The State of George W. Bush
by Ari Armstrong, January 30, 2003
Once in a while, Dubya almost seemed to get it. Politicians should "show some spending discipline in Washington, D.C," he said. But then he turned around and said federal spending will increase -- yet again. Bush named numerous new spending programs, yet he did not mention even one program that should be scaled back, much less eliminated.
Sure, Bush wants to cut taxes -- but tax cuts without commensurate spending cuts are meaningless. Democratic Governor Gary Locke was painfully accurate in his response when he said Bush is leading the nation into "massive deficits."
Here's how it works. If the government takes in less but spends more, it has to borrow money to make up the rest. Where does that money come from? It comes directly out of investments that would otherwise be borrowed by market entities to buy new equipment, research, and education. Instead, the money is spent to pay a bunch of bureaucrats to file paperwork and to fund whatever projects the kleptocracy happens to like.
It would be far better to increase taxes and cut spending than vice versa. Then the government would be paying back the debt, and these funds would immediately free up resources for capital formation. But of course this is a hypothetical only; any tax increase would be instantly sucked up by the political class. Given political realities, tax cuts are desirable because they might put a little restraint on runaway spending increases. Tax cuts obviously have no such effect on Bush.
Bush repeated the Republican mantra that a growing economy means a larger tax base. "More jobs mean more taxpayers," Bush said. But this view is repugnant. It views American citizens as little more than sheep. More sheep, more wool for the masters. But the point of a growing economy is not to provide politicians with more money. The government exists to serve the people, not the other way around, and just because people are making more money doesn't mean the government should tax more.
I rather like Professor George Reisman's idea to freeze government spending in absolute terms and give the economy a chance to outgrow its political encumbrances. Better yet would be real spending cuts (not just cuts in projected increases). Religiously inclined commentators have pointed out that God Himself asks only for a tithe, or 10 percent of our income; so why do politicians think they are entitled to five times that much? It would be a big step in the right direction to establish the notion that government at all levels should not tax (or spend) more than 10% of any individual's income.
The Libertarian Party nicely sums up Bush's new spending proposals in a January 29 release:
The presidential wish list included $400 billion for prescription drug coverage for seniors; $600 million to remedy drug addiction; $6 billion for vaccines against bioterror attacks; $1.2 billion to fund government research into hydrogen-powered cars; $450 million to mentor children; and millions to hire more "citizen volunteers" for the USA Freedom Corps and to continue Bush's "faith-based initiative" to funnel tax money to churches and charities.
Of course, the programs Bush mentioned are worthy causes. The AIDS epidemic in Africa is frightening and heart-wrenching. But once you decide charity is a proper function of the government, there's no way to draw the line. There is simply no limit to the number of worthy causes.
And there is also no coherent argument against letting individuals fund charity the way they think best, in the free marketplace. The advocates of statist welfare invariably cry, "But people just won't fund charity if the government doesn't force them to!" Besides being counter to history, this view is elitist. What it really means is, "Unless I force them to, people won't give as much money as I want to the projects I support."
There is the free-rider problem, in which an incentive exists to let other people fund worthy projects. But this incentive is generally overcome by other incentives stemming from good will and the desire to be regarded as charitable by others. And, as the Public Choice economists note, free-rider misincentives are endemic to political action, which is one reason the government wastes so much of the money it takes in.
Though it's hardly worth mentioning in the modern political climate, the U.S. Constitution prohibits the federal government from participating in welfare. Regardless, welfare -- state-sponsored charity -- is never appropriate. Voluntary charity is morally virtuous and more effective at helping those truly in need without creating a dependent class.
Double Taxes on Dividends
Bush prudently called for an end to double taxation on stock dividends. (I would go further and suggest it's never appropriate to tax both business profits and the personal income derived from it.)
John Berlau wrote an excellent essay for Insight Magazine explaining some of the harmful consequences of double taxation.
Because dividends are taxed a second time, Berlau writes,
corporations have been given a government incentive to retain earnings and leave shareholders to reap any gains when they sell the stock. This produces all kinds of economic distortions. For one thing, the tax on dividends encourages companies to go into debt because interest payments are tax deductible, while dividend payouts are not... If dividends were not taxed, [Bruce] Bartlett and others say, companies could raise money by issuing more shares rather than borrowing. Another big effect of the double tax is that it "distorts the incentives of corporate management," Bartlett says. "It encourages them, when they have profits, to use that money for things that are not necessarily in the shareholders' interests. For example, buying other companies, rather than giving that money back to the shareholders."
Thus, double taxation leads to inefficient mergers and concentration of industry. A repeal of the double tax would benefit smaller, more entrepreneurial companies. Berlau also notes the double taxation also weakens the incentive for stock holders to keep a keen eye on the year-to-year book-keeping of their corporations, as the dividends are less valuable with the tax, and this encourages corrupt accounting practices.
Ending the double tax would have an immediate beneficial effect on business, if other things remained the same. But increased deficit spending will offset that gain.
I was surprised to hear Bush again call for individual retirement accounts in the context of Social Security reform. But I have long been an opponent of these mandatory, regulated accounts. Instead, people should be allowed to opt out of the system completely. No more tax, and no benefits. Any short-term shortfall should be funded by cutting other government programs.
Bush wants a nationalized alternative energy program focused on hydrogen-powered cars. Yet businesses working on the free market are certain to find alternatives to petroleum on their own -- whether or not the alternatives involve hydrogen. All Bush's corporate welfare program will do is steal funds from more valuable uses and direct them to less valuable ones.
Bush promised to continue to support the prohibition of certain drugs, though he did make some overtures to reform. He spoke of the "miracle of recovery," and he spoke of "a more welcoming society." I guess on some level Bush thinks it's better to treat drug users than to put them in cages or kill them. That's definitely a step in the right direction. However, it is not the government's job to fund treatment. It is the job of voluntary charity and individual drug addicts.
It was nice to hear Bush mention some place other than the Middle East, though he spent a lot of time promoting war with Iraq.
At least Bush took the right approach, whether or not his arguments and facts are correct. If American troops invade Iraq, it should be to protect American citizens from physical harm. It is, after all, the appropriate task of government to defend individuals' rights from violent aggressors, according to standard libertarian theory.
War with Iraq is justified, or not, regardless of the motives of those who support or oppose the war. True, many who support the war do so from questionable motives. Some Protestants literally believe that by helping Israel we will hasten the return of Jesus Christ. Others seem driven by a bar-fight mentality, as if kicking Saddam's ass would prove Americans are real men. Some really do care most about the oil. But none of this is relevant. The argument, "My opponents are wrongly motivated, therefore I'm right," is invalid. If going to war with Iraq would likely prevent American citizens from being murdered, then war is probably justified, regardless of the motives of some who support the war.
Similarly, many who oppose the war also have unusual beliefs. Some pacifists believe violence is never justified, even in self-defense. Some anti-war activists really do hate America, they hate industry and technological progress, and on some level they sympathize with the terrorists. However, this does not mean the war is justified. If attacking Iraq would be ineffective or counterproductive, then Americans should not go to war, regardless of the motives of some who oppose it.
Bush pointed out the obvious: Iraq has developed chemical and biological weapons. That doesn't automatically mean American citizens are at risk from these weapons, though. Again, I thought the LP made a pretty good point:
"What Saddam values above all else is his own survival, and he knows that attacking the United States would lead to a devastating counterattack and the loss of his own life," Neale said. "Moreover, Saddam had the opportunity to douse U.S. troops with such weapons during the Gulf War, and declined. So we can assume that he was deterred by the same thing that would deter him in the future: the belief that he would be obliterated by the U.S. response."
A more realistic fear is that Saddam will use his weapons if he is attacked.
The more serious problem is the possibility that Saddam will pass on nuclear, chemical, or biological weapons to terrorists, who will bring them into the United States. If that threat is real, it is obviously quite serious, and probably a justification for war.
I suppose we will see whether Bush has any real evidence showing a link between Iraq and al Qaeda. Of course, an American attack might give Saddam the inclination to pass on his weaponry to those who can use them against American citizens.
The question of whether war with Iraq is justified is an empirical one. Is Saddam actually a threat? Will military action against him successfully disarm him? Might the next leader of Iraq be even worse? Could military action further destabilize the Middle East? Would military action encourage more terrorists to attack America? Let us not forget the U.S. used to support Saddam. American foreign policy seems to be largely a series of unintended, bad consequences.
Whether or not war with Iraq is justified, and whether or not the U.S. goes to war with Iraq, we should still consider the libertarian and old-right approach to foreign policy: send troops abroad only to fight defensive wars. Trade with all, interfere with none. Yes, radical, anti-West Muslims would still hate America regardless of her foreign policy. Yet a meddlesome foreign policy might still encourage terrorists. Given the terrorist attacks, it is appropriate to hunt down the terrorists. But that doesn't mean we should ignore policy changes that may make future terrorist attacks less likely.
I agree, though, that libertarians have yet to work out a complete foreign policy. If it's right to help your neighbor in distress, if it's right to save a stranger down the street from violence, isn't it also morally acceptable to save somebody further away? I think it's the responsibility of the U.S. government to protect U.S. borders and U.S. citizens. But that doesn't mean voluntary organizations can't pursue their own foreign policy goals, within prudent limits.
The most pressing foreign policy goal is to somehow encourage the peaceful, tolerant, modernist strains of Islam worldwide, and discourage the violent strains. Christianity and other religions have also had violent adherents. In the past, the Islamic world has been the height of human civilization. Surely it is possible to renew those values. I don't know how this goal might be accomplished. I have more faith in voluntary institutions than the U.S. government, though, when it comes to such projects.
At one point, Bush said some critics of the war claim the threat from Iraq is not "imminent." But, Bush responded, terrorists don't announce their intentions, so it is important for America to act before the fact. I do not find Bush's line of argument convincing. After all, it would imply America should attack a large minority of the nations on earth, for many of them are potential threats. Many nations could potentially support terrorists. There has to be some reasonable standard to distinguish an "imminent" threat from a distant one.
I find it interesting that many conservatives deride the "precautionary principle" when it comes to environmental policy, yet they invoke it when it comes to war with Iraq. As a general principle, if we permit government to act because it might do some good, there is no limit to state power. We need to set the bar quite a bit higher than that, or the government will do more harm than good.