Tuesday, August 2, 2011

Government as Provider ... Bastiat's View

Frederic Bastiat, although he died in 1850, can still be counted on to deliver a direct, clear and insightful commentary about the relationship between individual freedom and government.

In For Love of Laissez-Faire, the new book "The Man and the Statesman" is reviewed. The book itself consists of a compilation of 209 of the economist's letters as well as several essays and related materials. I haven't read the book but wanted to share the review, since the book sounds quite interesting, especially now.

Regarding the relationships between individual freedom, economic growth and government's role as intermediary, Bastiat explains it all succinctly and clearly. The reviewer says that the title of one of Bastiat's essays (That Which Is Seen and That Which Is Not Seen) "might be the wisest 10 words in economic analysis". In that essay he makes it clear that rebuilding that which has been destroyed often adds nothing to economic growth.

However, the rebuilding effort isn't so perceived when we ignore how the money may have been spent "but for" the fact that it was spent on the rebuilding project. Analogously, if our money is taxed by government for whatever reason and purpose, we can't spend that very same money in the manner and on the things we would have otherwise chosen.

Therefore, what we would or may have done with our money, had it not been taxed by the government, is that which is not seen while what the government actually does with the money is what is seen. Such as "stimulus" funds acquired through taxing.

Here's another striking sample of Bastiat's clarity of thought about individual freedom and government's propensity to interfere as an expensive and frequently inefficient intermediary or redistributionist force. When writing about the 1848 French Revolution, he said the following:

"Poor people! How much disillusionment is in store for them! It would have been so simple and so just to ease their burden by decreasing their taxes; they want to achieve this through the plentiful bounty of the state and they cannot see that the whole mechanism consists in taking away ten to give it back eight, not to mention the true freedom that will be destroyed in the operation."

Let's translate. Government redistributes wealth created by its citizens by taking from some and giving to others. That is only a part of what government does, however. It also serves as an intermediary and that's what Bastiat meant when he said that it takes ten and returns eight. That process of taking ten and returning eight represents the cost of government and is an expensive act of redistribution.

To be fair, let's ask another question: In addition to its intermediary redistribution function, does the government add other meaningful value?

For example, does government invest and administer social security retirement savings better than individual citizens themselves could do, or those for hire in the private sector could do? I think not. In the administration of health care programs? Again, I think not. Public education through government schools? Same answer. I think not. Postal service? Hardly. Nursing home care? No.

Except for our general defense needs and for gathering funds to help out those individuals and families who need help but can't then help themselves, the conclusion is simple. The primary role of government should be to stay out of the way of its citizens and the free market economy.

Yet today total government spending amounts to almost 40 cents of each dollar the American citizens produce. In order to bring what Bastiat said up to date, today government now takes ten and gives back not eight but just six. That process of subtraction has substantial debilitating effects on our country's economic growth prospects, especially as our governmental debt load continues to grow exponentially.

All this means that big and disruptive change is ahead. The role of our government in relation to our citizenship rights and responsibilities needs to be updated. We the people are free to choose which path we'll follow, but choose we must. And soon, too.

This choice will not be solely or even mostly an economic issue. It will be about what kind of country we'll choose to be.

Bastiat's clarity of thought and expression can help us think through the various possibilities.

Thanks. Bob.

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