The Illusion Behind Government Aid

Dr. Russell is Professor of Management, University of Wisconsin at La Crosse.

In 1849, the French legislator, Frederic Bastiat, said that the French people are "the dupes of one of the strangest illusions which has ever taken possession of the human mind." He was referring to the belief that government itself is a primary source of goods and services that can be used to increase the material well-being of the people.

When we are dissatisfied with our lot, said Bastiat in his essay THE STATE, we turn to government to get the products and services we want. He listed various laws and programs-in-aid that the French people were demanding from their government in 1849. Among them were minimum wages, protection from competition at home and abroad, government funds at low interest, free professional education, lower taxes, disaster relief programs, subsidies for both agriculture and industry, old age pensions, and many similar programs that the French people thought their government should sponsor some 130 years ago.

Bastiat continued, "All of us are petitioning THE STATE in this manner. . . . But THE STATE has no means of granting privileges to some without adding to the labor of others."

Then Bastiat gave us this definition of government: "THE STATE is the great fiction through which everybody endeavors to live at the expense of everybody." He said that this "great fiction" was doing great harm to the French people and nation.

Could this absurd concept of government—everybody living at the expense of everybody else—ever become prevalent in the United States? Well, today more than 130 million Americans are directly dependent on tax dollars, in one form or another for at least a part of their incomes. That’s more than half of us.

Included in the 130 million people who are now living at the expense of everybody are local, state, and federal employees and their dependents, armed forces personnel and dependents, everyone (and their dependents) receiving any form of direct cash payment from government, e.g., government pensions of all types and aid to families with dependent children.

Not included are recipients of Medicare and Medicaid, food stamps, and similar "in kind" programs. Including them would result in considerable double counting. Also not included are the millions of persons (and their dependents) who work for private companies under government contracts, even though the source of most of their incomes is government. Nor does the figure include the millions of foreigners who receive direct support from our taxes. Nor does it include those persons whose jobs are based indirectly on government aid programs, e.g., doctors who get a share of their incomes from Medicare patients. Thus the figure of more than 130 million Americans who are totally or partially dependent on government for their livelihoods is surely not exaggerated.

Understandably, the recipients and supporters of these government programs are quick to defend them on both economic and moral grounds, especially moral grounds. Shouldn’t hungry children be fed? Shouldn’t elderly people (most of whom paid Social Security taxes when they were younger) be maintained with some dignity in their old age? Do you begrudge a veteran his pension? Shouldn’t farmers be guaranteed at least a minimum income through parity prices? And so on, through literally hundreds of similar government-administered programs that take resources from people who produced them and give them to people who didn’t.

I’m not here either condemning or defending any of these programs; some of them do provide valuable services. I’m merely pointing out the fact that far more than half of us American people (130 million) are now living totally or partially at the expense of fewer than half of us (90 million). And the number of those who get the money (as well as the amount) is constantly increasing. At some point, the producers will simply refuse to support the non-producers. In truth, they won’t really have a choice in the matter; for there just won’t be enough produced to go around.

I suspect that this breaking-point has already been reached. It’s probably the primary reason for the increasing growth of the "subterranean economy" for exchanging our products and services. This non-taxed market system of exchange includes "moonlighting" electricians and plumbers and service people in all categories who take their pay in unrecorded cash. Estimates of the size of this cash-and-barter economy range from $200 billion to $300 billion, perhaps as much as 10 to 15 per cent of our Gross National Product—and it’s growing rapidly. Most of the people who deal in this market are not crooks but law-abiding citizens who are trying to keep for themselves a reasonable proportion of what they produce. That’s what the taxpayers are saying to the lawmakers when they vote for "proposition 13′s," and demand that their state legislators also endorse a convention for the purpose of amending our Constitution to restrict taxes by putting a limit on federal government spending.

This strange illusion that we can live at the expense of someone else is, I’m convinced, the sole cause of the governmental programs and actions that, in turn, have brought on the disastrous inflation we have. It’s simply impossible for all of us to live at the expense of all of us, or even for half of us to live at the expense of the other half. As Bastiat said, government is a construct, i.e., in the area of real goods and services, it produces nothing, but acts merely as a transfer mechanism. And since government produces nothing, it can’t give anything to anyone (including even basic police protection) without first taking the required funds from someone else in one way or another.

The surreptitious transfer-method now increasingly favored by our leaders, i.e., taking goods and services indirectly from everyone by the concealed process of printing additional money to buy the goods from private producers, doesn’t alter the basic process. In fact, since the added money doesn’t represent any production at all, it makes the situation worse by driving up the price of everything that is produced.

The "strange illusion" identified by Bastiat some 130 years ago is at the heart of most of the social and economic ills we American people are now suffering. Before we can deal with our inflation, our shortages, and other related problems, however, we must first understand that our government can’t really guarantee a material level of living to anyone—not permanently and with a reliable guarantee, it can’t. When we finally accept that fact, we’ll close down the government-owned and destructive "money machine" and take whatever measures are necessary to speed up the constructive and privately-owned "production machine" that is the only possible source of increased goods and services for the American people in general.