Freeman

ARTICLE

Cutting the Budget

APRIL 01, 1982 by DENNIS BECHARA

Mr. Bechara is an attorney in Mayaguez, Puerto Rico.

The current attempt to curtail government spending has stumbled on numerous roadblocks. Any effort to reduce the size of government is always faced with an articulate and well-organized opposition. Scores of social scientists are willing to testify before Congress that if the government eliminates this or that social program chaos will result. Congressmen are bombarded with hysterical pleas from constituents not to slash pet government projects. Public opinion polls and the press publicize the people’s fear that “their program” will be cut. And beneath it all is the suspicion that only the wealthy will truly benefit from a reduction in government spending.

To succeed in reducing the size of government, it is imperative to understand the nature of the democratic process and the cause of the organized opposition to those efforts. A major reason for such opposition is that the benefits of government projects are distributed to small groups of recipients, whereas the cost of such programs is dispersed throughout the population. Therefore, any single government spending program represents, to each taxpayer, a small increment in his taxes or in the cost of government. However, to the beneficiaries of the program, the proposed spending represents a significant infusion of capital. So, it is logical for the proponents of the different spending bills to marshal their forces and actively lobby for such measures. The individual taxpayer, on the other hand, finds it more costly to oppose a given program than he might save in taxes in its absence.

To their further advantage, the champions of government spending are able to point to the specific project as evidence that they have created employment and consequently have favored a group that is deserving of aid. The opponents of government spending, on the other hand, cannot show what jobs have been created or preserved in the absence of government spending and intervention.

R. L. Schreadley, Executive Editor of the Charleston, S.C., Post-Courier, came to the point in his editorial of December 27, 1981: “What we don’t see, what nobody sees or records, are the buildings, the jobs, the hope that might have flourished within and without the cities had federal bureaucrats and their eager accomplices not succumbed so long ago to the dangerous business of believing themselves more prescient than the market . . . . You do not make a bad investment good by salting it with taxpayers’ dollars. (Except, of course, for the lucky developers up front who are quick enough and smart enough to take the money and run.) You do not restore confidence in the financial future of the cities or of this country by requiring taxpayers to assume risks no prudent private investor would take.”

Since government has no resources, it either taxes, borrows, or simply prints new paper money in order to finance its activities. Any government spending must necessarily have a corresponding effect on the economy. If government were to tax in order to raise revenue, this represents a loss of investment and savings from the private sector, which is also translated into a loss of jobs. Therefore, the jobs created in any government project which is financed by taxation implies the elimination of jobs in the private sector. Similarly, if government spending is financed through borrowing in the capital markets, this means that the funds which otherwise could have gone to the private sector are being channeled into the government project. Higher interest rates are one of the consequences. If the printing of money is the alternative chosen by the state to finance its projects, that spells inflation.

The opponents of government spending projects thus appear to be the enemy of the deserving minorities who are the object of the government’s largesse. Opponents are psychologically disarmed because they cannot show precisely who will be harmed by the government program.

The Democratic Aura

Those who would curb government spending face one further hurdle. Governments have traditionally attempted to justify spending and interventionist policies by placing the imprimatur of democracy on such activities. Governments have sensed the aura of legitimacy conveyed by the term, and they have disguised many of their economic policies in democratic garb. This tends to discourage criticism.

Examples of this are legion. The public school system exists as a result of laws which provide that the taxpayers must support the schooling of the community’s children. Many taxpayers are opposed to the system, yet become involved in voting for membership in the local boards of education. Similarly, the raising of revenue has been democratized, as bond issues become entangled in the election process.

The National Labor Relations Act has instituted the system of democratic elections under which the employees of what the NLRB deems to be an “appropriate bargaining unit” may select a union as their representative for the purpose of collective bargaining. In addition, the Landrum- Griffin Act contains what is known as the “Union Member’s Bill of Rights” under which certain democratic values are upheld.

Many other Acts of Congress, which call for government intervention, similarly provide themselves with the shield of democracy. This happens because Congress, in deciding to implement a program, does so after a process of consultation and after obtaining evidence through testimony in public hearings.

The impression that the process is democratic is always present in any legislative effort, because the Congressmen who approved the different spending proposals were popularly elected. Therefore, if the people were truly opposed to policies implemented by their elected officials, their recourse would be through the electoral process.

Intervention by Way of Judicial Powers of Government

The judicial powers of government are also drawn upon to legitimize economic intervention. Administrative tribunals have been created under which governmental agencies exercise their control. The people who are the object of this scrutiny are thus made to feel that somehow the treatment was fair and democratic, because due process was followed. After all, notice was given to the parties, and an opportunity was afforded them to present evidence and to cross-examine the opponents’ witnesses.

However, the most important aspect of government intervention is blithely ignored: its economic consequences. Rent control is a classic example. A bureaucratic agency may treat each case individually, applying the same formula to different landlords in order to determine the maximum prices they may charge. The landlord in turn may be able to establish, through a quasi-judicial proceeding, that there are other factors which the government ought to take into account in computing the rent. But despite recourse to due process, the effect of rent control will be felt. This will be the reduction of the available capital which will be devoted to building rental space, and the improper utilization of space, as tenants discover they can occupy more than they actually need because the price they have to pay for it is lower than its market value.

Similarly, claiming that government policies are democratic just because a majority of the people opted to follow the practice does not change its economic consequences. When the labor union, which was elected by a majority of the employees, obtains wage concessions from employers that discourage further production, the inevitable result is unemployment.

However difficult the task of reducing the size of government, it is not impossible. Essential to any fundamental change of policy is economic education. Once voters and taxpayers understand the economic implications of spending programs, the proponents of limited government will be in a more persuasive position.

The present economic crisis may well motivate us to discover the solutions to these problems. We are witnessing today many efforts to reduce the scope of government. These efforts stem from the crisis that is the result of the failure of interventionist policies. And this crisis, as Leonard Read says, “is sending up signals—messages loud and clear—that our past is filled with errors which inexorably produced their evil results. The consequences we suffer now were caused by past mistakes, and we need to know what wrong actions are responsible for these bad effects. The fact is, we are being graced with warnings which, when and if read aright, can lead to our salvation.”

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April 1982

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