Paradise by Deficit

January 18, 1965

The history of liberty is the history of the limitation of governmental power, not the increase of it.” So wrote Woodrow Wilson. Yet in his terms as President he presided over an enormous increase in the power and size of government. And every President since Herbert Hoover has presided over a still further increase in the power and size of government.

Each President has insisted on giving his program a new label—the New Deal, the Fair Deal, the New Frontier, the Great Society—and yet each program has been essentially an expansion of the previous program—a further boost in spending, a bigger bureaucracy, an aggrandizement of governmental power, an increased intervention in the daily life of the private citizen.

It would use up all the rest of this space even to list the new Federal programs or expansions of old programs—for education, housing, health, conservation, the “war on poverty”—that Mr. Johnson proposed in his State of the Union Message. Ten years ago, when the Federal government was spending only two-thirds as much as it is today, the Hoover commission found that it embraced 2,133 different functioning agencies, bureaus, departments, and divisions. How many does it embrace now? How many more will it embrace if the President’s new program is enacted?

THE GREAT FICTION

The Federal government is spending 167 times as much in a single year as it was in the year before we entered World War I. Will every President, every year, be expected to think up more and more functions for the Federal government to take over from the private sector to the “public sector,” until there is no private sector or initiative left?

The great miracle about all the wonderful new things that the government is going to do for us under the Johnson program is that they are not going to cost anybody anything. Instead of asking for an increase in taxes to meet all his recommended increases in expenditure, the President promises “a substantial cut in excise taxes” so that “more money will be left in the hands of the consumer.” He even assures us that the increased spending and tax cuts will carry us “along the path toward a balanced budget.” Once we cut the annoying connection between expenditures and taxes, all other miracles become easy.

Mr. Johnson’s State of the Union speech is a perfect illustration of the French economist Bastiat’s definition more than a century ago: “The state is the great fiction by which everyone tries to live at the expense of everyone else.” Nobody will pay for the education of his own children, but everybody will pay for the education of everybody else’s children. Nobody will provide for his own old age, but everybody will provide for everybody else’s old age. No one will pay his own medical bills, but everyone will pay everyone else’s medical bills.

DOLLAR ENDANGERED

What is overlooked is that the government cannot pay anything to anybody without ultimately taking the money from someone else. All production, and all real income, must come from private initiative and private enterprise. The government does not add to production; all it can do is to change the particular goods or services produced. What it encourages in one direction it must discourage in another. Every subsidy or handout to A, B, or C must be paid for by an added tax on M, N, or O (and probably on A, B, and C as well). Increased government expenditures, instead of meeting more human needs, may meet fewer, because more taxes tend to deter production more than government expenditures tend to increase it.

The great miracle is supposed to be brought about by deficits. But deficits mean inflation, which is a disguised tax that reduces the purchasing power of everybody’s money. Our inflation has done that comparatively little in recent years because so much of our increased money supply has flowed abroad through a deficit in our balance of payments. But this cumulative deficit has been undermining the strength of the dollar. Once confidence in the dollar goes, it will be impossible to measure the extent of national and world calamity. Our first order of business is to see that this does not happen.