- The Centenary of Ludwig von Mises’s Critique of Socialism - June 9, 2022
- In the Beginning: The Mont Pelerin Society, 1947 - May 19, 2022
- Political Paternalism, Not Free Markets, Cause Economic Shocks - May 9, 2022
Promises, promises, promises. It is the season for political promises. The candidates competing to be the Democratic Party candidate for president in 2020 are out in force trying to outbid each other with promised horns-of-plenty to any and all who might be voting in that party’s primaries beginning in a mere matter of months. There are a handful of words, however, that never seems to be uttered by any of them: scarcity, costs, trade-offs, and liberty.
Instead, all of these Democratic Party hopefuls are busy attempting to match and exceed what any of their rivals come up with as a new tack to prove that they are ideologically more “progressive,” politically further to “the left,” or less afraid of saying “socialism” with the modifier “democratic” in front of it. And for all of them, the sky’s the limit when it comes to more government spending.
First, let’s keep in mind what “progressive” means in this political context: an increase in the size, scope, and cost of government in American society. Those running for that Democratic Party nomination all call for and agree on the need for more government in each of our lives. For instance, a “single-payer” national health system is merely another name for socialized medicine. The government would be the single provider and allocator of all things relating to the people’s medical and related health care needs and desires.
People at Liberty to Choose for Themselves
In a free society each individual makes his own plans about the goals he decides to set for his life and how best to use the income and resources at his disposal to achieve them. And in a society as complex and diverse as our own, it should come as no surprise that people vary widely on the things they desire to give meaning and happiness to their lives, and their judgments about the best ways to accomplish them. Furthermore, not only do people differ in what they consider important, but also they evaluate differently the trade-offs worth making to get them.
Two individuals may consider that having some type of health insurance is something essential to have to meet their respective family’s medical needs. But they may vary greatly in what they consider worth giving up to get it. A couple with small children may consider a more comprehensive health insurance policy with a higher premium and lower deductibles worth paying for, even if it prevents them from having the nicer, but more expensive house with a bigger monthly mortgage payment.
The career-oriented couple who decide not to have children, or to postpone that decision until they are professionally more established, may prefer a health insurance policy with a much lower premium but higher deductibles because they would prefer to have the money to invest in their “dream house” or to have the money to take those exotic but expensive vacations while they are still young.
While on the other hand, a third person may have spent the money for a DNA profile, found out that he is not prone to any inheritable illness, eats “right,” exercises regularly, works in a low-risk occupation, and decides to have no health insurance with the intention of covering any medical expenses out-of-pocket as they come along.
The Free Market Serves the Wants of Everyone
The advantage and the benefit of a free market economy is that all three of these individual healthcare planning decisions (and many others) can be simultaneously accommodated to meet these preferences. With each person or family paying (or not paying) for what they consider the healthcare plan that best fits their circumstances and desires.
Businesses make profits by fitting the nature and qualities of their products to meet the demands of the consumers from whom they earn their revenues. Go into to any clothing or shoe store or any supermarket with its huge array of foods and ingredients from which to select, and we see before our eyes the diversity of tastes, preferences, likes, and desires that are served and satisfied all at the same time. Then add to this all the “niche” industries and businesses that also cater to those who have “minority” or “eccentric” wants and wishes to be fulfilled.
Conflicts about goals to pursue or differences about the best means to use to attain them are minimized in a free market society precisely because each individual and family is at liberty to decide these things for themselves, and to find willing sellers to satisfy their “profile” as the means of earning profits. But once government takes on “responsibility” for any or all of these matters, the system is soon compressed into either a “one-size-fits-all” or a much narrower set of options compared to a competitive free market.
Individuals are no longer planning these things for themselves, but, instead, with a “single-payer” socialized healthcare system, the government must now design a single plan for everyone, and to which and within which everyone in the society must fit and be made to conform. The government must decide what is the coverage, treatments, medications, and hospital and recovery times that members of the single-payer system will be eligible to receive.
In other words, the entire country must conform to a single scale of values imposed by the government, with that government determining what are the acceptable options to be permitted to all the members of the society. The natural human diversity of a complex society is straightjacketed within a politically compressed bureaucratic conformity.
Missing Questions: How Much Does It Cost and Who Pays?
The other aspect to this is that nearly nothing is said about the cost of providing such a “progressive” single-payer healthcare system. The Urban Institute, a think-tank sympathetic to progressive policy agendas , estimated not long ago that the cost could be over $32 trillion over the first ten years, or $3.2 trillion annually. The entire Federal budget for fiscal year 2019 is likely to be around $4.4 trillion, with Medicare/Medicaid and related healthcare costs coming in at $1.2 trillion, according to the Congressional Budget Office (CBO). Socialized medicine, therefore, once implemented, could be equal to about 73 percent of everything the Federal government is targeted to spend in the current fiscal year.
All those Democratic Party wannabes also promise to not only maintain but to increase Social Security benefits for the growing number of retirees in the United States. But, again, in its latest long-term budgetary projections released in June 2019, the Congressional Budget Office already estimates that under current legislation, Social Security’s disability insurance fund will be out of funds in 2028, and its retirement benefits fund will be exhausted in 2032, if the relevant taxes are not increased, the existing benefits schedules are not reduced, and the minimum retirement ages are not raised for receiving full benefits, or some combination of these three.
Who is going to pay for all of this? Of course, our “progressives” always chant ”the one percent” of wealthy Americans. So how many of these financial bottomless wells of wealth are there to fund all the “free” stuff that is promised to everyone?
In 2016, the top one percent held $25 trillion of household wealth in the United States. Suppose the government through a wealth tax to fund all these promised “free” things confiscated every one of these dollars. That would not cover even 80 percent of the progressive’s single payer healthcare costs over the next ten years, which, we saw, is projected at $32 trillion over a decade by the Brookings Institute.
According to one study, in 2016, there were 10.8 million millionaires in the United States. Of these, 9.4 million had a net worth of $1 to $5 million; 1.3 million individuals had a net worth of $5 to $25 million; and there were 156,000 with a net worth of more than $25 million.
Now, of course, wealth is not income. Wealth reflects an estimate of the value of all financial and related productive assets (minus liabilities) owned by someone. This reflects the market value of stocks and bonds, but also physical capital tied up in plant and equipment, and working capital of multitudes of private enterprises. “Wealth,” therefore, is not cash on hand for the government to tax away to use to pay for all the free stuff the progressives want government to hand out.
According to the Internal Revenue Service (IRS), in 2016, 141 million American taxpayers reported adjusted gross incomes totaling $10.2 trillion, of which the top one percent of income taxpayers (AGI of more than $480,804) earned about 20 percent or a bit over $2 trillion. That same one percent, however, paid over 37 percent of all income taxes paid that year, or $538.2 billion out of $1.44 trillion collected in income taxes. The top 5 percent of income tax filers combined paid 58 percent of all income taxes collected, or a total of $940 billion; and the top 10 percent of tax filers paid nearly 70 percent of all income taxes collected for a total of over $1 trillion.
It is clear that even if the net tax burden on the top one, five, and ten percent of income taxpayers were significantly increased, there would not be enough government revenues from these sources to cover all the expenses of all the programs promised for expansion or introduction by the Democratic candidates, which would also include “free” education through the PhD along with the cancellation of existing college debts, massive infrastructure projects, and untold trillions of dollars in an attempt to stop the climate from changing over the coming decade.
This leaves only more deficit spending, that is, the government spending more than it takes in, in taxes, through borrowing and adding to the cumulative national debt.
Spending, Taxing, and the Borrowing Burden
This latest Congressional Budget Office long-term projection runs from 2019 to 2049, that is for the next 30 years, or nearly to the halfway point through the 21st century. Just under existing taxing and spending legislation, between 2019 and 2049 federal government outlays would increase from about 20.7 percent of Gross Domestic Product (GDP) to at least 27 percent of GDP, or a 30 percent increase. Federal tax revenues would rise from 16.5 percent of GDP in 2019 to 19.2 percent in 2049, for a 15.6 percent increase. So government spending is projected to rise twice as fast as the increase in taxes.
It’s not surprising, therefore, why the CBO anticipates the return to $1 trillion a year or more budget deficits within a year or two, and they continue then on, getting larger. As a percentage of GDP, Uncle Sam’s budget deficit will rise from 4.2 in 2019 to 7.9 percent in 2049, or an 88 percent increase. The publicly held national debt would increase from the current 78 percent of GDP to 144 percent of GDP in 2049, for an 85 percent increase over the next three decades, if the CBO forecast turns out to be correct.
Of course, all these are projections based on existing legislation and fiscal rules, along with assumptions about annual economic growth, the likelihood and severity of any future recessions, the level of interest rates, and the related demographic trends in the United States. If one thing is certain it is that if no restraints are placed on the size and scope of government, any expectations about government taxing, spending, and regulating is likely to be off the mark, in underestimating just how bad the future situation is probably going to be. Reality has turned out to be worse, in terms of government fiscal policy and its consequences, than the CBO has projected when looking ahead in past years.
Ignoring Costs and Eating the Seed Corn
Advocates of political paternalism, of all stripes and types, never think of constraints; that there may be at any moment of time or over any period of time, a limit to what can be done – that the means at people’s, and therefore the society’s, disposal are inescapably less in quantities and qualities than the various competing ends for which they can and may applied.
Or, if the idea of limits enter their minds, it is only in the context of “the rich” living with less, so that which they “really don’t need” can be redistributed to those purposes and people that the governmental redistributors considered more deserving and needing.
The presumption is that the mere “having” of more material and financial wealth and income than others in society is, in itself, a sign, signal, or indicator of undeserved and ill-gotten gains. Here we see the lingering influence of the Marxian mythology that private ownership and control over the means of production is the institutional tool for some to exploit and oppress others, through the “unearned income” of profits extracted from the laboring efforts of “the workers.”
Never asked in this leftist lusting to loot what belongs to other people is: Has the income earned and wealth accumulated been the result of peaceful and voluntary trade, or the outcome of political plunder, privilege, and favoritism? If much or all of the accumulated and productive wealth of others are taxed away, from where will come the motives and incentives for future industry and productive effort, without which all risk sinking back into the poverty and destitution out of which humanity began? (See my articles, “Marx’s Misconceptions About Man and Markets”and “The Austrian Economists Who Refuted Marx and Obama”.)
Eating the Seed Corn Reverses or Slows Down Growth
There is a thing called “eating the seed corn.” Out of every harvest, the farmer must set aside a certain portion of his crop for next season’s planting and production, without which he cannot maintain his current level of consumption and well-being into the future. Also, if he is to increase his agricultural capabilities into the future, he must not consume the entire net surplus above his present harvest. He must consume less and save a part of it, so he can enlarge his field growing capacity and increase his supply of food looking to the years ahead.
Every dollar siphoned off through either taxes collected or savings borrowed by the government reduces the seed corn available for private sector productive uses in all its forms. There have been societies in which the fiscal and redistributive burdens have been so heavy on the citizenry that the economic potential of the country has declined; that is, the productive capacity and the general standard of living has decreased in absolute terms.
But even when it does not reach such an economically catastrophic state, among the costs of government taxing and borrowing is that it reduces the savings and productive capacity of the society to grow as much as it otherwise might have, if not for the burdensome presence of political consumption of the society’s income and wealth. That very slowdown reduces the economy’s capacity to bear the weight of growing government spending and resource misdirection.
Forsaking Fatalism Because Trends Can Change
That is the danger suggested in the CBO’s long-term projection looking to the middle of this century; that is, looking to the thirty years ahead of us. However, nothing is “written in the stars” or irrevocably predestined from a reading of the entrails of the goose. A dangerous temptation is for people to fall into fatalism that nothing can change the seemingly “inevitable” trends at work in society.
Decades ago, the conservative sociologist Robert Nisbet (1913-1996), once pointed out, “How easy it is, as we look back over the past—that is, of course, the ‘past’ that has been selected for us by historians and social scientists— to see in it trends and tendencies that appear to possess the iron necessity and clear directionality of growth in a plant or organism . . . But the relation between the past, present, and future is chronological, not causal.”
What Nisbet was highlighting is that apparent trends can change and have changed, because what happens in society is, at the end of the day, the result of the ideas and ideals that guide people in their daily lives, including their views on politics and public policies. The Austrian economist Ludwig von Mises (1881-1973), once wrote an essay “Trends Can Change.” His words are as relevant today as when it penned them:
“In the last decades there prevailed a trend toward more and more government interference with business. The sphere of the private citizen’s initiative was narrowed down . . . ‘Social’ control, i.e., government control, of business is step by step substituted for private control. The ‘progressives’ are certain that this trend . . . will go on until the ‘welfare state’ will have supplanted the nefarious capitalistic system which history has doomed forever . . .
“The prestige of this myth is so enormous that it quells any opposition. It spreads defeatism among those who do not share the opinion that everything that comes later is better than what preceded it, and are fully aware of the disastrous effects of all-round planning . . . It is this mentality of passively accepting defeat that has made socialism triumph in many European countries and may very soon make it conquer in this country too . . .
“Now this doctrine is devoid of any logical or experimental verification. Historical trends do not necessarily go on forever . . . Trends of evolution can change, and hitherto they almost always have changed. But they changed only because they met firm opposition. The prevailing trend toward what Hilaire Belloc called the servile state will certainly not be reversed if nobody has the courage to attack its underlying dogmas.”
Past Trends Did Not Always Last
In the 1930s, friends of freedom were often despondent that the twilight of liberty has arrived with the rise of communism in Russia, fascism in Italy, Nazism in Germany, and the New Deal in America. By the middle of the 1940s, two of existing totalitarianisms were crushed in the rubble of the Second World War.
In the early 1980s, French social critic Jean-François Revel (1924-2006) wrote How Democracies Perish (1985), in which he forlornly feared that the democratic West was doomed for defeat at the hands of Soviet communism because the Marxists knew what they were fighting for, while those in West did not know or care about the preservation of their societies. Less than a decade later the Soviet Union was gone from the political map of the world.
When the 21st century began, it seemed that “democratic capitalism” was the only political ideology standing after the fall of communism. We have seen over the last twenty years the rise of tyrannical and terrorizing Islamic fundamentalism in the Middle East; there has been an amazingly growing Chinese economy with a political leadership in Beijing determined to “make China great again” on the global scene, and as part of doing so imprisoning huge numbers of those labeled as dissidents for opposing the communist government; there is a rising tide of nationalism and xenophobia in Europe and in the United States that can be implemented by no means other than increased and extended government power; and there is the resurgent “democratic” socialist movement in the West, determined to impose central planning and totalitarian identity politics in any society over which they can gain control.
Plus, there is the potential fiscal train wreck toward which the United States economy appears to be heading, if, again, the trends projected in the Congressional Budget Office forecast were to proceed as traced out.
In thirty years time, that end point of the CBO forecast, will the U.S. economy be strangled with financial disaster because nothing was done to stop and reverse the growth of the interventionist-welfare state? Will the “democratic” socialists have succeeded in implemented their Green New Deal and brought central planning to America? Will nationalism and authoritarianism have triumphed over the remaining elements of free and liberal societies, with a resulting loss of personal, civil and economic liberties?
Nobody knows. But what can be said with a fair degree of certainty is that these trends may likely continue to play out – if there are not those who understand and care enough about liberty in all its facets to reason, argue and win the intellectual battles that at the end of the day will determine the future of humankind.
[Originally Published at AIER]