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April 2017 Policy Study, Number 17-8

   

A Commentary on American Public Policy

   

Part 19

   

 

So what does any of this have to do with that age-old question concerning the cost of tea in China?  Actually, the original question was concerned with using government as the preferred agency of social insurance and the consequences thereof.  At the inception of this country, the preferred method of satisfying demand was for the person with the need or desire to have already created (personally possess) the wherewithal to exchange for the need or desire.  This situation creates a condition in which the person that wishes to be satisfied is entirely responsible for his own actions.  In the case of his needs, he will buy only what he requires; and in the case of his desires, he will buy only what he can afford.  In other words, he will decide to live within his means because the consequences of not doing so will be borne (enjoyed or suffered) by he, himself, alone.  He will have taken care to make a decision he can personally live with.

 

Failing to personally possess the wherewithal, and assuming he was considered to have the ability and resolve to repay in the future, he had the option of borrowing to satisfy his immediate desires.  As was previously mentioned, borrowing was only a temporary remedy.  He hasn’t already created the wherewithal, but instead he is now committed (liable) to personally creating the wherewithal to replace the borrowed asset sometime in the future.  This situation creates the same condition as the first.  The person will decide to live within his means because he is subject to the same consequences as the first.  He will either enjoy or suffer the consequences of his decision alone.  Therefore, he has also taken care to make a decision that he can personally live with.

 

Failing to either already possess the wherewithal or the ability to borrow it, there was the possibility (not option) of obtaining a personal gift to satisfy his desires.  A gift is different from borrowing in at least two respects.  We have already stated that a gift is permanent rather than temporary.  The receipt of a true gift is also uncertain.  There is no need to repay it, so the ability to do so is a nonsequitur.  A gift is simply granted to one person by another.  The potential gift is the property of the donor until it is granted.  And it is granted at the behest of, and only the behest of, the donor.  The donee has no say as to whether the gift will be granted.  Again, the receipt of a true gift is uncertain. 

 

This situation creates a condition that is somewhat different than the prior two.  With a gift, the consequences of the decision are, in a manner of speaking, shared.  The immediate cost is borne by the donor, but any future costs will be borne by the donee.  That is, if the donee makes a decision of which the donor does not approve, the donee risks the possibility that there may not be any future gifts from this particular donor or from any other potential donors who may have happened to witness the dealings.  Even this situation, with its uncertainty, has the potential to encourage the donee to live within his means, to make decisions he can personally live with.  But it isn’t nearly as effective as the first two.

 

The fourth possible alternative for a person seeking to satisfy his desires is theft.  But as we have already allowed, this alternative is out of the question.  All of the previous alternatives that we have discussed are private transactions.  When we introduce government into the equation, we have a very different ball game, especially in regard to gifts.  On the surface, the alternative of already possessing the wherewithal to satisfy your desires would seem to be little affected by the introduction of government, so we will move on — for the moment.  The alternative of borrowing to satisfy immediate desires with a future liability is changed substantially when the lender is the government.  And it changes from the perspective of both the lender and the borrower. 

 

When the lender is an individual or a private institution, each understands that he is possessed of the same condition as the individual borrower, inasmuch as the consequences of the decisions he makes, for better or for worse, will be visited upon him, alone.  Negative consequences will be taken from his own wherewithal. Therefore, he takes care to make decisions he can live with.  By contrast, when the lender is an agency of government and the consequences of the decisions are visited upon the whole unidentified populace, the motivation to make sound, rational decisions is diminished.

 

It is much the same with regard to the borrower.  When he borrows from a relative, friend, or local institution, someone he can personally identify, his motive to make good on the debt is strong.  Conversely, when his lender is the government, it is to a faceless, amorphous blob to which he is indebted, an entity that has undoubtedly irked him aplenty over the years and to which his commitment to redeem his debt is just as undoubtedly diminished.  With government as the lender, the lender makes a higher percentage of unsound loans to begin with, and of those, a higher percentage of them go into default than into the private sector.  Anyone who pays taxes picks up the tab.

 

When we approach the third alternative of gifts, the water really becomes muddied.  For who has ever heard of such a thing as an agent of government, be it an elected official or a bureaucrat, confess that they provide largesse (gifts) from the public treasury?  But what then are they doing?  The author opines that there are a limited number of ways of obtaining the objects of our desires.  We can create them with our own faculties, borrow them from someone else, receive them as a gift, or steal them. 

 

Into which of these categories will our elected officials and bureaucrats place the social insurance benefits that they joyfully provide to us?  Did they create them themselves?  Not in any real sense.  Did they borrow them?  It would appear to be a much more permanent condition than the temporary nature of borrowing.  Did they give them from themselves?  On the grand scale that they grant them, this would not seem to be a possibility.  Did they acquire them by virtue of legal plunder?  They did if the persons who originally created them with their own faculties did not relinquish them voluntarily:

 

But how is this legal plunder to be identified?  Quite simply.  See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong.  See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.  (The Law by Frederic Bastiat).

 

What is the spectacle like from the beneficiary’s viewpoint?  He could create the benefits for himself with his own faculties; but if he did, there would be no need for government to provide them for him.  He could borrow the benefits, in which case there would also be no need for government to provide them.  He could receive the benefits as a gift, and there would still be no need for government to provide them.  He could steal the benefits if he were willing, able, and motivated to do so, and even here it would be unnecessary for the government to assist him.  But what happens if he is unable, unwilling, or unmotivated to steal the benefits for himself?  At last we seem to have found a place for government to interject itself.

 

The author is surely at a loss to determine with any certainty the exact nature of the relationship, or the transaction, which occurs between the beneficiary and the government.  The questions, which vex me, are these:  a true gift carries with it the condition of uncertainty because it is entirely at the behest of the donor; but when the government becomes the donor, the gift becomes much more certain. So is the gift really a gift?  A true gift is the property of the donor until such time as it is granted to another.  There is much question in my mind as to whether the gift is indeed the lawful (not legal) property of government at the time it grants the gift.  So is the gift really a gift?  The transaction would appear to be some combination of “some kind of gift” to the beneficiary with the appearance of legal plunder on the part of government.  If this is true, one might then suppose it would be a gift of stolen property.

 

Neither the government nor the beneficiaries dare acknowledge any of this.  These words are not in their vocabulary.  But their vocabulary does include words like “entitlement” and “right.”  Yet who would dare claim an entitlement or a right to steal?  Or who would dare claim an entitlement or a right to receive stolen property?  The author may be in serious error in even thinking these thoughts; but until somebody offers a bona fide explanation of the transactions in question, he will, of necessity, continue to think them.  But for the sake of argument, let us allow that nothing approaching the condition of legal plunder occurs.  Would we then be home free?  If the author thought so, this essay would be at an end.  There is a very large drawback which occurs when we transfer the gratification of desires through the workings of the private sector over to the public sector.  It centers on the condition of certainty or uncertainty.

 

A few paragraphs above, it was stated that government action in the area of social insurance would be entirely unnecessary if the person who was seeking to satisfy his desires was simply willing, able, and motivated to create, borrow, or steal for himself.  If a person were willing and able to steal for himself, why would he possibly be unmotivated to do so?  Because there is a downside if he does the stealing himself.  There is uncertainty.  He may suffer physical injury in the process of the theft.  As an individual, he may be apprehended and prosecuted for an act which society does not tolerate when committed by the individual.  He might even incur public shame.  The real question is:  why would he be motivated to possibly incur any of these potential risks when government will remove the uncertainty?

 

Government will provide for the act of legal plunder, which, though unlawful, is still perfectly legal because we’ve made certain that it is in the legal code.  Government will then call this “gift,” this largesse, this transfer of wherewithal from one citizen to another, an “entitlement” or “a right,” and the donee need not so much as incur any shame in the receipt of the “gift.”  And because this “gift” is an “entitlement” or a “right,” the donee can even become accustomed to receiving this “gift” on a very regular basis.  All uncertainty is removed.

 

There are further consequences of a “gift” which follow the removal of the uncertainty.  When a person satisfies his desires by using his faculties to create wherewithal of an equal value (personal possession), or he borrows the wherewithal of an equivalent value to satisfy an immediate desire by incurring a future liability, he also incurs personal responsibility.  That is, he will bear the economic consequences of his actions used to satisfy his desires by himself, alone.  Again, the receipt of a true gift is uncertain.  This situation creates a condition that is somewhat different than the prior two.  With a gift, the consequences of his decisions are, in a manner of speaking, shared.  The immediate cost is borne by the donor, but any future costs will be borne by the donee.

 

That is, if the donee makes a decision of which the donor does not approve, the donee risks the possibility that there may not be any future gifts from this particular donor or from any other potential donors who may have happened to witness the dealings.  Even this situation, with its uncertainty, has the potential to encourage the donee to live within his means, to make decisions he can personally live with.  When the condition of uncertainty in receiving the gift is removed, the consequences for his decisions are also removed.  He no longer needs to make decisions he can personally live with.  As all of the costs are now borne by the donee, the beneficiary no longer needs to be personally responsible.

 

When viewed in this context, Texas Senator Gramm’s earlier comment becomes not only more understandable, but also potentially more inclusive:

 

If the government supplied us with our daily bread in the same manner that it proposes to supply us with our medical care [or pick any other form of social insurance], I’d eat [satisfy my desires] a whole lot better than I do now, and so would my dog.

 

   

 

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