Not many Americans have heard of Richard Vedder and Lowell Gallaway, but maybe more should. They are the authors of Out of Work, the best economic history of 20th-century America and an indictment of all the monstrous and stupid things our government has done to us.
In addition to holding legitimate jobs as professors of economics at Ohio University, Vedder and Galloway work among the enemy as staff members to the Joint Economic Committee of Congress. Their publications at the JEC demonstrate the common sense of economics and the sensibility that only a familiarity with Austrian economics can bring to the study of economic history and public policy.
Unfortunately for all, their work seems to be ignored by both species of Congress. Here is a sampling of their findings, estimates, and conclusions:
A dollar in taxes really costs Americans at least $1.40 and as much as $3. Tax relief or simply restraining government revenues would therefore help to lift the “deadweight” of government off our backs. See “Tax Reduction and Economic Welfare.”
Tax increases (often justified as part of deficit reduction) actually cause government to grow. They found that every new dollar in taxes was spent on new programs, that new spending actually increased by $1.59 per dollar of new taxes, and that deficits got worse as a result. See “Taxes and Deficits: New Evidence” and “Budget Surpluses, Deficits, and Government Spending.”
Increases in government spending reduce national output; simply reducing federal spending as a percentage of GDP by a couple of points would dramatically increase the size of the economy by hundreds of billions of dollars. Read “The Impact of the Welfare State on Small Business and the American Entrepreneur.”
In several studies on welfare spending, Vedder and Galloway find that welfare is harmful to economic growth, entrepreneurs, workers, and children. Very harmful. A mere $100 billion decrease in government spending would move 3 million children above the poverty line by creating more jobs, higher wages, and economic growth. That’s just $33,000 to get a kid out of poverty. See “The Impact of the Welfare State on America’s Children,” “The Impact of the Welfare State on the American Economy,” and “The Impact of the Welfare State on the American Family.”
Budget surpluses early in the republic were returned to the citizens in the form of tax cuts, now every dollar in surplus is quickly turned into a permanent increase in the size of the federal government. A tax cut equal to the size of this year’s “budget surplus” would not only get our money back; it would create a permanent increase in the size of the productive economy of almost $40 billion a year. See “Tax Reduction and Economic Welfare.”
In their statistical analysis of American history, they found that the optimal level of federal spending is not at the current level of around 20 percent of GDP but at around 11 percent of GDP. However, I would like to point out that they include government spending in GDP, and, if that spending is removed, the statistically optimal size of government might fall 1,000 percent. After all, federal spending was far less than five percent of national output over most of American history — the most productive part of American history! See “Government Size and Economic Growth.”
It’s too bad that Congress won’t listen to its own economists. Vedder and Galloway aren’t calling for the immediate overthrow of all government; they are arguing that just small reforms like small tax cuts and marginal spending cuts could make a real difference in the economic lives of Americans. The fact that Congress hasn’t acted on economic reform is a sure sign of where their priorities lie.
While somewhat heavy on statistical analysis, all of these reports are available at the Joint Economic Committee website. It might be worth downloading copies the next time you feel like sending an ideological letter bomb to your Congressmen or newspaper editor.
This Mises Daily was originally published October 2, 1998, as “Economic Sense.” Read an interview with Richard Vedder in the Austrian Economics Newsletter.
