The Washington 1 Percent

Mises Daily:
Tuesday, June 19, 2012
by James E. Miller

The Associated Press recently reported
that half of all new college graduates are either unemployed or
underemployed. These fresh-faced bachelor-degree holders are finding
themselves opting for waiting tables and serving coffee just to pay off a trillion dollars
in student loans. They are coming to grips with a lie perpetuated by
university professors, faculty unions, and politicians that deluded them
into thinking college by itself was the golden ticket to success.

Meanwhile, the rest of America is still muddling through years of
high unemployment. The jobs connected to Alan Greenspan's housing bubble
are gone and will likely never return. Federal Reserve chairman Ben
Bernanke met the financial crisis with an unprecedented amount of
monetary-base expansion, which has failed to significantly affect the
unemployment rate. President Obama and his allies in Congress threw $800
billion at the economy to no avail and have been running federal
deficits to the tune of over $1 trillion for three years now. This orgy
of money printing and spending has done little for the residents of Main
Street but has done wonders for Wall Street and other politically connected interests.

Last fall's Occupy campaign was representative of a growing distrust
of the American economic system. Although many occupiers were misled
into believing capitalism is the culprit behind the sluggish economy,
the protest's focus on income inequality was not wholly inaccurate. Of
course the inequality in income that is a byproduct of an unhampered
market economy is not something to demonize. As Ludwig von Mises wrote in Economic Freedom and Interventionism,

Inequality of wealth and incomes is an essential feature of the
market economy. It is the implement that makes the consumers supreme in
giving them the power to force all those engaged in production to comply
with their orders. It forces all those engaged in production to the
utmost exertion in the service of the consumers. It makes competition
work. He who best serves the consumers profits most and accumulates
riches.

Today, no Western, industrialized country operates under genuine
capitalism. What passes for the free market in the context of mainstream
political debate is actually a fascist-like partnership between big
government and big business. The dynamic, cost-cutting competition that
defines the uninhibited market has been stifled by Washington's endless
decrees of regulation.

As Leviathan's grasp over all economic life continues to grow, it
only makes sense that greater amounts of wealth funnel into the area
that surrounds the various bureaucracies and decision-making bodies that
make up the state. This past October Bloomberg News reported that Washington, DC, now tops Silicon Valley as the richest metropolitan area in the country. In a recent Time magazine article entitled "Bubble on the Potomac," author Andrew Ferguson documents the lifestyles of those within or well-connected to the federal-government apparatus:

Even as the nation struggles, the capital has prospered, making it a
magnet for young hipsters but leaving its residents with only a
tentative understanding of how the rest of the country lives.

Every week brings fresh evidence of continuing prosperity: a new
restaurant, a new nightclub, another restored 19th century townhouse in a
previously dodgy neighborhood selling for $1 million or more. Start-ups
are hiring through Craigslist, and just opened lobbying firms have no
trouble collaring clients.

Other big cities, of course, have made it through the recession in
one piece. But few eased through the crash as lightly as D.C., much less
prospered so widely on the rebound. The local unemployment rate, at
5.5%, stands well below the national figure of 8.2%. The region's
foreclosure rates have always been significantly lower than those
elsewhere, and now housing prices in D.C. and across the river in the
Virginia suburbs of Arlington and Alexandria are close to their precrash
peaks.

While Washington's palette of policy prescriptions becomes more
diversified, more and more feeders are flooding to the public trough to
get a share of the pie. Trillions of tax dollars being spent every year
means a better chance to obtain that much-needed earmark or
appropriation. The political class's inclination to create a perfect
society has resulted in the state having an influence in virtually all
aspects of private life. The car you drive, the food you eat, and the
pillow you lay your head down on to sleep at night all have to comply
within the legislative whims of the federal government. Lobbying has
thus become a lucrative profession for those savvy enough, and well
financed enough, to pay for that subsidy or competitor-crushing
regulation. Just as F.A. Hayek recognized, "the worst rise to the top of
government," and centers of power attract all types of opportunists.

Though lobbying for privilege has become a staple industry within the
DC area, it isn't the sector experiencing the biggest growth in
employment. Ferguson explains:

Why the boom? The size of the nonmilitary, nonpostal federal
workforce has stayed relatively stable since the 1960s. What has changed
is not the government payroll but the number of government contractors.
It's estimated that, thanks to massive outsourcing over the past 20
years by the Clinton and Bush administrations, there are two government
contractors for every worker directly employed by the government.
Federal contracting is the region's great growth industry. A government
contractor can even hire contractors for help in getting more government
contracts. You could call those guys government-contract contractors.

Which means government hasn't shrunk; it's just changed clothes (and pretty nice clothes they are).

In order to project the image of a scant increase in the number of
federal-government employees, a type of shadow economy of contractors
has developed to deceive the public's eye. These contractors are
employees of the state whether on the official payroll or not. Their
income is derived from stolen funds just as much as the budget analyst
at any of the alphabet-soup bureaucracy. The so-called private companies
they work for do the bidding of the state at what is often an
exorbitant price compared to what may prevail under free-market
conditions. Government contractors are merely deceptive when describing
themselves as private, for-profit companies. They are de facto agents of
the state.

With all the money culminating in the Washington area, the city and
its surrounding suburbs are indeed a world apart from the rest of the
country. As the Time article shows, while regulatory uncertainty
and the threat of increased taxation continue to stifle entrepreneurial
capital investment, DC residents often help themselves to $150 meals, a
taxpayer-subsidized metro system, and a variety of bars serving
overpriced drinks. Armed with "fistfuls of disposable income," they live
in paradise compared to recession-wrecked America.

This disconnect in lifestyle is understandable when we consider the anatomy of the state. As Murray Rothbard defines it,

Social power is man's power over nature, his cooperative
transformation of nature's resources and insight into nature's laws, for
the benefit of all participating individuals. Social power is the power
over nature, the living standards achieved by men in mutual exchange.
State power, as we have seen, is the coercive and parasitic seizure of
this production — a draining of the fruits of society for the benefit of
nonproductive (actually antiproductive) rulers. While social power is
over nature, State power is power over man.

By being infused with the central state, much of Washington, DC,
lives parasitically off of the collective labor of the rest of the
country. Their standard of living comes at the expense of those whom
they lord over. The ruling class establishes the rules of conduct for
millions despite being made up of just a very small portion of the
population. In return, it demands and receives compensation that is then
funneled to the politically connected. This stream of violently
confiscated funds is the lifeblood of the city.

To drive this point home, it must be emphasized that those on the payroll of the state don't actually pay taxes. As Rothbard points out,
the notion that they do is "a mere accounting fiction." Claiming a
government employee pays taxes is the equivalent of claiming they pay
their own salary.

In the end, the people of Washington have little desire to have their
lavish way of life fall by the wayside. Their goal is to keep the
nation's focus on the government's operations. This guarantees more
power, prestige, and authority for a city overrun by men and women who
take pride in their lawful ability to wage war abroad and at home. As
long as the federal government remains an overarching factor in everyday
life, it will attract a great deal of wealthy interests looking to the
game the system in their favor.

The DC mindset is fixated on the idea that such a state of affairs
can last forever. Much of the younger crowd that resides in the nation's
capital still doesn't see the writing on the wall. Ferguson ends the
article explaining why:

The optimism of über-Washingtonians so far survives the unspoken
worry about a coming age of austerity, in which government spending cuts
would end the high life that Washingtonians have come to expect. They
are right to be optimistic. The two most plausible deficit-reduction
proposals — one by President Obama, the other by the
Republican-controlled House Budget Committee — each calls for the
government in 2021 to spend a trillion dollars more than it spends
today.

Those living off the state are convinced the good times won't come to
an end. Trillion-dollar deficits beg to differ however. The day will
come when either investors demand higher interest rates for government
bonds or prices pick up exponentially due to the extraordinary amount of
inflation engineered by the Fed. Either way, Washington will then have
no choice but to cut back or risk the complete destruction of the
dollar. It will be a period of reckoning like no other. As Tom Woods
writes in Rollback: Repealing Big Government Before the Coming Fiscal Collapse, it is estimated that the federal government's unfunded liabilities comes in at around $111 trillion. According to
Professor Laurence J. Kotlikoff, the unfunded liability gap actually
exceeds $211 trillion. Such staggering numbers mean a great default is
coming. It's only a matter of who the losers will be.

For a country that is forced into subsidizing the profligate living
habits of the state and its partners in crime, the only justifiable
outcome would be for the latter to suffer.

For every government employee or contractor relieved of service in
Washington, DC, and elsewhere, one or more taxpayers will be relieved of
the burden of paying their salary. When such an event happens en masse,
it will truly be a time of celebration for America as a whole.

James E. Miller holds a BS in public administration with a minor in business from Shippensburg University, PA.
He is the chief blogger at the Ludwig von Mises Institute of Canada and a current contributor to his hometown newspaper, the Middletown Press and Journal.
See his blog.
Send him mail. See James E. Miller's article archives.

Copyright © 2012 by the Ludwig von Mises Institute. Permission to
reprint in whole or in part is hereby granted, provided full credit is
given.