Economics and Government

Susan Dudley:

"Regulations impose social costs on individuals and businesses beyond the direct tax dollars expended to write and enforce them, and Federal Register pages, agency staffing, and these on-budget costs merely provide insights into the trends in magnitude of the hidden tax. According to the Small Business Administration, the cost of federal regulation on American businesses, workers and consumers is close to $1 billion per year.

But why should the average citizen care about this hidden tax? It's born by big businesses, not us. Not so. Small entrepreneurs, the engine of economic growth in America, bear the greatest burden. For small manufacturers, those employing fewer than 100 workers, the cost-per-employee of complying with workplace regulations is 68 percent higher than for large firms. Unnecessary regulatory burdens increase the cost of hiring U.S. workers, reducing American competitiveness, hindering job growth, and sending jobs overseas.

We also pay the price as consumers. From the moment we wake up in the morning -- flushing the toilet twice, courtesy of the Department of Energy's appliance standards -- to the time we put our children in their Consumer Product Safety Commission-approved pajamas, regulations not only increase the cost of goods and services we buy, but also the choices we can make.

Americans are right to be alarmed by the increase in direct spending authorized by Congress this month. But, they should also be concerned about the hidden tax of regulation, which by all measures, is also growing."

Arnold Kling discusses "bleeding-heart libertarianism":

Of the roughly $3 trillion that government in the United States at all levels collects in taxes of all kinds, close to two-thirds goes to pay for Social Security, education, and health care. This is the Welfare State.

The conventional wisdom is that the intent of the Welfare State is to reduce the disparity between the unfortunate and the well-off. The Welfare State supposedly redistributes income and reduces poverty. In fact, I believe that the Welfare State redistributes poverty and reduces income. As Karl Kraus once said of psychoanalysis, the Welfare State is the disease which it purports to cure.

Is Professor Kling's assertion hard to believe? Well, then, you have to read all of his short essay to understand why he concludes:

However, the scheme I outlined above would provide a better alternative. If it were adopted, there would be improved overall living standards, as a result of encouraging the activities that lead to growth. Overall higher living standards, combined with the efficiency of the redistribution mechanism, would drive out poverty. The working poor would see their effective tax burdens plummet. Thrifty people would live very comfortably in their retirement. Access to a good education would be more equal.

All things considered, it seems to me that the risk involved in embarking on a course to abolish the current Welfare State is actually rather small. I think that there are much better alternatives available, along the lines of the bleeding-heart libertarian model. Committing ourselves to the Welfare State as it exists today amounts to robbing the poor.

Arnold Kling provides a primer on government and individual liberty:

Consider the following classification system for government regulations and programs.

(a) interventions that work so much better than private alternatives that we feel grateful for them
(b) interventions that are better than private alternatives in some ways and worse in others
(c) interventions that are mostly worse than private alternatives
(d) interventions that are evil

Libertarians look at government and see interventions that are mostly in categories (b), (c), and (d). I would put municipal fire departments in category (a), government water treatment in category (b), public education and Social Security in category (c), and protectionist trade measures such as the Byrd Amendment in category (d). Where the United States is really lucky compared with countries like Zimbabwe is that those other countries' government interventions are predominantly in category (d).

My sense is that non-libertarians view interventions as fitting mostly into categories (a) and (b), and they believe that the programs that they favor are all category (a). I believe that their attachment to government interventions owes more to wishful thinking than to a realistic assessment of results. My reading of history is that progressives tend to exaggerate both the need for government interventions and the likely results of such interventions.

I believe that you will find that when government power is held in check, people solve problems by creating institutions that are less coercive and more effective. That is not a utopian vision. It is not an irrefutable proof. But for me, it is a sound basis for libertarianism.

Don Boudreaux:

"I sent to the Boston Globe this letter in response:

To the Editor:

John Heywood reports that, to reduce Americans’ use of petroleum, he and his MIT colleagues have 'developed an integrated set of fiscal and regulatory policies' (Letters, Aug. 20).

His policies are unnecessary. An integrated worldwide network of appropriate incentives and knowledge loops already is in place and working precisely as it should: it’s called the price system. Higher oil prices promote producer efforts to find economically viable substitutes while encouraging consumers to use less oil. And compared to Dr. Heywood’s top-down scheme, market pricing does not depend upon a few geniuses in authority getting millions of important details just right."

Right on!