In the 1800s, two French observers of political economy made statements that are validated by present day experience.
Frederic Bastiat (1801-50) noted, "Government is the great fiction through which everybody endeavors to live at the expense of everybody else." While Alexis de Tocqueville (1805-59) predicted that "The American Republic will survive until politicians realize they can bribe the people with their own money."
I think there are three levels to Bastiat's fiction - each a more complicated application of de Tocqueville's prediction.
We make economic decisions every day. We shop for food, clothing and various services and make big ticket purchases like homes and automobiles from time to time. We compare the price of the contemplated purchase to our perceived value of it. We make the purchase if it suits our purposes given our financial resources. We have the necessary information to make a decision.
Now let's introduce "government" into the picture. We only assume that government has the power to tax some or all of us and to provide goods and services it purchases to some or all of us. It is precisely this ability that breaks the connection between measuring the price of the goods and services we receive from their cost to us.
Think of any government service and try to calculate its value to you. Then try to calculate the government's cost of providing it. Next replicate the process for every government good and service. I'll save you the frustration - it cannot be done.
As a result, we can fall prey to the illusion that a government-purchased product or service is relatively low cost or even free to us. It is in an individual's best interest and inclination to demand more of what is perceived to be free or low priced.
We live in a representative government where majority rules. A majority can vote itself a purchased government good or service and not bear the full cost of it. The composition of a majority can change and coalesce around different interests.
Further, everybody can play the game and believe they won. Now you have all of the necessary ingredients to Bastiat's great fiction. Now read it again.
There are two additional ways this tendency becomes magnified. Both relate to de Tocqueville's prediction.
Let's play Hide the Taxes.
There is a saying in economics that "business does not pay taxes, it just collects them," and it is true.
A business exists to deploy capital to produce a product or service for sale to consumers at a price that recovers all costs, including taxes, and delivers a sufficiently high profit that the owners continue to produce it.
Every tax imposed on business ends up in the price the consumer pays for the product or service. For example, federal and state taxes on gasoline sales total 50.7 cents per gallon.
My most recent favorite is the Johnstown Flood Tax, which is an 18 percent tax imposed on wine and liquor sales in Pennsylvania to finance the relief effort of victims of the 1936 Johnstown flood.
A 25-year-old adult in 1936 would celebrate their 100th birthday this year. I don't think that many of those victims are still with us, but the tax is.
This is a nearly perfect technique for politicians to provide us government purchased goods and services, which appear "free" because the tax is buried in the prices of things we buy.
Second, consider the attractiveness to politicians of providing government purchased goods and services without taxing anyone. Let's play Spend the Kids Inheritance.
If a politician borrows money, by selling a bond, the politician can provide us with government purchased goods and services without taxing anyone - currently. The sacrifice is put off to a date in the future when the bond matures and must be paid off or when the foreign buyer sells it and demands produced goods and services for it.
I think it is fair to say that Bastiat's observation and de Tocqueville's prediction are now true. For the sake of our children and grandchildren, I hope we can recognize the illusion and restrain ourselves, but I am not optimistic.
Christopher Gable lives in Altoona.
