Editorial
Apparatchik versus Full-Spectrum Public Finance
by Fred E. Foldvary, Senior EditorIn the Soviet Union, an "apparatchik" was a member of the government, especially a loyal subordinate of an organization or a political leader. The Russian term "apparat" was derived from the German term meaning a political organization, in turn taken from the Latin "appartus" meaning preparation. "Apparatus," from the same root, means the instruments needed for a specific use, or a system designed to achieve some desired result.
"Apparatchik economics" designates the apparatus approach common in conventional economics, where the analysis consists almost entirely of examining how various policy instruments achieve some result within the existing governmental policy structure. Mainstream public finance and fiscal policy research and theory consists of apparatchik analysis within current methods of taxation and spending, to affect behavior, and to achieve economic results.
Apparatchik economics is incomplete, since the apparatchki not only ignore methods that are not so widely practiced, but also do not question the existing and conventional premises and institutions. They seek optimal solutions within the current systems but do not investigate whether entirely different systems would be better or worse.
Most of the literature on taxation, including both textbooks and scholarly articles, is confined to studying existing forms of taxes, namely income, value-added, sales, and property taxes. There is very little investigation on whether the government could shed most of the services it currently performs and rely more on the private-sector provision of collective goods.
There is literature on tapping land rent for public revenues, but it is compartmentalized and schizophrenic. Land-value taxation is tucked away in the categories of "land economics" or "local public finance." When the textbooks or scholarly papers examine national tax reform or fiscal policy, the possibility of shifting to site-value revenue is ignored.
The branch of economics called "public choice" studies how and why voters and government officials make collective choices. Public choice economics recognizes that special interests have a big influence on government; their attempt to get privileges and subsidies is called "rent seeking," since, like land rent, these "rents" are not earned from productive exertion.
But apparatchik economics does not apply public choice to itself. The landed interests seek to avoid being taxed, and so they not only rent-seekingly lobby for favors but distort economic facts and theory itself. The whole factor of rent, which was prominent in classical economics, has mostly disappeared from conventional economics. Economics textbooks typically have discussion of "rent control" and "rent seeking," but do not confront the role that land and its rent play in the economy.
In the official US national income accounts, income from land rent is reported as a tiny, insignificant amount, just a few irrelevant billion dollars in an economy generating trillions in income. Much of land rent is income that gets paid to banks as interest on loans, and it gets counted as "interest income." Rent on land owned by corporations is folded into "profit." The implicit rent on government-owned land is ignored altogether. Although it is absurd to report a few billion dollars of land rent from trillions of dollars of land value, apparatchik economists do not question this, and even parrot the figure in textbooks, or just say that land rent is a small part of national income, hardly enough to finance government. In this way the apparatchki serve the governing interests and their landed clients.
Apparatchik academics have thus handicapped, disabled, and, to put it bluntly but precisely, crippled economics, confining it to contemporary orthodox methods, leaving students and the public unaware of heterodox theory and historical practice. Apparatchik public finance is like the artificial lighting in a room. Conventional light bulbs only shine a portion of the visible spectrum. But one can get bulbs that provide the healthier full-spectrum.
Full-spectrum economics would encompass the full range of theoretical and policy possibilities. Full-spectrum public finance would include the analysis of the private-sector provision of public services. Full-spectrum public finance would place great emphasis of using land rent for public revenues for all levels of government, not just local. The reason why economics should pay more attention to site-rental revenue is that it is more efficient as well as equitable. Land does not flee, hide, or shrink when taxed. Because land is already here and has no cost of production, tapping its rent does not add to costs, unlike taxing labor and capital.
Because apparatchik economics has crippled economics, it has crippled economic policy. The massive welfare states that governments rely on are crutches needed to enable a crippled economy to hobble along. Apparatchik economists theorize about various kinds of crutches, but not the feasibility of curing the diseases that makes the cripple require crutches in the first place. Much of apparatchik theorizing is irrelevant even to making better crutches; the approved apparatchik method is to use mathematical models and econometrics (statistical analysis and projections), which are often of little relevance to real-world policy.
Fortunately, there are economists who recognize the apparatchism of conventional economics. On April 8, 2003, there will be a session of paper presentations on "apparatchik economics," chaired and organized by professor Daniel Klein. Papers will be presented on the apparatchism of development, monetary, public finance, and transportation economics. Appropriately enough, these expositions on apparatchik economics will take place in Caesars Palace, in the annual conference of the Association of Private Enterprise Education, Las Vegas, April 6-8. The theme of the conference is "Property Rights and Markets."
Besides critiquing the texts and theories of the apparatchki, I and the other presenters will also examine where their money is coming from, the grants that finance the apparatchki. This session is but a precursor to a greater on-going project that will examine and expose the apparatchism of economics. We hope to make economists, policy-makers, and the public aware of the limitations of apparatchik economics. Full-spectrum public finance will make people aware of all the policy options, so that we can realize how apparatchik policy cripples the economy and how truly private enterprise and rent-based public revenues will enable us to walk healthily, speedily, and happily on our own legs.
Copyright 2003 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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