Here is a tweet from Robert Reich, former Labor Secretary under Bill Clinton and current Chancellor of Berkeley's Goldman School of Public Policy:
RBReich Robert Reich
R's are winning the big one -- framing Am's core problem as big government rather than the shrinking middle class & growing plutocracy.
Some people, probably Mr. Reich and most self-identified progressives, blame freer markets, freer trade, less American manufacturing and capitalism in general for a shrinking middle class and growing plutocracy. Allow me to refer you to posts here and here to refute any claims that capitalism, free trade, free markets, competition, etc. is to blame for a long-term shrinking middle class.
The more important question I pose to Mr. Reich is: did big government come before a shrinking middle class and growing plutocracy? Or did a shrinking middle class and growing plutocracy come before big government?
Spoiler alert! I think big government comes first. And let me start off by convincing you that we have a big government relative to historical standards.
The kicker isn't that the federal government spends too much of our GDP, it's that the feds spend too much of our GDP on low return projects and programs. In other words, the feds are inefficient when spending our tax dollars.
The federal government is inefficient for a number of different but related reasons. One of the big reasons is that the fed's centralized influence on society and large purse attracts plutocrats (e.g. corporations, unions and rich families) that have an incentive to shape federal policies in a way that benefits and protects their interests from competition and markets. The acronym CBDC, which stands for concentrated benefits with dispersed costs, describes the effect of plutocrat-influenced policies.
The costs associated with CBDC policies are passed onto the poor and middle classes. CBDC policies: distort the micro economy, waste our tax dollar resources, hurt our economic productivity, hurt growth, destroy jobs, lead to market and government inefficiencies, makes us poorer, reduce the middle class, and, most importantly, increase plutocracy.
A perfect example of CBDC are sugar tariffs, which provide concentrated benefits for U.S. sugar producers (mainly a handful of 6-7 sugar farming families) at a dispersed cost born by U.S. consumers, citizens and taxpayers. The corn industry also benefits because these sugar tariffs keep the price of sugar artificially higher, which incentivizes producers to substitute sugar with high-fructose corn syrup. Think that's bad? Well it gets worse. The government also subsidizes corn producers which makes HFCS cheaper and exacerbates its use.
Sugar tariffs, corn subsidies, soy subsidies and other farm subsidies are perfect examples of well intentioned policy gone bad. The policies are bad because the resulting real world effects include: a distorted micro economy, a poorer middle class poorer, and more plutocracy.
But why do the feds spend our money inefficiently? Especially when politicians and pundits frequently make the federal government sound like it's the white knight? The short answer is that government has inherent design flaws that discourage efficiency, prudence and responsibility. These design flaws result in flawed policies that distort markets and hurt our economic well-being.
The federal government's first flaw is a lack of natural competition. Without competition, what motivations and incentives exist to inspire the government to be more efficient with our tax dollars? In its basic form competition--which also inspires collaboration--incentivizes suppliers (i.e. government, private businesses) to provide demanders (i.e. us, the consumers and taxpayers) with higher quality products and services at a lower cost. Without competition government has little, if any, incentive to increase the quality of programs and services at a lower cost to the taxpayer.
A lack of competition is one of the cornerstone characteristics of monopolies. Yes, the federal government is a monopoly. To understand why the government is a monopoly, let's examine public schools.
~90% of students attend public schools and we all know how bad and inefficient the public school education system is in the U.S. Education spending since 1970 has doubled, yet test scores have stagnated and graduation rates have fallen from 77% in 1970 to 69% in 2008. So the government has a monopoly in K-12 education and does a poor job...no new news there.
Another design flaw: the feds have a guaranteed source of revenue. As long as the government maintains its jails, the IRS can keep collecting taxes.
On top of the lack of competition, guaranteed revenues and monopoly status, the federal government is so large and complicated that it practically takes a degree from Dartmouth, Oxford, and Yale (Robert Reich graduated from all three...yes all three) just to understand how it works.
To give you an idea of how big the government is: Wal-Mart was #1 in 2010 with ~$422 billion in revenue (and $405 billion in expenses). On the other hand, the U.S. government's 2010 revenues were ~5x Wal-Mart's revenues and the 2010 expenses were ~8x Wal-Mart's expenses!
One could argue the average voter provides adequate motivation for the federal government to be efficient. However, if voters provided adequate motivation for the government to operate efficiently and effectively then our education system would do a better job educating our youth, health care costs would go down while quality increased, and the economy would be pumping out jobs.
To add to the confusion, the federal government is easy to romanticize. Don't ask me why, but people romanticize the feds and their programs for some masochistic reason. Worse, people have a tendency to romanticize politicians (cough Obama cough). Truth is, I romanticized Obama too, evidenced by my earlier blog posts.
Anyway...
Mr. Reich's tweet represents an ideology that is prevalent among Democrats, liberals and progressives. Their ideology argues for an active role for government in our society. Ezra Klein, self-defined progressive, let it slip in yesterday's column when he whined "Those of us in Washington who would like to see the government work...". Well Mr. Klein, that's the problem with big and small government...it's hard to get anything to work! So why make the federal government bigger, give it more money, and give it more power when it's so hard to get our already big federal government working?
Back to the my main question for Mr. Reich...did the shrinking middle class and growing plutocracy come before big government, or did big government come before a shrinking middle class and growing plutocracy?
America's core problem is that we have a big, monopolistic government that collects a guaranteed source of cash flow and has very little incentive nor motivation to wisely spend our tax dollars on projects and programs that increase society's total net benefit. The projects and programs big government puts in place, at the request of plutocrats and, very rarely, the general populace, cause unintended consequences that continue to shrink the middle class and grow plutocracy.
Going forward the best path to grow the middle class and shrink plutocracy is to promote government policies that increase economic freedom, increase free trade, free up markets, and decrease the size and scope of the federal government. This path begins with citizens supporting policies and representatives that promote economic freedom, and rejecting policies and representatives that squabble about equal income or wealth distribution.
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