Big Government: The Perpetual Motion Machine

Friday, October 30, 1998

What has changed in Washington since Republicans took control of Congress in 1995? Not much. Some federal welfare was turned back to the states. Bill Clinton felt obliged at one point to say that the era of big government was over. He didn’t mean it, and it isn’t. The beneficiaries of specific programs have vastly more influence than the many who know nothing. Frustrated conservatives are tempted to blame bad people: Newt Gingrich, Trent Lott, Dick Armey. All are said to be insufficiently devoted to principle. That may be, but not enough attention has been paid to the government institutions that remain unaffected, no matter whether Democrats or Republicans are in the majority. They may be sufficient to explain why things stay the same, without resorting to character analysis.

Consider the new $200-billion, six-year highway bill, which passed both the House and Senate in April. The vote in the House was 337-80, and the Senate passed the measure by unanimous consent. Some conservatives have expressed dismay that Republicans would actually participate in this pork barrel exercise. In exchange for their votes, they see to it that some of the money goes to projects in their home states or districts. (Incidentally, highway spending is not such a bad idea given the vast revenues flooding into Washington. Since the 1970s, highway spending, federal and state, has declined sharply as a percentage of all spending, and this has greatly strengthened the no-growth lobby. Frustrated drivers stalled in traffic blame “all those people out there,” or economic activity generally, rather than the liberals’ adamant ideological opposition to new highways. Highway money at least won’t go for social programs, government social workers, grief counselors, poetry meetings, and so on. Transportation Committee chairman Bud Schuster has admirably insisted that federal gasoline taxes be confined to highway spending.)

At present, government service is characterized by career building and pension seeking. With real term limits, it would more closely resemble jury duty.

Consider the candidate for office who promises voters that he will dare to oppose new government spending. Elected, he arrives in Washington, and there he figures out something he hadn’t foreseen on the campaign trail. If he votes no (e.g., on the highway bill), he will probably deprive his constituents of an opportunity to get back from Washington what they put into the $1.6 trillion common pool of the federal budget (in the form of taxes). But his no vote will not encourage a like restraint among other members of Congress. On the contrary, they will have more to divvy up among themselves.

So, instead of voting no, he ends up joining in the general logrolling, teaming up with others to appropriate the money. Some of it is now earmarked for his district. Voters at home may think that he sold out. But it was the institutional arrangement of Congress that encouraged his change of heart. We take for granted and do not notice the key part of this arrangement: Tax rates are everywhere the same. There is no ratio, or proportion, between the federal taxes levied and the amount that is spent in each congressional district. One simple change would end this. If the total dollars that a member of Congress votes to spend in the course of a year were tallied, and taxpayers in his or her district were “billed” accordingly, with big spenders saddling their constituents with high taxes and low spenders rewarding theirs with low taxes, the era of big government really would be over. In fact, it would end overnight. As it is, the institutional arrangement encourages a rapid consumption of all available funds, just as a common pot of food surrounded by five hundred hungry people, with no rights or shares allocated, will be rapidly consumed.

Gingrich and Armey really are men of ideas to a degree that is unusual in politics. But what this Congress has shown, beyond doubt, is that interests trump ideas.

Incidentally, I am told that Ron Paul of Texas, one of the few libertarians in Congress, voted no on the highway bill but managed to get a highway project funded in his district anyway. So much money is available this year—$30 billion more than was envisaged in last year’s budget plan—that Bud Schuster seems to have been able to cut almost everyone in on the deal. Which means that any presidential veto would be overridden.

Let’s look at another institutional factor. In the course of negotiating the highway bill, Budget Committee chairman John Kasich tried to return most of the 18.4-cents-a-gallon federal tax to the states. But his amendment was handily defeated, one Democratic congressman calling it a “thinly veiled attempt to turn back almost all highway responsibilities to our states.” It’s a sign that our era of big government is still with us that “turning it back to the states” was used as an accusation. Only sixty-six Republicans voted with Kasich, showing that the GOP, too, opposes the decentralization of government power. Why? Because the authority to direct funds to construction projects (or to withhold them) brings with it the power to attract campaign funds from builders. If control of that federal money were turned over to the states, the campaign money would go to state legislators. This is the exact parallel of Milton Friedman’s point that a simplified tax code, such as a flat tax, is not likely to be enacted any time soon because the power to put tax breaks into the existing complicated system (or take them out) attracts a flood of campaign funds from those who might be affected by such loophole openings or closings. A flat tax would be nice for you and me, but it would be bad for members of Congress seeking to build up reelection war chests.

Once reelection becomes the goal of the leadership, it will take precedence over substance. Leaders will become convinced that both goals can be achieved in the end. “Just let me be reelected, along with my colleagues; when we have a more solid majority, we can implement the agenda more easily.” It was a bad sign when in 1995 Newt Gingrich and Dick Armey declared their opposition to term limits. Ultimately, the problem is that successful, ambitious people believe in themselves, and it is but a short step from that to believing in one’s indispensability. Real term limits—perhaps just one more term and no more—would radically alter the incentives of all legislators. Government service would more closely resemble jury duty. At present, civic duty is overshadowed by career building and pension seeking.

It’s striking that Gingrich and Armey were both college professors. Three years ago I hailed this development, contrasting them favorably with Bob Dole and Bob Michel and recalling Irving Kristol’s comment that academics do well in Washington because they understand ideas. I was overoptimistic, and so was Armey. Shortly after he became majority leader, he told me that we would soon see a 50 percent income exclusion and indexing of capital gains and “massive tax restructuring” by 1997. He believed it but didn’t know what he was getting into. Since then, his office has transformed him from a policy intellectual into an anxious shepherd, counting straggling sheep. When he leaves office, he will be the same old Armey. The same is true of Gingrich. He and Armey really are men of ideas to a degree that is unusual in politics. What this Congress has shown, beyond doubt, is that interests trump ideas in a democracy.

“Ideas have consequences” became the great conservative cliché after Richard Weaver formulated it in the 1950s. For conservative officeholders in a “stable democracy,” however, ideas and interests are often at odds. Here we come to another institutional reality. Fully enfranchised, redistributionist democracy, with one vote for the “entitled” tax recipient and one vote for the taxed donor, may be so “stable” that there is no reforming it. It’s hard to think of a Western country where the size of government, and with it the tax burden, has not gone up and then up again since the 1960s. I know of no evidence to the contrary.

Democracy is one of those dull words you hardly see on the page, and I only recently noticed “stable democracy.” But it’s worth considering. The franchise has been extended to everyone, and all literacy tests are illegal. Most people have only the haziest idea of what is going on in Washington. They rely on people like Peter Jennings of ABC News to tell them. There are no constitutional barriers to the redistribution of wealth. Tens of millions of people are eligible for entitlement programs, and the Democratic Party stands ready to fight to increase their benefits and win their votes and gratitude. Economic reality dictates that the tax-supported classes can only grow so large, of course. In the Western world, they have probably already topped out. In that sense the Democratic leadership is fighting a rearguard action. Its most important goal is to preserve its gains and prevent its interest groups from becoming self-supporting or from relying on the market. A mood of grievance and discontent—victim status—is nurtured. Here we do see ideology and interest working hand in hand.

Tax cuts could establish a similar unity of purpose and interest for Republicans, but for some reason the GOP has been unable to unite behind this issue since Reagan’s first year in office. Here Gingrich undoubtedly made a serious error, allowing his enemies (with a strong assist from House and Senate Budget Committee chairmen Kasich and Pete Domenici) to define the problem in terms of the balance of the budget rather than the absolute burden borne by taxpayers. The GOP refused to ditch the static revenue analysis used by the Democrats’ Congressional Budget Office, and they foolishly agreed, in last year’s budget negotiations, that any tax cut between now and 2006 must be offset by tax increases elsewhere or by cuts in entitlement spending. They didn’t understand that in politics the most important things must be done first or perhaps not at all. With the wrong priorities, they threw away the opportunity to harmonize their own ideas and interests.