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Americans walk a perilous path
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"If you’ve been watching television or reading newspapers you’re being warned we stand on the brink of falling into something akin to the Great Depression,” Robert Higgs, a nationally acclaimed economist, said Monday. “A lot of dooms-dayers are frantically at work warning us of what might happen if we don’t sell our souls. My advice is don’t do it. Don’t sell your soul.”
Higgs delivered a lecture titled “The Perilous Path to Unlimited Government” Sept. 29 in the Jordan Ballroom.
Higgs’ lecture, sponsored in cooperation with the College of Business and Economics, is the fifth lecture in the Brandt Foundation lecture series. He delivered his speech on the day the U.S. House of Representatives voted down a $700 billion dollar bail out plan which people all over the world hoped would revive the U.S. economy if passed. Higgs predicted Congress would pass a revised bill before the end of the week.
“It is remarkable that on the very day that I come to talk to you about a subject I’ve been studying to some degree for 40 years [.] that we should be in this particular situation that we find ourselves in today which appears to be a crisis,” said Higgs.
Government growth
Higgs titled his speech, “The perilous path to unlimited government,” in order to call our attention to two important facts about our government’s growth.
“First, it has been propelled directly and indirectly by the way Americans have dealt with perilous occasions: wars, economic depressions and episodes of widespread social turmoil,” Higgs said. “Second, this process, after having operated for a century or more, has now placed us in a condition that is itself fraught with peril for the future of our economy and, more important, for our liberties.”
Higgs gave a historical account of the growth of the United States government and outlined how America has traveled a path marked by frightening experiences leading us to our current “equally frightening” situation.
“In considering this aspect of our history and the critical role that fear has played in it, we are well advised to recognize, that although inherent and necessary, human emotion places us in under grave disabilities, whether we are acting as individuals or as an entire society,” said Higgs. “Portentous and highly unfortunate choices and their legacies remain with us today and worsen the social economic problems we now face.”
According to Higgs, the factors considered when measuring the growth of American government are taxes, federal and local government spending, national debt and our economy. Government size affects the distribution of wealth, the rate of economic growth and determines the nature of America’s political economy and the social organizations in which Americans may lawfully exist and pursue their goals.
“The size, scope and power of governments [.] are the opposite side of our freedoms,” said Higgs. “When the government requires us to take a certain action, or prohibit a certain action, or changes the terms on which we may take action, by taxing it, or requiring an action [...] we are less free to conduct our lives as we prefer. The decision we would have made is displaced by a decision by government officials.”
The growth of government is reflected in how much Americans are taxed, the amount government spends, the number of people it employs and by looking at the effects of government regulation. Americans are taxed one-third of our national income. Higgs said federal, state and local U.S. governments now spend almost $4 for every $10 of national income generated in America.
According to Higgs, in the early 20th century federal, state and local governments employed 4 percent of civilian labor force, and rose 10 percent by 1950. He said the number of people the government employs continued to rise in the past 60 years, but exactly how large it has grown is difficult to calculate because of the increase in contracting out of government functions.
Higgs quoted Professor Paul Light, who he attributed as being the leading student of this phenomenon, as saying, “government is now growing almost entirely in off budget market jobs that are almost invisible to the American public in federal budget and headcount documents.”
Light determined the government employs 30 million people or almost one out of every four employees in the US labor force.
“[Contracting by the government] lead to a replacement of formal government employees by a shadow army of many millions of seemingly private employees, grantees contractor, consultants and others, who are doing what they are doing only because government arranges it and pays them to do it.”
Costs of government regulation
Higgs said the effects of government regulation are the largest and hardest to calculate.
“[They factor] in determining the allocation of economic resources, distribution of wealth and the rate of economic growth. It has been done so by means of increased regulation . legal requirements expressed legislative statutes, executive orders, administrative decrees and judicial decisions, as well as directives of explicitly regulatory agency’s such as the Environmental Protection Agency and the Security and Exchange Commission.”
Higgs accounted how regulation has hidden costs because they’re born by private parties in the process of compliance, and spread across the consuming public by higher prices for goods and services.
“In large part, the cost of an economy extensively controlled by government regulations take a form that no one can compute,” Higgs said. “These costs arise when governments distort the price structure, so mutually beneficial exchanges are never made, new products never reach market, new competitors never gain entry to an industry, innovations of countless different sorts are never made … there are no prospects of profit to stimulate their development.”
He commented on how Americans are proud because we continue to rank highly among the world’s most productive economies.
“What we’ve done we can see and appreciate,” Higgs said. “But what we might have done, the miracles we might have brought had we been free to do so, we’ll never know; in this sense the costs of a more regulated economy are incalculable.”
He mentioned the deregulation in energy, communication, transportation and certain financial services in the late 1970s and early 80s, but said that little has been done in the last quarter century.
However, increases in regulation take place in other areas including international trade and finance, the environment, safety, agriculture, aerospace, insurance and health services.
The past repeats itself
Higgs related events in the 1980s to events Americans are experiencing now. He said the multibillion dollar bail out of the farm credit system in the 80s was vastly overshadowed by the “gargantuan” bail out of the bankrupt saving and loan institutions.
“In view of the colossal magnitude of this bailout, it’s remarkable how little political debate surrounded the transfer of hundreds of billions of dollars from the tax payers to a select group of hard lobbying beneficiaries,” Higgs said.
“Very recently as the housing and credit bubble of the early 20th century has continued to collapse, we’ve seen the government take control of Fannie Mae and Freddie Mac – the giant government sponsored enterprises that have come to hold or insure more than $5 trillion dollars of mortgage debt, as well as AIG the insurance giant,” Higgs said, “Today we face the prospect of an enormous unprecedented federal bailout of financial institutions that will make all previous bailouts pail by comparison.”
Higgs said the defacto nationalization of Fannie, Freddie and AIG and its impending bail out of imprudent lenders by the U.S. government put the taxpayers on the hook for a “mind boggling ” addition to national debt because it consists of uncollectible obligations.
Higgs related events in the 1980’s to events Americans are experiencing now. He said the multibillion dollar bail out of the farm credit system in the 80’s was vastly overshadowed by the “gargantuan” bail out of the bankrupt saving and loan institutions.
“In view of the colossal magnitude of this bailout, its remarkable how little political debate surrounded the transfer of hundreds of billions of dollars from the tax payers to a select group of hard lobbying beneficiaries,” said Higgs.
“Very recently as the housing and credit bubble of the early 20th century has continued to collapse, we’ve seen the government take control of Fanny Mae and Freddie Mac the giant government sponsored enterprises that have come to hold or insure more than $5 trillion dollars of mortgage debt, as well as AIG the insurance giant,” Higgs said, “Today we face the prospect of an enormous unprecedented federal bailout of financial institutions that will make all previous bailouts pail by comparison.”
Higgs said the defacto nationalization of Fanny Freddie and AIG and its impending bailout of imprudent lenders by the US government put the taxpayers on the hook for a “mind boggling ” addition to national debt because it consists of uncollectible obligations.
“The United States was founded by men who believed in limited government, especially central government. They were not anarchists didn’t espouse laissez-faire in economy but they did believe that rulers should be constituently restrained and accountable to the people they govern,” Higgs said. “If they could see what has happened with the relationship between the citizens and the government of the US in the last two centuries they would be, I believe, horrified.”
Higgs said early citizens of America viewed the government as ‘properly limited’ as opposed to viewing it as ‘properly unlimited’ now.
The reasoning behind this transition was attributed to the succession of significant events from 1914-1945. According to Higgs, each crisis during those times prompted citizens to petition the government to do something. The government’s response, he claimed, was to adopt policies to obscure their costs as much as possible.
“Such a reaction is attributed to fear, ignorance and uncertainty. People are unable to think clearly in an informed way,” Higgs said.
Turning to the events of Sept. 11, Higgs said that after the attack Americans gave the government unbelievable control and that Americans had a “‘government can do no wrong’ mentality as evidenced by the Bush Administration approval ratings going from 51 percent to 84 percent, overnight.
Since then, he said, the U.S. has acquired an increase of 65 percent in national debt since 2001, making this the fastest growth for public national debt since the Johnson Administration.
“Everyone is happy except for ordinary citizens whose pockets are being picked,” Higgs said. “It’s important to appreciate that all of the effects on freedom occur regardless of the war.”
Despite Higgs’ pessimism about the U.S. government, his lecture did bear hope for the future. The growth of government won’t continue forever because the government will eventually eat up its private sector.
However, he said this might be a ways into the future.
SHANNON MORGAN
Editor-in-Chief
