Cato: Back to 1912

Cato's Daniel Mitchell outlines his plan to return the United States to the levels of prosperity seen before the first world war:

The real issue is whether America would be a stronger and more prosperous nation if government was reduced to the levels envisioned by the Founding Fathers. America climbed from agricultural poverty to middle-class prosperity before the income tax was adopted, and federal government spending (with the exception of times of war) was a small percentage of GDP.

This seems like a bizarre way to argue. It's true, obviously, that the country was much more prosperous in 1912 than it had been in 1790, but it's grown far more prosperous still in the dread income tax era. Were the horse-and-buggy days really good enough for Mitchell? After all, without the need for paved roads we were able to keep the tax burden low, low, low. The near-total absence of useful medical technologies helped keep health care expenses low. And with the population ill-educated by contemporary standards and wage rates much lower than they are today, it was easy to run a school system on the cheap.

Comments

Just imagine instead of a 12 trillion dollar economy, we could have a 20 trillion dollar economy and the top one percent of earners have 50 percent of the income.

Posted by Pritesh | November 10, 2007 10:54 AM

Of course, paving roads and educating children extremely well are not tasks that require an income tax, per se. Most discussions regarding tax systems and rates get it backwards. One does not start with deciding how, or how much, to tax, one starts with deciding what activities government should engage in, only then deciding how best to raise the revenues. Our electorate has decided that the most important activity for our national government to engage in is to transfer wealth from young, poorer people to old, wealthier, people. When one begins with the premise that the most important task for national government to engage in is serving a gerontocracy, what follows is from that premise is a secondary concern.

Posted by Will Allen | November 10, 2007 11:23 AM

Excuse the ungrammatical verb.

Posted by Will Allen | November 10, 2007 11:29 AM

Another incredible ill-informed Matt post.

"And with the population ill-educated by contemporary standards and wage rates much lower than they are today, it was easy to run a school system on the cheap."

First of all, the most ill-educated population in history is the one we have today. Every study of education that I've seen has shown that earlier generations were better educated than today. Most Western countries have a better educated population than the US has, as well. The current educational system produces people like Matt.

And just because the economy was smaller then, and the money more sound - meaning less inflation - that wage rates were lower - I mean, do we really believe Matt adjusted his figures between then an now before this post? - is irrelevant. So were all sorts of economic issues.

I've read that if you knocked the Federal government taxes and regulations out of the system, everything you buy would cost approximately ten percent of what it does now.

Spend less blogging and more time reading, Matt. It will do you a world of good.

A lot more than big government will do you.

Suckers like you keep voting these morons into power and then whining about how nothing works right.

Duh, Harvard boy!

Posted by Richard Steven Hack | November 10, 2007 11:41 AM

I just think it's funny that the poor crazy Cato types think this is the "real issue" outside their crazy little circles and speech circuits.

Posted by El Cid | November 10, 2007 11:43 AM

Every study of education that I've seen has shown that earlier generations were better educated than today.

I'm fascinated. I haven't heard of these studies which are everywhere. I hadn't heard the suggestion that the educational infrastructure of 1912 was so much larger than today, and that percentages of children finishing higher grades was larger, or maybe I never understood "better".

Here for example is a view from those crazy Harvard liberals in the Hoover Institution:

A remarkable notion had emerged around 1900: that schooling could make the ordinary office clerk, shop-floor worker, and even the farmer more productive. The odd thing is that even though most industrial nations acknowledged the change from physical capital to human capital, only one did much about it until well into the 20th century...

The demand for educated labor in the United States increased, and almost nationwide there was an outpouring of public and primarily local resources to build and staff high schools. These schools were academic (not industrial), free, secular, gender neutral, open, and forgiving. The education change was known then as the high-school movement. In the United States as a whole, the enrollment rate for youths in all secondary schools — public high schools, private secular and religious high schools, and the preparatory departments of colleges and universities — soared from 1910 to 1940. The graduation rate, expressed as a fraction of the relevant age group, also increased substantially during this period. In 1910 just one American youth in ten was a high-school graduate. By 1940, the median youth had a high-school diploma. It is no wonder that those who lived through the early part of the period described the change, in a 1914 report from the California Department of Public Instruction, as “one of the most remarkable educational movements of modern times.”

The high-school movement was not just an urban phenomenon. Nor was it just a New England phenomenon, though it began there. It spread quickly from New England towns to the rich agricultural areas of the Midwest and to the western states. Because the southern states had lower levels of education attainment for much of the 20th century and because the high-school movement diffused slowly throughout the South, the national data in Figure 2 give a somewhat misleading impression of the speed at which the high-school movement spread throughout the rest of the country. The spread of the high school was considerably faster in most other regions of the country, and graduation and enrollment rates were higher. Even before 1930 the graduation rate for 18-year-olds in many parts of the North, Midwest, and West exceeded 50 percent.

In 1910, when the data on graduation rates begin, New England was the leading region. But by the mid-1910s the rich states of the Pacific had closed in on New England. By the 1920s even the sparsely settled and agricultural states of the West North Central (states such as Iowa, Kansas, and Nebraska) had exceeded the rates achieved in New England. Only the Middle Atlantic states were left behind, and they caught up during the massive unemployment of the Great Depression, when jobs for teens evaporated overnight. In 1940, as the world braced for yet another war, America could boast of having the most educated workforce in the world. It accomplished this feat even though, for much of the period, it had open doors to the poor of the world. Its success in mass secondary education resulted from its education template and the associated virtues.

http://www.hoover.org/publications/ednext/3355201.html

I look forward to hearing about some of these omnipresent studies. No, actually, seriously, I don't.

Posted by El Cid | November 10, 2007 12:01 PM

It seems that Richard Steven Hack has quite the appropriate name.

Posted by Erik | November 10, 2007 12:05 PM

Virtually none of the federal income tax has been used to pay for roads or public schools. They have been almost entirely paid for by state and local taxes.

So get your facts straight.

Second, respond to the argument on the merits, not by saying that Cato wants to return to the days of horse and buggy. Is that REALLY want they're saying Yglesias.

What a tendentious and poorly supported post.

You may know something about foreign policy - although your lack of insight into Pakistan leaves a lot to be desired - but you know damn little about economics or political economy.

Posted by Joe Strummer | November 10, 2007 12:19 PM

Your argument is every bit as silly. It's unknowable what kind of nation we would have, had the Federal government stayed at 1912 size to the present day.

One could write an interesting alternative history book on it, but it would still be fiction. Government was not the source of all, or even most, of the progress over the last century.

Posted by James Robertson | November 10, 2007 12:29 PM

Every study of education that I've seen has shown that earlier generations were better educated than today.

Reality check: 20% of the US population was illiterate in 1870. 3% were illiterate in 1940. Today, 1% are illiterate.

Also, are you seriously suggesting that government "interference" inflates the cost of goods and services in our current economy by 90%? That is an extraordinary claim that would require major incontrovertible evidence for it to be treated with any respect whatsoever. As it is, it just sounds like a number you pulled out of your ass.

Thanks for playing, though!

Posted by DMonteith | November 10, 2007 12:38 PM

Just to chime in, here.

In 1913-5, the U.S Commission on Industrial Relations conducted one of the first major studies of American wages and poverty. Determining at the time that a U.S family needed $800 a year ($16118 in 2006 dollars) to live above poverty, the Commission did a massive survey of the American workforce and found:
- 1/4 of adult men earned less than $400 a year.
- 1/2 of adult men earned less than $600 a year.
- 4/5 of adult men earned less than $800 a year.

This is not the picture of a middle class society.

Moreover, Mr. Strummer neglects to mention the Federal dollars that went into the Works Progress Administration, the Public Works Administration, the National Interstate and Defense Highways Act,
and all the money spent since then. Or the Federal dollars that went into the schools provision of the Northwest Ordinance, the Morrill Land Grant Act, the Elementary and Secondary Education and Higher Education Acts, and all of the other Federal education programs.

Federal dollars have been spent.

Posted by StevenAttewell | November 10, 2007 12:59 PM

Will,

What programs are you talking about, specifically?

Your rhetoric does a decent job of obscuring what you are actually talking about, so it is hard to respond, but my guess is that your accounting methods are unorthodox.

Posted by theCoach | November 10, 2007 1:18 PM

Virtually none of the federal income tax has been used to pay for roads or public schools. They have been almost entirely paid for by state and local taxes.

Reality check: The states get billions each year in federal money for the upkeep of the interstate highway network and to supplement the operation of schools.

Posted by Andrew Levine | November 10, 2007 1:40 PM

Is Matthew quoting the Cato blog post regarding the Washington Post's Ron Paul stand? What a way to misunderstand and misrepresent its meaning?

I hence tend to agree with Joe Strummer. And I hence agree with a recent post by Michael F. Cannon of the Cato Institute:

One fun little perk of working at the Cato Institute is the daily e-mail from our media department listing recent press references. Often, these “Cato Clips” are sources of pride — a Cato scholar being quoted on a good point, or a member of the public citing Cato while making a thoughtful argument in a letter to the editor. Occasionally the clips can be disappointing, as when someone misrepresents or straw-mans a Cato scholar’s position or misunderstands the institute’s philosophical perspective. (We’re sometimes identified as “ultra-conservative“ and “neo-conservative.”)

And then sometimes a Cato Clip is just plain baffling [Matt???].

I think Cusack is a smart guy who has been misinformed. As Tom Firey notes, Cato scholars, like Cusack, are keenly interested in making it harder for Congress and the president to start wars. I recently offered a proposal for reforming veterans’ health care. One of the proposal’s main selling points, to my mind, is that it would force Congress to confront many of the costs of war that the current system hides.

I even agree with some of what Cusack said. Cato scholars certainly don’t have “any monopoly on insight into anything.” And I’m sure we come across poorly at times.

But do Cato scholars really want, as Cusack has written, ”the total liberation of corporations“ [the rich]? If I were really a corporate tool [slave of the rich], would I have just penned an oped where I smeared the entire health care industry as a pack of “rent-seeking weasels”?

If Cusack could see how poorly we get along with most corporations [the rich] most of the time, he might give Cato another look.

In fact, these dynamics always pop up when an economist and a non-economist have discussions about growth and prosperity. There are exceptions to the rule. For example when social scientists also learn a bit more about economics they tend to agree with economists. When economists get drawn into team politics (Paul Krugman) - they tend to disagree with unbiased, non-political economists.

Cato - as an independent scientific think tank - is being attacked by the left and the right (while nobody knows who Cato members would vote for). Just like natural scientists like E O Wilson were attacked by the left and the right simultaneously for claiming that evolution shapes culture and not the other way around.

At least when it comes to truly natural sciences like biology - it seems that the church and the state are separated. There are biologists who believe in God (they are rare but take the late Stephen J Gould) and those who do not (E O Wilson and Richard Dawkins); and yet they all more or less agree how evolution works. I have hope that one day - economics will be recognized as the science it could be and will be freed from religion and team sports again?

Biologists can agree how evolution works without linking it to only donkeys or elephants. Physicist more or less agree on Newton's quick and dirty approximation of how gravity works on earth - no matter if they vote red, blue or green. Come on people - we can achieve the same with economics.

Given an objects weight and mass - how much energy is required to move it from A to B? This is not religious or even political? This has nothing to do with issues such as "is torture ethically ok" or "are we allowed to use the F word" or "are wine drinkers saints and marijuana users criminals"?

I hope that one day we can reach a point where when discussing health care for the poor - we think of the poor first and not "team color". What kind of discussion is this if anybody who suggests market approaches is labeled as "not carrying and sucking up to the rich"?

Why is a doctor who suggests quiting smoking and eating more healthy (Cato and libertarians) considered to be ethically worse than a doctor who only prescribes pills and chemotherapy (most Democrats and Republicans)?

Under the current status quo - Democrats are closer related to Republicans (and vice versa) than they are to Cato. Matthew and Hillary are economically (and politically) speaking closer to Giuliani and Bush than to Cato. In fact, after Paul Krugman's transformation he is closer to a politician than an economist. He should run for Hillary's economic adviser - what a perfect match they would make. Go team...

But man, am I glad that people like Barack and Ron are in the race. Even if they do not win - at least we are reminded that there are other calibers out there than mere Giuliani/Hillary/Matthew/Klein figures. There are people out there who can separate church and religion and virtual faith from real spirituality. Those who care more about the meaning than the name! Those who also care about the sport and not just the team.

Posted by Hugo Pottisch | November 10, 2007 1:44 PM

Coach, what is the ranking for median wealth by age demographic in this nation? What does our national government write the largest checks for, in terms of total revenues?

Posted by Will Allen | November 10, 2007 2:03 PM

While it's certainly true that federal taxes were quite low before 1917, it might be noted that tariffs on manufactured goods and many raw materials (sugar, tobacco) ranged from 50%-100% into the 1930s. By Cato's logic--namely, that historical correlation implies causation-- we could have a third industrial revolution if we only reimposed a highly protective tariff.

Posted by AWC | November 10, 2007 2:09 PM

one starts with deciding what activities government should engage in

I think this is correct and I think that progressives generally do a poor job of articulating their beliefs in this area. We need to respond to the conservative and libertarian idea that the federal government's only job is to provide for the common defense. It's my view that the reason man enters into the social contract is to mitigate his risks. Certainly this includes the risk of invasion by foreign peoples, but it also includes much more common risks from within. We want to reduce the risk of buying goods made out of GHB, we want to reduce the risk of having toxic sludge released into our environment, and we want to reduce the risk of an unstable currency and bank runs. The federal government is much better suited to pool these risks and reduce the cost for everyone. Thus we support the FDA, the EPA, the Treasury Dept. etc.

The social safety net is another example of very popular and successful government programs designed to protect the American people against the risk of becoming indigent by accident, old age, or unemployment. It's ridiculous to allow the right to characterize these programs as merely transfer payments. They are the returns on a lifetime of investment in our society.

So yes, we do need to start with deciding what activities the government should engage in, and I think that most Americans believe that the government should be working to reduce the people's exposure to the risks of society that are out of their control. It certainly seems to me that, day-to-day, the chance of being invaded militarily by a foreign country is one of the smallest risks we face.

Posted by Just Karl | November 10, 2007 2:16 PM

Just Karl, what risk is being mitigated by tapping the paychecks of the poorest working people in our society, and sending the money to the wealthiest people in our society? The risk of not taking the most luxurious cruises? The risk of being exposed to health care rationing that 75 year old non-poor people in other wealthy societies are exposed to? The risk that older baby boomers won't get as large an inheritance?

Posted by Will Allen | November 10, 2007 2:34 PM

Will,

It is certain that young people will one day become old people. The risk that is being mitigated is the risk that they do not become rich people.

Posted by Just Karl | November 10, 2007 2:44 PM

Cato - as an independent scientific think tank

I do not think that word means what you think it means.

I should note that the "Cato Clips" game is sort of rigged, in the Cato's primary purpose seems to get its studies and pundits quoted in the press and certain elements of the press -- namely the Washington Times -- serve as a forum to simply reprint Cato press releases as news stories.

Posted by Tyro | November 10, 2007 2:49 PM

Please explain, karl, how sending money to rich old people mitigates the risk of not being rich while old.

Posted by Will Allen | November 10, 2007 2:52 PM

Also, karl, you may wish to market the elixir by which it becomes certain that the young become old. The poor saps who start getting their paychecks tapped when they take their first job, and then are so unwise as to get killed in a car accident, or develop a brain tumor, at age 45 or younger, are really missing out on something.

Posted by Will Allen | November 10, 2007 2:57 PM

"electorate decided to transfer money from younger, poorer people to older, richer people"

I see two explanations:

1. Electorate is afflicted by idiocy, which in turn stems from a diabolic leftist plot that entrenched public education in the hands of teachers' unions.

2. Electorate is aware of the actuarial reality that the bulk of the payers in that transfer will become reciepients, Thus in the face of a well-defined need -- income in years when one cannot earn money for living -- electorate has to choose a strategy. Apparently it is a mix of personal savings (hence, oldsters are richer) and social insurance (so oldsters will survive even if investments will go down the drain).

Actually, Social Security also provids benefits to survivors of wage earners, which could be called taking care of widows and orphans. For assorted reasons, the methods that were succesful ca. 1912 in taking care of oldsters, widows and orphans would not work today, partly because of difference standards that we developed. For example, rather than offering cash survivor benefits we could have a system of orphanages where orphans would be fed turnips and gruel, and with costs partly covered by the orphans' labor. Widows would be recommended by the local clergy for housekeeping job, a necessity in every middle class household (as the chores were not mechanized). Homeless, a.k.a. vagrants, could be forced to work on farms, thus making illegal aliens unnecessary for picking fruits and vegetables (and ever popular shoveling the manure).

For gainfully employed widows, orphans and menfolk fired from better jobs we would need housing of sufficiently low standard, and thus, low cost. Resulting tuberculosis would reduce the problem of dealing with aged destitute people (much fewer of them).

Posted by piotr | November 10, 2007 3:02 PM

Will Allen:

Our electorate has decided that the most important activity for our national government to engage in is to transfer wealth from young, poorer people to old, wealthier, people.

Right. Fortunately, in another ten or fifteen years, we'll gradually begin to fund an increasingly large percentage of Social Security's costs through the income tax. Hopefully when this happens the rich will once again be paying their fare share, like they were the fifty years ago. Of course, there's nothing to stop us right now -- except politics -- from making our taxation and spending policies progressive. That way, checks that rich people get aren't a drain on the system. In other words, we can make sure the system is efficacious by "canceling out" any non-essential benefits received by the wealthy through progressive taxation -- thereby preserving the universality -- and hence the political popularity -- of the safety net. Of course, for Will Allen that's a bug not a feature. For me it's a feature.

Posted by Jasper | November 10, 2007 3:23 PM

piotr, apparently you are unaware of something called "life insurance", or how much coverage can be purchased for even 2% of a the typical 21 year old's wages. You should really keep up with these things, along with matters like how voter participation rates by age group skews policy. Actually, given that you seem to think the term "insurance" covers events when no hazardous event takes place, or seem to be unaware that something known as "assets" can throw off income, there is quite a bit you need to catch up on.

Posted by Will Allen | November 10, 2007 3:26 PM

Golly, jasper, where do you purchase one of them there fair-o-meters, which objectively informs us what is "fair"? What? You mean that the people who vote together is the largest aggregates get to decide what is "fair"? You mean it is simply an exercise in raw political power?

Oh.

Posted by Will Allen | November 10, 2007 3:33 PM

PS: It is funny that Matthew is criticizing a post by Cato which attacks the GOP and the Washington Post. Clearly - some dislike libertarians so much that the enemy of their enemy is not their friend. Can Matthew relate less to people who have no party affiliation than he can related to the GOP?

Just Karl - explain why the government is better at mitigating risks than the market? Is there a genetic and cultural (nature and nurture) difference between politicians and the rest of the population?

Why is a farmer who is paid via tax money and politicians better than a farmer who is paid directly by the consumer? Why are we better off with subsidies on meat and sugar than without them?

Also - bear in mind that Ron Paul, who is being attacked by GOP, the Washington Post and by Matthew, is suggesting less income tax and not the end of "tax" and government. (Mathew is quoting Ron Paul and not Cato directly with his 1912 quote).

As a MD, Ron Paul, is also in favor of people seeking medical help asap and getting good quality service. I cannot recall Ron claiming that those who couldn't mitigate their risks in time should be left to die painfully...?

Economist have their own limitations when it comes to the environment . When it comes to ecology - economists often sound like statists who discuss economics:

The first, exemptionalism, holds that since humankind is transcendent in intelligence and spirit, so must our species have been released from the iron laws of ecology that bind all other species. No matter how serious the problem, civilised human beings, by ingenuity, force of will and – who knows – divine dispensation, will find a solution.

Population growth? Good for the economy, claim some of the exemptionalists, and in any case a basic human right, so let it run. Land shortages? Try fusion energy to power the desalting of seawater, then reclaim the world's deserts. The process might be assisted by towing icebergs to coastal pipelines.

Species going extinct? Not to worry. That is nature's way. Think of humankind as only the latest in a long line of exterminating agents in geological time. In any case, because our species has pulled free of old-style, mindless Nature, we have begun a different order of life. Evolution should now be allowed to proceed along this new trajectory.

Finally, resources? The planet has more than enough resources to last indefinitely, if human genius is allowed to address each new problem in turn, without alarmist and unreasonable restrictions imposed on economic development. So hold the course, and touch the brakes lightly.

The opposing idea to this is environmentalism...

When statist talk about the economy they sound like this:

Statism holds that since humankind is transcendent in intelligence and spirit, so must our species have been released from the iron laws of economics that bind all other species. No matter how serious the problem, civilised human beings, by ingenuity, force of will and – who knows – divine dispensation, will find a solution.

Resources? The economy has more than enough resources to last indefinitely, if politician genius is allowed to address each new problem in turn with intervention, without alarmist and unreasonable restrictions imposed on government control and budgets. So hold the course, and touch the brakes lightly.

The opposing idea to this is free market economics... Libertarians as humanists are eager to find a best mix between ecology, economy and cultural intervention - based on the best science available.

Posted by Hugo Pottisch | November 10, 2007 3:36 PM

Hugo Pottisch: 3:36

statists... statist... statism

Libertarians throw around the term "statist" in the same way Communists use "bourgeois," "counter-revolutionary," etc. A term they coined (or at least adopted for their own private use) to recklessly lump together and blindly dismiss anyone who isn't one of them. Three times in one post is basically a signal that you need better arguments. Or else you end up writing absurd sentences like "Statism holds that since humankind is transcendent in intelligence and spirit, so must our species have been released from the iron laws of economics that bind all other species."

Posted by Andrew | November 10, 2007 4:26 PM

Oh my god, Andrew - I used a term three times in one (long) post related to libertarianism. How dare I? BTW - I do know what Communists meant when using the term "bourgeois". Although I do not agree with their arguments regarding bourgeois - I would attack those rather than the term itself?

I am not religious regarding terminology. I do not care if we use "God's creation" or "nature" - as long as we know what we mean by it.

Do you know what I mean by statists in the libertarian context? And if you do - what other term do you prefer? You mentioned "communists" - doesn't that sound a bit too harsh - after all, many statists believe at least in free elections? I bet that it will take years before they want to mitigate the risks of individuals voting for the wrong candidate (in which case they do become communists)?

PS: the absurd sentence that you are referring to was written by E O Wilson but used in a different context (see link above). He too is often attacked from right and left stat.. er.. from certain groups within both the right and the left.

PS II: What do you call somebody who cares more about the team than the sport? What is, in your opinion, the difference between George W and Hillary C? What is the difference between Hillary and Bush on issues such as subsidies, foreign policy, individual, federal and state rights, etc? Cause I can't see one ma friend! What is the difference character wise - cause I can't see that either ma woman.

Posted by Hugo Pottisch | November 10, 2007 4:53 PM

Will, while you do appear aware that "life insurance" exists, you don't appear to understand how it works. Hugo, pay attention. Insurance works to pool the resources of a large group to cover the payout to any unfortunate individual who has to make a claim against the coverage. When the risk is distributed over a larger and larger group, the costs to each individual in the pool decline. The federal government is better at this because it pools the resources of the entire country together and thus lowers the cost to each taxpayer. Add in the economies of scale in terms of administrative costs and remove the profit motive, and you've got a much more efficient system than the market can provide.

Now on to farm subsidies. Say I own a farm. This year corn sells for $1 a bushel and cotton sells for $2 a bushel. Unfortunately, I grew corn. Next year, I'll grow cotton and so will every other farmer. Too bad for the country that you can't eat cotton, because the scarcity of corn has driven the price of corn to $10 a bushel and only the rich can afford to eat. The purpose of the farm bill is to ensure a stable food supply for the country, mitigating the risks of starvation. This includes ensuring that crops are properly rotated and fields left fallow to prevent erosion and depletion of the soil. Currently, ethanol is increasing the demand for corn which is driving up food prices. Fewer farmers are planting wheat or soybeans.

Posted by Just Karl | November 10, 2007 4:54 PM

And if you do - what other term do you prefer?

What I prefer is not grouping the 95%+ or so of the people in the US who aren't libertarians into the same category, as if all of their reasons for supporting this or that government policy are founded on the same principles. A mindset that views this supermajority as a monolithic beast, against which stands a tiny fringe who truly value liberty, is a mindset ill-suited to engaging in actual political dialogue.

What is, in your opinion, the difference between George W and Hillary C?

Oh, gee, I don't know. GWB wants the Iraq War to last indefinitely while HRC wants to withdraw the bulk of the forces as soon as possible. GWB wants a private health care program while HRC wants universal health care through a publicly-managed program. GWB wants the CIA to be able to waterboard detainees and HRC doesn't. GWB opposes binding restrictions on pollution production while HRC wants a full-auction cap-and-trade system. GWB is opposed to abortion and... Well, I could add maybe a dozen more things, but that's enough already. The point is that in the real world there are vast differences between them, on the majority of political issues, whether you choose to see them or not. And this is another reason why using a single term that means "not a libertarian true-believer" to apply to them is unhelpful.

Posted by Andrew | November 10, 2007 5:19 PM

Uh, no Karl, paying 15% on your cost of employment to the government for 49 years, for what is paid out at retirement under the current system, is not "insurance", unless the insurer is a crook. Now, if this is meant to be "insurance" against being destitute in old age, then it doesn't qualify as insurance, given that destitution is not the event which triggers a payout. Listen, if you like to transfer wealth from the working poor's wages, to the wealthy, please just have the honesty to say so, instead of engaging in fables about "insurance".

Posted by Will Allen | November 10, 2007 5:29 PM

Will Allen:

You mean that the people who vote together is the largest aggregates get to decide what is "fair"?

D'uh.

Posted by Jasper | November 10, 2007 5:34 PM

Listen, if you like to transfer wealth from the working poor's wages, to the wealthy, please just have the honesty to say so,

The working poor, upon retirement, get a higher return (percentage-wise) on their pay-in then the retired wealthy do.

If you make an average of $25K a year (normalized) over 49 years, your pay-out will be the same as that given to someone who made an average of $100K a year over that same time period, yet your return on your pay-in is four times higher.

Since the retired poor benefit most from the program, portraying Social Security as an outflow of dollars from the working poor to the retired rich is dishonest.

Posted by Andrew | November 10, 2007 5:47 PM

Re: And with the population ill-educated by contemporary standards

I'm not sure the above is true, at least not of a century ago. Maybe for Blacks and Native Americans, forced into segregated, unequal schools. But have you ever looked at a schoolbook from that era? My impression is that we have dumbed down education considerably and that a high school graduate in 1912 was probably better educated than many college graduates today.

Posted by JonF | November 10, 2007 5:48 PM

Listen, if you like to transfer wealth from the working poor's wages, to the wealthy, please just have the honesty to say so, instead of engaging in fables about "insurance".

haha. Lamest. Argument. Ever.

Dude you want honesty, I want to guarantee a transfer of resources from the working to the unable-to-work mostly because I don't want to deal with beggers, muggers, and third world type slums on every corner. I really don't want to look at old people lying in trash piles and collapsed on the sidewalks. If you like the idea of indigent people littering the streets, please just have the honesty to say so, instead of engaging in fables about the cost of employment.

Posted by Just Karl | November 10, 2007 6:06 PM

The initial paving of roads (the "good roads movement") was largely driven by the urban upper classes who wanted pleasant bicycle routes into the countryside; the farmers who lived in the area and would generally be expected to support the roads, through taxes or corvee labor, were less enthusiastic.

Posted by Senescent | November 10, 2007 6:27 PM

My impression is that we have dumbed down education considerably and that a high school graduate in 1912 was probably better educated than many college graduates today.

So, JonF, since you're denying "the percentage of citizens who graduate high school" as a valid metric for the nation's overall education level, what quantifiable alternate measurement would you propose? Because "look(ing) a schoolbook from that era" and declaring that people were better educated then is, analytically, pretty weak.

Posted by James Gary | November 10, 2007 6:41 PM

Social Security is a complicated "product" and there is no direct comparison with any private insurance. The "return" is so-so, but it provides iron-clad guarantee combined with indexing to inflation, not found on the market. It is mildly redistributive, which "insures" against bad employment history, and as the society the electorate has to decide: tolerate the existence of millions of abjectly destitute oldsters or not? And if not, do it with a universal program, or a "narrowly targeted" program?

Most people prefer a universal program because most people think differently than libertarians. And having a different value system is not the same as being stupid. Except that some libertarian think that THEIR values are objective.

Posted by piotr | November 10, 2007 7:51 PM

A more worrisome aspect of education is how little history - American or otherwise - kids learn in today's schools.

Pick an arbitrary high school kid, and ask them to place the civil war within a decade of when it happened. If you aren't distressed after you've asked this question a few times, I have no idea what to think.

Posted by James Robertson | November 10, 2007 8:01 PM

I have some sympathy with Mr. Gary's concern, but on the other hand I look at the correspondence of my grandfather, born 1876, learned English as a second language after he started his eight years of public education, went back to the farm until he married in middle age, and yet wrote beautiful, clear, impeccable English, and moved into a management position at the age of 40 and handled it to the best of my knowledge with decency and steady profits to his owners. So my my faith in "graduated from high school" as a metric is not what it might be.

Posted by Gene O'Grady | November 10, 2007 8:03 PM

Re: So, JonF, since you're denying "the percentage of citizens who graduate high school" as a valid metric for the nation's overall education level, what quantifiable alternate measurement would you propose?

I'm not sure I understand what your gripe is. 100 years ago free (and indeed mandatory) public education existed throughout the nation so in that respect we are no better off now than we were then. Now to be sure (and I acknowledged this) some minorities were herded into schools which, though free, were also woefully inadequete. And of course not even the richest school had today's electronic gadgets on hand. (For that matter computers were non-existent in schools even when I was a schoolboy and that wasn't all that long ago) But this is one area where I don't think we are doing any better job than we did 100 years ago-- with the very important exception that we have done away with segregation. But that victory had nothing to do with taxes and everything to do with people agitating for justice.

Posted by Jonf | November 10, 2007 8:37 PM

Statism holds that since humankind is transcendent in intelligence and spirit, so must our species have been released from the iron laws of economics that bind all other species.

I consider myself a mainstream statist. Most of us think that the iron laws of economics only bind fish, fowl, and ungulates.

You are dead on about how we statists believe that humankind is transcendent in intelligence and spirit. Wow, it's like you're in my head or something.

Posted by a straw man | November 10, 2007 11:16 PM

Just Karl - explain why the government is better at mitigating risks than the market? Is there a genetic and cultural (nature and nurture) difference between politicians and the rest of the population?
----------------------------------------------

The government is better at mitigating risks for two reasons. One, as Just Karl indicates, it's the best positioned institution to create a maximized risk pool, distribute risks and costs in a fair fashion, and sustain itself actuarially. The other, which I would also suggest, is that the government has the virtue of being exempt from the profit motive.

The market has lots of incentives to mitigate risks as long as there is a profit to be made in doing so. Hence, we have a large insurance industry that sells all sorts of risk-mitigation to people with money to buy it. What it doesn't have an incentive to do is extend mitigation to the working class and the poor or the unhealthy - they don't make enough money to make selling them insurance a profitable proposition. So private insurance generally passes these populations by.

The result is mass economic insecurity, which was the reality for the vast majority of Americans until the advent of the New Deal. This had major effects that don't always affect the market per se, but do affect civil society - mass poverty among the aged, leading to the spectacle of senior citizens eating garbage; huge numbers of industrial accidents causing permanent and temporary disabilities to tens and hundreds of thousands of people a year; poor health levels all around because people avoided getting medical care because of the cost; unemployed people begging on the streets, fighting for every temporary job, losing their homes, etc.

Why is a farmer who is paid via tax money and politicians better than a farmer who is paid directly by the consumer? Why are we better off with subsidies on meat and sugar than without them?
------------------------------------------------

Because the farmer is inherently at the mercy of the market, living in a situation where supply tends to increase faster than demand. They have such a limited stock and such an urgent need to get their living from that stock (especially given the fact that the prices they pay for goods tend to rise more than agricultural prices do) that they cannot effectively withhold their production when prices decline - anyone who tries falls victim to the private market equivalent of the tragedy of the commons, whereby the unscrupulous few who take advantage of any withholding end up ruining the rest. The only option is to increase production faster than prices decline, which exacerbates the problem.

As a result, you saw huge increases in rural poverty, declines in ownership and increases in tenancy and foreclosure, massive boom and bust cycles as externalities like wars and famines drastically shifted the market. The New Deal stabilized this situation somewhat, but there is a reason why only 2% of the population farms these days - it's not a paying concern in a developed economy.

Posted by StevenAttewell | November 11, 2007 12:49 AM

Wow, quite the wankfest we have going here. Somehow libertarians believe we could slash 45-49% of the federal governments revenue with no ill effects. The best part is they feel no compunction to try and explain how this would be accomplished other than "We'll eliminate all those programs and departments we don't like!" Sounds like the underpants gnomes are at it again.

Posted by Col Bat Guano | November 11, 2007 2:38 AM

It's amazing how libertarians can understand basic algebra but can't actually understand how people actually react to things. If people wanted to live in libertarian utopia, they would vote that way.

"One could write an interesting alternative history book on it, but it would still be fiction. Government was not the source of all, or even most, of the progress over the last century.

Posted by James Robertson | November 10, 2007 12:29 PM"

Who invented the internet and the computer?

Posted by Reality Man | November 11, 2007 2:42 AM

Yeah, the question of how we get from here to there is something that libertarians don't like to talk about. Even if you think that we'd be better off if Social Security contributions went into something like an IRA rather than the current system, how do we do that and still pay the current retirees? Print more money? Cut off payments and make them go back to work?

Posted by AlanC9 | November 11, 2007 5:34 AM

I used to agree with Will Allen, in general, that Social Security wasn't a worthwhile program per se; I thought that the government should help the poor regardless of age, and that while the state might have some special rules regarding welfare for the elderly that would be specific to them -- for instance, welfare for working age poor might require them to be employed, seeking employment, or obtaining some form of education or training, while such requirements might be dropped for the elderly and the significantly disabled -- in general the principle of welfare for the poor would not be radically different between a 35 year old and a 70 year old: the poor get help, the rich not so much.

Recently, my thinking as been evolving more toward the pro-Social Security liberal consensus on this issue, and away from Allen's view. I realized that, in practical terms, "standard welfare for the elderly and disabled, just like for everyone else, but without requirements that might exist for young able-bodied poor people such as being employed/seeking employment" would be equivalent to "Social Security, plus means testing." Then I thought about my views on means testing: Social Security is already taxed. Means testing would probably mean a marginal benefits phase out, and the combination of taxation and benefit phase-out leads to significantly higher marginal tax rates. For example person whose Social Security benefits phase out at $0.30 on the earned dollar and who is in the 25% marginal tax bracket is facing an effective marginal tax rate of 55%.

This isn't a 100% conclusive argument, and I'm still conflicted about the merits of SS, but it makes more sense to me now than it used to.

Posted by Julian Elson | November 11, 2007 6:24 AM

Why stop at 1912?
Why not go back to 1776, abolish the federal government completely, and watch prosperity truly rain down?
It's time to confront the Founding Father's core delusion the federal government was necessary in the first place!

Posted by stonetools | November 11, 2007 1:25 PM

Dear Andrew, dear all,

I am not addressing the 2/3s of the population that identifies with a specific team (Reps or Dems). I am addressing those among the team players who instinctively trust government controlled policies more than market policies. BOTH types come from Government. Bear in mind that there exists also 1/3 of the population who are not affiliated with color (or religion).

And, dear statists, only because somebody claims that the income tax is less efficient and fair than a VAT – does not mean they will cut all taxes.

Regarding Bush vs Hillary vs Gulliany vs Obama – these are all politicians and not economists. Those people will give people a bad policy if they want it and people generally get what they deserve? I see no fundamental difference between many of them. Hillary voted for the war, is unclear on torture and has voted for threatening Iran by voting for moving troops to the border. On immigration they more or less sound the same, etc.

Both Republicans and Democrats are naturally mixed economy and mixed democracy types. They have no special ideology that they follow and the have no scientific theory of economics that they stick to. One example – when it comes to farm subsidies, both left and right, have no problem with inefficient subsidies. We discuss the threat of climate change to the survival of human mankind and both left and right are mainly concerned about “efficiency” and “costs” (Hillary).

I am all for economic efficiency but I do not like how Republicans/Democrats switch so often from statism to scientific economics. I can NEVER figure out when they go this way and when that way. It does not make ANY sense beyond popularism. We are throwing dice - one hour we believe in science and the other hour in God.

So do not get me wrong – I understand that this is how democracy and human nature works.

Again – if the goal is to have X amount of tax budget – one should consider the best way to get there, the most efficient and sustainable way. Similarly – if one wanted to increase spending on health care by Z - – one should consider the best way to get there, the most efficient and sustainable way. This is the libertarian premise and nothing else. Of course – if you have only meat and sugar in the kitchen and shops are closed – there is nothing you can do to change your habits in the short-run. But stating, like any doctor does, that more veggies and fruits are good should not be seen as an attack against 2/3s of the country. It is true that most practice “mixed” diets – some junk food and some healthy food. But at least I can see a pattern when it comes to diet. When it comes to economics – I fail to see a pattern in any party.

And to be perfectly clear, despite that I find the economic understanding of politicians and the public lagging behind other skills and illiteracies – I am not claiming that carrying about your local team more than the sport itself is bad. I currently support a Democratic candidate, Barack Obama and a Republican candidate Ron Paul. I find both stick out from other people of color due to their characters and NOT their policies.

Ron Paul who wants tight immigration control is not a free marketer. But he is right about the income tax being inefficient compared to VAT. Barack, who is good when it comes to civil rights issues and foreign affairs support increasing the minimum wage and is all for more nuclear and coal energy? Gulliani is playing the “have no fear of violence” card but is pro-abortion and immigration and hence almost softer than some Democrats on those issues. On Torture he sounds dangerous but so did the Democratic vote so far. (Hillary is for everything and nothing and I cannot take her all too seriously but hence my Hillary bashing is not as serious as it sometimes comes across. In fact she stands for my biggest irritation. Not only does she sometimes eat junk food and sometimes healthy and without a pattern - but she often mixes junk food and healthy food together in one sentence.

I am ALL for junk food. But let’s not subsides it. Let us not give people incentives to stay in social security. Let us consider other forms of school lunch programs than USDA meat and sugar subsidies. Let us bear in mind that the tail, those who are the poorest, often lose out the most when it comes to increases in the minimum wage and public schooling. Democratic policies have tended to help the middle-class but not the poor and LEAST OF ALL – the very poor. If we applied efficient economics to guarantee a strong economy and then take care of the very poor – that would be in my interest. But both parties tend to help the middle-class the most… (When Paul Krugman talks about the poor in the US he usually means the average household compared to Bill Gates and Buffet..?)

Can somebody tell me why MOST politicians and MOST voters do not care so much about the relatively few very poor as they do about the vast and strong middle-class?

Posted by Hugo Pottisch | November 11, 2007 1:33 PM

Dear Hugo-

TL:DR.

Posted by James Gary | November 11, 2007 2:02 PM

Here the whole thing in a nutshell by Milton Fried-da-Man.

The only thing that is missing is a discussion about the "very" poor and why they lose out the most when too much government intervention is present. But I think we all know why this is? Because the majority is middle class and because they decide the vote. Just like the middle class blames the rich for this and that - the very poor should blame the middle class? But the very poor are relatively few and obviously have other things to do.. or not to do. Paul Krugman usually blames big business for the failure of Democrats to tackle the least fortunate (the middle class). But anybody who thinks about it for more than seconds should smell something else?

Posted by Hugo Pottisch | November 11, 2007 2:03 PM

Let us bear in mind that the tail, those who are the poorest, often lose out the most when it comes to increases in the minimum wage and public schooling. Democratic policies have tended to help the middle-class but not the poor and LEAST OF ALL – the very poor.

Would it be all right if I didn't bear this in mind given that it is crap? Thanks.

Posted by Col Bat Guano | November 11, 2007 4:03 PM

Hey, I'd be happy to start with an 100% estate tax, with no exemptions, until all social security and medicare benefits paid out to the deceased are recaptured. Then have a floor below which no FICA taxes are collected on wages.

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