Shikha Dalmia wrote an article recently about Bobby Jindal, governor of Louisiana. The main argument is that while Jindal had his head on straight during his first term, his desire to make the White House has made him take his eye off the ball. That is, the best path to the White House is to perform well as governor. But a politician who seeks support wants to make friends, not enemies, and that means your leadership suffers. Right away people see you’re not willing to push for what you believe, because that might get you into trouble.
It’s worse than that. It’s not just your ideas, convictions, and leadership qualities that deteriorate as you play the politician’s game. You start to think about ways to make people happy rolling around under the public spigot. You can make a lot of people happy when you tell them you can do them favors. “He spends money like water,” is a common saying about profligate rich people. It also applies to governments, not because they are rich, but because they are profligate with other people’s money.
Governments can play the money-makes-people-happy game for a long time. We wonder, how can government run such big deficits, and stay in the game for so long? Historically, governments can run in the red for generations, if your primary accounting methods only compare tax revenues with expenditures. Governments, however, have several other ways to stay profligate while they stave off insolvency. Here are seven things governments do to gain money, or real property they can convert to money:
Levy taxes – income taxes, tariffs, dozens of other levies
Borrow – sell bonds, secured by future tax revenues, to domestic and foreign banks
Print – create money via the treasury and the central bank, and push it into the money supply
Extort – extract large settlements under threat of still larger payments if victims of extortion choose to resist
Steal – civil forfeiture
Charge fees – tolls, park fees
Levy fines – exact monetary payments for offenses large and small
Swindle – borrow money with no intention or ability to repay it
The appropriate thing to do here is probably to come back around to the ways politicians take advantage of public systems that maintain steady flows of money and property through so many channels. You’ve seen commentary on that subject here in The Jeffersonian, and in many other places. So I’d like to end with an observation about public finance that becomes apparent when one considers the main cause of governments’ bankruptcy through centuries.
First let’s ask, why do governments need so much money? We’ve already alluded to one reason for high expenditures: to keep people happy. The second category of expense often greatly exceeds the first. Governments need money to fight wars. When they win wars, they often find themselves well positioned to maintain their income streams. When they lose a big war, or a series of small ones, their ability to remain solvent becomes far more precarious.
That is why you see the United States government preying so heavily on domestic revenue sources. Since the early 1990s, it has squandered a huge amount of cash on wars that it has lost, or that resulted in a stalemate that yielded no benefit. It has to find new sources of revenue, which is to say it has to squeeze domestic lemons and oranges ever harder to obtain the cash it needs so badly. It will not work. Government will become desperate beyond measure, because it cannot extract itself from its current commitments. The worse the situation becomes, the less transparent our public finances. The degree of secrecy about exactly where we stand with our public accounts becomes a reasonable measure for our progress toward bankruptcy.