The Government Grows at the Expense of the Middle Class

In this thread on socialism/capitalism a socialist shared this chart which basically argues that declining union membership is responsible for the shrinking middle class income (source: ThinkProgress.org)...

In response I created this chart which basically argues that the growing government is responsible for the shrinking middle class income...

As government expenditures as a percentage of GDP (Gross Domestic Product) increases....the middle class share of national income decreases (data source: http://www.usgovernmentspending.com/).  Let's put things in context.

In the 50s and 60s...unions were at the height of their power.  They strong-armed manufacturers into paying wages that were so high that it became economically feasible for manufacturers to move their factories to the other side of the world.  In doing so they gave people in South Korea, Hong Kong, Taiwan and Singapore a new option.  Was it a "good" option?  Given that so many people chose this new option...it's self-evident that it was the "best" of their available options (see my post on Subsistence Agriculture vs Sweatshops).  Factory owners taught their employees new skills and eventually some of their employees took their new skills and opened up their own factories.  This increased the demand for labor...and because the supply of labor was constant...wages began to increase.  As a result...in the early 80s...many manufacturers moved their factories over to China.  Before the 80s they were not able to do so because Mao Zedong had closed China off to foreign investment.  This changed in 1978 when Deng Xiaoping came to power.  He created Special Economic Zones where foreign manufacturers were allowed to open factories.  Eventually these zones expanded and as a direct result millions and millions of Chinese people were lifted out of poverty.

The question is...where's the race to the bottom that so many socialists had been decrying?  It's clearly and indisputably a race to the top...

Rising wages in emerging markets and higher shipping costs are also closing the cost gap between developing markets and the United States. - Scott Malone and Ernest Scheyder, Outsourcing Losing Its Allure As China Costs Soar

That's the global pattern.  It's abundantly clear that unions got the ball rolling.  If it hadn't been for their rent-seeking behavior...it wouldn't have been economically feasible for manufacturers to move their factories to the other side of the world.  Therefore, unions were unintentionally responsible for lifting more than half the world out of poverty.  Of course...they hurt the American middle class in the process.

But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much "God" sacrificed every time? If a temple is to be erected a temple must be destroyed: that is the law - let anyone who can show me a case in which it is not fulfilled! - Nietzsche

Here we are at a cross-roads situation.  What temple do we want to erect now?  Do we want to continue building government temples on the backs of the middle class like Pharaohs of old built pyramids on the backs of slaves?  Who did the pyramids benefit?  Who does our government benefit?  What temples would  Egyptian slaves have built for themselves if they had had the freedom to do so?  The disparity between the temples that we are forced to build and the temples that we would choose to build is where we need to focus our attention.  Right now there's a disparity between the government temple currently being built by 538 congresspeople and the government temple that taxpayers would build if they had the freedom to choose which government organizations they gave their taxes to.

If the temple being built by congress is truly better than the temple that taxpayers would build...then why would we want to increase the middle class share of income?  The government is clearly better at spending their money than they are.  However...if somebody is going to argue that we're better off by increasing the middle class share of income...then the argument is that we're better off by giving the middle class more money to spend.  But why would this be true in the private sector but not in the public sector?

If the middle class is going to sacrifice its income for the government...then let the middle class choose what the government does that's worth its income.  If the lower and middle classes want the upper class to sacrifice its income for the government...then let the upper class choose what the government does that's worth its income.  The only people who should be allowed to decide whether the government is worth the cost are the people who bear the cost.  The alternative is completely ignorant nonsense...aka representative economics.  How can somebody who doesn't bear the cost accurately determine whether a benefit is worth the cost?

If you don't bear the costs of fighting the war against poverty...then how can you know whether the benefits are worth the cost?  If you don't bear the costs of fighting the war against drugs...then how can you know whether the benefits are worth the cost?  If you don't bear the costs of fighting the war against terrorism...then how can you know whether the benefits are worth the cost?  If these things are worth the cost to you...then does that automatically mean that they are worth the cost to your neighbor?

Markets work because each and every consumer has the freedom to decide for themselves whether the cost of what they want is worth the benefit.  The outcome reflects our diverse perspectives, tastes, values, interests, preferences, concerns, hopes and dreams.  The government fails because there's just no way that 538 people can determine for millions and millions of taxpayers whether a government expenditure is truly worth the cost.  If we want government to succeed...if we want the benefits to be greater than the costs...then we simply need to give each and every taxpayer the freedom to choose which government organization they give their taxes to.

The temple that we must destroy is the idea that the human race benefits from representative economics.  If we agree with Thoreau that the "price of anything is the amount of life you exchange for it"...then representative economics is the idea that somebody knows better than you do what your life is worth.  Our lives are way too short for that crap.

It is through the gaze of my extinguished self that I realize the limitations that make scarcity necessary. Through this gaze into my own limitedness - a limit always established by the impending cessation of space and time for me - through this gift of death, I discover in nature the best way to be efficient. Thanks to death I must choose x rather than y. This has become a feature of 'nature' - a demystified 'nature' that bears no possibility of participation in the eternal. This is consistent with capitalism. - D. Stephen Long

The Interests of Consumers are the Interests of the Human Race

A lunch lady over in a Swedish public school was reprimanded for doing her job too well.  But not only did she have the audacity to do her job too well...she also had the audacity to summarize the value of capitalism too well...

The food on offer does not always suit all pupils, she explained, and therefore she makes sure there are plenty of vegetables to choose from as well as proteins in the form of chicken, shrimp, or beef patties.

Right now the schools on offer do not suit all pupils...just like the books on offer do not suit all readers...just like the movies on offer do not suit all watchers...just like the musicians on offer do not suit all listeners...just like the clothes on offer do not suit all the fashionistas...just like the medications on offer do not suit all patients...just like the plants on offer do not suit all horticulturalists...and so on and so on. 

As consumers we never want less options.  Instead, we always want a larger selection of different things.  Why do we want different things?  Because we are an extremely heterogeneous bunch.  We are a melting pot of diverse perspectives, cultures, preferences, tastes, values, interests, concerns, hopes and dreams.  Our amazing diversity is our greatest strength because it leads to a greater abundance of the things we value.  

Over 100 years ago Bastiat explained this concept too well...

If we now turn to consider the immediate self-interest of the consumer, we shall find that it is in perfect harmony with the general interest, i.e., with what the well-being of mankind requires. When the buyer goes to the market, he wants to find it abundantly supplied. He wants the seasons to be propitious for all the crops; more and more wonderful inventions to bring a greater number of products and satisfactions within his reach; time and labor to be saved; distances to be wiped out; the spirit of peace and justice to permit lessening the burden of taxes; and tariff walls of every sort to fall. In all these respects, the immediate self-interest of the consumer follows a line parallel to that of the public interest. He may extend his secret wishes to fantastic or absurd lengths; yet they will not cease to be in conformity with the interests of his fellow man. He may wish that food and shelter, roof and hearth, education and morality, security and peace, strength and health, all be his without effort, without toil, and without limit, like the dust of the roads, the water of the stream, the air that surrounds us, and the sunlight that bathes us; and yet the realization of these wishes would in no way conflict with the good of society. - Bastiat, Abundance and Scarcity

The problem is...just like superman...our diversity has a kryptonite.  If somebody takes away our freedom to choose...then they'll render our diversity powerless.  Without being able to choose how we spend our money...then how can producers know when they are producing something that we find suitable?  Without an accurate feedback mechanism then limited resources will be wasted.  This is the problem with representative economics.

Right now we elect 538 people to represent the economic interests of 150 million taxpayers in the public sector.  In other words...we permit 538 people to spend 1/4 of our nation's revenue in the public sector.  That's over $3.5 trillion dollars being spent without an accurate feedback mechanism.

Clearly we don't all agree on how that $3.5 trillion dollars should be spent in the public sector...but that's a good thing.  Yet...people think it's a good thing when conservative and liberal representatives set aside their differences to solve the problems that our country faces.  Eh?  It's a good thing when we force 538 representative to agree on how they spend our money in the public sector?

If our diversity is our greatest strength in the private sector...then why is it a good thing to demolish our diversity in the public sector?   How does forcing people, who have very different perspectives, to tackle the same problem from the same angle help anybody?  It doesn't.  It hurts us all.  We all benefit from multiple approaches because it increases the probability that one approach will be successful.

The value of heterogeneous activity...aka hedging our bets...aka not putting all our eggs in the same basket...helps us understand why it would be an improvement to allow taxpayers to choose which congressperson they gave their taxes to and why it would be an exponentially greater improvement to allow taxpayers to choose which government organizations they gave their taxes to.

Bastiat offers an excellent overview...

1. Our economic representatives aren't superior enough to override our choices
2. Public goods, like private goods, are simply acts of exchange
3. The choices of consumers are the driving force behind abundance

1. Economic representatives aren't that superior...

Apparently, then, the legislators and the organizers have received from Heaven an intelligence and virtue that place them beyond and above mankind; if so, let them show their titles to this superiority. - Bastiat

If our economic representatives were truly superior enough to know better than millions and millions of consumers...then this would be as true in the private sector as it is in the public sector.  But if you value the options you do have...then you should know for a fact that this is not true.  The options that we have in the private sector are a direct result of our freedom to choose how we spend our money.  Take away our spending decisions and our diversity, which is our greatest strength, will be as useless as superman swimming in kryptonite.

2.  It doesn't matter whether a good is public or private...it's either worth exchanging your money for...or it isn't...

Thus, considered in themselves, in their own nature, in their normal state, and apart from all abuses, public services are, like private services, purely and simply acts of exchange. - Bastiat

Public goods are only different from private goods because we want more of them than we believe that the private sector would be able to supply on its own.  It's not that a non-profit militia couldn't provide national defense...it's just that most people are relatively certain that it wouldn't provide enough defense.  It's not that the non-profit sector doesn't provide welfare...it's just that liberals are relatively certain that it doesn't provide enough welfare.  This just proves that the demand for public goods exists.  Therefore, the problem is on the supply side.  More specifically...the supply would be inadequate because people can free-ride off of other people's contributions to non-profits.  We solve this problem by forcing people to pay taxes and by allowing government organizations to produce public goods.  But once these steps are taken...it's completely unnecessary and extremely counterproductive to take the additional step of demolishing our diversity by allowing representatives to determine how our taxes should be spent in the public sector.    

3.  Human flourishing absolutely depends on protecting the interests of consumers...

Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race. - Bastiat

Taxpayers bear the cost of public goods which is why they alone are capable of determining which public goods are worth the cost.  Will they find all their options in the public sector to be perfectly suitable?  No...of course not.  This basic fact will guarantee that taxpayers will support the audacious lunch ladies of the public sector.  It will ensure that the most successful approaches will gain funding and failed approaches will lose funding.  

Diversity + choice = progress.

Subsistence Agriculture vs Sweatshops

Nobody would consider working in a sweatshop to be a "good" option.  So what does it mean when people choose that option?  It clearly indicates that working in a sweatshop is their "best" available option.  That tells us something about their other available options.  For example...here's a photo I took of a young girl in Afghanistan gathering dung for a stone wall...

When liberals attack owners of sweatshops...they are attacking the people who give other people "better" options.  That's not how you help people...that's how you screw both the people who need help and the people who are truly helping them.  If liberals genuinely wanted to help people...then they would provide them with "better" options.  For example...they could start air-conditioned factories.

Are air-conditioned factories really a "better" option than sweatshops?  That should be up to employees and consumers to decide.  But we certainly don't make any progress...and we certainly do not help people...by allowing the government to dictate who business owners hire and how much they pay them.

For more on this concept see...Biting the Hand that Employs You

The Danger of Homogeneous Activity in the Public Sector

My response to PrometheeFeu from our discussion over on Daniel Kuehn's blog entry...A Quick Thought on Voting...

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Scenario 1, I send money to the EPA. Scenario 2, I do not send money to the EPA. What is different between the two scenarios? Nothing of consequence.

Scenario 1, you buy asparagus.  Scenario 2, you do not buy asparagus.  What is different between the two scenarios?  Nothing of consequence.  Nothing of consequence?  Somebody prevented you from buying asparagus...and you would consider it to be inconsequential?  I thought you liked asparagus?  What if they did the same thing to me and everybody else who wanted to buy asparagus?  The little consequences would add up to the big consequence that the demand for asparagus would not determine the supply of asparagus.  Therefore, there would be a significant disparity between supply and demand.

My whole tax bill could not pay an extra secretary at the EPA, much less significant regulatory activity.

Just like your entire income could not pay for a new field of asparagus.  Or maybe it could?  Could you really eat that much asparagus though?  What about the opportunity cost?

So your scheme suffers from the same weakness as voting: your incentive is not to reveal your policy preferences.

But here's what you wrote earlier.

If a socialist came to me and argued that my purchases don't count because my single purchase can't possibly affect the price level, I would not respond that I have a duty to keep markets working. I would point out that I wanted chicken and asparagus for dinner and that's why I went to buy them and that's why my true preferences were aggregated.

Why would buying asparagus and chicken be any different from donating to the Red Cross or the World Wildlife Fund or paying taxes to the EPA or the Dept of Education?  You either want more of those things...or you don't.  The supply of those things is either determined by demand...or it isn't.  If it isn't determined by demand...then clearly there's going to be a disparity between supply and demand which represents a misallocation of scarce resources.  We'd be getting too much of one thing and not enough of another.  Without consumer's opportunity cost decisions the allocation would not even be close to being Pareto Optimal.

I support giving tax-payers having the freedom to choose which government organizations they give their taxes to because it is more morally correct and it would make me feel good to not send money to certain programs.

We currently allow 538 congresspeople to spend 1/4 of our nation's revenue which comes out to roughly $3.5 trillion dollars...yet you support applying market principles to the public sector for moral reasons?  Well...it's kinda hard to complain when most people don't support the idea for any reasons.

But surely there have to be some significant economic consequences for allowing 538 congresspeople to spend 1/4 of our nation's revenue?  As far as I can tell it's the primary cause of recessions/depressions.

On the individual level you will experience a severe recession/depression if you gamble your home on a failed business idea...right?  You misallocated a significant portion of your limited resources.  That's why most entrepreneurs pitch their ideas to venture capitalists.  And what do venture capitalists do?  They hedge their "bets".  Every decision to spend your money/time is a gamble...which is why VCs don't put all their eggs in one basket.  They spread their capital over numerous start-ups.  If they are good at picking winners then they'll increase their capital.  But they certainly don't ultimately determine whether a start-up is a winner or loser...we do.  We use our wallets to indicate whether a VC's allocation was a misallocation or a profitable allocation.

If heterogeneous activity makes sense on a smaller scale...then it should make even more sense on a larger scale.  And every single socialist experiment provides empirical evidence that this is the case.  If heterogeneous activity makes sense for a small amount of resources...and it makes sense for an entire nation's resources...then please explain why it doesn't indicate that there's a clear and present danger to allowing 538 congresspeople to allocate 1/4 of our nation's revenue among government organizations.  It would be one thing if taxpayers were able to choose exactly which congressperson they gave their taxes to...and that congressperson would have sole discretion how they spent "their" taxes in the public sector...but all 538 congresspeople have to agree on how 1/4 of our nation's revenue is spent.  Spending activity doesn't get more homogeneous than that.  

If there truly are winners in the public sector...which we can only guess at...then the tax allocation decisions of 150 million taxpayers who all want more for less will reveal exactly who the winners are.  These public sector winners will help offset any possible shortage of private sector winners.  This will help hedge our bets against recessions/depressions.  If, on the other hand, it turns out that there are very few winners in the public sector...and assuming the losers fail to adapt...then the scope of government will shrink...the tax rate will decrease accordingly...and resources will be freed-up for winners in the private sector.

Giving people the freedom to choose how they spend their money guarantees heterogeneous activity because we have extremely diverse interests, values, tastes, preferences, concerns, hopes and dreams.  Our diversity is our greatest strength...which is why failing to apply this fundamental fact to the public sector is our Achilles Heel.

Dispersed Costs and Concentrated Benefits

My comment over at Troy Camplin's blog entry on Traffic, Economics, and Constructal Law ended up exceeding the maximum quantity of characters allowed for a comment.  Rather than making the effort to try and say more with less words...I'm just going to post my comment here...

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"I still continue to see the cost-benefit pattern of traffic as more closely resembling democracy than the market."

On the freeway you have the freedom to act according to your individual foresight/insight.  The same could hardly be said about the public sector.  If I foresee a problem with Iran then I don't have the freedom to shift my own taxes to the Dept of Defense.  If I foresee a problem with global warming then I don't have the freedom to shift my own taxes to the EPA.

On the freeway if I foresee a problem with a drunk driver...then I...and everybody else...have the freedom to switch lanes in order to try and give the drunk driver as wide a berth as possible.  We also have the freedom to report them to the police...and many people will do so... because the very large majority of us want to get home as quickly but safely as possible.

The freeway gives us the freedom to use our means to try and achieve our diverse ends...the same could hardly be said of the government.  On the freeway...I have the freedom to put my car where my individual foresight/insight says it should go.  In the public sector...I do not have the freedom to put my taxes where my individual foresight/insight says they should go.

The market works because people have the freedom to put their own money where their mouths/minds/hearts are.  The people with the most accurate individual foresight/insight will benefit the most people.  As a direct result...they will have the most resources to allocate.  They earned the resources at their disposal by benefiting others.  In our society these people are taxpayers.

The public sector fails because it takes a large portion of the resources from 150 million of our most resourceful/insightful citizens and allows these resources to be spent by 538 congresspeople with significantly less resourcefulness/foresight.  If 538 people truly had the insight/foresight/resourcefulness to earn more than $3.5 trillion dollars then they wouldn't have to resort to taking this money from taxpayers.  Taxpayers, who would have to pay taxes anyways, would simply see the benefit in giving all their taxes to congress.  

Mises' "human action" describes behavior on a freeway...

We call contentment or satisfaction that state of a human being which does not and cannot result in any action. Acting man is eager to substitute a more satisfactory state of affairs for a less satisfactory. His mind imagines conditions which suit him better, and his action aims at bringing about this desired state. The incentive that impels a man to act is always some uneasiness. A man perfectly content with the state of his affairs would have no incentive to change things. He would have neither wishes nor desires; he would be perfectly happy. He would not act; he would simply live free from care.

...and it definitely does not describe our ability to act in the public sector.  What describes our public sector is the mass destruction of individual foresight/insight...

If the socialists mean that under extraordinary circumstances, for urgent cases, the state should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions, we will, of course, agree. This is done now; we desire that it be done better. There is, however, a point on this road that must not be passed; it is the point where governmental foresight would step in to replace individual foresight and thus destroy it. - Bastiat, Justice and Fraternity

How cars are distributed on a freeway is the result of the incorporation of each person's individual foresight/insight.  The same cannot be said about how taxes are distributed in the public sector.  And we already know the result...

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder. - Adam Smith

The Government Succesfully Supplies Boogers

A close friend of mine picks her nose a lot.  One time, when I was giving her a hard time about it, she claimed that she suffered from an actual condition...the overproduction of boogers.  I was skeptical...to say the least.

More and more I'm convinced that liberals truly and honestly believe that the government very successfully supplies boogers.  This allows them to claim that the government succeeds where the market fails...and also helps to explain their reluctance to allow taxpayers to choose which government organizations they give their taxes to.  Because they must understand that taxpayers would certainly boycott the government out of existence if boogers were the only thing that it supplied.  

Do you catch my drift?  You can't say that government supplies things that people actually value, want and need...and then turn around and argue that taxpayers would not choose to spend their taxes on things that they actually value, want and need.  Taxes wouldn't be voluntary...taxpayers would have to spend their taxes anyways...so why wouldn't they choose to spend their taxes on public goods that they value?  It just doesn't follow.

Neither the private sector nor the public sector has a monopoly on failure.  But who cares if the market fails at supplying things that nobody really wants more of?  Nobody cares that the market fails at supplying more boogers.  Is that what the public sector is truly there for?  To successfully supply things that nobody really wants more of?

That's why I love pragmatarianism.  Nothing more effectively forces liberals to supply non sequiturs.  Eh, well...I guess that's more like a positive externality.  I love pragmatarianism because I love the thought of the government actually supplying things that taxpayers would choose to sacrifice a portion of their lives for.  Because as Henry David Thoreau said, "The price of anything is the amount of life you exchange for it."

We don't have a scarcity of boogers...and people have absolutely no use for boogers...so why would people choose to exchange a portion of their lives for more boogers?  They obviously wouldn't.  So what would they choose to exchange a portion of their lives for?  Would they be willing to exchange a portion of their lives for more public education...more public healthcare...more national defense...more public transportation...more environmental protection?  Who knows...but what I do know for certain is that we all want more for less.

If you don't want more for less then please paypal me $100 and I'll paypal you $1 in return.  Hah...that would show me.  But the fact that we all want more for less helps us understand why producers are motivated to do more with less.  Doing more with less is known as "resourcefulness".  Being resourceful is how we overcome scarcity.  But overcoming scarcity only has any value...merit...meaning...when you're providing an abundance of something that other people would choose to exchange a portion of their lives for.

Do we want the government to use our lives to provide an abundance of things that we don't actually value?  Hell no.  Absofuckinglutely not.  Our lives are too short for that nonsense.  If you want an abundance of the things you actually value...then you'll allow taxpayers to choose more for less in the public sector.  This will strongly motivate government organizations to do more with less.  Therefore, we'll end up with more public goods for less taxes.