Money for Nothing, or Worse
By Robert Higgs
August 24, 2005
Suppose you picked up your Wall Street Journal one morning and saw an article on the front page with the following set
of headlines: “Ford Reports Its Current Models Have Been Bigger Busts than the Edsel; Ford Stock Soars 500 Percent;
Investors Dancing in Wall Street.” Then, turning to the editorial page, you found the editors expressing the view that
“in light of Ford’s announcement, Wall Street’s celebration is well warranted.” You’d be inclined to check the date,
wondering whether an April Fool’s joke was being played. Bad news normally does not elicit such gladness.
A real-life case of such a dissonant reaction appeared recently in the Journal, however, when the editors concluded in
their “Review & Outlook” column for August 17, 2005, that “we can celebrate a dramatically improved short- and medium-term fiscal
picture.” What aspects of that picture struck them as worthy of celebration?
Strange to say, they were reacting to the Congressional Budget Office’s release of its August 2005 “Budget and Economic
Outlook” update. This hefty report, the product of too many government statisticians equipped with too much computing
power, presents a number of budgetary and economic projections running as far out as 2015. Those extending more than six
months into the future are probably not worth the paper they are printed on, because they are based on manifestly false
assumptions, and those for the shorter term are scarcely any more valuable, because they tell us little more than what
we already know. One reasonably “hard” figure in all the tables and charts, however, the one that set off the Journal’s
celebration, is that federal revenues will be $262 billion greater in fiscal year 2005 than they were in fiscal year
2004. The Journal’s editors describe this change cheerfully as “the largest single-year increase in tax revenues in
American history.”
Truly, we have here a “man bites dog” story. All regular readers of the Wall Street Journal know that the editors
consistently support only two federal policies: first, bombing other countries; second, reducing federal taxes.
Bizarrely, however, the editors seem to take pleasure in the conjecture that “a large share of this year’s revenue
gusher is coming from higher than expected capital gains and dividend tax receipts” and therefore that “the lower tax
rates on investment income may have paid for themselves.”
Let’s see if I’ve got this straight. Last year I walked home from work each day with a dollar in my pocket, but before I
reached my door a mugger invariably accosted me and demanded 50 cents or my life, whereupon I paid him the 50 cents.
This year I walk home each day with two dollars in my pocket, and the mugger demands 75 cents, which I proceed to cough
up. But just think: I now make it home each day with $1.25 in my pocket, whereas last year I got there with just 50
cents. Thank heavens for this year’s lower effective tax rate of 37.5 percent, down from last year’s 50 percent.
Moreover, not only do I have more of my money left after the armed robber has come and gone, but the mugger also now
enjoys a “dramatically improved short- and medium-term fiscal picture.”
The Journal’s editors note that “tax revenue as a share of the economy is climbing back to normal levels,” from 17.5
percent of GDP this year toward the 17.9 percent postwar average. We all know that normal is good. Moreover, the federal
deficit “has also declined to close to its modern average” and will be approximately 2.7 percent of GDP in fiscal year
2005. Soon, if this movement persists, we’ll arrive at the wondrously normal levels of 2.4 percent next year and 2.0
percent in 2010, “even if the Bush tax rates stay in place.” The deficit would decline even faster but for the
“continuing spending orgy on Capitol Hill,” which the editors pause briefly to decry. Federal expenditures are galloping
upward by some 7 percent annually, as no doubt befits a nation with so many “unmet needs”—needs, that is, to keep the
most politically potent rent-seekers and freeloaders at ease by giving them more and more of the money other people have
earned.
Let’s get real. According to the CBO’s report, in the current fiscal year the U.S. government is gorging on some $2,142
billion of revenues, consisting of taxes, fees, charges, fines, and other species of extractions from the people’s
purses. This sum works out to approximately $7,500 for every man, woman, and child resident in this country, or $30,000
for a family of four average persons. Perhaps some of those people feel they are getting benefits worth at least this
much. I myself don’t have that feeling.
Nor am I pleased to know that this year the feds will extract an additional $910 for every man, woman, and child in the
country, compared to last year. To put the question in Reaganesque terms, Do you feel that the federal government is
giving you $910 more in benefits this year than it gave you last year? Or do you have that sneaking feeling that each
year the government transforms its increment of revenue into even more ways to squander your earnings and deprive you of
your liberties?
As I see the matter, the federal government ran out of useful and constitutionally warranted things to do sometime back
in the nineteenth century. Since then, federal politicians have been casting about for other things to do, regardless of
those projects’ economic justification or constitutional legitimacy. In the past seventy-five years, the politicos have
become diabolically good at locating such sinkholes for expenditures. They can’t take a step now without plunging into
one of them.
So desperate have the members of Congress become in their never-ending quest to outbid the rival charlatans running
against them for election that they have extended massive funding to such questionable projects as the military
obliteration of small, remote countries inhabited by brown-skinned people and the lavish support of wealthy retirees
ensconced in the condos of south Florida and Arizona. Methinks they may have gone too far.
Indeed, what the Wall Street Journal’s editors see as a cause for celebration may be instead a reason for righteous
indignation, or even for joining your neighbors in taking up pitchforks and heading for the District of Columbia to
clean out those Augean stables.
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Robert Higgs is Senior Fellow in Political Economy at The Independent Institute, author of Against Leviathan and Crisis
and Leviathan, and editor of the scholarly quarterly journal, The Independent Review.