Big Government Is The Biggest Business Of All
Posted by Thomas L. Knapp on Apr 13, 2009 in Commentary • 4 commentsThe House and Senate are still wrangling over details, but rough numbers are already in place: The US government’s budget for fiscal year 2010 will land north of $3.5 trillion.
That’s big business. How big? Big.
The federal government employs 2.7 million civilian workers at an average wage of more than $63,000 per year. That’s not counting more than 1.4 million active duty military personnel and more than half a million reservists and National Guard members.
Nor does it include the many state and local government employees whose salaries are routed through Washington in one way or another. Altogether, government at every level directly employs about 20 million Americans — and millions more work for businesses which rely on government contracts for much of their revenue.
The “customer” — you — ultimately picks up the tab, of course. For fiscal year 2010, your bill from the federal government comes to nearly $18,000.
Yes, you read that right. $3.5 trillion divided by 300 million is $17,666, give or take. And that’s just your federal government bill. You’ll also shell out to state, county and local governments.
What’s that you say? You aren’t paying that much? Maybe you’re right. Federal income taxes are “progressive” — the wealthier pay more — and you may be below average on that scale.
Also, about a third of the federal budget is borrowed, so you don’t see that as an up-front demand for cash. Some of your taxes go for interest on the US government’s accumulated debt ($11 trillion or so at this time), but much of that debt awaits your grandchildren’s attention. Think of it as the gift that keeps on taking.
Still, the tab comes to 18 large per person, and someone’s paying it. You’re paying it in ways you probably don’t even notice.
When you buy a widget at the local hardware store, some portion of the price ends up in Washington. That hardware store owners builds his taxes into the price. So does the manufacturer of the widget. So does the company which delivers the widget to from the factory to the store.
Those Social Security deductions from your weekly paycheck (which, by the way, are not part of the aforementioned tab)? There is no “lockbox.” As soon as Uncle Sugar gets his grubby fingers on that money, he spends it and replaces it with IOUs. Literally. By law, every dime the Social Security Administration collects and which isn’t used to pay out current benefits must be loaned to the US Treasury.
Of course, sooner or later (and right now it looks like sooner), Social Security will owe more in current benefits than it’s taking in in current revenues. At that point, it starts cashing in those IOUs … which means you get to pay them back (in taxes) the money that you gave them (in taxes) and that that they loaned to the Treasury and that Congress spent on figuring out new and better ways to tax you more.
Don’t despair, though. It turns out that all that money is just paper anyway. The only values it possesses are compulsion (”legal tender” laws requiring everyone to accept it “for all debts public and private) and superstition (it’s backed by “the full faith and credit of the United States” — i.e. your confidence in the federal government).
The convenient fiction that fiat paper currency is “money” really only means that you get taxed some more — through inflation.
Have you ever wondered how this “money” is created? Here’s how it works: When the government wants more money in circulation, the Federal Reserve buys … you guessed it … more government debt! The Fed prints up a billion fresh new dollar bills and buys “government securities” with them. At that point, every dollar bill in your wallet becomes worth just a little less than it was worth before — and you “owe” a little more than you did before to boot. Is it just me, or is “government securities” sounding more and more like an oxymoron?
Of all the “big businesses” you deal with, the federal government is the biggest. Unless you have an exceptionally large mortgage payment, your taxes (open and hidden, direct and indirect, immediate and deferred) are probably your single greatest annual personal expense.
You are the “customer.” Are you getting your money’s worth? Would you do business with these people at all if you had a choice? Are they offering you something you can’t live without … or just making you an offer you can’t refuse?
‘It turns out that all that money is just paper anyway. The only values it possesses are compulsion (”legal tender” laws requiring everyone to accept it “for all debts public and private”)…’
Actually, there’s more to the compulsion than that. The taxes themselves create “public debts” in terms of that same money. Even without legal tender laws, that would be sufficient to create a demand for it on the part of the public. Indeed, just precisely that was done in colonial situations. The trick there was to allow taxes to be paid in cash or kind (including labour, e.g. on roads) that paid a small amount in cash to get the cash into circulation without making paying with labour preferable to paying in cash.
Of course, the fact that your mother or grandmother gets a check and doesn’t have to live with you is a cost you avoid for paying 18 large (not to mention your mother in law and/or her mother as well). By paying for this now, your children don’t have to pay for you.
Now, lets say the government went away – say after electing me President. When this happens the transfers between generations don’t stop and they don’t become totally anarchic either. You can’t just declare freedom – instead you must replace programs with alternate modalities, such as the employee-ownership of either company stock or of an index fund of employee-owned firms. Instead of writing a quarterly check to SSA, the employer will do a quarterly stock issuance or buy. Either way, the impact of this will be reflected in the price of the product.
Paying for the education of our youth will always be a cost. This transfer to parents for their children’s education will either come via a direct subsidy from the employee-owned firm or other employer or from a land value tax (although the economic justification for making landholders pay for the education of children escapes me as much as using property taxes does). If the employer pays there are a few options – company schools and daycares, direct transfers to parents who then pay tuition at either a secular or religious school, or a donation by the employer to the school system (public or private) of the employee’s choice (all employee owners in a move that respects donor sovereignty) with parents signing their kids up to the system they chose and inter-system adjustment to balance things out at the margins.
Transportation fees are actually the closest thing we have to pay for play government, since theoretically gas taxes pay for roads, with automated gas pumps collecting the tax (except in New Jersey). Toll roads supplement this, but eventually an automated road system will both provide electricity to power cars, control and payment of the electricity and road system. This system may or may not be governmental – but it won’t be free.
If you want to get rid of defense spending, the best way is to encourage union ownership of multinational corporations and the extension of union benefits to the overseas employees. This will build middle class democracies the world over faster than anything else and eliminate the need for anyone to have a standing army or military force – aside from a coast guard to hang pirates (although the need for that diminishes if poor people have options). Space exploration and colonization are paid for by tourists, scientific endowments and colonists themselves. If anti-gravity propulsion is invented there should be a boom in this area – which means the hasty exit of government aerospace.
There are a few other smaller government services I haven’t covered, but I think you get the idea of how they can be covered. Note that most governmental services don’t go away, they are just paid for more directly or through non-governmental means. Except for stopping the massive waste on defense spending, most other services will still be built into your personal bottom line.
@Michael Binder – the ‘best way’ is not tinkering at the periphery by encouraging union ownership etc.; the BEST way is to kill enough political parasites that the rest get the idea that the cost of remaining a parasite is TOO HIGH.
It is incorrect to claim that the 18 large is paying for Nanna to be housed in a nursing home – the transfers to government have NOTHING to do with intergenerational transfers except for SocSec, which is runnign a mounting deficit anyhow (in other words, the tab for the aged parents is a shit-load more than 18 large).
The ‘18 large’ (per capita) does not incldue off-budget items, and nor does it include any accounting for the present value of future liabilities which are at present unfunded.
This is why I turn – harshly – on any grey-hair that blathers on about how ‘they paid taxes their whole working lives’. That may be so, but for their whole working lives the government debt was accumulating (even during the so-called ‘Clinton Surplus’ years, debt ROSE). This indicates that, on nett, the system was in deficit (and as such the representative grey-hair spent their entire life putting government services onto the tab of future generations).
The average idiot thinks that government has a magic pudding – that if government rigs its accounts in such a way that they say they are running a surplus, augmentations to aggregate government debt can somehow be ignored. Well they fucking well CAN’T. New debt indicates that government received less than it paid out.
It s about time that people realised that government can move water from one end of the bath to another (with slippage), or from one day’s bath to another day’s bath (with slippage), but whether they are doing instantaneous or intertemporal substitution, the net effect is always and everywhere, a shallower bath.
Caedite Eos. it is the only way.
Cheerio
GT
The mounting deficit of Social Security is a myth designed by Wall Street to get its hooks into the retirement system. That same accounting was used to manipulate firms from dropping perfectly good pension systems for investments in the stock market when there was no need to fully fund them in the first place. As long as there were enough reserves to guard against short term down-turns, most pension systems were fine. It is most likely that Wall Street interests had something to do with changing the accounting rules on pensions. That same thinking goes into the myth that Social Security is somehow carrying an unsustainable contingent liability.
That thinking is total and utter BULLSHIT! As long as the cash flow works contingent liabilities ARE NOT AN ISSUE. If you count contingent liabiliites, you must also count contingent assets – which would amount to about 10% of the expected national income over the same period.
You also really missed my point. If Social Security were entirely recapitalized as either an employee-ownership scheme or the kind of stock ownership scheme that occurs only in Michael Tanner’s wet dreams, Nanna’s nursing home care would still come out of somebody’s current spending – because if the system were totally capitalized Nanna would hold enough stock – or be the member of an annuity fund which held enough stock – to pay for her care. The dividends or gains from that stock are funded from the REVENUE of those firms in either Nanna’s portfolio or the portfolio of the entire annuity fund.
In other words, on a CASH FLOW BASIS, if you buy stuff, part of the purchase price eventually makes it into Nanna’s nursing home bill.
Even if you don’t fully capitalize Nanna, you will simply shift the responsibility of paying for care to Nanna’s kids. Nanna’s kids are likely working at jobs – and on the whole something that you buy will eventually produce revenue that will go to Nanna’s kids or grandkids – which will eventually go to Nanna’s nursing home bill.
In other words, at some point, unless you never spend any money – you will be funding Nanna’s nursing home bill.
Shooting bureaucrats won’t stop your costs. Shooting Nanna might – except that eventually when you get old that is an invitation for someone to shoot you.
If it came to that choice, most in society would shoot the libertarians rather than shooting the old people or the bureaucrats.
A good transition plan is not tinkering around the edges, it is making sure that everything gets done so that the state does not do it.