The Road Away From Serfdom

                         By Dick Armey


Although I currently serve in Congress, I regard myself as a
free-market economist -- a price theorist and a microeconomist, to be
precise. Yet I was not introduced to the work of great free-market
theorists like Ludwig von Mises or Friedrich von Hayek as an
undergraduate or even as a doctoral student. Indeed, it is safe to say
that Human Action and The Road to Serfdom are rarely read in American
universities while books like John Kenneth Galbraith's The Affluent
Society is widely read and discussed as if the Great Society programs
it rationalized were not in total disarray today.

Why do some economic theories remain popular even when the policies and
results they have wrought are under serious question? I have been
acutely aware of the answer to this inquiry ever since I discovered as
an academic professor that macroeconomics is typically more popular
than microeconomics: Easy ideas are always more quickly accepted than
hard ideas. Galbraith's ideas, which were always more like scenarios
than science, made their way into our government, our schools, and our
entire way of thinking because they were so easy to grasp and to
explain to others. As much as any other reason, this is why I ran for
political office: to help in some small way to undo the damage
Galbraith has done.


Recognizing Constraints

Galbraith set forth the notion that the American economy required a
"social balance" which would mean the transference of the control of
our resources from the private to the public sector. He, as much as
Lyndon Johnson, was the architect of the Great Society. He ignored the
reality that things only happen when someone makes the decision to do
something, that the world revolves around choices. Every choice is
between what Samuelson called the "minima" and the "maxima," but even
extreme positions must be chosen within a limiting set of constraints.

The trouble with Galbraith's theory and, ultimately, the greatest evil
of The Affluent Society, is his refusal, replicated by President
Johnson in his ill-famed guns-and-butter speech of 1965, to acknowledge
this basic truth. There are no limits, no constraints, they claimed
instead, so we don't have to be careful about husbanding and allocating
our resources among competing ends. Today you can witness many
government policy-makers in action who don't recognize even the most
ordinary constraints in the way you or I would. We are all intimately
involved, for example, with the principle of budget constraints,
sometimes called "fiscal responsibility." If we spend more money than
we earn, the check at the grocery store bounces and then our car may be
repossessed or our house. We face direct and unpleasant con- sequences
for our profligacy. Does anyone really suggest that the government
fears the same?

Each and every day of our lives tells us that there are constraints on
time. This is, perhaps, the most fundamental and universal fact known
to man: life is temporary, limited. Yet our government s lifespan is
hardly measured in the same terms.

Another vital and undeniable constraint is scarcity. What makes gold
precious is that there is so little of it to be had, and the same goes
for any other resource, whether it is water, energy, concert pianists,
or life itself. We are limited in all that we do and all that we seek.
Yet Galbraith and many of our government representatives would have us
believe otherwise. They play upon our resentment of those richer or
more successful than ourselves, a resentment articulated many years ago
by Thorstein Veblen in his highly influential book, The Theory of the
Leisure Class, which painted the upper strata of our society as
indolent, self-indulgent and hoarding.

The modern redistributionists don't carry their dog-eared copies of
Veblen or Galbraith in their back pockets, but they don't need to;
they've already been given the intellectual framework from which they
can operate. Their first task is to convince us that we're not running
our economy or our lives well enough on our own. We need their help,
they argue. "Look at the terrible shape America's in. The problems are
too big for individuals to solve. Let us help." And they offer us,
simply, more government -- more government along Keynesian lines with
many instruments of what I refer to as "government by deception," not
the least of which is deficit spending, in which the true costs are
hidden from the people who, of course, pay the bills, or through
another instrument, corporate taxation, which is sold to the voters as
if it had nothing to do with their own Incomes.


Privatization

Privatization has become the great safety valve, especially for
conservative politicians, Republican, Democrat or otherwise.
Transferring a very small number of services back to private hands one
at a time is far less traumatic and far more feasible than trying to
reduce the size of government in a frontal assault on whole agencies or
departments. In Congress, a privatization task force of which I am a
member has been gaining influence, and public concern about the deficit
has been a key advantage. The task force outlines three basic methods
of privatization. One is contracting out certain services. Private
companies, for example, may bid on running commissaries on our defense
bases or computer work or printing jobs that may be handled more
inexpensively and efficiently by outside firms.

The second alternative is asset sales. This along with the third
method, selling loan portfolios, can be much harder to follow because
of the high visibility each entails. When it comes to privatizing
railroads, public utilities, federally owned buildings and the like,
critics are ready to call it a "fire sale." With unbelievable audacity,
some say, "You want to sell the government's property to the people of
this country?" (And that is the talk which sells in Washington.)
Transferring the ownership of property or services to private control
on the basis of rational market decisions and clearly defined
objectives is often misrepresented as robbing the government or even
"the taxpayers" (an entity some refer to as equally unconnected to
actual individuals), but nothing could be further from the truth.

Armey's Axiom Number One: The market is rational. The government is
dumb.

That is not merely a cliche. I used to teach an entire graduate course
in order to reinforce such a premise. Individuals face sobering
constraints every day -- money, time, resources -- and they do not, on
the whole, make heedless decisions.

We taxpayers (and I do mean we individuals) pay $650 to $700 million
dollars a year to subsidize passengers riding Amtrak. Is this rational?
Of course not, and when the case is this extreme, as with the deficit,
people do understand and respond.

The Great Society changed the nature of government spending and
taxation -- in short, the whole landscape of our economy. But we have
lost more than money in the process. We are no longer able to
distinguish between the legitimate roles of the private and the public
sectors, and, more often than not, it is the former which is wrongly
characterized as irrational and inefficient.


How to Think About the Deficit

Right now we have a lightning rod in "deficit mania." So, since people
rarely understand the real problem, we might as well educate them about
the symptoms. The deficit, let me stress, falls into the symptom
category; but it may be the best "two-by-four" with which to hit people
over the head when it comes to making them understand our larger
dilemma. Even Democrats who have never been, even by their own
admission, feverent budget-cutters, are making fiscal responsibility a
headline issue today.

But our true task does not lie in eliminating the deficit. (Considering
how Congress usually spends money, the interest paid on the deficit may
be its all-time best investment.) We have to cut the size of
government. Bring it back to its proper size. Put it in its place. This
isn't an economy measure -- it is absolutely necessary if we are to
continue to thrive as a constitutional democracy. But in a highly
practical way, the deficit can be the tool we use to convince others
who don't understand.

Restoring limitations on federal power is not easy. When Congress or
the administration tries to cut spending, critics call them heartless
and claim that the critically needy will suffer. The wise allocation of
resources will lose out every time when the choice is presented as
between government services and no services at all (as if the private
sector didn't exist). The Keynesian presumption is that if government
doesn't do it, it won't get done, and if the government doesn't spend
money on worthwhile programs, the money won't be spent and the programs
will collapse. That is how far we have come in two hundred years.

Armey's Axiom Number Two: You don't have to be a conservative to want
to get the government off your back.

Two black leaders with whom I met recently, both women who have been
lifelong Democrats and public housing tenants, agree. If we privatize
public housing, will people be homeless? No, they say; give the poor
vouchers and they will find their own cheaper residences. One of these
women has remarked time and time again, "I don't want the government
rebuilding the plantations." She understands that she does not want the
federal bureaucracy as the slum landlord of the '90s and she does not
want to be its victim. The lesson is obvious. What this woman desires
is the protection of her right to make her own decisions; hers is not
an ideological passion.

In the last few years, the Congressional Task Force on Privatization
created several bellweather proposals, of which loan portfolio sales
were our flagship. We felt we could build a constituency behind them
very quickly and with minimal political resistance. Of all of the
proposals, "urban homesteading" is, perhaps, the most appealing. People
who now live in what we call "the projects," government housing that's
been mismanaged and which is falling down around their ears, have been
reduced to wards of the state. We must give these people the
opportunity first to organize and manage their own buildings and then
to buy their own homes. Home ownership carries with it a strong sense
of responsibility and there is no doubt that it helps families stay
together. When fathers own their own homes where are they? Out
carousing? No -- they're home with their heads under the kitchen sink,
or painting the walls, or fixing the shingles, or doing the yardwork.
Teen pregnancy rates drop dramatically too, and often homeowners band
together to drive out drug dealers in neighborhoods where urban
homesteading initiatives have been implemented.

A recent article in The Washington Post comments on these privatization
initiatives by noting that fathers who return to participate exhibit a
surprising number of skills the welfare and housing experts never knew
they had. Plumbers, carpenters and electricians abound. As tenants of
public housing, these men were forbidden to make improvements by
statutes requiring all repairs to be made by union workers at
prevailing wages. Naturally, few tenants were willing to pay for
repairs or take an interest in the condition of housing which did not
belong to them.

As a freshman congressman, I experienced far less success with the idea
of postal privatization. Persuaded that I could have an influence on my
peers in Washington, I hired a private postal carrier to send a "Dear
Colleague" letter to all the members of the House. It began, "This
letter is being sent to you illegally. But I could deliver it to you
for five cents a copy...." The United Postal Workers Union was
outraged, and I couldn't convince Congress to go along with postal
privatization then; however, every year privatization of all sorts of
"sacred cows" like the postal service, Amtrak, health care and so on,
is becoming more attractive to an increasing number of Americans. The
biggest roadblock is the Democratic Party, even though its individual
members are often in favor of privatization. Why? Because in 1965
federal spending, previously only for capital goods, was expanded to
include consumption goods with the intent to redistribute wealth along
the lines drawn by Galbraith, Johnson, and the Great Society. This kind
of spending has bought whole constituencies and has created,
ultimately, the Dependent Society.


Less Government is More

We must not simply attempt to cut federal aid. Democrats and
Republicans alike will fight for their constituents who crave and
demand aid. What we must do is to offer these constituents something
better than a "free lunch"; we have to convince them that privatization
will bring direct benefits and mean more opportunities to share the
American dream.

Politically, what ought to arise out of the privatization movement is
not a realignment of power but a return to an older way of thinking,
that less government is more; more economic prosperity to go around,
more creative energies unleashed, and a more responsible, self-reliant
and independent people. This democratic republic was founded in order
to guarantee equality of opportunity and the freedom and dignity which
comes from being one's own person. For a government to try to do more
is to jeopardize the very rights it aims to protect. I want to
reiterate that privatization is not just a passing economic fancy or a
way to trim the deficit; it calls for a restoration of ideals badly
needed if we are to prosper as individuals and as a nation.

                               ---


About the Author

Often in the news for his forthright conservative views, Congressman
Dick Armey, a Republican representing the 26th District in Texas, was
recently reelected to a second term. He serves on two key committees --
budget, and education and labor -- and he also chairs the House Task
Force on Privatization. A former university professor and chairman of
the economics department at North Texas State University, Dr. Armey has
written two textbooks on economic theory: Price Theory (1977) and
Introductory Economic Concepts (1971).


[Reprinted by permission from IMPRIMIS (February 1988, Vol. 17, No. 2),
the monthly journal of Hillsdale College, featuring presentations at
Hillsdale's Center for Constructive Alternatives and at its Shavano
Institute for National Leadership.  Copyright (c) 1987.]