Among the biggest lies of the welfare states on both sides of the Atlantic is the notion that the government can supply the people with things they want but cannot afford. Since the government gets its resources from the people, if the people as a whole cannot afford something, neither can the government. . .
After the Constitution of the United States was amended to permit a federal income tax, in 1916, the number of people reporting taxable incomes of $300,000 a year or more fell from well over a thousand to fewer than three hundred by 1921.
Were the rich all getting poorer? Not at all. They were investing huge sums of money in tax-exempt securities. The amount of money invested in tax-exempt securities was larger than the federal budget, and nearly half as large as the national debt.
This was not unique to the United States or to that era. After the British government raised their income tax on the top income earners in 2010, they discovered that they collected less tax revenue than before. Other countries have had similar experiences. Apparently the rich are not all fools, after all.
In today's globalized world economy, the rich can simply invest their money in countries where tax rates are lower.
So, if you cannot rely on "the rich" to pick up the slack, what can you rely on? Lies.
Nothing is easier for a politician than promising government benefits that cannot be delivered. Pensions such as Social Security are perfect for this role. The promises that are made are for money to be paid many years from now -- and somebody else will be in power then, left with the job of figuring out what to say and do when the money runs out and the riots start.
There are all sorts of ways of postponing the day of reckoning. The government can refuse to pay what it costs to get things done. Cutting what doctors are paid for treating Medicare patients is one obvious example.
That of course leads some doctors to refuse to take on new Medicare patients. But this process takes time to really make its full impact felt -- and elections are held in the short run. This is another growing problem that can be left for someone else to try to cope with in future years.
Increasing amounts of paperwork for doctors in welfare states with government-run medical care, and reduced payments to those doctors, in order to stave off the day of bankruptcy, mean that the medical profession is likely to attract fewer of the brightest young people who have other occupations available to them -- paying more money and having fewer hassles. But this too is a long-run problem -- and elections are still held in the short run.
Eventually, all these long-run problems can catch up with the wonderful-sounding lies that are the lifeblood of welfare state politics. But there can be a lot of elections between now and eventually -- and those who are good at political lies can win a lot of those elections.
Thursday, May 24, 2012
Economist Thomas Sowell in the May 22nd Townhall: