Red-Handed Ratchet Effect
By Bryan Caplan
Robert Higgs is famous for his analysis of the “ratchet effect.” As Higgs explained in his Crisis and Leviathan, governments expand during crises, then conveniently fail to return to their initial size after the crisis ends.
Of course, it’s possible that this happens in an unplanned, “spontaneous” way. Keeping the “temporary” measures on a permanent basis is the path of least resistance. But Higgs’ analysis would be doubly relevant if we could prove that government officials consciously anticipated and strategically manipulated the ratchet effect. There may be other examples out there, but yesterday I came across one that made my jaw drop.
This is from notes taken from a 1940 interview given to a group of German editors by Robert Ley, head of the German Labour Front:
Dr. Ley explained that the question of an old age pension scheme had been preoccupying him and the Party for many years. But the objection had always been made that it would cost too much money and that it would be impossible to introduce further contributions. Now the war offered a unique opportunity. The costs of the war had to be met by the German people; income tax would be increased to the limit of what was possible and then when the war costs had been gradually covered income tax would be reduced again, which would make people happy, and then one day one would stop reducing it and then income tax would cover what was needed for old age pensions. (from Nazism: A Documentary Reader, vol. 4)
It’s striking that even the Nazis were skittish about raising taxes in peacetime. You might think they’d just say “If you don’t like it, call the Gestapo.” But apparently even one of history’s most brutal dictatorships preferred to use the ratchet effect to circumvent public opinion instead of staring it down.