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The Washington 1 Percent

Mises Daily: Tuesday, June 19, 2012 by

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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.