Can Government Go Bankrupt?
Rose, Richard & Peters, Guy
CAN GOVERNMENT GO BANKRUPT? Richard Rose & Guy Peters / Basic Books / $12.50 Alan Reynolds National governments can't literally go bankrupt, but they can bankrupt a lot of their citizens. When...
...and Germany face Britain-ization in a decade or two...
...Economic growth slows because labor moves into government, profits are over-taxed, and investments are directed toward political ends...
...economy...
...The rise in fiscal 1978 spending between the Ford and Carter regimes is attributed to recession, although it was actually a deliberate increase under booming conditions...
...But conservatives can scarcely blame democracy for not electing politicians who offer only a vision of dark tunnels spiraling downward, a threat of retrenchment, austerity, and despair...
...That conclusion comes from looking at total per capita income and translating it into dollars, using prevailing exchange rates...
...France has more time left...
...Actually, the future might not look so gloomy if governments could use bankruptcy to get out from under the accumulation of past commitments...
...But what Nixon did in that year was quite palatable, politically, and was anything but anti-inflationary...
...Swedes earning a million or more kroner a year may avoid taxes on much of that income by [taking advantage] of tax hoopholes...
...The decline in U.S...
...It is not really necessary, for example, that retirement income be so heavily financed by taxes rather than by the yield on investments...
...Rose and Peters compare, with ample data, the politics and economics of government growth in six countries...
...As an illustration of the principle that " conditions of crisis make it easier to secure acceptance of politically unpalatable but necessary measures," Rose and Peters cite Nixon's "anti-inflationary policies in 1971...
...Still, if economic contraction is the price of equality, compulsive levelers might nonetheless prefer such shared misery...
...Louis Federal Reserve study shows that Sweden's per capita income was 14 percent above that of the U.S...
...can continue indefinitely...
...Economic progress is being halted, not by the stinginess of the planet, but by the stupid greed of voters...
...In short, the idea of lightening the tax on added income (and added production) may indeed be the way to maintain sufficient growth to accommodate safely the insatiable appetite of the bureaucrats and their wards...
...the average person...
...Government spending there absorbs some 54 percent of national output-double the share in 1951- Almost 30 percent of the labor force works for the government...
...If that sort of policy change doesn't sell, however, we can at least minimize the damage by embracing monetary, tax, and regulatory policies that are not so brutally punitive of productive activity...
...But Rose and Peters observe that "taxes are least progressive in Sweden, because of the high level of tax paid by ordinary workers...
...level when a more accurate measure of relative purchasing power was used...
...Ideally, we should sever the umbilical cord between taxpayers and tax eaters...
...But most of Sweden's income consists of government services for which no market exists, so government is assumed to be worth whatever it costs...
...So we all end up paying a bundle, in as disguised a manner as possible, for supposed benefits that taxpayers can't even identify...
...When that happens, people become indifferent to government-evading taxes and circumventing laws--and government loses the ability to do anything...
...Could it be that the dropping of marginal tax rates is the cause, not the consequence, of such a strong economy...
...The trouble with conservative Mal-thusianism is that it can become an excuse for inaction...
...But programs that provide benefits to everybody "also provide benefits for nobody in particular...
...Take Sweden...
...A St...
...The threat is real enough...
...Moreover, "a company may be able to avoid paying any tax on a gross profit of up to $100 million...
...The spreading of benefits requires large expendituresr-too large to be shouldered by a few rich people, so - government becomes in hefently inegalitarian as an ever-increasing burden must be placed on...
...That is primitive accounting and naive political philosophy...
...They conclude that nothing will work except an admittedly unlikely display of political courage to cut government spending...
...Rose and Peters, extending past trends into the future, conclude that "the fall in real take-home pay...
...This book is also marred by minor confusions regarding the U.S...
...Rose and Peters play a familiar conservative variation on the Mal-thusian theme...
...the U.S...
...Despite their own contrary evi-depce, the authors fall into the trap of believing "the average Swede has become the richest citizen in the Western world...
...We have to ask, say Rose and Peters, "What's wrong with democratic government everywhere...
...The object of the welfare state, say the authors, is to give something to everybody in order to build a wide base of political support...
...The alleged equality of result in Sweden and Britain is partly a statistical illusion, partly a result of the pcodus or semi-retirement of those citizens capable of producing (and earning) more than others...
...As it is, new governments just inherit an incomprehensible array of old programs, and these "ghosts of elections past" soon add up to promising more income than an over-taxed economy can deliver...
...in 1976 when measured by exchange rates, but 23 percent below the U.S...
...The turning point, according to the authors, occurs when the growth of government's claims begins to reduce take-home pay...
...Small hints of a constructive alternative are inadvertently dropped here and there: "In a booming economy, a government may even be able to cut its tax rates and still collect more revenue...
...Professors Rose and Peters call this "political bankruptcy," and imply that it is a bad thing...
...Sweden, Italy, and Britain are, not surprisingly, already over the brink...
...public debt relative to GNP until 1974 (25.5 percent then, 30.4 percent now) is attributed to growth, although it was partly due to inflation...
...The authors gratuitously blame Hoover's problems on Coolidge's naps, but Coolidge wasn't the one who raised taxes and tariffs...
...For the past quarter-century, annual growth in Swedish take-home pay has been a mere 2.5 percent (only Britain has done worse), and Swedes are actually poorer today than in 1970...
...Or again: "By taxing corporate profits and higher incomes relatively lightly, German tax policy is intended to encourage investment and economic growth...
...Moreover per capita income is a crude measure of an average or representative household and exchange rates do not accurately reflect domestic purchasing power...
Vol. 12 • July 1979 • No. 7
