The Myth of Federal Aid; R. Bradford

THE MYTH OF FEDERAL AID tv Ralph Brad/ord "There is no such thing as federal aid." To make this statement flatly, as this writer has done frequently of late in addressing audiences of business people and others, is to invite quick challenge, angered denial, or sheer, uncomprehending incredulity. How, in the face of so much physically visible contrary evidence, can anyone in his senses make such an asser tion? Clearly, the national treasury has been tapped many times; plainly, the federal government has Haided" states, regions, municipalities, individuals, corporations, and economic groups to the tune of billions. Yet I keep making the statement-and having done so I find, as so often happens, that other men have made it also, just as flatly and literally. I refer to no less an im posing group than the members of the House of Repre sentatives and Senate of the sovereign State of Indiana.

In January of 1947 they passed a Concurrent Resolu tion that brought thern almost overnight into the lime light of national attention and editorial acclaim. The Resolution was a Hoosier Declaration of Independence and Sel£-Reliance-independence from Washington and reliance upon their own skills, labors, and resources. 84 THE MYTH OF FEDERAL AID 85 I t was not surprising that such a document should is sue from the Hoosier State where those principles of con duct that are usually referred to as the homely virtues have long been emphasized. The philosophy of eat it up, wear it out, make it do, and do without, supposedly a product of the New England mores~ is equally at home in Indiana. Partly, this is innate; partly, it is due to good leader ship-political and economic. At a time, for instance, when many chambers of commerce were hot upon the quest for Washington handouts, the Indianapolis cham ber under the guidance of ·its clear-visioned executive, William H. Book, was fighting to keep federal funds out of Indiana. At a time when many business organizations were trying to wangle all kinds of government offices for their cities, the Indianapolis chamber waged a notable battle to force the U. S. Department of Commerce to close up its Indianapolis office and go home!

A Precedent In such an environment, it is not surprising that the Hoosier legislators, relieved from at least one of the pres sures that so often push toward big government and big spending, came out with their· precedent-setting Resolu tion. It is not surprising either that they recognized there is no such thing as federal aid! To be sure, they might with equal pertinence have avowed that there is no such thing as state aid for the counties and communities within the state. Just as they INDIANA needs no guardian and intends to have none. We Hoosiers like the people of our sister states-were fooled for quite a spell with the magician's trick that a dollar taxed out of our pockets and sent to Wash ington, will be bigger when it comes back to us. We have taken a good look at said dollar. We find that it lost weight in its journey to Washing ton and back. The political brokerage of the bureaucratshas been deducted.

We have decided that there is no such thing as .. federal" aid. We know that there is no wealth to tax that is not already with in the boundaries of the 48 states. 85th General Assembly STATE OF INDIANA HOUSE CONCURRENT RESOLUTION No.2 SO WE PROPOSE henceforwardto tax ourselvesand take care of ourselves. we ~ areftdup with suhsidies,doles and paternaliS1l1. we are no one'sstepchild. we have' . . grown up. we serve notice that we will resist Washington} D. C,} adopting us. ~ ~ ~pE IT RESOLVED by The House of Representativesof The GeneralAssemblyof ~ the State of Indiana, The Senate concttrring: That we respectfully petition ~ and urge Indiana's Congressmen and Senators to vote to fetch ~ our county court house and city halls back from Pennsylvania ~ Avenue. We want government to come home. Resolved, further, that ~}' we call upon the legislatures of our sisterstates and on good citizensevery- ]:1';'( fpherc who believe in the basic principles of Lincoln and Jefferson to join Y' with us, and we with them to restore the American Republic and our 48 states to dle foundations built by our fathers.

[.... L--_-------Jl~i .... ..DD ...DeYIlDU •••••NU ••V ..... 47 ~~ ADGPTe:O a.... ~H"'TE. " ......UARy 22. 1"47 INTtlaOUCIOel'MIII.Io1IDRGI HINuva, .LODMINGTON AND M••LDTHAUt TllTe" e,MA-GCII.TOWN ~ ~ 86 THE MYTH OF FEDERAL AID 87 recognized that "there is no wealth to tax that is not al ready within the boundaries of the 48 states," so they might have seen (and probably did see) with equal clarity that Indiana has no wealth to tax that is not al ready within the boundaries of its 91 counties. However, they were not trying to write a treatise, but to assert a principle; and this they did in ringing terms that might well be heeded by the legislatures of the other states. Nor was it a mere rhetorical gesture; for when the Bill for Federal Aid to Education, refurbished as an "emergency measure," was recently up for consideration, it remained for Senator Jenner of Indiana to announce that Indiana didn't need, and therefore didn't want, the federal money; and to be sure that nobody could mistake his meaning, he put an amendment on the bill specifi cally excluding Indiana from its so-called "benefits."

Are these Hoosiers crazy people, or is there maybe a very sane and down-to-earth method in their apparent madness? Let us examine this question of "aid" for a moment, considering it first in its personal application. If I want to expand a business, enlarge a home, write a book or carryon a research project, but do not have enough funds of my own to see me through, and if you make me a loan or gift of a sufficient amount, then you have aided me in accomplishing what I wanted to do. Suppose, however, that you have no money of your own and are not capable of earning any, but that you do have a large income by virtue of possessing the power of compelling me and millions of others to pay you each year a substantial portion of our earnings. Is it "aid"

88 RALPH BRADFORD then, when you graciously hand me back, earmarked for some specific purpose, a portion of the money which I, through many years, have been paying to you? Disregard the Taxes This is what happens when the government "aids" a community or a state-but it is surprising how many peo ple do not understand this. A few months ago I heard the mayor of a great city denounce as reactionaries those who expressed doubt as to the wisdom and justice of using federal funds for local "urban rehabilitation." However, he was a politician who had been nurtured in the grab gimme-and-charge-it-to-our-grandchildren school, and his attitude was to have been expected. Of deeper significance was· the performance of a high school senior with whom I recently spent some time. This student was alert and personable but had appar ently been exposed to the big-spending ideas of a "lib eral" teacher. Our talk turned one evening to the matter of foreign aid, and the student at once became impatient and spoke scornfully of those who would curb foreign aid spending on grounds of economy.

Without debating the foreign aid question as such, I did undertake to explain to this student that it was not necessarily a sign of ignorant selfishness for citizens to be concerned about the economic and possible political ef fects of big debt, big deficits, big borrowing, and big in flation; and I defended the anxiety of the average tax payer who is worried about the increasing share of his THE MYTH OF FEDERAL AID 89 earnings that is being taken in taxes. At this point the student interrupted me: "What have taxes got to do with it? The government doesn't have to supply foreign aid out of tax money-let it use some of its other income." Its other income! Does this sound unbelievable? Yet I assure you it happened-and before you and I begin to condemn our educational system for turning out such a poor high school product, we'd better recall that a great many adults who have gone through high school and col lege, and who have subsequently had a great deal of prac tical experience, express essentially the same attitude.

They may not be quite so naive about the sources of gov ernmental revenue; but the net effect is the same when they say, "Our city got this new' building erected with federal money-it didn't cost us a cent!" Such people might be helped to a clearer understand ing of financial reality if they could be brought to remem ber that governments always tend to get bigger and grow more complicated. As expansion takes place, many peo ple are employed-to collect taxes, keep records, act as policemen and soldiers, and staff the constantly increas ing and proliferating agencies. Human nature being what it is, government is under continual pressure to provide services additional to those originally contemplated or implied. Also, while those in charge of government-the men and women who are its custodians and administrators from time to time-will not hesitate to employ force to collect the imposts they have levied upon the people, they will nevertheless desire 90 RALPH BRADFORD that those who must pay shall be kept as contented as possible; and so they will invent and offer new "services"

in addition to those demanded. Some people will be given a guarantee against unem ployment. In some cases, old-age pensions will be pro vided. It will be decided by somebody in the government that certain citizens are entitled to more liberal loans than commercial banks are permitted, not only by sound economic practice but by law, to make them; and so the government will go into the banking and lending busi ness. It will be decided that those who are engaged in certain types of occupation require special assistance, and so their operations will be subsidized-which means that the government will take money that has been paid in by all the people and use it for the special benefit of some of the people. Spending Brings Inevitable Deficits All this will lead to constantly increasing governmental expenses. But the services promised sound pretty good to those who do not think beyond them to their conse quences; and when actually rendered, the services seem pretty good to those receiving them; and so most people will not object too much when it is announced that their rate of tax payment must be higher to meet the increased costs which government has been incurring on their be half. Thus, year by year, the portion of their earnings that is taken away from them increases until it exceeds THE MYTH OF FEDERAL AID 91 a third of all they make collectively, and in many individ ual cases is very much higher.

Presently a point is reached where the government is spending more than it is receiving in taxes, and it is forced to go into debt for the difference. Forced? Well, that's what is said. Of course, the government could cut down on the services; it could even eliminate some of them entirely. That is what you and I would do if a sim ilar situation arose in our personal affairs. But people have grown accustomed to the "benefits" promised or de livered; so if the idea of retrenchment is advanced, it is put resolutely to one side by government administrators. They justify their attitude by uttering one or more of the cliches that have become current. They remark scorn fully that they don't want to go back to the horse and buggy days. They are emphatic about the dire effects of turning back the clock. They proclaim solemnly that we must not worship' at the shrine of a balanced budget thus implying that a belief in solvency is a species of idolatry.

The outcome of all this "logic" is to go into debt. This is done in several ways, the most common being through the sale of bonds to all who can be persuaded to buy them. In simple terms, the government gives to the bond holders, in return for their cash, its promise to repay them at some specified future date. Given a reasonably stable currency, these bonds are a good conservative in vestment; ·but when a government by its fiscal policies en courages inflation, the bonds at maturity will be worth less than their face value in terms of what they will pur92 RALPH BRADFORD chase. Furthermore, they bear interest, which adds still more to the annual cost of running the government. Sooner or later, in addition to all the other services and financial handouts which are being given to certain in dividuals and groups, a new method is introduced for transferring money which has been collected from all into the pockets of some. Perhaps those who are to bene fit (as they think) dream it up, or maybe government administrators themselves originate it in order to fore stall dissatisfaction or criticism. However that may be, the new idea (or rather, the added one, for it is as old as the pyramids) works out something like this: A Village Water Problem Jim Brown of Brown's Corner and the two hundred people who, with Jim, make up the population of that thriving village, are faced with a problem. The water ta ble in their area has been lowered through a number of drought years, and they need a new deep well for their village water supply.

Right here it can be argued that it is the responsibility of every householder to provide his own water and that this is not the function of government at any level. How ever, we are not contemplating a theory but a condition, and the condition is that the people of Brown's Corner have elected to provide their water cooperatively, through the machinery of their village government. To have their well drilled and cased and fitted with a suitable deep-well pump and supplied with an adequate THE MYTH OF FEDERAL AID 93 storage and pressure tank is going to cost them, say, $35,000. They were preparing to call an election to vote bonds and assess a special water tax against their several pieces of property, this being the normal and traditional way to finance such facilities. But then one of them has a bright idea. "vVait a minute," he cries. "Why don't we apply to the government for the money? We can make a case for sani tation and so forth. Those fellows at Washington put it out for nearly everything else; why shouldn't we get our share?"

Hooray! A Daniel come to judgment! Here's a chance to get something for nothingl And so they come to that group of fellow human beings who are, for the moment, "the government." The need for water at Brown's Cor ner is quite apparent, and furthermore the Brown's Cor nerites are a rather influential group in a critical political area. And anyway, if granting their request should run the budget into the red, a fe'''' more bonds can always be issued! So they get the money. Someone Must Pay They get the money-and there is great and gleeful re joicing at Brown's Corner. "Oh boy," they gloat, "lookit what we did! We got our new well and all its equipment free, gratis, and for nothing. It was financed with federal money and didn't cost us a centl" They entirely overlook the fact pointed out by the astute Hoosiers in their great Resolution-namely, that 94 RALPH BRADFORD every dollar they received had first been paid into the central government by the people of Brown's Corner and hundreds of villages like it. Then it had been attenuated by the expense of maintaining the huge federal establish ment. Finally a few anemic pennies out of each dollar paid in trickle back wearily to Brown's Corner to finance the water works-and Brown's ,Cornerites go delirious with joy over the "aid" they imagine they have securedl And if it be argued that in this case the wily citizens of our imaginary village, through pressure or chicanery, have actually succeeded in getting back more than they have paid in-what can be said of them except that they ought to be ashamed of themselves?

For what they have done, in that case, is to compel the people of all the other towns and villages in the country to help finance a facility that is of interest and benefit solely and exclusively to the people of Brown's Corner. The cumulative long-run effect of such proceedings is that an increasing number of other towns and villages will try to get even by putting in their claims; and the result is a continuing scramble to see which can wangle the biggest piece of change from the federal treasury. More deficits, more borrowings, more credit, more money, less value, more inflation, ad infinitum. Who has benefited? Is it Jim Brown, whose yearly tax payment has probably increased while the value of his money has almost certainly decreased? Is it the president and stockholders of the Brown's Corner Knitting Mill, which must already payout in federal taxes more than half its profits before it can return anything to those who THE MYTH OF FEDERAL AID 95 risked their money to get it started? Is it the carpenter or lathe operator or pipe fitter or plasterer whose taxes and living costs have been boosted and whose dollars have shrunk still further in terms of what they will buy?

We have considered this matter in these paragraphs primarily from the surface angle of cost and tax conse quences. Actually, the myth is not so much that of federal aid as it is the myth of governmental superiority to free market action. It is all part of the omniscient-and-omni potent-government fable-a fable that has often led and can lead again to bitter disillusion. But we need not apologize for our concern with taxes and costs, for these factors, too, are at the 'roots of free dom. There can be no personal liberty in a bankrupt state. There is no such thing as federal aid.