How Are Our Tax Dollars Spent?

One day Americans will realize how foolhardy it was for Washington to spend like there's no tomorrow and amass a national debt of $34.5 trillion rising by $1 trillion every 4 months. Tomorrow created the inflation with which families are still coping. What could future tomorrows bring?  

A family or business can appear successful while going ever deeper into debt. But once its credit is cut off, the illusion of success soon sours. That can happen to a country, too. We can't say when, but the wayward fiscal state will one day cause foreign governments, financial institutions, and ordinary investors to think twice before purchasing any more treasury certificates. The Treasury will have to offer higher interest rates to keep creditors coming and government afloat. That will portend higher mortgage, auto loan, credit card, and insurance rates and unbearable financial stress for millions of American families. 

Cities and states, too, are deep in debt. Caught between a middle class that is fleeing profligate, high-tax states and the need to feed, shelter, medically treat, educate and police waves of new migrants, a number of cities and/or states may eventually be forced to suspend their debt interest payments?  A new age of austerity will descend as so many public assistance programs are also suspended. Who will care for the needy then?

How did the country fall into such a precarious predicament? The problem can be traced to the second bill signed into law by America's first president. The Tariff Act of 1789 authorized Congress to do something the Constitution never contemplated: That Act gave Congress the power to pass bills "for the protection and encouragement of manufactures." Rather than treating all men equally, Congress would now pick winners and losers. 

In placing duties on imported goods and suppressing free-market competition, the Tariff Act allowed domestic manufacturers to raise their prices and profits at the expense of farmers, planters, consumers generally, shipbuilders, seaport merchants, and thousands employed in the dockside maritime and carting trades. Successively higher tariffs meant less world trade.

Worse yet, once the nation decided that some of its citizens had a right not to go out and get, but to lobby Congress and be given, it faced two daunting questions: Who else should be given and how much should everyone get? There was only one answer: politics.  

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For the remainder of American history, Washington would be the place counterfeit capitalists and entitlement enthusiasts would go to get special privileges at their neighbors' expense. Today, a dizzying array of organized interests sends their lobbyists to Congress to plead for special favors. Since the pressure groups are happy to pay for the privilege and the politicians need the money, "corrupt" bargains become routine occurrences.    

Consider this recurring pattern. First, Congress embarks on a "vital" national project. It will bind the nation together by financing a Transcontinental Railroad. Or believing that every American family deserves a piece of the American dream, it may authorize Fannie Mae and Freddie Mac to buy up a flood of subprime mortgages from the original home-loan lenders. 

More recently, Congress has been awarding $ billions to companies that will harness solar and wind power, not fossil fuels, to supply the nation's electricity needs. The politicians' real "salary" comes from knowing which companies will grow rich on government subsidies and so enjoy higher stock valuations.

This recurring political pattern, not free market activity, precipitated a long succession of boom-and-bust, "business" cycles. The subsidies flow until they run out, and the subsidized companies must sink or swim on their own. The maladjusted investments then come to light and the shakeout (i.e., the resulting depression) reaches into every corner of the economy. Thus, the bankruptcy of the Union and Central Pacific railroads in 1873 presaged six years of suffering.

The bankruptcy of Fannie and Freddie sparked the subprime housing crisis and the Great Recession of 2008. No one knows when the companies created to battle global climate change will begin to fail. Military appropriations may also be made not to bolster the national defense, but to prevent the loss of jobs in districts or states where key legislators are running for reelection. The weapons that are procured may bear no relation to the nation's defense needs.

Here's another recurring arrangement. Political science speaks of an Iron Triangle. It consists of (1) organized special interests and their lobbyists, (2) powerful chairmen of congressional oversight and appropriations committees, and (3) the administrative agencies congressional committees fund and oversee. 

Lobbyists for any given interest descend on the committee chairs and clamor for special benefits, The granting of these favors very often requires action by the bureaucracies. Those agencies depend on the congressional committees that fund and oversee their activities.  So the bureaucracies appease the special interests and Congress will reward the cooperating public agencies. Everybody is happy except the hapless taxpayers.

This is not Marxism, Political scientists call it interest-group liberalism. It now poses a mortal threat to future generations, if not to we the living. Two things are needed: (1) a new crop of politicians who understand the need to shrink the size and expense of government. In office, they will work to CUT programs and CLOSE agencies and bureaus by the bushel (2) a sustained, national conversation as to: What government must do for us and what we must be allowed and expected to do for ourselves - and one another?

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