Milton Friedman is
fond of reminding us that there’s no such thing as a free lunch. One
shouldn’t have to have a Nobel Prize in economics to grasp this basic concept,
yet unfortunately it does seem to require some common sense that is not particularly
Two items bring this to mind. During the most recent debate between
the Democratic presidential candidates, putative front-runner Howard Dean
reiterated his pledge to repeal every last bit of the Bush tax cuts offering
us this grand bargain: Go back to paying Clinton-era tax rates and your health
care is on Uncle Sam. This is pretty close to the opposite of the bargain
Libertarian Harry Browne offered voters during his 2000 presidential bid,
where voters would give up their favorite federal program in exchange for
never paying income taxes again. Which deal you prefer probably says
a lot about your philosophy of government.
Some of Dean’s opponents whacked him on the snout for proposing a tax increase
on the middle class. After all, a smart Democrat like Bill Clinton
would have only proposed to repeal the portion of the tax cut that went to
the richest 1 percent of income earners (I thought some of these Democratic
presidential contenders said that it all went to the top 1 percent at the
time they were voting against the tax cuts – never mind, I guess “fuzzy math”
is no longer politically expedient). Dean retorted that working families--that
is, the kind of families that liberal Democrats claim to represent in election
years and then promptly confiscate money from to bestow upon non-working
families once in office--would be happy to give up the $100 or so they got
from the Bush tax cuts if it meant they could have health insurance.
Dean is essentially saying two things here, neither of which is quite true.
The first is that the tax cuts were trifling little things that for the middle
class didn’t add up to much more than those $100 rebate checks. Senator
Joe Lieberman (D-CT) deserves credit for pointing out that the reduction
in the marriage penalty and other tax relief produced savings for many middle-class
families much bigger than $100. But secondly, Dean is implying that
the federal government can provide universal health care if the average family
just ponies up $100. It will in fact cost a lot more than that, as
a cursory glance at the tax rates paid by our Canadian friends (not to mention
in several leading countries of Western Europe) would indicate.
Socialized medicine is an appealing concept to a lot of Americans, even many
who realize that socialism doesn’t work, for obvious reasons. Workers
who don’t have health insurance, especially those with families, worry about
how to pay health care costs and lay awake nights wondering how they would
manage in the event of a catastrophic medical emergency. Those who
do have health insurance know too well that HMOs can be unpleasant to deal
with. In short, everyone realizes that there are flaws in the United
States’ current health care system and many believe, partly because this
is how it is done with varying levels of success in other industrialized
countries, that the best way to rectify them is through some type of government
Leaving the arguments for and against a more government-run health system
aside for the purpose of this discussion, this much should be clear: Government
can’t really provide free health care. The people will still need to
pay for it. This payment will merely take other forms (taxes, mandated
private expenditures that are little different from taxes, rationing, etc.).
But the bottom line is that the provision of health care costs money and
this is a reality that government can’t simply legislate away.
This brings me to the second item that reminded me of Friedman’s line about
free lunch. I watched a brief interview with a leading conservative
journalist. He was asked if he was concerned about the $480 billion
deficit. This journalist said no, he was not worried, because deficits
don’t really matter unless the government is in a position where it is likely
to default on the money it is borrowing. And he assured us that we
were a long, long way away from that.
It’s true that sometimes it is better to run a deficit than increase marginal
tax rates, depending on the financing costs and because the former might
have a less negative impact on the cost of capital and incentives to produce.
It is also true that deficit spending may be appropriate in such extraordinary
circumstances as wars and economic downturns, both of which we find ourselves
in now. Certainly, a string of $500 billion deficits is a small price
to pay to defeat the monsters responsible for the unprecedented attacks on
our soil two years ago and who are willing to contemplate more atrocities
on that scale.
Nevertheless, I thought that “deficits don’t matter” line to be rather cavalier,
especially for a conservative journalist. It was difficult to avoid
the impression that if one of the Democrats now running were president rather
than Republican George W. Bush, he would put a slightly different spin on
the subject. Government borrowing still takes money out of the economy.
Government spending financed by deficits rather than taxes still has to be
paid for by someone, possibly future generations whose tax burdens will be
determined in part by our profligacy today.
Indeed, to the extent that the $480 billion deficit is a misleading figure
to get worried about, it is only because it masks the true extent of the
fiscal problems that lie ahead. The federal government has assumed
a number of entitlement obligations that it will in coming years have increasing
difficulty paying for. These outstanding liabilities threaten to dwarf
the annual deficit figures. Lower tax rates do have a positive incentive
effect on the economy, but that doesn’t mean that government programs still
don’t need to be paid for. With marginal tax rates further away from
the Laffer Curve’s prohibitive range than during the Reagan years, this suggests
a conflict between low taxes and government growth that many of my conservative
compatriots are unwilling to contemplate.
At the risk of sounding like Ross Perot, Americans are faced with a bipartisan
refusal to deal with the fact that government programs aren’t free.
Too many Republicans believe it is fiscally responsible to continue growing
government as long as it is financed by deficits rather than taxes.
Too many Democrats define fiscal responsibility as taking as much of the
people’s money in taxes as politically possible and continuing to grow government
as long as the budget is balanced.
Neither approach is fiscally responsible in the long term. What is
needed is not higher taxes or more borrowing. It is less spending and
a rethinking of the proper role of government. The U.S. government
is trying to be an unlimited welfare state, a world policeman and a guarantor
of the liberty and security of the American people all at the same time.
Only one of these roles fits in with our federal government’s constitutional
purpose and only one is really a legitimate aim of government.
But all of them cost money. The American people need to decide how
much they are willing to pay and what they believe is most important to pay
for. The “all things to all people” approach may be politically appealing.
It is just not indefinitely sustainable. After lunch is over, the bill
W. James Antle III is a Senior Editor for EnterStageRight.com and a primary columnist for IntellectualConservative.com. He is a freelance writer from Boston, Massachussetts.