Something about tax time seems to make libertarians go light-headed. Yesterday we had the Fraser Institute pining for the days when people had to spend over half their income on necessities; today in the Globe, business columnist Neil Reynolds looks back, full of wist, to a time when “governments discharged their responsibilities with only single digit resort to GDP.” And as if the economy of the 1920s doesn’t make you nostalgic enough, Reynolds reminds us of how much more sober-minded was the response of America’s elite to the great panic of – get this — 1819.
There are four big ideas weaving their way through Reynolds’ piece: An objection to corporate welfare and government funding of special interests; a moral objection to stimulus spending and government bailouts; a lament for a time when government was smaller; and a desire for a society where the elites exhibited more “character”, defined as independence and personal responsibility. He seems to think these four are all connected. I don’t see it.
Regarding the first two ideas: It is perfectly consistent to object to corporate welfare and special interests while accepting the necessary and legitimate role of the state in both stimulating aggregate demand in a downturn and serving as the insurer of last resort, aka “bailouts”. Despite the fact that some governments are tempted to engage in the first under the guise of the second, they are completely distinct.
Regarding the fetish for a time when government spending took up less than 10 percent of GDP, I see no connection between that and the first two points. I’d be willing to wager that corporate welfare and special interest subsidies took up a greater share of government spending before 1930 than it does today. At the very least, our so-called corporate giants used to be called “robber barons” for a reason.
Besides, it can hardly be irrelevant that we are much richer today than we were before the depression. Call me crazy, but it might have something to do with public health initiatives, increased education, and a proper welfare state with more robust public insurance markets. It makes libertarians nuts to hear it, but the welfare state is an agent of economic growth.
Finally, I fail to see why any of this matters from the standpoint of “character”, since government isn’t independent of us; it is just the mechanism through which we provide ourselves with public goods. If our appetite for these has increased as we’ve got richer, what of it? It hardly speaks to a loss of independence or personal responsibility. Do people who play team sports exhibit less character than those in individual pursuits? Does Tiger Woods have more character than, say, Mark Messier?
But maybe Reynolds is right. I suppose if we really wanted to see character in action we could get rid of such character-ruining policies such as limited liability and bankruptcy protection. We could bring back debtors’ prisons, and put all these characters in jail. It would wreck the economy, but what price the moral high ground?