"Whenever I go into a restaurant, I order both a chicken and an egg to see which comes first"

Tuesday, April 19, 2016

Progressives' Persistent Fantasy - High Taxes And Big Government

In an article in the New York Times (3.19.13) David Brooks wrote about Democratic ‘progressives’ persistent fantasy – that government is always the answer; that government spending is the be-all and end-all to all social and economic ills; and that punitive taxes on the rich are always the way to get a free lunch.  They cannot seem to forget FDR and his Depression-era public spending; they ignore the realities of today,and call for discredited policies of the distant past.

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There is a statue outside the Department of Labor of a powerful, rambunctious horse being reined in by an extremely muscular man. This used to be a metaphor for liberalism. The horse was capitalism. The man was government, which was needed sometimes to restrain capitalism’s excesses.
Today, liberalism seems to have changed. Today, many progressives seem to believe that government is the horse, the source of growth, job creation and prosperity. Capitalism is just a feeding trough that government can use to fuel its expansion.
This is the best metaphor ever to describe ‘progressives’ideologically-driven agenda.

The Congressional Progressive Caucus last week (3.13) called for a $2.1 trillion increase in federal spending at a time when the US is just emerging from a crippling recession, struggling to rein in a mounting and seemingly limitless debt, attempting to both reform the lending industry and to increase credit to break the logjam currently blocking economic progress.
Now, of course, liberals have always believed in Keynesian counter-cyclical deficit spending. But that was borrowing to brake against a downturn when certain conditions prevail: when the economy is shrinking; when debt levels are low; when there are plenty of shovel-ready projects waiting to be enacted; when there is a large and growing gap between the economy’s current output and what it is capable of producing.
Today, House progressives are calling for a huge increase in government taxing and spending when none of those conditions apply.
Perhaps the most astounding news of all is that these progressives want to take action that will certainly cripple the economy rather than stimulate it:
In this phase of the recovery, just as the economy is finally beginning to take off, these Democrats want to take an astounding $4.2 trillion out of the private sector and put it into government where they believe it can be used more efficiently.
Where does this financial and economic illusion come from?  How can progressives so defiantly adhere to an idealistic vision of human society that never existed and never will?

Perhaps it is because of their view of democracy; that is, that government not only represents the people but is constituted to act as their stewards, and to be the father and guardian of all.  Government should be a New Testament savior, helping people to see the error of their ways, and returning them to a state where all people are equal, share equally, and live innocently.  Government should also be an Old Testament God, raging at the superciliousness and arrogance of the rich, threatening to slaughter them if they do not bend to its will.

This vision of government was certainly not what Thomas Jefferson and the Founding Fathers intended.  America was first its people, second its communities, and only a distant third, its government. The Revolution and the rejection of royal government and decree were still very vivid in the minds of the signers of the Declaration of Independence when they penned their names.  America would have a government, they understood, but it would be secondary and subservient to the citizens of the new republic.

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The Bill of Rights was such an important document because it codified the rights and obligations of the citizenry.  The “pursuit of life, liberty, and the pursuit of happiness’ meant that every new American would profit from the fruits of his labor and be free to do so.  His pursuit of happiness was meant not as license to follow individual, venal pursuits, but to toil for the common good and the commonweal.

Government did have its day when it acted according to the original conception of the nation.  It acted to reign in the excesses of laissez-faire capitalism, to stimulate the economy during the Great Depression, and to enforce racial integration.  It has a certain role, but a very limited one in the regulation of the private sector when competition in the marketplace is an insufficient self-regulatory mechanism.

There is no enshrined role for government to engineer change through aggressive social programs, to interfere in market choices, or to crowd out private enterprise.  Thanks to a strong conservative movement in the country,  Democrats have been forced to reconsider the role of government.  While no one denies that there is a role, a reconsideration of what that role should be has been a long time coming.

Progressives, however, are reluctant to give up their belief in a welfare state and the conviction that government has a distinct and premier role in reshaping individual behavior in a more liberal image.

How would ‘progressives’ pay for new and more extensive social programs, such as those suggested by Bernie Sanders (2016)?  By increasing taxes on the wealthy.
Today, especially after the recent tax increases, the total tax burden is already at historic highs. If you combine federal, state, sales and other taxes, rich people in places like California and New York are seeing the government take 60 cents or more out of their last dollar earned.
Democrats would make that weighty tax burden much, much heavier. In fact, the entire Democratic governing vision, from President Obama on down, is based on the notion that we can have a growing welfare state and pay for it by taxing the top 2 percent.

Brooks writes of the significant problems with this approach.  First there are simply not enough rich people to fund the kinds of spending ‘progressives’ propose.  The Third Way has concluded that even by throwing every possible new tax on the wealthy the debt would quickly double.

Second, no one doubts that by raising the total tax burden to 80-90 percent would have unpredictable consequences, all bad. In fact lower taxes have shown to have the opposite and salubrious effects:
Edward Prescott, a winner of the Nobel Memorial Prize in economics, found that, in the 1950s when their taxes were low, Europeans worked more hours per capita than Americans. Then their taxes went up, reducing the incentives to work and increasing the incentives to relax. Over the next decades, Europe saw a nearly 30 percent decline in work hours.
Furthermore, the wealthy have many ways to avoid taxes and would certainly do so if they were to precipitously rise:
The rich tend to be more sensitive to tax-rate changes because they’ve got advisers who are paid to be. Martin Feldstein, an economics professor at Harvard, looked into tax changes in the 1980s and concluded that raising rates causes people to shift compensations to untaxed fringe benefits and otherwise suppresses their economic activity. A study last year by the economists Michael Keane and Richard Rogerson found that tax rates can have a surprisingly large influence on how much people invest in education, how likely they are to create businesses and which professions they go into.
Once progressive Congressmen feel the wind of  higher taxes among the wealthy in their sails, there is no stopping them.  Despite their promises to redistributed wealth, the demand for ever more resources for government spending requires extending the tax burden.  These representatives who live in an academic, and idealistic world, shut off from the lives of the real middle-class – the working poor – do not understand what they go through to make ends meet and how taxes hobble if not cripple their attempts to move up the economic ladder.

A small entrepreneur trying to start a restaurant has to scramble to get the family support and low-cost labor needed to get his business underway; but progressives choose to ignore the especial burden placed on them by higher minimum wages and obligatory health care. . They do not appreciate the vitality of the American IT industry which is catapulting the US economy back into prominence in world markets and creating jobs at home; or the responsiveness of the new US auto industry which is now making competitive, long-lasting cars after flailing on the brink of bankruptcy. They look at newly productive and wealthy firms as a source of revenue for an ever-expanding treasury.

By creating extreme, black-and-white categories – the poor or the rich; the advantaged and disadvantaged; black or white; gay or straight - progressives tend to miss the nuances and gradations of American society; but by so doing, they set up ready-to-fund programs.  It may be right never to lose sight of women's issues, but the continued loud but inconsistent demands for change no longer ring true.  Women are doing quite fine, thank you, outpacing men in law and medicine and never more present and influential in corporate America.  It is inconsistent to claim that women need more and more protection from men when feminism rightly refers to women's innate equality, strength, and parity with men.


The Left clamors for radical gender reform when the country is finally coming around on its own to a more accommodating view of sexual diversity.  Applying 'racism' to every social conflict, and looking for injustice where only irresponsibility and social dysfunction are at work only harden conservative opinion. No one whether wealthy or middle-class wants to see a socialist-style redistribution of wealth which demeans individual enterprise and weakens the foundation of a market economy on which they both depend.

Americans have been in a low-tax, small government, private enterprise mood for decades now; and few want a return to the type of interventionist and expensive big government promised by the Left. It is true that government has grown even under conservative administrations, and it is high time to review all federal spending for appropriateness and efficiency.  However what few people want - except the Sanders supporters who misjudge the conservative zeitgeist of a profoundly conservative America - is a return to high taxes, increased government spending on patronizing social programs, and unnecessary and wasteful subsidies on both industry and agriculture.
The progressive budget in the House seems to have been written by people hermetically sealed in the house of government. They work in government. They represent public-sector workers. They seem to have had little contact with private-sector job creators and no idea about what factors might play in their thinking. It’s a reminder that while Republicans may embarrass on a daily basis, many progressives have lost touch with what actually produces growth and prosperity.

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