PUBLIC WORKS MEAN TAXES

PUBLIC WORKS MEAN TAXES
THERE IS NO more persistent and influential faith in the world
today than the faith in government spending. Everywhere
government spending is presented as a panacea for all our
economic ills. Is private industry partially stagnant? We can fix
it all by government spending. Is there unemployment? That is
obviously due to "insufficient private purchasing power." The
remedy is just as obvious. All that is necessary is for the
government to spend enough to make up the "deficiency."
An enormous literature is based on this fallacy, and, as so
often happens with doctrines of this sort, it has become part of
an intricate network of fallacies that mutually support each
other. We cannot explore that whole network at this point; we
shall return to other branches of it later. But we can examine
here the mother fallacy that has given birth to this progeny, the
main stem of the network.
Everything we get, outside of the free gifts of nature, must in
some way be paid for. The world is full of so-called economists
who in turn are full of schemes for getting something for
nothing. They tell us that the government can spend and spend
without taxing at all; that it can continue to pile up debt without
ever paying it off, because "we owe it to ourselves." We shall
return to such extraordinary doctrines at a later point. Here I
am afraid that we shall have to be dogmatic, and point out that
such pleasant dreams in the past have always been shattered by
national insolvency or a runaway inflation. Here we shall have
to say simply that all government expenditures must eventually
be paid out of the proceeds of taxation; that inflation itself is
merely a form, and a particularly vicious form, of taxation.
Having put aside for later consideration the network of fallacies
which rest on chronic government borrowing and inflation,
we shall take it for granted throughout the present chapter
that either immediately or ultimately every dollar of government
spending must be raised through a dollar of taxation.
Once we look at the matter in this way, the supposed miracles
of government spending will appear in another light.
A certain amount of public spending is necessary to perform
essential government functions. A certain amount of public
works—of streets and roads and bridges and tunnels, of armories
and navy yards, of buildings to house legislatures,
police and fire departments—is necessary to supply essential
public services. With such public works, necessary for their
own sake, and defended on that ground alone, I am not here
concerned. I am here concerned with public works considered
as a means of "providing employment" or of adding wealth to
the community that it would not otherwise have had.
A bridge is built. If it is built to meet an insistent public
demand, if it solves a traffic problem or a transportation problem
otherwise insoluble, if, in short, it is even more necessary
to the taxpayers collectively than the things for which they
would have individually spent their money if it had not been
taxed away from them, there can be no objection. But a bridge
built primarily "to provide employment" is a different kind of
bridge. When providing employment becomes the end, need
becomes a subordinate consideration. "Projects" have to be
invented. Instead of thinking only of where bridges must be
built, the government spenders begin to ask themselves where
bridges can be built. Can they think of plausible reasons why an
additional bridge should connect Easton and Weston? It soon
becomes absolutely essential. Those who doubt the necessity
are dismissed as obstructionists and reactionaries.
Two arguments are put forward for the bridge, one of which
is mainly heard before it is built, the other of which is mainly
heard after it has been completed. The first argument is that it
will provide employment. It will provide, say, 500 jobs for a
year. The implication is that these are jobs that would not
otherwise have come into existence.
This is what is immediately seen. But if we have trained
ourselves to look beyond immediate to secondary consequences,
and beyond those who are directly benefited by a
government project to others who are indirectly affected, a
different picture presents itself. It is true that a particular group
of bridgeworkers may receive more employment than otherwise.
But the bridge has to be paid for out of taxes. For every
dollar that is spent on the bridge a dollar will be taken away
from taxpayers. If the bridge costs $10 million the taxpayers
will lose $10 million. They will have that much taken away
from them which they would otherwise have spent on the
things they needed most.
Therefore, for every public job created by the bridge project
a private job has been destroyed somewhere else. We can see
the men employed on the bridge. We can watch them at work.
The employment argument of the government spenders becomes
vivid, and probably for most people convincing. But
there are other things that we do not see, because, alas, they
have never been permitted to come into existence. They are the
jobs destroyed by the $10 million taken from the taxpayers. All
that has happened, at best, is that there has been a diversion of
jobs because of the project. More bridge builders; fewer automobile
workers, television technicians, clothing workers,
farmers.
But then we come to the second argument. The bridge exists.
It is, let us suppose, a beautiful and not an ugly bridge. It has
come into being through the magic of government spending.
Where would it have been if the obstructionists and the reactionaries
had had their way? There would have been no bridge.
The country would have been just that much poorer.
Here again the government spenders have the better of the
argument with all those who cannot see beyond the immediate
range of their physical eyes. They can see the bridge. But if
they have taught themselves to look for indirect as well as direct
consequences they can once more see in the eye of imagination
the possibilities that have never been allowed to come into
existence. They can see the unbuilt homes, the unmade cars
and washing machines, the unmade dresses and coats, perhaps
the ungrown and unsold foodstuffs. To see these uncreated
things requires a kind of imagination that not many people
have. We can think of these nonexistent objects once, perhaps,
but we cannot keep them before our minds as we can the bridge
that we pass every working day. What has happened is merely
that one thing has been created instead of others.
The same reasoning applies, of course, to every other form of
public work. It applies just as well, for example, to the erection,
with public funds, of housing for people of low incomes. All
that happens is that money is taken away through taxes from
families of higher income (and perhaps a little from families of
even lower income) to force them to subsidize these selected
families with low incomes and enable them to live in better
housing for the same rent or for lower rent than previously.
I do not intend to enter here into all the pros and cons of
public housing. I am concerned only to point out the error in
two of the arguments most frequently put forward in favor of
public housing. One is the argument that it "creates employment";
the other that it creates wealth which would not otherwise
have been produced. Both of these arguments are false,
because they overlook what is lost through taxation. Taxation
for public housing destroys as many jobs in other lines as it
creates in housing. It also results in unbuilt private homes, in
unmade washing machines and refrigerators, and in lack of
innumerable other commodities and services.
And none of this is answered by the sort of reply which
points out, for example, that public housing does not have to be
financed by a lump sum capital appropriation, but merely by
annual rent subsidies. This simply means that the cost to the
taxpayers is spread over many years instead of being concentrated
into one. Such technicalities are irrelevant to the main
point.
The great psychological advantage of the public housing
advocates is that men are seen at work on the houses when they
are going up, and the houses are seen when they are finished.
People live in them, and proudly show their friends through the
rooms. The jobs destroyed by the taxes for the housing are not
seen, nor are the goods and services that were never made. It
takes a concentrated effort of thought, and a new effort each
time the houses and the happy people in them are seen, to think
of the wealth that was not created instead. Is it surprising that
the champions of public housing should dismiss this, if it is
brought to their attention, as a world of imagination, as the
objections of pure theory, while they point to the public housing
that exists? As a character in Bernard Shaw's Saint Joan
replies when told of the theory of Pythagoras that the earth is
round and revolves around the sun: "What an utter fool!
Couldn't he use his eyes?"
We must apply the same reasoning, once more, to great
projects like the Tennessee Valley Authority. Here, because of
sheer size, the danger of optical illusion is greater than ever.
Here is a mighty dam, a stupendous arc of steel and concrete,
"greater than anything that private capital could have built,"
the fetish of photographers, the heaven of socialists, the most
often used symbol of the miracles of public construction, ownership
and operation. Here are mighty generators and power
houses. Here is a whole region, it is said, lifted to a higher
economic level, attracting factories and industries that could
not otherwise have existed. And it is all presented, in the
panegyrics of its partisans, as a net economic gain without
offsets.
We need not go here into the merits of the TVA or public
projects like it. But this time we need a special effort of the
imagination, which few people seem able to make, to look at the
debit side of the ledger. If taxes are taken from individuals and
corporations, and spent in one particular section of the country,
why should it cause surprise, why should it be regarded as a
miracle, if that section becomes comparatively richer? Other
sections of the country, we should remember, are then comparatively
poorer. The thing so great that "private capital could
not have built it" has in fact been built by private capital—the
capital that was expropriated in taxes (or, if the money was
borrowed, that eventually must be expropriated in taxes).
Again we must make an effort of the imagination to see the
private power plants, the private homes, the typewriters and
television sets that were never allowed to come into existence
because of the money that was taken from people all over the
country to build the photogenic Norris Dam.
I have deliberately chosen the most favorable examples of
public spending schemes—that is, those that are most frequently
and fervently urged by the government spenders and
most highly regarded by the public. 1 have not spoken of the
hundreds of boondoggling projects that are invariably embarked
upon the moment the main object is to "give jobs" and
"to put people to work." For then the usefulness of the project
itself, as we have seen, inevitably becomes a subordinate consideration.
Moreover, the more wasteful the work, the more
costly in manpower, the better it becomes for the purpose of
providing more employment. Under such circumstances it is
highly improbable that the projects thought up by the bureaucrats
will provide the same net addition to wealth and welfare,
per dollar expended, as would have been provided by the
taxpayers themselves, if they had been individually permitted
to buy or have made what they themselves wanted, instead of
being forced to surrender part of their earnings to the state.