Larry Summers and Wagner’s Law

I remember Larry Summers from the time he was President of Harvard University, from July of 2001 to June of 2006.

At Harvard Summers became quickly known for speaking truth to power, something you don’t do at Harvard, or at any one of the country’s elite universities. And of course he made enemies, as does any truth teller. If you would stay in office you have to learn to keep your personal opinions to yourself, not tell it how it is. Summers didn’t do so, with the result that he was very soon replaced as president by someone who did, by someone, much less of a person, who spoke fluent P.C.

But Summers’ name continues to crop up in the media because he’s a smart guy, and continues to disregard the power structures, to speak the truth, and tell us, at least to the extent he knows the truth, how things are.

Recently his name appeared in a Sept. 6 Times op ed piece, Your Coming Tax Increase,  by David Leonhardt. Summers had given a lunchtime presentation in Washington laying out the statistics that debunk the falling-taxes fantasy of our leaders. According to Leonhardt Summers had in his talk effectively updated Wagner’s Law for this year, 2017, the year of the Trump presidency. (Trump, of course, was not listening.)

So Wagner’s Law, what is it? Adolph Wagner, a German economist, had made an in depth study of the rise in government expenditure in the late 19thcentury and from that study had formulated a law, now called Wagner’s Law, or “The Law of Increasing State Activity.” In Wagner’s words, “as the economy develops over time, the activities and functions of the government increase”.

Summers understands exactly what Wagner meant.  “You should expect, Summers  says, “government to be larger in the future than it has been in the past.” And, as he tells us, there are four main reasons for this:

—One, society is aging, which calls for greater spending on retirees. The ratio of elderly Americans — those expected to be in the last 15 years of their lives — to all other Americans will rise about 50 percent from 2010 to 20.
—Two, inequality has soared, with living standards stagnating for the middle class and poor. Taxes push back against inequality.
—Three, labor-intensive services, like education and medical care, have become more expensive, and they also tend to be the areas where the government spends money.
—Four, American military spending has not kept up recently with the spending by our main rivals, including China, Iran and Russia. But according to Summers this trend shouldn’t continue forever.

Conclusion? Public Expenditures are increasing and this cannot be stopped, other than by eliminating programs and benefits, reductions that the public will never permit. Adam Smith had written in the ‘Wealth of Nations’ that the government should restrict their activities to just three things—Defense against foreign aggression, maintenance of internal peace and order, and public development work. He estimated that all other functions  were beyond the scope of the state & expenditure on them was  unjust & wasteful.

Now is our President, is our Republican Congress even aware of this situation? Do they even know what Wagner’s Law is? Have they read Adam Smith? It would seem not because they go on speaking as if they had the power to stop, without hurting anyone, the constantly increasing federal and local government activity resulting in increasing expenditures and taxes. In any case taxes are not going down, and any discussion of taxes has to begin with the recognition that this is how things are, that as the economy develops over time, the activities and functions of the government will increase demanding higher taxes.

There is no feasible way out of this situation. Much like global warming?  Although there are those who believe that the global rise in temperature can at least be slowed. Probably no one believes that about taxes.


 

 

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