This article was originally published by Gary Galles at The Mises Institute.
Besides using bipartisan comprehensive political reform as a cover for evasion and extortion, the many political abuses of posturing, window dressing, and maneuvering enabled do not exhaust the problems involved. Those problems are, instead, far more comprehensive, especially when it comes to the amount of usable information that is accessible, including accurate information about the true costs of government programs.
As Ludwig von Mises, Friedrich von Hayek, and many others have clearly laid out, centralizing decisions in the hands of politicians and bureaucrats requires that many valuable details of time, place, and circumstance, which can be known only to those directly involved, must be discarded from the decision-making process.
Substituting political determination for voluntary arrangements thereby throws away a great deal of wealth that could otherwise have been created based on that knowledge of valuable details. Just ask how much of your knowledge of what allows for more productive use of your resources would be incorporated into a government central plan. That problem gets worse the more comprehensive the government plan. While more extensive plans are always couched in assuring words, implying even more good deeds will be done, the fact is that the more “comprehensive” the political plan, the more comprehensive is the ignorance that will be imposed in place of usable knowledge, and the more wealth that will be destroyed. Potential mutual benefits at even more margins of choice will be disabled.
History is full of illustrations of the damage that can be wrought as a result, as can be recognized from the many examples of “the law of unintended consequences,” my favorite version of which is “Every government program creates adverse unintended consequences, and they always come as a surprise to the program’s creators.”
That is also one reason why the increasing federal domination of political decisions in the US, despite the federalism designed in the Constitution, makes the problems worse. Expanding the empowerment of Beltway politicians guarantees that even more of the details and the wide variations in situations and desires among individuals will be left out. At the same time, those stuck with the tab are given less ability to escape the burdens by voting with their feet because it is more costly, sometimes prohibitively more costly, to leave a larger abusive government jurisdiction than a smaller one.
The best summary of this issue I can recall is what Albert Jay Nock called a curious anomaly in Our Enemy, the State: “State power has an unbroken record of inability to do anything efficiently, economically, disinterestedly or honestly; yet when the slightest dissatisfaction arises . . . the aid of the agent least qualified to give aid is immediately called for.”
Another all-but-ignored aspect of a government displacing its citizens from what they believe best advances their “life, liberty, and pursuit of happiness” is the wealth destroyed over and above the dollars that end up in government coffers. A government has no resources of its own, so what it spends, it must first commandeer from citizens (including citizens into the far future, as demonstrated by the national debt and far more massive underfunding of government promises and trust funds). As a consequence, each dollar of government spending costs Americans far more than a dollar because of what economists call the welfare cost or excess burden of taxation.
Beyond the resources taken from citizens for government coffers, tax wedges between what buyers pay and what sellers receive net of taxes destroy productive trades and the gains they would have created. A 20 percent tax would destroy trades that generated up to $1.20 in value per dollar spent. Raising it to 30 percent would also destroy trades generating between $1.20 and $1.30 per dollar spent, and so on. In 2006, Martin Feldstein estimated the excess burden at seventy-six cents per dollar of added tax revenue, when the US government was far smaller than today. If true, that estimate (not the highest estimate researchers have made) means one more dollar of government spending actually costs society $1.76. As a result, every dollar of additional government spending would have to generate more than $1.76 in benefits to conceivably improve Americans’ general welfare.
However, when have you ever heard any officeholder or office seeker seriously consider whether each dollar of government spending provides more than a dollar of benefits (or that those forced to pay the costs receive more in benefits than costs), much less the far higher actual social cost of funding government programs, in their sales pitch for growing government further? If you have never asked such a question, one good way to find out the answer is to check how often those costs have been included in an official government benefit-cost analysis, a technique that is supposed to guard against government misrepresentation.