Pro-Capitalist Ideas Can Reverse Out-of-Control Government Spending and Taxing

by | Oct 27, 2018 | Healthcare, POLITICS, Taxation, Welfare

The world of plunder can be replaced with a community of free people pursuing mutually beneficial peaceful production.

There is always a variety of government programs and activities that people either think are not worth the money or should not be the business of government in the first place. Yet it seems almost impossible to rein in government. It keeps growing in size and scope in one direction after another. Why? And is there any way to reverse it?

Increasing Government Spending and Taxing

The federal government keeps getting bigger and more intrusive and more costly. In the 2018 fiscal year, which ended on September 30,Washington spent a bit more than $4.1 trillion. This compares with $2.1 trillion in 1993 (all figures are in inflation-adjusted 2018 dollars). In other words, federal spending has increased by more than 93 percent over the last 25 years.

Growth has occurred on the revenue side. The federal government took in over $3.3 trillion in taxes in fiscal year 2018, compared to $2 trillion in 1993, for a 65 percent increase in government revenues compared to a quarter of a century ago.

This increase in expenditures and revenues over the last 25 years is reflected in the tax burden on the American people. The average household paid $26,367 in taxes to the federal government in 2018, up from $22,230 in 1993, or an 18 percent increase in 25 years. The population of the country has increased by around 26 percent during this time period while per capita federal government spending has risen by 32 percent.

Both entitlement spending (Social Security, Medicare, and Medicaid) and discretionary spending (including defense) have significantly increased over these two decades. Discretionary spending went up about 50 percent over this period, while entitlement spending rose by 95 percent.

Special Interests and the Growth in Government

According to public choice theory, this growth in government transcends the political differences in modern democratic society. It is structured into the existing political system itself.

Public choice theorists are economists who argue that the political process should be studied in the same manner as markets are analyzed. Over the last several decades, they have attempted to explain the factors behind the growth of government in modern democratic society. They say that individuals in the political arena are motivated by self-interested goals (which can include ideological or ethical ends, as well as financial gains).

This self-interest prompts individuals and special interest groups to weigh the costs and the benefits in deciding to be for or against various government policies; and they attempt to influence political outcomes through their votes, their campaign contributions, and their lobbying expenditures.

Their goal is to obtain through either government regulations or income redistribution what they cannot or do not want to peacefully and voluntarily acquire on the open, competitive market: other people’s money.

Rather than gaining the income they desire by offering the consuming public more, better, and less expensive products, they turn to government to get anticompetitive domestic regulations, import restrictions against foreign rivals, or subsidies or government contracts — all at taxpayers’ and consumers’ expense, of course.

If they are non-profit environmental groups, they turn to government to restrict people’s use of their own private property through land-use prohibitions or regulations, or through government control or ownership of land and wildlife they want preserved from private access and development. Unable to persuade enough of their fellow citizens to voluntarily contribute sufficient money to buy up and maintain the land they wish untouched by man, they turn to the coercive power of government to get what they want through taxes and regulations.

Politicians, Bureaucrats, and the Growth in Government

Politicians, on the other hand, desire to be elected and reelected. They gain political office by selling programs and regulations and spending taxpayer dollars for the benefit of various constituent groups whose campaign contributions and votes they hope to receive.

Why do they want to be elected or reelected? So they can impose on the citizenry — both supporters and those who may have voted against them — spending and taxing that they arrogantly presume to be good for the people, under the presumption that they know what is good for others. They presume those others would want such things of their own free will if only they had the wisdom and values that those holding political office believe they themselves possess.

Of course, sometimes people’s desire for political office arises out of pure personal ambition, including the desire to leave their mark on history, their legacy that future generations of little children will learn about in government schools. Sometimes it is the simple desire for power over others, and any material wealth that can come their way through political plunder and manipulation.

Those who run the government bureaucracies desire larger budgets and greater administrative responsibilities over economic and social affairs. They hope to gain promotions, higher salaries, and more control through discretionary decision-making.

Larger budgets and expanded regulatory authority open the door to promotions and higher salaries in higher government pay grades. In addition, some of those in the government departments, bureaus, and agencies suffer from the psychology of the petty bureaucrat who craves power over others who have to come to them and plead for the regulatory and licensing permissions without which the honest people of the marketplace cannot go about their productive business.

Bureaucrats’ Incentive to Never Get the Job Done

There is also a perverse incentive mechanism within the halls of bureaucratic power. Those who manage and work in these government departments and agencies have little or no incentive to solve the problems for which their department or agency was originally created. If they do so, they lose the rationale for maintenance of or increase in the budgets and authority without which they have neither their incomes nor positions.

This stands in stark contrast to the incentives for the private enterpriser in the competitive market. In the free market, there is only one way to gain and retain the business of the consumers from whose purchases market-based enterprises earn their revenues: to solve people’s problems.

It may be a tastier coffee or frozen dinner, or a more wrinkle-free shirt or suit, or a longer-lasting chewing gum, or better-fitting and lighter-wearing prescription eyeglasses, or a better-quality and less expensive private education, or a wider-covering and lower-premium car-insurance or health-insurance policy. Whatever it may be, in the free market, attracting customers and winning their repeat business requires private enterprisers to make people’s lives easier, more comfortable, and less expensive.

There are no such incentives within the government bureaucracies, in which the “servants of the people” have monopoly control over certain services and regulatory rules and permissions. In addition, they acquire their incomes not through voluntary transactions but through compulsory taxation.

If this is the crude but no less true reality behind the public-interest and general-welfare political rhetoric with which those in political power attempt to mesmerize citizens and taxpayers, then why, once it is understood, does the governmental system of paternalism and plunder persist?

Concentration of Benefits, Diffusion of Burdens

One of the core ideas of the public choice theorists is that there is a bias toward growth in government spending and redistribution that results from the logic of a concentration of benefits and a diffusion of burdens. The logic was actually explained more than a century ago, in 1896, by the famous Italian economist and sociologist Vilfredo Pareto.

Imagine that in a country of 30 million people, the government proposes to tax each citizen $1 more and then redistribute the extra $30 million among a special interest group of 30 individuals. Each taxpayer will have one extra dollar taken away from them by the government for the year, while each of the 30 recipients of this wealth transfer will annually gain an extra $1 million.

Pareto suggested that the 30 recipients will collectively have a strong incentive to lobby and even corruptly buy the votes of the politicians able to pass this redistributive legislation. Each individual taxpayer, on the other hand, will have little incentive to spend the time and effort to counter-lobby and petition members of the legislature merely to save $1 off his or her tax bill.

Let’s look at the federal government’s budget. In 2018, the per capita amount of government expenditures was around $12,575 for every man, woman, and child. Not everyone, of course, pays taxes. The average taxpayer burden of government spending in 2018 came to around $29,357. However, the cost of each of the government departments and bureaus and the specific line items in their respective budgets was only a fraction of the overall tax burden.

Big Government’s Spending, Individuals’ Tax Burdens

Suppose a conservative is critical of the Department of Education, thinking that many of its activities are misplaced, or perhaps that the whole department should be abolished. While the Department of Education spent nearly $68.2 billion last year, the average taxpayer only shouldered $487 of this expense, or on average only $40.50 in monthly taxes or $1.35 a day. This is far less than a latte at Starbucks or a lunch at a fast food establishment.

In most instances, it would be hard to interest a member of the general taxpaying public to learn enough about the pros and cons of the programs run by the Department of Education to make an informed decision as to whether what the Education Department was doing was really worth it. After all, even if the Department of Education was abolished, it would save the average taxpayer less than $2 a day, assuming taxes were cut by the full amount.

On the other hand, that $68.2 billion is concentrated on the incomes and activities of, at most, several hundreds of thousands of teachers, educators, school administrators, and textbook and school-supply providers. Those federal dollars represent a sizable portion of their administrative budgets, take-home pay, and business profits. The lobbying and voting incentives, therefore, will be heavily on the side of those who see financial gains from continuing and increasing federal spending on government-funded education.

Someone on the “liberal” side of the political spectrum might be equally critical of some of the line-item spending in the Department of Defense budget, or on subsidies to corporate agribusinesses funded by the Department of Agriculture. But the same bias would work in these areas of government activity as well, making it difficult to create the necessary political counterweights to lobby for the reduction or elimination of these federal programs.

The Defense Department’s spending on warplanes and battleships, uniforms and boots, ammunition and weaponry, spying devices and unmanned drones represents hundreds of millions, sometimes billions, of dollars to the various contractors who win and fulfill these military contracts. They have a strong incentive to lobby for the greatest amount of defense-related spending, and to know every detail and potential rationale to demonstrate that such expenditures are in the national interest and why they are the right ones to get the taxpayer-funded procurement deals.

But how many taxpayers will have the incentive to wade through all the (unclassified) details concerning the various parts of Defense Department spending to make an informed decision about how much defense spending America needs and of what type, considering that even if some programs were to be cut back or eliminated it would maybe result in a cut in their personal taxes by the equivalent of a few dollars a day? For most individual citizens, their time and attention have a higher value in doing other things.

Because of this, government tends to grow in many directions in the form of concentrated benefits for special interest groups of all types at the expense of the general citizenry and taxpayers. The dispersed financial burden that falls on each taxpayer as their contribution to these programs nonetheless adds up, of course, to hundreds of billions, indeed trillions, of dollars a year of government spending.

Division of Labor and the Bias Toward Producer Interests

Since the time of Adam Smith in the 18th century, economists have emphasized the productive benefits from specialization through the division of labor. Each of us will be materially far better off if we specialize in what we are relatively more productive at doing and then trade away our particular good or service for what others are offering to sell us. This is really the basis for all the material, scientific, intellectual, and cultural advancements of modern civilization.

But near the beginning of the 20th century, British economist Philip Wicksteed pointed out, in his The Common Sense of Political Economy (1910), that such specialization also tends to create a bias against the open, competitive market, in which people need to apply themselves in the most productive and cost-efficient ways. This was also strongly emphasized by German economist Wilhelm Röpke, in his work The Social Crisis of Our Time (1942).

Once individuals have divided their labors, each becomes the producer of one product (or at most a small handful of things) and the consumer of all the multitudes of goods that others in society produce. But it is impossible for any of us to buy the goods that others offer to us as consumers unless we have first succeeded in earning an income from what we are selling on the market in our own role as a producer.

Because of this, our interest as a producer always tends to take precedence over our role as a consumer, it has been argued. If I oppose some special interest group that is trying to get a subsidy from the government, I may save a dollar in my role as taxpayer and consumer (to use the earlier example from Pareto). But is it worth the cost in time, effort, and expenditure to do so?

On the other hand, lobbying and otherwise influencing the legislative process to win some favor or privilege for me and the others in my sector of the economy may produce better financial results. A protective tariff to limit foreign competition, for example, or a regulatory or licensing rule that restricts new domestic rivals can increase my income per year by tens of thousands of dollars, in my role as a producer.

The Democratic Dilemma and the Need to Limit Government

This is, in a sense, the modern democratic dilemma.

Over the last 100 years, there have been fewer and fewer restraints on what is viewed as the proper role of government in society. The arena in which government may take an active part, both in the United States and around the world, grows ever wider. This widening arena of government has become the playground of special interest politicking from both the political left and right by those hoping to gain something through government intervention at the expense of others in society.

In 2017, there were around 12,550 registered lobbying groups in Washington, D.C. They officially spent more than $3.37 billion in 2017 to influence legislation on behalf of special interest groups from across the political spectrum, and reflecting virtually every sector of the U.S. economy. Just since this century began, annual spending by Washington-based lobbying groups has increased by nearly 50 percent.

How do we break out of this dilemma and return to limited government? Unfortunately, there are no electoral quick fixes or political sleights-of-hand that can reduce or eliminate the political paternalism and plunder  of the modern interventionist welfare state.

A Return to the Idea of Individual Rights Inviolable by Government

Breaking out of the dilemma requires a sea change in the philosophical, ethical, and political-economic premises upon which American society operates. In other words, those of us who believe in and desire liberty and a free society must return to first principles and articulate the same to others.

We must hone our own understanding of the ideas and ideals upon which the United States was originally founded, and most especially as enunciated in the Declaration of Independence, where it was clearly and explicitly stated that freedom is inseparable from the recognition and defense of those inalienable rights to “life, liberty, and the pursuit of happiness” that are possessed by each and every individual.

As long as people believe that society or the democratic majority or some empty notion of the general welfare comes before and is above the rights and interests of the peaceful individual, there will be no breaking out of the trend toward the growing size of government and its scope in controlling all of us.

It must become second nature for Americans in general to once more take it for granted that certain things are, well, just not done — more precisely, that it is the duty of government to protect the right of all individuals to their life, liberty, and honestly acquired property, and not to violate those people’s rights.

For it to become second nature again, people must rediscover the reason for and rightness of an inviolable right of all individuals to their own life, which should not be sacrificed to some mystical and imagined higher good or any collective entity called the nation, the state, or society.

Changing the Course of Human Events With Right Ideas

Enough of us have to have sufficiently done so that we can explain to others the essentials of such a theory of individual rights, and with sufficient persuasiveness that those others, too, come to see the rightness in them. Then it won’t matter that most people never have an incentive to know enough to decide whether the Department of Education is spending too little or too much on a common-core curriculum or whether the Defense Department has just the right number of aircraft or ocean vessels to police the world.

Enough people will enter the voting booth and ask as second nature , Is this candidate for or against respect for and protection of individual rights? Does this party platform advocate or oppose private property and free market capitalism? Do this party and these candidates believe that the function of government is to defensively protect the citizens of the country from the clear and present dangers of foreign aggressors, or do they wish to sacrifice the lives and fortunes of Americans in foreign adventures and wars?

Most people, if they see a person drop their wallet, will pick it up and hand it back to them, because as second nature they take for granted that taking what belongs to another is wrong. For a free society to prevail, it is necessary for many people to no longer give even a thought that it is ethically right for them to run to government and take by political power what they would never think of stealing in their private interactions with others.

It is not that advocacy of liberty should become a prejudice — that is, a preconceived idea not based on reasoned reflection or learned experience. A mere faith in freedom without a well-grounded set of reasons for advocating it will not sustain a free society in the long run.

What it does mean is that each generation must be encouraged to think about and learn the meaning of individual rights and what they imply about the nature of humans, human associations, and the role and place of a government in society.

If properly and effectively understood, it will become the generally accepted notion that every thinking and reasonable person knows that  using the coercive power of the government to compel anyone to sacrifice their life for others is as ethically not right as expecting others to be forced to sacrifice for them.

Then, as a matter of implied first principles, it will be impossible for some in the society to successfully coerce others through the tools of political power because it will be culturally counter to the general habit of the mind that liberty is too precious as both a moral and practical matter to be forgone for even the most attractive short-run gains from political paternalism and plunder.

It is neither an easy nor a quick task to change, in this sense, the climate of opinion about the appropriate moral order to sustain a free, prosperous, and ethical society. But we have no tools other than our minds and our reason and an understanding that it is in our own self-interest to try.

If enough of us take on this task, the growth in government can be both halted and reversed. The world of plunder can be replaced with a community of free people pursuing mutually beneficial peaceful production. The democratic dilemma of every growing government will be brought to an end.

Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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