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Tuesday, March 08, 2011

"The Public will Coalesce around the Welfare State and Taxes will be Raised to Meet the Cost"

Karl Smith:

Starving the Moral Beast, by Karl Smith: ...If we want to build a model of what the government spends money on we would be best to start this way: ask people what social obligations do they believe “society” has. Look around for the cheapest – though not necessarily most efficient – programs that could credibly – though not necessarily effectively– address those obligations. Sum the cost of those programs. That will be government spending.

Contrary to Jonah Goldberg and others who see Canada and the United States as examples of two clashing ideologies, they are actually examples of two different ethic distributions.  The United States is not Canada because there is ethnic strife between Southern Blacks and Southern Whites. That strife reduces the sense of moral obligation on the part of the white majority and so reduces government spending.

I want to be very clear that I don’t say this to paint those against social spending as racists. From where I sit I am betting that most of the intellectuals lined up against expanding the welfare state are naively unaware that their support rests upon racial strife. Otherwise they would realize that as America integrates they are doomed. They are fighting as if they believe they have a chance of winning. Given the strong secular trend in racial harmony, they clearly do not.

I point this out also to show why the major Republican strategy for limiting government was doomed from the start and why I am also not particularly worried about Americas fiscal future per se.

In the 1980s some conservatives believed that the might not be able to cut government but they could cut taxes and thereby starve the beast. Rising deficits would force the hand of future governments. Spending would have to be cut in order to bring the budget into balance.

Much of the handwringing about fiscal irresponsibility is a sense of alarm not only on the right, but throughout much of the political center, that these spending cuts are not actually materializing.

But, by what theory of government did you ever believe they would? Governments don’t look at how much money they have and then decide what they want to buy. They decide what they want to buy and then they look for ways to find the revenue.

Divorcing the two – through sustained deficits – was only going to lead to ever increasing levels of debt. This is what we got. At no point was the beast ever starved. The peace dividend lowered government spending growth somewhat, but that was undone by the war on terror. Otherwise spending hummed along, as it always will, with the government buying things the public thinks it ought to buy.

Yet, if this is causing upset stomachs among many of my fellow bloggers it calms mine. Its quite clear how this will end. Racial strife will continue to abate. The public will coalesce around the welfare state and taxes will be raised to meet the cost.

The fundamental do not predict rising debt forevermore. The fundamentals predict a VAT.

This is not to say I am unconcerned about our economic future. Health care costs will continue to eat up more and more of our economy unless something is done. However, trying to convince people that health care is not a social obligation a fool’s errand. ...

No, people will ultimately believe that health care for all is a social obligation and therefore government will pay for it. There is no more analysis to be done on that part of the question.

The only part left is looking around for the cheapest program. ...

I agree with a lot of what is said here, but I am not as sure that the decisions about how much to spend and how to pay for it can be separated in this way. What society wants to do -- e.g. the social services it believes it should provide -- is partly a function of what we collectively think we can afford. Ultimately, I think, just as price is determined by both supply and demand, decisions about the level of government services and how to pay for those services are made jointly, not sequentially. The decisions cannot be completely separated. Part of the worry about health care, for example, and hence part of the opposition is a worry that we cannot afford it.

However, I probably shouldn't push this too hard, it's not a pure joint decision either, and for some social obligations have little to do with their cost. In addition, in many cases those who benefit from social programs and those who pay are not the same which sets up a social conflict and a political dynamic that can lead to deficits. But I do think that the costs matter when we make decisions about what services we think government should provide. The big difference across people, I think, is the assessment of the net benefits of some of these programs, and the differences are on both the cost and benefit sides of the equation. For example, the racial divide affects the assessment of benefits, and libertarians see taxes as an assault on liberty and hence very costly.

The question, and one that Karl is fairly optimistic about, is whether these differences will erode away over time. Racial divides may lessen due to demographic change, but the intensity of the opposition may increase as some who are used to being in the majority find their numbers are no longer sufficient to maintain control. So the divides will still be there, but the intensity of the opposition may increase (and I doubt people will ever want to pay taxes). However, from the point of view of who has power in Congress and hence on what programs we pursue and the level of taxation, I agree the demographics point to more influence of (current) minority groups and hence more convergence on policy views.

But I don't think I have a very good handle on this beyond the fact that minority groups will grow over time, and the obvious consequences of that change. So let me ask: What do you think? Where are we headed in the future?

    Posted by on Tuesday, March 8, 2011 at 09:45 AM in Economics, Politics | Permalink  Comments (55)


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