All Commentary
Saturday, November 1, 1986

Underground Government

Dr. Sennholz heads the department of economics at Grove City College in Pennsylvania. He is a noted writer and lecturer on economic, political, and monetary affairs.

When the burden of taxation becomes oppressive many taxpayers are tempted to evade their obligations by working off the books. When government regulations and license requirements make certain services exorbitantly expensive, many people may disregard the restrictions and hire unli-censed labor or learn to do it themselves. When entitlement benefits ate connected with employment and income restrictions, the beneficiaries are tempted to ignore the restrictions and work off the books. In every case people react to the burdens imposed and obstacles erected by hiding from the watchful eyes of political authorities and escaping to the underground.

In a similar way, when constraints on government pose a major threat to politicians, government employees, and powerful interest groups that benefit from political largess, government goes underground. When budget cuts threaten the position and incomes of politicians and bureaucrats they react by going “off-budget.” Whether they are committed philosophically to expand the political arena or just defend their economic existence and life style, off-budget operations are an important procedure for achieving their goal.

The path to underground government is rather short and direct. Government merely needs to establish independent corporations, that is, quasi-public enterprises that are managed by politicians or their appointees and operated “off-budget.” These enterprises (OBEs) may engage in any economic activity from the construction and maintenance of airports, public housing, and libraries, to the development of theaters, stadiums, and zoos. Their spending, borrowing, and other activities are deleted from any government budget. Their debt is not subject to constitutional debt limitation nor is it conditional on voter approval. Government activity may thus be made to disappear by a simple stroke of the pen that creates a corporate charter. The simple expedient of a corporate guise moves political machinations beyond the control and scrutiny of the electorate.[1]

An OBE is a creation of politics. It is a body or board authorized by law to enact ordinances or adopt resolutions for the purpose of acquiring, constructing, improving, maintaining, and operating “civic projects.” It may borrow money and issue bonds for these purposes. It must not be confused with “taxing districts” that are subject to budgetary limitations, are endowed with taxing powers, and guided by elected directors. OBEs operate outside the governmental structure, lack taxing powers, and function under appointed directors. Except for these differences, the taxing districts and OBEs are akin in form and function.

Most politicians and officials, however, prefer OBE’s. The use of OBE’s allows them to spend and borrow without constraint, to dispense patronage without civil service restrictions, and to bestow favors and benefits on special groups. An OBE is an anomaly of organization: a government entity unfettered by many of the statutory constraints applicable to government, a corporation without stockholders but with a board of directors consisting of politicians or their appointees, a non-profit business that competes with business or is protected from competition as an unregulated monopoly.

The pace of off-budget activity seems to vary with the imposition of tax and expenditure limitations. When tax resistance limits the scope of government revenue, politicians and bureaucrats on all levels of government learn to evade rather than accommodate. When state and local governments chafe under constitutional restric tions they go underground. Moreover, the federal government can be expected to encourage the move. It encourages off-budget activity by providing grants-in-aid and extending loans directly to OBEs, bypassing on- budget units of government. Aid may be given by an off-budget Federal enterprise to an off-budget state or municipal enterprise with a handful of politicians and officials deciding the issue. Taxpayers have no voice in such matters.

Most government entities in the United States are spawning OBEs. There are more than ten thousand OBEs raising funds by issuing tax-exempt bonds not subject to legal restrictions on public debt, conducting business in competition with individual enterprises or as monopolies sheltered by legal prohibitions, and dispensing economic favors in exchange for political support. They are masquerading under various guises such as boards, authorities, agencies, commissions, corporations, and trusts. Most of them are state and local entities; the federal government has spawned only a few as Federal spending and borrowing remain virtually unhampered by either constitutional or statutory limitation. And yet, Federal off-budget financing is growing at a remarkable rate especially through the off-budget Federal Financing Bank. Unfortunately, the American public knows little about underground government activity. In fact, there are few statistics on OBEs and the political wheeling and dealing they conceal from the public. There are few voices that warn against the consequences of such practices.

Off-Budget Local Government

During the 1960s and 1970s local governmental bodies gave birth to thousands of independent entities that operate “off-budget.” On December 31, 1984, in the Commonwealth of Pennsylvania alone, some 2,548 municipal entities were pursuing 2,896 projects, most of which were off-budget. Among others there were 37 airport authorities, 121 parking authorities, 691 sewer authorities, 298 water authorities, 97 recreation authorities, 48 solid waste authorities, 82 health authorities, 95 other single-purpose authorities, and 341 multi purpose authorities. They are accustomed to borrowing between half a billion dollars to one and a half billion dollars every year and, on December 31, 1984, carried a debt of $8.2 billion.[2] Throughout the U.S., municipal authorities owed a total long-term debt of $271.3 billion of which $108 billion were “full-faith-and-credit” issues and $163.2 billion “non-guaranteed.”[3]

The phenomenal growth of “off-budget” local government in recent years is clearly visible in the trend from “full-faith-and-credit debt” to “non-guaranteed” indebtedness. In 1950, the former stood at $15.6 billion and the latter at $2.3 billion. In 1980, for the first time, the non-guaranteed off-budget debt exceeded the full-faith-and- credit debt ($102.2 billion versus $100.4 billion). At the end of fiscal year 1983, the ratio was $163.2 billion to $108 billion.[4] Projecting the trend we can estimate that by now (1986) the off-budget debt amounts to twice the budget debt. In short, it took some thirty years for the former to equal the latter, but only five to six years during the 1980s to soar to twice the size of full-faith-and-credit debt. In just four years (1980-1983), full-faith-and- credit debt rose $7.6 billion, but non-guaranteed debt soared by $61 billion, or eight times faster.

Politicians and government officials are reacting to tax resistance by placing government debt and expenditures off-budget, moving most of local government beyond the direct control of taxpayers. They are creating OBEs that, together with their beneficiaries, can be mobilized against all future taxpayer resistance to taxing and spending. In the meantime they are building a pyramid of debt that is bound to place a serious financial strain on local governments nationwide.

Statewide OBEs

State governments were building their own pyramids of non-guaranteed OBE debt long before local governments joined the rush in earnest. Law makers and government officials on all levels of government like to spend large sums of money on popular projects while deferring the costs through borrowing. At the state level they succeeded in creating hundreds of statewide OBEs which now account for more than two-thirds of all state borrowing. Total state long-term non-guaranteed debt now exceeds $109.6 billion while the full-faith-and-credit debt is $55 billion, or just 33.4 per cent of the total.[5]

During the 1960s and 1970s New York State paved the way. Determined to greatly expand the state’s programs in education, health care, welfare, housing, and other areas, the legislature raised taxes significantly and multiplied OBE spending. Ignoring taxpayer opposition it launched numerous OBEs and quadrupled OBE debt, which at times amounted to some four times the guaranteed voter-approved debt.

When voters rejected a $100 million housing bond issue for the third time, the legislature created the Housing Finance Authority. The Authority issued massive amounts of non-guaranteed debt which alone at times exceeded the total full-faith-and-credit debt of New York State. When voters rejected a $500 million higher- education bond issue for the fourth time, the legislature created the off-budget State University Construction Fund. When the voters rejected a public housing bond issue for the fifth time, the legislature reacted by creating the Urban Development Corporation. UDC was given the powers of eminent domain, to override local zoning and building code controls, and to disregard any restrictions that hamper rapid construction. When UDC fell into default in 1975 the legislature created yet another OBE, the Project Finance Agency, which issued more OBE bonds to pay the bills of the bankrupt UDC and to cover the deficits of various other OBEs.[6] Altogether, the people of New York State were made to shoulder the heaviest debt among the fifty states, more than $27 billion by the end of fiscal 1983.[7] More than 80 per cent of this debt is off-budget, non-guaranteed, lacking voter approval. But the creditors may rest assured: OBE bonds are “moral obligation” bonds.

Underground Federal Government

Federal politicians and officials react to taxpayer demands for fiscal restraint in the same way as local and state politicians and officials: they go underground. The Congressional Budget and Impoundment Act of 1974, which merely announced the need for fiscal discipline without actually curbing Federal spending, produced a rush to the underground. Since then Congress has been steadily proclaiming the need for discipline and balanced budgets, but simultaneously preparing the way for placing Federal spending off-budget.

The U.S. Congress uses three avenues of escape. First, it simply deletes from the budget numerous agencies that are Federally owned and controlled. Beginning with the Export-Import Bank it subsequently removed the Postal Service Fund, the Rural Telephone Bank, the Rural Electrification and Telephone Revolving Fund, the Housing for the Elderly or Handicapped Fund, the Federal Financing Bank, the U.S. Railway Association, and the Pension Benefit Guaranty Corporation. More recently it created two off-budget entities to carry out energy programs: the Synthetic Fuels Corporation and the Strategic Petroleum Reserve Account. Total off-budget outlays by these entities are estimated at $10 billion in fiscal year 1984 and $12.5 billion in fiscal 1985.[8]

A significant factor in financing Federal off-budget activities is the Federal Financing Bank (FFB), which began operation in 1974. Although it is part of the Treasury Department, its transactions are excluded from the budget totals. Its lending is not counted as budget outlays although it finances its operations by borrowing from the Treasury Department. It performs three off-budget functions: It lends money to government agencies; it purchases guaranteed loan assets from Federal agencies; it disburses loan funds directly to borrowers when the loan is guaranteed by a Federal agency. Total net outlays of the Federal Financing Bank are estimated at $7.3 billion for fiscal year 1984 and $10.4 billion for 1985; total loans outstanding are calculated at $114.1 billion and $124.6 billion respectively.[9]

The second avenue of escape to the underground leads to a number of privately owned, but government- sponsored and controlled enterprises (GSEs). They are established to carry out government programs; they redirect credit by acting as financial intermediaries to promote greater amounts of lending to certain beneficia ries, seeking to favor lenders and borrowers especially in housing, education, and agriculture. Exempt from state and local taxes and from Securities and Exchange Commission regulations and requirements, these enterprises maintain direct lines of credit to the U.S. Treasury that range up to $4 billion.

There is the Federal Home Loan Bank System that promotes home ownership through the extension of credit to savings and other home financing institutions; the Federal Home Loan Mortgage Association that bolsters the availability of mortgage credit and liquidity in the conventional residential mortgage market; the Federal National Mortgage Association that purchases conventional and privately insured mortgages originated by mortgage bankers, savings institutions, commercial banks, and other primary lenders; the Student Loan Marketing Association that seeks to expand the amount of funds available for insured student loans; the Farm Credit System, which is a cooperative providing credit to farmers and ranchers, their cooperatives, farm-related busi nesses, commercial fishermen, and rural homeowners. Altogether, the government-sponsored off-budget enterprises are reported to have held $314.1 billion in loan assets in 1984, $360.1 billion in 1985, and $405.9 billion in 1986.[10] At the present rate of growth the GSEs can be expected to achieve a trillion dollar portfolio some time in 1993.

Advancing on its third avenue of escape, making government appear smaller than it actually is or making government activity seem to disappear altogether, the federal government is conducting over 150 loan guarantee programs that affect and redirect private funds. It guarantees the payment of the principal and interest of a loan in whole or in part in the event of default. It thus allocates economic resources by providing credit to borrowers who do not normally qualify or would have to pay higher rates. All such guarantees result in subsidies to the borrowers and significantly alter the allocation of credit. They channel private credit toward Federally selected uses, which reduces the quantity of credit available to those borrowers who do not receive assistance, and increases their interest costs.

Loan guarantees are not included in government outlay totals. Nevertheless, most Federal functions call for credit programs that not only grant loans but also issue loan guarantees. The loans may be off-budget, the guarantees usually are. The Federal Housing Administration guarantees home mortgages as does the Veterans Administration. The Commodity Credit Cor-oration provides loan guarantees for export sales. The student loan program provides guarantees of education loans to graduate and undergraduate students. Excluding the guaranteed loans disbursed by the Federal Financing Bank and other off-budget enterprises, the total volume of guaranteed loans outstanding is estimated at $363.8 billion in 1983 and $438.8 billion in 1986. At this rate of growth it can be expected to exceed one trillion dollars in 1994.[11]

Flexibility and Innovation

Prudent politicians and OBE officials are unlikely to admit the implications. As public servants imbued with a sense of the public interest, they favor off-budget activities. In their hands OBEs are said to be more flexible, innovative, and economical than government agencies. They may even be used to circumvent voter disapproval expressed repeatedly at the ballot box.

Zeal for the public good is the characteristic of a man of honor. But is it a public good to circumvent the majority decision of voters? Is it a public good to engage in off-budget activity that benefits certain interest groups at the expense of the public? Is it in the public interest that the activities undertaken by OBEs be carried out by political institutions rather than economic organizations? Is government flexibility and innovation in economic matters really a desirable feature of government or just another term for subterfuge, waste, and arbitrariness? And even if an OBE should be more flexible, innovative, and economical than a government agency, why should it be sheltered from periodic reassessment of its performance in either the political arena or the marketplace?

There are two methods for the conduct of human affairs.[12] One is bureaucratic management, the other is profit management. The former is suitable where services have no price on the market and therefore cannot be tested by cost and price calculations. A police department, an army regiment, or an air force squadron, no matter how valuable their services may be, cannot be operated as gainful enterprises. Bureaucratic management is the only method for their conduct. Profit management is the only economical method for enterprises that render ser vices in the marketplace; it receives its social legitimacy from the patronage of customers who dictate the production process. Where the profit motive is the guide, business must adjust its operations to the desires of customers. Profit and loss considerations force every businessman to cater to wishes and render services the consumers deem most important. The price and cost structure guides businessmen in their task.

An OBE is an enterprise owned and operated by government. At its best it springs from the notion that private enterprise is failing to provide a desirable service or that it is providing it unsatisfactorily. At its worst it serves as the private domain of politicians and officials dispensing favors to special groups, politicking with taxpayer money, building political empires, and lining their own pockets. The public may stand idly by because it may be persuaded that individual enterprise is failing to do the job. Moreover, the public may be suspicious of the profit motive, of profit management, and the private property order. Many people are anxious to substitute political action and political authority for voluntary action and consumer supremacy. They are longing for a command system.

Whatever the motivation may be, OBEs manage to escape the strictures and constraints under which government entities usually are forced to labor. There are regulations and controls on government entities because of the open-endedness of government expenditures. Every able manager of a government agency or enterprise knows how to improve the services of his office-through additional expenditures. Every commissioner of police and commander of an army regiment or air force squadron can use more money as can every provost of a state university and director of a city hospital. Every manager of a municipal swimming pool or city park can improve the service to the public provided he is granted more money. Undisturbed by profit and loss considerations he is an ever eager spender of government money. But public funds are limited no matter how they are stretched on- and off-budget. Therefore, government must constrain and delineate the spending enthusiasm of its managers; it must prescribe many details of management, in particular, the quantity and quality of the services to be rendered, the hiring and remuneration of labor, the purchase of materials and supply, and so on. In short, where profit and loss considerations do not apply or are rejected for political reasons, the only way to make managers responsible to the public is to constrain their discretion by rules and regulations.

The flexibility which OBE managers so diligently seek is the ability to escape rules and regulations. It is cleverness to escape the traditional constraints on government. It is “government unlimited” for the construction and maintenance of public housing, libraries, theaters, stadiums, airports, and zoos. OBE flexibility not only reduces the people but also deceives them. After all, OBEs do not submit to any proof of effectiveness nor do they yield to elections and referenda. They operate under no immediate constraints of consumers and no re sponsibility to voters. When losses are suffered they do not cease to operate. They pursue what they call “more important tasks,” “more noble objectives,” allocating funds to “worthy” and “needy” causes that differ from the orders given by customers. Economic considerations give way to “social objectives” and self-serving ends.

Winners and Losers

The “noble objectives” which its sponsors so loudly proclaim usually are economic favors to some people at the expense of others. A trans portation OBE may charge a low fare that subsidizes commuters. A community hospital may render services at rates that subsidize some patients at the expense of taxpayers. A city parking authority may offer “free parking” to city employees. It may do so without approval or sanction by taxpayers who are expected to bear the deficits.

Unfortunately, the “noble objectives” may be replaced by commonplace objectives on the part of those individuals who create, manage, and finance the OBEs. The altruistic motive of rendering service to the poor and underprivileged often turns into scandalous pursuit of self-interest by politicians, OBE boards and man agers, employees, bankers and underwriters, attorneys, consultants, architects, engineers, and many others who profit from OBEs. The transfer benefits thus accrue to interested parties and promoters, leaving few benefits but many frustrations to the stated beneficiaries.

Politicians are the primary beneficiaries of OBEs. Fiscal limitations of any sort restrict their power to engage in transfer activity; OBEs evade the restrictions and ignore voter reluctance at the polls. By making political activity seem to disappear and permitting politicians to resume spending, OBEs enable them to preach fiscal frugality on-budget while practicing political largess off-budget.

OBEs inevitably give rise to special-interest groups that can be depended on to lend vocal support. Bankers, in particular, have a vested interest in the growth of off-budget enterprises, receiving income not only as investors in OBE projects but also as trustees on behalf of bondholders and as financial advisers to the entity. Bankers may act as underwriters of bond issues which OBEs, in contrast to government agencies, usually place on a noncompetitive basis, granting higher profit margins to underwriters. Attorneys always join the parade, acting as “bond counsels.” They derive generous income from reviewing indenture specifications and issuing opinions on the deductibility of bond interest from Federal taxation. Their fees tend to rise with the volume of debt issued.

OBE managers and members of the board have a vested interest in OBE prosperity and growth. Appointed by a governor, mayor, or city council, directors have ample latitude to pursue their own self-interest. They may en gage in business activity that directly supplements that of the OBE. They may speculate in real estate in anticipation of OBE activity. They may manipulate OBE contracts or place supporters in patronage positions. At the least, they may guide OBE dealings in such a way that friendly politicians and their supporters derive some benefit from the enterprise.

OBE managers who direct the day-to-day operations usually operate in secrecy and undisturbed by audits by the government entity that created the OBE. However, the managers are ever mindful of the politicians to whom they owe their jobs and, therefore, are quick to accommodate political pressures by providing patronage positions. If an OBE succeeds in generating revenue to cover its operating costs and debt service and thus manages to be financially independent, the excess revenue is held internally to be used by management. OBEs pay no taxes or license fees, post no performance bonds, face little paperwork and regulatory tape that strangle individual enterprise. They pay no dividends to the sponsoring unit of government, but usually earn enough to grant generous fringe benefits to managers and employees.

The Burden on Taxpayers

When OBEs fail to cover their costs, taxpayers must brace for a summons. The number of OBE bankruptcies is rather small because politicians cannot afford to let their projects fail and their artifices to become visible. They are quick to use tax revenues to provide government subsidies and grants to avoid default. Although there is no explicit commitment for government to come to the rescue, there is what politicians call a “moral commitment” to cover a shortfall. It serves to reassure investors who are urged to buy the bonds. Judging from the ready acceptance of OBE obligations, American bankers and other institutional investors continue to be reassured by such “moral commitments.”

Taxpayers must bear, in one form or another, the cost of OBE loss and failure. But even when OBEs manage to operate in the black, they crowd out competing borrowers and allocate capital and labor to political uses rather than to economic employment. They withdraw scarce economic resources from urgent want satisfaction so that political interests can be served, and channel capital from more productive to less productive employment, which depresses labor productivity and lowers labor income. No matter how efficient an OBE may be, it amounts to malinvestment and maladjustment because it is a creation of politics. After all, if an economic project is expected to be economical and profitable because consumers will patronize it, it will be developed by individual enterprises. If businessmen shun it and private investors avoid it, it is likely to be uneconomical.

A few OBEs are said to be highly profitable, which may permit their managers to embark upon other economic activities. Toll road and bridge authorities may be very profitable, charging whatever the traffic will bear. The Port Authority of New York, for instance, is using its control over airports, bridges, toll roads, and harbor facilities to build a vast business empire. But some of its revenue constitutes monopolistic gain that enriches the Port Authority and its dependents at the expense of the public. This leads to poor service and breeds political corruption. But even in service, honor, and integrity, a profitable OBE is a malformation that rests on political privilege. Exempted from taxes or license fees, and protected by regulation and restriction, it serves “higher ends” which are uneconomical ends. It receives its legitimacy from political power rather than the patronage of customers.

Industrial Development Agencies

The businessman’s “special” is the industrial development agency (IDA) that issues tax-exempt industrial revenue bonds (IRBs) and finances favorite private enterprises. IDAs are the fastest growing type of all the OBEs and are estimated to exceed $10 billion in annual bond sales. Most of them issue obligations without the “full-faith-and-credit” of the sponsoring government; their operations are off-budget and beyond the reach of voters and taxpayers. Their obligations are non-guaranteed, that is, they depend on the credit of the private borrower and the revenue from the development project. If the project fails, the bondholders bear the loss. If it stays alive, the private borrower pockets the difference between the tax-exempt rate and the market rate of interest. He is enjoying a privilege that is created and bestowed by politicians.

The friends of IDAs are quick to point out that the agencies are instrumental in providing financial resources to private firms, especially small businesses, that they facilitate production where there would be none otherwise, that they raise productivity and reduce unemployment. IDAs are said to Confer a “public benefit” through the development of commerce and industry and the promotion of the general welfare. Of course, such rhetoric builds on the assumption that private financial institutions are failing to provide the necessary resources to many firms, especially small businesses, that private lenders fail to encourage production where it is needed, and that they do not raise productivity and do not reduce unemployment. IDA rhetoric tacitly assumes that private enterprises do not confer a “public benefit” and do not promote the general welfare.

Unfortunately, the rhetoric differs from the reality. Every businessman enjoying customer patronage, whether he be a baker, banker, or barber, is conferring a public benefit, raising production, and reducing unemployment; businessmen earn their livelihood by producing products and rendering services wherever they are needed. Countless entrepreneurs are forever searching for new opportunities to embark upon needed production. If they find none, it is likely that no economic opportunity exists. If politicians discover an “opportunity,” the project is likely to be a transfer scheme that benefits some people at the expense of others’. Transfer allocation replaces market allocation, serving political interests that are contrary to the interests of the general public.

IDAs often assist ailing and failing businesses that either are losing the patronage of customers or making inefficient use of their resources. In both cases IDAs not only Countermand consumer sovereignty, that is, public interest and control, but also promote economic inefficiency and incompetence. Moreover, by granting tax exemptions to special-interest groups, IDAs create vocal groups of grateful supporters who can be depended upon to defend and promote IDAs and the use of IRBs. Small businesses are not among the supporters; they are the least likely recipients of IDA largess because their voices may not be audible in the noise of corporate clamor for privilege. Giant corporations that have the labor power to deal with numerous IDAs, that enjoy expert legal assistance, and command political clout, are the primary beneficiaries of IRB financing.

Large manufacturing and retailing firms make extensive use of IRBs to finance expansion projects. In fact, because McDonald’s Corporation financed the construction of hundreds of new restaurants with IRBs, IDA obligations are frequently called “burger bonds” and their beneficiaries are referred to as “burger debtors.” Obviously, “burger bonds” are instrumental in destroying countless small enterprises that cannot compete with subsidized McDonald’s restaurants or K-Mart stores. The voices of the businesses that perished as a result of burger-bond favors are no longer audible, but the voices of the giant corporations, investment bankers, and law firms that benefit from IRB sales, are heard clearly in the chorus of special interests.

The net effect of IRB finance is a gross distortion of American business and outright waste of productive funds. IDA projects inflict revenue losses on governmental treasuries, and lead to rising interest rates and higher borrowing costs for all borrowers, public and private. But above all, they call for further politicalization of eco nomic life. On all levels of government, party politicians and government officials now sit in judgment of economic phenomena. Local politicians adjudge the need of a project and adjudicate the benefits to be bestowed. Federal officials, by offering or withdrawing Federal tax exemption, hold veto power over them all. The Revenue Expenditure and Control Act of 1968 provides the legal setting; it withdrew tax exemption from all IDAs except those financing air and water pollution control equipment, airports, docks, wharves, electricity, gas and water services, industrial parks, parking, mass transportation, housing, sewage, sports facilities, and trade shows and convention centers. The act offers tax exemption to all issues not exceeding $5 million to finance plants andequipment for industrial facilities, which was later raised to $10 million.[13] It is obvious that American economic life is molded and guided by such powerful directives. But it is neither efficient nor equitable to grant tax relief to some businesses and withhold it from others.

Political power intoxicates the best hearts. No man is wise enough, nor good enough, to be trusted with much political power. Constitutional government is built on this very knowledge; it is cogent evidence of the distrust of human beings in political power. It rests on a deep conviction that individuals vested with authority must be restrained by something more than their own discretion—by bills of rights, laws, rules, regulations, and mandates by the people they govern.

Off-budget government escapes most such restraints and opens the gates of political power. It escapes the constraints because changing thoughts and values are either moderating the common distrust of political power or the distrust is failing to restrain the growing powers of government. The deep conviction that government must be restrained is giving way to the belief that government must be able to engage in any economic activity its agents deem necessary. It is yielding to the ancient notion that political rulers are endowed with extraordinary powers. Unfortunately, they are not. But they are ever eager to ignore the traditional constraints and follow their own caprice. []

1.   Cf. James T. Bennett and Thomas J. DiLorenzo, Underground Government: The Off-Budget Public Sector (Washington, D.C.: Cato Institute, 1983). p. 4 et seq.

2.   Pennsylvania Department of Community Affairs. Director)_, of Municipal Authorities in Pennsylvania—1984 (Harrisburg: Depart-meat of Community Affairs. 1984). Statistics. pp. 9-1 i.

3.   Facts and Figures on Government Finance, 23rd edition (Washington. D.C.: Tax Foundation, 1986). p. f29. Data as of the end of fiscal year 1983.

4.   Ibid.

5.   Ibid.. p. e61. Data as of the end of fiscal year 1983.

6.   James T. Bennett and Thomas J. DiLorenzo, ibid., pp, 60-68.

7.   New York is followed by California with a state debt of $12 billion, New Jersey $10.3 billion. Illinois $7.8 billion, Massachusetts $7.4 billion. Facts and Figures on Government Finance. pp. e62, e63.

8.   Budget of the United States Government. Fiscal Year 1986, pp. 6-11.

9.   Special Analyses. Budget of the United States Government. Fiscal Year 1986, p. F42.

10       Special Analyses, p, F-23.

11.   Special Analyses, p. F-20.

12.   Cf. Ludwig yon Mies, Bureaucracy (Spring Mills, Pa.: Libertarian Press. 1983).

13.   James T. Bennett and Thomas J. DiLorenzo. ibid., p. 125.

  • Hans F. Sennholz (1922-2007) was Ludwig von Mises' first PhD student in the United States. He taught economics at Grove City College, 1956–1992, having been hired as department chair upon arrival. After he retired, he became president of the Foundation for Economic Education, 1992–1997.