Best of the Blogs: Jon Henke on the Republican Marginal Revolution
by The Editors
May 11th, 2006
The Republican Marginal Revolution
by Jon Henke
QandO
May 10, 2006
I’m late to this discussion, but this month’s Cato Unbound topic — “The GOP and Limited Government: Do They Have a Future Together?” — provides a lot of food for thought. I’ll eventually have more to say about some good follow-ups by Bruce Bartlett, Ryan Sager, David Boaz and Ross Douthat/Reihan Salam — all of which are worth reading — but let’s start with the essay of David Frum’s discontent…
The fairest chance to achieve the limited-government agenda passed with only very limited conservative success. [...] And the day in which we could look to the GOP to have an affirmative small-government vision of its own has I think definitively passed.
Frum goes on to list three main reasons why the small-government windown has closed…
* “First, while small-government conservatism remains an important faction within the Republican party, it is only a faction [and therefore] not strong enough to enact a program by ourselves…”
* “Second, I think it’s been fairly established now that the Republican party responds far more attentively to the practical needs of business constituencies than to the abstract principles of free-marketeers.”
* “Third, for the GOP to reinvent itself as a limited-government would require it to repudiate much or maybe close to all of the domestic agenda of the Bush administration.”
Finally, Frum suggests that the limited government approach may merely “live on as a tendency within both parties rather than as a compact and self-conscious movement in control of one of them”. This is, I think, indisputably accurate.
That’s not to say that I think that “limited government” is a lost cause. Progress can be made…but not with our current approach. Before we embark on another anti-leviathan revolution a la 1994, Republicans need to remember a practical problem with such a crusade: Government is a very popular tool, and there’s just not much reason to believe that the US public will repudiate that tool in the near future. People like the the big government programs we’d like to cut.
Oh, sure, they’ll complain about taxes, pork and other easy targets or painful reminders of the cost of government, but they generally approve of — and vote for — the programs that constitute the bulk of the “size of government” about which we complain. In a recent CBS/New York Times poll, fully 62% said “the federal government should guarantee health insurance for all Americans”. That result is not an outlier. As for the other major federal liability, social security, numerous polls show the public trusts the Democratic Party substantially more than the Republican Party to deal with Social Security, which should tell you all you need to know about their interest in cutting it back.
Porkbusting is helpful and it certainly energizes the limited government types, but we could eliminate pork entirely and it wouldn’t substantially reduce the size and scope of government; nor would any likely cuts in military or discretionary spending. The problem programs for libertarians and fiscal conservatives are the entitlement programs and those are, let’s face it, popular programs. On the question of the size of government, the Left has indisputably won.
The problem, I think, is in our very un-economic approach to the cost/benefit calculation of government. The Democratic Party strategy is “Look what Government can do FOR you”, while Republican Party counters with “Look what government is doing TO you”.
Both views get sympathy from the voting public and power shifts according to the current zeitgeist. It’s a never-ending cost/benefit Kabuki dance, where — with apologies to Kipling — cost is cost and benefits are benefits and never the twain shall meet.
The problem, however, is that neither party is particularly acknowledging the trade-off. Government does fulfill a public demand; it also extracts a public cost. In a free market economy, we balance these competing interests with the price mechanism.
A price mechanism is the process by which a market ensures an efficient allocation of resources – as prices rise or decline, consumers react by altering the quantity demanded. Unfortunately, there’s not much of a market mechanism for determining the marginal utility of additional government spending, so voters simultaneously want more benefits and lower taxes – ultimately contradictory demands. Because consumers always overdemand goods and services that are underpriced–or paid for by someone else–this helps the Party (i.e., Democrats) that promises more public benefits rather than the Party (that once upon a time) promised less.
The path forward for libertarians and fiscal conservatives, then, is accept that voters will demand benefits, but to ensure that voters feel the costs of additional government through a Price Mechanism for Government.
I’ve briefly touched upon such an approach previously here. The primary policies towards this kind of Republican Marginal Revolution would be Transparency and a Tax Price Mechanism. Some suggestions toward that end…
Transparency:
(a) so that the public is aware of what is being done in our name and with our money and can speak up in time to make a difference, all spending legislation (save classified material) should be made public on the internet prior to a vote;
(b) to avoid the game theory and public choice problems wherein politicians vote for unnecessary expenditures simply because they are attached to otherwise-important bills (or to get their own provincial expenditures passed), all expenditures should require a separate up-or-down vote from each Congressman or Senator. Russel Roberts observed in the WSJ 10 years ago that, under our current pattern of diffused-cost spending decisions, “self-restraint goes unrewarded”.
The Price Mechanism:
The next tax reform should not merely seek to simplify our tax burden, which was recently estimated at a “compliance cost of over $265.1 billion”, which amounts to a “22-cent tax compliance surcharge for every dollar the income tax system collects.”. Tax simplification is cyclically inevitable, but inevitably prone to what Christian Sandstrom called “the marginal utility of satisfying rent-seekers” – i.e., a simplified tax code will invariably become more complex.
The next tax reform should seek to internalize the costs of government programs, such that any increase (or decrease) in spending would have an immediate and apparent affect on all taxpayers. A flat tax could do just that with a floating tax rate, indexed to overall spending levels. What’s more, a flat tax could quite easily be designed to be effectively progressive, with the inclusion of basic income and housing exemptions, while not overly distorting the economic decision making process.
In fact, a variant of this – “Efficient Taxation of Income” — was proposed in Harvard Magazine by economist Dale Jorgenson. He suggested “a new approach to tax reform based on taxation of income rather than consumption. This would avoid a drastic shift in tax burdens by introducing different tax rates for property-type income and earned income from work.”
This kind of flat tax could be widely popular among disparate political interests. Libertarians would love to the price mechanism aspect; liberals would appreciate the mandatory effective progressivity and the end of special interest tax breaks or favors that create regressivity. Conservatives would go for the increased simplicity and reduced marginal rates.
Ultimately, however, the specific mechanism of the tax is less important than the existence of a price mechanism. If we want to make limiting government a reality, we must stop appealing to an unsustainable interest (cutting taxes) and start appealing to the margin – that area where voters can decide just how much they value what government does for them, compared to what government does to them.
