Posts tagged with: Public economics

In a new essay for Public Discourse, Acton Research Director Samuel Gregg explains why we shouldn’t only focus on public sector unions as examples of organizations that seek government power and taxpayer dollars to advance their ends. “A considerable portion of the business community is equally culpable,” Gregg writes. Excerpt:

The attractions of business-government collusion are enhanced when the state’s involvement in the economy grows. This is partly a question of incentives. The larger the scope of government economic intervention, the more businesses are incentivized to cultivate politicians in much the same way that public sector unions have.

As a result, consumers become displaced as the focus of business activity. Nor do the incentives for people of an entrepreneurial bent lie with creating something that the entrepreneur thinks consumers will value.

Instead the incentives become increasingly aligned with successful political entrepreneurship. Competition becomes less about a company’s ability to offer new and better products for consumers at lower prices. Instead, it become a struggle among businesses to secure state subsidies, to lobby legislators to establish tariffs that stack the deck against foreign competition, or to persuade governments to provide one company with exemptions from regulations that apply to every other company in the same industry.

It’s a form of soft corruption that produces higher prices for consumers, undermines value creation in the marketplace, and facilitates unwholesome relationships between politicians and businesses. It also represents the gradual subversion of the market economy by mercantilist arrangements. Smith identified the core of the problem in his Wealth of Nations (1776): “in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and consumption.”

In the end, however, everyone loses.

Read Samuel Gregg’s “Business vs. the Market” on the Public Discourse website.

I’d like to thank Gideon Strauss of the Center for Public Justice and Jordan Ballor of the Acton Institute for their gracious and thoughtful contributions to the discussion of “A Call for Intergenerational Justice” at last night’s Open Mic Night in Grand Rapids. It was an excellent example of the kind of spirited and good natured dialogue we need in confronting the problems of poverty and the national debt.

Earlier this week I pointed out that there was indeed a lot in the “Call” to be recommended. It takes the question of the debt seriously and makes hard recommendations involving both cuts to federal spending and tax increases. Both will be necessary tools for addressing this issue.

My problem with “A Call for Intergenerational Justice” is that I don’t believe these two tools, while both necessary, are sufficient to address the crisis alone. In the short term cuts in federal spending will affect many adversely and tax increases will place an additional burden on an economy still struggling to emerge out of a recession.

The precarious place we now find ourselves in has many causes. Government spending that has grown to unsustainable levels and tax cuts funded by borrowing (Which are, in the long term, not genuine tax cuts at all) have both played a role. But what has fueled the deficit most in recent years is the recession itself and the tragically misguided attempts by the federal government to lift us out of it.

What we desperately need is a third tool, economic liberalization, which would promote economic growth. Here are four broad principals of economic liberalization which, if they had been included, would have made “A Call for Intergenerational Justice” a document not just worth thoughtful consideration and debate but something worth getting behind:

  1. We need to open more markets to American goods and services and open them more widely.
  2. We need to lower barriers (in the form of regulation) and cost (in the form of taxation) to doing business and creating jobs domestically.
  3. We need to lower regulatory barriers for entrepreneurs to enter the marketplace by streamlining or cutting red tape.
  4. We need to look seriously at intellectual property law and strike a better balance between rewarding innovation and promoting competition.

I posted some initial thoughts on “A Call for Intergenerational Justice: A Christian Proposal on the American Debt Crisis,” which was released by the Center for Public Justice and Evangelicals for Social Action yesterday.

I’ve been engaged in what I think are largely helpful conversations on this document in a number of venues in the meantime. Gideon Strauss challenged me to look at the document again, and reconsider my criticisms, and I have been happy to do so.

For instance, I voiced the concern that the core budgetary problem that must be addressed concerns entitlement spending, and I judged that the Call does not sufficiently address that concern. Gideon pointed me to a piece by Michael Gerson, a signer of the Call, that makes precisely this point: “Debates on discretionary spending are important. Our government should not waste money on ineffective programs. But discretionary spending is a sideshow, even a distraction, from the main governing task: getting entitlement spending under control so it does not crowd out all other government spending.”

I also made a related point that we should not be juxtaposing cuts in, for instance, defense spending with those on other discretionary areas, including social programs. As Gerson writes, these debates are largely a “sideshow.” And so Gideon also pointed me to today’s editorial about the Call, which makes a number of important points, not least of which is that “It would be simplistic to portray the present challenge as a simple matter of ‘guns vs. butter’ and to overemphasize the contribution that prudent reductions in defense spending, however necessary, would make to the current debt crisis.”

One further point of concern I voiced is that “what we’re missing here is a really principled and vigorous view of what the government’s legitimate role is in the world and in relationship to a variety of concerns: defense, social welfare, international development, and so on.” Gideon pointed me appropriately to the CPJ “Guideline on Government.”

These are all good and necessary documents for understanding the proper interpretive context for the Call, and I’ll admit, they weren’t the first things I thought of when attempting to understand the petition. I still wonder, though, why some of these things couldn’t be made more explicit in the document itself? If Gerson is right, that debates over discretionary cuts of whatever programs are really a distraction, why not make the focal point of the Call entitlement reform in a more central and explicit way?

And I do think there are other relevant interpretive contexts for understanding the Call. Jim Wallis, Shane Claiborne, and a host of others have been involved over the last days and weeks in a “What Would Jesus Cut?” campaign that bears many similarities to “A Call for Intergenerational Justice.” Much of the material surrounding that campaign does seem to focus on fights over discretionary cuts, even to the point of contrasting military and social spending.

Jim Wallis said, for instance, “On a television program yesterday evening, I said that I want those who now propose major cuts to critical low-income family support programs to say, out loud, that every item of Pentagon spending is more important to our well-being and security than school lunches, child health, and early education programs.” He goes on to highlight particular social spending programs that should be immune to potential cuts.

I don’t think that kind of rhetoric is helpful at all, and is more of what Gerson might call a “sideshow.” But it is important because there is so much continuity between the “What Would Jesus Cut?” campaign and the “Call for Intergenerational Justice.” A significant number of signers of the Call, including Wallis and Claiborne, also are behind WWJC. And even the language about cutting budgets “on the backs of the poor” is reiterated with respect to the Call. Signer Jonathan Merritt writes that the Call means “we cannot balance the budget on the backs of the poor.”

So while the CPJ documents Strauss points to are certainly relevant to understanding the Call, I submit that the “What Would Jesus Cut?” campaign is also relevant. And here we might have a hint at why some of the more substantive theoretical questions regarding the role of the state in the provision of various social goods is not examined in more detail in the Call itself: the signers don’t have a unified view on this principled point. The CPJ Guideline on Government is a good starting point, but I find it highly doubtful that it would be assented to by all of the signers of the Call.

So perhaps there really is more than one way to read this document, and it can be put to various uses by various constituencies. This ambiguity, combined with my own doubts about what it actually does substantively say, are enough for me to refrain from signing it, even while I most certainly do agree with the sentiment that the current debt burden is unsustainable, both fiscally as well as morally, and continue to respect the work of many of those who have signed it.

Jordan Ballor has already done a fine job of commenting on A Call for Intergenerational Justice, and I’m sure that others will be chiming in on the PowerBlog as well. I’d like to focus on a couple of points that stand out to me from an initial reading of the document.

I suppose it says something about a document when you can’t finish reading the title without alarm bells going off. “Intergenerational Justice” is a fine sounding term, but what does it mean in the context of the statement? While it isn’t spelled out in any detail, my best guess based on the text and the known political positions of many of the signers is that “intergenerational justice” refers to a continuation of the various Federal entitlement programs that make up the lion’s share of the mandatory portion of the Federal budget. To wit:

“Effective programs that prevent hunger and suffering and empower poorer members of society must continue and be adequately funded.” 

The only program specifically mentioned in the document is Social Security. The authors of the statement believe that the program can be modestly changed, but no indication is given that any radical reform will be tolerated:

“We must make Social Security sustainable. We can slowly increase the retirement age, modestly reduce benefits for more wealthy seniors, and increase the amount of income taxed to pay for Social Security.” 

I think it’s fair to infer from the limited detail provided by the writers of this statement that there is little enthusiasm for major reform of the core Federal entitlement programs that ultimately lie at the root of our debt problem, and no consideration of the idea that these programs may have been ill-concieved, or that the Federal government might not be an appropriate vehicle for meeting such basic human needs. The programs are there, and for the demands of “intergenerational justice” to be satisfied, they must remain in place.

Absent from the discussion, however, is any mention of the intergenerational injustice that these social programs represent in the first place. For instance: I’m in my mid-thirties. I cannot remember any time since I became politically aware that I believed Social Security would be solvent and able to provide benefits to me when I reach old age. Politicians and commentators have been talking about the coming collapse of Social Security since I’ve been reading political commentary. Various temporary fixes to the program have been enacted, but none of them fix the structural problems that plague the program and lead to the ongoing crisis – they just shove the inevitable bankruptcy back by a decade or two (and the same is true of Medicare and other similar entitlements).

And this is nothing new. Today, I just happened to pick up John Samples’ The Struggle to Limit Government and read the following passage describing the arguments over Social Security in its early years:

The intergenerational character of Social Security attracted criticism from the start. M. Albert Linton, an insurance executive and advisor to the program, argued that Social Security would create a large and intolerable burden on future generations. He noted that Social Security’s experts planned eventually to devote as much as 20 percent of taxable payroll to benefits, a sum that the generation of 1939 had not devoted to the program. Why should the current generation be allowed to commit future generations to a burden it would not now impose on itself? Linton’s admonition had no effect on Social Security officials. During a presentation about the future of the program, the council’s chair, J. Douglas Brown, remarked, “Après moi le déluge.” Future generations could take care of themselves; the experts of 1939, not to mention the politicians running in 1940, had little interest in what happened to people who did not exist. 

So, Wallis et al., what say you? If the programs you so desire to save were designed in a way that took no account of their sustainability or of the wellbeing of future generations, and if those same problems persist today and even threaten to completely overwhelm the Federal fisc, why the insistence on saving them? Is there no other way to provide for human needs than through a bureaucracy? It strikes me as odd to demand the maintenance of fiscally crippling entitlements in the name of intergenerational justice when just treatment for future generations was of no concern to the designers of the entitlements in the first place.

One additional point from the “Call” jumped out at me from the “Core Proposals” section. Specifically:

“We must reform the tax code. We should remove many special exemptions, end many special subsidies, and keep the tax code progressive.” 

There is a lot to agree with in that statement – the Federal tax code is monstrous, and it is very likely that there is no one person with the capability to understand it in all of its intricacy. It is filled with all manner of loopholes, exemptions, and subsidies, and needs to be brought under control if we have any hope of understanding exactly how Washington obtains and distributes its revenue. But why the insistence that the tax code remain “progressive”? Why must that be part of any “Christian” proposal to address our nation’s debt crisis? Is progressive taxation truly just? When I read that statement, I recalled reading a contrary opinion from one of my favorite theologians and commentators, R.C. Sproul, on just this issue:

Alexis de Tocqueville, when he came and examined the great American experiment of democracy, said two things can destroy this experiment: One is when people learn that their vote is worth money, that you can bribe people to get their vote or that you can use the vote to somehow shelter yourself from financial or other obligations imposed upon others. Have we taken the blindfold away from lady justice? Are we not all equal under the law? 

On the contrary, we have an income tax structure today that is inherently unjust. We almost never hear anybody discuss this injustice. But when God set up a system of taxation, He did things differently. God said I’m going to impose a tax on my people and it’s going to be ten percent from everybody: The rich man and the poor man are not going to pay the same amount. The rich man’s going to pay much more than the poor man, but they’re both going to pay the same percentage. They’re both going to have the same responsibility. That way the rich man can’t use his power to exploit the poor man, saying, “I’m going to pay five percent, but you’re going to pay fifty percent.” The rich weren’t allowed to do that. Nor were the poor allowed to say, “We’re going to pay five percent and the rich are going to pay fifty percent because they can afford it.” What that is ladies and gentlemen is the politics of envy that legalizes theft. Anytime you vote a tax on somebody else that is not a tax on yourself, you’re stealing from your brother. And though the whole world does it and though it’s common practice in the United States of America, a Christian shouldn’t be caught dead voting to fill his own pocketbook at the expense of someone else. Isn’t that plain? Isn’t that clear? And until we get some kind of flat tax, we’re going to have a politicized economy, we’re going to have class warfare, and we’re going to have the whole nation’s rule being determined by the rush for economic advantage at the polls. Don’t do it. Even if that means sacrificing some benefit you might receive from the federal government. Don’t ask other people at the point of a gun to give you from their pockets what you don’t have. That’s sin.

I don’t write any of this to call into question the Christian commitment of any of the signers of “A Call for Intergenerational Justice.” In fact, I have little doubt that the signers of the document do indeed have a deep concern for the poorer members of society that they hope to defend in their actions. I’m more interested in pointing out that this document is exactly what its subtitle claims it to be: “A Christian Proposal for the American Debt Crisis.” Emphasis on A. It is not the Christian proposal; it is simply one of many responses that well-intentioned Christians can have to our current crisis. And it is entirely possible that well-intentioned people can have blind spots or propose economically flawed solutions to pressing problems. That seems to be a big part of what’s going on here.

A number of prominent evangelical leaders in America have issued a statement on the budget fights in the federal government. “A Call for Intergenerational Justice: A Christian Proposal on the American Debt Crisis,” is sponsored by the Center for Public Justice and Evangelicals for Social Action. Signatories include Ron Sider of ESA, Gideon Strauss of CPJ, Richard Mouw, Michael Gerson, Shane Claiborne, Andy Crouch, and Jim Wallis.

Here are some initial thoughts:

There is very little principle in this statement, which purports not to “endorse any detailed agenda.” The basic principle communicated is: “We ought to care for the poor because God does.” This is of course laudable and true, as is the commitment to “intergenerational justice,” as long as that is defined as not living today on the backs of the unborn and not code for something else.

But the rest really just consists of leaps in logic largely based on unstated assumptions about the role that government should have in administering that care. To wit: “To reduce our federal debt at the expense of our poorest fellow citizens would be a violation of the biblical teaching that God has a special concern for the poor.”

Given the current state of affairs, which the statement acknowledges is a “crisis,” I don’t think it is helpful to energize the grassroots to petition to save particular programs from scrutiny and reform. Things are so bad that everything should be on the table. The situation is not an either/or between social spending and military spending, as Claiborne and Wallis would have it. It’s a both/and, and that includes entitlements.

Which brings me to my next point: There isn’t nearly enough in here about entitlement reform. Social Security must become “sustainable,” but there is no mention of entitlement programs like Medicare and Medicaid. These are the real drivers of huge swaths of our national debt. Non-discretionary spending needs to be scrutinized.

But that’s not all. This call wants to place “effective programs that empower poor Americans or contribute internationally to economic development or the advancement of health” out of bounds. The fact is that many of these programs are busted, and I think it is disingenuous for those who know that to say that we have some kind of moral obligation to keep throwing good money after bad simply out of some vague concern for “the poor.” That is more like a salve for guilty consciences than responsible social action.

The language of the statement doesn’t seem to do justice to the principled positions that agree with the vague notion of the obligation to care for the poor, but disagree about the particular policy and budgetary implications at the federal level. Wallis and Chuck Colson recently agreed that Christians ought engage in principled and honest debate, and not demonize other positions, even implicitly. To cast the debate in the terms that budget hawks don’t care about the poor I think violates this kind of commitment.

So what we’re missing here is a really principled and vigorous view of what the government’s legitimate role is in the world and in relationship to a variety of concerns: defense, social welfare, international development, and so on. Once we’ve decided what government is for you can start to make some principled decisions about funding priorities…things closest to the core mission of government should get the highest priority, and so on.

And the focus really shouldn’t just be on what government should and shouldn’t do. Many of these leaders are religious leaders. The focus should be on what these other institutions can and should be doing, beyond simply serving as lobbying organizations for governmental programs.

I guess, needless to say, I won’t be signing.

Blog author: jcouretas
posted by on Monday, January 10, 2011

Catching up on some recent Acton commentaries. We welcome a new writer, John Addison Teevan, who is director of the Prison Extension Program at Grace College. He also teaches economics and Bible courses at the Winona Lake, Ind., school. This column was published Dec. 29. Sign up for the free, weekly email newsletter Acton News & Commentary here.

A Tithe for Uncle Sam

By John Addision Teevan

Political leaders talk as if the money Americans keep (not paid in taxes) belongs to the government and that our keeping money they could tax is an actual cost to them. This kind of distorted thinking has led us into the fiscal irresponsibility that threatens to destroy our country.

It is, of course, fair to say that there are many exemptions that, if eliminated, could bring in more tax revenue. But Congress prefers a tax code of convoluted exemptions and tax breaks that they create and sustain to keep various interest groups coming to their offices. Taxpayers love breaks such as the homeowners’ exemption that allows taxpayers who itemize to deduct their mortgage interest. Although paying less in taxes is in general a good thing, all such exemptions confuse the process, contribute to an impossibly intricate tax code and keep lawyers, accountants and tax prep software companies prospering. The amount we spend on tax preparation in terms of actual cost and time wasted compared to a simplified tax code is worth billions.

The most extreme example of the fallacious notion that government has a right to its citizens’ money is the idea is that the cost to the government of not taxing the disposable income of all Americans at 100 percent is $11.5 trillion (as if we’d bother working if we faced a 100 percent tax rate). Economist Arthur Laffer noted that the government might collect little in taxes if the tax rates were either very low or very high, because in the latter case Americans would adjust their income according to tax incentives. Government officials unfortunately tend not to think in terms of incentives but of rules and therefore assume, contrary to Laffer’s findings, that higher tax rates always bring in more revenue.

Taken to its conclusion, this thinking leads tragically to socialism. If we think the government is the best source of compassion for the needy and the engine of economic growth, then it makes sense to set taxes at high rates so the government can do all good things for the people. One small faction that I read about in an Ohio paper wants Uncle Sam to hire all unemployed people and then print the money to pay them. This childish scheme is really a variation of the more respectable idea that tax cuts “cost” the government in the same way that spending on defense or health care does.

The foolishness of the concept can be illustrated by analogy with a church. Imagine a congregation of 100 families with a budget that reflected an estimated tithe on $65,000 average family income. Using government thinking, the church budget could be $650,000 (10 percent of 100 x $65,000), even if the actual offerings to the church were only $300,000. This is based on the fairly reasonable idea that the people owe their church 10 percent of their income.

Here’s how government budget thinking might work in that church.

Budget: $650,000. Expenses: charitable relief for church members: $350,000 (54 percent), staff: $150,000 (22 percent), building expenses: $50,000 (8 percent), ministry expenses: $50,000 (8 percent); debt retirement: $50,000 (8 percent).

What is that $350,000 for ‘charitable’ relief for church members? That is the part of the tithe that the members should have given to the church, but did not. Rather than ignore it, the church would reckon it as both income and expense even though not a single dollar changed hands. Government thinking sees any foregone revenue as an expense so that the largest item in this budget is the (fictional) $350,000 expense as if the church spent that money on its own parishioners.

As it stands, the federal government appears to be incapable of balancing income and spending. Right now it is collecting about 16 percent of GDP in taxes and spending well above 20 percent, creating an immense government borrowing gap. Many politicians’ proposed solution is to demand that the existing tax regime be repealed in favor of higher rates; we can’t “afford” the lower rates, they argue. In an economic downturn, however, raising taxes is a surefire way to suppress recovery.

Addressing the spending side of the budget equation is politically painful, no doubt, but it is unavoidable. America faces difficult challenges as we try to grow out of the recession. Having the government think soberly about its tax income and budget expenses would be a good start.