Extras: Phil Gramm on How Government Biases Policy Debate

There is a general myth that the last 50 years has been a period of relative stagnation,  that real wages have not grown, that poverty is pervasive, that inequality is a major problem in America. The truth is that the last 50 years have had extraordinary growth that has been broadly based across all racial and ethnic groups, real wages have grown rapidly as have fringe benefits. Regarding poverty, if you count all government transfer payments as income to people, the poverty rate is now somewhere between two and three percent.

We went back and looked at how the Commerce Department measures household income and basically found that the Commerce department does not count two-thirds of all transfer payments as income to the recipient…it doesn't count food stamps, it doesn't count housing subsidies, it doesn't count Medicaid, it doesn't count over 100 Federal programs aimed at helping poor people. As a result, there is a gross understatement of the income of lower income Americans.

We go into a lot of different issues: Who are the super-rich? Do they pay their fair share? What about opportunity in America? Is the American dream alive? And then what are the policy implications of all this?

We need more food stamps, we need more housing subsidies, we need lower standards for being eligible for Medicaid. Well, none of those programs are reaching the people on the street in San Francisco. They're on the street because of a drug problem or because of a mental health problem, and none of those programs are affecting or solving their problems.

A perfect example is trade. If you're an economist you understand that trade promotes general welfare, that trade promotes the growth of productivity, income, wealth, and prosperity. But also, that trade is a tough issue politically. I remember I'd been in the senate about three months, and somebody offered an amendment to impose a protective tariff on oil imports. I was a senator from Texas, and you talk about putting your understanding of Economics to the test politically. It was clear to me that I wasn't going to be for the amendment, but it was also clear that if I was going to vote against it, I needed to get out front and lead the effort. I did, and killed the amendment, but then I had to spend nine months going all over Texas defending that vote.

And so we read of the freshman Congressman who comes to Congress eager to cut pork out of the budget but in trouble back home because local projects will also come under the knife. Instead of being proud to lead the way, he is forced to fight for those projects to make sure his district gets its “fair share.”

We're not arguing that we're spending too much on welfare. We're not arguing that there is a wide ratio of income of high-income people to low-income people. We're just saying we need to get our facts straight. We can't have a debate and maybe we can't have a consensus unless we get the facts straight.

I don't know that we dropped the ball. I still believe there is a majority that would be inclined toward our views if they were given a clear-cut definition of those views, and if those views were rigorously defended in debate.

We're the greatest country in the world. But we could be so much greater and have so much more prosperity and freedom if we had less government. I went to Washington suspicious of government, and I came away convinced that those suspicions were valid.