Richard M. Ebeling
– August 10, 2021 @ American Institute for Economic Research
Rightly, much is being made about the size of federal government spending and the annual budget deficits, along with the projected resulting growth in the national debt over the next ten years. But a real and more serious deficit is to be found in the lack of sound and serious thinking and debate about the growing size and scope of government in America, because it is the latter that is the fundamental cause behind the fiscal and monetary madness that we are experiencing.
In the current 2021 federal government fiscal year that closes at the end of September, Uncle Sam’s total outlays are projected to come to $6.85 trillion, with total tax revenues of $3.83 trillion, and a budget deficit of over $3 trillion. The Congressional Budget Office (CBO) anticipates that for seven of the next ten years federal spending will exceed federal revenues by $1 trillion. This will push the national debt from its current $28.5 trillion to nearly $40 trillion.
In the 2021 fiscal year, federal spending will equal 30.6 percent of the U.S. Gross Domestic Product (GDP), and federal taxation will be 17.2 percent of GDP, making this year’s budget deficit equal to 13.4 percent of GDP. State and local government expenditures in 2021 are coming at over an additional $3 trillion. So, combined, all levels of government in the U.S. are absorbing almost $10 trillion, or nearly 45 percent of the nation’s GDP.
If the CBO’s projections are more or less accurate (and they often underestimate what the government’s fiscal future holds in store), over the next decade federal government spending will average between 21 and 23 percent of GDP, and taxes will come to between 17 and 18 percent of GDP. For most of the next decade, again if the CBO is correct, the annual budget deficits will average between four and five percent of GDP. By 2031, the publicly-held national debt will be equal to 110 percent of GDP, and half of the money that government borrows that year will be to just pay the interest owed on all the accumulated debt. (See my article, “More Government Debt as Far as the Fiscal Eye Can See”.)
From Smaller Government to Big Spender
For a point of comparison, about 100 years ago, in 1920, federal expenditures were only 6.2 percent of GDP, while federal taxes were 6.7 percent; that is Uncle Sam ran a noticeable budget surplus for that year. State and local expenditures in 1920 totaled 5.2 percent of GDP, for a total of all government spending that year equaling 11.4 percent. While this may seem to be very small in comparison to now, those 1920 numbers were significantly larger than less than a decade earlier. In 1913, both federal expenditures and tax revenues only came to 2 percent of GDP; while state and local governments absorbed about 5.5 percent of GDP, for a total government take of only around 7.5 percent of Gross Domestic Product!
Much of the tripling of Uncle Sam’s take of GDP between 1913 and 1920 was due to the huge increase in government spending, taxing and borrowing during America’s participation in the last year and a half of the First World War in Europe (1914-1918). This had been helped along with the 16th Amendment to the Constitution in 1913 that introduced a national income tax and the Congressional chartering the same year of the Federal Reserve System, which facilitated a good part of the war spending through monetary expansion made possible with America’s new central bank.
America was not alone in having governments of far more modest size than today. In 1913, the year before the beginning of World War I, the British government spent 9.4 per cent of U.K. GDP, while in France that percentage was 17 percent, and in Imperial Germany it was 18.8 percent of their respective Gross Domestic Products.
These percentage numbers of government spending relative to GDP may seem noticeably higher than that of the U.S in 1913. But recall, each of these European governments also had worldwide empires to run in a way that the United States did not, even after the Spanish-American War of 1898, which transferred the Philippine Islands and other smaller territories over to U.S. jurisdiction. However, compare those 1913 numbers to 2020, when for the U.K., France and Germany, government spending as percentages of their respective GDP came to 52.2 percent, 62.1 percent, and Germany, 51.5 percent! The modern domestic welfare state is clearly far more expensive and fiscally burdensome than were those worldwide empires of the past.
A Time When Individuals were Not Bothered by the State
It is difficult, I think, for most of us to even imagine how inconsequential government really was in people’s lives, at least at home, in these Western countries not much more than a century ago. Of course, even before the First World War, the modern welfare state was gaining footholds in these nations, but even with this, and especially in the United States and Great Britain, most people, to use the happy phrase of the British laissez-faire liberal, Herbert Spencer (1820-1902), could go through their daily lives and pretty much “ignore the state.”
An imagery of that world before 1914 was offered by British historian A. J. P. Taylor (1906-1990), no doubt with some exaggeration, in the opening pages of his English History, 1914-1945 (1965):
“Until August 1914, a sensible, law-abiding Englishmen could pass through life and hardly notice the existence of the state, beyond the post office and the policeman. He could live where he liked and as he liked. He had no official number or identity card. He could travel abroad or leave his country forever without a passport or any sort of official permission. He could exchange his money for any other currency without restriction or limit. He could buy goods from any country in the world on the same terms as he bought goods at home. For that matter, a foreigner could spend his life in this country [Great Britain] without permit and without informing the police. Unlike the countries on the European continent, the state did not require its citizens to perform military service… Substantial householders were occasionally called for jury service. Otherwise, only those helped the state who wished to do so.”
Taylor did point out that already before the First World War the British government did impose a variety of regulations for purposes of food and health safety, legislated mandatory public education on the young, instituted a number of rules on hours and work conditions in the labor market, and was beginning to implement features of what later became the British welfare state of today. “Still, broadly speaking, the state acted only to help those who could not help themselves,” he stated. “It left the adult citizen alone.”
This all changed with the coming of the First World War. Said Taylor:
“The mass of the people became, for the first time, active citizens. Their lives were shaped by orders from above; they were required to serve the state instead of pursuing exclusively their own affairs. Five million men entered the armed forces, many of them (though a minority) under compulsion. The Englishman’s food was limited, and its quality changed, by government order. His freedom of movement was restricted; his conditions of work prescribed. Some industries were reduced or closed, others artificially fostered. The publication of news was fettered. Street lights were dimmed.
“The sacred freedom of drinking was tampered with; licensed hours were cut down, and the beer watered by order. The very time on the clocks were changed. From 1916 onwards, every Englishman got up an hour earlier in summer than he would otherwise have done, thanks to an act of parliament. The state established a hold over its citizens which, though relaxed in peacetime, was never to be removed and which the Second World War was again to increase. The history of the English state and the English people merged for the first time.”
The same pattern happened in the United States, with government power extending itself over American everyday life. Price, wage and production controls and central planning were imposed on every facet of the economy in the name of winning the war and making the world safe for democracy. Government war propaganda and press censorship compulsorily controlled the words and images seen by every citizen.
Critics of the war effort, sometimes for the most minor verbal public expression of disagreement, were subject to arrest and imprisonment. Surveillance of the citizenry and informers watching their neighbors became part of daily existence. Nearly three million of the almost five million young Americans who served in the U.S. armed forces during the war had been forcibly conscripted – “nationalized” – by the government to fight in a war in which no foreign country had attacked the United States before America’s entry into the conflict. The Woodrow Wilson Administration basically collectivized the entire country as part of the war effort.
Many in America thought that things had returned to “normalcy” in the 1920s. But the coming of the Great Depression at the end of the 1920s and the early 1930s demonstrated that things were far from being so. But what made the turn toward political, economic and social collectivism in America a seemingly permanent trend for the remainder of these last one hundred years was the coming of Franklin D. Roosevelt’s New Deal.
The governmental policies of war planning and central control that were imposed in 1917 and 1918 became the backdrop to the mindset and the policies introduced by FDR starting in 1933 with the implementation of the New Deal. Sociologist and historian, Robert Nisbet (1913-1996), explained this well and clearly in his book, The Present Age (1988):
“[FDR] had served Wilson as assistant secretary of the navy in World War I, and had been thrilled by Wilson personally and by certain aspects of the War State. It is interesting to speculate on what form of American response to the depression of the 1930s would or might have taken had it not been for the legacy of government planning and regimentation left by the First World War…
“The response made by FDR and his chief aides… was simply a revival of structures and relationships which had characterized the Wilson War State. With altered names, many of the same production, labor, banking, and agricultural boards of World War I were simply dusted off, as it were, and with new polish set once again before the American people. This time the enemy was not Germany or any foreign power but the Depression; this did not, however, prevent Roosevelt from literally declaring war on it and likening himself and his associates to a ‘trained and loyal army willing to sacrifice for the good of a common discipline’.”
American industry was conscripted into government mandated cartels as part of the National Industrial Recovery Administration (NRIA) that set prices, wages, and production targets; American farmers were placed under the command of the government through the Agricultural Adjustment Administration (AAA), with its power to determine crop sizes, animal herds, and the prices of all that was supplied by the farming community. Grandiose public works projects of road building, dam construction, regional electrical programs (TVA), and huge budget deficits and central bank money creation were used to “stimulate” economy-wide demand and artificially push up prices and profits and employments. The welfare state was planted with government-mandated Social Security and health care programs, along with public housing projects, and unemployment insurance. Plus, the Roosevelt Administration used a host of propaganda campaigns to rally the people to loyally accept and go along with this new central planning role of government.
Collectivism Came to America and People Passively Followed
Individuals, communities, and states were all submerged within and aggregated into nationalized tasks under government direction. This aspect to the nature and legacy of the New Deal was also emphasized by Robert Nisbet:
“The New Deal is a great watershed not only in twentieth-century American history but in our entire national history. In it the mesmerizing idea of a national community – an idea that had been in the air since the Progressive era… had come into full but brief existence in 1917 under the stimulus of war – was now at long last to be initiated in peacetime as a measure to combat the evils of capitalism and its ‘economic royalists’…
“[FDR] once explained the New Deal’s ‘drastic changes in the methods and forms of the functions of government’ by noting that ‘we have been extending to our national life the old principle of the local community’… Without doubt the idea of national community burns brightly in the American consciousness at the present time. Initiated by President Roosevelt, the idea has been nourished, watered, and tended in one degree or other by each succeeding president… the national state, the centralized, collectivized, and bureaucratized national state…”
The significance of this political and economic transformation was understood by some at the time. For instance, the noted American journalist, Walter Lippmann (1889-1974), emphasized that what was happening in the United States were not policies for a temporary emergency, but, as he said in the pages of the June 1935 issue of Yale Review, the establishment of a “Permanent New Deal.” In fact, said Lippmann, it was initiated by Republican president, Herbert Hoover, with the coming of the Great Depression in the autumn of 1929 and was simply magnified and intensified with FDR’s New Deal planning, regulating and redistributing policies beginning in 1933. Explained Lippmann:
“The policy initiated by President Hoover in the autumn of 1929 was something utterly unprecedented in American history… It was Mr. Hoover who abandoned the principles of laissez faire in relation to the business cycle, established the conviction that prosperity and depression could be publicly controlled by political action, and drove out of the public consciousness the old idea that depressions must be overcome by private adjustment…
“Only those who have forgotten the inclusive and persistent experimentation before March 1933, can, I think, fail to see that most of [FDR’s] recovery program is an evolution from its predecessor’s program; and that there is a continuity of principle; and that both programs are derived from the unprecedented doctrine that the government is charged with responsibility for the successful operation of the economic order and the maintenance of a satisfactory standard of life for all classes of the nation…
“Did any previous American president suppose that it was his duty to tell farmers and businessmen and bankers, debtors and creditors, employers and employees, governors and mayors, what to do in order to restore prosperity, or that he had a right to draw upon all the powers of government and the resources of the nation?”
What most surprised Lippmann was that with such a large increase in the size and scope of government in the U.S., “Yet when the change occurred, there was almost no comment. Hardly anyone raised his voice in challenge on the ground of the individualistic tradition or the accepted limitations of the federal power.”
There were voices, in fact, who raised questions and criticisms, especially following the even more concentration of federal control and planning after FDR took office in 1933, but nonetheless most Americans and almost all of the policy and press media pundits either acquiesced or strongly endorsed the president’s near dictatorial hand with the fascist-like economic planning institutions of the early New Deal. (See my article, “When the Supreme Court Stopped Economic Fascism in America”.)
Presidential Discretion in Going to War
The same pattern of acceptance of centralized power and decision-making grew out of the Second World War. So strong was the public sentiment for the United States to stay out of the wars in Europe and Asia before the Japanese attack on Pearl Harbor on December 7, 1941, that when Roosevelt ran for his unprecedented third term as president in 1940, he had to loudly and repeatedly assure the American voters that he would do all in his power to keep the U.S. neutral and out of war.
Of course, almost all historians now admit and detail the various ways FDR aggressively did all in his implicit authority to plan for and get the United States into the war against Nazi Germany and Imperial Japan. The fact that Roosevelt violated or at least skirted neutrality laws passed by Congress and sometimes earlier signed by him to restrict America from being dragged into foreign conflicts, and that he went far beyond his traditional Constitutional prerogatives in pushing for war is not even considered an important historical event anymore.
It is now presumed that for all intents and purposes if a president considers some foreign conflict to be in some way “vital” to American interests or concerning “humanitarian” matters that “America cannot ignore,” then he has fairly wide discretion to enter such a conflict in some way, shape or form, and only later officially and fully inform Congress and arrange for needed appropriations to fund the foreign intervention.
LBJ’s Great Society Hubris at Home and Abroad
What FDR began, Lyndon Johnson continued with the Great Society programs of the second half of the 1960s. Arrogance and hubris dominated the domestic and foreign political paternalism of those in the Johnson Administration. The “whiz-kids,” as some of his cabinet members and policy advisors were called, believed that they could micromanage a war in Vietnam, 10,000 miles away from the United States, through strategically planned “escalations” of bombings, battles, and population resettlements to win over the hearts and minds of the Vietnamese – with abject failure on all counts.
At home LBJ initiated metaphorical “wars” meant to defeat poverty, illiteracy, racism, and inequality. As economists like Thomas Sowell have demonstrated, as in his book, Discrimination and Disparities (2019), from the history of America before and after the implementation of the Great Society agenda, the effects of many of these centrally planned programs for achieving a “social justice” utopia have been to make the circumstances of many worse than before in “minority” communities, or at least to slow down the improvements in income, social status, and family life that were being experienced by many Black Americans before the introduction of the political paternalisms of the Johnson presidency. (See my article, “Why the Social Engineers of the Sixties Failed to Make a ‘Great Society’”.)
Rhetoric of Less Government and Reality of Bigger Government
In retrospect, the 1980s and 1990s were a period of ideological delusion for many friends of liberty. The Reagan and Clinton years created the impression that personal freedom and limited government were possibly making a comeback. Reagan’s often eloquent rhetoric and captivating humor in which he preached about liberty and satirized communists, socialists and others on “the left,” was summed up in his often used phrase that, “Government is the problem, not the solution.” Plus, Bill Clinton’s declaration that the era of Big Government was over, due to his stalemate with a Republican-controlled Congress for most of his presidency that saw several years of modest federal budget surpluses, made it seem that, maybe, the tide might have turned away from increasing political paternalism and governmental control. (See my article, “The Lasting Legacy of the Reagan Revolution”.)
But that was shown to be really wrong in the 21st century under the George W. Bush, Barack Obama, Donald Trump, and, now, Joe Biden Administrations. When Ronald Reagan left office in 1989, the national debt stood at $2.8 trillion (it had been less than a trillion dollars when he entered the presidency in 1981, for a 286 percent increase). It rose by 57 percent, to $4.4 trillion, when George H. W. Bush left the White House after one term in 1993. It went up more modestly by “only” 31 percent during Clinton’s two terms, to $5.8 trillion at the start of 2001.
But under George H. Bush’s eight years in office from 2001 to 2009, the national debt grew to $11.9 trillion (a 205 percent increase), and reached $20.2 trillion when Obama left after two terms in early 2017 (a 70 percent increase). During Trump’s four years as president, the debt increased to $27 trillion (a 34 percent increase). And with less than eight months in the White House, the national debt stands at over $28.5 trillion under Joe Biden – and growing.
Government Regulation and Presidential Discretionary Power
A little over one hundred years ago, say in 1910, there were virtually none of the current government bureaus and agencies that today hamstring the private sector with a spider’s web of regulations and restrictions. But today, according to the Competitive Enterprise Institute (CEI), compliance with federal government regulations costs the private business sector at least $1.9 trillion.
As the CEI points out in its 2021 edition of its annual Ten Thousand Commandments Report, this is almost equal to all the personal income and corporate taxes collected by the U.S. government. Or another way of looking at this burden of government regulation, if this $1.9 trillion represented the GDP of a separate country it would rank as the eighth largest economy in the world.
It has not mattered who is residing in the White House or which major political party has control of the two houses of Congress. The end result has been the same: arrogated and arbitrary presidential power and legislative spending sprees. Barack Obama assured those in Congress, and the citizens of the country, that if he did not get his way with legislation that he wanted to see implemented, well, he had a phone and a pen, and he would simply sign off on executive orders to get what he wanted done.
Donald Trump was no different in asserting his power and authority to bully businessmen to invest and employ workers where he thought it was good for America, and initiating trade wars that he said were “fun” and easy to win; and he even insisted that it was his job to “run” the country, including in 2020 during the beginning of the Coronavirus crisis, captured for weeks on end in his daily televised tirades on how he was in control of all aspects of the response to the pandemic. (See my articles, “Mr. President: Please Mind Your Own Business” and “Presidential Hubris: Let Me Run the Country” and “The U.S. Revives the Personal State”.)
Coronavirus Crisis and Dangerous Political Precedents
The Coronavirus crisis has set dangerous precedents for an even more discretionary and controlling government. The federal and state governments took over de facto control of practically all economic decision-making and social interactions. The American people were commanded and ordered to stop almost everything they were doing – don’t produce anything but what the political authorities declare to be “essential” items; do not go to work, except in those industries considered essential by politicians and their “experts”; stay at home, and only go outside for “essential” shopping for food or medical supplies; shut down your “nonessential” retail business of practically every type. Wear that mask and stay six feet away from others.
Many “essential” and “nonessential” goods, not surprisingly, disappeared from retail stores, with panic buying setting in. Governments instituted or threatened price controls to prevent “price gouging” at a time of “national crisis,” which, of course, only exacerbated the short supplies and the desperate search for everyday items by consumers.
Output fell, unemployment rose, people’s incomes dramatically went down or went to zero. The first truly American government-made and mandated economic collapse impacted the entire country. And like during the Great Depression years of the early 1930s, most Americans silently, passively, and obediently followed what the government told them to do. The increasing pockets of resistance or opposition to these near totalitarian policies are viewed by those in political power and in most of the media as “kooks” and ideological “extremists” not willing to “follow the science.”
Every future declared health crisis can become a new reason and rationale to impose lockdowns and shutdowns, order everyone to wear a mask and stay “x” number of feet away from those around you, command people to stop working and stay at home, mandate vaccinations, and justify dictating where, what, and when private enterprises may produce and sell, and at what prices. (See my article, “War and ‘Following the Science’ are Sure Paths to Tyranny”.)
Biden Ignores the Constitution and Tells People What to Drive
Biden is also adding layers to the arbitrary powers of the presidency. His latest decision to prolong the moratorium on rental evictions through the Centers for Disease Control and Prevention (CDC) is an example of this. Even though a few days before he publicly said that he did not have the Constitutional authority to extend such a moratorium, merely because of the political pressures from within his own party and “progressive” circle, Biden said he would, based on the uncertain advice of a constitutional lawyer who shares Biden’s political views.
If the Supreme Court overturns his executive decision later on, as has been suggested might happen, well, that is likely to come long after the moratorium had served its political purposes. What was it that John Maynard Keynes once said? “In the long run we are all dead.” So what if the Constitutional order and the division of restrained powers between the three branches of government are weakened and made to seem as even more irrelevant than is already the case? Politics is about expediency, not principles, according to Joe Biden and most of his presidential predecessors for a very long time.
In addition, Joe Biden has decided what types of automobiles we should drive in the years ahead. He is instructing the appropriate regulatory agencies to see to it that by 2030, 50 percent of all new cars sold in America will be electric-powered vehicles. “There’s a vision of the future that is now beginning to happen, a future of the automobile industry that is electric — battery electric, plug-in hybrid electric, fuel cell electric,” Biden said at the White House.
When he says, “there is a vision,” he means his vision and that of the opponents of fossil fuels, and not necessarily you and me. Is the future one of electric cars? It may very well be; but in a free society, this would be decided by the competitive and voluntary interactions of consumers and producers in the market for automobiles. It would be the result of entrepreneurial innovations that devised ways of making such electric cars cost-efficient, convenient, and attractive to automobile buyers, without government commands, controls, or subsidized “nudges” into the directions those in political power desire rather than “we, the people,” through our own market decisions.
In addition, it certainly could be a big nudge if any infrastructure or later Congressional bill contains federal government authority to tax each and every one of us based on the number of miles we drive our cars for any and all purposes, to feed the political establishment’s insatiable appetite for our income and wealth, and to further the ideological agenda of the climate central planners who want to get us out of our cars and into less convenient and more time consuming “public” mass transportation. (See my articles, “Biden’s Agenda of ‘Democratic’ Paternalism and Planning” and “The Paternalist Instincts of a Central Planner” and “Under Biden Free Enterprise Means Government Control”.)
We are running headlong in the direction of a far more comprehensive paternalistic state, and farther away from a world in which government would basically leave us alone in our peaceful and voluntary actions and activities with our fellow human beings.
A. J. P. Taylor may have exaggerated when he said, as was quoted earlier, that there was a time not really that long ago when a person could go through his entire life and only come into contact with the state in the form of the postman delivering the mail, the policeman walking his neighborhood beat, and an occasional call from the courts for jury duty. But it reflects the imagery of a free society of free men going about their peaceful and freely associating business, both inside and outside of the free marketplace.
However, if current trends continue in the present direction for too long, the potential and possibility for liberty may be irreparably lost. We need to remember and to forewarn others that liberty is far easier to lose than to be successfully and fully regained once it is lost.
Richard M. Ebeling
Richard M. Ebeling, an AIER Senior Fellow, is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel, in Charleston, South Carolina.
Ebeling lived on AIER’s campus from 2008 to 2009.
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