32: Government Expenditure: the National Dividend

Dying of Money: Lessons of the Great German and American Inflations
by Jens O. Parsson

http://web.archive.org/web/20090322142711/http://mises.org/resources/4017#chap32

32: Government Expenditure: the National Dividend


The other side of the government's economic management from taxes is expenditure. What taxes draw in, and often more, expenditure must pay out. The government never fails in this duty. The task is easier than drawing in taxes. The government finds myriad ways for getting rid of the surplus profits of national effort to someone, somehow. The question of this chapter is whether these ways are the best ways.

Government expenditure is often falsely maligned, especially by conservatives. Government expenditure is no more innately evil or good than expenditure by any other quarter of society. It is true, as conservatives say, that government expenditure tends to be somewhat more wastefully spent than expenditure by private persons; but it is also true, as liberals say, that expenditure on services that only governments can provide tends to be excessively niggardly in comparison with the overall affluence of the American society. Most emphatically of all, government expenditure is not inflationary of itself. The government could spend the entire gross national product without inflation, if it contrived to tax away that entire product from its producers. Doing that would be bad for other reasons, but not for reasons of inflation. Conversely, reducing the level of government expenditure does no good whatever in abating an inflation. Doing that merely cuts the supports from under a large number of Americans and leaves them in want, while the inflation goes on.

A stunning truth, seldom seen in clear view, is this: in the United States by the time of the inflation, the primary economic role of the government had become to support the people by its expenditure. No longer could the government confine itself to providing the services that a government normally must perform, such as paying its soldiers and buying them equipment, paying its judges and legislators and building them buildings, building highways and parks and providing schools and mails and railroads and airports if no one else would. All these things the government must still do, but where once these were its whole job, now they were the lesser part of its job. The main objective of the government's expenditure was not to buy anything or build anything, but simply to give away purchasing power to help support consumption by the people.

No one should lament the passing of the day when there was plenty to do for everyone who was willing, so that the government could justly leave everyone to fend for himself. It may well have been a better day, but that kind of attitude to it is ordinary nostalgia and is not constructive. The passing of that day is not a socialist plot, and the trend toward the government's supporting the people with its expenditures is a correct response to a plain necessity. The less urgently workers are needed to operate the system, while their need to consume is as great as ever, the more the government must draw taxes from capital and distribute freely to the people for consumption. The truly conservative view would not be to deny or deplore the necessity, both of which are futile, but to take care to see that the method of redistribution is well designed to increase and not diminish the efficient operation of the system.

The American government had a patchwork of ways to give away purchasing power to support the people, most of them masquerading as something else. They were similar to its patchwork of taxes. First there were the frankly gratuitous distributions which economists call "transfer payments," such as welfare payments, unemployment compensation, and Social Security. Next there were huge subsidy programs like farm price supports and shipping subsidies. Next there was the vast amount of government employment, and private employment supported by government spending, which pretended to obtain a useful product or service but really was for the support of the persons employed. Another form of distribution to support the people was the government's inflationary redistribution from creditors to debtors. Still another was the income tax concessions that the government gave to lower-income individuals through large exemptions and deductions and low rates. Finally there were the artificial legal devices to prop up the prevailing wages in private employment, such as minimum wage laws, government-spending wage laws, and governmental support for the wage-raising powers of unions. All of these were ways of channeling purchasing power to the people.

This collection of distribution schemes did the necessary job after a fashion, but as a distributive system it was uneven, unjust, ugly, wasteful, ineffective, and actively destructive of American well-being. It was obviously uneven, because highly-paid administrators, capitalists, and workers in government-supported channels were handsomely kept, while multitudes of other citizens received next to nothing. It was palpably ineffective, because poverty still existed. It was wasteful because programs were so outlandishly complex that most of their expenditures were dissipated in administration. It was unjust and ugly because it was selective; the basic idea that some distributee must be allowed to spend some of the values that taxpayers have produced is less repugnant than the idea that some government functionary should select the distributee. Worst of all, the system was actively destructive of the potential richness of American life because it purposefully prevented people from doing useful work that they would be glad to do. It is shocking to observe that payments under every one of the principal social programs — welfare, unemployment, and Social Security — were made on the one condition that the recipient refrain from working. Spurious employment inj government industry also precluded workers' doing some other useful work, and artificially high wage costs also directly prevented people from working. The existing distribution sys-tern did its best to make everyone idle as the intentional price of receiving its dole, and this was incredibly evil. It is incomprehensible how any nation could expect to grow and thrive by using all the surplus fruits of its efforts to induce people not to create any more.

Suppose now, just suppose, that all of the government's existing distribution systems were swept away at a stroke and replaced by a single distribution system, masquerading as nothing but a distribution system, and benefiting every resident American citizen equally whether rich, poor, old, young, able, unable, working or idle. The surplus prosperity of the nation which was drawn in by the government through its appropriate taxes would be in effect apportioned among all the citizens, equal shareholders in the commonwealth, as a national dividend. At the price levels of 1972, this national dividend might as a starter amount to a stipend of $1,200 per year to each adult and $600 to each child under 20. Later, as the system began to work and to generate more surplus while dispensing with other government expenditure, the dividend might well rise considerably higher, but it must always remain modest in comparison with the income people earn by actively contributing to the society. This rationalization of all the government's irrational distribution schemes into a single comprehensive distribution program, coupled with adequate capital taxes in place of inflation, would constitute the most momentous breakthrough the United States could make into the sunlight of the modern age.

The theory of the national dividend is that the nation has surplus prosperity enough to take care of the most basic requirements of each of its citizens, such as food, clothing, housing, and medical care, with no further strings attached. Attaching strings accomplishes nothing but to create evils. So the government simply pays for these things. Beyond those most basic requirements which he has received free, every man is on his own and every man is treated exactly equally. He earns as much or as little more as he cares to work for, he is paid no more or less than the fair value of what he contributes, and he pays the same percentage of tax on whatever additional he earns as everyone else. It is a two-tier system, admittedly the purest socialism to the extent of minimum requirements, but also the purest individual enterprise for the much larger remainder of all activity. In comparison with the patchwork that preceded it, this system is even, just, and no longer ugly because all citizens share equally; it is no longer wasteful because its simplicity makes the cost of administration virtually negligible; it is effective because involuntary poverty should end; and it ceases to destroy the potential richness of American life because it no longer restrains anyone from working who cares to.

A national dividend as a general distribution system, coupled with an array of taxes including capital taxes, provides the government with a complete set of valves to balance the flows between saving and consumption. If consumption is too high and saving too low, both the national dividend and capital taxes may be reduced. If saving is too high and consumption too low, as they were in the Depression, both capital taxes and the national dividend may be increased. If the people choose to work hard, the flows may increase; if they shirk, the flows must diminish. It is up to the people. The people control the total flows; the government just balances them. Even if capital grows so dominant as to eliminate all need for employmerit, the government can valve off from the fruits of capital, and distribute by the national dividend, enough consumption power to keep the system working smoothly. No other arrangement can do that.

The cost of a national dividend would be apparently very high. By simple arithmetic, $1,200 per adult and $600 per child would appear to cost the staggering sum of $212 billion, which was about 18 percent of the gross national product in 1972. But the cost is only apparent. The national dividend actually costs nothing, because it constitutes no more than a restructuring of an existing patchwork of distributions that already cost just as much. Let us emphasize the quid pro quo of the national dividend: no more welfare, unemployment compensation, Social Security, farm subsidies, shipping subsidies, other subsidies, income tax personal exemptions and deductions, low tax rates in lower income brackets, superfluous government employment and government-supported industry, and legal props under the wage cost of private labor. Unless all these prices were paid, the national dividend would be unworkable. If all were paid, there would be no new cost. Social Security, unemployment compensation, and welfare were already costing $78 billion per year; subsidy programs were costing $25 billion; leveling the income tax at, say, 35 percent without exemptions or deductions would yield perhaps $100 billion more per year; and the balance of the national dividend can easily be made up from increased capital taxes and reduced government expenditure in other sectors.

The ways in which the national dividend could strike off the shackles from the American system are virtually limitless. People would be set free to do useful work again without forfeiting some government giveaway by doing so. Employment could once again be allowed to enjoy the fertility of a free market. Wages paid for work done could be allowed to find the natural value of the work, rather than some inflated level, without depriving any worker of his full share of the prosperity for which the national dividend would be partly responsible. Valuable kinds of work that could not be economically done in the United States might be done again. Workers might come to look on great new strides in automation as a boon to their total prosperity rather than a threat to their livelihoods. The national dividend as a general subsidy to every kind of employment and activity would harness the nation's wealth to make it the strongest competitor in the world rather than one of the weaker. For the poor, a fund of buying power would be provided from which to finance housing, clothing, medical care, education, televisions, or whatever else they may desire most. The people themselves might decide what is of value, rather than the government deciding for them. Criminal convicts could help pay for their own incarceration. Small farmers might be enabled to stay on their marginal farms against the tide of factory farming. Workers who had had to gravitate to the grim cities for work or welfare might take their national dividends and disperse back to less lucrative but more satisfying surroundings. The magnet of urban welfare would be demagnetized. Materialism itself and the sovereignty of the dollar might be moderated. The citizen might choose to take some of the surplus prosperity in leisure rather than more work. The visions are infinite.

The idea of the national dividend is not althogether unknown. Lady Grace Rhys-Williams in England advanced the proposition of a universal "social dividend" with many sound arguments in her book, Something to Look Forward To, in 1943. Milton Friedman's 1962 book, Capitalism and Freedom, offered the proposal of a negative income tax as a replacement for the welfare mess. Like any good enlightened conservative, Professor Friedman was an advocate of simple, direct, and efficient remedies for obvious problems. To the question of what should be done to help the poor, he would answer, "Give them money." The negative income tax and the national dividend are remedies of a similar character, but the more limited negative income tax seems too timid for the size of the problem.

The national dividend does present a few serious problems of potential abuse. One is the population problem. An unlimited national dividend would be an obvious inducement to breeding parents of a certain sort to turn out babies as a sort of cash crop. A national dividend which operated as a baby bounty would be worse than no national dividend at all. This problem is likely enough and serious enough that a workable national dividend would have to forestall it by paying no additional stipend for any future child which was, say, the third or later child of either of its parents, but instead carving out that child's rightful payment from his parents' existing shares.

A second problem is that of incentives. It is the question of how people as a whole would respond to a national dividend. If they were paid enough for a decent minimum living without working, would they work? Even without a national dividend, dropping out of the system was moderately widespread. Under a national dividend, it could not be less widespread. The forces of necessity exact at least a little work from persons who are only marginally interested in working, and who might well lose that little interest if necessity were removed. The principle of the unconditional national dividend is that it is every man's own business if he chooses to drop out, and that it is both meddlesome and not worth the effort of the government or anyone else to try to motivate him in some other direction, by withholding his share of the prosperity or otherwise. On the other hand, if everyone dropped out to retire on the national dividend, the surplus prosperity of the nation would quickly evaporate and so too would the national dividend. There is still too much work to be done, day in and day out. The day when no work is required is still far off. So the question still is, if there were a national dividend, would most people still work about as hard as ever in an effort to 1 improve upon the minimums provided by the national dividend? What little evidence there is suggests that they would. Most people, including most of those the nation needs most, seem to work because it is their nature and not just because hey are driven by need.

I do not underestimate this problem of the national dividend. It is the crucial problem. If a national dividend would vither the will to work, then a national dividend would not acceed. But if that is true, it is also true that there is no other vay for people to acclimate themselves to an overabundance prosperity. If it is true, people cannot cope with success. The people will be as great and grow as rich as they care to, ao more and no less. If the response to full prosperity is to cease trying and want no more, the people will decline. Granting the people a national dividend might let them grow vhen denying it will no longer make them grow. In the end, be people should be allowed to decide