Affluent Government

June 27, 1960

In Newsweek of Feb. 22, I discussed the Galbraith-Lippmann-Dale thesis that though “private affluence grows . . . there is poverty in the public sector of the economy”; that people really don’t need all the money they bother to earn, that they spend it foolishly, and that therefore still more of it should be seized from them in taxes to be spent wisely by the politicians.

Now the First National City Bank of New York, in its June letter, looks for the statistical evidence on which this thesis rests. It finds it hard to come by. In the past generation (since 1927) the cash intake of the Federal government has multiplied twenty times, though disposable personal income (what people have left after taxes) has multiplied only four times. The Federal government today enjoys a bigger cash income than any other government on earth—a cool $100 billion a year. Whereas Federal, state and local governments together were spending less than 11 percent of our gross national product in the mid-1920s, and less than 21 percent in 1940, they were spending 31 percent in the mid-1950s.

TAILFIN VS. WHEAT BIN

The bank presents a table of government revenues and expenditures in the mid-1920s, 1940, and the late 1950s. I append comparisons of some of the leading items for the late 1950s and 1940 alone. The comparisons emphasize the absurdity of the charge that we are “starving” health or hospitals or education or social security. No country approaches our spending on education. Total public and private expenditures for education in the U.S. reached $22 billion in 1959, almost triple their level in 1949.

“The preachers of the affluent society doctrine,” says the bank, “are fond of using tailfins on automobiles as the ultimate symbol of unnecessary private extravagance. They are not so apt to mention the wheat bins holding surplus grain for which taxpayers have put up more than $3 billion. . . . They say nothing about misconceived public-works products and the common abuses of social-welfare programs. . . .”

Despite the unparalleled extravagance of our Federal and local governments, it may be true that we sometimes spend too little for public purposes in some directions. More small parks and plazas in our cities, for example, as in the cities of Europe and Latin America, would not only make our cities pleasanter places to live in but would probably pay for themselves in higher property values. But it is precisely here that our government expenditures are comparatively modest and have increased least. Perhaps the answer is that a park is not a handout to any specific person or group. It is, bluntly, not a good vote-buying device, like farm subsidies or old-age benefits.

PEOPLE UNFIT TO SPEND

The Galbraith thesis may be reduced to this: That people are individually unfit to spend the money they themselves have earned, but somehow able to choose wisely the officeholders who will seize the money and spend it for them. This doctrine would deprive us, on the ground of our incompetence, of the freedom to spend our own incomes as we see fit. It assumes that people will continue to work to earn the same amounts or more, no matter how much their freedom to keep or spend their earnings is curtailed. It assumes that corporate income taxes of 52 percent, and personal income taxes rising to 91 percent, are not onerous enough, and that socialized spending will not in the least discourage individual earning and production.

The Galbraithians have belatedly discovered that free enterprise produces unparalleled affluence, but they still haven’t found out why.

GOVERNMENT EXPENDITURES AND GNP

SELECTED PUBLIC EXPENDITURES