Suppose you picked up your Wall Street Journal one morning and saw an article on the front page with the following set of headlines: Ford Reports Its Current Models Have Been Bigger Busts than the Edsel; Ford Stock Soars 500 Percent; Investors Dancing in Wall Street. Then, turning to the editorial page, you found the editors expressing the view that in light of Fords announcement, Wall Streets celebration is well warranted. Youd be inclined to check the date, wondering whether an April Fools joke was being played. Bad news normally does not elicit such gladness.
A real-life case of such a dissonant reaction appeared recently in the Journal, however, when the editors concluded in their Review & Outlook column for August 17, 2005, that we can celebrate a dramatically improved short- and medium-term fiscal picture. What aspects of that picture struck them as worthy of celebration?
Strange to say, they were reacting to the Congressional Budget Offices release of its August 2005 Budget and Economic Outlook update. This hefty report, the product of too many government statisticians equipped with too much computing power, presents a number of budgetary and economic projections running as far out as 2015. Those extending more than six months into the future are probably not worth the paper they are printed on, because they are based on manifestly false assumptions, and those for the shorter term are scarcely any more valuable, because they tell us little more than what we already know. One reasonably hard figure in all the tables and charts, however, the one that set off the Journals celebration, is that federal revenues will be $262 billion greater in fiscal year 2005 than they were in fiscal year 2004. The Journals editors describe this change cheerfully as the largest single-year increase in tax revenues in American history.
Truly, we have here a man bites dog story. All regular readers of the Wall Street Journal know that the editors consistently support only two federal policies: first, bombing other countries; second, reducing federal taxes. Bizarrely, however, the editors seem to take pleasure in the conjecture that a large share of this years revenue gusher is coming from higher than expected capital gains and dividend tax receipts and therefore that the lower tax rates on investment income may have paid for themselves.
Lets see if Ive got this straight. Last year I walked home from work each day with a dollar in my pocket, but before I reached my door a mugger invariably accosted me and demanded 50 cents or my life, whereupon I paid him the 50 cents. This year I walk home each day with two dollars in my pocket, and the mugger demands 75 cents, which I proceed to cough up. But just think: I now make it home each day with $1.25 in my pocket, whereas last year I got there with just 50 cents. Thank heavens for this years lower effective tax rate of 37.5 percent, down from last years 50 percent. Moreover, not only do I have more of my money left after the armed robber has come and gone, but the mugger also now enjoys a dramatically improved short- and medium-term fiscal picture.
The Journals editors note that tax revenue as a share of the economy is climbing back to normal levels, from 17.5 percent of GDP this year toward the 17.9 percent postwar average. We all know that normal is good. Moreover, the federal deficit has also declined to close to its modern average and will be approximately 2.7 percent of GDP in fiscal year 2005. Soon, if this movement persists, well arrive at the wondrously normal levels of 2.4 percent next year and 2.0 percent in 2010, even if the Bush tax rates stay in place. The deficit would decline even faster but for the continuing spending orgy on Capitol Hill, which the editors pause briefly to decry. Federal expenditures are galloping upward by some 7 percent annually, as no doubt befits a nation with so many unmet needsneeds, that is, to keep the most politically potent rent-seekers and freeloaders at ease by giving them more and more of the money other people have earned.
Lets get real. According to the CBOs report, in the current fiscal year the U.S. government is gorging on some $2,142 billion of revenues, consisting of taxes, fees, charges, fines, and other species of extractions from the peoples purses. This sum works out to approximately $7,500 for every man, woman, and child resident in this country, or $30,000 for a family of four average persons. Perhaps some of those people feel they are getting benefits worth at least this much. I myself dont have that feeling.
Nor am I pleased to know that this year the feds will extract an additional $910 for every man, woman, and child in the country, compared to last year. To put the question in Reaganesque terms, Do you feel that the federal government is giving you $910 more in benefits this year than it gave you last year? Or do you have that sneaking feeling that each year the government transforms its increment of revenue into even more ways to squander your earnings and deprive you of your liberties?
As I see the matter, the federal government ran out of useful and constitutionally warranted things to do sometime back in the nineteenth century. Since then, federal politicians have been casting about for other things to do, regardless of those projects economic justification or constitutional legitimacy. In the past seventy-five years, the politicos have become diabolically good at locating such sinkholes for expenditures. They cant take a step now without plunging into one of them.
So desperate have the members of Congress become in their never-ending quest to outbid the rival charlatans running against them for election that they have extended massive funding to such questionable projects as the military obliteration of small, remote countries inhabited by brown-skinned people and the lavish support of wealthy retirees ensconced in the condos of south Florida and Arizona. Methinks they may have gone too far.
Indeed, what the Wall Street Journals editors see as a cause for celebration may be instead a reason for righteous indignation, or even for joining your neighbors in taking up pitchforks and heading for the District of Columbia to clean out those Augean stables.
Robert Higgs is Senior Fellow in Political Economy at The Independent Institute and Editor at Large of the Institutes quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation. He is the author of many books, including Depression, War, and Cold War.
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