Had Enough Yet?, Thank you, political class


Extrait de: Had Enough Yet?, Thank you, political class, Sheldon Richman, The Freeman, April 08, 2011

The last couple of TGIF columns focused on the trees — some victims of government action — rather than the forest – Leviathan itself. Today’s topic – the looming fiscal disaster – is a case in which concentrating on the trees can lead one to miss the forest altogether.

After the usual posturing, politicians are now offering competing paths to fiscal safety. Bear in mind, however, that their projections are only as good as the underlying assumptions about future economic growth and its impact on expected revenues and expenditures. At best they are guesstimates not facts. Be especially skeptical of projections that extend over a decade or more. Not only are they inherently unreliable, but future Congresses are bound by neither their predecessors’ expectations nor the budgets built on them.

It’s easy to get lost in the numbers, but one thing looks certain: Most everyone understands that the current situation is unsustainable. The economist Herb Stein famously said that anything that can’t go on forever will stop. True enough. But when it stops, what condition will most of us be in?

Unsustainable

The current trajectory is unsustainable in the ruling establishment’s own terms. If nothing changes, in perhaps a little more than a decade:

All the central government’s revenues will be consumed by Medicare, Medicaid, Social Security, and interest on the burgeoning debt, which, at more than
$14 trillion, is closing in on 100 percent of GDP.

The central government now borrows 40 cents of every dollar it spends.

Imagine how upset the ruling elite will be when it can spend money on nothing but so-called entitlements and interest?

That would leave nothing for the military-industrial complex, nothing for business and farm subsidies, nothing for all the ways that politicians buy off constituents so they can be reelected over and over. Obviously, they don’t want that to happen. But if they try to keep spending on everything, total government expenditures would have to rise to half or even three-quarters of GDP.

Thus their concern and their various fantasies about fixing things. The problem is they don’t have many options.

1)      They could explicitly default on some or all of the debt, but they don’t want to do that because they wouldn’t be able to borrow again. (Jeffrey Rogers Hummel, however, thinks a default is likely.)

2)      Inflating their way out won’t work. (See this.)

3)      Raising taxes won’t do it either. Revenues as a percentage of GDP have been essentially constant since World War II regardless of tax rates, indicating that people adjust their behavior in response to the tax environment. (Revenues are historically low now because of the recession.)

Couldn’t the politicians cut spending dramatically? The political system doesn’t typically reward spending cutters. People say they want government to spend less – but not on the stuff they’ve come to depend on. Leaving interest aside, the biggest-ticket items are Medicare (with tens of trillions in unfunded promises) and Medicaid, with Social Security placing third. Elderly people, made dependent on the State, vote in high numbers, and they can be counted on to vote defensively, even when the candidate they’re voting against promises not to touch benefits for current and soon-to-be recipients. The special interests that live off a trillion dollars in annual “defense/security” spending won’t let go easily either.

Thanks a Lot

In light of this mess, it is worthwhile to step back and take in the larger scene. Let’s first acknowledge the debt of gratitude due every politician who put us in this predicament. Each spending vote dug the hole deeper and made it harder to get out. Maybe a loud raspberry would be an appropriate symbolic thank-you. At least the fawning should cease.

Of course no one gets into political office without being elected, so aren’t the voters’ ultimately to blame? In a way, yes, but there’s more to the story. People are left no choice but to pay taxes, so when virtually every politician promises “benefits” in return for those coerced payments, what will most people do? The political establishment has implicitly sold the system as a big mutual-aid society: We all pay in and, when eligible, we may withdraw benefits. Most people don’t realize that government’s forced transfers are as much an act of robbery as those that occur in dark alleys. Nor do they understand the harm done when the money is spent or what is forgone. The well-heeled, well-organized, and well-connected have no trouble securing their subsidies and tax preferences, while sundry “benefits” are bestowed on others in return for their acquiescence in the whole corrupt process. (Those who wish to resist face what Mancur Olson Jr. called the logic of collective action.)

Under the political system’s perverse dynamic, politicians have an electoral interest in promising higher payouts and more goodies, while favoring hidden ways to finance them, such as borrowing, which creates its own set of rent-seekers. The scheme is self-perpetuating — to a point.

Some now call for spending cuts. Others would rather see higher taxes on the “rich” coupled with only modest spending reductions. Several objections leap forth: It’s not the politicians’ money, so taking it is immoral; hiking tax rates won’t raise as much money as they think (people adjust); the politicians can’t be trusted with the money anyway; and leaving it in the private economy would yield general benefits.

Rethinking Government

It’s hard to be optimistic that the mountebanks running the government will do anything sensible in the near future. Until there is a deep rethinking about government, the public will not accept the near-term drastic budget cutting required to head off a fiscal crisis, much less the longer-term structural steps needed to prevent a repetition of what we’ve been through. People will need to understand that while the wish for “social security” in an uncertain world is entirely reasonable, the route to it is not Medicare, Medicaid, and Social Security – which tether people to the political class — but freed markets and voluntary mutual aid.

Finally, the fiscal problem needs more than a fiscal solution. People would be less attracted to government succor if the barriers that raise the cost of initiative and independence – including self-employment taxes, medical care restrictions, occupational licensing, land restrictions, and protection of entrenched economic interests from competition – were removed, freeing individuals to find their most satisfying places in the market without having to kowtow to power and privilege.