From the Monthly Letter of the First National City Bank of New York, June 1960.
The real point at issue is how much farther—if at all—we can safely go toward discouraging individual initiative, self-reliance, and industrious habits. The barrage of complaints over inadequate economic growth would seem to suggest that we need to concern ourselves more, rather than less, with the human aspirations that make the economy go.
In recent years it has become fashionable to say that the United States presents a shocking contrast between private wealth and public poverty. Private citizens are pictured as so affluent that they really don’t need all the money they have. On the other hand, it is argued that government is "poverty-stricken" and urgently needs more money. Professor John Kenneth Galbraith’s presentation of these views in The Affluent Society made the best-seller lists and became a provocative topic for conversation. Now the issue has been taken to Washington.
A recent New York Times dispatch by Edwin L. Dale reported that: "More and more people in the capital are convinced that the most important continuing issue of American policy and politics over the next decade will be the issue of public spending—what share of America’s total resources should be devoted to public as distinct from private purposes." Mr. Dale summed up the view on "private affluence and public poverty" as follows:
Our society has reached a level of private wealth never before seen on this earth.
Yet at the same time there is poverty in the public sector of the economy. Education is under-financed. Streams are polluted. There remains a shortage of hospital beds. Slums proliferate, and there is a gap in middle-income housing. We could use more and better parks, streets, detention facilities, water supply. The very quality of American life is suffering from these lacks—much more than from any lack of purely private goods and services. The share of government in the total economy has been stable or even declining, while private affluence grows.
This is quite an indictment of the free society that has given the masses of the American people wealth and living standards admired the world over.
Antigovernment Fixation?
Senator Joseph Clark of Pennsylvania, addressing a distinguished group of citizens at Arden House last month, expressed the fear that an "antigovernment fixation" in America might lead to a "new anarchy." This is a rather shocking thought. Most people have had the impression that government was taking on a bigger and bigger role in their lives, digging more deeply into their pockets for taxes, spending so much as to inflate prices, and offering more and more "federal funds for free" about the countryside.
The idea that the role of government should be limited is the central underpinning of American democracy; it grew out of the rebellion in 1775 against kingly power and led to the writing of a Constitution of limited powers designed to protect the freedom and sovereignty of the citizen. This was, perhaps, the "old anarchy," under which, fired by individual enterprise in a land of opportunity, a group of agricultural colonies clustered along the eastern seaboard expanded into the most prosperous nation on earth.
Senator Clark’s fears seem rather far-fetched. The trend of events has been in the other direction, toward assumption by government of more and more responsibilities. If there is anything that could be called "antigovernment fixation" today it is only a small voice in the wilderness protesting against burgeoning federal bureaucracy and the tax confiscation of the greater part of the fruits of enterprise. In April 1957 we presented a calculation that if total government civilian employment continued to expand at the same rate as in the preceding 25 years we would all be working for government by the year 2069.
It is hard to see evidences of the alleged shriveling of the share of government in the total economy. Such evidences do not appear in statistics of government employment, tax revenues collected, or funds disbursed. As the table shows, there has been no lack of spectacular increases in outlays for social welfare, highways, sanitation facilities, jails, and the rest.
Government Growth
GOVERNMENT EXPENDITURES AND GNP
|
Middle
|
1940
|
Late
|
1920′s
|
1950′s
|
||
Federal cash expenditures ($ bil.) |
$2.80 |
$9.60 |
$94.80 |
State and local government expenditures |
7.7 |
10.3 |
48.8 |
($ bil.) |
|||
Gross national product ($ bil.) |
97.6 |
95.6 |
463.8 |
Per cent: Government expenditures to GNP |
10.80% |
20.80% |
31.00% |
SELECTED PUBLIC EXPENDITURES (in |
|
|
|
millions of dollars) |
|||
Social insurance benefits |
* |
$1,215 |
$15,975 |
Highway expenditures |
$1,819 |
2,177 |
8,702 |
Aid to other transportation |
257 |
377 |
1,629 |
Public welfare and assistance |
161 |
1,314 |
3,777 |
Police |
290 |
386 |
1,769 |
Fire protection |
203 |
235 |
873 |
Sanitation |
312 |
207 |
1,505 |
Local parks and recreation |
153 |
162 |
685 |
Jails and other correctional |
68 |
105 |
573 |
Health |
84 |
195 |
806 |
Hospitals |
347 |
537 |
3,849 |
Education |
2,243 |
2,827 |
16,836 |
OTHER MEASURES (in millions unless otherwise noted) |
|
|
|
Number of personal income tax returns. |
4.2 |
14.8 |
59.8 |
Government employment |
2.8 |
4.2
|
8.1 |
Educational enrollment++ |
30.7 |
32.1 |
46.3 |
High school graduates, total number |
n.a. |
25.7 |
51.6 |
College graduates, total number |
n.a. |
3.9 |
8.1 |
Paved rural roads (miles) |
0.5 |
1.3 |
2.1 |
National park acreage |
9.6 |
21.6 |
24.4 |
Visitors to national parks |
2.1 |
16.8 |
65.5 |
Social security coverage as |
0 |
64.50% |
90.50% |
percentage of paid employment |
|||
Public housing units (thousands) |
0 |
60.9 |
444.7 |
n.a. Not available. *Unavailable on comparable basis but minor.+ Includes returns of estates and trusts which numbered less than one per cent of individual returns in 1940 and 1957. Includes public and private schools from elementary to university level.
SOURCES: Figures are taken from U.S. Census Bureau’s Surveys of Governmental Finances in the United States; U.S. Department of Health, Education and Welfare’s Health, Education and Welfare Trends; and other official publications.
If we are headed for a "new anarchy," symptoms might be expected to appear in refusals of people to pay what they might regard as unconscionable tax levies. It is true there has been talk that some $8 billion of income is not reported for tax purposes; nevertheless, the fact remains that, with voluntary filing and reporting by tens of millions of individuals and hundreds of thousands of employers, the federal government is enjoying a bigger flow of cash income than any other government on earth, a cool $100 billion a year. If the federal government is indeed impoverished, the cause must be profligacy of expenditure rather than stinginess of the citizen. The amazing thing is how so much money can be disposed of so fast.
No Stinginess Here
How generous the citizen has been with government, compared with what he has kept for himself, is shown in the chart. There has been a 20 times multiplication of the federal government’s cash intake in the past generation. Personal disposable income—the money people have left after income taxes to support themselves and pay other taxes—is not much more than four times the level of 1927. The rise for corporate profits (after taxes) would parallel the retarded gain for personal disposable income.
One excuse given for enlarging programs of financial assistance from the federal government to states and municipalities is that people cannot or will not provide the latter with enough money. No doubt the weight of federal income taxation leads many people to vote against costly state and local government projects involving still more taxes; nevertheless, state and local government income has risen to more than five times the level of 1927.
The Santa Claus School
It is difficult to see in any figures such as these support for the idea that government is poverty stricken. Nevertheless, it is a fact of record that the federal government has had a lot of trouble keeping its budget balanced. The reason emerges when one looks around at the bewildering variety of spending programs. Washington is the natural destination of people and local communities wanting money, as it has been since the advent of what the late Jesse Jones, former RFC chairman, characterized as the "free-spending, Santa Claus school of government reformers." Meanwhile, the purposes for which funds are sought have come a long way from the emergency relief programs of the 1930′s. Encouraged by federal help and example, the states open their purse strings. Only a few months ago, a New York State Supreme Court decision held that public housing projects open to individuals and families with annual incomes of as much as $6,200 to $14,000 were legally entitled to
be built under New York State’s low-income housing program.
It might be asked on what principle government should subsidize normal living expenses for people with incomes double the national average. Who but themselves will pay the bill—with freight charges to and from Washington tacked on? A good deal of manpower gets wasted, collecting taxes and doling out benefits in the paradoxically poverty-stricken affluent society.
The truth seems to be that we are caught in a vicious circle in which people’s abilities to take care of their own needs are hampered by the burden of taxes. Paying so much in taxes, the citizen is tempted to think it only right to get something back. Hence the "needs" government sees for more and bigger subsidy programs which in turn require to be financed by still higher taxes or inflation. And inflation, hitting the weak and helpless hardest, creates still more "needs."
Matter of Tail-Fins
The preachers of the affluent society doctrine are fond of using tail-fins on automobiles as the ultimate symbol of unnecessary private extravagance. They are not so apt to mention the wheat bins holding surplus grain for which taxpayers have put up more than $3 billion and which, converted into bread, would provide 450 loaves for every man, woman, and child in this country. They say nothing about misconceived public works projects and the common abuses of social welfare programs. On May 16, Budget Director Maurice H. Stans found it necessary to revise federal travel regulations to encourage more flying by coach or tourist class instead of first class by government employees:
"These revisions are issued to call attention to the fact that the use of first-class air travel by government employees far exceeds in proportion its use by the general public, and to urge greater consideration of less costly facilities."
Tail-fins on automobiles are supposed to prove that people are foolish in their spending decisions and cannot be trusted with their own money. There are two schools of thought about tail-fins but it is quite clear that millions of people have preferred them; otherwise the finned vehicle would not be so common. Perhaps the surrey with the fringe on top was similarly condemned in the Gay Nineties, as a symbol of "conspicuous consumption."
Yet it is one of the proud distinguishing marks of a classless democratic society that any citizen with enough money or credit can have a car, suit, dress, or home with some seemingly useless ornamentation; he does not have to be somebody in an official sense. People work hard so that they can enjoy these things and be individuals rather than the drones of a master state.
The New York World-Telegram & Sun, on May 23, commented editorially on the subject:
There is much scornful talk of "luxury living," the implication being that people are so stupid they throw their money away on gadgets instead of essentials. Actually, this national growth has been widely spread. The significant effect has been to raise millions in America from a level of bare subsistence to modest comfort that remains far short of luxury.
Older citizens can remember when the "full dinner pail" was an effective political slogan, meaning the worker should have enough to eat. Today’s trade unionist is no "simple working man" to be patronized with a few beers at election time. He’s a substantial citizen who probably owns his own home, auto and TV set, with children in college.
It seems obvious to us that it would be the height of national irresponsibility to trade a system which has worked so well for a Socialist-inspired experiment, especially at a time when the early European sponsors of socialism are abandoning it for free enterprise.
The author of The Affluent Society has been characterized as an iconoclast although nothing has become more common and conventional than asking government to take over more powers and responsibilities from the citizen. It is notable that another member of this school of thought, Mr. Adlai Stevenson, does pause to recognize that:
Without individual decision and inventiveness, without widely dispersed centers of authority and responsibility, the social order grows rigidand centralized. Spontaneity wither:- before the killing frost of public conformity. Individual citizens with all their varied relationships, as parents, neighbors, churchgoers, workers, businessmen, are reduced to the single loyalties of party and state.
The School Problem
Perhaps the most widely used illustration of alleged "public poverty" is our school system. We are told that while the American people drive around in "mauve and cerise, air-conditioned, power-steered, and power-braked" automobiles, their children’s schools are "old and overcrowded." The charge is that the states and local communities, which in the United States are responsible for education, just haven’t been doing their job. What is needed, the critics say, is federal money for education, with some proposals running to $4 billion a year. As a speaker at the convention of the American Association of School Administrators put it: "The federal government, that’s where the money is. And that’s where the money must come from."
No country comes close to rivaling American spending on education. Total public and private expenditures for education in the U.S. reached $22 billion in 1959, almost triple their level 10 years earlier.
To say that the nation’s schools are "old and overcrowded" collides with the fact that the states and local communities have built 680,000 classrooms since World War II, more than half the 1,330,000 now in use. The "classroom shortage," supposed to justify federal intervention, has been shrinking steadily. Back in 1955 predictions were heard that we would be 600,000 classrooms short by 1958. When 1958 arrived, the U.S. Office of Education estimated the shortage at 141,900. Although the peak demands for high school and college facilities lie ahead, we have passed over the hump of elementary school enrollments. The job of building to make up for the deferral of school construction during the war, and the bulge in births immediately after the war, is largely past.
Some educators suggest that the trouble with U.S. education is excess emphasis on money and too little emphasis on what we are getting for the money; excess emphasis on elaborate new plant and too many idle hours for existing plant; excess emphasis on quantity of education and too little on quality. Schools which slight subjects with intellectual content in favor of "life adjustment" type courses are not going to be improved by more money. The problem is one of purpose, as Dr. Grayson Kirk, president of Columbia
University, indicated in January: "Our public schools and far too many of our colleges have virtually abdicated their functions in society because they are content to give their students little more than an opportunity to have pleasurable social experiences." Professor Richard M. Weaver of the University of Chicago has put the same point even more strongly:
Education here today suffers from an unprecedented amount of aimlessness and confusion. This is not to suggest that education in the United States, as compared with other countries, fails to command attention and support. In our laws we have endorsed it without qualification, and our provision for it, despite some claims to the contrary, has been on a lavish scale. But we behold a situation in which, as the educational plants become larger and more finely appointed, what goes on in them becomes more diluted, less serious, less effective in training mind and character; and correspondingly what comes out of them becomes less equipped for the rigorous tasks of carrying forward an advanced civilization.
Some Fundamental Issues
One trouble with the idea of turning our affairs over to the dictates of wise men sitting in government offices is that it clashes with the traditional beliefs of our people. The right to be different, the right to live according to our own lights is rooted too deeply in the American soil to be passively given up. The citizen has no reason to believe that public officials are exempt from human frailities. As Mr. Stans, speaking before the U.S. Chamber of Commerce, said last May: "We must not be charmed by the notion that government is a wiser manager of our economic fortunes than is private enterprise."
It is hard to see how political freedom can survive if economic freedom is denied. When people spend their money, they are casting ballots for what ought to be produced. They all make mistakes, as government does in its procurement, but they may be a bit more careful because, after all, the money they are spending is their own. Moreover, the mistakes of individuals are small mistakes, never the billion-dollar variety.