There are three phrases, each of which is three words long, that govern the thinking of economists.
Supply and demand
High bid wins
At some price
I will focus on the final three words: "At some price." I want to raise its corollary: "At what price?"
THE COST OF REVOKING OUR RIGHTS
Everyone in this country says he has a right to this or that. Rarely is the word "right" rightly defined. The confusion has always been there. It is the difference between the right to something and the right to be immune from something.
If I have a right that makes me immune, nobody else has a right to interfere with my liberty in this particular area. On the other hand, if the civil government says that somebody else has a right to my income, then I don't have a right of immunity.
These two concepts of rights are in conflict most of the time. Most voters do not understand the extent to which they are in conflict.
To understand a civil right, which is a guarantee of immunity from interference, we have to understand that civil governments are systematically taking away our rights. Employees of civil governments want to be able to interfere with our actions at any time. Civil governments want to lay down the rules of the game. They want to be able to change the rules of procedure on a regular basis to favor the expansion of the state's power into our lives. This is basic to all civil governments. Anybody who doesn't understand this does not understand civil government.
What we have to look at is this: the cost to the government of enforcing its rules. In other words, we must ask: "At what price?" The more expensive it is for the central government to enforce its rules, the greater the degree of civil rights the population can maintain. If we look at civil rights as unconnected with the price of enforcement, we will then have to trust the civil government to be self-restrained. If the civil government can enforce the terms of obedience to its commands at zero price, there will be a great extension of commands. ("As the price falls, more is demanded.") The cheaper it is for the government to enforce its will, the fewer the civil liberties -- legal immunities -- we will retain as individuals.
It is a mistake to look at the government as a source of protection of civil rights in the long term. There may be protection by one bureaucracy of its jurisdiction, which means that there may be barriers institutionally that are available to slow down the extension of some other government bureaucracy into our lives. In other words, we pit one bureaucrat against another bureaucrat. We get a turf war going inside the bureaucracy that may conceivably enforce some zone of our liberties. This is what the Soviet Union did almost from the beginning. The only way to get any kind of liberty in the Soviet Union was either to pay a bribe or to get one bureaucratic agency to declare that another bureaucratic agency was intruding into the first bureaucratic agency's zone of authority.
Anybody who expects the government of the United States to preserve liberty over the long run is suffering from terminal naïveté. He is going to be disappointed.
TECHNOLOGY AND DECENTRALIZATION
The main thing that is going to protect us from an extension of federal authority in our lives is the decentralization that is provided by the development of digital technologies. If we look to anything else, we're going to be disappointed.
There are public interest law firms, and I'm grateful for them. They take certain representative cases in order to establish some kind of judicial precedent. But public interest law firms are few and far between, and the Federal Register publishes 80,000 pages of arcane regulations every year.
If we look only at the rules published by the government and specific examples of interference in our lives that we get in media accounts, we are likely to grow discouraged. It looks as though the federal government can extend its tyranny into every nook and cranny of our lives. But what is published in the Federal Register is not the same as actual enforcement. The victims have lawyers if they are corporate entities. They can gum up the works. The mere publishing of a regulation is not the same as the actual enforcement of the regulation.
The more regulations there are, the more that the economic and institutional resources of the regulatory system are stretched across the entire economy. The very thickness of the Federal Register is a guarantee that it cannot possibly be enforced. Bits and pieces can be enforced, but not the whole publication.
The technological genies of the digital revolution are always years ahead of the enforcement arrangements of federal law. The operational distance between the genies and the ability of the federal government to catch up is increasing. As the cost of decision-making falls at the local level, the cost of the enforcement mechanism increases.
While I certainly deplore the extension of federal regulations into our lives, I always want to make the distinction between what is on paper, or in some government database, and what the federal government is actually capable of enforcing.
Let me give an example. The Internal Revenue Service this year is investigating fewer large corporate tax returns than it has in the past.
Large U.S. corporations had a good tax-filing season in 2015. Firms with at least $10 million in assets faced the lowest IRS audit rates in at least a decade as the tax agency coped with staffing declines, new data show.Audit rates of tax-exempt organizations also fell to their lowest rate in more than ten years, the IRS statistics show, mirroring declines in audits of tax returns filed by individuals.
As a result, IRS collections of audit-related revenue fell to $7.32 billion in fiscal year 2015, the lowest level in 13 years. The agency projects the collection decline will continue, affecting the overall federal budget, because enforcement personnel levels last year also dropped to the lowest headcount in more than a decade.
Think of this number: $7.32 billion. We are talking about an $18 trillion economy. Yes, we all hate the IRS. But in terms of compliance, what is the threat of $7.32 billion in $18 trillion economy?
Corporations' money is the low-hanging fruit for the IRS. That is where there are lots of records. That is where there are digital bank accounts that are easily followed. This ought to be the easiest big money in America to collect. Given Pareto's curve, this is where the money is: the top 4%. Except that it isn't being collected.
The federal government is the Wizard of Oz. It is the little man behind the curtain. In terms of what it can actually enforce, case-by-case, it is close to impotent. In particular cases, it can come down an individual like ton of bricks. But how many cases are there? How many times can the federal government reach into somebody's life, send out an administrative law judge, and then impose the penalty without getting challenged in court? It can do this with little people; it cannot do this with the big banks. That's why little people get hammered, and the big banks don't. The big banks hire the best lawyers in the country. They can gum up the government's systems of enforcement. They can make bureaucrats look silly. So, bureaucrats leave them alone.
The IRS cannot collect enough money from the general public to pay for the enormous expenses of the government. It has to be able to tax the people in the top 4%, only it can't. These people hire the best lawyers. They don't get audited. They don't get penalties assessed against them. But this means that the federal government is not going to be able to collect enough money to run the federal government. It must borrow the money. That is why the Great Default is inevitable.
The bigger the federal government gets, the larger its budget gets, the closer we are to the day of fiscal reckoning.
On paper, the federal government can take away our civil liberties without a great deal of difficulty. In fact, it cannot.
LIBERTY IS INCREASING
This is why there is an enormous amount of freedom in the United States. This is not because of the U.S. Constitution. This is not because of the court system. This is because of the inherent decentralization of modern technologies, and the inability of the federal government to enforce its regulations across the board.
This is why we, as individuals, can do pretty much what we want most of the time. We can organize local groups that achieve certain goals. We can start incorporated businesses in a matter of hours. We can join churches. We can start churches. We can open bank accounts. We can go to an ATM and get out a lot of money over a period of several months -- far more than 80% of Americans have in banks. Nobody bothers us. Nobody pays attention to us. Nobody in Washington cares about us. Not having anybody care about us at the federal level is the biggest single guarantee of civil liberties that we have. Second is the jury system.
This is why I am not pessimistic regarding America's future. I am not pessimistic about Canada's future, Mexico's future, or the future of the world in general. The biggest problems that we will have, other than non-state terrorists with biological weapons, will be whatever problems the free market and computerization create for us. For these problems, there will be solutions.
At some price.
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