4. Private and Public Expenditures: A Reappraisal

4 Private and Public Expenditures: A Reappraisal ERNEST VAN DEN HAAG In The Affluent Society) John Kenneth Galbraith per suasively refurbishes the arguments in favor of widening the public and narrowing the private sector of our economy. Let me examine some of his major ideas.l I Galbraith argues foremost that there is an "imbalance" between the public and the private sector. Economists have overlooked that "imbalance" because their obsolete "conven tional wisdom" leads them to focus on "scarcity," whereas we have "affluence." Galbraith's argument here rests on his confusion or equivoca tion between the technical meaning of "scarcity"-i.e., need for allocation-and the colloquial meaning-i.e., insufficiency, or poverty. If the two meanings of "scarcity" are separated, his argument is seen to be without merit. Economists are aware that our affluence has increased (col loquial meaning); but affluence does not make rational allocation obsolete (technical meaning). Allocation, the subject matter of economics-the problem: how can we make the best use of our resources?-becomes "obsolete" only with the millennium. For, 51 52 The New Argument in Economics though we can and do produce a great deal in temporal society, we cannot produce enough to satisfy all desires; thus it remains rational to allocate-i.e., to choose between alternative satisfac tions, and to economize-i.e., to satisfy desires with the least expenditure of resources.

Indeed, Galbraith himself advocates forcible reallocation of resources from the private to the public sector, thus implying that the scarcity, which makes allocation (choice) necessary, and which he is at pains to deny, is still with us. In his equivocation between the technical and colloquial meanings of "scarcity," Galbraith is not altogether original. He follows the "conven tional wisdom" of millenarians, utopians, and Marxians. How ever, the chiliastic sects realized that there is scarcity in temporal society; and the Marxists realized that there is scarcity in non Communist society. The discovery that scarcity is "obsolete" in our society is original with Galbraith, but no improvement on "conventional wisdo'm." (The supposed disappearance of scarcity leads Galbraith to conclude that we need no longer emphasize productivity-a consistent conclusion, as dangerous as it is wrong.) Galbraith's "imbalance" itself turns out to be a rhetorical device disguised as an argument. No indication is given-let alone substantiated-as to where a "balance" could be found, or by what means one might locate it. Hence the word "imbalance"

does no more than denote Galbraith's dissatisfaction with the present allocation of resources between the public and the private sector; his conclusion merely restates that premise; and his reasoning but affirms what it is supposed to prove, namely, that the public sector should be expanded. (Galbraith suggests, often with striking illustrations, that spe cific public services are lagging. He takes it for granted that the lag is caused by insufficient financing. The term "imbalance" helps to evade analysis of the distribution and of the effectiveness of the use of money within the public sector-the actual problems causing most of the "deficiencies" Galbraith mentions. More money is not likely to improve matters and may make them worse. Reorganization is called for.) Private and Public Expenditures: A Reappraisal 53 Economis ts took the idea of balance from mechanics to describe a state without an endogeneous tendency to change (equilibrium). Galbraith gives it a laudatory sense-balance becomes an unspecified but' ideal distribution between public and private sectors-and proceeds to use the descriptive term prescriptively. By this device, he retains the authority the term derived from its objective reference, though he has surreptitiously cut it adrift. This public relations stratagem has worked well; in defense of reason, I suggest that from now on, unless an author tells us how he determines "imbalance" in the economy, we ought to grant only that it exists in his mind.

Colin Clark has tried to prove that we suffer from the op posite imbalance, that the public sector is overexpanded when ever it uses (or, better, attempts to use) more than 25 per cent of the national income. When that happens, he thinks, the ostensive welfare goals are defeated, and the economy generally suffers. At least Clark tells us how to locate his imbalance and its effects. He tries to prove a meaningful proposition. I do not think he succeeds, but Galbraith does not even try-and for good reason: he does not have a genuine proposition to which evidence could be relevant. In Galbraith's defense, one may argue that some public expenditures are directly complementary to private ones. With out roads, cars are of no use. But even here, "imbalance" is misleading. The proper quantitative relationship between road and car expenditures has not been worked out with any precision, and it may be impossible to do so in any way that would permit us to speak of a general "balance."

Here Galbraith follows convention, but would have done better to abandon it: we usually treat public expenditures as a dependent variable and the private expenditures to be comple mented by them as an independent one. Yet this. ~s certainly wrong. Both must be treated as dependent variables. They are functionally interdependent. The problem is not: how much road space is needed for automobile traffic growing at a given rate? but: how much automobile traffic should be supported, induced or balked, in view of public costs and various alter54 The New Argument in Economics native expenditures and means of transportation? Roads invite automobile traffic as much as they accommodate it. (The unde veloped countries illustrate very well that automobile traffic is as much a function of road-building as vice versa.) Other factors-taxation, public transport, etc.-also influence automo bile traffic. When roads are built with public funds, surely we must base decisions on the comparative desirability of foster ing and accommodating automobile traffic, and not exclusively on the desires of actual and prospective automobile users. (In the case of toll roads, this problem differs-although toll roads do involve costs in addition to those paid for by users.) To treat public expenditure as a dependent variable com plementing independent private expenditures is about as reason able as it would be to say, "Since many people want to drive at a speed of 100 miles per hour, injuring more pedestrians than we now can take care of, we must multiply hospitals and cemeteries." Should we not instead, or as well, discourage speed and other hazards, and perhaps automobile traffic?

Whenever possible, the cost of the public complement to private expenditure should be defrayed by the most direct and main beneficiaries. A fuller application of this ancient rule of fiscal equity might, apart from its intrinsic merit, greatly reduce public expenditures: the private expenditures that are now subsidized by complementary public ones might be reduced if the complementary public costs are borne by the direct private beneficiaries through taxes.2 Though easily abused, the attempt to determine theoretically complementarities between specific public and private expendi tures can be fruitful when the relationship between the inter dependent variables is treated as independent, and both variables are regarded as dependent. I doubt, however, that the attempt to find a general balance between public and private expenditure is fruitful. I can conceive of situations where 70 per cent of the national income might well be spent publicly even in peacetime and of others where ten per cent is too much. So many variables are involved-e.g., size and distribution of the national income, type of expenditure, tax structure-that I do not think a general Private and Public Expenditures: A Re'appraisal 55 rule can do justice to concrete situations unless it be interpreted as a warning to pay heed to the undesired and possibly self defeating effects .of very high general levels of taxation. Clark's attempt to weigh diminishing returns of taxation certainly has this merit.

II Galbraith next offers a value judgment: ·consumers spend too much on trivialities. I share his judgment; but he miscon ceives the problem and proposes irrelevant and indefensible solutions, likely to make matters worse. Galbraith argues as though the problem were simply that there are not so good (i.e., private) and good (i.e., public) expendi tures; and he calls on all right-thinking citizens to make sure that the "good guys" (government) get more money and the "bad guys" (consumers) less. This will do for a Western; but is it economic analysis? It replaces the all-too-real problem: What values are we to live by, or how can people be free and wise? with a pseudo problem: How can we keep people right thinking and buying? and then offers a pseudo solution: by letting the government spend more of their income for them. Thoughtful men have always agreed that consumers prefer trivialities and vulgarities to the satisfaction of their real needs; but they have never agreed on the. real needs that ought to be satisfied, or on how to make consumers do what is good for them. This is not a new problem arising from aflluence and advertising, as Galbraith suggests. Nor is Galbraith's. solution new. It ignores what makes the problem problematic: neither an objective nor an agreed-upon standard by which purchases could be judged more or less trivial in general is available. (I am making a factual statement: such a standard is not available.

Nothing is implied about its existence; and should it exist, about its nature, applicability or imposition.) Since Plato, those who in the past proposed what Galbraith proposes-let the government decide (and spend) more, con sumers less-were more consistent than he: they did not believe 56 The New Argument in Economics in individual freedom; and they felt that right values can be objectively ascertained and collectively imposed. If Galbraith held these views, his theory would be consistent, however unac ceptable to me. But though they are implied in much of The Affluent Society) I think he would repudiate such views when stated explicitly. One of the major defects of that book is that it disguises inchoate and chaotic philosophical ideas as economic analysis. Trivialities and vulgarities now constitute a greater proportion of our total output than in the past, not because taste has de teriorated-it probably was always bad-but because it is satisfied more often. Affluence changes the ability to satisfy taste rather than the taste: whereas in the past only the rich had the privilege to indulge their taste, now the poor can too. I do not see why transferring expenditures to a government no wiser than the voters who elect it and less able to satisfy individual tastes would solve this problem. It would probably replace private folly with official silliness. Si monumentum quaeris) circumspice. And it would make harder the satisfaction of the minority tastes (in cluding Galbraith's), which are usually more interesting than those of the majority.

I see one advantage of democracy in making reasonably cer tain, not that the government is better than the voters in general, but that it is not much worse; without democracy, this last happens quite easily. Still, in a democracy, if the government is likely to be not worse than the average voter, it is also likely to be worse than some voters. Therefore, the transfer of the power to decide from the individual to even a democratic govern ment is justifiable only where the object is so indivisible, or indiscriminate, as to make collective decisions imperative. The argument in favor of expansion of the public sector need not be based on the demerits of private expenditure alone. It can be based also on the merits of public expenditure. But these can never be general. Each expenditure must be considered on its own merits: Will benefits exceed costs by more than the benefits of alternative expenditures, public or private? How are benefits and costs distributed? The admitted triviality of many Private and Public Expenditures: A Reappraisal 57 private expenditures and the "imbalance" -whatever it means -are utterly irrelevant unless the general superiority of public expenditures can be shown. By pointing to the triviality of private expenditures-which each consumer is likely to admit in regard to the expenditures of all other consumers-Galbraith suggests that the government would restrain those other con sumers, and that, anyway, it could not do worse. But it always can and usually does. (These two fallacies are perennial asser tions in the appeals for dictatorship: [1] followers of would-be dictators usually think, that matters can only improve; and [2] that the dictator would frustrate the [trivial] wishes of others, but not their own [un trivial] ones.) III Though/reproaching consumers for their silliness, Gal brai th does not hold them responsible for it: according to the principles of ritualistic liberalism, the people always have their heart (or is it their stomach?) in the right place; when they err, it is because they have misread their heart's prompting, owing to some wicked seducer. This theory is popular all around: it enables people to eat their cake and profess that they did not really want it; and it enables the theorist to have his cake (people are good) and eat it (people act badly). In the past, the seducers were devils, capitalists, or Jews. Madison Avenue is fast replacing them in the folklore of our society. Yet recent myths are less con venient than the ancient ones. Jews and capitalists suffer from them, whereas in the past the devils were the main sufferers.

Let me note that Galbraith's myth, though structurally analogous to those mentioned, if more urbane, is functionally quite differ ent: Galbraith does not urge liquidation of Jews, capitalists, or advertising men. His theoretical mountain gives birth to a quite modest, practical mouse: a general sales tax. But then mice can be quite voracious, and they multiply fast. (The general sales tax may have technical merits as such. But Galbraith wants it because he believes it to be the best means to achieve his basic end of increasing the general level of taxation, of 58 The New Argument in Economics decreasing private and increasing public expenditure. I object to this end, rather than to a sales as compared to an income tax.) Galbraith argues that consumers no longer satisfy endogeneous desires, but exogeneous ones "contrived" by advertising. Indus try thus first produces the desires it then satisfies, whereas before The Affluent Society) the needs satisfied arose independently.

Now to the extent to which we grant the truth and undesirability of this "dependence effect," it might argue against advertising. Surprisingly, Galbraith seems to think of it as an argument for reducing the purchasing power of consumers and increasing that of the government by means of a general sales tax. His not entirely explicit train of thought seems to be: consumers' purchases are trivial; they satisfy a demand "contrived" by advertising; therefore we should transfer purchasing power from consumers to the government; public expenditures will be less contrived and less trivial. There is no logical connection among the various parts of this argument. Why should the government not do worse than consumers? Why are public expenditures less (rather than differently) con trived than private ones? Is the political process that spontane ous? Why is "contrived," i.e., influenced demand better or worse (more or less trivial) than uncontrived, i.e., uninfluenced (if that is conceivable) demand? Is the "contrived" demand for education, books, and soap worse than uncontrived spontaneous dirt and ·ignorance? One may spontaneously desire trivial things -as any child knows and does. Culture is contrivance, i.e., social influence, and there is no society without it. There is no less contrivance in primitive, or for that matter, in Soviet society than in ours. The problem is not that there is influence ("contrivance"), but its quality, source and direction, above all, whether influence is monopolized or whether it comes from many competing sources. The high taxes Galbraith proposes obviously would not affect these problems except by reducing the power of individuals and adding to the power of the government. Influence would not be eliminated; it would be centralized .

. Galbraith's argument is irrelevant then. Is it true? Are con sumers hapless victims of Madison Avenue? One would expect Private and Public Expenditures: A Reappraisal 59 that they bought Ford's Edsel car in droves and not small foreign cars·; or that the political party that spends most on advertising always wins. Presidents Thomas Dewey and Richard Nixon, and the Republican Congressional majority would testify to these beliefs were they true. They are not. But believers are unshaken by evidence. Advertising is only one influence among others in political or purchasing decisions and is frequently offset by competing advertising. Yet advertising men as well as their opponents (for different reasons) cherish the belief that advertising is always the decisive influence. Advertising agencies want to impress prospective clients with the importance of what they may do for them. The motivation of opponents is more complex: though their faith is as strong. 50me are looking for scapegoats; others are mildly paranoid; still others want to convince people that they lose nothing in getting government "protection" from their own use of freedom, since advertising mysteriously has deprived them of that freedom anyway.

Many consumers spend their money in ways many other consumers disapprove of. The first group of consumers assumes that the second cannot possibly have freely decided to spend its money as it does. The disapproved expenditure pattern is taken for evidence of their lack of freedom, just as apologists for dictatorship have always presented the election of a less than perfect democratic government, or of one they disapproved of, as evidence of a lack of political freedom. If you do not "really" have it, what can you lose in giving it up? The moral connection between sumptuary and political free dom is anything but tenuous: if consumers are incapable of freely choosing among advertised products, why should they be deemed capable of freely choosing among propagandizing political parties? What is freedom if not the right to choose among competing influences? If these influences are considered coercion, or if people are deemed too incompetent to choose among them, freedom can never be more than sham, and we might just as well install a dictatorship. It would not follow that dictatorship will lead to better results; but there would be no reason to expect 60 The New Argument in Economics worse ones. We would give up something we never had, or were never able to use competently. But I like freedom because it allows me to make and judge my own choices, however foolish.

We might well oppose and seek to restrain seduction. But we cannot (unless it be practiced on the legally incompetent) treat it as though it were rape, precisely because it gives choice (and therewith part of the responsibility) to all parties con cerned: it requires consent. Democracy does so no less than the "dependence effect": with freedom there always are com peting influences. And advertisements for detergents no more hypnotize or coerce than advertisements for political candidates. If people are competent as citizens to choose among candidates, why should they not be competent as consumers to choose among goods? (I find it hard to believe that those who ~onfuse influence with coercion can be sincere, but I may overestimate both their intelligence and their malevolence.) Has the influence of advertising increased? The proportion of the population affected certainly has. Not, however, because Madison Avenue has discovered new tricks-there seems to have been little basic progress in propaganda techniques since Roman times-but because literacy and other communications media have spread; and because many people who did not in the past, do now have enough disposable income to follow fashions in purchasing. However, even the fixed purchasing patterns of the past were socially influenced. The peasant's dress, food, and hous ing were no more individual creations than the wigs of noble men, or their extravagant garments. Nor were these things less trivial than the things advertised in Vogue today. Versailles, a medieval cathedral, or Vanderbilt's yacht were neither more of a necessity or more spontaneous than our tail-finned cars, or a copy of The Affluent Society-though perhaps of more lasting value.