Hillsdale College, Hillsdale, Michigan 49242 January 1988 Volume 17, No. 1 The Problem of Big Government By J. Peter Grace

Editor's Preview: "With all the serious than an ideological nature. For instance, problems we face today, the problem of big at least 600,000 civil service jobs are com­ government is among the most critical." pletely unnecessary, and the President's So says J. Peter Grace, undoubtedly the Private Sector Survey on Cost Control single most effective spokesman for reduc­ recommended in 1984 that they be privatiz­ ing the size and influence of government ed immediately. The survey recommend­ in the business community today. The ed a few other reforms, too - 2,478 of highly-publicized Grace Commission, charg­ them to be precise. But only a small ed by President Reagan with the task of number of these have been implemented. reporting on government waste and inef­ Why? One of the reasons lies in the fact iciency, made 2,478 specific recommen­ that the federal government is controlled dations and demonstrated how more than by Congress. Rarely do people realize how $400 billion could be saved in the first few many day-to-day actions of the government years after their implementation. Further­ are affected by the 535 elected members more, the Commission found that these of Congress who micromanage each agency cutbacks would actually improve public ser­ and thus exert a powerful influence beyond vices, rather than curtail them. Some of their legislative function. the recommendations were followed; most Let me illustrate. Several years ago, John have been ignored. The peril, masquerading Shad, head of the Securities and Exchange under the term "intergenerational in­ Commission, was able to streamline the equity" means that politicians continue to mously bloated bureaucracy when time-consuming and labor-intensive load our children and grandchildren with everywhere in America it is recognized that registration process for the corporations it unbearable debt while refusing to reform the public sector simply does not work as regulates. Consequently, he was also able our current spending policies. Such fiscal well as the private sector, and furthermore, to cut his staff, or RlF (reduction-in-force, and philosophical irresponsibility will in­ it is small private organizations that work as it is commonly called), 230 employees. evitably lead to monetary and moral better than big ones. Two days later, he was summoned before bankruptcy unless we are willing to take action along the lines suggested by Mr. Grace. ''Added to all the other hidden debts Congress here are 2. 7 million federal employees refuses to tell its citizens about, the real debt is in the United States, occupying 2.61 between $4 and $5 trillion." Tbillion square feet of office space, the equivalent of all of the office space in our ten largest cities multiplied by four. These re astonishing statistics for a country that With all the serious problems we must the congressional subcommittee responsi­ claims to be guided by the principle that face today, the problem of big government ble for overseeing the SEC. government ought to play an extremely is among the most critical. Yet solutions "Why are you RlFing 230 people?" he limited role in men's lives. It is even more are not lacking; most of them are readily was asked. He gave them a reasonable surprising that we tolerate such an enor- understandable and of a practical rather explanation. "Come back to the chairman's office, NASA puts out a highly successful for $91.00 , $7 .50 hammers for $435 .00, and we'll talk about this for a few minutes." magazine which is oversubscribed (General and toilet seat covers for $678.00-all due He was presented with a list of items he Electric, alone, requests 5,000 copies each to the specifications which Congress has had included in his agency's operating month), but the Office of Management and imposed. The Defense Department makes budget for the next year. ''Do you want Budget (OMB) insists upon limiting produc­ roughly 1.5 million purchase decisions ea?9- cooperation on this budget?" tion. Some time ago, the editors declared year. It hardly needs the kind of help Cor "Yeah, I have to have this budget." their intent to solicit advertising in order gress has to offer. ' 'All right, then cancel the RIFs.'' to print the magazine privately. Going "Okay, I'm learning." private would also mean a great savings­ So it goes in Washington, D.C. Look at proofreaders from the Government Prin­ Perpetual Debt and Deception the exorbitant freight rates for the Defense ting Office are paid $32,000 a year and can ertinent today is Thomas Jefferson's warning, "To preserve our inde­ Ppendence, we must not let our rulers " .Ralph Nader is unsafe at any speed when he load us with perpetual debt.'' He added, ''We must make our election between suggests that your pre-tax income belongs to the economy and liberty ... or profusion and government and that by giving any of it away to a servitude.'' We are spending $220 billion more than we accumulate in revenues each commission, a church, or any other charity you year. We face a debt of $2.2 trillion. Now, are bilking the government out of its rightful due. you cannot really conceive of a trillion dollars and neither can I. We can figure That is socialism, plain and simple." out the calculations, of course-a million million, a thousand billion-but that is not really going to help us to understand. If someone started ticking off the seconds Department's operations in Alaska and look forward to retiring on 82 percent of since the time of Christ's birth , today the Hawaii: S68 million was spent over a recent their final salary. Ordinary proofreaders, count would be at a little over 65 billion , three-year period. Why? Congress does not in comparison, make about $15 ,000 and with less than seven percent of the task permit competitive bidding for shipping have little or no pension benefits outside finished . It takes 31 ,700 years to count to military freight to and from the mainland of Social Security. But another subcommit­ a trillion, or 317 centuries, and we are only....., for these two states. The average middle­ tee reared its head and prevented NASA in the 20th . But in Washington, D.C American family pays $2 ,218 in taxes, so from going ahead. Coincidentally, most of "trillions " is a commonly used term and it is fair to assume that 34,000 families are the subcommittee members who decided some of our civil servants don't even working all year long to pay that $68 against privatizing the magazine were bother with that; they casually refer to million . senators whose constituents included a "trills." disproportionate share of civil service I've been a businessman long enough employees, many of whom worked for the to have experienced the horrors of unbridl­ About the Author Government Printing Office. ed government indirectly for years, but J. Peter Grace is chairman and chief The head of the Veterans Administration since 1982 , when President Reagan ap­ executive officer of W. R. Grace & Co. , is also under the thumb of Congress. proached me about heading up the Private a New York corporation dealing Changing the jobs of three employees re­ Sector Survey on Cost Control, later known primarily with chemicals, natural quires that a written request be submitted as the Grace Commission, I have been able resources and consumer-oriented by February 1, and Congress has until Oc­ to relate many incidents firsthand. At the businesses. Mr. Grace has held his posi­ tober 1 to respond. Micromanagement is, outset, he asked me to discover the answers tion at W. R. Grace for more than four perhaps, too mild a term to describe what to a series of questions. One of the primary decades, the longest tenure for a chief Congress is doing to our government. ones was prompted by his former gover­ executive officer of any major industrial The Defense Department has certified norship of California. During his own concern. Throughout his career, Mr. that the United States needs 326 military tenure, he knew that federal employees out­ Grace has maintained an active role in bases: We have 4,000 . These include Fort numbered state employees but was unable public affairs. A registered Democrat, he Collins, built to protect Salt Lake City from to discover anything more concrete. As has served as a bipartisan advisor to the Indians, and another installation in president, he felt that it was important to Presidents Eisenhower, Kennedy and Virginia which still has a moat around it. pursue the issue and find out not only how Reagan. His most recent assignment was A move to turn it into a museum was many federal employees there were but as head of the President's Private Sec­ blocked by the congressional delegation where they were located and what they tor Survey on Cost Control, popularly from . . . need I tell you? Virginia. Typically, were doing. The day after our conversa­ known as the Grace Commission. He the congressmen who complain loudest tion , I went to the OMB and asked thor...... , presented this paper at Hillsdale College about the defense budget are the same ones three simple questions. during the April1987 Ludwig von Mises who cavil at such sensible ideas as reduc­ "We don't know " was the answer, and Lecture Series, ''Privatization: Some ing the number of active military bases. I could not get any specific data. So I chang­ Practical Applications and Prescriptions.'' Absurdity leads to absurdity. You have un­ ed my tactics. doubtedly heard of two-cent screws bought "lf I can't present the White House with a complete report by next week, I will hold which we had encountered in every one to reach 400 percent, and so on. This is a press conference and tell the American of our investigations: the federal govern­ not a pension plan; it is a bonanza. people that there are 2. 7 million federal ment's 332 incompatible accounting Federal civil service employees may retire employees in the United States and that the systems and 319 payroll systems, all handl­ with very similar benefits, so it is no ~MB hasn't got the slightest idea of where ed by 17,500 computers, 12 ,000 of which wonder that unfunded pension liabilities 1ey are or what they 're doing." were obsolete. When I found that out, my exceed $1 trillion. Added to all the other The bureaucracy relented and I receiv­ reaction was ''Let 's get Frank Cary down hidden debts Congress refuses to tell its ed a massive computerized listing of the here" -the chief executive officer of IBM citizens about, the real debt is between $4 number of federal employees in each state, at the time, a businessman known for his and $5 trillion. When President Lyndon but that was all. I went to Edwin Meese, expertise and his integrity. Johnson launched the Great Society he was then the Counselor to the President for I called Frank up and he said, "Sure, already committed to a war in Vietnam. Domestic Affairs, who earnestly tried to I'll be there.'' His administration spent 1158 billion. Now, help, but more than three years later, I am Congress cried ''Conflict of interest! He that sum is only the interest on the na­ still waiting for the answer to the other knows too much! " and Frank Cary, along tional debt. That is some "legacy" for our questions President Reagan asked. with many other committed, expert children. I saw a cartoon recently which I made other sallies at the OMB in the volunteers like him , was denied the chance featured a bunch of politicians having a meantime, asking logical questions like, to help our Commission. But eventually meal in a restaurant. The headwaiter "How many social programs does the we were able to determine that approx­ brought the bill and they replied, ''Stick government sponsor? '' imately $2.5 billion in defaulted student it on the kids ' tab." And that's what we The answer was "110 to 130 ." loans had not been collected. Who owed are doing. We are just sticking it on the One of our staff visited a bookstore soon the money? People like a Mets pitcher and kids ' tab. What right do we have to live after that and came across a revealing a Honolulu land developer and, among this way? How can we go on spending so volume called How to Get Yours In Fat City. others, 46,000 federal employees. Now much ($400 billion more than we took in In the appendix, 300 government social programs were featured . We took this in­ teresting information back to our OMB sources, but they were unimpressed. We ''The real job of government is not to give us 963 conducted our own research and dug up a total of 963 social programs. They are social programs but to protect our liberty.'' '' all formularized in Congress and many of ~em are called ''entitlements.'' Keep that tord ''entitlement'' in mind because, if you 're not getting anything, you 're a maybe $2.5 billion does seem like a small last year including all the off-budget ex­ sucker-you're "entitled" to a lot of these percentage of the $850 billion in outstand­ penditures) when we know where our folly programs. You can enroll in 17 of them ing loans owed to the government at the will lead? simultaneously and draw 160 percent of time, but it is certainly not outrageous to the minimum wage. suggest that these folks ought to make good Now, W. R. Grace & Co. owns, among on their legal obligations. The Real Job of Government other things, 740 restaurants. One waitress Earlier, I noted that the debt stands at I visited with in New Orleans makes $130 $2 .2 trillion, but I was lying to you, just he Grace Commission effectively a day just in tips. Not everyone who waits as Congress always does. Another trillion demonstrated that $424.4 billion tables makes this much , but say they make dollars in the Social Security system and Tcould be saved over a three-year $50 per day, three days a week. That $1.1 trillion in military and civil service period by following its 2,478 specific amounts to $150 a week in tax-free income, pensions account for past liabilities which recommendations. Moreover, the Commis­ and if they are making 160 percent of the have not been recognized or provided for. sion showed its own commitment to cost­ minimum wage from government social Social Security is a nightmare you probably cutting by raising $76 million from private programs to boot, they are enjoying a very already know a lot about, but did you organizations to underwrite all of its own tidy setup. For those of us who declare our know that the military retirement program expenses. It did not cost the government incomes, the underground economy is an is exactly six times as generous as com­ a nickel, unless, of course, you agree with affront, not only because it means a loss parable private programs? Aman or woman Ralph Nader. He claims that at least half of over $100 billion in tax revenues a year, entering at age 17 can retire in 20 years of the study was paid for by the govern­ but because these people are on the dole with 50 percent of his or her salary in­ ment because the donors were able to at the same time they are evading taxes. dexed, of course, to inflation. During Presi­ deduct their contributions, costing millions Student loan programs are also a haven dent Carter's term , we endured two years in lost tax revenue. Tax evasion does ac­ for fraud. Our Commission decided to of 13 .2 percent followed by two years of count for lost revenue as I indicated in the ~vestigate and found that there are three 11 .6 percent inflation. Let us estimate that case of the underground economy, but " ~parate student loan programs. "Why have over an extended period inflation levels out Ralph Nader is unsafe at any speed when LOree? " we said. "How much is their to about 7 percent. In ten years, a pen­ he suggests that your pre-tax income overhead? Is it possible for them to merge sion settlement will double. At age 47 , a belongs to the government and that by giv­ into one program? " Aside from the usual military retiree will receive 100 percent of ing any of it away to a commission, a recalcitrance displayed by federal agencies, his final salary each month ; at age 57, it church , or any other charity you are bilk­ we came up against another obstacle, one becomes 200 percent at age 67, doubling ing the government out of its rightful due. That is socialism, plain and simple. earth's land surface-in the process. not diminishing. The real job of govern­ Unfortunately, socialism has far too great Reagan's commitment to defense not­ ment is not to give us 963 social programs a hold on us already, and anybody who withstanding, 7 percent of the GNP seems but to protect our liberty. We ought to be disagrees ought to look at those 963 social wholly inadequate. living up to the principles of our programs the government has burdened us The Soviets have produced twice as forefathers. We ought to be vocal waste and fraud in government. We to be asking each and every one of our representatives in Congress: ''Why are we "Taxing the rich is not the solution; adopting keeping 4,000 military bases open? How many federal employees work in my state waste-cutting measures like the ones the Grace and what are they doing? What are you Commission proposed is. '' voting for and voting against?"

Our Future Is At Stake with. When Kennedy was President, he many fighter aircraft as we have together was our King Arthur and he reigned over with our NATO allies. They have also n 1984, when the Commission officially Camelot, but Camelot's social programs, manufactured four times as many presented its findings to President $38.5 billion worth, were only 5.8 percent helicopters, five times as many artillery IReagan, it was during a White House of the Gross National Product (GNP). pieces, 12 times as many ballistic missiles conference. One of the questions address-

Reagan, who has been called Scrooge, arid 50 times as many bombers. In the area ed to me from the group of nearly 200 presides over a $486 billion social agenda of short-range missiles, Soviet forces have reporters on hand was "Why isn't there which swallows up 13.5 percent of GNP. a 14.6 to 1 advantage. In intermediate-range anything in your report about taxing the Kennedy spent 9.4 percent of the GNP missiles, the ratio is 1.2 to 1, and in rich?" on defense and Reagan, by contrast, spends strategic missiles it is 1. 5 to 1. Remember I explained that we were not asked to less than 7 percent. In the last 70 years, the awful destruction caused by Hitler's 43 examine the tax structure, that it was the communists have succeeded in sub­ submarines in World War II? Well, Russia within the perimeters of our investigatior jugating 1,727 billion people, or 36.1 per­ has 300, 150 of which are nuclear. Eight I asked my interrogator a question in cent of the world's population. They have are circling off the coast of Florida right return. taken over 18.7 million square miles of now. "Who's rich?" territory-that is 32.5 percent of the In short, the threat to our freedom is (continued on page 7) addition, industrial psychologist and per­ Thoughts ... sonnel consultant Albert De Voogd will examine the difficulties of balancing the by George Roche demands of business development and family life. Also, Hillsdale economics department Rare Heroes and Special Efforts chairman and nationally syndicated col­ umnist Charles Van Eaton will host a I'm very concerned with heroism these noteworthy panel of business analysts days. examining the climate for entrepreneurship. I recently wrote a book called A World Taking part in the discussion will be Forbes Without Heroes (emphasis on the word senior editor Peter Brimelow, Patricia Har­ "without"), in which I observed that it's rison, president of the National Women's becoming ever more difficult to stand up Economic Alliance, James Thomson, for principle in a world where principle regional director for the Small Business is so frequently suppressed, devalued, Administration, Lee Walker, president of the mocked or confused with concepts like Chicago New Coalition for Economic and "self-expression ;' "fulfillment" or-God Social Change, and entrepreneurship forbid!-"lifestyle." analyst Clark Cassell, author of the forth­ Rare indeed are there those willing to coming book, The Opportunity Society. subject themselves to the criticism , and Finally, the flamboyant Wally Amos, even derision , which seems to be the lot founder of Famous Amos Cookies and en­ of people who speak uncomfortable truths. trepreneurship booster par excellence, will But one of those rare individuals is J. Peter cap off the day with what he calls his Grace, the man whose remarks during the "recipe for success." It should be a varied, most recent of Hillsdale's Ludwig von Mises fascinating and useful program. And it Lectures are reproduced in this issue of is being set for even more government in­ represents an important development for IMPRIMIS. trusion into the economy. And that makes Hillsdale. Grace has taken his share of flak for the for confusion-and considerable We have been involved with several devastating critique of our overblown anxiety-among those charged with plan­ television projects. Episodes of Bill federal bureaucracy put forth by the ning for the future of America's businesses. Buckley 's Firing Line have been shot or presidential panel he chaired. But he is One group especially vexed by the cur­ our campus, for instance, and the Shavano undeterred. Since completing the report of rent situation is the people planning, or Institute produced its own successful public the Grace Commission, he has spearhead­ considering, the start of new business ven­ affairs series called Counterpoint. But this ed an independent campaign to publicize tures. And as Hillsdale has so often analyz­ teleconference extends our outreach in an its findings about massive government ed the economic climate, we are exciting new way. waste and get the American people behind undertaking a project which should have It is part of a four-day seminar on en­ the group's recommendations for cutting special-and timely-significance to en­ trepreneurship which will be held February the federal budget. trepreneurs. 10 to 13, sponsored jointly by Hillsdale's It is a particularly depressing thought On Saturday, February 13, Hillsdale Col­ Center for Constructive Alternatives and that the effects of all his efforts-which lege will present a national teleconference The Family Business Institute. It's the first I do not consider it an overstatement to called Against All Odds: Entrepreneurship time a CCA seminar has ever been broad­ call "heroic" -are still very much in In A Changed America. cast, and it will allow viewers to call in doubt. This program , which will be broadcast questions to the speakers from throughout Long after the Grace Commission, long live via satellite throughout North America, the U.S. and Canada. after the so-called "Reagan Revolution;' it will feature several truly outstanding This program is inspired by Shavano's has taken a fall in the value of the stock business spokesmen-people who have ACTION-2000 initiative, under which we are market greater than that which occurred started their own companies, who have launching more aggressive efforts to iden­ in the crash of '29 to get our nation's made existing firms more successful or tify the key issues of the post-Reagan era leaders thinking seriously about the im­ who are knowledgeable about finding the and influence the thinking behind policy plications of our profligate economic ways. money that makes new businesses possible. development into the next century. And even now, one fears that the right Best-selling author George Gilder will There is no concern more basic to the lessons have not been learned. look at opportunities for entrepreneurs in nature of our country than the encourage­ Despite all the hand wringing, the high-tech fields. Kenneth Iverson, chairman ment of new enterprise and , thus, the intricate maneuvers and wheeling-dealing of the Nucor Corporation, will explain how strengthening of the private sector. It is, to craft budget plans acceptable to all he created one of the rare success stories after all , the only possible antidote to the political sides in an election year, we keep in the generally crippled steel industry. And government excesses which Peter Grace' hearing about unassailable ''entitlements;' venture capital specialist Francine Sommer, essay describes so accurately. We hope this the "pent-up demand" for government ser­ president of Gabelli Value, Inc., will assess teleconference can make a worthwhile con­ vices, and the call for federal economic the prospects for finding start-up money tribution to that goal at a time when special "leadership." Indeed, it looks like the stage on the post-stock crash financial scene. In efforts are needed. (continued from page 4) "You can knock it out" and he says, "No, ly news for what it knows about what goes ''Anybody who makes more than I'm leaving it in," I respond, "Where do on in this country. We need citizens will­ $75,000 a year," she replied. you get that buck?" ing to make Congress accountable for the I said, "You're right; $75,000 is rich." He says, "Tell Jim Baker to borrow it travesty which passes for democratic But at the Democratic Convention that over at the Treasury." government today. Until we have them, we ...... ,arne year, many of the candidates were "Where does he get the interest? " will continue to be bamboozled by Con­ ..:alling for a 10 percent subcharge on the "Borrows it." gress which, in its turn, knuckles under incomes of those who they claimed were ''Where does he get the interest on the to the bureaucratic establishment and the rich-the people earning $60,000 a year. interest?'' 500 special interest groups entrenched on At the time, our Commission figured that ''Borrows it.' ' Capitol Hill. We can start by making the this initiative would collect only $1.65 billion a year, or eight-tenths of one per­ cent of the deficit. Why were the Democrats '' .one dollar borrowed now will have cost cheering in the aisles at this kind of talk? Because economic illiteracy, jealousy and $71.00 by the year 2000." envy are the fuel that politicians run on. I told the reporter about what the Democrats had pledged and I said I would "Next year it's $1.05. Where does he get government fiscally responsible, but go them one better. "Let's put a 100 per­ that? " whether we can muster the political will cent tax on all incomes over $75,000 a "Borrows it." to do so is up to us alone. year." Well, take a little calculator out and The stakes are high; what kind of future She said, "That would be good." figure out what happens when you bor­ can we build for ourselves unless we mend And I replied, "Fine. Now we'll be able row something, then you borrow the in­ our ways? What kind of future for our to run the government for 7.2 days." terest, and then you borrow the interest children and their heirs will big govern­ Taxing the rich is not the solution; on the interest. In our report to President ment and institutionalized fiscal irrespon­ adopting waste-cutting measures like the Reagan, we warned that one dollar bor­ sibility yield? What we are committing now ones the Grace Commission proposed is. rowed now will have cost $71.00 by the is child abuse on an unimaginable scale. When New York City went bankrupt, it had year 2000. In a little more than 12 years, When our sons and daughters grow up and no choice but to attempt to put its fiscal the debt will be $13 trillion and the interest realize what we've done to them, will they house in order. But the trouble with the on that will be $1.5 trillion. By the same ever forgive us? federal government is that it simply can- token, if the Commission's recommenda­ For more information, please contact at go bankrupt; it will just print more tions were followed, we could save $9.9 J. Peter Grace, c/o PPSS, money or borrow more. Now, if I'm hav­ trillion. 1511K Street, N.W. Suite 600 ing an argument with a congressman and We need a knowledgeable, informed Washington, D.C. 20005 we talk about spending $1.00 and I say electorate that doesn't depend on the night- (202) 628-6428

Editor, Joseph S. McNamara, Managing Editor, Lissa Roche, Assistant, Patricia A. DuBois. The opinions IMPRIMIS (im'pri-mes), taking its name from the Latin term for expressed in IMPRIMIS may be, but are not necessarily, the views of Hillsdale College and its External Affairs "in the first place," is the publication of Hillsdale College's Center it division. Copyright © 1987. Permission to reprint in whole or in part is hereby granted, provided a version for Constructive Allernatives and the Shavano Institute for Na­ of the following credit line is used: "Reprinted by permission from IMPRIMIS, the monthly journal of Hillsdale tional Leadership. Circulation 132,000 worldwide, established College, featuring presentations at Hillsdale's Center for Constructive Alternatives and at its Shavano Institute 1972. Complimentary subscriptions available. • for National Leadership." ISSN OZ77-8432.

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