The Squeeze, by James Dale Davidson, New York: Summit Books, 1980, 281 pp., $11.95.
In the bad old days, so we are told, politicians actually used to get themselves reelected by buying votes. Come to think of it, though, at least they spent their own money. Our great problem today is that politicians can now buy votes with other people's money. Yours and mine. The result is that the United States is sliding rapidly into statism, with politicians commandeering a greater and greater percentage of the national income, which they in turn redistribute to selected portions of the electorate.
The problem is a serious one, but you wouldn't know it by reading our important newspapers—the New York Times, for example—because as it happens the agenda of redistribution that it implements is congenial to a very large proportion of the press. And you wouldn't know it listening to most conservatives, either. Through some utterly mysterious calculations, they seem to have convinced themselves that the country is "moving to the right."
Fortunately, James Dale Davidson, the chairman of the National Taxpayers Union, has not been deceived. His fact-filled and highly readable book The Squeeze (not a brilliant title, I fear, because unilluminating on its own) explains in detail how we are being squeezed by "the largest growth entity in the Western world in recent decades"—government at all levels. "Politics is where the rewards are today," says Davidson, setting forth his basic theme. He distinguishes between three forms of capital: productive (such as stocks), static (gold, real estate), and "transcendental capital"—the monies spent by government. Davidson then gives the following excellent synopsis of our precarious position:
We have created a situation in which the most effective way for an individual to pursue his immediate economic interest is to create liabilities against production. In essence we have created a competition to consume. And our economic orthodoxy is largely blind to this. The accepted method of perceiving economic activity—a Gross National Product computation—measures expenditures alone. Thus the economy can appear to be growing, not only from an increase in productive wealth but from an increase in expenditure resulting from a liquidation of that wealth. Because the returns from the transcendental capital have long exceeded what can typically be obtained in production, much of the increase in our GNP in recent years has been financed by a liquidation and drawing down of the accumulated reserves from productive activity in the past.
Davidson might have added that all budgetary forecasts upon which Congress acts today assume that government spending "multiplies" faster in the economy than private sector spending, thus providing legislators with a permanent rationale for increasing spending programs, even though it is undoubtedly true that a large proportion of income transfer programs result in a destruction of wealth, not to mention a demoralization of the recipients. We hear gloomy reports about the savings rate, but when will our great newspapers shout it abroad that the Congressional Budget Office regards additions to savings as destructive to the economy? In the CBO model, savings are actually subtracted from GNP because, as Davidson notes, GNP consists of aggregate spending.
Davidson includes an excellent chapter on inflation, in which he points out that its principal effect is the "shifting of rewards from productive to transcendental capitalists." (Surely this latter locution fails to do justice to the problem. Why not call them political beneficiaries?) Davidson's historical illustrations of inflation are sometimes surprising. I hadn't realized, for example, that the Communist revolution in China was preceded by a decade-long inflation that was "150 times worse than the hyperinflation in Germany after the First World War."
Is inflation an intentional phenomenon? Davidson seems to think so, and it is certainly worth entertaining that idea, because plenty of people benefit from it. The principal beneficiaries, of course, are politicians who thereby enjoy the luxury of higher revenues without having to make the unpopular decision to raise taxes. The general "creep" up progressive tax brackets is not likely to be noticed by most voters, who will in any event tend to put the blame for inflation on shopkeepers for raising prices rather than on the politicians for permitting a surfeit of money. The interaction of inflation and the progressive tax code is by far the most serious form of "the squeeze" currently experienced by the electorate. Its likely effect will be to induce a worldwide economic contraction.
Other areas of squeeze covered by Davidson include the soaring tax burden, health care, housing (a most useful chapter, this, explaining how zoning, planning, and other regulations have played a major role in driving up the cost of housing); the ever-growing legal blight (sign of a declining civilization if there ever was one); the blossoming bureaucratic empires; and of course the energy squeeze: in 1971 the price mechanism was suspended by people who did not understand its role in equalizing supply and demand. And so today we have a Department of Energy that can be relied upon to keep itself in business even if the price mechanism is restored.
Davidson concludes with a brave chapter on "what you can do," divided up into such subsections as "Put Bureaucracy on an Incentive Plan," "Restore Sound Money," and "Reduce Taxes." All excellent ideas, but I fear there is not much likelihood of their being implemented. The reason is embodied in another Davidsonian imperative: "Take Risks."
The corporate/bureaucratic state, in which a minimum-risk future is cautiously mapped out for the majority of the taxpaying middle class, severely discourages risk taking by those who above all are subjected to The Squeeze. Two hundred years ago, in Boston Harbor, militant action overthrew a tax burden laughably light compared with today's depredations. But the Boston Tea Party folk could afford to be militant because they didn't have mortgages to worry about, pensions to forgo, salaries at risk. In that inherently more dangerous world, risk takers had far less to lose. This point is illustrated in our own day by the inclination (at least a few years ago!) toward militance and risk taking on the part of students—people who generally don't have a vast amount of "security" to lose. Unfortunately, however, they'll never solve any of our current problems, because students for the most part don't pay taxes.
Most of us, then, are locked into a fearful inaction. But take a look at Davidson's book, if you are feeling apathetic. It might get you stirred up enough to hoist a placard, at least.
Tom Bethell is a free-lance writer and a Washington editor of Harper's.