may have to jump through. It’s a real effect. For someone like me, that’s a bit more difficult to measure. I mean, the size of the tax load, for example, is an easier thing to measure relative to GDP. Spending and its composition in a sense is easier to measure, but all three of them affect the economy. So, taxation, for example, has a lot of incentive effects. It can affect risk-taking, capital formation, innovation, and entrepreneurship. Spending, well, that’s finance through taxation. So it has an effect on the economy for the taxes levy to pay for it. But then, what you spend the money on is also fairly important.

So if you’re spending the money on infrastructure, for example, that is needed. I mean, there’s a distinction between something that might be needed and something that might not be. If you’re spending the money on improving test scores for students, which boosts human capital. There are aspects of spending on health that certainly make a lot of sense. But then what about all the other spending? I mean, if it’s being handed out as subsidies to firms or to individuals that don’t have a productive impact, then that is not necessarily growth-enhancing. So, I mean, how much you spend is important, but what you spend it on is also important. And sometimes it’s not even so much the amount of spending, but are you getting value for money for what you’re spending?

AMANDA LANG: So let’s get to the data. And I think it’s important to note that you did some work that really looked not just at the federal number but also broke it down by province. So I think it’s important to look at those numbers too, because, of course, in Canada, that’s a big chunk of the government that’s running our lives. The number you landed at the optimal place to maximize growth is twenty-six percent. So twenty-six percent of GDP is the government spend, and at that, that’s the sweet spot. There was not a government in Canada, at the time that you did the research, which is unfortunately pre-pandemic. So we can only extrapolate up. Not one government was at that level. What does that suggest?

LIVIO DE MATTEO: Well, basically, the optimal size of government in that particular study came out at twenty-six percent to maximize per capita income growth, or per capita GDP growth. There is a range of estimates. There was some other work that I did with a co-author, Dr. Summerfield, out in Atlantic Canada. And we found that throughout the last century, that number fluctuates roughly from about twenty-four, twenty-five percent, to about thirty-two percent. The public sector in Canada, basically overall, has ranged anywhere over the twentieth century, and the twenty-first, from thirty-four, thirty-five percent to fifty-three percent. So in a sense, we’ve never, historically, really ever been in the range that maximizes economic growth. And that is, pretty much, a fairly robust result.

And so the question is: Why are we not in a range that maximizes economic growth? What else are we doing? And to be fair, I mean, those numbers are only if you want to maximize economic growth. Governments obviously do other things, but there is a trade-off involved. And so the question is: What is the value of all these other things that we are doing? And what can you do to bring yourself closer to that optimum maximize growth? These are relationships that are estimated at a point in time. But over time, if your public sector is too large and growth-reducing—I mean, if rather than growing at three percent, you’re only growing at two—that might not seem like a big deal to most people. They’d say, “Well, what’s one percent?” But the power of compound interest is such that carried forward twenty, thirty, forty years, you will have a substantially lower per capita income. You’ll have a per capita income, it’s twenty, thirty percent lower down the road in terms of the level. So in a sense, by not optimizing growth, you are going to have a society that’s poor and less able to provide the things with the tax system or through public expenditure that we seem to think we should be providing. So it’s an important trade-off.

AMANDA LANG: It is. And of course, these kinds of measures can keep people on a straight and narrow. So we like them for that reason alone to give—that there’s some kind of benchmark; governments often choose benchmarks of their own: GDP and net debt, whatever it is, they’ll say, “Look at this number.” Let’s stick with the twenty-six percent. Even if we go up to the thirty-four percent or the thirty-two, there’s a range that we say, “Okay, this is where we’re going to get maximum return.” Could you drill down into the data and say where you would cut it? In other words, where are the least efficient parts of the spending in government? Is it possible to look at this complex machinery and say, “This is the stuff that is the maximum return? And if we cut here, getting down to the twenty— You can imagine if you cut the wrong things, you’re not going to get maximum return. You’ll actually cause harm.” Who decides? In other words, how to get us down to that number? What’s the best way?

LIVIO DE MATTEO: Well, the actual decision of what to cut, ultimately, is a political decision. I mean, there should be economic input. I mean, anything that, in a sense, is an investment into human or physical capital, I think, is your core function, and then there’s everything else around it. But how you get there in the end is a political decision. And that’s, I guess, part of the reality of the world we live in. I mean, economists and scientists can offer all kinds of prescriptions, but in the end, the decision is made by the elected representatives of the public. And they have to decide what the trade-offs are going to be politically. And those are somewhat more difficult, and it’s not something that I usually opine on in terms of what I think the political choices should be.

I mean, personally, I think health and education are quite important, but even within those categories, you probably could deliver more with less expenditure, depending on what you wish to spend the money on. I mean, the health system in Canada, for example, by world standards, is a very good one. But if you look at what we spend as a share of GDP, our outcomes are not that much superior compared to a lot of countries that seem to spend relatively less. The only reason we seem to be happy with what we’re doing, for the most part, in terms of our spending on health, is we always compare ourselves to the United States, which spends about seventeen, almost twenty percent, of its GDP on health, and yet its outcomes in many respects, and things like mortality, longevity, infant mortality, et cetera, are actually even worse than ours. So, I mean, if you compare ourselves to Switzerland or Germany or the Netherlands, we spend quite a bit more and we seem to get less. And so the question is: How do we get more value for money, not just in health but in education? Why is it when the Dutch have a public sector project—they build a bridge—they do it in a few months when it takes us a few years? What are we doing wrong or not as well that we could improve upon?

AMANDA LANG: Health is probably a good example. So let’s stay with it for a second because it is, of course, one of the systems that we have collectively agreed we will fund; it’s not likely to change in this country, but it would be one place where this debate about public sector spending versus private sector spending is quite live. We don’t know the extent to which we would be better off, or systems would work better if we let the private sector in. And, again, it’s easy for that to be a political question, so I want to keep it firmly in the realm of the economic. Is there a straightforward way to do a calculation and say, “These are the places where the public sector is best suited, even if the returns are marginally lower, there are other there are other reasons why the public sector’s best suited, and then these are the places where we will open it to the private sector, and we’ll likely to see benefits of that.” Is that not a calculation that we could ask you economists to make?

LIVIO DE MATTEO: Well, I mean, we’re all going to have our own opinions on that, I suppose. I mean, the thing to keep in mind is that much of the Canadian health system is publicly financed but not exactly publicly provided. So about thirty percent is privately financed, about seventy percent is public, and even within that public, a lot of it is payments to private contractors. So there actually is a relatively high private sector role in the Canadian healthcare system. Now, if you were to devise something, what should, in a sense, the public sector fund or provide, and what should the private sector do? I think there should be, say, a basic or comprehensive healthcare system covering many of the things that the Canada Health Act originally wanted to do, which is essentially hospital and physician services.

Then beyond that, any type of catastrophic care obviously is probably best done through the public system. Anything that has a more elective component or is less sensitive to immediacy and being done, there may be more of a private rule, either in terms of financing or provision. But again, to a certain extent, we already have it designed that way, but for some reason, the design has not resulted in the results that we might have expected. We seem to be spending a lot. And a lot of the indicators—I mean, if you look at things like hospital beds per capita, very low. Physicians per capita, we’re near the bottom of the scale in the OECD countries, despite spending almost eleven percent of our GDP on health. So, I mean, what can we do to improve value for money there? And that’s a tough question.

AMANDA LANG: But it suggests that the answer might not be to spend less money but that there are other factors at play to improve the outcomes.

LIVIO DE MATTEO: They probably are, yeah. And again, you’d have to—it’s not just economists that need to weigh in on that; it’s probably medical specialists also in terms of asking them where they think a lot of the money should be spent or how should it be spent differently. I mean, in many respects, just like in education, very often the front-line people probably have the best idea of what is going on. In the healthcare system, the physicians and the nurses have the best idea of what is going on. And in the universities, people that are in the classroom, it’s a similar kind of thing. So I’m not saying you should rely one hundred percent on them. I mean, obviously, they have one point of view, but you also need someone to provide a more overarching perspective. But you do have to collect the input on where the people who are involved in delivering the service see the savings can be made.

AMANDA LANG: I want to come back to old people; they’re the most expensive thing we have in Canada. They’re the biggest line item for the government. There will be more of us as time goes on, and, of course, the entitlements are going to be a bigger share of spending. So I guess my question to you is: Do we need to change our thinking on what is an acceptable return for our investment? Because of all of that—maybe I’m wrong with this; tell me economically. But I’m going to assume that the spending we do on an elderly person in Canada has a much lower return than other forms of spending. There’s some obviously economic benefit we pay. Well, there will be pass-through effects as it is then spent in the economy, but there’s not a great leverage effect of it. So I guess I’m wondering whether we’re consigning ourselves and we should just accept that we will have lower growth because a bigger share of our spending will go to old people.

LIVIO DE MATTEO: Well, you probably will have lower growth because of an aging labour force. The fact of the matter is without substantial renewal of the labour force and an increase in labour supply, much of our economic growth from, say, the early fifties up until just a decade ago was driven largely by massive expansion of labour supply. And that was through immigration, but it was also through increased labour force participation by female workers. Well, that’s pretty much done. Their participation rates are pretty much equivalent. So where are the future sources of growth? Well, technological change. In terms of spending more on the elderly, well, it depends where you’re spending the money on. I mean, believe it or not, most of the biggest increases in health spending have not actually come from that demographic.

We spend the most on that demographic, but if you look at the growth over the last ten to fifteen years, a lot of the growth has actually been in the forty-five to sixty-five range, which most people don’t think of, necessarily, as the elderly. So the question is, why is that? But a lot of procedures are now being done in that time period. People are having hip replacements at much younger ages, for example. So that’s one of the cost drivers there. Is there a return to that? Of course there is. Well, there’s two types of returns. First, there’s a quality-of-life return. Obviously, the individual that gets the surgery or the procedure. But given that we have an aging labour force, if you want people to work past their early sixties, which I think is going to have to be a factor in order to address labour shortages, then you also are going to have to, in a sense, invest on them.

So as lifespan has gone up, basically, someone born today can easily expect to live into their early nineties, but that also means that they’re going to probably have to be a bit more engaged with the labour market or the labour force as they move into that time span. So much of the health spending is on the demographic over the age of seventy-five, a lot of it is done in the last year of life. And that’s just the nature; when people come down with a terminal illness. Whether you are fifty or eighty, a lot of the spending will be in the last year of your life. But obviously, more people come down with terminal illnesses towards the upper end, and so more of that spending is there. But it hasn’t been as large as driver as people might think. Now, then, there’s long-term care, but that’s a separate set of issues, and that spending is going to go up rather dramatically. But in the Canadian system, we don’t basically have a lot of support for people to keep our elderly parents at home, for example, or to do more at home. So we seem to prefer institutionalizing. That’s very expensive. Yeah, I agree.

AMANDA LANG: And I was really referring to straight-up transfers: old-age security, CPP entitlements to the elderly that they are due. They’ve earned them, but those will become increasingly expensive. We are seeing efforts, this recent government, but certainly this government, to increase immigration, which is seen, I think, as a two-pronged effort. One, to fill labour market gaps, and two, to attract a younger demographic. Frankly, I don’t know how successful—I know the labour market gap one has been reasonably successful. I don’t know how we are doing on the demographic front, but is that a good way to offset that natural reduction in growth that comes with the fact that you’re spending more on a group of people that will be aging out to the labour force?

LIVIO DE MATTEO: It’s basically the only option we have because there’s no natural increase. And even people that immigrate to Canada within a generation, their children will have fewer children also. Canada’s, in a sense, fortunate that we’re a fairly open economy and open to immigration. And so that is a way of basically enhancing the size of our labour force, bringing in people with the skills that we need, and that will certainly be a growth boost. But we probably also need to be investing in the infrastructure to accommodate the immigrants coming in. So, I mean, it’s a bit of a mixed bag right now because you are basically adding hundreds of thousands of people. The investment-to-output ratio is not growing very much; we’re not investing in housing and other infrastructure. And so this is driving up the cost of living for everyone—immigrants and people already here.

And so, in a sense, that’s a bit of a concern. I mean, immigration is a way for us to deal with many of these issues, but it also has to be managed well. The immigration that’s coming in is not as much as you think. It seems like a lot of people, but as a proportion of the population, it was actually higher from about 1900 to 1920. But at that same time, our investment, the GDP ratio, was like thirty-five percent, and we’re nowhere near that. So we are letting people in. We need them, but we’re not investing in the infrastructure to accommodate them, whether it’s housing, education services, health, everything: roads and so on. That’s going to be a problem.

So if you look at spending on the elderly, the old age security payments are the closest thing to a pure transfer, but we’ve also boosted transfers on the other end. If you think about it, old-age security and the child benefit are essentially a form of basic income. And in Canada, we have adopted a basic income. No, people are talking about universal basic income, but it’s pretty comprehensive right now. If you’re over sixty-five, there’s a basic income. That’s not CPP, CPP you pay into, technically speaking. There’s a basic income for people over sixty-five. And if you are under sixty-five and have children under eighteen, there is a basic income for you. And that’s a lot of money in transfers that’s been spent now on both of those.

AMANDA LANG: Livio, in pure economic terms, leaving aside the many, many factors that are political and democratic processes that come into play. But in pure economic terms, is that good spending? Is that kind of straight-up transfer of basic income effective if what we care about is maximizing our collective wealth?

LIVIO DE MATTEO: It depends on what the outcome is. So, for example, the money going to the child benefit, if parents take that money to invest in their children’s education and do things with it, in the long term, that is a very good benefit. I mean, one of the best programs in the long term, with probably the highest return on the dollar spent, it’s not necessarily old-age security or even the child benefit. It’d probably be a national school lunch program, believe it or not.


LIVIO DE MATTEO: And you would probably spend a lot less on that than some of these other programs, but the fact is everyone would be getting a meal at school, and it would help them study better. We don’t have that. And the odds of it coming about are pretty slim, given it’s ten provincial education systems and who’s going to put that one together. I mean, that probably would have a higher—for a dollar spent on that in the long term, my opinion is that would have a much higher benefit than some of the other money that we’re—and essentially, if you look at what’s happened, transfers have really gone up a lot, but they’re simply just money going out, and we don’t really know how that money is going to be used. We are giving it to individuals and assuming that they’re going to do what’s best. And very often, individuals do know what’s best, but we don’t know. We can’t measure it. You see. And that’s the problem: How do we measure this?

AMANDA LANG: Right. We have no control group, I guess, to know what might have happened.

LIVIO DE MATTEO: No, it’s a massive social experiment. There is a lot of money. Like I said, we have created a basic income. We don’t call it that, but that’s essentially what it’s become.

AMANDA LANG: We certainly lifted people out of poverty. There’s children out of poverty. So by measures that—and I guess that gets me to when it comes to how policies get shaped—we do often see metrics being offered, jobs is often one. In a recent example, and I don’t want to get partisan, that’s not really the point, but governments do this; they spend, they subsidize big private corporations in order to so-called attract their business to our country. And so Volkswagen will build a big gigafactory here. It will employ 3000 people, and we will spend in over ten years, somewhere potentially around $13 billion. Hard to know, hard to measure; perhaps you tell me the return on that investment. But I guess what I want to ask you is whether we do see things like jobs being held up as a metric. Is that even the right way to think about something like that?

LIVIO DE MATTEO: Well, that is the metric that’s used. And I mean, economists have their own body of theory on those types of activities at subsidized firms. I mean, there is a case to be made in some circumstances for some type of subsidy or protection to affirm it’s that traditional infant industry argument. Okay. So then you have to ask yourself, “Is Volkswagen an infant industry?” And well, they’re a pretty well-established and developed company. I guess you could make the case, “Oh, well, the batteries for electric cars are an infant industry.” Well, that’s a bit of a stretch. Honestly, I mean, they are investing money, for example, in quantum computers and quantum physics. That may have more of an infant industry-type argument there. But once the industry develops and is underway, all that assistance has to disappear.

Unfortunately, a lot of these industries that are financed this way as infant industries become grandparent industries, and they never, in a sense, really leave the support. So, I mean, you’d probably be better off giving people a tax break with $13 billion if you wanted to stimulate economic activity and growth. In terms of the jobs that are created, if you work out that $13 billion in the number of jobs created, well, those are probably very expensive jobs. There’s probably a better way to create that type of activity through the tax system and through incentives or through infrastructure investment as opposed to simply handling a subsidy out. I’m not saying that you should never hand one out, but that’s a different set of circumstances. In this case, I mean, I look at the company, and I see a very well-established firm not really certain they—but everybody apparently is doing it, but I mean, that’s not for a reason to do something. It’s because everybody else is doing it either, I suppose. But that’s the argument you’ll get.

AMANDA LANG: One thing that we can certainly agree on is that spending has gone up, and as you said, the third event in the last twenty-five years would be the pandemic. Massive growth in spending that has not been ratcheted back, although we have seen some of the spending removed, the supports removed post the depth of the crisis, where the size of our government is just ballooned, and it stayed there. So whatever reductions we’ve seen anywhere have just been in that, I think we have to keep it in that context. It’s very much bigger than it was in 2019. I guess the question that I would say is: Is it a one-to-one line for people who are concerned about that? Can they say that will lead us to lower growth? Because now surely, we’re up into the who—I don’t actually know what percentage of GDP—we could do the math on it. Maybe you know, but based on your criteria, I’m going to guess we’re up into the mid-forties again.

LIVIO DE MATTEO: You’re probably close to the mid-forties right now. I mean, we’d gotten down from, like I said, fifty-two percent in the early nineties. During the year of the federal fiscal crisis, we bottomed out at about thirty-seven percent. By about 2018, 2019, we’re getting close to forty percent, and now we’re about forty-five. So the fact of the matter is that a lot of it was deficit-financed. A deficit today does mean higher taxes down the road. Higher taxes are going to basically affect growth. I mean, you can say, well, there are investments to accompany it, but a lot of it isn’t investment. A lot of it does seem to be redistribution at this point. There is a fair amount of money being redistributed. And that’s great if your economy is growing in real terms at four percent a year after inflation, but we’re not; our growth rate has levelled off. It’s been a while now two percent. That’s by historic standards low. A lot of countries are in that range now since the seventies. But the growth that we always—we like to spend based on the growth we had roughly during the great golden age from about forty-five to the mid-seventies. That’s when economic growth was something like, in real terms, after inflation, four to six percent a year. That’s not the case these days. But we still would like to spend as if the economy was going to grow. And we often justify it by saying, “If we spend this, the economy will grow.” But even the rebound after the pandemic from all that spending was short-term; both reversed. We’re just back down to probably two percent real growth, if that.

AMANDA LANG: Well, and let’s just agree that the data—your research, but the research of many others as well—as you say, there’s a fairly sizable body of work on the return on investment of government spending. There is an argument that we hear that if we spend, it will create growth. Is that simply illogical? If we’re up until the forty percent of GDP, does every incremental dollar not create growth? Or might some of them create growth? In other words, how you spend matters.

LIVIO DE MATTEO: No, it still does create growth. It’s hump-shaped. It doesn’t mean that if you spend beyond that maximum point, you’re at zero. It’s just that the growth rates rise. They peak at about four percent. Then beyond that, you want fifty percent of your GDP in government, well, you’re not going to get a four percent growth rate; you might get three or two and a half. And if you make it even larger, the growth rate declines. So you shouldn’t treat it as a policy menu. Let’s pick a point, and we’ll do that. But the general rule of thumb is there are diminishing returns beyond a certain point to any activity, even government.

AMANDA LANG: And is that something you think governments are aware enough about policymakers are aware enough about?

LIVIO DE MATTEO: I think they are aware, but it’s a long-term issue, and most governments live in the short term.

AMANDA LANG: Sadly true. Livio, it’s so good to have you for this. Really appreciate your time and expertise.

LIVIO DE MATTEO: Thank you, Amanda. My pleasure.