Thursday, May 10, 2012

Governance in the United States: Confronting the Submerged State

Suzanne Mettler has produced an important new book: The Submerged State: How Invisible Government Policies Undermine American Democracy. She focuses on how the means of enacting socially-useful legislation have transitioned from direct programs with recognizable goals, costs, and benefits, to a labyrinth of indirect incentives, subsidies, and deals for special interests. The result is that government has become inefficient, it has slanted the playing field to the benefit of the wealthy and corporations, and, most importantly of all, its efforts have become invisible to those who benefit from them.

Mettler provides this description of the "submerged state."

"The submerged state includes a conglomeration of federal policies that function by providing incentives, subsidies, or payments to private organizations or households to encourage or reimburse them for conducting activities deemed to serve a public purpose."

How did this "submerged state" come about?

"Over the past thirty years, American political discourse has been dominated by a conservative public philosophy, one that espouses the virtues of small government. Its values have been pursued in part through efforts to scale back traditional forms of social provision, meaning visible benefits administered fairly directly by government."

Scaling back direct funding for social purposes does not make the social needs go away. It has been necessary to try to regain social provisioning by indirect means, using the tax code or direct payments to nongovernmental entities to enable a distribution of funds. Since 1980 these types of efforts have expanded dramatically in size and scope.

It is often overlooked by the public, but a tax deduction for an IRA contribution, for example, is equivalent to a federal expenditure. The recipient receives funds from the government that would otherwise be collected in taxes. If the intention was to ensure that people have a secure retirement, that could be accomplished by directly contributing extra funds to the social security system, or by some other means of providing funds to people who need them. That would be efficient, but not consistent with small government. We are forced, then, to come up with his indirect incentive that mostly benefits the wealthy—those least in need of assistance.

"Most of these ascendant policies function in a way that directly contradicts Americans’ expectations of social welfare policies: they shower their largest benefits on the most affluent Americans."

How large are the funds associated with this submerged state?

There are a trillion dollars at play in the submerged state. That is about 7% of our GDP, and about 40% of the nonsubmerged state.

Compare some of the social spending efforts in the two levels of government.

Note that programs associated with what would be considered direct social spending are tiny compared to the indirect spending activities in the submerged state. This is a toxic situation because people see their taxes going to support people receiving direct aid, while they are often unaware of how much aid they receive themselves. They don’t think of their mortgage deduction as an example of the largesse of the state, but it is and the state receives no credit for this reimbursement. And, of course, the wealthy benefit most from this and other tax deductions.

Mettler views this lack of understanding as dangerous for our society and its governance.

"....the policies of the submerged state remain largely invisible to ordinary Americans: indeed, their hallmark is the way they obscure government’s role from the view of the general public, including those who number among the beneficiaries. Even when people stare directly at these policies, many perceive only a freely functioning market system at work. They understand neither what is at stake in reform efforts nor the significance of their success. As a result, the charge leveled by opponents of reforms—that they amount to ‘government takeovers’—though blatantly inaccurate, makes many Americans at least uncomfortable with policy changes, if not openly hostile toward them."

Mettler refers often to our healthcare system. Reform there is viewed by many as excessive government intervention in a largely private arena. Few voters realize that about half of all healthcare dollars come from the various levels of government. Healthcare could not function without all the grants, subsidies, and tax deductions that the state makes available to physicians, medical schools, hospitals, drug companies, and device manufacturers.

"Our government is integrally intertwined with everyday life from health care to housing, but in forms that often elude our vision: governance appears ‘stateless’ because it operates indirectly, through subsidizing private actors. Thus, many Americans express disdain for government social spending, incognizant that they themselves benefit from it. Even if they do realize that benefits they utilize emanate from the government, often they fail to recognize them as ‘social programs.’ People therefore are easily seduced by calls for smaller government—while taking for granted public programs on which they themselves rely."

This invisibility of the submerged state makes it an ideal playground for special interests to encourage legislated benefits for their constituencies. This, and the inherent benefits that accrue to the wealthy from trying to produce social change through the tax code, have contributed to the dramatic rise in income inequality that has been observed over the last 30 years.

Mettler summarizes her fears:

"As long as the submerged state exists in its shrouded form, American democracy is imperiled. Contrary to popular claims, the threat to self-governance is not the size of government, but the hidden form so much of its growth has assumed, and the ways in which it channels public resources predominantly to wealthy Americans and privileged industries."

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