Tag Archives: big government

Life before the social welfare state

In 1779, before the advent of the welfare state or even a federal government in the US, when taxes were virtually non-existent, François de Barbé-Marbois wrote: “Begging is unknown in America. There are, in almost all towns, hostels which take in old people or those who are unable to work. As for the unemployed, there are other institutions where care is taken that they lack neither work nor food.” Barbé-Marbois, Our Revolutionary Forefathers 71

The government would have to double income tax rates and not see any tax avoidance or evasion to close the deficit.

Did you know? The government would have to double income tax rates and not see any tax avoidance or evasion to close the deficit.

The evil trinity of big government: media, public schools, and government bureaucracy

With Occupy Wall Street in the news, the decline of the American economy and competitiveness, and our growing indebtedness as individuals and a nation, I have been thinking a lot the causes of our current “unequivocal experience.” [Hamilton, Federalist No. 1] Or as Hamilton wrote in Federalist No. 15, “We may indeed with propriety be said to have reached almost the last stage of national humiliation. There is scarcely anything that can wound the pride or degrade the character of an independent nation which we do not experience.”

For those who read this blog, my tweets, or my books, you already know that I firmly believe that all problems in government can be traced to the people. No government can stand long without the support–or lack of opposition–from the people, as Hamilton points out in Federalist No. 21 and Madison in Federalists No. 28 and 44.

The question then is not why the government has grown, but why the people have encouraged or allowed its growth from under ten percent of GDP to over forty percent over the past century.

Quite a while ago I came to the conclusion–and I’m sure I’m not alone in this opinion–that there is an evil trinity promoting big government.

  • The media: The print and television media has long been controlled by the left. Only with the emergence of Fox News and talk radio has the right gotten a voice. The Internet has also helped expanded “alternative” viewpoints. Nevertheless, the left still has a dominant market share among casual listeners/viewers/readers. The media has an innate interest in promoting government. The media’s job is to find a problem or crisis and blow it out of proportions to get ratings. On top of that, a story gets even more traction if there is somebody to blame. Who to blame? Well, you certainly cannot blame your customers, even if they are responsible. So, the media blames big corporations, the government, or foreign nations. If they blame a foreign nation, obviously it is the government’s job to protect us from these foreign attacks. If they blame a big corporation, only the government is large enough and powerful enough to rein them in. If they blame the government, they suggest, promote, or demand that the government do more next time to prevent its own mistakes. (Think about government stimulus, which the media says failed only because it was not big enough.)
  • Public education system: Most Americans received the majority of their education from the public school system. Public schools teach nearly 100% of K-12 students. Even in college, many universities are public with tuition subsidized by the states. On top of that, the federal government subsidizes student loans to private universities, which creates all sorts of market distortions. Public school administrators and teachers alike receive their paychecks from the government. They have chosen to work for government and most of them, by choice or mandate, join the teachers union. These teachers and administrators are brainwashed by unions and government education departments and then brainwash their own students to believe those same ideals. When election time comes, they turn out in droves and convince parents through phone calls (I received one the other day) and PTA activities to vote for their candidates and to approve propositions to increase their funding.
  • Government bureaucracy: Currently, seventeen percent of American jobs are in the government sector. On top of that, as I write in The Path to Tyranny, “these employment figures do not include all the jobs created by the 529 billion dollars worth of contracts given out by the federal government each year, two-thirds of which were for defense programs. As of 2006, government contracts to private defense companies employed an additional 1.4 million people.” Just like the teachers and school administrators above, these people want to keep their jobs and generally believe that they are doing more good than bad for the country.

With such a large percentage of Americans working for the government, either directly or through public schools, with the media’s influence on the American mind, and the public school system’s stranglehold on our children’s education, the left has been able to advance their agenda with little opposition. There should be little doubt as to why government’s size has more than quadrupled in the last hundred years and now eats up almost half of our GDP (with the cost of regulation added on top of that).

A fourth group may possibly be included: welfare recipients. Back in 2009, I wrote about this in The Path to Tyranny, but the situation has worsened since then. Here is what I wrote then:

In the first quarter of 2009, Social Security, Medicare, welfare, and other benefits provided by the government accounted for 16.2 percent of all personal income, a record high. Americans have become dependent on the government, something the Founders did not intend. After paying tens or hundreds of thousands of dollars into Social Security and Medicare, only the very rich would be able forego the benefits promised them. Every election, retirees and people approaching retirement vote for candidates who promise not to touch their retirement or health care programs. This has made fixing the structural problems behind these programs virtually impossible, but it has accomplished the goal of modern liberals and socialists of making Americans dependent on the government.

Nevertheless, I do not include these welfare/benefit recipients because they are people from all walks of life who do not represent a singular group. Though they certainly skew elections and public sentiment, there is no way to infiltrate, attack, and convince them as a group; we can only do so as individuals. The other three are institutions influencing government; this one is a loose collection of individuals. The left uses the apparatus of the left within the media, public education, and government bureaucracy to influence others. In contrast, those dependent on government are a symptom of big government more than a cause, though they certainly seek to maintain their benefits and this makes shrinking government more difficult. But these people do not necessarily promote big government. In fact, many oppose government’s actions to increase welfare because it may threaten their own benefits. Thus, welfare/benefit recipients are not including among my evil trinity.

Topic to be continued…

The status quo results in socialism

Is America heading toward socialism? Is President Obama taking us there? Will the tea party save us?

I think the first question that must be asked is: What will happen if American does nothing? Forget about all the proposals for new government spending. Forget about tax policy for a second. What will happen if America simply maintains the status quo, without growing or reducing the size of government?

According to the Congressional Budget Office’s 2011 Long-Term Budget Outlook, the federal government will consume 34.1 to 75.9 percent of GDP in 2085. The lower number is called “The Extended-Baseline Scenario” while the higher number is “The Alternative Fiscal Scenario,” which includes the extension of the tax cuts set to expire, rising debt levels, and “spiraling interest payments.”

Add in current state and local spending, subtracting out governmental transfers, (that assumes state and local government do not grow, as they have done for the last 100 years) government at all levels will consume 49.7  to 91.5 percent of GDP in 2085.

Even with the CBO’s optimistic forecast, government will account for half of all economic activity. Currently, government accounts for about 40.9 percent of our economy. But the pessimistic outlook from the CBO has the government controlling nearly all of the economy. We will be fully socialist!

Unfortunately, I lean toward the more pessimistic outlook. And I’m not alone. The CBO writes:

Many budget analysts believe that the alternative fiscal scenario presents a more realistic picture of the nation’s underlying fiscal policies than the extended-baseline scenario does. The explosive path of federal debt under the alternative fiscal scenario underscores the need for large and rapid policy changes to put the nation on a sustainable fiscal course.

Looking at the accompanying spreadsheet, the CBO has unemployment falling to an average of 8.4% next year, then falling to 7.6% in 2013, 6.8% in 2014, 5.9% in 2015, 5.3% in 2016, 5.2% in 2019, 5.1% in 2026, and 5.0% in 2030 where it stays forever. Oh really? They really expect unemployment to average 5.0% from 2016 to 2085? Has the United States or any country ever had sustained low unemployment uninterrupted by recession for 70 consecutive years? I don’t think so!

Certainly, the Baseline Scenario is too optimistic. This means that even with no new government programs, government will account for well over half of all economic activity by 2085. In this Alternative Scenario, the CBO estimates that government at all level would consume nearly all of economic output.

Socialism is in our future if we do not change. Doing nothing–merely blocking new government programs–is not enough. We must undo the damage that has already been done and fix the government programs that are already eating up a growing percentage of our national production.

– Michael E. Newton is the author of the highly acclaimed The Path to Tyranny: A History of Free Society’s Descent into Tyranny. His newest book, Angry Mobs and Founding Fathers: The Fight for Control of the American Revolution, was released by Eleftheria Publishing in July.

Liberals trying to convince you there is a free lunch in government.

Over at Marketwatch, Rex Nutting lists “The 10 best things government has done for us“:

  1. Protecting our freedoms
  2. Giving away the land
  3. Educating everybody
  4. Helping us retire with dignity
  5. Improving public health
  6. Building our transportation networks
  7. Investing in communications
  8. Building our energy supply
  9. Inventing the future
  10. Defeating totalitarianism

Yet, Nutting writes that “everyone knows that the government can do a lot to create the right conditions for prosperity” and “Our democratic government — along with you, me and our ancestors — created the conditions that have allowed private citizens and companies to build a great nation.” But many of these are simply government handouts–redistribution of wealth–not the creation of conditions.

Did we really want the government to give away land? (I write about this very issue in Angry Mobs and Founding Fathers.) Funny, now the government takes land away from private individuals instead of giving it to them.

And why should the government invest in the future, building our energy supply, invest in communications, build our transportation networks (I also write about this  in Angry Mobs and Founding Fathers), etc.? Aren’t those the domain of private enterprise?

But why shouldn’t the government provide these free goods and services to us? Yes, I said FREE! Because the author, Rex Nutting, not once mentions taxes. He fails to mention that the resources used by the government to do these things took resources away from the private economy, which would have made use of them to provide the same or different goods and services to us.

Thus, Mr. Nutting provides us with just half the picture, and a distorted half at that.

Do we have a problem with our federal government? Or with government in general?

We often complain about the excessive spending of our federal government, and for good reason. We even argue for “states’ rights” as a way to restrain the federal government. But are the states any better than the federal government?

This first chart clearly show that the federal government spends, on average, as a percentage of GDP, more than our state and local government. But notice that state and local government spending caught up to the federal government back in 2001 (after the fiscal responsibility of the 1990s).

Obviously, the chart above has two large spikes representing World War I and World War II. What would it look like if we excluded volatile defense spending?

Doing this, it looks like the state and local government spend more money than the federal government. More important, states and local government has grown from about 15 percent of GDP in 1980 to 22 percent today. The federal government has “only” grown from 15 percent to 19 percent.

Looking at these chart, I have no confidence that the states will act with more restraint than the federal government. If our governments are incapable of fixing the problem, that only leaves you and me. We have to replace the people running and governments. We have to teach them and ourselves the value of small governments designed to protect our rights of life, liberty and pursuit of happiness. Everything else government does is an infringement of our rights and they should leave us alone.

 

Taxes paid keeps rising, despite the media’s claims to the opposite

Headline: “Tax bills in 2009 at lowest level since 1950

The reality according to the very same article:

“Federal, state and local income taxes consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.”

Notice that this is only talking about income taxes. As if income taxes are the only means of collecting taxes. In fact, look at what has been happening in Arizona. The legislature has been dropping income tax rates here, but at the same time they and the people through ballot initiatives have been raising the sales tax rate. Looking at only income taxes is looking at about a third of the total.

I decided to collect the data from http://www.usgovernmentspending.com/ and http://www.usgovernmentrevenue.com and create some simple charts.

Yes, taxes paid have declined recently and hit their lowest level as a percentage of GDP since 1959 (not 1950). However, as you can see, tax revenue is 2010 was back up to the same level as 1971 and 2011’s are expected to be the same as 1973’s. In fact, 2011’s tax revenue is expected to be just a point less than that of 2003’s. Big deal! Yet, look at that outstanding increase in taxes between 1910 and 2000.

But that only tells part of the story. As government’s share of GDP grows, the shrinking private sector has to pay for all that new government. So let’s look at taxes as a percentage of the private economy:

The decline in taxes is now much less pronounced. Taxes paid as a percentage of the private economy hovers around 50%. Looking at taxes against the private is much better because it is the private economy tax actually produces. Let’s look at it another way. If taxes were 60% of GDP but 100% of GDP, everybody in the private economy would stop working and government would get no revenue and would be forced to close down. So the private economy is the determining factor in tax revenues, not the total economy.

So the average person working in the private sector as an employer or employees pays, on average, a tax rate of 50%. This includes income taxes, sales taxes, property taxes, vehicle registration taxes, social security and Medicare taxes, corporate taxes, capital gains taxes, etc. FIFTY PERCENT!

And people have the nerve to complain that tax rates and tax revenues are falling.

Taxes need to fall much further. A decline to the 100-year average of 25% of GDP and 36% of private sector GDP would be a good start. In other words, to return to the average would mean a tax cut of $750 billion to $1300 billion. But with huge deficits, spending would have to decline by two to three trillion. But given the immense growth in government over the last 100 years, spending cuts like that would simply return us to the 100-year average.

Remember, USA today compared 2009 income tax revenue to the 50-year average. I am simply following their lead, but looking at all taxes and looking at a 100-year average.

President Obama: The Health Care Tyrant

The incoming governor of South Carolina challenged President Obama to repeal the health care bill. TheSunNews.com reports:

Obama rejected Haley’s request to repeal the health care bill – but said he’d consider letting states opt out of its mandates if they ran exchange programs, banned insurance firms from denying coverage of pre-existing conditions and enabled people to pool together for better rates.

Now, I must admit that I did not read the 2,600 page health care bill, so I don’t know if there is a provision that allows the President to issue such exemptions under those terms. Either way, this is very disturbing.

According to this story which is based on Nikki Haley’s comments afterward (there is no way to know what exactly the President said), President Obama “said he’d consider letting states opt out of its mandates…” He apparently is under no obligation to do so even if a state complies with his demands.

According to Obamacare or the government interpretation and enforcement of it, the President has dictatorial powers. The President can grant exemptions to whomever he pleases and deny exemptions to others who comply with the very same provisions.

We have already seen the government issue exemptions for individual corporations, but I was under the impression that there were strict rules to follow and those who follow those rules and apply for an exemption would get one. But now, at least with the states and maybe on the corporate side as well, the exemptions require Presidential approval and the President can make up his own rules.

Hail to the Health Care Tyrant!

Government says it’s OK to break social security agreement, but not pension agreements.

Barack Obama’s debt commission proposed several changes to Social Security to help reduce the deficit. The New York Times reports:

The plan would reduce cost-of-living increases for all federal programs, including Social Security. It would reduce projected Social Security benefits to most retirees in later decades, though low-income people would get higher benefits. The retirement age for full benefits would be slowly raised to 69 from 67 by 2075, with a “hardship exemption” for people who physically cannot work past 62. And higher levels of income would be subject to payroll taxes.

I have no idea how much these measures will contribute to reducing the deficit or paying off the debt. My complaint is more ideological.

When employees contribute to social security, they are doing so with the understanding that they will receive certain benefits starting at a certain date. Currently, an American expects to pay a certain amount each year into the system, retire at age 67. and receive cost of living adjustments (COLA) each year. The proposals by the debt commission would violate this agreement, forcing people to pay more each year if they earn over a certain amount, retire at a later date than originally agreed to, and receive less in benefits than promised as the COLA is reduced. In effect, the government is unilaterally canceling its contract with each American and replacing it with a less attractive one.

In reality, I am not opposed to these changes, especially the retirement age which will not fully take effect for 65 years, thus having little effect on anybody working today. The reduction in COLA would have a much greater effect on everybody starting in the near future while the removal of the cap on social security taxes would have an even larger effect, but only the wealthy. But while these are necessary changes, contrast this with the government’s stance on pension funds.

In a Q&A titled The pension time bomb, The Week asks:

Can benefits be scaled back?

Only for future employees. New Jersey Gov. Chris Christie recently signed legislation reducing pension benefits for new state employees. In California this month, voters in nine municipalities approved ballot measures to limit benefits for future public employees. And governments are starting to take a harder line in collective bargaining with public unions. “I’ve seen a sea change in the local collective bargaining process,” said Dwight Stenbakken, deputy executive director of the League of California Cities. Some analysts recommend following the lead of Georgia, which requires that prior to being enacted, any changes to retiree benefits be studied for long-term impacts. According to the Pew Center on the States, the policy has helped Georgia avoid “costly and irreversible” mistakes.

These pension liabilities have already been promised to employees and retirees. The government has a contractual obligation to pay the pensions as promised.

So why are the pension obligations sacrosanct while money can be taken from Social Security beneficiaries? Social security is just as much a contractual obligation as public union pensions. If social security benefits are to be reduced for those who have already paid in, public union pension benefits should be as well.

* Though I have not yet read this (too busy writing my next book), Robert Graham discusses this topic in much more detail in his Job Killers: The American Dream in Reverse. How Labor Unions are Destroying American Jobs and the Economy. If you’ve read it, leave a comment here or send me an email, tweet, or facebook message letting me know what you think of it.

Classic quotes about Liberty vs. Safety

Montesquieu: No tyranny is more cruel than the one practiced in the shadow of the laws and under color of justice… [Considerations on the Causes of the Greatness of the Romans and their Decline]

Benjamin Franklin: They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.

Alexander Hamilton: Safety from external danger is the most powerful director of…national conduct. Even the ardent love of liberty will, after a time, give way to its dictates. [Federalist #8]

John Basil Barnhill: “Where the people fear the government you have tyranny. Where the government fears the people you have liberty.” [1914]