Freeman

ARTICLE

Private Affluence and Public Poverty

OCTOBER 01, 1960 by FIRST NATIONAL CITY BANK

From the Monthly Letter of the First Na­tional City Bank of New York, June 1960.

 

The real point at issue is how much farther—if at all—we can safely go toward discouraging individual initiative, self-reliance, and industrious habits. The barrage of complaints over inade­quate economic growth would seem to suggest that we need to concern ourselves more, rather than less, with the human as­pirations that make the economy go.

In recent years it has become fashionable to say that the United States presents a shocking con­trast between private wealth and public poverty. Private citizens are pictured as so affluent that they really don’t need all the money they have. On the other hand, it is argued that government is "poverty-stricken" and urgently needs more money. Professor John Kenneth Galbraith’s presentation of these views in The Affluent So­ciety made the best-seller lists and became a provocative topic for conversation. Now the issue has been taken to Washington.

A recent New York Times dis­patch by Edwin L. Dale reported that: "More and more people in the capital are convinced that the most important continuing issue of American policy and politics over the next decade will be the issue of public spending—what share of America’s total resources should be devoted to public as dis­tinct from private purposes." Mr. Dale summed up the view on "pri­vate affluence and public poverty" as follows:

Our society has reached a level of private wealth never before seen on this earth.

Yet at the same time there is pov­erty in the public sector of the economy. Education is under-financed. Streams are polluted. There remains a shortage of hospital beds. Slums proliferate, and there is a gap in middle-income housing. We could use more and better parks, streets, de­tention facilities, water supply. The very quality of American life is suf­fering from these lacks—much more than from any lack of purely private goods and services. The share of gov­ernment in the total economy has been stable or even declining, while private affluence grows.

This is quite an indictment of the free society that has given the masses of the American people wealth and living standards ad­mired the world over.

 

Antigovernment Fixation?

 

Senator Joseph Clark of Penn­sylvania, addressing a distin­guished group of citizens at Arden House last month, ex­pressed the fear that an "anti­government fixation" in America might lead to a "new anarchy." This is a rather shocking thought. Most people have had the impres­sion that government was taking on a bigger and bigger role in their lives, digging more deeply into their pockets for taxes, spend­ing so much as to inflate prices, and offering more and more "fed­eral funds for free" about the countryside.

The idea that the role of govern­ment should be limited is the cen­tral underpinning of American democracy; it grew out of the re­bellion in 1775 against kingly power and led to the writing of a Constitution of limited powers de­signed to protect the freedom and sovereignty of the citizen. This was, perhaps, the "old anarchy," under which, fired by individual enterprise in a land of opportunity, a group of agricultural colonies clustered along the eastern sea­board expanded into the most pros­perous nation on earth.

Senator Clark’s fears seem rath­er far-fetched. The trend of events has been in the other direction, toward assumption by government of more and more responsibilities. If there is anything that could be called "antigovernment fixation" today it is only a small voice in the wilderness protesting against bur­geoning federal bureaucracy and the tax confiscation of the greater part of the fruits of enterprise. In April 1957 we presented a calcula­tion that if total government civil­ian employment continued to ex­pand at the same rate as in the preceding 25 years we would all be working for government by the year 2069.

It is hard to see evidences of the alleged shriveling of the share of government in the total econ­omy. Such evidences do not appear in statistics of government em­ployment, tax revenues collected, or funds disbursed. As the table shows, there has been no lack of spectacular increases in outlays for social welfare, highways, sani­tation facilities, jails, and the rest.

 

Government Growth

 

 

GOVERNMENT EXPENDITURES AND GNP

 

 

Middle

 

 

1940

 

 

Late

 

 

1920′s

 

 

1950′s

 

Federal cash expenditures ($ bil.) 

$2.80

$9.60

$94.80

State and local government expenditures

7.7

10.3

48.8

($ bil.) 

Gross national product ($ bil.)

97.6

95.6

463.8

Per cent: Government expenditures to GNP

10.80%

20.80%

31.00%

SELECTED PUBLIC EXPENDITURES (in

 

 

millions of dollars)

Social insurance benefits 

*

$1,215

$15,975

Highway expenditures 

$1,819

2,177

8,702

Aid to other transportation 

257

377

1,629

Public welfare and assistance

161

1,314

3,777

Police 

290

386

1,769

Fire protection 

203

235

873

Sanitation 

312

207

1,505

Local parks and recreation 

153

162

685

Jails and other correctional 

68

105

573

Health 

84

195

806

Hospitals 

347

537

3,849

Education 

2,243

2,827

16,836

OTHER MEASURES (in millions unless otherwise noted)

 

 

Number of personal income tax returns.

4.2

14.8

59.8

Government employment

2.8

 

4.2

 

8.1

Educational enrollment++ 

30.7

32.1

46.3

High school graduates, total number 

n.a.

25.7

51.6

College graduates, total number 

n.a.

3.9

8.1

Paved rural roads (miles) 

0.5

1.3

2.1

National park acreage 

9.6

21.6

24.4

Visitors to national parks 

2.1

16.8

65.5

Social security coverage as

0

64.50%

90.50%

percentage of paid employment 

Public housing units (thousands) 

0

60.9

444.7

n.a. Not available. *Unavailable on comparable basis but minor.+ Includes returns of estates and trusts which numbered less than one per cent of individual returns in 1940 and 1957. Includes public and private schools from elementary to university level.

SOURCES: Figures are taken from U.S. Census Bureau’s Surveys of Governmental Finances in the United States; U.S. Department of Health, Education and Welfare’s Health, Education and Welfare Trends; and other official publications.

If we are headed for a "new anarchy," symptoms might be ex­pected to appear in refusals of people to pay what they might re­gard as unconscionable tax levies. It is true there has been talk that some $8 billion of income is not reported for tax purposes; never­theless, the fact remains that, with voluntary filing and report­ing by tens of millions of indi­viduals and hundreds of thousands of employers, the federal govern­ment is enjoying a bigger flow of cash income than any other gov­ernment on earth, a cool $100 bil­lion a year. If the federal govern­ment is indeed impoverished, the cause must be profligacy of expen­diture rather than stinginess of the citizen. The amazing thing is how so much money can be dis­posed of so fast.

 

No Stinginess Here

 

How generous the citizen has been with government, compared with what he has kept for himself, is shown in the chart. There has been a 20 times multiplication of the federal government’s cash in­take in the past generation. Per­sonal disposable income—the money people have left after in­come taxes to support themselves and pay other taxes—is not much more than four times the level of 1927. The rise for corporate prof­its (after taxes) would parallel the retarded gain for personal dis­posable income.

One excuse given for enlarging programs of financial assistance from the federal government to states and municipalities is that people cannot or will not provide the latter with enough money. No doubt the weight of federal in­come taxation leads many people to vote against costly state and local government projects involv­ing still more taxes; nevertheless, state and local government income has risen to more than five times the level of 1927.

 

The Santa Claus School

 

It is difficult to see in any fig­ures such as these support for the idea that government is poverty stricken. Nevertheless, it is a fact of record that the federal govern­ment has had a lot of trouble keep­ing its budget balanced. The rea­son emerges when one looks around at the bewildering variety of spending programs. Washing­ton is the natural destination of people and local communities want­ing money, as it has been since the advent of what the late Jesse Jones, former RFC chairman, characterized as the "free-spending, Santa Claus school of govern­ment reformers." Meanwhile, the purposes for which funds are sought have come a long way from the emergency relief programs of the 1930′s. Encouraged by federal help and example, the states open their purse strings. Only a few months ago, a New York State Supreme Court decision held that public housing projects open to individuals and families with an­nual incomes of as much as $6,200 to $14,000 were legally entitled to

be built under New York State’s low-income housing program.

It might be asked on what prin­ciple government should subsidize normal living expenses for people with incomes double the national average. Who but themselves will pay the bill—with freight charges to and from Washington tacked on? A good deal of manpower gets wasted, collecting taxes and dol­ing out benefits in the paradoxi­cally poverty-stricken affluent so­ciety.

The truth seems to be that we are caught in a vicious circle in which people’s abilities to take care of their own needs are ham­pered by the burden of taxes. Pay­ing so much in taxes, the citizen is tempted to think it only right to get something back. Hence the "needs" government sees for more and bigger subsidy programs which in turn require to be fi­nanced by still higher taxes or inflation. And inflation, hitting the weak and helpless hardest, creates still more "needs."

 

Matter of Tail-Fins

 

The preachers of the affluent so­ciety doctrine are fond of using tail-fins on automobiles as the ul­timate symbol of unnecessary pri­vate extravagance. They are not so apt to mention the wheat bins holding surplus grain for which taxpayers have put up more than $3 billion and which, converted in­to bread, would provide 450 loaves for every man, woman, and child in this country. They say nothing about misconceived public works projects and the common abuses of social welfare programs. On May 16, Budget Director Maurice H. Stans found it necessary to revise federal travel regulations to en­courage more flying by coach or tourist class instead of first class by government employees:

"These revisions are issued to call attention to the fact that the use of first-class air travel by government employees far exceeds in proportion its use by the gen­eral public, and to urge greater consideration of less costly facili­ties."

Tail-fins on automobiles are sup­posed to prove that people are foolish in their spending decisions and cannot be trusted with their own money. There are two schools of thought about tail-fins but it is quite clear that millions of people have preferred them; otherwise the finned vehicle would not be so common. Perhaps the surrey with the fringe on top was similarly condemned in the Gay Nineties, as a symbol of "conspicuous consump­tion."

Yet it is one of the proud dis­tinguishing marks of a classless democratic society that any citizen with enough money or credit can have a car, suit, dress, or home with some seemingly useless orna­mentation; he does not have to be somebody in an official sense. Peo­ple work hard so that they can enjoy these things and be indi­viduals rather than the drones of a master state.

The New York World-Telegram & Sun, on May 23, commented edi­torially on the subject:

There is much scornful talk of "luxury living," the implication be­ing that people are so stupid they throw their money away on gadgets instead of essentials. Actually, this national growth has been widely spread. The significant effect has been to raise millions in America from a level of bare subsistence to modest comfort that remains far short of luxury.

Older citizens can remember when the "full dinner pail" was an effec­tive political slogan, meaning the worker should have enough to eat. Today’s trade unionist is no "simple working man" to be patronized with a few beers at election time. He’s a substantial citizen who probably owns his own home, auto and TV set, with children in college.

It seems obvious to us that it would be the height of national irres­ponsibility to trade a system which has worked so well for a Socialist-in­spired experiment, especially at a time when the early European spon­sors of socialism are abandoning it for free enterprise.

The author of The Affluent So­ciety has been characterized as an iconoclast although nothing has become more common and conven­tional than asking government to take over more powers and respon­sibilities from the citizen. It is notable that another member of this school of thought, Mr. Adlai Stevenson, does pause to recognize that:

Without individual decision and in­ventiveness, without widely dispersed centers of authority and respon­sibility, the social order grows rigidand centralized. Spontaneity wither:- before the killing frost of public con­formity. Individual citizens with all their varied relationships, as parents, neighbors, churchgoers, workers, businessmen, are reduced to the single loyalties of party and state.

 

The School Problem

 

Perhaps the most widely used illustration of alleged "public pov­erty" is our school system. We are told that while the American people drive around in "mauve and cerise, air-conditioned, power-steered, and power-braked" auto­mobiles, their children’s schools are "old and overcrowded." The charge is that the states and local communities, which in the United States are responsible for educa­tion, just haven’t been doing their job. What is needed, the critics say, is federal money for educa­tion, with some proposals running to $4 billion a year. As a speaker at the convention of the American Association of School Administra­tors put it: "The federal govern­ment, that’s where the money is. And that’s where the money must come from."

No country comes close to rival­ing American spending on educa­tion. Total public and private ex­penditures for education in the U.S. reached $22 billion in 1959, almost triple their level 10 years earlier.

To say that the nation’s schools are "old and overcrowded" collides with the fact that the states and local communities have built 680,­000 classrooms since World War II, more than half the 1,330,000 now in use. The "classroom short­age," supposed to justify federal intervention, has been shrinking steadily. Back in 1955 predictions were heard that we would be 600,­000 classrooms short by 1958. When 1958 arrived, the U.S. Office of Education estimated the short­age at 141,900. Although the peak demands for high school and col­lege facilities lie ahead, we have passed over the hump of elemen­tary school enrollments. The job of building to make up for the de­ferral of school construction dur­ing the war, and the bulge in births immediately after the war, is largely past.

Some educators suggest that the trouble with U.S. education is ex­cess emphasis on money and too little emphasis on what we are getting for the money; excess em­phasis on elaborate new plant and too many idle hours for existing plant; excess emphasis on quan­tity of education and too little on quality. Schools which slight sub­jects with intellectual content in favor of "life adjustment" type courses are not going to be im­proved by more money. The prob­lem is one of purpose, as Dr. Gray­son Kirk, president of Columbia

University, indicated in January: "Our public schools and far too many of our colleges have virtu­ally abdicated their functions in society because they are content to give their students little more than an opportunity to have pleasur­able social experiences." Professor Richard M. Weaver of the Univer­sity of Chicago has put the same point even more strongly:

Education here today suffers from an unprecedented amount of aimless­ness and confusion. This is not to suggest that education in the United States, as compared with other coun­tries, fails to command attention and support. In our laws we have en­dorsed it without qualification, and our provision for it, despite some claims to the contrary, has been on a lavish scale. But we behold a situa­tion in which, as the educational plants become larger and more finely appointed, what goes on in them be­comes more diluted, less serious, less effective in training mind and char­acter; and correspondingly what comes out of them becomes less equipped for the rigorous tasks of carrying forward an advanced civili­zation.

 

Some Fundamental Issues

 

One trouble with the idea of turning our affairs over to the dictates of wise men sitting in government offices is that it clashes with the traditional beliefs of our people. The right to be different, the right to live according to our own lights is rooted too deeply in the American soil to be passively given up. The citizen has no reason to believe that pub­lic officials are exempt from hu­man frailities. As Mr. Stans, speaking before the U.S. Chamber of Commerce, said last May: "We must not be charmed by the notion that government is a wiser mana­ger of our economic fortunes than is private enterprise."

It is hard to see how political freedom can survive if economic freedom is denied. When people spend their money, they are cast­ing ballots for what ought to be produced. They all make mistakes, as government does in its procure­ment, but they may be a bit more careful because, after all, the money they are spending is their own. Moreover, the mistakes of individuals are small mistakes, never the billion-dollar variety.

ASSOCIATED ISSUE

October 1960

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