Sunday, May 24, 2009

Starving The Beast, Part I

So we all know the "starve the beast" concept: cut taxes in order to force cuts in spending. In California, we're facing a $21 billion deficit. Without the prospect of sizable tax increases in the near future, and even with some sort of federal "bailout", we're going to have to make some severe cuts. The beast is certainly starved, and we face an impending reckoning. Will the grim reality of going without finally force us to acknowledge the reality of what a low-tax, low-service government looks like? And when we do, what will we choose?
Californians, with a deeply conflicted electorate, have had their cake and eaten it too. We've spent a lot of money on health & human services, education and prisons. And we've done it without raising taxes proportionally. And now, because 38% of tax revenue comes from personal income taxes, the economic crisis has blown a whole in that revenue stream. The legislature is sharply divided, and without the 2/3 majority needed to sufficiently fund our present levels of spending, the effects of spending cuts will be seen shortly. Class sizes will increase dramatically, as we lay off teachers. Neighborhoods will be less safe as we lay off police and firemen. Prisons will be forced to cut back, despite an enormous level of incarceration (ironically much of which stems from a political philosophy largely shared by those who wanted lower taxes in the first place).
I'll try and lay out the arguments for low-tax, small government:
1) Personal responsibility
Regardless of whether it is good for the economy, people must be held accountable to their own situation. If they make good choices, they will be successful. No matter what life hands you, you can always trace a line to prosperity. Government help must be reserved for only the most extreme, and unlucky of situations. Man makes up his own mind, and our social framework rewards or punishes him accordingly. Even in instances where one really is a victim of circumstance, government will only get in the way. Following the principle of "creative destruction", economic catastrophe will force otherwise complacent people to find innovative solutions: necessity is the mother of invention.
2) Inefficiency
Government is always inefficient. The private sector will always do a better job because its inherent competitivity will reward efficiency and punish inefficiency. Government is basically a monopoly, and therefore not only is its inefficiency unchallenged, but it acts as an unfairly advantaged competitor to more capable businesses that lack an unlimited supply of tax revenue, which in turn effectively rewards its continued incompetence.
3) Growth-limiting
Not only does government compete unfairly and thereby stifle business growth despite inefficiency, its mere presence in the market supplants industry, and when it regulates, it further inhibits growth. If left to its own devices, the market would find a way to provide for any real need. Many services could be provided adequately by the private sector, yet are effectively forfeited to a deep-pocketed government. Adding insult to injury, a paranoid devotion to environmental protection and growth management always hamstrings business. Excepting the most severe abuses, industry is generally quite capable of policing themselves, and what they do not do themselves, the public will do for them in the marketplace by selecting goods and services they find ethical.
What is interesting about these arguments is that they contain a dynamic tension: there is always a blurry line between limited and total absence of government. The easiest course to take would be anarchist libertarianism, where any and all government intervention - including, one assumes, military spending - would be gone. How then to write and enforce laws would be an interesting challenge. This tack would be the logic counterpart to communism, with the entire market controlled and run by the government. Neither of these two options is given serious thought, for obvious reasons.
What we are left with is a "tendency" on the right towards low-tax, limited-government, and on the left towards high-tax, larger government - pretty well covering every conceivable position between anarchy and communism. This has the politically messy effect of putting every conceivable government program upon the operating table. While there may be some areas of government that all but the most radical agree must exist at some level, where that level lies causes endless debate. Historically we have seen widely ranging policies on spending and taxation. From less than 5% of GDP in 1900, to around 30% currently, taxation and spending has also varied dramatically in source and substance, respectively. After the Great Depression, new government programs were created, leading to an increase in taxation which reached its peak of progressivism with a top marginal rate above 90% in the nineteen-forties.
Certainly there are many substantial government programs over whose very existence reasonable people disagree. Liberals, by and large, would be hard-pressed to find any government agency they would actually like to see removed completely. This is likely due to their very nature having established a majority of existing programs to begin with. Many conservative interests, on the other hand, might be served by a government agency, but are not because of conservatism's natural inclination against government intervention. The plentitude of government programs however should not be confused with overall size of government. Ten government agencies created to oversee, say, mental health services, might require $250 million a year, while one defense agency might require $10 billion. The obvious difference between the two, besides cost, is relative merit in the eyes of the beholder, whether left or right.
In Part 2, I’ll try to show what a low-tax, limited-government looks like, or would look like, in reality. I’ll then attempt to propose arguments for what a high-tax, large-government looks like, or would look like.

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