Incrementalism - Improvisation - Assimilation

by

Ed Dedelow

The people I have talked to are fixated on current issues and are not knowledgeable or wary of the extent of government's penetration into our lives since the 1930s. Focusing only on current issues leads to compromise and compromise leads to incrementalism. More of the private sector has been consumed by government than is reported and compromise will only continue the growth. If a crisis is to be avoided, we must know where we came from, where we stand and how the government has done it. Unfortunately, even the most intelligent do not follow the key factor used in measuring the size of government. This is the measurement upon which politicians, educators and beneficiaries of government largess lay their foundations. This key measurement is the size of government as a percentage of the Gross Domestic Product (GDP). How important is it? The current administration justifies increased taxes by comparing the percentage of taxes to GDP in the US to European countries where taxes are 20-30% higher.

Unless you are over 55 and have studied this subject, you have missed a lot. In 1929, government expenditures were about 10% of GDP. The Great Depression, WWII and the Cold War pushed this figure to about 24%. In the 70s, causes such as the environment, social issues and the Great Society (wealth redistribution) pushed the figure to about 34%. (50% by my measurement, but that is for a later discussion.) This later increase in size and influence on the private sector caused inflation in the 70s and, by 1981, interest rates were over 20%. We were in a serious recession.

This is when Congress took a major step to change the manner in which government expanded. Recognizing the difficulty of raising taxes during a recession, Congress passed laws to be enforced in the private sector which accomplished tasks that taxes would have otherwise funded. Therefore, funding and enforcement of new laws was transferred to the private sector where costs were assimilated into the cost of business and the consumer's market basket. The reader should recognize that legal actions in the private sector involving discrimination, animal and plant protection, consumer rights, class actions, environmental protection and the belated reaction from the Community Reinvestment Act(CRA) of 1977, have all been factors in the recessions of the past 30 plus years. The CRA is the greatest cause for our current recession, as lenders were forced to set aside funds for home loans to customers with high credit risks.

I use the word assimilation to describe the process of incorporating the cost of government into product costs and the consumer's market basket. If you were a Star Trek fan you should remember the Borg. It was a powerful force that assimilated diverse organisms into a single intelligence. Likewise, the assimilation of legislated costs results in similar actions being taken by dissimilar parties (businesses and individuals) to preserve stability. Currently, taxes, which account for approximately 50% of the cost of a product, have been assimilated into each product in addition to the costs of regulation and litigation. The flexibility of the capitalist system, and the need (freedom) to survive, shape the methods used to assimilate taxes, regulation and laws into the producer's cost structure and the consumer's market basket.

The effect of government is reflected in the math that determines production feasibility, labor usage and value, and the state/country where production can economically be carried out. Consumer good price changes force alterations in the consumer's market basket. Profitable opportunities, resulting from government actions, attract investors, promoters and labor.

To further growth and to keep government costs out of the classification of taxes, politicians improvised. Improvisations included "revenue enhancements" such as tourist taxes, user fees, impact fees, fines, and increased penalties. Moreover, when the federal government would no longer fund federal highway expansion, state and local governments set up controlled-private sector businesses to build toll roads. In the 70s, part of the reason government's size went from 24 to 34 % was to facilitate the cleanup of our environment. The federal government gave outright grants to state and local governments for building sewage treatment plants, general environmental cleanup and to fund other causes. But, as time passed, the entire cost was transferred to state and local governments who then passed responsibility onto the private sector. No longer funded with taxes, these costs became a component of private sector GDP yet, government retained its size and funded other causes. Government responsibilities became private sector costs.

Anyone who believes the size and control of federal, state and local governments is approximately the same today (34.80%) as it was in 1975 (34.75%) has been smoking grass or perhaps should. Government controls are way over 50% of all spending (GDP). Unfortunately, those who benefit from the taxes and regulation, including government unions, the legal community and private businesses, have the money and the numbers to continue the growth.

The health of a population is dependent on the ratio of productive to non-productive workers (supporting versus supported). The demands of government ultimately take workers from the productive sector to perform political duties. It is not stimulus; politicians create burdens, not benefits, whether employed in the public or the private sector. As the number of producers fall, living standards will decline. If we do not recognize the importance of GDP and we continue to accept the accuracy of the figure, we risk a decline in economic vigor.