Had Enough Yet?
MAY 25, 2011 by SHELDON RICHMAN
Filed Under : Government Spending, Government, Taxation, Social Security
Regarding the looming fiscal disaster, it’s best to keep one’s eyes on the forest and not get lost in the trees. It’s easy to become overwhelmed by the numbers, but one thing looks certain: Most everyone understands the current situation 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. If they try to keep spending on everything, total government expenditures would have to rise to half or even three-quarters of GDP.
Thus the ruling elite’s concern and the various reform fantasies. But the elite has few good options. Default on the debt would mean no more borrowing. Inflation won’t work. Raising taxes won’t do it either. Revenues as a percentage of GDP have been virtually constant since World War II regardless of tax rates, indicating that people adjust to the tax environment. (Revenues are historically low now because of the recession.)
Why couldn’t the politicians dramatically cut spending? The political system doesn’t typically reward spending cutters. People say they want government to spend less—on the things they don’t depend on. Among the biggest-ticket items are Social Security and Medicare (with tens of trillions in unfunded promises). Elderly people, made dependent on the State, vote in high numbers, and they will vote defensively. The special interests that live off a trillion dollars in annual “defense/security” spending—another big item—won’t let go easily either.
Let us then 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.
But 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. Most people don’t realize that government’s forced transfers are as much acts of robbery as those that occur in dark alleys. Nor do they understand the harm done or the opportunities forgone when government distributes the money. 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 corrupt process.
Some now call for spending cuts—modest in the scheme of things—while others would rather see higher taxes on the rich coupled with even more modest spending reductions. In its own way, each side seeks to preserve the welfare-warfare state. Several objections leap forth regarding the case for higher taxes: 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.
It’s hard to be optimistic. Until there is a deep rethinking of government, the public will not accept the drastic near-term 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 learn 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.
The fiscal problems have more than a fiscal solution. People would be less attracted to government succor if the barriers that raise the cost of initiative and independence were removed and individuals were freed to live without having to kowtow to power and privilege.
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