In We Are Better Than This: How Government Should Spend Our Money, Edward D.
Kleinbard proposes to readers that by putting government to work in the areas in
which government most productively complements private markets, our country will
be made healthier, wealthier, and happier. Specifically, he recommends a more
muscular federal government that supplements the private sector through sensible
investment and insurance programs (p. xx).
Kleinbard provides an excellent identification of market shortcomings and U.S.
fiscal policies that have room for improvement. Unfortunately, his well-intentioned
policy proscriptions are entirely undermined by his poor causal inferences and failure
to consider, present, or discuss the public-choice literature. He relies far too much on
unrealistic, normative assumptions of a benevolent, well-informed government. Further,
the book is riddled with cherry-picked statistics that draw close resemblance to
those in Thomas Pikettys recently published book Capital in the Twenty First Century
(Cambridge, Mass.: Belknap Press of Harvard University Press, 2014), which, not
surprisingly, Kleinbard praises as complementary to his own work.
Kleinbard divides the book into three sections. Section I, Our Fiscal Soul in
Peril, introduces the moral foundation and recent empirical evidence for which the
author justifies his recommended changes. Section II, Starving Our Fiscal Soul,
dissects several of the major tax bases and federal expenditure programs and compares
those fiscal policies with similar policies in other Western democracies. Then
Section III, Reclaiming Our Fiscal Soul, details a proscription for improving the
tax code and increasing government spending via public investment and insurance.
Section I introduces the metaphor of a fiscal soul. Kleinbard describes the
fiscal soul as a collection of nationally shared values that can advance societys happiness
through governmental fiscal policy. Promoting a healthy fiscal soul, he claims, is the
way we can avoid becoming a nation of jerks.
Kleinbard cites Adam Smiths The Theory of Moral Sentiments throughout the
book and uses Smiths notion that [w]hen the happiness or misery of others depends
in any respect upon our conduct, we dare not, as self-love might suggest to us, prefer
the interest of one to that of many (book III, sec. 1, chap. III, qtd. on p. 27) to
argue against the philosophies based on the pursuit of self-interest. Kleinbard
launches an assault on several market triumphalist economists, including Greg
Mankiw, Casey Mulligan (a sixteen-page critique), and George Stigler (and basically
all Chicago School economists) as well as a disdainful critique of Friedrich Hayek and
Milton Friedman: Both [Hayek and Friedman] were consumed by the risks inherent
in big government, because collectivism, even if arrived at through democratic
processes, was said to erode freedom of choice both in the marketplace and in the
political arena. . . . Hayek at least had the excuse of staring into the maw of terrifying
totalitarian regimes when he wrote his book, but Friedman, for all his accomplishments
as an economist, reads today as a political and social simpleton (p. 39).
Kleinbard supports this claim by providing two bits of evidence: first, China has
experienced economic growth under a totalitarian politician regime, and, second,
Western democracies have not become suffocating collectivist societies.
Throughout the book, Kleinbard makes no mention of any counterarguments
to his smoking-gun pieces of evidence, nor does he cite the volumes of literature that
suggest the opposite conclusion. Might Chinas tremendous recent growth have been
caused by a reduction in market control by governments? Can the recent decline in
economic growth rates by Western democracies beeven partiallyattributed to
growing public-sector debt and efficiency-decreasing market interventions by Western
governments? Kleinbards failure even to acknowledge such evidence makes his arguments
appear to be half-researched and ultimately imprudent.
Without mentioning empirical evidence, Kleinbard lambastes Friedmans
insensitivity to the value of national parks and belief that racial discrimination
would wither in the face of market competition (p. 39). To him, it appears that any
economist who believes in smaller government and the power of markets is foolish.
His misguided attack on market triumphalists and his poor policy proscriptions
unfortunately overshadow his relevant critique of several market outcomes. He argues
that gross domestic product (GDP) is an imperfect tool for measuring social welfare.
GDP certainly has its flaws, but Kleinbard insists that to market triumphalists the
purpose of life is for the United States to win the gold medal at the GDP Olympics
every year (p. 130). Here he is far off the mark. Free-market-supporting economists
widely reject GDP as a measure of social welfare for its many shortcomings. Perhaps
most notable among those shortcomings is that all forms of government spending
count toward GDP!
The volume discusses, at length, inefficiencies in the tax code, including progressive
subsidies and tax deductions. The mortgage-interest deduction and untaxed
employer-provided health-care benefits are broadly unpopular policies among economists.
Kleinbard promotes the elimination of such deductions in order to raise extra
revenue. This additional revenue would allow the federal government to increase
Kleinbards preferred expenditures: investment and insurance.
Kleinbard argues that government can invest in major infrastructure, including
public goods, natural monopolies, and welfare-improving projects that the private
sector cannot fulfill. He claims that a governmentthat is, all the people, acting
togethercan . . . take a longer view of an infrastructure investments period than can
most private firms, since a governments long-term viability is largely assured . . . and the
government, unlike a private firm, does not need to earn a profit on its infrastructure
investments. For all these reasons, it is unsurprising that private toll roads and the like
remain a small fraction of public infrastructure spending in the United States (p. 5).
Noticeably absent is the public-choice perspective that government is run by
individuals (politicians). Those politicians respond to incentives, and they are frequently
near-sighted because they are incentivized to keep current voters happy.
Further, in the absence of a profit-seeking motive, governments and bureaucracies
do not have the incentive to minimize costs or produce efficiently. Kleinbard also fails
to mention that publicly provided roads, pricelessly accessible to almost anyone,
crowd out privately provided roads.
On poverty and education, Kleinbard acknowledges and presents research that
poverty significantly hinders human capital development. Few would disagree that
poverty is a major problem. Poverty implies handicaps. Poverty inhibits growth.
Poverty is highly correlated to intelligence and education, and poverty tends to be
hereditarily persistent. Many, including Kleinbard, see education as the best mechanism
for breaking the poverty cycle. Thus, he concludes that education is so important that
the government needs to invest in it.
Kleinbard gives our public-school system a predictably depressing grade
(p. 290). His proposal for improving the education system shows promise: investing
more in early childhood education and embrac[ing] the charter movement more
directly. . . . [C]harter schools, as laboratories for alternative pedagogical styles, can be
honored . . . [and] the best ideas can then be harvested and deployed more widely
(p. 298). Although this suggestion appears to be promising, Kleinbard conveniently
ignores the barriers needed to change. He makes no mention of school incentives,
teacher incentives, Friedmans school vouchers, or powerful labor unions with
powerful political ties.
Finally, the author addresses the U.S. health-care system, which he acknowledges
as one of the most inefficient in the world. He criticizes both the Democrats
and Republicans for the Affordable Care Act (ACA). He was displeased with Democrats
because the ACA, although likely improving the fiscal solvency of Medicare and
Medicaid through the insurance mandate, falls miles short of correcting the countrys
underlying health-care problems. The Republicans tunnel vision focused on repealing
the ACA similarly does nothing to address the foundational problems in the health-care
system. He restates his claim that the government should play a role in providing
social insurance and investment via health care, but he does not identify an efficient
means of accomplishing that outcome.
Overall, Kleinbard identifies many fiscal policies with room for improvement.
However, his proposition that taxes be increased to fund greater levels of government
investment and government insurance is presented within the naive, normative context
of a benevolent, well-informed government. I think readers of The Independent Review
will find this book more frustrating than enjoyable to read.