Feds are Getting Plenty of Taxpayer Support

Remember our Daily Reckoning Dictum:

Anyone can make a mistake, but to really make a mess of things you need taxpayer support. Well, now the feds are getting plenty of it...

Over the last decade, federal spending in the US has gone from less than 35% of GDP to well over 40%. In Britain, the increase has been even more dramatic, from about 36% of GDP to nearly 55%.

Not only are the feds taking up a bigger percentage of GDP, they're also becoming bossier. During the Bush years the federal register recorded 7,000 more pages of new rules.

And, of course...they're making a monumental mess of things. They're spending money they don't have on things no one in his right mind would pay for with his own money.

Want an example? Go to Jonestown, Pennsylvania. They've got an airport there that is the envy of travelers everywhere. Lots of airport, in other words...few passengers. That's because John Murtha - when he was still among the quick - used his power in Congress to build an airport that would be convenient for him...and reward local contractors and unions who had supported him over the years.

Few politicians dug more deeply into the pork barrel than John Murtha. But almost all stick their hands in it. Why else would you bother with the trials and tribulations of 'public service?' There's got to be a payoff that makes it worthwhile, right? Of course, there are a few - like our friend Ron Paul - who are just trying to do the right thing. But for every Ron Paul there must be dozens of Congressmen and federal employees who are in it for the power, the money - or both. (Neither Stalin nor Hitler squeezed much personal wealth from the taxpayer tube. Mao Tse-tung, on the other hand, knew how to live - with plenty of palaces and young women. Most government employees are probably more like Mao than Adolph. That is, they are motivated by money as well as power.)

Have you wondered why the costs of running for public office have soared? That's obvious too - because the stakes are higher. As the federal budget grows so does the pork that each member of congress can pull out of the barrel.

The number of congressmen is more or less constant (though it grows with population...after a 10-year lag for the census). But the amount of money given out increases...making each congressional seat more lucrative. You can do the math yourself, but the point is - crime pays. At least, for a while...

The trouble with crime is that it only makes the criminals rich. Everyone else gets poorer. That's the problem in places such as Nigeria and Haiti. Crime pays. Nothing else does. Economists have done studies of this...and, of course, they've discovered the obvious. In "high trust" societies, people are wealthier. No wonder; when people know they won't be ripped off, they accumulate more money.

A high trust society is one where property rights are respected...and where the rules of the game are known...and change very slowly. A change in tax rates, for example, discourages wealth - especially if it comes unexpectedly. So does a change in monetary policy. When people don't know what to expect from the currency they become reluctant to invest for a long-term payoff. Instead, they invest in lobbying.

For the most part, tax rates haven't gone up. Instead of taxes, government gets its money from borrowing. The immediate effect is much the same; resources are absorbed out of other sectors of the economy and into the public sector. Once in government service, they are used inefficiently or completely squandered. Result: John Murtha gets an airport...a kid in Brooklyn doesn't get a bicycle... The long-term effect is unknown...but will almost certainly be unwelcome. The government will eventually be unable to borrow at low rates...and unable to finance its deficits. This will result in default...or hyperinflation...or both. In anticipation, trust in the future will go down...and so will America's wealth.

That's why the shift to politics is the FINAL stage of an economy... It is inherently wealth-destroying. In politics the rewards are distributed according to who you know or who you are. What you know and what you can do scarcely matters. Trust declines...because the rules change as wealth is taken away from some and given to others. The incentive to produce new wealth declines. Investments in new capital, new businesses, new innovations and so forth go down. Investments in lobbying go up. The insiders get rich. The rest get poor. And the nation's wealth declines...along with its economy and its power. This will continue until the political sector blows itself up - either in default, bankruptcy, hyperinflation, revolution or defeat by a foreign power. Then, the cycle can begin again.

Regards,

Bill Bonner
for The Daily Reckoning Australia

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