WEBVTT NOTE Crisis and Liberty: Lecture 1 1 00:00:00.000 --> 00:00:10.000 Good morning, ladies and gentlemen. It's a pleasure for me to be a professor for a little while. 2 00:00:10.000 --> 00:00:18.000 I wouldn't want to overdo it. I used to be a professor, but the number of years have elapsed since then, 3 00:00:18.000 --> 00:00:28.000 and so this is a challenge for me to come into a classroom twice a day and present an organized talk. 4 00:00:28.000 --> 00:00:51.000 Today, I want to present some background material, as it were, not so much actual historical material, which I'll be working with for the rest of my talk, but I'll do my best, and maybe some of my rusty pedagogical skills will work a little better as we go along, I hope so. 5 00:00:51.000 --> 00:01:05.000 The background material, as it were, not so much actual historical material, which I'll be working with for the rest of the week, although I will make references from time to time to historical events. 6 00:01:05.000 --> 00:01:17.000 But I want to give us some ways of thinking that I have found helpful in trying to understand the growth of government in American history. 7 00:01:17.000 --> 00:01:23.960 and so some of this is more analytical than it is historical but I hope it 8 00:01:23.960 --> 00:01:32.680 will prove to be helpful. Before I begin even that I want to refer to some of the 9 00:01:32.680 --> 00:01:41.120 reading material that was recommended. My book Crisis and Leviathan was, I think, 10 00:01:41.120 --> 00:01:46.220 recommended to you as good background reading and you won't be surprised if 11 00:01:46.220 --> 00:01:58.220 If you find me this week repeating some of what I wrote in this book, unfortunately I haven't learned everything new since I wrote this book. 12 00:01:58.220 --> 00:02:14.220 I wouldn't write it the same way today if I had to do it again, but most of the things I would do were in the early chapters rather than the meat of the book in the historical chapters. 13 00:02:14.220 --> 00:02:21.940 So, for the most part, I stand by the historical analysis that appears in Crisis and Leviathan. 14 00:02:21.940 --> 00:02:27.220 When I wrote Crisis and Leviathan, about the only book that took a broad view of the growth 15 00:02:27.220 --> 00:02:34.540 of the American government was the J.R.T. Hughes book, The Governmental Habit, and that 16 00:02:34.540 --> 00:02:41.060 was a useful book, and it's still worth a while for you to read, so I recommend it, 17 00:02:41.060 --> 00:02:59.060 Although, Jonathan, who was a dear friend of mine, was not a very systematic thinker and so what you look for when you read his book is nuggets of insight and interesting facts and there are many of them in his work and that's what makes it worthwhile. 18 00:02:59.060 --> 00:03:08.540 but Jonathan was not a man given to to developing a coherent theory or 19 00:03:08.540 --> 00:03:14.140 structure to encapsulate his interpretations and the work suffers as 20 00:03:14.140 --> 00:03:21.260 a result. Just recently two books that also take in a lot of territory have 21 00:03:21.260 --> 00:03:26.420 been published. Some of you are aware of them but just in case you're not I want 22 00:03:26.420 --> 00:03:33.940 to call them to your attention. One of them is Randy Holcomb's book From Liberty to Democracy. 23 00:03:35.220 --> 00:03:43.700 Professor Holcomb is well known to friends of the Mises Institute because he often comes here for 24 00:03:45.220 --> 00:03:55.700 talks and conventions and other occasions. This book covers the whole time period from the colonial 25 00:03:56.420 --> 00:04:08.020 era of British North America up to the present day and carries a theme that in the beginning at 26 00:04:08.020 --> 00:04:16.180 least from the time of the revolution and the Constitution there was a great emphasis placed by 27 00:04:16.180 --> 00:04:24.580 Americans on using government to secure liberty and democracy on the other hand was something that 28 00:04:24.580 --> 00:04:54.580 that was not held in great esteem and was viewed as a useful and legitimate means to an end but the end was the securing of liberty and Holcomb argues that over the past 200 years the inexorable trend has been away from that initial stance and toward the idea that securing of liberty was relatively unimportant and 29 00:04:54.580 --> 00:05:08.580 The giving way to more and more democracy was held in ever higher esteem and as a result government has grown bigger and bigger. 30 00:05:08.580 --> 00:05:22.580 This book is a nice complement to my book Crisis and Leviathan because whereas I covered the period from the late 19th century to the late 20th century 31 00:05:22.580 --> 00:05:29.140 and focused on national emergency periods which I think played an especially important part in the 32 00:05:29.140 --> 00:05:37.860 course of events. Holcomb tends to not only take in a longer period but to concentrate on as it were 33 00:05:37.860 --> 00:05:49.580 non-emergency periods and events and so his book along with mine I think cover much of the ground 34 00:05:49.580 --> 00:05:55.180 that one would want to learn about in trying to understand the growth of 35 00:05:55.180 --> 00:06:00.980 government in the United States. Another book I highly recommend by Charlotte 36 00:06:00.980 --> 00:06:08.300 Twight is called Dependent on D.C. and the subtitle is The Rise of Federal 37 00:06:08.300 --> 00:06:14.980 Control Over the Lives of Ordinary Americans. Charlotte was a PhD student of 38 00:06:14.980 --> 00:06:22.420 mind if I may say so back in the days when I was a professor at the University 39 00:06:22.420 --> 00:06:28.180 of Washington and I'm a little hesitant to describe Charlotte that way because 40 00:06:28.180 --> 00:06:37.380 she was a student who required no oversight. I love those kinds of students. 41 00:06:37.380 --> 00:06:42.060 She knew what she wanted to do and how to do it and she really didn't require 42 00:06:42.060 --> 00:06:48.060 helped with me and although I tried to be helpful when she wrote her dissertation I don't think she 43 00:06:48.060 --> 00:06:55.980 needed me but I was still pleased to be associated with her her work and she became a dear friend of 44 00:06:55.980 --> 00:07:03.380 mine and she and I have had work together over the years on research of our own we've we've done some 45 00:07:03.380 --> 00:07:11.460 writing especially back in the 1980s when she was first starting as a professor but Charlotte's book 46 00:07:11.460 --> 00:07:19.780 is beautifully researched and she's an extremely solid researcher, always gets 47 00:07:19.780 --> 00:07:30.220 her facts absolutely straight and documents them in the slightest detail so 48 00:07:30.220 --> 00:07:37.500 I think some of us suffer from from going off half-cocked sometimes and making 49 00:07:37.500 --> 00:07:53.020 Her book basically covers various federal programs from the 1930s to the present and 50 00:07:53.020 --> 00:07:57.260 covers some ground that is normally not covered in discussions of the growth of government 51 00:07:57.260 --> 00:08:02.340 such as the growth of the surveillance state, which has become more and more important, 52 00:08:02.340 --> 00:08:07.340 especially in the last couple of years, but has been something that's been developing 53 00:08:07.340 --> 00:08:13.220 for a long time, and so I highly recommend her book for the more recent period of the 54 00:08:13.220 --> 00:08:19.260 growth of government, and especially for programs like federal involvement in education and social 55 00:08:19.260 --> 00:08:28.580 security, where as the subtitle suggests, ordinary people have become more and more dependent on the 56 00:08:28.580 --> 00:08:35.300 federal government to provide them with critical benefits that they used to provide through private 57 00:08:35.300 --> 00:08:50.300 So those are good background sources and I'm sure that I haven't yet absorbed everything that is in them and that I'll be going back to them from time to time. 58 00:08:50.300 --> 00:09:03.300 Let me say just a few words about history in general. If you were here last week to hear Ralph Reiko, you probably don't need this. 59 00:09:03.300 --> 00:09:18.300 But at all events, this is the Mises Institute, which is dedicated to advancing the work of Mises and Rothbard and others who work in that tradition. 60 00:09:18.300 --> 00:09:29.300 And that is fundamentally tradition in economic theory, or more basic than that even, in the theory of human action and praxeology. 61 00:09:29.300 --> 00:09:36.300 I don't know if it was Mises himself or one of his followers who is supposed to have said 62 00:09:36.300 --> 00:09:41.300 everything you need to know you can know by sitting in an armchair with your eyes closed. 63 00:09:41.300 --> 00:09:48.300 And that's one way to conceptualize the character of praxeology. 64 00:09:48.300 --> 00:09:56.300 The praxeology is the logic of action and once you start thinking about the idea of purposive, 65 00:09:56.300 --> 00:10:17.680 and then you can sit there with your eyes closed and think of implications of that throw in some reasonable factual auxiliary statements and then see what they along with the axiom of human action imply and you can spin out an 66 00:10:17.680 --> 00:10:47.680 and enormous multitude of implications that way and build a whole structure and to a large extent that's what Mises did in his great work, Human Action and others have followed and developed new implications over the years so one might say well if we can know everything by sitting in a chair with our eyes closed why do all this hard work of learning history that that requires that we open 67 00:10:47.680 --> 00:10:55.520 in our eyes that we do a great deal of reading and wrestling with facts and trying to sort 68 00:10:55.520 --> 00:11:02.720 out alternative interpretations of specific events. It's a very different enterprise 69 00:11:02.720 --> 00:11:12.480 from sitting with our eyes closed to thinking. It's not necessarily easier or harder, it's 70 00:11:12.480 --> 00:11:32.480 is just very different. Well, I think Mises himself anticipated that kind of question, and it's interesting, it's always been interesting to me that Mises devoted so much of his own intellectual energies to actually doing history. 71 00:11:32.480 --> 00:11:43.980 Mises was, I think, a great historian and many of his works display his skills and wisdom as a historian. 72 00:11:43.980 --> 00:11:54.980 A lot of judgment goes into historical interpretation and that's where many historians go astray because they're not good at making sound judgments. 73 00:11:54.980 --> 00:12:11.980 But Mises, I believe, was an extremely good judge when he interpreted historical events and some of his works, such as Nation, State and Economy, are, to my way of thinking, splendid works of historical scholarship. 74 00:12:11.980 --> 00:12:25.980 Similarly, Murray Rothbard devoted much of his energy to historical scholarship, and I think I'm willing to say that nobody knew more facts than Murray. 75 00:12:25.980 --> 00:12:38.980 Probably no human being ever read more books and remembered what he read. It was amazing what the man could call forth with almost no prompting at all. 76 00:12:38.980 --> 00:13:08.980 I actually wrote it in a memoir after Murray died. He wrote a letter to me one time after I had drafted my book Crisis on the Life and it was being circulated to scholars and Murray turned out to be one of those persons and he responded by writing a letter which was basically to me although it was sent to the Pacific Research Institute which was sponsoring my book 77 00:13:08.980 --> 00:13:16.180 passed along to me, but this was a 20-page, single-spaced letter, which consisted basically of 78 00:13:18.020 --> 00:13:25.860 recommendations for reading. He would say, well, Professor Higgs has slumbered at this point. 79 00:13:29.380 --> 00:13:35.220 He needs to see, and then he would have some reference to, the Southwestern Tennessee Academy 80 00:13:35.220 --> 00:14:05.220 of Religious and Praxeological Studies," where I could have found the article by Joe Schmo on something I never heard of, so Murray was an extraordinary historian, and I don't think any of us can really expect to equal him in that regard, because it requires some genetic equipment that I suspect the rest of us are lacking, but 81 00:14:05.220 --> 00:14:28.220 But in all events, he also did a lot of hard work, even with the skills he brought to the endeavor to learn history and he absorbed a huge amount of it and wrote a great deal, interpreted historical work and it's, besides being educational, it's great fun. Murray was a sprightly writer, if anything. 82 00:14:28.220 --> 00:14:51.220 We hear every day on the news and when you read the newspapers, various people engaged in politics, making policy proposals, and if you think about it, I believe you'll find that policy proposals invariably rest on some assumptions about how the world works. 83 00:14:51.220 --> 00:14:58.200 Some of them are what we might call praxeological assumptions. It's remarkable 84 00:14:58.200 --> 00:15:04.120 how many policies seem to rest on misunderstanding the law of demand, for 85 00:15:04.120 --> 00:15:09.480 example. They do little things like that, but very often they're a little more 86 00:15:09.480 --> 00:15:17.560 complicated and basically make assumptions about how people will 87 00:15:17.560 --> 00:15:27.800 will respond to various stimuli, for example. A few months back, Paul Wolfowitz told us that as soon as 88 00:15:27.800 --> 00:15:36.160 American forces entered Iraq, the Iraqis would come forth waving and throwing flowers and celebrate 89 00:15:36.160 --> 00:15:47.320 us for liberating it. Well, Mr. Wolfowitz was making a judgment about how the world works, assuming he was 90 00:15:47.320 --> 00:16:16.320 was not being disingenuous in making that forecast. He believed that there was a certain relationship between some fairly complex events and on the basis of his understanding of how these events are interrelated in concrete reality, he made a forecast about what would happen if something was changed, if the government of Iraq was replaced by American military forces. 91 00:16:16.320 --> 00:16:26.640 Well, now we see, I believe, that he was wrong. In fact, there wasn't a lot of 92 00:16:26.640 --> 00:16:32.600 throwing flowers on American troops. Indeed, rocket-propelled grenades are 93 00:16:32.600 --> 00:16:38.880 closer to the mark, and they're being thrown daily now at these unfortunate 94 00:16:38.880 --> 00:16:45.920 American soldiers who put themselves in harm's way in discovering how people 95 00:16:45.920 --> 00:16:54.920 But all policy proposals rest on judgments and understandings about how the world works. 96 00:16:54.920 --> 00:17:00.920 Where do these judgments come from? They come from people's understanding of history. 97 00:17:00.920 --> 00:17:13.920 People say we can't do such and such because we know from what happened in Munich in 1938 that if we let that happen, 98 00:17:13.920 --> 00:17:24.920 The next thing you know, Saddam Hussein's forces will be rolling into Czechoslovakia and then into the Bronx and Brooklyn. 99 00:17:24.920 --> 00:17:40.920 People make judgments and sometimes these particular historical events, like that one I just mentioned, the Munich analogy, turn out to loom extraordinarily large in a lot of people's thinking. 100 00:17:40.920 --> 00:17:55.920 Much of American foreign policy seems premised on an understanding that the Munich analogy applies generally, always and everywhere, and that may be an unsound interpretation of history. 101 00:17:55.920 --> 00:18:05.920 So a good understanding of history might help us to be better judges of policy proposals. 102 00:18:05.920 --> 00:18:10.960 History is, among other things, what you might call the laboratory of social 103 00:18:10.960 --> 00:18:16.200 science. We don't have to have a laboratory to test our praxeological 104 00:18:16.200 --> 00:18:20.960 knowledge, as Mises said. We can get that straight by sitting in the chair 105 00:18:20.960 --> 00:18:27.000 with the eyes closed. We know what purpose of action is because we are all engaged 106 00:18:27.000 --> 00:18:33.920 in it ourselves as human beings, and we can use logic to around some 107 00:18:33.920 --> 00:18:45.920 There are some implications of human action, but for more complex events and how they are interrelated in the world, we can't just rely on praxeological understanding. 108 00:18:45.920 --> 00:18:50.920 We have to add what Mises calls in thymology. 109 00:18:50.920 --> 00:19:04.920 Thymological understanding is the kind that combines our praxeological understanding with our knowledge of what people are actually trying to do. 110 00:19:04.920 --> 00:19:10.920 What do they know? What do they believe? What are they trying to achieve? 111 00:19:10.920 --> 00:19:16.920 What do they regard as good means for the attainment of the ends they've selected? 112 00:19:16.920 --> 00:19:30.920 These things are not given in general, they vary according to time and place, and for that reason, history is the only place we can go to find out the specifics. 113 00:19:30.920 --> 00:19:36.920 Even praxeological knowledge doesn't tell us magnitudes. 114 00:19:36.920 --> 00:19:47.420 So one thing to say, the law of demand applies. So we believe that if a price is higher than other things being equal, people want to consume less of the good. 115 00:19:47.420 --> 00:20:04.420 But how much less? Only history tells us about the magnitudes. So history is where social scientists have to go to put empirical meat on the praxeological bones of their understanding. 116 00:20:04.420 --> 00:20:22.420 A lot of philosophers of history and historians have believed over the centuries that we could arrive at laws of history, just as physicists have arrived at laws of physics, laws of nature. 117 00:20:22.420 --> 00:20:31.420 We know that in a vacuum, objects fall at 32 feet per second per second. 118 00:20:31.420 --> 00:20:37.420 That's a law, we believe that applies to any object in any vacuum whatsoever. 119 00:20:37.420 --> 00:20:39.420 It's a general law. 120 00:20:39.420 --> 00:20:50.420 And people have dreamed, people such as Karl Marx, that they could somehow divide the laws of history. 121 00:20:50.420 --> 00:21:02.420 and the kind of rate of acceleration of capitalism as it were and what it was going to become at some future time and why. 122 00:21:02.420 --> 00:21:14.420 What Mises taught in various places including his wonderful book The Theory of History was that there are no laws of history and there can't be any. 123 00:21:14.420 --> 00:21:20.420 Because laws of history would contradict the whole idea of human action. 124 00:21:20.420 --> 00:21:25.420 The idea that people are free to make choices, that they're not predetermined. 125 00:21:25.420 --> 00:21:33.420 Nothing ever requires any individual to choose a particular choice in a given situation. 126 00:21:33.420 --> 00:21:39.420 People learn. They acquire new tastes, new objectives. 127 00:21:39.420 --> 00:21:48.420 They discover new means to achieve their given objectives. They're constantly changing. 128 00:21:48.420 --> 00:21:58.920 Every day you live, you step, as it were, into a new river. It's never the same again, because you're never the same again. 129 00:21:58.920 --> 00:22:06.420 You become a new human being every day, although there's a certain core of continuity we hold. 130 00:22:06.420 --> 00:22:13.920 So, there can't be any laws of history, and some might say, if there can't be any laws of history, what's the point? 131 00:22:13.920 --> 00:22:21.420 Why are you doing all this hard work of historical research? You're not going to arrive at some kind of generalized knowledge, 132 00:22:21.420 --> 00:22:26.420 some kind of statement about how the world works in time. 133 00:22:26.420 --> 00:22:31.420 And the answer is that even if we can't have laws of history, 134 00:22:31.420 --> 00:22:42.420 We can discover some pretty good patterns and some pretty reliable regularities. 135 00:22:42.420 --> 00:22:52.420 It doesn't mean they're surefire. It doesn't mean we can be absolutely certain that they'll happen in precisely the way that they've happened in history. 136 00:22:52.420 --> 00:22:56.420 But we don't have any choice as human beings about making bets. 137 00:22:56.420 --> 00:23:02.420 Whether we're making interpretive bets as scholars about why things happened as they did, 138 00:23:02.420 --> 00:23:10.420 or whether we're making bets as ordinary human beings going through life in a perfectly routine way. 139 00:23:10.420 --> 00:23:16.420 We all rely on things hanging together in a certain way in order to take the next step. 140 00:23:16.420 --> 00:23:21.420 If we couldn't have some kind of reliance then we'd go mad. 141 00:23:21.420 --> 00:23:39.420 But we ordinarily develop those kinds of confidences, we know that certain things are good bets and we rely on them and we succeed as a result in achieving the ends we seek. 142 00:23:39.420 --> 00:23:52.420 And it's that way with the study of history, too. We can't be absolutely certain that any of the regularities and patterns we discover are, first of all, correct, necessarily. 143 00:23:52.420 --> 00:24:00.420 There's always judgment involved there. And we can't be absolutely certain that they're going to recur. 144 00:24:00.420 --> 00:24:06.420 But we can have a degree of confidence that can make a bet. 145 00:24:06.420 --> 00:24:32.420 Now many historians talk as a shorthand, if in no other way, as if society did things, and I just want to caution this as we go forward that even I may sometimes refer to things that people in general believed or did, as if society were an actor. 146 00:24:32.420 --> 00:24:40.380 but this can never be more than a short-hand way of compressing our 147 00:24:40.380 --> 00:24:46.420 discourse because we know we know from our understanding of human action and 148 00:24:46.420 --> 00:24:52.220 praxeology that only individuals are capable of taking coercive actions. Society 149 00:24:52.220 --> 00:25:02.060 is an abstraction. It's a concept. It's not an acting entity and so we need to be 150 00:25:02.060 --> 00:25:10.380 be alert to historical judgments that are expressed in the form of society needing something 151 00:25:10.380 --> 00:25:20.380 and therefore doing something, society deciding on such and such, historical writing is rampant 152 00:25:20.380 --> 00:25:28.380 with this kind of sloppy language, and I think it very often reflects sloppy thinking, sad to say. 153 00:25:28.380 --> 00:25:42.380 It doesn't mean that the individual actors in history are Adams. This is an old canard that anti-libertarians often throw at libertarians. 154 00:25:42.380 --> 00:25:51.380 You assume everybody's an island, an atom, that everybody's on his own. What a preposterous idea. 155 00:25:51.380 --> 00:26:11.380 Well indeed it is a preposterous idea, because we all live in society, and we're all influenced by our location in that society, by our interactions with other people, that's how we acquire our beliefs, our knowledge, our understandings of the social world, and all the rest of it. 156 00:26:11.380 --> 00:26:22.380 So, we're not atoms, and we're never going to be, but that doesn't mean that some abstractions such as society is an actor. 157 00:26:22.380 --> 00:26:30.380 Ultimately, all the actions are still being taken by individuals, no matter how embedded they are in the social context. 158 00:26:30.380 --> 00:26:39.380 So, when we think of ideas, for example, and we're going to be talking a good deal about the role of ideas in history the rest of the week, 159 00:26:39.380 --> 00:26:52.380 These are ideas held in individual minds, and they have something to do with the social reality in which the individuals exist and hold those ideas. 160 00:26:52.380 --> 00:27:02.380 And in turn, when individuals express themselves and take actions, they alter to some extent the social reality they are a part of. 161 00:27:02.380 --> 00:27:20.380 So, there's a constant reciprocal relationship between individuals and their ideas, and the social reality that they, in a sense, emerge from, and in turn, help to recreate. 162 00:27:20.380 --> 00:27:33.380 So there's a constant going back and forth. Some historians have tried to argue almost as if ideas were the deciding force in determining the course of history. 163 00:27:33.380 --> 00:27:44.380 Others, no, it's just social reality. It's just big forces. It's things like industrialization or urbanization. Individuals just react. 164 00:27:44.380 --> 00:27:50.980 doesn't matter what they think well these views are both wrong because in 165 00:27:50.980 --> 00:27:58.220 fact both kinds of changes are taking place out of their interplay comes 166 00:27:58.220 --> 00:28:04.500 historical change but we're going to be talking this week about a particular form 167 00:28:04.500 --> 00:28:11.820 of historical change the so-called growth of government in just the United 168 00:28:11.820 --> 00:28:21.820 in the United States and the area that was the British North American colonies before it became the United States of America. 169 00:28:21.820 --> 00:28:35.820 So this is a little slice of historical space, but it's big enough, for me at least, there's a lot to be learned here. 170 00:28:35.820 --> 00:28:45.820 Let's start off by clarifying what we mean by the size of government, and therefore how we can talk about the growth of government. 171 00:28:45.820 --> 00:28:57.820 This is not an easy thing to do, right at the outset. There have been many studies, particularly in the past 30 years, of the growth of government. 172 00:28:57.820 --> 00:29:12.820 The economists became very interested for a while and then political scientists got involved and others joined the hunt to try to explain the growth of government. 173 00:29:12.820 --> 00:29:26.820 And modern social science being what it is in the mainstream, this quickly became a gigantic econometrics exercise 174 00:29:26.820 --> 00:29:40.820 in which my econometrics was cleverer than yours. That's how economists make their reputations in the mainstream profession. 175 00:29:40.820 --> 00:30:07.820 Unfortunately, although these studies actually got off to some promising beginnings, they tended to go astray in various ways because they turned into the usual mishmash, swamp, econometric quarreling, and along the way the analysts tended to lose sight of what the hell they were supposed to be understanding. 176 00:30:07.820 --> 00:30:14.660 and so we need to recall unlike these econometricians that there is no one 177 00:30:14.660 --> 00:30:20.700 single way to measure the size of government that most of them seized upon 178 00:30:20.700 --> 00:30:28.740 government spending as a proportion of gross domestic product and that was the 179 00:30:28.740 --> 00:30:33.980 size of government and that became a measurable dependent variable to do the 180 00:30:33.980 --> 00:30:41.840 Econometrics. Now in some cases they used alternative measures such as government 181 00:30:41.840 --> 00:30:48.700 revenues relative to gross domestic product. In a few cases they looked at 182 00:30:48.700 --> 00:30:56.260 employment, government employment relative to total employment or total labor force. 183 00:30:56.260 --> 00:31:01.540 Now you notice that whenever they tried to measure the growth of government 184 00:31:01.540 --> 00:31:07.280 they've almost always used some relative measure that is to say they've 185 00:31:07.280 --> 00:31:13.220 standardized what government is doing how much it spends or taxes or employs 186 00:31:13.220 --> 00:31:24.180 relative to some broader measure such as total domestic product or total 187 00:31:24.180 --> 00:31:53.180 Employment. This right away, in a sense, begs the question. Because if, for example, you had a growing economy, such as the modern Western economies, which tend to grow at around two to four percent a year, in terms of GDP, routinely, and government grew at the same rate, then according to these relative measures, there would be no growth of government. 188 00:31:53.180 --> 00:32:09.180 If you had 3% growth of GDP and 3% growth of government, then 26 years later you'd say government has not grown, even though it would be spending twice as much money. 189 00:32:09.180 --> 00:32:18.180 Now this makes sense to economists because they think somehow that, well, government ought to grow, implicitly. 190 00:32:18.180 --> 00:32:24.180 If the economy is getting bigger, well, sure, government's got to get bigger too. 191 00:32:24.180 --> 00:32:33.180 Well, why is it that if General Mills produces more cornflakes, government has to spend more money? 192 00:32:33.180 --> 00:32:36.180 That doesn't really make a lot of sense. 193 00:32:36.180 --> 00:32:47.180 Why is it if the mom-and-pop shop on the corner hires another kid to serve up hamburgers, 194 00:32:47.180 --> 00:32:54.620 that government employment needs to go up. These relative measures have built 195 00:32:54.620 --> 00:33:01.340 into them a kind of bias against even recognizing the growth of government. So 196 00:33:01.340 --> 00:33:09.060 that's one shortcoming. But the major shortcoming is that government as it 197 00:33:09.060 --> 00:33:16.900 takes place in modern societies is so multi-dimensional that none of these 198 00:33:16.900 --> 00:33:33.900 These measures can help to capture everything that government is doing. If, for example, the Supreme Court makes some ruling that cuts into the security of private property rights, 199 00:33:33.900 --> 00:33:47.900 Well, government may be spending the same as before, may be employing the same as before, but it seems to me that that denotes the growth of government. 200 00:33:47.900 --> 00:34:00.900 If government has, in fact, put its decision making in the place of decision making by private individuals as property owners. 201 00:34:00.900 --> 00:34:07.900 And there are any number of ways in which government can substitute 202 00:34:07.900 --> 00:34:15.900 means that are not captured by spending or employment for means that are 203 00:34:15.900 --> 00:34:26.900 and we'll miss those kinds of substitutions if all we do is keep our eyes focused on these simple measures of the size and growth of government. 204 00:34:26.900 --> 00:34:53.900 So, we cannot trust them. The typical device of the econometricians is to say, well, I assume, they'll say, why not so obtuse as to believe that these capture everything government does, but I assume that all the things that aren't captured are correlated closely with the things that are. 205 00:34:53.900 --> 00:35:02.620 will show me. That's a nice assumption but it doesn't have any basis. Can we in fact 206 00:35:02.620 --> 00:35:09.060 easily find instances in which there's not a close correlation? I believe we can 207 00:35:09.060 --> 00:35:16.460 indeed. The government is so multi-dimensional that it's very hard to 208 00:35:16.460 --> 00:35:22.820 describe as some kind of simple index that can be quantitatively measured. In 209 00:35:22.820 --> 00:35:30.820 In addition, the modern governments, such as those in the United States, are multiple entities. 210 00:35:30.820 --> 00:35:38.820 We have, of course, a federal system in this country, so we have a central government, which we call the federal government. 211 00:35:38.820 --> 00:35:42.820 And then we have 50 states, each with a big government of its own. 212 00:35:42.820 --> 00:35:50.820 And within the states we have thousands of counties, about 3,000 of them in the country altogether, each of them has a government. 213 00:35:50.820 --> 00:36:01.820 And within the counties there are subunits, in some cases there are units such as townships that have little government functions of their own. 214 00:36:01.820 --> 00:36:09.820 And then we have hybrid entities like court authorities and drainage districts and on and on and on. 215 00:36:09.820 --> 00:36:16.820 We have any number of organizations that are governmental in the sense that they make rules that are mandatory, 216 00:36:16.820 --> 00:36:24.520 are backed by force and they impose taxes. In the United States in recent years 217 00:36:24.520 --> 00:36:31.300 there are more than 80,000 separate governmental entities operating, 80,000 218 00:36:31.300 --> 00:36:42.260 and more than 60,000 of them have the power to tax. So that's a lot of 219 00:36:42.260 --> 00:36:50.260 There's a lot of different governments. Now it's true that no given individual, thank goodness, is subject to every one of them. 220 00:36:50.260 --> 00:37:00.260 We might be pulled into oblivion by all the competing forces to get at our substance. 221 00:37:00.260 --> 00:37:11.260 But even though no individual is subject to every one of them, many individuals are subject to a whole bunch of them. 222 00:37:11.260 --> 00:37:21.260 And so when we talk about the government, that in itself is a kind of stylistic compression that begs a whole lot of questions. 223 00:37:21.260 --> 00:37:28.260 Now again, we might assume, and some people do, that they're basically all in cahoots. 224 00:37:28.260 --> 00:37:38.260 We can talk about the government because all these people who are plundering the private sector and living at its expense all agree what they want to do. 225 00:37:38.260 --> 00:37:44.260 What do they want to do? They all want to grow and get more of our money and exercise more power over us. 226 00:37:44.260 --> 00:37:48.260 Well, yes, yes and no. 227 00:37:48.260 --> 00:37:56.260 Because very often they actually find themselves competing with one another. 228 00:37:56.260 --> 00:38:06.260 We all are familiar, for example, with how states are always quarreling with the federal government 229 00:38:06.260 --> 00:38:09.500 Who's going to regulate a certain activity? 230 00:38:09.500 --> 00:38:13.460 Or who's going to get to tax a certain activity? 231 00:38:13.460 --> 00:38:18.980 How the revenue from a tax is going to be divided between the states and sometimes the 232 00:38:18.980 --> 00:38:21.500 local governments and the federal government? 233 00:38:21.500 --> 00:38:30.260 So we have this revenue sharing and we have so-called cooperatively administered programs 234 00:38:30.260 --> 00:38:37.260 switching rampant in the past 60 years, things like the unemployment insurance programs, every 235 00:38:37.260 --> 00:38:43.220 state has one, they adopted them because otherwise the feds were going to keep all three percent 236 00:38:43.220 --> 00:38:54.220 of the employment tax, but if they adopted a satisfactory state plan, then the federal 237 00:38:54.220 --> 00:39:24.220 The federal government would remit 90% of that tax to the states, so having their arms twisted in that fashion was enough and they all agreed to have a state unemployment insurance program back in the 1930s, but again, subject to federal rules and subject to federal financing and the sharing of revenue and so government in the United States is a very complex assembly 238 00:39:24.220 --> 00:39:38.220 Sometimes conspiratorial, sometimes competitive across these different entities, and it just makes life diabolically complicated for people trying to understand what's going on sometimes. 239 00:39:42.220 --> 00:39:53.220 Well suppose, just to get us off the ground, that we consider some of these standard measures of the size of government and look at how they've changed over time. 240 00:39:54.220 --> 00:40:04.580 so that we can get at least some point of departure for understanding the 241 00:40:04.580 --> 00:40:10.820 magnitudes that are involved. Suppose we took this measure of government spending 242 00:40:10.820 --> 00:40:18.580 for goods and services as proportion of gross domestic product. That's probably 243 00:40:18.580 --> 00:40:24.100 the most common way to measure the size of government. That's the measure you can 244 00:40:24.100 --> 00:40:39.100 We can easily get out of the national income product accounts data because the government spending for goods and services is a component of GDP, final goods and services. 245 00:40:39.100 --> 00:40:59.100 If we go back to 1900s, say, we'd find that governments at all levels in the United States have spent an amount of money equal to about 6% of GDP to purchase final goods and services, 6%. 246 00:40:59.100 --> 00:41:08.100 And if we follow that over time, it has ups and downs, some of the ups are quite big. 247 00:41:08.100 --> 00:41:17.600 This chart shows just federal spending, and not just for finding goods and services, but for everything, including transfers. 248 00:41:17.600 --> 00:41:30.600 But as you can see, in the past, back here in the, you can also see that there's a, that's 1860, it looks like 1880. 249 00:41:30.600 --> 00:41:38.880 We see a big peak of the spending at the time of the Civil War but then it falls 250 00:41:38.880 --> 00:41:42.960 way back down doesn't quite go back to where it had been before the Civil War 251 00:41:42.960 --> 00:41:50.600 of course there's no going back but then it trends down for a long time 252 00:41:50.600 --> 00:41:58.800 until the next spire during World War one jumps up again and falls back but 253 00:41:58.800 --> 00:42:06.960 not all the way and then there's a another peak in the early 1930s with the collapse basically 254 00:42:06.960 --> 00:42:14.720 not because government spent more but because GDP collapsed and government didn't spend less so 255 00:42:14.720 --> 00:42:23.400 there's a little peak here and then we have this gigantic peak during World War II and the whole 256 00:42:23.400 --> 00:42:33.400 The whole economy was semi-collectivized for a few years, but that falls back, not all the way, of course. 257 00:42:33.400 --> 00:42:42.400 And then we have this kind of upward trend here, but that's the next measure I was going to tell you about. 258 00:42:42.400 --> 00:42:49.400 If we went back to 1900, you'd look not just at government spending for currently producing goods and services, 259 00:42:49.400 --> 00:43:14.400 In 1900 that was 7% of GDP. Now notice, we only added one percentage point when it went from government purchases of goods and services to all government spending back in 1900, it went from 6% to 7% as our measure decides the government. 260 00:43:14.400 --> 00:43:19.400 And that's because government didn't make many transfer payments in 1900. 261 00:43:19.400 --> 00:43:27.400 The bulk of them were, at that time, transfers to veterans of the Civil War, 262 00:43:27.400 --> 00:43:35.400 and many of them were already dead by 1900, so the payments were actually going to their survivors, 263 00:43:35.400 --> 00:43:45.400 Their wives and children and third cousins were twice removed. 264 00:43:45.400 --> 00:43:51.400 The federal government had made veterans' pensions a boondoggle in the late 19th century. 265 00:43:51.400 --> 00:43:57.400 So it reached the point where even guys who had deserted from the Union army were awarded pensions. 266 00:43:57.400 --> 00:44:26.400 Transfers in and out too much, but if we come up to the present, the government spending of all kinds, that chart shows just the Federal, but if we throw in all kinds, we get to somewhere between 35 and 40 percent now. 267 00:44:26.400 --> 00:44:36.480 of GDP, government spending of all sorts relative to GDP. So that's a much bigger 268 00:44:36.480 --> 00:44:41.520 increase than the first measure gave us, about twice as much, and that reflects 269 00:44:41.520 --> 00:44:46.840 the fact that since World War II, government purchases of final goods and 270 00:44:46.840 --> 00:44:51.960 services have grown only at about the same rate as GDP, but these transfers have 271 00:44:51.960 --> 00:45:15.960 and so they've become the giant gorilla that's eating Manhattan and Chicago and Minneapolis and all the rest of the places in this country. Social Security and Medicare, Medicaid goes on and on and on. Transfer programs are like the stars of the heavens. 272 00:45:15.960 --> 00:45:25.960 And, of course, now we're getting even the new one, a giant, very expensive one for prescription payments. 273 00:45:25.960 --> 00:45:31.960 It's going to buy a few votes, politicians think, in the next election. 274 00:45:31.960 --> 00:45:37.960 And this one, you don't need to be a rocket scientist to forecast. 275 00:45:37.960 --> 00:45:39.960 We'll be just like Medicare. 276 00:45:39.960 --> 00:45:44.960 When Medicare was put into effect back in the 1960s, they forecasted what it would cost. 277 00:45:44.960 --> 00:45:53.080 Costs and within about 12 days the forecast had been falsified and it turned out to be vastly more 278 00:45:53.080 --> 00:45:59.680 expensive than forecasted and it just got worse and worse over time and the same thing will be true 279 00:45:59.680 --> 00:46:05.360 of these prescription medicines. In fact, the British have already been through this. I lived in 280 00:46:05.360 --> 00:46:10.440 Britain about 30 years ago for a while and discovered that their National Health Service 281 00:46:10.440 --> 00:46:16.400 made prescriptions free when it was begun back in the late 1940s and as a 282 00:46:16.400 --> 00:46:22.240 result what do you know? People were camping out at the pharmacies demanding 283 00:46:22.240 --> 00:46:28.260 medicine for everything they could think of and getting it free and the cost went 284 00:46:28.260 --> 00:46:36.480 through the roof. The British finally, even the British, decided they couldn't tolerate that and so 285 00:46:36.480 --> 00:46:53.480 So, when I lived there, their means of dealing with it was to put a charge on 50 pence, you know, half a pound still, that had to be paid by the patient when a prescription was filled. 286 00:46:53.480 --> 00:47:21.480 That was a very nominal charge, but the 50 pence charge had resulted in a fallback of something like 50% in the number of prescriptions people were demanding at the pharmacy, so it's very clear that the marginal value people placed on the prescriptions they were getting before had been very small indeed, and that's how these things work. 287 00:47:21.480 --> 00:47:27.480 Government employment back in 1900 was about 4% of all employment. 288 00:47:27.480 --> 00:47:32.480 Who were these people? Mostly postal workers. 289 00:47:32.480 --> 00:47:38.480 Over half of them were postal workers, and most of the others were school teachers. 290 00:47:38.480 --> 00:47:43.480 Of course, people were working for government in all sorts of capacities in 1900, 291 00:47:43.480 --> 00:47:48.480 but they just didn't add up to very much compared to total employment. 292 00:47:48.480 --> 00:48:16.480 When we get to the present, it's about 17% and that's a great understatement because many of the people who are categorized nowadays as private employees are in fact, in every way except formally being on the government payroll, government employees. 293 00:48:16.480 --> 00:48:42.480 Some of them get paid entirely out of federal grants or they work as consultants, they work in all kinds of projects such as producing military goods and services where they're categorized as private, but the only reason they're doing what they do is because government is paying for it and directing how it will be done. 294 00:48:42.480 --> 00:48:51.480 So, 17% is a gross understatement of actual employment by government now. 295 00:48:51.480 --> 00:49:04.480 And indeed, I have argued that because of the requirements placed on all of us nowadays to do tax accounting, 296 00:49:04.480 --> 00:49:08.480 to do regulatory compliance in a host of ways, 297 00:49:08.480 --> 00:49:16.120 all these things dictated by government, but without any pay for us to carry out 298 00:49:16.120 --> 00:49:24.260 the demands, we are in fact all working for money, to some extent, we're just not 299 00:49:24.260 --> 00:49:33.920 even getting paid, we're paying for the privilege. Well let's take a quick look 300 00:49:33.920 --> 00:49:52.920 If you look at some of the theories that have been advanced to explain the growth of government in the United States and elsewhere, I'll be coming back in the next few days to these ideas repeatedly, so I won't dwell on them right now. 301 00:49:52.920 --> 00:50:04.920 One of the commonest ideas, particularly among historians, is what I call the modernization hypothesis. 302 00:50:04.920 --> 00:50:21.920 The idea that as economies develop, as they industrialize and urbanize and undergo all the various changes in social and economic structure 303 00:50:21.920 --> 00:50:32.200 that are associated with those kinds of broad events. You just have to have more 304 00:50:32.200 --> 00:50:38.960 government. The idea that you could have a horse and buggy government in a modern 305 00:50:38.960 --> 00:50:45.000 society is unthinkable to many people, including many historians. How could you 306 00:50:45.000 --> 00:50:50.240 have a government like the one in 1900 where about all the government 307 00:50:50.240 --> 00:50:57.320 employees deliver the mail and teach the kids in the public schools in a world 308 00:50:57.320 --> 00:51:07.000 with the internet and satellites and cell phones. Obviously we have to have a lot 309 00:51:07.000 --> 00:51:16.200 more government to keep things from flying apart. Well, this has a lot of 310 00:51:16.200 --> 00:51:22.200 There's a lot of appeal to many people. Not all of them confined in asylums. 311 00:51:22.200 --> 00:51:35.200 They're convinced that it's just unthinkable that you can have a modern economy with a very small government. 312 00:51:35.200 --> 00:51:44.200 Look at all the things we wouldn't have. No agriculture department, no labor department, no commerce department, 313 00:51:44.200 --> 00:51:56.200 No SEC, or Martha would be running amok. She'd be selling stock whenever she wanted to. 314 00:51:56.200 --> 00:52:02.200 So, you can't have this sort of thing. Things would just blow up. 315 00:52:02.200 --> 00:52:11.200 You have to have government to see that the complexities are managed. 316 00:52:11.200 --> 00:52:41.120 Well, this, of course, is a preposterous idea. Not only is it a bad idea, it's a backwards idea, because, indeed, as many economists of the Austrian tradition have argued and probably hired at greatest length, the more complex the socio-economic world becomes, the less capable of managing it government becomes. 317 00:52:41.120 --> 00:52:57.120 You might be able to imagine a government in a primitive tribal setting with no division of labor to speak of and only a handful of people where tribal elders could keep an eye on everything and tell people what to do. 318 00:52:57.120 --> 00:53:16.120 But once we get far beyond that scale of social life, it's just not conceivable that government officials can know what's going on, understand what's going on, and somehow devise a superior way to make things happen. 319 00:53:16.120 --> 00:53:24.120 It does kinds of beliefs entail what Hayek called the pretense of knowledge. 320 00:53:24.120 --> 00:53:30.120 Of course, modern thinking about government is full of the pretense of knowledge. 321 00:53:30.120 --> 00:53:34.120 It's a pretense I'll be coming back to again and again this week. 322 00:53:34.120 --> 00:53:43.120 But the modernization hypothesis is a corollary of the pretense of knowledge. 323 00:53:43.120 --> 00:53:52.120 We didn't have to have bigger government because we had big corporations, complex technology, anything of the sort. 324 00:53:52.120 --> 00:54:07.120 Now, mainstream economists have put a lot of effort into arguing that we had to have more government because modernization entailed the complex of market failures. 325 00:54:07.120 --> 00:54:24.120 Market failures in neoclassical economics have to do with deviations between the makeup of the world and the makeup of the blackboard. 326 00:54:24.120 --> 00:54:33.120 Neoclassical economics has a model, writes on the blackboard, of how things would be if they were efficient. 327 00:54:33.120 --> 00:54:41.120 And we had Pareto optimality. Every resource was being used in its most valued alternative. 328 00:54:41.120 --> 00:54:49.120 Every consumer had adjusted his purchases so that he was in perfect equilibrium. He couldn't make any readjustment to make it better off. 329 00:54:49.120 --> 00:54:56.120 No producer could switch methods of production and reduce the cost of production. Blah, blah, blah. 330 00:54:56.120 --> 00:55:02.120 So we write all these conditions on a blackboard and mathematical equations and we say, 331 00:55:02.120 --> 00:55:11.120 If we don't have all those kinds of conditions satisfied in the real world, the real world then has market failure. 332 00:55:11.120 --> 00:55:18.120 Well, that's sweet. You can do a lot of blackboard work that way. 333 00:55:18.120 --> 00:55:25.120 But those blackboard models don't have much, if any, connection with the world we live in. 334 00:55:25.120 --> 00:55:31.120 They are, among other things, another exercise in the pretense of knowledge. 335 00:55:31.120 --> 00:55:39.120 You presume you know everybody's demand function for every good, you presume you know every producer's production function for every good, 336 00:55:39.120 --> 00:55:45.120 you presume that the prices are all given to people, and they know them, and they adjust accordingly. 337 00:55:45.120 --> 00:55:51.120 This is all fantasy world. This has nothing to do with how reality operates. 338 00:55:51.120 --> 00:56:04.120 Nonetheless, some of these inefficiencies, things like spillovers, negative externalities, do have counterparts in reality. 339 00:56:04.120 --> 00:56:09.120 And so you can say, well, maybe there's something there anyhow. 340 00:56:09.120 --> 00:56:19.120 So when a factory spews smoke out and it spills over onto the neighbors and damages their property, well, that's a negative externality. 341 00:56:19.120 --> 00:56:32.120 The Federal Reserve has never contracted with them to get their permission for that, and therefore, this is something that could be repaired, conceivably repaired by government action. 342 00:56:32.120 --> 00:56:46.120 They could get a court order to stop this pollution, or they could lay a tax on the activity of the factory, or a tax on the amount of emissions that spews forth, 343 00:56:46.120 --> 00:56:59.120 Various things might be done to alter the situation so that third parties wouldn't be damaged by actions they haven't agreed to endure. 344 00:56:59.120 --> 00:57:07.120 Well, okay. Life is full of third party effects. There's no disputing that. 345 00:57:07.120 --> 00:57:33.120 Every day I witness things that cause me grievous pain, the news for example, and if only something could be done to tax the people who are spewing these things onto me, I would feel better off, but we all feel that way, in some way. 346 00:57:33.120 --> 00:57:51.120 So, if we go back and look at how much of the effort of government over time has taken the form of programs or actions designed to internalize these harmful externalities, how much of it falls under that rudiment? 347 00:57:51.120 --> 00:58:08.120 And the answer is, not very much. Of all the things that government does, most of it has no plausible connection whatsoever with reining in harmful externalities. None. 348 00:58:08.120 --> 00:58:16.120 Medicare is not about externalities. Old age pensions are not about externalities. 349 00:58:16.120 --> 00:58:36.120 By military equipment, yeah, that's kind of about externalities, but we can all hope we won't be the ones spilled onto by the uranium-coated 20-millimeter cannon bullets, but this isn't a very good explanation. 350 00:58:36.120 --> 00:58:39.620 and it doesn't even contribute very much to understanding the growth of government. 351 00:58:39.620 --> 00:58:47.120 To say government has to deal with inefficiencies caused by negative externalities. 352 00:58:47.120 --> 00:58:54.120 Other negative externalities so called like lapses of competition, 353 00:58:54.120 --> 00:59:00.120 the fact that we don't have a thousand producers of homogeneous goods in every industry, 354 00:59:00.120 --> 00:59:02.120 well that's just preposterous. 355 00:59:02.120 --> 00:59:13.120 Since these are inconceivable conditions in reality, to indict reality for failing to mimic them makes no sense whatsoever. 356 00:59:13.120 --> 00:59:25.120 The world is full of heterogeneous goods, goods produced only by a few producers, constantly changing the characteristics of their goods 357 00:59:25.120 --> 00:59:29.120 and the terms on which they offer them to consumers. 358 00:59:29.120 --> 00:59:39.120 Of course, these people are often, if not always, fiercely competitive in the sense of being rivals with one another. 359 00:59:39.120 --> 00:59:44.120 But they're just not competitive in the blackboard neoclassical economics fashion. 360 00:59:44.120 --> 00:59:56.120 They're not price takers. They're price searchers. They're looking for price terms and other contractual terms that work best for them, 361 00:59:56.120 --> 01:00:02.120 given the constraints on them of consumers and the offers being made by alternative suppliers. 362 01:00:05.120 --> 01:00:09.120 Public goods are supposed to create market failures. 363 01:00:09.120 --> 01:00:15.120 These goods that have a peculiar quality that once they're produced, 364 01:00:15.120 --> 01:00:21.120 there's no marginal cost associated with anyone's being added to the class of users. 365 01:00:21.120 --> 01:00:34.120 Some people dispute that public goods exist at all, some Austrians. I can conceive, I think, of something that would satisfy the definition of a public good. 366 01:00:34.120 --> 01:00:48.120 It's usually something like a general rule. If government says, for example, we're going to make a rule to coordinate everybody's driving. 367 01:00:48.120 --> 01:01:18.120 is driving, you drive on the right-hand side of a two-way street. That's a general rule, it's public good, it's the same for everybody, presumably we'll all benefit from adopting that rule, not that we wouldn't have had the sense to do it without the government making the rule, but nonetheless, if the government makes a rule that assists us in coordinating social life and we can add more drivers and new babies can be born into society, 368 01:01:18.120 --> 01:01:29.120 may benefit from the coordination of that rules existence. That's a public good, I think, but true public goods are pretty few and far between. 369 01:01:29.120 --> 01:01:38.120 The classic example of neoclassical economists is always national defense. That's really not a very good example. 370 01:01:38.120 --> 01:01:51.120 It might have been a better example to the extent, for example, that defense deterred a nuclear attack on the United States. 371 01:01:51.120 --> 01:02:00.120 Deterrence, to the extent that it really existed and resulted from the National Defense Program, 372 01:02:00.120 --> 01:02:06.120 did indeed provide protection for everybody living within the United States, 373 01:02:06.120 --> 01:02:13.520 New people were added to the population, they enjoyed that protection at no additional cost, and so forth. 374 01:02:13.520 --> 01:02:26.120 So, it's not totally far-fetched, but again, how much of the growth of government can be understood in terms of the provision of public goods, 375 01:02:26.120 --> 01:02:32.120 that we would all agree are public goods, because the label gets thrown around very freely. 376 01:02:32.120 --> 01:02:41.120 They call education a public good, although it's not. It doesn't satisfy any of the criteria, being a public good. 377 01:02:41.120 --> 01:02:55.120 They call public health measures public goods, although beyond a certain limit, you've got to spend more money to provide sewerage service for more people. 378 01:02:55.120 --> 01:03:03.120 It's not like deterring nuclear attacks, and once you build a sewage system in Auburn, it's good for the whole country for that. 379 01:03:03.120 --> 01:03:15.120 So, this explanation of the growth of government doesn't cover much ground, even if we agree to cover some. 380 01:03:15.120 --> 01:03:25.620 Now, some people have tried to, as it were, get a little more politically realistic. 381 01:03:25.620 --> 01:03:34.620 All these market failure explanations are bad, among other things, because they involve a black box explanation. 382 01:03:34.620 --> 01:03:39.620 They say, well, there was an inefficiency, boom, government grew. Well, why? 383 01:03:39.620 --> 01:03:46.620 What was the incentive of any politician to do anything just because there was inefficiency out there in the world? 384 01:03:46.620 --> 01:03:53.620 How did that promote his interests? Did that get him reelected? How did he know there was an inefficiency? 385 01:03:53.620 --> 01:04:05.620 These explanations are more like apologies or excuses for growth of government than they are good historical interpretations of why it actually grew. 386 01:04:05.620 --> 01:04:21.620 Recognizing that problem, some analysts have seized on interest groups and they said, well, interest groups have tried to use the power of government to promote their purposes and that made government grow. 387 01:04:21.620 --> 01:04:29.620 Well, yeah, there's no disputing there are a lot of organized groups trying to use the power of government, so that has some promise. 388 01:04:29.620 --> 01:04:35.620 We might wonder why it was that they didn't get organized until the 20th century. 389 01:04:35.620 --> 01:04:40.620 Didn't interest groups want to use the power of government before? 390 01:04:40.620 --> 01:04:44.620 Well, the truth is some did. 391 01:04:44.620 --> 01:04:52.620 So we still have to understand why this became so much more rampant in the past century than it was beforehand. 392 01:04:52.620 --> 01:04:58.620 We're back here in the 19th century when government was, at least by that measure, so small. 393 01:04:58.620 --> 01:05:03.620 I'll suggest tomorrow that it was really bigger than that. 394 01:05:03.620 --> 01:05:07.620 Certainly it's much bigger by any measure now than it used to be. 395 01:05:07.620 --> 01:05:16.620 What's happened to these interest rates? Did they just wake up and discover that they can use the power of government to promote their narrow interests? 396 01:05:16.620 --> 01:05:22.700 doubted. Some of the models have tried to work this in various ways by talking 397 01:05:22.700 --> 01:05:30.660 about changes in the voting franchise or other changes in the costs of taking 398 01:05:30.660 --> 01:05:35.020 collective action. And some of these models have some interest, but again 399 01:05:35.020 --> 01:05:41.440 they're more like toys. They don't get us involved in terms of actually understanding who 400 01:05:41.440 --> 01:05:47.440 and who did what to make government get bigger over time. 401 01:05:47.440 --> 01:06:01.440 A number of people have advanced ideology as an explanation and this has been popular with people of various political philosophies. 402 01:06:01.440 --> 01:06:14.440 This was varied as, say, Mises and Keynes both believed that it was ideas that had led to the growth of government more than anything else. 403 01:06:14.440 --> 01:06:26.440 Keynes is often quoted from that famous last chapter of his General Theory, in which he says that it's, in the end, it's ideas. 404 01:06:26.440 --> 01:06:56.440 Mises said that the practicalities are greatly overrated and I suppose as an intellectual himself he was just trying to tell the world about how important people like him really were and unfortunately there was more than germ of truth in what he was saying in his particular case but Hayek and Mises and Keynes all agreed that if you can have the development of ideas which lead people to take 405 01:06:56.440 --> 01:07:05.440 The Actions Making Government Grow or Shrink, and that ideas are powerful ultimately. 406 01:07:05.440 --> 01:07:14.440 This goes way back. David Hume told us that all governments depend on public opinion. 407 01:07:14.440 --> 01:07:24.440 Etienne Delaguiti said that the minute we stopped kowtowing to the tyrant, he would topple. 408 01:07:24.440 --> 01:07:34.440 Many people have recognized that public opinion, what you might call the dominant ideology, props up whatever it is that government does. 409 01:07:34.440 --> 01:07:39.440 And if we just didn't actually ask, these things couldn't happen. 410 01:07:39.440 --> 01:07:51.440 So, ideology clearly is a potentially powerful explanatory factor, and I don't dismiss it at all. 411 01:07:51.440 --> 01:08:05.440 I don't think it's the whole story, however. I think it has to be incorporated along with other things that have happened to make it operate as it has in the past couple of centuries. 412 01:08:05.440 --> 01:08:15.440 And, of course, we need to attend to the particulars of the ideology. Things like socialism, fascism, social democracy. 413 01:08:15.440 --> 01:08:26.440 These broad bodies of belief systems have a certain content that operates to make government bigger. 414 01:08:26.440 --> 01:08:38.440 Whereas alternative ideologies, classical liberalism for example, tended to operate to restrain government and confine it to a limited set of functions. 415 01:08:38.440 --> 01:09:06.440 Well, finally, there have been some, and I'm often accused of being one of them, who blame the growth of government on crises, and again, this is an appealing idea because if one looks at any kind of standard measure of the growth of government, it does seem that the connection with crisis is not exactly random. 416 01:09:06.440 --> 01:09:15.940 It does seem to be a perfect match when there's a great social crisis, a big war, a terrible business depression in modern times. 417 01:09:15.940 --> 01:09:20.440 In fact, government does grow at an extraordinary pace. 418 01:09:20.440 --> 01:09:29.440 Of course, some people don't like to incorporate crisis in the explanation because they say it's a transitory effect. 419 01:09:29.440 --> 01:09:34.940 Well, yeah, it grows during crisis because it does all these emergency measures. 420 01:09:34.940 --> 01:09:56.940 But when the crisis is over, then all those crisis measures are given up, abandoned, lapsed, and what really matters, in the eyes of many analysts, is the kind of underlying force, these broad forces that are producing some trend. 421 01:09:56.940 --> 01:10:02.740 I think that that kind of thinking reifies the trend. 422 01:10:02.740 --> 01:10:08.540 It gives that trend a reality that it doesn't possess. 423 01:10:08.540 --> 01:10:11.140 What makes that trend slope upward? 424 01:10:11.140 --> 01:10:13.340 Why is it that it's doing that? 425 01:10:13.340 --> 01:10:19.140 And would it continue to do that if there never were any crises? 426 01:10:19.140 --> 01:10:21.040 Well, I'll argue no. 427 01:10:21.040 --> 01:10:23.640 It might grow a little bit. 428 01:10:23.640 --> 01:10:32.640 But certainly in the specific course of events that we've seen in the United States in the past 150 years, 429 01:10:32.640 --> 01:10:39.640 that upward trend has much to do with what happened during the crisis periods. 430 01:10:39.640 --> 01:10:49.640 And to treat those crises as transitory, kind of stochastic events, random, just blips, you know, forget them. 431 01:10:49.640 --> 01:10:55.400 Some analysts even leave the crisis years out of their time series. We don't 432 01:10:55.400 --> 01:11:04.480 want to contaminate our clean trains by adding these abnormal observations. I think 433 01:11:04.480 --> 01:11:10.840 it's extremely bad historical analysis and in fact historians as such have not 434 01:11:10.840 --> 01:11:17.060 been as liable to commit that mistake as the economists and the political 435 01:11:17.060 --> 01:11:45.060 Well, why don't I stop my talking right now and let you ask questions. We still have about 15 minutes left, and what I'm trying to do is just give you a preview of some of the background that is relevant to the specifics that I'll get into in more detail in a moment. 436 01:11:45.060 --> 01:11:51.060 and the specifics that I'll get into in more detail Tuesday through Friday. 437 01:11:51.060 --> 01:11:57.060 I'm going to speak this afternoon about ideology in particular. 438 01:11:57.060 --> 01:12:03.060 So, your comments and questions now, please. Yes. 439 01:12:03.060 --> 01:12:16.060 Earlier you said that the current government employment is over 17% of total employment. Is that all government agencies or just federal agencies? 440 01:12:16.060 --> 01:12:24.060 That's all of them. In fact, if you look at federal government, it's just very, very tiny. It's something like 3%. 441 01:12:24.060 --> 01:12:34.060 But there's an interesting recent book by a man named Light, who works at Brookings of all places. 442 01:12:34.060 --> 01:12:41.060 And Mr. Light is something of an apologist for government and government employees. 443 01:12:41.060 --> 01:12:52.060 But nonetheless, he's written a very interesting book, and you can actually find it summarized online in some articles he's written, 444 01:12:52.060 --> 01:13:00.060 in which he's basically juggled the data to find out how many people really work for the federal government 445 01:13:00.060 --> 01:13:10.060 via these relationships as contractors and consultants and recipients of grant funding and what have you. 446 01:13:10.060 --> 01:13:21.060 And he was able to pump up federal employment as of a few years ago to 17% from three in a very plausible way. 447 01:13:21.060 --> 01:13:51.060 Now there's a little bit of double counting because in what Mike found is something like three or four of those 17 percentage points are people who look as if they're state and local government employees but in fact they're being funded by federal money, these cooperatively funded or administered programs of various sorts and so they're really federal employees even though they're getting a check written by the state of Alabama. 448 01:13:51.060 --> 01:14:00.060 So the federal employment is much, much bigger than it's formally purported to be. 449 01:14:02.060 --> 01:14:03.060 Mark? 450 01:14:03.060 --> 01:14:10.060 Bob, you mentioned at the beginning about your book, it's been out about 15 years now and there's been some more recent work. 451 01:14:10.060 --> 01:14:14.060 Is there anything in your thoughts about the growth of government changed over that time? 452 01:14:14.060 --> 01:14:20.300 and become more pessimistic or optimistic concerning the growth of government? 453 01:14:30.460 --> 01:14:34.780 Actually, I want to respond to that differently because the question of 454 01:14:34.780 --> 01:14:40.540 pessimism and optimism has been raised a lot. In fact, it was raised when the book was first 455 01:14:40.540 --> 01:14:49.060 was published in 1987 and many people, if you can think back to 87, some people were still in the 456 01:14:49.060 --> 01:14:57.500 thrall of enthusiasm for Reaganism and they actually believed that Ronald Reagan had somehow 457 01:14:57.500 --> 01:15:03.740 changed the course of events and had turned back the tide of big government, blah, blah, blah. 458 01:15:03.740 --> 01:15:15.740 I never believed that myself and I didn't see what happened during the Reagan administration as evidence of that at all. 459 01:15:15.740 --> 01:15:28.740 In fact, I thought that all things considered, even under Reagan, government was growing in pretty much the same ways and at pretty much the same rate as before Reagan. 460 01:15:28.740 --> 01:15:31.740 Of course, some particulars are always different. 461 01:15:31.740 --> 01:15:37.740 Reagan did some good things. He got rid of the price controls on oil and so forth. 462 01:15:37.740 --> 01:15:39.740 But he did some bad things, too. 463 01:15:39.740 --> 01:15:44.740 If we throw everything into the mix, it seemed to me that nothing fundamental had changed 464 01:15:44.740 --> 01:15:46.740 with regard to the growth of government. 465 01:15:46.740 --> 01:15:50.740 Certainly government spending was very rapid under Reagan. 466 01:15:50.740 --> 01:15:56.740 Taxes went up despite the first tax cut and so forth. 467 01:15:56.740 --> 01:16:05.740 So, nonetheless, many people were enthusiastic about Reagan. To my great astonishment, some people still are. 468 01:16:05.740 --> 01:16:14.740 They look back to the Reagan administration's golden age of anti-government. I never understand this. 469 01:16:14.740 --> 01:16:25.740 But my book, because it didn't recognize that any fundamental change was being made at the time by Thatcher or Reagan, 470 01:16:25.740 --> 01:16:38.740 Anybody else or that there was any reason to expect a fundamental change was received by some reviewers as simply an expression of the author's pessimism. 471 01:16:38.740 --> 01:16:52.740 And a number of reviewers wrote about that. Well, Higgs is a pessimist. Well, alright, I'm a pessimist. 472 01:16:52.740 --> 01:16:58.500 That gets you going, whether I'm a pessimist or a raving optimist. 473 01:16:58.500 --> 01:17:07.300 What I wanted the book to be viewed at was an exercise in analysis and history. 474 01:17:07.300 --> 01:17:16.980 I want people to say this is an argument for why government has grown and why we can expect it to go on growing. 475 01:17:16.980 --> 01:17:26.980 including, as I wrote I believe in the last paragraph, or the penultimate paragraph, because someday another great crisis will come. 476 01:17:26.980 --> 01:17:36.980 And we have every reason to believe that when it does, we will have the same kinds of reactions that we had to the preceding crisis. 477 01:17:36.980 --> 01:17:45.980 And government will shoot up again and we'll be off to the races with all the legacies of that particular national emergency. 478 01:17:45.980 --> 01:17:54.980 So, as long as we have a society with the kind of ideology that ours has, dominant in it, 479 01:17:54.980 --> 01:18:01.980 and as long as we have the possibility, indeed the great likelihood of periodic crises, 480 01:18:01.980 --> 01:18:06.980 there couldn't possibly be a cessation of the continued growth of government. 481 01:18:06.980 --> 01:18:13.980 To me, that's an analytical argument. It's not an expression of the fact that Bob Higgs is a pessimist, 482 01:18:13.980 --> 01:18:24.980 I think some people are given to wishful thinking. I don't begrudge them. I actually envy them. 483 01:18:24.980 --> 01:18:37.980 Murray Rothbard, whom I love dearly, was an inveterate optimist. No matter how horribly the world seemed to be going, Murray was always convinced, 484 01:18:37.980 --> 01:18:49.480 and we're going to beat the bastards. We'll win in the end. We'll come back. We're on the right side of events. 485 01:18:49.480 --> 01:18:57.980 Well, yes, we're on the right side in various ways. I believe we're morally on the right side, for example. 486 01:18:57.980 --> 01:19:04.980 And so I'm not deterred by pessimism or by my analysis when I think about how things are going. 487 01:19:04.980 --> 01:19:18.980 I would take the positions I take with regard to my judgments of the rectitude of what government does, regardless of whether government is shrinking, expanding, or wide. 488 01:19:18.980 --> 01:19:25.980 But what I would hope is that the analysis would be what people carry from me. 489 01:19:25.980 --> 01:19:37.980 Now, so far as the analysis is concerned, I don't believe I have, and I'll finally answer your question directly, I don't believe I've changed any of the fundamentals. 490 01:19:37.980 --> 01:19:53.980 I do believe that I have more understanding now of some of the interpretations and models and theories that have been advanced by others. 491 01:19:53.980 --> 01:20:04.420 I think I take some of them much less seriously than I did 16 years ago, so that it's difficult for me to now even discuss them with a straight face. 492 01:20:04.420 --> 01:20:20.420 But I was trained and I practiced my profession for many years in the context of neoclassical economics, and my colleagues there took these ideas seriously. 493 01:20:20.420 --> 01:20:28.420 And I took them seriously too, because I couldn't just dismiss them, I had to have a good basis for dismissing them. 494 01:20:28.420 --> 01:20:34.420 And I think we all should have a good basis for dismissing them. 495 01:20:34.420 --> 01:20:40.420 It's a fool's errand to just say you don't like somebody's way of thinking, therefore the hell with it. 496 01:20:40.420 --> 01:20:43.420 We need to understand what's wrong with it. 497 01:20:43.420 --> 01:20:54.420 But I believe I have a better understanding now of what's wrong with some of the standard hypotheses and so in that sense I've moved somewhat. 498 01:20:54.420 --> 01:21:00.420 But events have changed in some concrete ways as well. 499 01:21:00.420 --> 01:21:10.420 By the end of the Cold War, a very fundamental context was changed for the growth of government 500 01:21:10.420 --> 01:21:21.420 The Cold War was a very fecund basis for the maintenance and growth of government. 501 01:21:21.420 --> 01:21:34.420 Now, of course, government didn't just roll over and play dead when the Soviets, in a very unmanly way, just decided to implode. 502 01:21:34.420 --> 01:21:38.420 without even a holocaust or anything. 503 01:21:38.420 --> 01:21:42.420 Yellow bellies. 504 01:21:42.420 --> 01:21:50.420 But nonetheless, of course, the people who benefited from the Cold War 505 01:21:50.420 --> 01:21:56.420 and all the things that were tied to it have found new ways. 506 01:21:56.420 --> 01:22:19.420 And, of course, the greatest of all recent events is the September 11th attacks, which have been used as the pretext for the mounting of a new permanent war, the war on terrorism, which I never thought anything could be better than the Cold War. 507 01:22:19.420 --> 01:22:32.420 But this actually is, because whereas the Soviets could manifestly implode, the terrorists can never just disappear. 508 01:22:32.420 --> 01:22:40.420 Because it's in their very natures, terrorists, that we don't know who they are or where they are or what they might be doing. 509 01:22:40.420 --> 01:22:47.420 So the authorities can always tell us that they have information. 510 01:22:47.420 --> 01:23:05.420 And when they tell the public that, the public will believe. Especially if from time to time a building blows up, or a train runs off its rails, or something else happens that can be described as the work of the terrorists. 511 01:23:05.420 --> 01:23:19.420 I suspect, I'll talk about this more on Friday, but it seems to me remarkable what leverage can be obtained from 3,000 deaths. 512 01:23:19.420 --> 01:23:27.420 More pedestrians are killed every year in this country, hit by cars while walking on roadsides. 513 01:23:27.420 --> 01:23:32.420 And yet, 3,000 deaths, I'm not minimizing that, it was horrible. 514 01:23:32.420 --> 01:23:44.420 3000 Deaths has been used as the basis for almost revolutionary changes in the nature of government's relationship to American society. 515 01:23:44.420 --> 01:23:57.420 The degree of penetration into people's day-to-day lives, of monitoring everyone's emails, of listening to everyone's phone calls potentially, 516 01:23:57.420 --> 01:24:08.420 of giving up entirely several elements of the Bill of Rights, such as the Fourth, Fifth, and Sixth Amendments, just throwing them out the window, willy-nilly. 517 01:24:08.420 --> 01:24:18.420 If you can get that kind of mileage out of two buildings being collapsed by airplanes, then I think you're in business pretty much forever. 518 01:24:18.420 --> 01:24:27.420 I suppose that's a pessimistic outlook, but that's the conclusion that my analysis leads me to. 519 01:24:27.420 --> 01:24:32.420 And I'm prepared to be wrong. I hope to God I am wrong. 520 01:24:32.420 --> 01:24:37.420 But I don't believe today in anything else.