Why Government Grows, and How to Reverse It

Why Government Grows, and How to Reverse It
April 22, 2014

Richard Ebeling

Richard Ebeling is a professor of economics at Northwood University in Midland, Michigan. (read full bio)

Regardless of where someone may view himself along the political spectrum (conservative, libertarian, or modern liberal), there are always a variety of government programs and activities that they either think are not worth the money or should not be the business of government in the first place. Yet, it seems almost impossible to rein in government. It keeps growing in size and scope in one direction after another. Why? And is there any way to reverse it?

Growing Government Spending and Taxing

The federal government keeps getting bigger and more intrusive and more costly. In the 2013 fiscal year that ended on September 30, 2013, Washington spent a bit more than $3.4 trillion. This compares (in inflation-adjusted 2013 dollars) with 2.1 trillion in 1993. In other words federal spending has increased by 62 percent over the last twenty years.

The same dramatic growth has occurred on the revenue side. The federal government took in about $2.8 trillion in taxes in fiscal 2013, compared to $1.7 trillion in 1993 (in 2013 inflation-adjusted dollars), for a 65 percent increase in government revenues compared to two decades ago.

This increase in expenditures and revenues over the last twenty years is reflected in the tax burden on the American people. The average household paid $28,205 in taxes to the federal government in 2013, up from $22,230 (in inflation-adjusted 2013 dollars) in 1993, or a 27 percent increase in twenty years. While the population of the country has increased by around 22 percent during this time period, per capita federal government spending has risen by 33 percent.

Both "entitlement" spending (Social Security, Medicare) and "discretionary" spending (including defense) have significantly increased over these two decades. Discretionary spending went up about 50 percent over this period, while entitlement spending rose by 100 percent.

Special Interests and the Growth in Government

According to "public choice" theory, this growth in government transcends the political differences in modern democratic society. Rather, it is structured into the existing political system itself.

Public choice theorists are economists who argue that the political process should be studied in the same manner as markets are analyzed. Over the last several decades, they have attempted to explain the factors behind the growth of government in modern democratic society. They say that individuals in the political arena are motivated by self-interested goals (which can include ideological or ethical ends, as well as financial gains).

This self-interest prompts individuals and "special interest" pressure groups to weigh the costs and the benefits in deciding to be for or against various government policies; and they attempt to influence political outcomes through their votes, their campaign contributions, and their lobbying expenditures.

Their goal to obtain through either government regulations or income redistribution what they cannot or do not want to peacefully and voluntarily acquire on the open, competitive market: other people's money.

Rather than earning the revenues or income they desire by offering the consuming public more, better and less expensive products, they turn to government to get anti-competitive domestic regulations, import restrictions against foreign rivals, or subsidies or government contracts to acquire the additional wealth they want -- all at taxpayers -- and consumers' expense, of course.

If they are "non-profits" such as many environmental groups, they turn to government to restrict people's use of their own private property through land use prohibitions or regulations, or through government control and ownership of land and wildlife they want preserved from private access and development. Unable to persuade enough of their fellow citizens to voluntarily contribute sufficient money to buy up and maintain the land they wish "untouched by man," they turn to the coercive power of government to get what they want through taxes and regulations.

Politicians, Bureaucrats and the Growth in Government

Politicians, on the other hand, desire to be elected and reelected. They gain political office by "selling" programs, regulations, and spending taxpayer dollars for the benefit of various constituent groups whose campaign contributions and votes they hope to receive.

Why do they want to be elected or reelected? So they can impose on the citizenry -- both supporters and those who may have voted against them -- programs and spending and taxing that they arrogantly presume to be good for "the people," under the presumption that they know what is good for others; and which those others would want of their own free will if only they were intelligent enough to have the wisdom and values that those holding political office believe they possess.

Of course, sometimes the desire for political office arises out of pure personal ambition, including the desire to "leave their mark on history," their "legacy" that future generations of little children will learn about in government schools. And, sometimes, it is the simple desire for power over others, and any material wealth that can come their way through political plunder and manipulation.

Those who run the government bureaucracies desire larger budgets and greater administrative responsibilities over economic and social affairs. They hope to gain promotions, higher salaries, and more control through discretionary decision-making.

Larger budgets and expanded regulatory authority opens the door to promotions and higher salaries in the government pay grades. In addition, some of those in the government departments, bureaus, and agencies suffer from the "psychology of the petty bureaucrat" who craves power over others; others who deferentially have to come to them and plead for the regulatory and licensing permissions without which the honest men of the market place cannot go about their productive business.

Bureaucrat's Incentive to Never Get the Job Done

There is also a perverse incentive mechanism within the halls of bureaucratic power. Those who manage and work in these government departments and agencies have little or no incentive to "solve" the problems for which their department or agency was originally created. If they do so they lose the rationale for maintenance of or increase in the budgets and authority without which they have neither their incomes nor positions.

This stands in stark contrast to the incentives for the private enterpriser in the competitive market. In the free market there is only one way to gain and retain the consumer business from whose purchases market-base enterprises earn their revenues: to solve people's problems.

It may be a tastier coffee or frozen dinner; or a more wrinkle-free shirt or suit; or a longer-lasting chewing gum; or better fitting and lighter wearing prescription eye glasses; or a better quality and less expensive private education; or a wider covering and lower premium car insurance or health insurance policy. Whatever it may be, in the voluntary free market attracting customers and winning their repeat business requires private enterprisers to make people's lives easier, more comfortable and less expensive.

There are no such incentives within the government bureaucracies, in which the "servants of the people" have monopoly control over certain services and regulatory rules and permissions. In addition, they acquire their incomes not through voluntary transactions but through compulsory taxation.

If this is the crude, but no less true reality behind the "public interest" and "general welfare" political rhetoric and ideology with which those in political power attempt to mesmerize citizens and taxpayers, then why, once it is understood, does the governmental system of paternalism and plunder persist?

Concentration of Benefits, Diffusion of Burdens

One of the core ideas of the public choice theorists is that there is a bias toward growth in government spending and redistribution that results from the pattern of a "concentration of benefits and a diffusion of burdens." The logic of this process was actually explained more than a century ago, in 1896, by the famous Italian economist and sociologist Vilfredo Pareto.

Imagine that in a country of 30 million people, the government proposes to tax each citizen $1 more, and then redistribute the extra $30 million among a special interest group of 30 individuals. Each taxpayer will have one extra dollar taken away from them by the government for the year, while each of the 30 recipients of this wealth transfer will annually gain an extra one million dollars.

Pareto suggested that the 30 recipients would collectively have a strong incentive to lobby, influence, and even corruptly "buy" the votes of the politicians able to pass this redistributive legislation. Each individual taxpayer, on the other hand, will have little incentive to spend the time and effort to counter-lobby, influence, and petition members of the legislature merely to save one dollar off his or her tax bill.

Let's look at the U.S. federal government's budget. In 2013, the per capita amount of government expenditures was around $11,000 for every man, woman and child. Not everyone, of course, pays taxes. The average taxpayer burden of government spending in 2013 came to around $26,000. However, the cost of each of the government departments and bureaus and the specific line items in their respective budgets was only a fraction of the overall tax burden.

Big Government Spending, Individual's Tax Burdens

Suppose a "conservative" is critical of the Department of Education, thinking that many of its activities are misplaced, or perhaps that the whole department should be abolished. While the Department of Education spent nearly $72 billion last year, the average taxpayer only shoulder $522 of this expense or on average only $43.50 in monthly taxes, which came to around $1.45 a day. This is far less than a latte at Starbucks or a lunch meal at a fast food establishment.

In most instances, it would be hard to interest a member of the general taxpaying public to learn enough about the pros and cons of the actual programs run by the Department of Education for him to make an informed decision as to whether nor not what the Education Department was doing was really worth it. After all, even if the Department of Education was abolished, it would save the average taxpayer less than two dollars a day, assuming taxes were cut by the full amount.

On the other hand, that $72 billion is concentrated on the incomes and activities of, at most, several hundreds of thousands of teachers, educators, school administrators, and textbook and school-supply providers. Those federal dollars represent a sizable portion of their administrative budgets, take-home pay, and business profits. The lobbying and voting incentives, therefore, will be heavily on the side of those who see financial and related gains from continuing and increasing federal spending on government-funded education.

Someone on the "liberal" side of the political spectrum might be equally critical of some of the line item spending in the Department of Defense budget, or on subsidies to corporate agri-businesses funded by the Department of Agriculture. But the same bias would work in these areas of government activity, as well, making it difficult to create the necessary political counterweights to lobby for the reduction or elimination of these federal programs.

The Defense Department's spending on warplanes and battleships, uniforms and boots, ammunition and weaponry, spying devices and unmanned drones represents hundreds of millions, sometimes billions of dollars to the various contractors who win and fulfill these military contracts. They have a strong incentive to lobby and influence for the greatest amount of defense-related spending, and to know every detail and potential rationale to demonstrate that such expenditures are in the "national interest" and why they are the right ones to get the taxpayer-funded procurement deals.

But how many taxpayers will have the motive and incentive to wade through all the (unclassified) details concerning the various parts of Defense Department spending to make an informed decision about how much defense spending America needs and of what type, considering that even if some programs were to be cut back or eliminated it would maybe result in a cut in his personal taxes by the equivalent of a few dollars a day. For most individual citizens their time and attention have a higher value in doing other things.

Because of this, government tends to grow in many directions in the form of concentrated benefits for special interest groups of all types at the expense of the general citizenry and taxpayers. The dispersed financial burden that falls on each taxpayer as his "contribution" to fund these programs nonetheless adds up, of course, to hundreds of billions, indeed trillions, of dollars a year of government spending.

Division of Labor and the Bias Toward Producer Interests

Since the time of Adam Smith in the eighteenth century, economists have emphasized the productive benefits from specialization through the division of labor. Each of us will be materially far better off if we specialize in what we are relatively more productive at doing, and then trade away our particular good or service for what others are offering to sell us. This is really the basis for all the material, scientific, intellectual, and cultural advancements of modern civilization.

But near the beginning of the twentieth century, British economist Philip Wicksteed pointed out, in his The Common Sense of Political Economy (1910), that such specialization also tends to create a bias against the open, competitive market in which people need to apply themselves in the most productive and cost-efficient ways. This was also strongly emphasized by the free market, German economist Wilhelm R'pke, in his work, The Social Crisis of Our Time (1942).

Once individuals have divided their labors, each becomes the producer of one product (or at most a small handful of things) and the consumer of all the multitudes of goods that others in society produce. But it is impossible for any of us to buy the goods that others offer to us as consumers, unless we have first succeeded in earning an income from what we are selling on the market in our own role as a producer.

Because of this, our interest as a producer always tends to take precedence over our role as a consumer, it has been argued. If I oppose some special interest group that is trying to get a subsidy from the government, I may save a dollar in my role as taxpayer and consumer (to use the earlier example from Pareto). But is it worth the cost in time, effort and expenditure to do so?

On the other hand, lobbying and otherwise influencing the legislative process to win some favor or privilege for myself and the others in my sector of the economy may produce better financial results. A protective tariff to limit foreign competition, for example, or a regulatory or licensing rule that restricts new domestic rivals can increase my income per year by tens of thousands of dollars, in my role as a producer.

The Democratic Dilemma and the Need to Limit Government

This is, in a sense, the modern democratic dilemma.

Over the last one hundred years, there have been fewer and fewer restraints on what is viewed as the proper role of government in society. The arena in which government may take an active part, both in the United States and around the world, grows ever wider. This widening arena of government has become the playground of special interest politicking from both the political "left" and "right" by those hoping to gain something through government intervention at the expense of others in society.

In 2013, there were over 12,000 registered lobbying groups in Washington, D.C. They officially spent more than $3.2 billion in 2013 to influence legislation on behalf of special interest groups from across the political spectrum, and reflecting virtually every sector of the U.S. economy. Just since this century began in 2001, annual spending by Washington-based lobbying groups (in real inflation-adjusted dollars) has increased by nearly 50 percent.

How do we break out of this dilemma, and return to limited government? Unfortunately, there are no electoral "quick fixes" or political sleights-of-hand that can reduce or eliminate the political paternalism and plunder land of the modern interventionist welfare state.

A Return to the Idea of Individual Rights Inviolable by Government

It requires a sea change in the philosophical, ethical and political-economic premises upon which American society operates. In other words, those of us who believe in and desire liberty and a free society must return to "first principles" and articulate the same to others.

We must hone our own understanding of the ideas and ideals upon which the United States was originally founded, and most especially as enunciated in the Declaration of Independence, where it was clearly and explicitly stated that freedom is inseparable from the recognition and defense of those inalienable rights to "life, liberty, and the pursuit of happiness" that are universally possessed by each and every individual.

In more modern times, Ayn Rand expressed this concisely and insightfully in her essay, "Man's Rights" (1963):

"If one wishes to advocate a free society -- that is, capitalism -- one must realize that its indispensible foundation is the principle of individual rights. If one wishes to uphold individual rights, one must realize that capitalism is the only system that can uphold and protect them.

"Rights are a moral concept . . . the concept preserves and protects individual morality in a social context ... the link between the moral code of a man and the legal code of a society, between ethics and politics. Individual rights are the means of subordinating society to moral law . . .

"A 'right' is a moral principle defining and sanctioning a man's freedom of action in a social context. There is only one fundamental right . . . a man's right to his own life . . . The right to life is the source of all rights ... and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means of sustaining his life. The man who produces while others dispose of his product, is a slave . . .

"The United States regarded man as an end in himself, and society as a means to the peaceful, orderly, voluntary coexistence of individuals . . . and that the only moral purpose of a government is the protection of individual rights . . .

"To violate man's rights means to compel him to act against his own judgment, or to expropriate his values. Basically, there is only one way to do it: by the use of physical force. There are two potential violators of man's rights: the criminals and the government.

"The great achievement of the United States was to draw a distinction between the these two -- by forbidding to the second [government] the legalized version of the activities of the first [private plunder]."

As long as people believe that "society" or the "democratic majority" or some empty notion of the "general welfare" comes before and is above the rights and interests of the peaceful individual, then there will be no breaking out of the trend towards the growing size and scope of government's controlling reach over all of us.

It must become "second nature," a "habit of the mind" for Americans in general to once more take it for granted that certain things are, well, "just not done." And more precisely, that it is the duty of government to protect the right of each individual to his life, liberty, and honestly acquired property, and not to violate that person's rights.

For it to become "second nature" and a "habit of the mind" again, people must rediscover the reason for and rightness of an inviolable "right" of each individual to his own life, which should not be sacrificed to some mystical and imagined "higher good" or any collective entity called "the nation," or the "state" or "society."

This is why, in answer to her own question, "Philosophy, Who Needs It?" Ayn Rand once argued that each of us does; we must become intelligent students of the theory of individual rights based on reason and reality.

Changing the Course of Human Events with Right Ideas

Enough of us have to have sufficiently done so that we can explain to others the essentials of such a theory of individual rights, and with sufficient persuasiveness that those other, too, come to see the rightness in them. Then it won't matter that most people never have an incentive to know enough to decide whether the U.S. Department of Education is spending too little or too much on a "common core" curriculum or whether the Defense Department has just the right number of aircraft or ocean vessels to "police the world."

Enough people will enter the voting booth and think as "second nature" and as a "habit of the mind," is this candidate for or against respect for and protection of individual rights? Does this party platform advocate or oppose private property and free market capitalism? Does this party and these candidates believe that the function of government is to defensively protect the citizens of the country from the clear and present dangers of foreign aggressors or do they wish to sacrifice the lives and fortunes of Americans in foreign adventures and wars?

Most people, if they see a person drop their wallet will pick it up and hand it back to them, because as "second nature" and "habit of the mind" they take for granted that taking what belongs to another is "wrong." For a free society to prevail it is necessary for many people to no longer give even a second thought that it is ethically right for them to run to government and take by political power what they would never think of stealing in their private interactions with others.

It is not that advocacy of liberty should become a "prejudice," that is, a preconceived idea not based on reasoned reflection or learned experience. A mere "faith" in freedom without a well-grounded set of reasons for advocating it will not sustain a free society in the long run.

What it does mean is the each generation must be encouraged to think about and learn the meaning of individual rights, and what they imply about the nature of man, human associations, and the role and place of a government in society.

If properly and effectively understood, it will become the generally accepted notion that, "Well, every thinking and reasonable person knows that . . . using the coercive power of the government to compel any man to sacrifice his life for others is as ethically not right as expecting others to be forced to sacrifice for him."

Then, as a matter of implied "first principles" it will be impossible for some in the society to successfully coerce others through the tools of political power, because it will be culturally counter to the general "habit of the mind" that liberty is too precious as both a moral and practical matter to be forgone for even the most attractive short-run gains from political paternalism and plunder.

It is neither an easy nor a quick task to change, in this sense, the "climate of opinion" about the appropriate moral order to sustain a free, prosperous and ethically healthy society. But we have no tools other than our minds and our reason and an understanding that it is in our own self-interests to try.

If enough of us take on this task the growth in government can be both halted and reversed. The world of coercive plunder can be replaced with a human community of free men pursuing mutually beneficial peaceful production. The democratic dilemma of every growing government will be brought to an end.

 

[Originally posted at EpicTimes]

Richard Ebeling

Richard Ebeling is a professor of economics at Northwood University in Midland, Michigan. (read full bio)