The Case for Smaller Government and the Fallacy of Government Shutdowns

by | May 7, 2019

Another partial federal government “shutdown” began on December 22, 2018. The impression from the media and other commentaries easily suggested that the political and economic sky was about to fall. Various government departments were closed and some government services were reduced. And the fear was fostered that soon masses of people would be dying in […]

Another partial federal government “shutdown” began on December 22, 2018. The impression from the media and other commentaries easily suggested that the political and economic sky was about to fall. Various government departments were closed and some government services were reduced. And the fear was fostered that soon masses of people would be dying in the streets or driven from their homes owing to the lack of government spending.

The Democrats and Republicans, of course, all played the blame game by pointing the finger of responsibility to the other side for government’s not being able to fully do its presumed numerous necessary duties. Donald Trump insisted that it was all because the Democrats would not appropriate the $5.7 billion to build his wall along the southwestern border.

The Democrats insisted they were ready to fund every government department through the end of the fiscal year in September 2019, except for the Department of Homeland Security, which has responsibility for border security; they were ready to pass a continuing resolution to fund Homeland Security into February of this year, and then talk about border barriers.

The president responded that he was willing to keep the government partly closed for months, even years, to ensure proper funding for “the wall.” The Democrats replied that he was holding the nation and its government hostage to his half-baked promises to his political base and looking to the 2020 presidential election. The White House rebutted with the accusation that the new Democratic majority in the House of Representatives was withholding funds just to make the president look bad for their own political purposes.

Media frenzy over shutdown fears

The news outlets were all full of stories about government employees who were laid off or required as “essential personnel” to keep working, but without pay. Empathy and indignation dominated the accounts of the financial sufferings soon to be faced by the heroic performers of government good works if their paychecks were not to get processed and mailed because the shutdown was going on and on.

Because of the easy visual images, the press especially picked up on the partial closing of national parks and monuments around the country. Frustrated adults and saddened children were shown standing at closed gates and entrances, forced to turn away from a day of enjoyment and homage to the country’s national and natural heritage because of the antics of a tweet-addicted president or the obstructionism of congressional Democrats (depending on the news outlet’s political biases).

Other proud Americans were seen entering federal parks and nature areas, but without the reassuring guidance of gentle and informed park rangers; and with public toilets locked and garbage cans overflowing. Oh, the cruelty of it all! How could ____ (fill in the blank according to which side you opposed in the shutdown struggle in Washington, D.C.) do this to our country? Why, it’s, well — the word almost comes to the lips if it is still politically correct — unAmerican.

Political clowns in the government center ring

Of course, it’s all a circus, with the politicians performing their acts in the center ring. We, the citizen audience, have been trained to laugh, cheer, jeer, or boo at what they are doing in front of us, and practically on cue, depending on the name on the ticket we’ve used to enter the big tent of everyday politics — Democrat or Republican, liberal or conservative. “Peanuts; popcorn; get your program to find out what the next act is, and whether you are expected to laugh and cheer, or boo and hiss, at the political clowns entering the center ring.”

Everyone knows that the shutdown will end. Everyone knows that all those poor federal employees furloughed or expected to work for the duration without pay will get it all back in the first paychecks issued once the “crisis” has passed. True, the federal subcontractors not on Uncle Sam’s permanent payroll are out of luck, but, really, how many voters are they? And, besides, when it’s all over the media can run more stories on how they are the uncompensated injured because of Trump’s meanness or Nancy Pelosi’s and Chuck Schumer’s power plays for 2020.

Federal employees and the illusion of a shutdown

The federal government in 2018 employed more than 2 million civilian workers, nationwide. It is no surprise that large numbers work in Virginia (145,000) and Maryland (121,000), but the largest number of federal workers is in California (155,000), with Texas not too far behind (133,000). If you want to be surrounded by the fewest number of federal employees, then Wyoming is the place for you (5,000), followed by North Dakota (5,500), South Dakota (7,500), Idaho (7,700), and Montana (8,600). In Florida there are about 90,000 federal employees, in Georgia there are 72,000, in Pennsylvania there are 62,000, in New York there are 61,000, in Ohio about 50,000, and in Illinois there are almost 45,000. The rest are spread around the rest of country in various numbers.

Only 25 percent of the government was actually affected by this partial shutdown. Most of the government’s departments, bureaus, and agencies were fully funded by congressional legislation for the current 2019 fiscal year that began on October 1, 2018. The parts of the federal government most affected by the December 22, 2018 shutdown were the departments of Commerce, Education, Energy, Labor, Housing and Urban Development, and Homeland Security; the Environmental Protection Agency (EPA); the Food and Drug Administration (FDA); the National Aeronautics and Space Administration (NASA); the Internal Revenue Service (IRS); and the Securities and Exchange Commission (SEC).

But have no fear, gentle citizen, the IRS expected everyone to keep paying what the government says you owe out of your salary paychecks and business revenues, even if almost 90 percent of the agency’s work force were initially furloughed. And more of them were called back to work (temporarily at no pay if necessary) because the White House decided that refunds must be sent to eligible tax-filers once the filing season begins in earnest in late January and early February 2019, even if the shutdown were to go on for that long.

After all, politics may be bread and circuses, but if taxpayers don’t get the refunds their tax returns say they are supposed to receive, well, then you could really find out what an unruly and angry electorate looks like; they might even negatively remember a politician’s name, come voting time in November 2020.

Of those 2 million federal employees, about 800,000 were affected by the shutdown, but only 380,000 were actually sent home on furlough. The remaining 420,000 remained at work technically without pay until the shutdown ends. So, really, fewer than 20 percent of the federal work force were sent home on free, delayed-pay vacation. In fact, therefore, four out of every five federal employees were still on the job, most of them devoting their time to regulating, controlling, prohibiting, commanding, snooping, and surveilling you in various ways having nothing to do with the duties and responsibilities originally assigned to the federal government in the Constitution as imagined by the Founding Fathers.

The welfare state was not sent home.

For instance, the Social Security Administration and Medicare remained fully manned, operating, and redistributing. In fiscal year 2018, which ended on September 30, 2018, Social Security paid out almost $980 billion, while Medicare and Medicaid, combined, paid out an additional $974 billion, or a total for these core entitlement programs of more than $1.95 trillion. Both before and after the start of the shutdown, these major engines of income redistribution kept taking money in and shelling it out.

In 2018, a total of nearly 68 million people received transfers of one type or another from the Social Security Administration. Also, in 2018, around 60 million people obtained Medicare benefits, while more than 66 million people were on the Medicaid rolls, with an additional 6.5 million receiving money from the Children’s Health Insurance Program (CHIP).

No doubt there was overlap between people who were both Social Security and Medicare/Medicaid transfer beneficiaries; but suppose we just use, say, 80 million as a working number of total net recipients of core-entitlement redistribution programs; that would come to one out of every four people in the United States.

Food stamps and farm subsidies

The media drew attention to the fact that the Department of Agriculture was one of the branches of the federal government not fully funded for the current fiscal year before the beginning of the December partial shutdown. More than 40 million Americans who were eligible and receiving support under the Supplemental Nutrition Assistance Program (SNAP) were at risk of not receiving nearly $5 billion in food stamps just in the second half of January and in February, 2019. That means that almost one of every nine people in the United State receives subsidized groceries from the American taxpayer under the food stamp program.

Also because the Department of Agriculture was not being fully funded before the shutdown, large segments of the American farm community were facing a turning off of the federal spending spigot until a budget deal was worked out. Hundreds of farmers faced not getting some share of $12 billion approved by Congress and signed by the president to subsidize estimated monetary losses due to lost business with China caused by President Trump’s tariff war with Beijing. A first segment of this sum, some $7.5 billion, was paid out in September 2018, but affected farmers in the soybean, corn, wheat, and dairy sectors had to sign up for a second round of payments under the program before mid January to get more money; but the Agricultural Department’s doors were shuttered.

Other farmers were unsure about receiving their more-traditional farm-transfer payments from price-support programs, taxpayer money for not growing crops, and government mortgage guarantees for families wanting to buy farms with no money down and wobbly credit histories. The farm budget for 2019 allows for a total of $140 billion to be spent, including around $60 billion for SNAP (or food stamp) outlays to those 40 million recipients.

Military spending and congressional perks

Also untouched by the shutdown was the Department of Defense budget, which came to more than $600 billion in fiscal year 2018, and is budgeted to be $716 billion in fiscal year 2019. There are 1.35 million people actively serving in the branches of the U.S. armed forces, with an additional 800,000 in the reserves, for a total of more than 2.15 million men and women in the U.S. military. Of this total, 165,000 U.S. military personnel are stationed in 150 different countries around the world, of which more than 80,000 are in East Asia and nearly 65,000 are in bases in Europe.

By the way, members of Congress saw to it that the “let’s shut the government down” game did not affect them. Not only did congressmen not go home on furlough, but they didn’t even have their salaries and office budgets temporarily put on hold. No, “the servants of the people” made sure that they would not feel any discomfort during the drama. In fact, even the congressional gym in the Capitol building remained open so that senators and congressmen could relax and exercise at their leisure as they reflected on and debated the fate of the government. Unfortunately, the gym for the congressional staffs was closed. Well, someone had to feel the pain, right?

If only they really went home

With those facts in mind, it is easy to understand why all the hoopla and hysterics about a government shutdown, and the hue and cry about an America at risk because federal employees were not on the job to keep the country running, were absolute nonsense. Indeed, the classical liberal and libertarian can only wish that there had been an actual government shutdown, with the vast majority of those employed by Uncle Sam having been sent home with nothing to do.

Indeed, some of us even might be willing to pay many of those people their tax-extorted salaries, if only they would stay home and mind more of their own personal business, rather than the affairs of others while being armed with the coercive powers of the state. The analogy is the small private enterpriser who may find it expedient to pay the neighborhood protection racketeers to leave him alone, instead of their breaking up his place of business and even threatening his life.

The political combatants in Washington, D.C., and the vast majority of those in the mainstream media have harped on the severity and magnitude of the real or potential damage from a government shutdown, even of the very limited size recently experienced. However, the friend of freedom draws other conclusions when the news reminds us of all that government does in our world today.

Life goes on in the private sector.

One of those conclusions is how little the American people really need the government. In spite of the warnings and worries, as the partial shutdown continued day after day, everyday life for most of us went on just as before. Businesses went about producing and selling desired goods and services. Income earners and consumers went about buying and using the things that provide the necessities, conveniences, and luxuries of personal and family life. The vast majority of people did not change their habits of acting in honest and law-abiding ways in their dealings with others. Americans continued to follow sports, go out for dinner, do some weekend shopping, go online to take advantage of sales and free deliveries, and enjoy free time with family and friends.

The only frustrations and inconveniences were in those areas of life where government interferes with or preempts private enterprise. For instance, IPO offerings by some businesses planning to go public were made more difficult, but only because of the regulatory rules and restrictions imposed by the SEC, which could not be followed because SEC offices were not open for bureaucratic business.

Going to federally owned and managed national parks and monuments was made more difficult, but only because they are owned and overseen by Uncle Sam. If, as classical liberals and libertarians often argue, they were transferred to the hands of private enterprises or non-profit charities, they would not have been closed or made less than safe and unsanitary to use. In fact, in some areas of the country, the media reported, local businesses and community efforts took over the job of taking care of federal parks that remained opened, keeping them clean, safe, and orderly, given that the usual park personnel were on furlough.

Learning how little we should want from government

The lesson that should be and could be learned, but which neither the Republicans and Democrats nor the mainstream media had any incentive or intelligence to draw from this latest shutdown episode, is precisely how unnecessary and how hindering the federal government is in so much of our personal, social, and marketplace lives.

That is, how much better off we would all be, if only all these federal departments, bureaus, and agencies were closed down and their buildings and physical assets simply auctioned off to competitive bidders in the private sector! To the extent that these properties could be converted to market-oriented uses and those formerly employed in them had found alternative work in private businesses, they would be employed in ways that help to improve the human condition rather than hinder and hamstring it. Another lesson to be learned is just how disturbing and frightening it should be considered that such large portions of the American population are dependent on and recipients of tax-based transfers of income and wealth through the redistributing hand of the government. Tens upon tens of millions of people live off the largess of government’s ability to coercively take from Peter to give to Paul.

In 2018, total federal government expenditures came to $4.1 trillion, with taxes of $3.33 trillion, and a budget deficit of $780 billion, along with a civilian work force of more than two million and a military force (active service and reserves) of more than another two million. But in focusing on that, it should not be forgotten how very large other levels of government are as well. State and local governments, combined, spent an additional $3.25 trillion in 2018. The total number of those working for state and local governments came to 19 million people.

That means that all levels of government in 2018 spent $7.35 trillion out of an entire U.S. Gross Domestic Product of approximately $21 trillion, or one-third of all that private enterprise succeeded in producing last year. In addition, all levels of governments absorbed nearly 15 percent of those employed in the American civilian labor force in 2018.

Even while admitting that under a more classical-liberal political regime some people in society would have to be employed by federal, state, and local governments, and while accepting the fact that some of the private wealth produced in society would still have to be used even by a government limited to those smaller though essential responsibilities of properly protecting life, liberty, and honestly acquired property, the size and scope of government today is far beyond all such freedom-friendly bounds.

The “freedom dividend” from smaller government

In 1913, all levels of government, combined, absorbed only 8 percent of national income. If government could be reduced tomorrow just to that pre–World War I level of involvement in society, it would mean that, together, federal, state, and local governments would siphon off only $1.7 trillion of 2018’s $21 trillion GDP.

Expressed another way, $5.65 trillion more of produced output would be retained by the private individuals and enterprises that produced it. Per capita, that would represent a gain of more than $17,000 for each of the 330 million people living in the United States. One might even call it the “freedom dividend” that could be gained by ending the current size and scope of the interventionist-welfare state and reducing government to a dimension at least significantly closer to the classical liberal ideal of the free society.

That is what should be focused on and emphasized. Not the smoke and mirrors of political power-lusters and ideological demagogues using the fiction that government shutdowns cause societal chaos. That only distracts people from the reality of freedom lost and the possibilities of reestablishing more of a land of liberty.

This article was originally published in the March 2019 edition of Future of Freedom.

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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