With our present taxation, you and I control less than 50 percent of what we earn, while a mere majority of our local, state and federal representatives – about 360 people – control more than 50 percent of our earnings.
We are quantifiably less than 50 percent economically free. Even serfs cut better economic deals with their masters.
If our local, state and federal governments cut spending and lowered only your taxes, would that make you wealthier? Yes. Would it also make me wealthier? Yes, though not to the same extent. When governments cut spending and lower only your taxes, this still benefits the rest of us.
I learned this in high school when we studied The Wealth of Nations by Adam Smith, a book published in 1776. Smith correctly theorized that the cumulative effect of individuals seeking their own self-interest works like an invisible hand to allocate economic resources, stimulate innovation and create national wealth.
This is the opposite view held by proponents of controlled economies, who say that resources and wealth are best allocated centrally, by the few, from the top down. Such proponents believe that you can benefit most when government extracts more from me. Followers of Smith, including modern-day libertarians, believe that we all benefit when government extracts less from you or me, but preferably both.
The dismal history of controlled economies validates Smith’s theories and the value of free markets. Nations where a relatively few people make decisions for others comprise most of the world’s poorest nations. The former Soviet Union, Cuba, mainland China, Eastern Europe, Burma and North Korea are perfect examples.
Because of our nation’s accumulated wealth, relatively poor people here enjoy higher standards of living than relatively richer people in controlled economies. Our nation’s poor enjoy higher quality products, at lower prices, and more choices in everything from televisions to toothpaste than the richest man in Romania. America’s poor breathe better air, drink better water, have better sanitation, and have more heat, food and health care available than most of the billions of people in the world – all because of our country’s relative wealth.
But here are two caveats about national wealth. First, all nations, including ours, become relatively poorer when their leaders make economic decisions for others. And second, declines in national wealth always hurt that nation’s poor first and worst. Economic policies that promote wealth ironically are the most effective ways to help the poor.
Raising Indiana’s sales tax by 20 percent last year and my property taxes by 50 percent this year did little to help poor Hoosiers, you or me. Most poor people do not gain with anyone’s higher taxes. The poor pay a higher percentage of their income in sales tax than wealthier people. The poor pay higher property taxes when their rents rise.
Thanks to the way we vote, we work longer and longer each year to pay for others to spend our hard-earned money inefficiently and unwisely. This goes against the best economic wisdom. Smith told us that we’d be much wealthier as a nation, and our poor would be better off, if we took economic decisions away from our relatively few leaders and returned it to the individuals who earned the money, even if selfishness drives their spending.
Individuals spend their own money more wisely than government bureaucrats spend the money for them. Individuals spend their dollars to buy better goods and services. They get more results for each dollar they give to private charity than government welfare programs. Money in the competitive private sector is almost always more wisely and effectively used than giving it to a government.
But worse, government jobs come at the expense of others’ productivity and are economically unproductive. Government jobs produce no wealth, which is created only by selling products and services that people want to buy. This means that governments – beyond their essential judicial, electoral and record keeping rolls – are pure dead weight on the productivity and wealth of nations.
Politicians should take heed of Adam Smith’s moral and economic ideas. Smaller governments – and fewer decisions by the chosen few – are essential for more job creation, greater prosperity, better use of money and more community wealth. Wealth is best assured – not by a new government program – but by more economic freedom from government.
About the Author
Attorney, aspiring screenwriter, and Libertarian Party activist in Indianapolis, Indiana. See also the Libertarian Writers' Bureau at http://www.writersbureau.org. |
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