Losing Freedom Costs a Lot; J. Semmens

THEFREEMAN IDEASON UBERTY Losing Freedom Costs a Lot by John Semmens O ver the last fifty years, the federal government in the United States has taken ·on behemoth proportions. Six new cabinet departments have been created (Ed ucation, Energy, Health and Human Ser vices, Housing and Urban Development, Transportation, and Veterans Affairs). Twenty new "independent establishments and government corporations" have been added to the thirty that existed in 1945. Nine new mini-bureaucracies now report directly to the President (there were none in 1945). The creation of new bureaucratic fief doms, robust as it has been, understates the expansion of the federal government. Bu reaucracy, new and old, has been extending its reach into more and more facets of daily life. The federal government may require your child to be bussed to a school across town in order to achieve racially "bal anced" student bodies. The federal govern ment may dictate what you can and cannot say in a classified newspaper ad seeking to offer or obtain services, rent property, or acquire a roommate. The federal govern ment may prevent you from improving your property (or saving your house from burning down) in order to protect the habitat of the kangaroo rat.

Congress has authorized an army of bu reaucrats to invent a plethora of new rules and regulations. Each year, nearly 100,000 pages of new rules and regulations are issued. Almost all of these accrete on top Mr. Semmens is an economist with LaissezFaire Institute in Chandler, Arizona. of, rather than supplant, previous rules and regulations. Consequently, it is not uncom mon for the victims of these rules and regulations to be required to engage in contradictory actions. For example, to pro tect workers from being run over'by vehicles used in the workplace, the federal govern ment mandates that vehicles be equipped with "beepers" to warn of their approach. To protect workers from hearing damage, the federal government mandates that they wear earplugs. This enhanced meddling has not corne cheaply. In 1945, the federal government spent $10 billion on nondefense outlays. By 1994,nondefense spending had risen to over $1,200 billion. This is nearly a 12,000 per cent increase. Of course, inflation has some thing to do with the apparent size of this expansion in federal spending. (Although, even here, the federal government is neither a passive nor innocent victim of inflation.) There also has been population growth to contend with. If we put aside the govern ment's complicity in creating inflation and adjust spendingin 1945 to the 1994purchas ing power equivalent, we find that the fed eral government was laying out about $590 per person for nondefense spending in 1945.

By 1994, this figure had ballooned to over $4,600 per person, nearly a 700 percent increase. Fortunately, a growing private sector was able to offset some of this increasing burden on the nation's economy. Still, the federal government has taken increasingly larger bites out of the nation's wealth. In 1945, the 267 268 THE FREEMAN • MAY 1996 Growth in Federal Government Spending Since 1945 NonDefense Spending As a % of Transfer Transfer Spending Gross Domestic Spending Per Payments Payments Year ($ in billions) Product Capita ($ in billions) Per Capita 1945 $ 10 5% $ 69 $ 2 $ 14 1950 $ 29 100/0 $ 190 $ 14 $ 93 1955 $ 26 6% $ 155 $ 15 $ 90 1960 $ 44 9% $ 244 $ 26 $ 145 1965 $ 68 10% $ 348 $ 37 $ 188 1970 $ 114 11% $ 555 $ 75 $ 367 1975 $ 246 15% $1,138 $173 $ 802 1980 $ 457 17% $2,007 $313 $1,376 1985 $ 694 17% $2,909 $472 $1,978 1990 $ 953 17% $3,815 $619 $2,478 1994 $1,204 18% $4,618 $880 $3,375 federal government's nondefense spending consumed about 5 percent of the Gross Domestic Product (GDP). That is, the fed eral government confiscated and spent 5 percent of the wealth created by the econ omy in 1945. By 1994, the federal govern ment was confiscating and spending 18 per cent of the GDP.

The Growth of "Income Transfer" Programs While infesting society with new rules and regulations has imposed substantial costs on the economy, most of these costs are borne by businesses and individuals, and thus, do not show up in the aforementioned figures. What does show up in these figures is the tremendous expansion of "income trans fer" spending. Government' 'income trans fer" programs have institutionalized the "robbing Peter to pay Paul" concept. Dis satisfied with the mutually agreeable and voluntary exchanges between "Peter" and "Paul," the federal government has under taken an array of schemes to impose invol untary, and frequently disagreeable, ex changes. A considerable portion of the population has thereby been persuaded that it is not a disgrace to adopt the mind set of beggars, whiners, and thieves when it comes to debating public policies. In 1945, "income transfer" programs ac counted for only $2 billion of federal spending. By 1994, this type of spending had increased to nearly $900 billion. In 1945, 20 percent of the federal government's non defense spending was of the "robbing Peter to pay Paul" variety. By 1994, nearly 75 percent of federal government's nondefense spending was of this type. If this $900 billion in "income transfer" spending were distrib uted evenly over the entire population, it would amount to over $3,000 per person. Of course, this spending is not distributed equally. Some receive much larger shares of the "loot." Others receive less. Still others must have their pockets picked, their bank accounts embezzled, and their earnings di verted to provide the "loot."

What Might Have Been All of this government intervention was supposed to have improved the "security" of the average guy. Nonetheless, the current American economy seems lethargic by past standards. Real wages appear to have stag nated for the last two decades. Between the inefficiencies inflicted by excessive regula tion and the oppressive burdens of taxes extracted to support the massive spending increases of the federal government over these last five decades, the economy has fallen far short of its potential. To get an inkling of how far short of its potential the economy has fallen, let's consider the ques tion of opportunity cost. That is, what the situation might be today if a different path had been chosen in 1945. While measuring the opportunity cost of excessive regulation would be difficult, if not impossible, we can get a glimpse of what the magnitude of such an opportunity cost might be in the case of excessive spending.

For our thought experiment, we will con sider what might·have happened if the fed eral government's per capita nondefense spending had remained at the level in effect in 1945. Remember, 1945 was after Presi dent Franklin Roosevelt's "New Deal" had already substantially increased the govern ment's role in our society. For this experi ment we will also convert all money figures into their 1994purchasing power equivalent. In dollars of 1945 purchasing power, fed eral nondefense spending was $10 billion in 1945.In dollars of 1994purchasing power, federal nondefense spending was $83 bil lion in 1945. In the history that did take place, federal nondefense spending rose to $1,204 billion by 1994. If per capita nonde fense spending had been held to 1945's inflation adjusted levels, population growth would have boosted this spending to only $154 billion by 1994. That is, the federal government could now be spending over a trillion dollars less per year than it now spends.

Alternate Inflation-Adjusted Federal Government Spending Scenarios (In 1994 dollars) Year 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1994 Actual NonDefense Spending ($ in billions) $ 83 $ 180 $ 144 $ 223 $ 321 $ 439 $ 684 $ 830 $ 965 $1,092 $1,204 Spending at 1945 Levels ($ In billions) $ 83 $ 90 $ 98 $107 $115 $121 $127 $134 $141 $147 $154 LOSING FREEDOM COSTS A LOT 269 If the government were spending a trillion dollars per year less, the private sector would have a trillion dollars more to spend. This is more than $4,000 per person per year. Consumers could satisfy more of their needs and wants. Businesses would have more resources for expanding operations, acquiring more equipment, and inventing new technology. If only 5 percent (the average post 1945 savings rate) of this dif ference between actual federal spending and the lower levels projected in our thought experiment had been invested at a 3 percent per year rate of return (the long-term aver age rate of real growth of the American economy), there would be more than a trillion dollars of additional capital available to support employment opportunities and wages. Since it currently requires about $50,000 in capital to support each job, this translates into a hypothetical additional 20 millionjobs. Inasmuch as the number of unemployed workers is only one-third of this amount, this additional capital would likely have also resulted in higher wages. To the extent that a less burdensome govern ment might have permitted even higher rates of saving and returns on investment, the material abundance available to the average American would be several times what it is at present.

So, not only have our freedoms been eroded, we have also paid a heavy price FEDERAL(NONDEFENSE)SPENDING SINCE1945 $1,400 $1,200 $1.fXXJ .. '0 $800 •:I $6DO I $«X) $200 Years 270 THE FREEMAN • MAY 1996 in terms of sacrificed material wellbeing. Since a major announced motivation for the expansion of government has been to ensure our "social security," we have not gotten what we have "paid" for. Instead, we have confirmed Ben Franklin's fear that a nation willingto trade freedom for security will end up losing both. As bleak as the preceding analysis ap pears, we are not without hope. While the momentum of government has carried it far down the road to turning us all into serfs, the intellectual support for this direction has been severely compromised. The social ist premise upon which the massive expan sion of government has been based has been undermined by the relentless efforts of those dedicated to promoting a freedom philoso phy.

The Foundation for Economic Education has been a continuing force in promoting this freedom philosophy in the post-1945 period. Founded when the idea offreedom was at its lowest ebb in American history, FEE has contributed to the revival of the apprecia tion for the value of a free society. Cutting government "services" is now a respect able, perhaps even dominant, policy option in public debate. Governments around the globe are actively seeking ways to "privat ize" government operations, cut taxes, and return liberties to the people. FEE has served and will continue to serve as an illuminator of the path to a better, freer world. 0 Potomac Principles Fifty Years of Statism by Doug Bandow H istorian Paul Johnson has called the twentieth century the "age of poli tics, " the era in which people increasingly turned to the state to solve any and all problems. That is no less the case in Amer ica than elsewhere around the globe. In the early 1900s Progressivism and Woodrow Wilson's messianic international crusade helped set the U.S. government on its ever expanding course.