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Advancing Austrian Economics, Liberty, and Peace

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Making Economic Sense
by Murray Rothbard
(Contents by Publication Date)


Chapter 106
the Trouble with the Quick Fix

If conservatives and free-market economists are supposed to have one dominant virtue, it is a thoughtful awareness of the indirect and not just the immediate consequences of a public policy. In the spirit of Henry Hazlitt's "Broken Window Fallacy," they are supposed to bring a "look before we leap" attitude into political life. 

Instead, in recent years, friends and colleagues who should know better have been increasingly running after some Quick Fix or some flashy gimmick that will magically solve our problems and bring no ill consequences in its wake. Unfortunately, they seem to have forgotten the basic Misesian Law of Government: that government actions, even and perhaps especially Quick Fixes, are apt to get us into a worse mess than we are in already.

The basic flaw of the Quick Fix is to focus on one aspect of a problem, often the most politically catchy part, to the neglect of other important issues. Thus, the school voucher scheme focuses on the horrors of the public school to the neglect of such broader and more important questions as tax-supported education and government control of all schools, public and private; opposition to welfare concentrates on taxpayers paying people to be idle, to the neglect of the broader question of taxpayer subsidy period, whether recipients are idle or not.

And we have mainly free-market economists to thank for the disastrous "Tax Reform Act" of 1986, which, in a Jacobin pursuit of equality and "fairness," closed the tax "loopholes" so successfully as to crush the housing market. In addition, and totally neglected, tax reform helped hasten the current Clinton health monstrosity by virtually eliminating deductions of uninsured medical payments from one's income tax, thereby creating the Problem of the Medically Uninsured.

The current Quick Fix craze of free-market economists was the late, unlamented Balanced Budget Amendment (BBA). It seems that every couple of years there is a Silly Season in Congress when this amendment pops up. Not only that; each successive incarnation of the BBA is worse than its predecessor. Pursuing an hysterical desire to pass any amendment, the limit on increasing taxes is progressively weakened. In the latest Simon amendment, a mere majority of Congress could "solve the problem of deficits" by increasing taxes.

The unwisely narrow focus of the BBA is, of course, on "the deficit," as if the deficit is the root of all fiscal evil and must be stamped out by Any Means Necessary. But the broader and more important problem of Big Government is not the deficit; it is not even, as Milton Friedman has long emphasized, total government spending; it is government action period, which fiscally means all three interlocking items: deficits, government spending, and taxation. Big Government is a swollen, ever-expanding and parasitic entity crushing the productive economy, the "private sector"; and the focus must be on rolling back, as much and as "drastically" as possible, all three of these facets of the government budget.

Looking at the BBA, then, the first obviously unfortunate consequence of focusing solely on the deficit is that it might well, and indeed would lead to drastic increases in taxation, and would do nothing about curbing government spending. The one fiscal thing worse than a deficit is higher taxes; imposing a BBA and raising taxes in order to combat deficits is akin to curing a patient of bronchitis by shooting him in the chest.

There are many other things terribly wrong with a BBA. It can be overridden at any time by only a three-fifths vote of Congress; it ignores the fact that an increasing number of spending items can be and are simply placed "off budget" and would therefore not be subject to any limits; and it ignores the off-budget federal government spending of mandates on states or private firms, which can be conveniently chalked up to their budgets but not to the federal government.

Moreover, the BBA is a total hoax; for it would not balance the budget at all. Ever since the mid-1970s, the federal budget process has focused not on the actual budget for any given year, but on estimated budgets over the next several years. The BBA would mandate a balance, not of the actual federal budget, but of Congressional estimates of next year's budget. And as any fool knows, it is all too easy to estimate anything you want, and to manipulate assumptions to get the desired result. Traditionally, government has always underestimated the expense of its future actions, and overestimated its revenue.

Thus a BBA would not only increase the crippling tax burden on the American people; it would also perpetrate a cruel hoax on a public that want deficits ended and who would embrace an amendment that only gives the appearance, and not the reality, of ending the deficit. In short, a BBA would aid Big Government by relaxing public opposition to its expansion--which might, after all, be the point of the whole thing. 

There is a final, and totally neglected point that was emphasized by the leading opponent of the BBA, the much-maligned Old Mr. Pork Barrel, Senator Robert Byrd (D-W.Va.). Pork Barreler or not, Senator Byrd was eloquent in stressing a vital constitutional issue: that Congress must retain its one vital power, the power of the purse. A BBA would take that power away from Congress, which for all its sins is at least accountable to the voting public, and put it into the hands of federal judges, an unelected, unaccountable, and unremovable body of oligarchs who have long been engaging in runaway expansion of their own power.

As Senator Byrd put it in his opposition to the BBA, "The power of the purse belongs to the people . . . . It is vested in the branch that represents the people, elected by the people. Judges are not elected by the people."

And speaking of Quick Fixes, there is a veritable nightmare coming down the pike. Libertarians have long pushed privatization of government activities, but, as all too often happens, even a good thing like privatization has suffered from becoming a fetish, a cherished object of an ideological movement, to the neglect of broader and more important considerations. Thus, we have seen in the former Soviet Union that a lot depends on the extent and the form of "privatization"; for example should we really cheer when the Communist managerial elite of the old steel, copper, etc. monopolies, suddenly become the "private" owners of these uneconomic complexes?

Coming closer to home, we now find that our beloved Internal Revenue Service, backed by the Clinton administration, would like to engage in some privatization. It turns out it would be more efficient for the Treasury Department to contract out, to privatize, its collection of back taxes by bringing in private collection agencies to do the job. Hey, do we really want to make income tax collection more efficient by privatizing some or all of the tax agencies?

Do we really want our lives and records combed through, our door broken down, by the peremptory orders of IBM or McDonald's "tax police"? Anyone who knows history will know that the most hated institution in pre-modern Europe was that of the "tax farmers." The king used to get a lot of money quickly and save himself the costs of a giant bureaucracy by selling the right, or privilege, to collect taxes to some private firm, or "tax farmer." Can you imagine how intensely and bitterly the tax farmers, who lacked the cloak of sovereignty or legitimacy, were hated by the people?

There are those who believe that the worse the despotism the better, in order to provoke a revolutionary backlash among the public. Well, privatizing tax collection might just do it. 

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