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A Classical Liberal State Spends for Public Goods, Not Free Lunches

In the coming weeks Washington faces another budget showdown between Democrats and Republicans in Congress and then between Congress and the President. Sadly, whoever wins or whatever compromise is struck, the federal budget will remain not only bloated but grotesquely misshapen.

The reason is that the debate concerns only cutting discretionary spending, not reforming entitlements. Yet entitlements are the primary drivers of ever increasing spending.  In contrast, discretionary spending can generate public goods that aid long-term prosperity.  An economist would define the essence of a public good as one from which individuals cannot be excluded and where the use of the good by one individual does not prevent use by another.

National defense is the paradigm case of a public good.  Scientific knowledge is another. Given that such goods provide benefits which for which the provider cannot receive remuneration, they will be undersupplied. And some kinds of infrastructure goods with lots of positive spillovers also are likely to be undersupplied, even if they do not quite meet the definition of a public good. The primary fiscal focus of the classical liberal state should be on the creation of such goods, because neither the family nor the market will do so in sufficient quantity.

Not all federal discretionary spending supports these kinds of goods, but a good deal does. For instance, spending for the NIH is declining, despite very substantial evidence that it pays off in longer and better life for citizens.

Entitlements and interest on the national debt have been crowding out such beneficial spending.  One of the most troubling trends is the ever smaller portion of the budget available for spending on such public goods. The Steuerle-Roeper index of fiscal democracy measures the percentage of revenues not allocated by previously elected officials to mandatory programs, like Social Security and Medicare and interest on national debt, and the share of public good spending has been decreasing over time, not only in the United States but in almost all other industrial democracies.

We may need constitutional reform to help change the budget’s shape. For instance, we could impose supermajority requirement on entitlement spending, but not on public goods spending.   Fiscal supermajority rules are a neglected element of the toolkit of classical liberal constitutionalism.

Some might think that the substitution of the welfare state for the public goods state is justified by the gains to equality from government transfers. Bu if this were ever the case, the argument is weaker than ever before. Most entitlements do not go to the poor but to the elderly who are well-off as a class. In contrast, public goods spending on science extends lives and life extension is egalitarian by nature since everyone has only one life. More generally, basic science is a spur to technological innovations. These innovations fall rapidly in price and redound to the benefit of the great majority, as have cell phones and internet access. The federal government should stop trying to provide a free lunch for some and help create free and less expensive stuff for everyone.

Reader Discussion

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on September 12, 2015 at 12:43:51 pm

John--

I much agree with the argument you advance here regarding a proper governmental focus on public goods in a liberal society.

A caveat: you quite correctly note that today the elderly are, comparatively speaking, wealthy. This was not always the case. A recent essay from Pew correctly notes:

"Far fewer elderly are poor: In 1966, 28.5% of Americans ages 65 and over were poor; by 2012 just 9.1% were. There were 1.2 million fewer elderly poor in 2012 than in 1966, despite the doubling of the total elderly population. Researchers generally credit this steep drop to Social Security, particularly the expansion and inflation-indexing of benefits during the 1970s."

http://www.pewresearch.org/fact-tank/2014/01/13/whos-poor-in-america-50-years-into-the-war-on-poverty-a-data-portrait/

So if we introduce an appreciation of historical trends to your analysis, it is not at all clear that entitlement programs have been ineffective. Your comment reflects the historical success of social security, not a failure.

It is entirely reasonable, in a society that appreciates the moral value of work, to expect adults capable of work to make every effort to support themselves. Of course, most adults who are poor are working. But even so, the moral issue is how we as a society care for those who can not work. The elderly are one such group. Children are another. It is also worth noting that most adults who are poor are also employed. The moral imperative to expect adults capable of working to do so breaks down to some degree when there is insufficient quality work in society. An underlying assumption in much of the discussion from those critical of entitlements is that there is adequate economic opportunity available in our economy, such that most adults can make an adequate living.

All best,
Kevin

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Kevin R. Hardwick
on September 14, 2015 at 10:27:44 am

I. Social Safety Net in general: It is unclear to me that the social safety net does not qualify as a public good. Such programs do the following:

1) Transfer wealth to those in need (arguably a private good in itself).

2) Reassure all that if they fall into need, there will be resources for them, too. I argue this reassurance is a public good, providing general physic benefits. Moreover, to the extent that it encourages more risktaking, and many of the benefits of risktaking are socialized, it provides a more tangible public good.

3) Reduce the amount of poverty most of us see. Rightly or not, most people (libertarians excluded?) feel compassion for the less fortunate. We can reduce the discomfort we feel about the less fortunate by a) helping them and b) removing them from our consciousness. Zoning and immigration limits do much to achieve the second objective, but we’re still left with the first.

In short, social safety nets create a better society from which no individual member of the society is excluded, where the benefits that an individual enjoys be living in that society in no way impair the benefits enjoyed by her neighbor. That’s a public good.

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nobody.really
on September 14, 2015 at 10:28:44 am

II. Social Security in particular: True, today Social Security tends to write checks to the relatively affluent. But it also taxed the relatively affluent. Taken as a whole, I believe FICA + the programs it funds are progressive.
It is unclear to me that compulsory savings for old age does not qualify as a public good. Research suggests that people want to save, but generally find it hard to do so; people are simply less rational than we like to imagine. Social Security may help counteract this known human propensity. And we all benefit from living in a society with less poverty; see my prior comment.

(True, the returns attributed to Social Security are paltry. But this is merely because Social Security is both a pension system combined with a scheme of general public finance. To judge the true effects of Social Security, we’d need to determine what government finances would look like ceteris paribus without the program; basically, government would have had to raise some different tax. Then we’d re-introduce the program to determine what it would cost to operate a pension system that was not expected to also finance the rest of government operations.)

How did seniors live prior to Social Security? In part, they didn’t; live expectancy was shorter. But otherwise, they often lived with their children, and bartered inheritance of property for their care. These arrangements were often unsatisfactory for all concerned. Social Security is a mechanism for buying autonomy for seniors and their children.

Moreover, a world in which everyone is responsible for his own risks, without risk pooling, is a world in which people engage in excessive hedging. In this case, it resulted in a world in which people had huge families, thus increasing the likelihood of having at least one child who would have the wherewithal to care for the parent in old age. Arguably Social Security was one factor (among many) contributing to the decline in US population growth rates. If you find this a welcome change, arguably you’d acknowledge that compulsory pensions are not simply a matter of private consumption.

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nobody.really
on September 14, 2015 at 16:29:41 pm

Am I reading this right? Basically, what this comes down to is that the feds are going to have to withhold SS payments to persons who can afford to live without it. And then pay down the national debt by printing a whole bunch of money.

Ain't pluralist democracy great!?

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Scott Amorian
on September 15, 2015 at 13:03:03 pm

" In this case, it resulted in a world in which people had huge families, thus increasing the likelihood of having at least one child who would have the wherewithal to care for the parent in old age."

really, and here I was thinking that large families had more to do with an agrarian society in which, absent labor saving devices, technologies and chemical fertilizers, LABOR, and large amounts of it, were key to survival.
Interesting little phenomenon - the fertilizer - productivity - labor cycle that afflicted our forebears.
And hey, let's not forget that our predecessors did not have contraception, cable TV and NFL football.
I'm just saying!!!!

BTW: Just so folks don't forget, SS is taxable (indirectly, perhaps, but still taxable) - so not only were we taxed, we are still taxed. and I am OK with that.

BTW2: did anyone notice that McGinnis is now advocating that the government ought to provide "free and less expensive" stuff for everyone. Has he thrown his support over to Bernie Sanders; I did not see this in the originalist constitution, did anyone else?

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gabe
on September 15, 2015 at 15:38:26 pm

....LABOR, and large amounts of it....

Sure enough, which is why moms would engage in LABOR, and large amounts of it.

(Even today, surrogate moms get paid for their labor, upon delivery. Children, like income and concepts, can't be realized until they are conceived.)

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nobody.really
on September 15, 2015 at 18:31:20 pm

Indeed, and the amount of labor they did was staggering - and i don't mean the amount of birthing labor!

Would put the average "techie" to shame - or at least tears!!!!!

Now back to some labor for myself!!!!

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gabe
on September 15, 2015 at 19:01:58 pm

Interesting:

1) Could we change this statement to: "Transfer (wealth) goods to those in need"? the notion of wealth transfer(s) may entail more than (you?) some intend - whereas, the provision of sufficient (perhaps, even more than sufficient) staples and services would seem to meet both the moral and civic obligations we have to one another without some of the concomitant and unintended consequences.

2)a) "I argue this reassurance is a public good, providing general physic benefits."
Agreed - it is not only a public good, it is a moral and political necessity.

2b) "Moreover, to the extent that it encourages more risktaking, and many of the benefits of risktaking are socialized, it provides a more tangible public good. "
Not quite so sure about this one. First, it is not clearly demonstrable that it would or does encourage more risk taking. Perhaps, for those with an initial inclination to take risks, this may be so. secondly, the socialization of risks for which you argue may also have other adverse consequences. If the misadventures of government "help" and "socialization" of certain favored industrial / technology sectors is any indication, then this assertion is somewhat unfounded. Indeed, the case may be argued that such "beneficence" is, and has been counterproductive to the public good. Were this intervention limited to providing support of last resort AFTER a budding entrepreneur (to use Kevin's example) has failed is one thing (a good one, yes) but to provide so many of the governmental supports and interventions as is currently offered seems to unwisely take from the productive sector and yield it to the "not-yet" or unproductive sector. I am not certain that the minimal gains that one may expect (or history has shown to result) are sufficient to offset the costs of these interventions.
Again, recall Kevin's lament concerning the availability of "quality" employment. He is absotively correct in this; and one may argue that it is some of the very interventions that you propose that are the cause of the loss of quality jobs. (Having had to make corporate adjustments to the perennial "suggestions" of certain Admin Agencies, I know that there is a large measure of truth in this. Translated, I had to outsource manufacturing and the livelihood(s) of many awfully good people). So let's establish some clear sensible limits on these interventions.

3) Yep! and I have concluded that those who are typically the most vocally compassionate also seem to have a distinct attachment to zoning regulations. I suppose it would otherwise upset their compassionate countenance.

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gabe

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.