Every government functions as a parasite on the economic activity within its jurisdiction.1 That is, it supports its own activities by taxing various aspects of the economy, or by taxing its citizens directly—who in turn must support themselves and pay the tax by participating in the economy.
Like any good parasite, the government also prepares its host to withstand the infection by passing laws and regulations that encourage economic activity and increase the tax base. But eventually the successful parasite encounters a problem: as it prospers and grows, taking a larger and larger bite out of the host, it approaches a point where further growth of the parasite will cripple and sicken the host. If the parasite is perfectly adapted to exist on that host, then it will also limit itself so that it does not jeopardize the health of its only means of survival.
Unless, that is, that parasite is the United States government—or the government of any of the most developed countries in the world today. They all seem to have forgotten the fundamental rules of being a good parasite.
First, they have fed not only on economic activity but also, in any democratic structure, on the votes of a popular majority. The only way to ensure those votes is to offer benefits—tax breaks, supported services, monopolies—on sectors of the population that will confer a majority in support of the government. In the United States today, approximately half of the population is favored with paying no taxes through “exemptions,” and even getting “credits” back from the government, while enjoying a wide range of free services. These are the people considered to be burdened with low social or economic status. The other half pays all the taxes and takes less in services. These are the people considered privileged with high social and economic status. The people of low status have only their votes to give, but alert politicians have already figured out that votes are better than gold. Really cunning politicians have found a way to convince the privileged sector to donate their gold in support of the campaigns needed to persuade the underprivileged to vote for them. This exchange is by definition unsustainable.
Second, these governments have passed laws and regulations that either tend to, or are outright designed to, inhibit economic activity. For example, they promote the interests of labor over management and owners in a productive enterprise. These laws encourage workers to command higher wages; demand greater services in terms of medical care, family benefits, and vacation and retirement compensation; and limit the hours they can be asked to work and tasks they can be asked to perform. When these laws apply to activity in the “private sector”—the arena of the economy—they limit labor’s productivity and so the capacity of that economic activity to grow. When they apply to workers in the “public sector”—the arena of government itself—they expand the government’s budget and its need for greater taxing power.
Modern governments inhibit economic activity in other ways. They pass laws in favor of what are called “the commons”—expansion of public lands, restriction of commonly held resources involved with those lands, like mineral extraction and grazing, and the less visible goods of clean air, clean water, biodiversity, and climate protection. By restricting economic activity that might infringe on these commons, the government appears to be doing good. But an ideologically guided government can see too much good in restricting these commons and too little good in allowing the economic activity that makes use of them.
Third, governments overestimate the amount of economic produce they can safely reap in the form of taxes. When they move from “taking no more than the host will miss” to “leaving only enough for the host to survive,” they enter onto dangerous ground. Any miscalculation about what the host needs to survive can lead to crippling, sickness, and death. Today, governments are making ultra-fine calculations about the amount of incentive left to the promoters of economic activity—the entrepreneurs, managers, shareholders, capitalists, and bankers—without whose effort and attention the enterprise ceases to function.2
Today, governments all over the world have overestimated the amounts of economic activity available to be taxed and underestimated the amounts of tax revenue they need to survive. In times of greatest economic growth, the government grows and prospers and promotes more vote-getting programs and services. In times of stagnation, the government borrows money to support itself, absorbing the energy3 that could be used to promote economic growth. This exchange is by definition unsustainable.
Read the newspapers or skim the blogosphere and you find that almost everyone, on both sides of the aisle, agrees that our government and its obligations have grown significantly. From a historic 18% of gross domestic product, the federal government now takes about 25% of our annual economic activity. Add in state and local governments, and the take is almost 40%. Federal debt that will eventually have to be repaid is about 100% of our annual GDP—the equivalent of a person owing credit card debt equal to annual income. As a parasite, the government at all levels is growing perilously large and endangering the health of the host.
I’m not in favor of having no government, because the government is a legitimate expression of society’s need to provide for things that individuals cannot efficiently do for themselves, like build roads, defend the borders, drain the swamps, and other useful treatment of our natural commons. It is appropriate that some people work in the government rather than in the private economy to plan for and execute these communal services. It is also appropriate that government take a share of individual wealth and economic activity to pay for these services that benefit both the taxpayers and the economy as a whole.
But there is a natural limit to which government can grow. Not a legal or constitutional limit, but a natural limit. When the host labors and struggles to feed the parasite, it is never recorded in the biological sphere that the parasite will suddenly leap free, stand upon its own legs, and become the host, fulfilling the host’s niche in the surrounding ecology. Similarly, a government that is based on taxation of economic activity—rather than the Communist type, which sets out from the beginning to be the economy—cannot suddenly morph into a substitute for that taxed activity. The lines of communication, the signaling systems, the feedback mechanisms are all wrong for such a transposition. The host will instead sicken until either the government backs off its requests and the host recovers, or the government continues to grow and the host eventually dies.
Today, every government in the modern, developed and developing world is testing the borderland between these two conditions. In Europe and America, the host is sickening and may soon go comatose. In Japan, the host is largely populated by zombies on life support. In China, the originally Communist government is letting the capitalist host grow as a wild type of cancer, with no plan for where or when this strange experiment will end.
But the old adage still applies: Whatever cannot continue is not sustainable and eventually will come to an end.
1. The exception to this would be a Communist state, where the government defines and controls the economy directly—in effect, the government is the economy. But then woe betide the citizens.
2. In the popular imagination—fostered by supporters of ever-larger government—the capitalists (who essentially buy corporate, municipal, and U.S. Treasury bonds) and the shareholders (who buy stock in companies) are just the greedy yet faceless tycoons of Wall Street. Certainly, no one cares if their ox gets gored to within an inch of its life. But some of the biggest players in the stock, bond, and futures markets are the “institutional investors,” who manage the money in the retirement funds of employees in both the private and public sectors. Everyone has a stake in what’s going on.
3. Money is nothing but a fixed form of human energy. See The Economy as an Ecology from November 14, 2011.