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  • On the cost of government.

    Posted by ken on September 23rd, 2004 (All posts by )

    It is news to no one that George W. Bush has been a less than responsible steward of the people’s money. From the left and the right have come criticisms of the deficits that have been run up during his watch, some of it justified.

    Our friends on the left, after talking sense for a while, then recoil in horror at what they’ve done and go back to talking out of their hats. They tell us that the solution is to replace George Bush with John Kerry, who will raise taxes and close the deficit, thus addressing our objections and solving our problems.

    This would be amusing if not for the fact that some so-called “fiscal conservatives” have actually considered doing just that, rather than laughing out loud, which is the reaction this “solution” deserves.

    Over the long-term, the total cost of government is overwhelmingly driven by one variable: spending. The national debt has interest, of course, but the effects of this are mostly discounted away by the simple fact that the debt and the interest will be paid with future dollars, which are worth less than today’s dollars. What it all boils down to is, higher spending means higher total taxes over the long term to pay for it, lower spending means lower total taxes over the long term to pay for it, and the current tax rate is not that much of a factor over the long haul. Taxes not collected today will have to be paid tomorrow, of course, but money not taxed today turns into more wealth tomorrow (assuming the spending isn’t being spent on stopping people from creating wealth!), making those extra future taxes easier to pay.

    (This assumes, of course, that the perceived risk of loaning money to the government, which drives the part of the interest rate that is not discounted away, remains exceedingly low, as it has ever since Alexander Hamilton ran the Treasury Department. So deficits do matter, if they get so high that they spook potential bondholders and drive up real interest rates.)

    So let’s look at spending. Every time George W. Bush proposed or allowed some outrageous piece of spending, the reaction from the left side of Congress, and usually from the Kerry campaign, was that this spending was hopelessly inadequate. We can easily infer from this that the expected spending level favored by Bush is less than the expected spending level favored by Kerry; thus, total long-term taxes needed to fund a Bush government is likely to be less than the total long-term taxes needed to fund a Kerry government.

    (But what about gridlock? A contention between a Congress that wants more spending and a President that wants a lot more spending isn’t going to be resolved in our favor. The compromise position will be higher spending than what Congress would pass in the presence of a President that merely wants too much spending rather than outrageously too much spending. Or put another way, if a Republican had been in the White House in 1995, what do you think would have happened to the Congressional spending plan that year? I figure it would have gotten passed nearly unchanged and signed without a government shutdown.)

     

    2 Responses to “On the cost of government.”

    1. incognito Says:

      I had to go to the social security field office today. Talk about inefficiency. All the while I’m thinking, my taxes are paying about $40k a year for each clerk. Outsource them all I say.

    2. aaron Says:

      Nice post.