If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.
James Madison published these words in Federalist #51 in 1788, defending and explaining the idea of limited government in the newly minted U.S. Constitution. That legacy was the subject of the latest lecture in the Pearson-Eby Liberty Academy (PELA) series dedicated to the history of our freedoms, and sponsored by the Kansas Policy Institute, owners of The Sentinel, and the Gwartney Institute on the campus of Ottawa University in Overland Park.
Featured speaker Dr. David Hebert, author and Senior Research Fellow at the American Institute for Economic Research (AIER) posed the question:
“Is government really the best way to accomplish a given goal? Or is there a way that would accomplish that goal in actually materially and dare I even say, ethically, better? Now, you often hear this ignored in political debates. You’ll hear things like, If we don’t pass this healthcare subsidy, people will die. If you don’t pass this education package, people won’t be able to go to college. Who will build the roads and make sure that our drinking water is safe? Who’s going to make sure that workers are paid enough and that their safety is protected? The hidden assumption here is that if the government doesn’t do it, then it won’t happen at all. But that doesn’t seem true if we actually look around the world and look through even just recent history.”
Dr. Hebert referenced the work of Nobel Prize-winning economist James Buchanan, who saw three levels of government activity:
- The Protective State. The idea that government can protect people, such as hiring police, and enforcing property rights and contracts. “If you watched basketball in the last 24 hours, there are referees on the court, right? They are not supposed to be playing. They are enforcing agreed-upon rules to make sure that the game can continue smoothly.”
- The Productive State. “This is the idea that the government can act within society and become a means by which the citizens can accomplish desired ends that would otherwise be kind of difficult. National defense is a classic example here. We can all agree that national defense might need to exist, but the optimal size of the military is more than one, right? But how big should it be? And who’s going to pay for it? So here, we’re thinking about genuine public goods provision, and that includes paying for these things, too. So, in other words, the power to tax comes out of the productive state. Continuing the sports analogy, the productive state would be like the general manager of the arena. They help create the space for the players to actually play the game. But the general manager is not on the court playing the game themselves.”
- The Predatory State. “We need rules. We need safeguards, we need limits on what they (the government) can do. The unchecked power of a government official would be horrifying. So, what the goal of limited government is, it’s never to reduce or shrink the protective or productive state. It’s to enable them to thrive while constraining the predatory state.”
Dr. Hebert on federalism in our Constitution:
“Federalism, the idea that local governments should be reigning supreme, and that the national government should be subordinate to that government, is at some level the architecture of limited government, not just some historical curiosity. The idea behind federalism is that competition among states and localities acts in much the same way as competition among businesses. States that overtax and under-provide will quickly see their populations dwindle as people move away, thus reducing their tax base and harming their own self-interest. Voting with your feet, in other words, is a very real and very powerful mechanism. And the 10th Amendment, the one that says that all power is not explicitly granted to the federal government, are reserved to the state and the people, provides a very serious check that is supposed to ensure that power stays closest to the people, i.e., with the state and local governments, where you know the person who is, delegating or creating rules for you. Limited government, then, isn’t about doing nothing. It’s about doing the right things. And also having the humility to stop at that point. To go no further.
On the inefficiencies of government in the predatory state:
“When the government intervenes in their predatory state capacity, usually trying to make something more affordable or more accessible, unfortunately, however, it almost always ends up making things worse. Think about housing and healthcare. These are areas that everyone is bemoaning as unaffordable. And they’re right. The average first-time home buyer is now 40. Not 25; 40. The average house that people get built, the new construction, is sold for about $360,000. This is wild. If you look at what new homebuyers want, over 55% of them want a house that costs less than $250,000, because that’s what they can afford. Only about 12% of the houses built every year actually meet that criteria. So there’s a fundamental mismatch. Why? Two reasons. One, we have state and local governments that have passed zoning ordinances that make it prohibitively difficult to actually construct housing. That is going to restrict the supply. And then two, the federal government keeps coming in, subsidizing mortgages. We saw this most recently with President Trump trying to move to a 50-year mortgage away from a 30-year mortgage. The 50-year mortgage, just for some comparison, would save you about $150 a year on your mortgage payments, and it would cost you something like $120,000 extra in interest payments over the additional 20 years. So the savings are basically minuscule. The idea was to try to make mortgages more affordable with the idea being that if a mortgage is more affordable, people can buy houses. But all that’s doing is boosting the demand for housing. When you boost the demand and you restrict the supply, the only result that can happen is higher prices.
“Same thing is true in healthcare. We look at the Affordable Care Act. By focusing on health insurance and not healthcare, what the Affordable Care Act actually ended up accomplishing is about doubling the amount of healthcare spending in the United States. Now, if you double the amount of spending, you would expect there to be a spike in employment. Not what we see. Looking at BLS (Bureau of Labor Statistics) data. What we find is 15 years prior to the Affordable Care Act, the healthcare industry in terms of providers of medical services, was growing at about 2 to 2.5% per year. In the 15 years since the ACA was passed, anyone want to guess about the growth rate for employment in the healthcare providing area is? It’s about 2 to 2.5% per year. In other words, there was no massive spike or increase in the amount of people who work in healthcare, providing healthcare. Why? Because in 1997, as a part of the federal budget, we froze the number of residencies available to 1996 levels. That was fine in 1997, 1998, maybe even 2000. Today, the American Medical Association estimates that we’re short something like 40,000 doctors. And then by 2030, that number will be over 80,000. In other words, there is a law in Congress that has restricted the supply, making it more difficult to become a doctor. And on top of that, by expanding health insurance coverage, what we’ve done is boosted the demand. Same thing as housing. What happens when you boost the demand and you restrict the supply? The only result is that prices go up. Making things even less affordable. And so if you want to tackle healthcare or housing, the answer is not boosting demand. It’s not making mortgages or insurance more affordable. It’s making more doctors and more houses. It’s not some Reagan-esque supply-side voodoo stuff. This is just straight-up Econ 101. If you want more of something at lower prices, that is a supply-side issue; it’s not about demand. The unfortunate thing is that what the government, what federal policy tends to do, is focus on buying. They try to make it easier for people to buy something, thinking that that will increase the amount of it available. It does at much higher prices. And for people that don’t qualify for those programs, the result is just higher prices. Now, what happens when we have too much government? The predatory state that Buchanan warned us about becomes unleashed and in full force.
“So the question has never been, government or no government. The question has always been, who is the government working for, and are they serving our best interests?
The next PELA lecture will discuss the First Amendment with Kansas Justice Institute Litigation Director Samuel MacRoberts.
April 25th
9:00AM
Ottawa University
6450 Sprint Parkway, Suite 200
Overland Park
