…But first, Milton Friedman agreeing with a socialist: “One of the reasons why I am in favor of less government is because when you have more government, industrialists take it over, and the two together form a coalition against the ordinary worker and the ordinary consumer.” If today’s left can still nod its head to that, maybe there’s hope after all.
As the so-called fiscal cliff so-called negotiations plod ahead, I’ve been contemplating whether the President’s sought-after redistribution really is a mortal blow to those who believe in economic liberty–and to the GOP, who at least pays more lip service to that principle than their counterparts. Those who believe there is a right in our property and income believe that the government shouldn’t take different shares from different people, that the essence of law is that it applies equally. To some extent, Americans who believe in that principle have capitulated to yielding it somewhat to a relatively modest progressive taxation scheme.
But the President’s current posture seems to acknowledge that the proposed rate hike on “the rich” is not a means-tested compromise. That is, it’s not really a meaningful solution to our serious budget and deficit problems. The right has been banging on this point for months now, but to no avail, and that’s because it’s not really meant to be a pragmatic proposal. If it were, it would be seriously bloodied by the right’s pragmatic rebuttal. Instead, it’s an attempt to advance a principle of redistribution directly against the principle of private property. The President has insisted time and again that taking more from “the rich” is “the right thing to do.” (Please excuse the lack of source quotes and analysis—these are just my impressions, and it’s not the main point of this post. But feel free to push back if you think my characterization is unfounded.)
As a political observation, taking a hard line against this has not served the GOP well. Thus, I think the GOP should be willing to countenance a means-tested compromise. But the fact that the President appears to be negotiating a principle here should give pause, because (a) if you’re talking dollars-and-cents while he’s talking right-and-wrong, you’re talking past each other, and (b) a “compromise” in which you win on dollars-and-cents when he wins on right-and-wrong is not a compromise but a loss: a moral win trumps an accounting win every time.
If I’m correct so far, I obviously disagree with the President on principle. I believe in property rights, and that property rights derive from the individual, not from government. For purposes of the balance of this post, I’ll ask that you assume that as a working premise. I do not intend to debate the premise itself. What I want to explore is whether there is any room for compromise on the fiscal cliff rather than a winner-take-all scenario on the issue of property rights versus redistribution.
Assuming property rights belong to the individual, then, is there room for compromise in the face of more progressive taxation? There’s at least one, and it takes us back to Milton Friedman’s broader point about unholy coalitions between government and industry. One limit on the moral right to wealth is the extent to which wealth is created by virtue of proximity to government, e.g., by rent seeking. That basic argument is uncontroversial, I think, and in a post slated for shortly after the holidays I will be exploring how the sweeping extent to which the idea applies in today’s economy undermines the preconditions of economic liberalism. The gist is that most people don’t consider themselves government sucklings, yet they probably would be surprised to know how much their livelihood depends on government rents. We’re closer to cronyism than we suspect. And if proximity to cronyism impairs the moral nature of one’s wealth, it likewise undermines the objection to progressive taxation on that wealth. In short, crony capitalism undermines the very principle of an individual right to property. Progressive taxation thus could be couched in terms of the means by which government corrects (albeit in a very rough, mostly arbitrary way) the distortions that industry and the government itself perpetuate on the economy by their coalition against the rest of us.
Absent rampant crony capitalism, the conservative/libertarian principle is that there is little or no moral justification for taxing one person more harshly than another where that wealth was fairly and honorably earned and where the unequal distribution of wealth owes entirely to effort and skill, and perhaps luck. But in an increasingly crony-ridden economy such as ours where superior wealth flows from something other than effort and skill and fair practices, a stronger justification for progressive taxation might exist.
But I wonder if there is more common ground. Does the fact that we “stand on the shoulders of giants” undermine the moral claim to private property? A young Robert Heinlein argued for an “inheritance dividend,” aka “social credit” in his first novel, For Us, the Living, in which every person receives a lifetime stipend from the government and works only if he or she wants to. The wealth created by our ancestors is more than enough to serve as a dividend for us, the living. Edward Bellamy had a similar vision a half century earlier in Looking Backward, 2000 to 1887 (see my book report for a synopsis). But these are both early versions of “you didn’t build that,” it seems to me. They do not propose mere exceptions or qualifications to a private property rights framework. They propose its replacement.
Am I wrong? Can we have the bolder redistribution the President and many on the left seek while preserving the notion that there is an individual moral right to property and income? I don’t see how.
Do you have a problem with progressive taxation on principle?
I’m pretty sure his answer is yes. He made that clear in a posting a couple months ago.
I would be more interested to know if he would be okay with at least a flat tax rate coupled with a fairly substantial standard deduction/exemption schedule.
I actually do think it is legitimate for the government to provide incentives or deterrents for certain behavior. So in principle I don’t have any problem with your proposal, I may even endorse it. I might also consider replacing the payroll tax and the federal income tax with a progressive consumption tax, in which workers would be taxed on the difference between their income in their savings. This would we ward you’re saving and investing early in life, and would tax the “idle rich” while allowing the productive rich to keep more of the income from their investments in business ventures. this is the proposal suggested by Ross Douthat and Reihan Salam in Grand New Party.
Yes. I believe that progressive taxation is not morally justifiable given the premises of individual property rights and Equal protection under the laws. In general, one’s status as being “rich” does not serve as a moral justification for confiscation. on the other hand, the real suffering of his fellows may serve as a moral justification. But that basis must be offered as the real reason for the confiscation. in reality, the general fund goes much further than merely alleviating dire poverty, and so it becomes much more difficult to justify more progressive confiscation.
But again, I acknowledge that strict adherence to this principle is a lost cause. I only offer the
Exclamationexplanation to make it clear that there is a reason to oppose progressive taxation even if you’re not one of “the rich.”We have a marginal tax system (for income tax). So a tax break on the 0-25k a year crowd is a tax break on the million+ a year crowd.
Say we originally set a flat tax at, oh, 40%. Then we cut everyone’s taxes on their first 25k in income by 100%. Their next 50k by 50%. Their next 100k by 25%, etc, etc, etc.
Everyone gets exactly the same tax break, but the end result is, well, a progressive income tax system.
Is it fair to give people a break on only a portion of their income? Is it fair if we start at the bottom, so everyone gets that break? Is it fair if we start at the top so few do?
I wondered when someone was going to point this out. I’ve thought about this and am open to considering it further, but I think in the end it breaks down into mostly sophistry. Al makes $35k a year and is taxed at an effective rate of 14% (10% on first $8,700; 15% on the balance). Bob makes $85k a year and is taxed at an effective rate of 20% ((10% on first $8,700; 15% on balance up to $35,350; 25% on the remaining balance). (Rates taken from here: http://taxes.about.com/od/Federal-Income-Taxes/qt/Tax-Rates-For-The-2012-Tax-Year.htm.)
Do these under-the-hood calculations matter to Bob when he cuts his check? I doubt it. Taxes are paid by people, not by fractions of income. We don’t divide people up and tell them that certain slices of them are being taxed the same as others. Because a person is indivisible, it only makes sense to talk about the effective tax rate when we discuss application of the equality principle.
Again, set the flat tax rate at 40%.
Pretend no one has ever paid income taxes before. It’s brand new.
Now cut the rate on the first 100k by 50% (down to 20%).
Now take Bob and Tim. Bob makes 100k, Tim makes 200k. The tax cut takes effect and Bob’s taxes drop by 20,000 dollars. Tim’s taxes drop by 20,000 dollars.
Why does Tim have any room to complain? Why would we listen, or care, that Tim’s “effective rate” is higher than Bobs? They both had their taxes cut by the exact same dollar amount.
Why should we give Tim a LARGER tax cut, in absolute dollars, than Bob?
Remember, we started out with what you consider a ‘fair’ tax rate (40%). We cut both people’s taxes by 20,000 dollars. Yet the result is somehow “unfair”. Why is this?
Maybe I’m missing something, but isn’t this just describing the progressive taxation we have in a different, more circuitous fashion? I mean, I get what you’re saying: “We not being treated unequally, we’re all subject to the same schedule.” I just don’t think it actually matters that certain slices of income are equally taxed when the aggregate is subject to a different effective tax rate.
Now, if you were to make the distinction that had more significance than merely the number of dollars someone makes, then you may be onto something. Thinking out loud here, you might say that wages from working as a coal miner are taxed at a lower rate because of the pubic interest in producing energy and the health risk the worker incurs. A hedge fund manager, on the other hand, might be taxed at a higher rate in observation of the high involvement of government control over the industry has artificially spiked the gains in that industry and perversely incentivizes young talent into that industry at the expense of others.
Please note that I am not advancing these arguments (the solution to distortions created by government should not be “more government), I’m just putting them out there as examples of possible justifications for different taxation rates that have a more legitimate basis than simply the number of dollars earned.
No, I’m asking a question:
If FAIR is everyone paying 40% on income, and we give ‘everyone’ (our universe of two) a rebate that is the exact same dollar figure, how does that become unfair?
You implied that effective tax rates were how to define ‘fair’. I countered with a situation in which two people both got 20,000 off their taxes, yet by your definition that was ‘unfair’ unless one person got 40,000 off his rather than 20,000.
Your definition of ‘fair’ requires one person get twice the rebate as another, something that can be equally seen as ‘unfair’.
Why is ‘effective rate’ the only definition of fairness, when each and every person pays the exact same rate on the exact same money?
Couching it in terms of a “rebate” smacks of sophistry. What’s the justification for the “rebate”? What we’re really saying, it seems, is that people need a certain amount of income for subsistence and the government shouldn’t tax that. No dispute there. But beyond that, there should only be one rate, or one rebate amount. So your example of just two rebates isn’t problematic. But were we to take it further I think there will be trouble in providing a moral justification for different rebate amounts.
So changing the name, but not the content, makes it sophistry? “Fair” and “unfair” are awful terms. 20,000 extra for you, 40,000 for him — fair if it’s a tax cute, unfair if it’s a rebate, but what’s it matter? In the end, they both sent less to the government.
We’re not even getting into utility of money.
I mean, let’s face it — there’s a reason Warren Buffet , Bill Gates, or Mitt Romney might not feel he got a real tax cut if we cut the bottom bracket rate in half (pretending their income was all, you know, income). But that same “feeling”, the recognition that 10,000 dollars just isn’t the same amount of money to me as it is to Mitt Romney is the reason people push for a progressive system.
Morat, what I think makes your argument odd is that you’re switching from a percentage to an absolute amount. It doesn’t necessarily invalidate it, but it makes it hard to evaluate.
It’s just like algebra. Start with an equation with an expression on each side of the equals sign. Now multiply each side by the same non-zero number. Add or subtract the same non-zero number from each side. Repeat at will and in any order. The equality still holds.
I favour something akin to a flat tax scheme, if only because I see no justification for either progressive or regressive taxation. I favour any scheme which would create savers out of spenders since we’re so badly warped toward spenders. But if we’re to have flat taxes, I’d move the line y=mx+b along the X axis somewhat: there’s no point in taxing some people.
Like you, I believe it’s a lost cause: We’re afflicted with Loophole-itis as a nation. Every such loophole is a dent in the line: some favouring the wealthy, many the poor. There’s the whole issue of capital gains taxation.
It’s a lost cause because Congress won’t give up its right to create distorting loopholes and subsidies.
[Nods head.]
I love finding common ground.
There’s a wonderful story about Alfonso the Wise, who set about correcting the problems of astronomy:
Completed in 1252, the Alphonsine Tables remained the best astronomical tables available in Europe for the next three centuries. The complexities of the Ptolemaic system exasperated King Alfonso however. When the intricacies of epicycles, deferents and equants were explained to him Alfonso ‘the Wise’ is said to have remarked that if the Almighty had consulted him on the matter, he would have recommended something a little simpler…
It’s a lost cause because Congress won’t give up its right to create distorting loopholes and subsidies.
I love finding common ground.
Yeah, I think we’re all stuck with recognizing that this is True.
I favour any scheme which would create savers out of spenders since we’re so badly warped toward spenders.
You would have had fun with the young Egyptian guy I was talking to this week who seriously argued that the U.S. should start taxing savings to get us to spend more. He was sure it would fix our economy in no time.
If that idealistic young fellow had any idea how much revolving credit was held by most Americans…
Given the peculiar nature of our deleveraging problem, that might actually speed the process if done on a temporary basis. Not sure if we’d like the results, but it’s definitely one way to fix the “everybody wants become a net saver at the same time” problem.
I’m baffled why people think we should encourage the population to save more.
We cannot, on balance, get people to save more than debts unless we sit on our cash, which is a terrible idea.
So, all we’re doing is creating distortions, favoring one type of person over another (the ones who want to push their consumption to the future).
In the end, a consumption tax is a fine enough idea for me, make it a bit progressive (small rebates for all) – there’s your preference for savings – but all income is eventually spent and so, roughly equally taxed in the long run.
It’s not as if people are stuffing cash between their mattresses. Saving means investing, which certainly is not a “terrible idea.”
I think it’d be interesting to know how “savers” spend their money (when they get around to spending it) as compared with “consumers” who spend their cash more immediately. I’d suspect the latter group blows their cash on more junk—stuff that’s a dead-end in terms of innovation and real wealth-production. If increased saving means fewer “as seen on TV” products, that’s an acceptable casualty in my book.
You’re skipping my point, which is that since all savings are someone else’s debt, advocating a tax preference for ‘savings’ vs. debt is a nonsense idea at best.
The most likely outcome is even more convoluted government preferences for certain kids of transactions and all the attendant, wasteful supervision that comes with it.
We don’t need Uncle Sam or anyone else rifling through every single transaction and deeming some of them investment and others consumption.
I take issue with your premise of “rich” as a status, akin to a class worthy of protection. Protected classes have been based on one’s innate characteristics, such as age, sex, race, ethnicity, country of origin, and more recently sexual orientation. We also add, for justifiable reasons, non-innate characteristics like marital status and religion. The test is whether similarly situated individuals are treated in a non-discriminatory fashion. So, for example, one tax rate for whites and another for blacks, or a deduction available only to women, would be discriminatory.
Income and wealth are not innate characteristics. If you’re a high-income earner, you can always enjoy the privilege of paying a lower tax rate by resigning your position and taking up employment with Wal-Mart. Heck, you can even qualify for government benefits! The fact that nobody actually does that suggests to me that your argument is specious.
You’re trying to claim the protections afforded to traditionally oppressed classes. But the reason those protections are guaranteed in the first place is because the status leading to the oppression is not of one’s choice. From the day I was born I was a heterosexual male of Dutch ancestry born in 1960 in the State of Kansas. I can never, ever, change those facts and FWIW, I’m perfectly fine with not being a member of a traditionally discriminated against class.
The notion that the wealthy and those enjoying a high income are oppressed or discriminated against is risible. Oh, the suffering! Oh, the humanity! With their Lexus’s and Rolex watches and their McMansions in the tony neighborhoods, their fine foods and clothes, vacations to Paris… my God, when will their trials and tribulations finally come to an end!?
I would suggest a million millionaire march, but… you already have K street, so I think it’s covered.
Rod, I do not contend wealth is a protected status. What I’m saying is that it’s not really a morally relevant status either way — it doesn’t justify better treatment, but it doesn’t justify worse treatment either.
I could take that more seriously if I had ever heard you argue against the carried interest rule for billionaire hedge fund managers or, more generally, preferential tax treatment for those whose incomes derive solely or mostly from capital gains and dividends, who just happen to overwhelmingly be the wealthiest among us. Perhaps you’re doing so in this post, but if so, it’s not obvious.
In any case, I’m working on a better answer to your main question below. I apologize for going off on a tangent, but the tone of your comment just struck a nerve.
No problem. Regarding the finance sector, the OP talks about cronyism, and the finance industry is about the worst of the lot in that regard. In a comment above (https://ordinary-times.com/timkowal/2012/12/the-fiscal-cliff-and-the-showdown-between-redistribution-and-property-rights/#comment-33559), I suggested that, on principle anyway, I don’t have a problem imposing a higher rate on income from this sector that carries such a high presumption of distortion caused by rent-seeking.
In other words, when I talk about “the rich,” I really do mean it in a very generic sense. I’m just talking in the abstract. And in the abstract, simply “being rich” doesn’t justify any different tax treatment, in my thinking. But if we drill down a bit, there’s something to talk about when we look at how the wealth was derived.
Why is it justifiable to tax a constant percentage of income when it still results in wealthier people paying a larger total amount? We are still taking more from people who produce more. Wouldn’t your framework require a flat dollar amount tax?
If we’re able to make the jump from a flat dollar amount to a percentage of income, we’ve moved the unit from “dollars” to “percentage of your output.” If we go to a progressive tax scheme, we’re then making a jump from a constant percentage of your output to, say, a roughly constant amount of “pain” inflicted by the tax.
As I have moved up through the tax brackets, the amount I pay has increased dramatically, but the amount that I wince at the total number has stayed relatively constant. That probably reflects mostly my personal coefficients for my utility function, but I also think it reflects relatively well on how our tax system asks us to sacrifice.
A flat percentage income tax conceivably is related to the cost a worker imposes on infrastructure provided by the government to earn each additional dollar. If I earn 20% more income because I decide to work on Saturdays, I rely on roads and other government-provided services roughly 20% more, too.
The “pain” principle as I understand it would fix no objective relationship between output and taxation. How do we even determine how to inflict even a roughly equal amount of “pain” on one taxpayer to the next? We couldn’t look simply at the paycheck, since some people choose their profession by other psychic benefits. An artist or an athlete or a professor might find much more intrinsic enjoyment in his work than, say, a banker. In the case an artist and a banker have the same gross income, taxing them at the same rate would inflict more “pain” on the banker, since he is likely to derive fewer of those intangible benefits from his work than the artist—the banker is in it for the money, so the relative pain of every dollar taxed is greater for him than the artist.
A standard based on feelings of pleasure or pain is a contingent one that lacks the objectivity required in our laws. As Kant put it, even if we could assume we were unanimous about the “pleasure” or “pain” derived from each marginal dollar of income or taxation, “the unanimity itself would be merely contingent. The determining ground would still be only subjectively valid and empirical, and it would not have the necessity which is conceived in every law, an objective necessity arising from a priori grounds.” In other words, the “pleasure” or “pain” associated with the marginal dollar may change over time, and there is nothing in reason that tells us whether taking that dollar as a tax is justified in any given instance.
This seems like an enormous stretch. My income has scaled over a factor of about 3x since I left college, and I seriously doubt that it has anything to do with working 3x as hard or using 3x as many government services. In fact, with the exception of my consumer surplus from police and the military protecting my ever increasing quantity of stuff, I suspect that I use less and less from the government as my income goes up.
I think that I often run into problems talking past people when it comes to the relationship between effort and income. I know that the two are highly positively correlated, but I seriously doubt that there’s anything like a linear relationship. I usually can’t find much common ground with somebody who is working with a rough linear model, so maybe we’ll have to agree to disagree here.
I suppose my simple point is that money is like anything else: people experience diminishing marginal utility as they get more of it. A progressive income tax system reflects that better than a flat percentage or dollar tax. All of them are approximations, but I believe that the progressive tax structure comes the closest to being correct.
The more income I have, the more likely I am to invest and engage in other economic arrangements, all of which increase the likelihood of needing recourse to the legal system for protection and enforcement.
But stipulated that the relationship is not perfect in empirical terms. The task when creating law is to find a principle, not a contingent or empirical standard. Basing a tax on subjective questions of “effort” or pleasure/pain is the opposite of a principle, and thus not really a law at all.
Is the concept of “bettering the universal welfare/happiness of your society” really all that foreign to you? I’d say that might be a decent rationale for laws.
I believe in property rights, and that property rights derive from the individual, not from government.
I know you said you don’t want to debate this premise, but, well, this is the internetz, so tough noogies.
Both are wrong. Property rights derive from what our fellows in our society are willing to agree to. Property rights are socially sanctioned methods of using resources. As such, they have never been absolute, as the individualist approach claims. Likewise, though, there’s a much deeper source than the government, which is not equal to society, and is not always even very representative of society.
I think the real question in your post is when is it legitimate for government to demand a change in the rules of the game, because property rights are rules of the game. In the Lucas v. South Carolina Coastal Commission case, the Supreme Court essentially ruled that the Commission had changed the rules of the property rights game too radically, beyond what was legitimate, so they either had to back off or just exercise the long-established rule of eminent domain.
The question then is, is Obama trying to radically change the rules? You say yes, but I wonder if in fact that rule wasn’t changed back in 1932, and the rule you support is in fact one that we swept away–for good or ill–80 years ago?
Now you’ve gone and opened up the whole debate over substantive due process. Can we change the rules to just any old thing? Can we maintain a “don’t care” line on progressive taxation? That we don’t care whether it’s voted up or voted down? You seem to suggest so as long as it’s not “too radical a change.” I disagree. I think there’s something more to it than that. I think that Americans believe that rules may not be arbitrary. That the rules must be applied equally. And that deviations from these principles require a moral justification.
I’m pretty sure our local liberals would argue that there is a moral justification.
And on that point, I concede there is a moral justification to tax to bring people up from brutal need into some minimum level of subsistence, but not to bring people up from one middle rung in our affluent society to a slightly higher rung.
Can you, at the very least, concede that there is a moral need to reduce the power of those who would hold our entire society hostage? Otherwise, they will continue to accumulate power and push the envelope further (possibly including fleeing the country en masse, as has happened in several countries so far, which actually has bankrupted their local economies)?
We might call these people economic terrorists, and with good reason. Much of our contemporary society rests on our economy after all.
I’ve conceded that. Wealth that is not fairly and honorably earned is not entitled to the full presumption of a moral right to property. We probably have different interpretations of what “fairly and honorably” means, but the framework holds.
“Property rights derive from what our fellows in our society are willing to agree to. “Property rights are socially sanctioned methods of using resources. As such, they have never been absolute, as the individualist approach claims. Likewise, though, there’s a much deeper source than the government, which is not equal to society, and is not always even very representative of society.”
JHanley:
You are rationalizing a bit at the end but there is nothing in the preceding that doesn’t say slavery is A-OK!!!!
Didn’t we actually do that (say that slavery was A-OK)?
That’s a good point! We – as a society – had the belief, long entrenched in practice and culture, that slavery was A-OK. And then! we decided that it wasn’t! I see no reason to believe that the change of heart and mind was due to the existence of an eternal, immutable, unchanging, right that was suddenly realized. In fact, I think it’s the opposite. People learned, thru practice and experience that slavery was unjust because it arbitrarily deprives a group of human beings the same rights and privileges that apply – in practice and culture – to a different group of people.
It doesn’t take a rocket scientist to the exercise of privilege.
cfpete,
I’m making a positive theory argument, about where property rights actually do come from. I’m not making a normative theory argument, about where they ought to come from.
So while my argument does indeed recognize that slavery is a property right that societies have often recognized, as an empirically true fact, it makes no statement about whether it is “A-OK” or not. For that you have to bring in a normative theory. I’m happy to bring in a normative theory that says slavery is not A-OK, but the positive theory by itself doesn’t actually make any such claim.
Remember the naturalistic fallacy–you can’t get an ought from an is. A statement that something is empirically true is not a statement that it is good, just, fair, or moral.
Remember the naturalistic fallacy–you can’t get an ought from an is. A statement that something is empirically true is not a statement that it is good, just, fair, or moral.
You could extend that. Call it the conservative fallacy. Just because something has “always been that way” or is a “tradition” doesn’t mean that it is good, just, fair, or moral.
It doesn’t always, but as Hayek said, “That we ought not to believe anything which has been shown to be false does not mean that we ought to believe only what has been demonstrated to be true.” On the subject of traditions and institutions, here are some of the pertinent passages from The Constitution of Liberty:
And yet, for all that stuff about Tradition, Hayek ended up writing Why I am Not a Conservative at the end of CoL. In it, Hayek conflates Liberal with Libertarian, falling into the same bear pit he’d dug for everyone else’s nomenclatures and definitions. Had Hayek simply thrown that postscript in the trash, CoL would have been a far better book.
I, too, subscribe to an evolutionary view of social institutions and government. So my conservative instinct, to the extent I have one, is expressed by wanting to know why things are the way they are before proposing a change in the status quo.
It should be noted that evolutionary theory doesn’t propose that the evolved solutions are optimal, just that they’re good enough to survive and sometimes to be copied. They’re also highly path-dependent. For instance, did you know the retina in the human eye is basically constructed backwards? That the light-sensitive cells are at the back of the retina, underneath the supporting layers as well as blood vessels and nerve bundles? So light has to pass through these other layers before it gets to the rods and cones? That’s why we have a blind spot. There are other animals on the planet where this is reversed and it’s because the eye evolved more than once along different intermediate paths.
Evolutionary processes can sometimes produce surprisingly elegant and efficient designs, but on the whole its a really just a mess of kludges, tweaks, and good-enough-for-now fixes on top of a base of seemed-like-a-good-idea-at-the-time. I’m sure our software guys here can attest to working on some old piece of work that originated in Cobol thirty years ago, has been touched by a thousand hands, and is nothing like what you’d write now if you were to start from scratch. It works but is about as elegant as a swamp.
So when some libertarian (or neo-conservative) starts ranting on about how we need to abolish some or another government agency or regulatory framework, I think it’s useful to examine the state of affairs that led to that agency being created in the first place. For instance, I personally remember a time when rivers were dead cesspools of chemicals, sometimes even starting on fire, acid rain was destroying forests and lakes in the northeast, and you could see pictures in the paper of Los Angelenos walking around wearing gas masks. Perhaps the EPA gets a bit heavy-handed at times, or goes about things inefficiently, but let’s not pretend that the Clean Air and Water Act wasn’t addressing a very real concern that the private marketplace not only wasn’t addressing but was actively causing.
Reform? Certainly, always, and continuously. But abolition? Not if I have anything to say on the matter. Rinse and repeat for any number of things that government does that people complain about.
Rod, I’m going to conclude that we’ve found some common ground here then. What you’ve said here resembles what I said during the GOP LeagueCast last month: conservatives can’t stand on a platform of “Repeal.” Nor does the addendum “and Replace” work unless there’s a well-considered, fleshed-out program advanced. (This isn’t limited to health care reform; it applies to any Big Government program the GOP agitates against.) In this sense, Democrats really are “conservatives” in the sense that FDR-style big government programs are established in our political and economic reality.
Blaise, well now I’m really anxious to finish CoL.
From Paul Begala’s column today on Beast:
I tried to persuade Bill Clinton to mock one of today’s more egregious euphemisms—the Republicans’ use of words like “fix” to describe what they want to do to Medicare—as he prepared his speech to the Democratic National Convention in September. Here’s the line I pitched him: “Every time I hear Mitt Romney or Paul Ryan say they want to ‘fix’ Medicare, it reminds me of when that veterinarian said he wanted to ‘fix’ my old dog Buddy. But it was not a fix. It was a cut, and there’s a difference.”
Our former president, you may be comforted to know, thought it best not to include in one of the most important speeches of the election a dog-castration joke. But the point I was trying to make remains important: beware of euphemisms—they mask mischief.
CoL is a masterwork. Just give the postscript the ol’ Stink Eye. In Hayek’s defence, he was talking about the Conservatives of his own day, but Hayek gets himself in trouble, as people so often do, not leaving well enough alone.
Conservatives can and do modify their positions based on the evidence at hand. The Conservatives beg us to consider the consequences of what we’re asking for: the gods punish the stupid by granting wishes.
Apropos to little else, George Orwell famously reviewed Hayek’s Road to Serfdom. It’s not long but it’s not amenable to nice blockquotes. I’m sure you’ll find it of interest, Tim.
Thanks for the link, Blaise.
“The trouble with competitions is that somebody wins them. Professor Hayek denies that free capitalism necessarily leads to monopoly, but in practice that is where it has led, and since the vast majority of people would far rather have State regimentation than slumps and unemployment, the drift towards collectivism is bound to continue if popular opinion has any say in the matter.”
The first line is a wonderful. I think Professor Kolko would take issue with the idea that capitalism produces monopolies: his study shows that the comparatively freer markets prior to 1900 were unable to stamp out the competition, which led to business leaders turning to government for help. Conservative (now styled as “progressive”) political leaders were all too willing to trade centralization of economic interests for greater economic stability.
Aside from that quibble, I wouldn’t presume to challenge Orwell’s conclusion.
“Property rights derive from what our fellows in our society are willing to agree to.”
This is wrong. The very nature of a right is that it transcends consensus. We might as well say that consensus is not a viable principle either because it also depends on the transcendental proposition that humans behave according to certain predictable patterns, e.g., they desire pleasure and avoid pain, they desire life and avoid death, and they will behave roughly rationally to achieve those things and order their different values accordingly, etc. In other words, humans are not totally arbitrary. There are profound and wide ranging effects of this basis premise, and among those is a devotion to a principle of rights, including a right to property. Consensus and property rights are not
exclusionarymutually exclusive. They are both principles that derive ultimately from the principle that man is not arbitrary and that he has certain basic objectives. [That’s not to say they don’t come into conflict, but the point is they derive from the same place, and one doesn’t swallow the other.]But since I am trying to get at a political point here rather than argue whether this American principle should be remade, I think FDR’s presidency confirms that, even with the unprecedented expansion of government, Americans did not abandon the principle of property rights. I’ve cited this often, but this quote from an FDR advisor demonstrates FDR acknowledged his agenda had to work within that principle:
http://www.ssa.gov/history/Gulick.html
Fine. Fine. You may have your nuclear bombs. And mercury.
But, for the love of god, go do it out in the ocean somewhere.
Not in my country.
Radiation makes me rather sick, you see.
The very nature of a right is that it transcends consensus.
I think that’s a lovely theory that doesn’t stand up to scrutiny. After all, there’s nothing here but us humans, so we create our own rights through (rough) consensus. If there is a God, I don’t see much evidence that He cares about property rights, and certainly not about income as property. Pretty hard to get there from either the OT or the NT.
But on the political issue, we’ve had a progressive income tax for a long long time, which seems to me to undermine your claim that we still treat income as a property right.
I’m not making an argument that we this situation is good; just that it seems to me to be the status quo.
It’s been our tradition (sadly) to trail behind our stated principles. The declaration of equality was aspirational and would remain so until at least 1865 with the 13th amendment. And we continued to trail badly for many decades later. We still trail today, even if much less badly. But all that doesn’t mean the principles don’t hold. I’d guess only a statistically irrelevant percentage of people believe slavery violated the rights of blacks. The fact that they had no rights under positive law is irrelevant.
So yes, we’ve had progressive income tax for a long time. But that itself doesn’t disprove the principle, unless you want to say that slavery defeated the principle of equality. Turns out we do believe it and recognized the justifications offered in defense of slavery were rubbish. And indeed there’s no justification offered to defend progressive taxation: it hit its stride during the industrial golden age in the wake of the New Deal and WWII, and was markedly reduced later on, and is now unthinkingly accepted as an economic necessity — but not a morally justified policy.
My fondest dream is to persuade both liberals and conservatives to abandon the concept of moral justification.
Aren’t most policies preferences predicated on something that can be called moral justification?
I understand that two arguments in favor of freer markets, for example, are based on notions of what is good or right:
1. Freer markets are presumed to be more efficient at distributing costs and ensuring that what is produced matches people’s preferences. (I might have the terminology wrong, but I hope it’s clear what I’m referring to.) The “goodness” or “moral rightness” comes from the notion that a policy that promotes freer markets allocates costs to where they ought to be. And not promoting freer markets–e.g., sticking with a status quo system in which some people or firms collect monopoly rents–we are in effect doing or tolerating something “bad” or “morally unjustified” because the current system imposes a cost that is deemed “unfair.”
2. Freer markets are good because market transactions are generally voluntary exchanges, and a policy that promotes voluntary exchanges is to be preferred (all things being equal, and accounting for some exceptional circumstances, perhaps) over a program that centrally coordinates and makes choices for others.
If, however, all you’re saying is that liberals and conservatives invoke “moral justification” too readily, as a sort of shibboleth, without going into why that justification ought to justify their preferences, then I probably agree. But I do think there are certain value assumptions built into most policy preferences, and it’s not much of a stretch to say that they align with a certain moral view of the universe.
I’m half joking, but only half.
I think this quote from Hayek is on point: “the important question that arises here is whether the agreement of the majority on the moral rule is sufficient justification for enforcing it on the dissenting minority or whether this power ought not also to be limited by more general rules–in other words, whether the ordinary legislation should be limited by general principles just as the moral rules of individual conduct preclude certain kinds of action, however good maybe their purpose. There is as much need of moral rules in political as in individual action, and the consequences of success of collective decisions as well as those individual decisions will be beneficial only if they are all in conformity with common principles.”
My fondest dream is to persuade both liberals and conservatives to abandon the concept of moral justification.
That just leaves us with a value justification, which is morality by another name.
Seems to me you want people to be different than they in fact are, and more in line with your values.
I’m only half joking.
Tim,
Thanks for the quotation. Is it from ROAD TO SERFDOM by chance? I ask because that’s on my shortlist of books to read soon.
Do you see this quotation as an argument for “right process”? (I do, at least when I take it by itself.)
James,
I do have a tendency to overinterpret others’ jokes. And my own comment was probably mostly a tu quoque.
Pierre,
Sorry, should have cited. It’s from The Constitution of Liberty, which I’m currently reading.
Seems to me you want people to be different than they in fact are, and more in line with your values.
Unlike everyone else.
For what it’s worth, I’m well into James’ camp here on property rights – I find the ultimate justification for natural property rights tends to boil down to ‘ I don’t like it if they’re not natural, so they must be so.’ I find that very unconvincing.
What I don’t get is, even giving you property as a natural right, then I can’t fathom how any kind of taxation could be justified. Picking on the progressive part of progressive income taxation seems to be passing on the logical conclusion that any kind of tax on property would be unjustifiable – focusing on the scale used seems to accede that they’re justified and undermine the very principle from which your argument derives.
I suppose maybe one could allow that income taxes are not taxes on property but a government fee levied on transactions, then the current US income tax system would seem a convoluted, wasteful contraption, but not one morally wrong on it’s face.
Property as a “natural” right doesn’t really get you very far. It’s all very nice and all to accept such as a principle but absent some societal mechanism to acknowledge and enforce claims that so and so is the rightful owner of such and such piece of property its little more than a wistful sentiment. If all it means is that you have some, again theoretical and abstract, right to defend such a claim then the system devolves into simple might makes right.
But in at least any modern society composed of thousands or millions of individuals, most of whom are strangers to each other, this necessitates some level of governmental machinery; laws, police, courts, prisons, etc. And all that costs money. Ergo, taxation to support all that, otherwise you get into all sorts of other problems like free riders. And since that system will necessarily be providing twice as much benefit to someone who holds twice as much property as someone else, it only stands to reason that the first person should contribute twice as much to the maintenance of the system. (Beneficiary pays principle.)
This leads logically to a tax on wealth. But historically that’s just a practical PITA to administer since people can hide objects of wealth and it can be difficult to objectively place a value on many things (e.g., challenges to real-estate valuations). One solution might be an insurance model; only property that you declare and pay taxes on would be protected by the government. Don’t want to pay taxes on those gold coins? Tough noogies if someone steals them.
As far as income taxes go, we had to pass a constitutional amendment. In principle, taxing property is justified: there’s a relationship between owning property and receiving government services related to that property, such as police and fire protection, legal protection through the courts, municipal water and roads that add value to the property, and so on.
Absent rampant crony capitalism, the conservative/libertarian principle is that there is little or no moral justification for taxing one person more harshly than another where that wealth was fairly and honorably earned and where the unequal distribution of wealth owes entirely to effort and skill, and perhaps luck.
I have a problem with “fairly and honorably earned” and “entirely to effort and skill, and perhaps luck”.
Externalities, known or unknown, show that one cannot say that wealth was fairly and honorably earned. All earned wealth is not equal, even if, superficially, that wealth may seem to have been earned fairly and honorably. Nor is it entirely due to effort and skill, when other societal costs are not deducted from that wealth.
Let’s take a specific, difficult example: wealth earned fairly and honorably in the fossil fuel industry. Lots of externalities there. Should that count against “fairly and honorably”? I think so, for the earning of that wealth causes problems for others, perhaps the entire world.
I think it is impossible to remove the bias of short-term gain at long-term expense (Hyperbolic Discounting) from the human race. As such, I think it is difficult to prove “fairly and honorably” and “entirely to effort and skill, and perhaps luck”.
I would further argue that as one moves up the wealth ladder there are more of these unpriced externalities involved in the earning of that wealth. Wouldn’t this then require progressive taxation to recoup some of the damage from those externalities?
I would include externalities in my definition of what constitutes fairly earned wealth. For purposes of this post, I would leave that interpretation up to you. But you are correct that externalities present vexing problems in determining what would constitute “fairly and honorably earned” wealth. Another issue that might be explored is that of time horizons. That is, what duty is owed to future generations when we talk about things like externalities associated with extracting fossil fuels. That extraction may do some harm to the present generation. But that present generation also derives much of the benefit of that extraction. The bigger problem is that the harm to future generations is not much less great, but the benefits they derive are much less great. So the future generations are getting the raw deal here.
Yes, this is what I am driving at, particularly in regards to horizons (time and otherwise).
I’d argue that it is nearly impossible to factor in all of these externalities, so it is nearly impossible to say that any wealth is earned “fairly and honorably”. For, we may think, at the time, that there are no externalities, or that we have factored all of them in, only to find out 1, or 10, or 100 years later that there have been important externalities all this time.
A further problem is how that wealth, earned with unpriced externalities, is used to create more wealth in the interim. Those externalities then poison all of that new wealth, which might have been otherwise earned “fairly and honorably”, since it was earned with wealth that was tainted to begin with.
I’m thinking about something like, I make a bunch of money from fossil fuels, then invest that money in the stock market for 50 years. The money I’ve earned from the stock market during those 50 years is not earned “fairly and honorably” since it came from wealth that was not earned “fairly and honorably”.
It’s even more complicated when we start thinking about competition, and how some competitors are priced out of the market because externalities have been unpriced on the victor.
[As I continue to ignore my promise not to engage opposition to the premises I’ve asked we assume for purposes of the post…]
I wrote a paper in law school about the problems of intergenerational equity in natural resources extraction. If you’re interested, it’s on SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=961767. As I said, lots of interesting and troubling problems in this arena. But there another side of the “inheritance” problem: although we inherit our predecessors’ externalities, we inherit their fruits as well. Thus while an intergenerational equity norm might dictate that we minimize the externalities on our heirs, we might have just as great an obligation not to sit on our hands.
But at some point, someone is going to have to put a value on these intangible values. Doing it in the context of a regulated market system based on a principle of property rights seems certainly no more problematic than government ownership of all property. In the latter scenario, the government would not even have to justify its valuation. It would simply act and that would be the end of the matter.
My apologies for my comments causing you to break your promise, and thanks for engaging them anyway.
I thought I was engaging with your post, but may not have been explicit enough.
I suppose my point is really that I think that, since it is difficult-to-impossible to determine whether any wealth is fairly and honorably earned, then little-to-no people can lay claim to an individual moral right to property and income.
I’ll stipulate your point about an individual moral right to property and income. But, if we can’t really agree or prove that the wealth was earned fairly and honorably (which would exclude it from the moral right if it wasn’t), then it seems a moot point. And, if we’re just going to fall back on each of us defining what wealth is fairly and honorably earned, then we’ve already conceded that it’s all really about who can sell it better.
The line I drew was blurry, thinking on it. Certainly no foul on your part.
I take your points seriously. Indeed, it can be very difficult to answer the “fairly and honorably” question if we really scrutinize it. This is why in order to answer it we have to ask ourselves, what should our presumption be? What should get the benefit of the doubt? If we have trouble determining all the externalities, but we have to make a call one way or the other, who should make the call? Should we presume in favor of a regime of property rights and markets? In that case, the market, in conjunction with reasonable government regulation, should decide. Or should we presume in favor of government control, in which our leaders decide without a meaningful role for market signals?
I assume we’re going with the former. And in that case, perhaps there’s an argument that higher progressive taxation rates for wealth derived from mountaintop mining and logging, for example, are justified, and that those proceeds should be earmarked for ecological purposes to offset those externalities their wealth-producing activities create but can’t be meaningfully quantified.
Should we presume in favor of a regime of property rights and markets? In that case, the market, in conjunction with reasonable government regulation, should decide. Or should we presume in favor of government control, in which our leaders decide without a meaningful role for market signals?
I assume we’re going with the former.
Ok, now we’re getting somewhere.
Let’s stipulate the former. The market AND government have both proven to be overly susceptible to Hyperbolic Discounting. In short, unable and unwilling to honestly price in the externalities. So, we’re really picking the lesser of two evils, at the end of the day. Neither is very good at it. Humans, by and large, aren’t very good at it. At that point, we’re starting to fall back on biases and prejudices in our choice. Logic has left the building.
I’m with you on this, but, even though I’m about the most liberal person around here, I’m not arguing that the government should do it. I’m saying that we can’t really count on government or the markets, and any argument in either direction falls on my deaf ears. Neither has shown a reason to be trusted on something like this. While I think I’d choose government (the latter) because there would be more direct help for the less fortunate with that choice, I don’t really buy what I’m selling. That’s just my biases leading me to that choice.
Because of this, I end up thinking that most of talk about government or markets is really about making the choice that is less bad for you (for me) personally. Or, your group. And, so, I end up having a real problem with discussions (like your post) because I can’t get past the premise – in this case, “fairly and honorably earned”. I want to get to the discussion you want (government or market), badly, but am held up by the early assumptions.
This usually results in me thinking: there must be another option. I’m not nearly smart enough to think of what it is, though. But, I’m pretty sure that someone will, at some point. Capitalism isn’t the answer. It’s just the best answer we have right now.
My apologies for inflicting this on you.
Totally agreed that we excessively discount the future. One of the defects of our kind, I suppose.
The rest of your concerns are likewise totally reasonable. I think our differences really just boil down to our subjective biases, like you suggested. And just as you are not Pollyannaish about the government’s ability to solve all these problems, I’m not about the market, either, when we’re talking about this issue of externalities.
Huh. I don’t know what to make of that. You’re liberal, I’m conservative, yet we’ve got nothing left to argue about. Where does one go from here? Fisticuffs?
I see it as a warning that we are in agreement on the issue of externalities but do not know how to proceed. It is our large problem writ small.
We acknowledge the problem, but don’t have any ideas to address it. So, we argue about which part of BAU our (property) rights derive from. We confine ourselves to the way things are now. We ignore the imperative of these problems for the safer alternative of rehashing arguments in the familiar framework.
Of course, I’m really showing some of my biases and prejudices here: I think the externalities are an immense problem that we are not grappling with. Individually or as a society. We ignore the externalities at our peril, and we see that peril more and more these days. Capitalism is a big part of the problem, as it is currently practiced (though I have doubts that it could ever really deal with the externalities). So is Democracy. This is usually received as heresy, and I’m quickly branded as a Commie.
I’ve had interest in trying to bring these issues (externalities) to the League in a series of posts. This is what I spend most of my Internet time on: the externalities we create and ignore, not politics. I have been reluctant to do so, because the times I have tried making these points have not gone well.
Many thanks for engaging with my comments. I really think we are in agreement, which creates a nice feeling. But, at the end of it, we’re both throwing up our hands and saying: hmm, I’m not sure what we can do about it. That’s the tragedy of our species right here.
However, in the interest of continuing the discussion: I spend a lot of time thinking about our assumptions, and then thinking about challenges to those assumptions. So, here is a challenge that I think about: is it possible, or likely, that our economy does not continue growing forever?
John,
I’ve always believed that the fact that environmental issues are anathema to most conservatives is really an unfortunate accident of politics. Perhaps partly because the left used it as a cudgel against the right, and probably more to do with the pro-business interests that support the GOP. But as far as ideology is concerned, conservatives really should be environmentalists. You can’t spell “conservative” without “conserve,” after all!
One of my first questions when we talk about externalities is: What is the appropriate time horizon? Both political leaders and economic leaders are in similar pickle here. Imagine a board of directors, each of which personally really does care about the environment. But they each have a duty to maximize shareholder profits, too. If they don’t, they could get fired at the next meeting and a new board would get elected who would care less about the environment than they do. Even worse, they could get sued for breach of their fiduciary duties. Thus, the board can’t enact the environmentally-friendly policies they might like.
But a clever board could probably defend their environmental policies by saying they are taking the longer view: By being environmentally friendly, they are building goodwill that will ensure profitability in the future. But then how long does goodwill last? And how far in the future can you look? Again, the duty is to the living shareholder. If a shareholder sues, saying the board misappropriated corporate resources on environmental activities, it is no response to say they are maximizing profits for the next generation of shareholders. Future shareholders don’t have standing to sue. Only the living ones do. So the time horizon for environmental investments is no longer than the lifespan of the present shareholders, maybe something like 20-40 years.
Things are a bit more flexible in the political arena, of course, since there is no such thing as a fiduciary duty owed to voters. Politicians are free to argue their policies are morally justified, whether or not they will yield economic dividends. And it is perfectly acceptable to argue that their policies will not benefit the present generation but only the following generations. But for those arguments to be effective, voters have to be altruistic. They have to be willing to forgo present advantage for the sake of people they may never meet. And as I mentioned above, they also have to balance that against their present duty to make the world a better place. We have conflicting mandates: To make productive use of our resources without destroying them. It’s an interesting and difficult tightrope to walk.
Can you imagine anyone trying to have such a delicate, nuanced discussion in our present political climate?
Mr. Kowal, I have great interest in responding, but lack time at the present. I’ll try to respond this weekend. Great stuff. Really agree with you. It is obvious that you have thought about and grappled with this honestly, and I would like to continue our conversation and see where it leads.
One thing though, regarding this:
Can you imagine anyone trying to have such a delicate, nuanced discussion in our present political climate?
Well, we are. That’s enough for me.
Agreed about “conservative” and “conserve”, it is something I joke about with friends quite a lot. I think you are correct to put more emphasis on pro-business interests, but there are several things involved as you note. I would further say that Democrats are also influenced by pro-business interests, and this effects the policies they support, while not necessarily effecting their rhetoric. We have two parties that are ruled, to some degree, by those business interests.
I think time horizons is a good place to start.
By being environmentally friendly, they are building goodwill that will ensure profitability in the future. But then how long does goodwill last? And how far in the future can you look? Again, the duty is to the living shareholder.
I think this gets it right. Personally, I would argue that, since consumer spending is about 70% of our economy, doing things that do not interrupt that spending, even in the long term, should also be a core concern of any BOD. However, I think that oftentimes (perhaps most times) a BOD will sacrifice those concerns in favor of the living shareholder (current profits), as you note.
So the time horizon for environmental investments is no longer than the lifespan of the present shareholders, maybe something like 20-40 years.
I think this may have been true in the past, but I think the time horizon has been shrinking for some time, and is no longer 20-40 years in the eyes of a Board. The speed of communication, the media cycle, election terms, and the focus on the next earnings report are now the time horizon in many ways, it could be argued. So, we’re not even looking at 20 years. Something much shorter than that, I think.
But for those arguments to be effective, voters have to be altruistic. They have to be willing to forgo present advantage for the sake of people they may never meet. And as I mentioned above, they also have to balance that against their present duty to make the world a better place. We have conflicting mandates: To make productive use of our resources without destroying them. It’s an interesting and difficult tightrope to walk.
This is exactly correct, I think.
This leads me to wonder why voters are not altruistic, or not altruistic enough. And, how could we create a culture or society that was more altruistic and thought that it was important to focus on these externalities.
To me, this is a failure of Capitalism. No one is ever punished for focusing on short-term profits instead of long-term environmental impacts. Government can do little because it is a government supporting Capitalism. It can do some, though.
Trying not to derail the conversation too much, I would also offer that people in America have lost touch with many (all?) of the parts of the natural world that support us. We don’t see the impacts, and, frankly, don’t really want to see the impacts. Consumerism rules us. There is always the next shiny object that we want. Marketing, while not a bad thing in and of itself, has become more powerful than humans ability to resist it. This leads to the dangerous place we find ourselves in.
It is remarkable to me that some will complain about, for example, voters not having enough information or interest to really cast a meaningful vote, while at the same time praising Capitalism (and, by extension, Marketing, including Politicall) which is at least partly responsible for training people not to think, or for teaching them to think something without questioning it. If we want an active and informed populace, we should reject or limit those things that teach us to not think (or those things that cause us to do something without thinking, like wanting that cool sports car because it makes us feel manly and women will love us for it, or trusting this politician over that politician because they make us feel better/stronger/etc.).
The difficulty, as I see it is: to create a society of thinking, discerning citizens would require a level of authoritarianism that many (most?) would reject. There are examples of societies that have lived in a more sustainable and environmentally friendly way, but they were all very authoritarian. They were very successful, but most Americans would be horrified to contemplate such a society (the Edo period in Japan is such an example). I end up thinking that Americans are just too selfish to ever do anything meaningful about externalities, except when the solutions really don’t impact them (CFCs, as an example). The broader issue is how much we consume. Very few Americans wants to live with less than they do now, even though most humans on this planet live with a lot less than most Americans.
I’ll leave it here, before I go too far off the path we are wandering and the point of your post. Maybe I already have.
Assume for the moment that voters are altruistic enough that they actually would vote for every environmental measure we could hope for. (Voters might be more altruistic that we commonly think anyway.) I think they still might not because of the mistrust in our institutions: mistrust that government is not beholden to special interests; mistrust that the companies subsidized to carry out these goals are responsible and sufficiently accountable, whether to taxpayers or even to their own shareholders.
You’re probably right: there’s no other conclusion but that capitalism simply can’t “punish” market actors for failing to consider certain kinds of long-term environmental impacts. I say “certain kinds” because this may be somewhat narrow. Even if the impacts are long-term, it’s possible—and as science progresses, even probable—that we’ll discover the pendency of those impacts before they occur. If it’s discovered that a company is pumping toxins into the atmosphere at a rate that will cause harmful effects 50 years down the line, that company will suffer a loss of goodwill. In other words, the particular kind of market failure we’re dealing with here is information asymmetry. And it seems there may be reason to be hopeful that science can continue to help reduce it.
Consumerism does rule us, to an extent. If you haven’t read it, John Kenneth Galbraith’s The Affluent Society might be of interest to you. Since he was a liberal economist, I’m supposed to disagree with him—and to some extent I do—but he had a great number of insights that still ring true. I wrote a piece on it last year: https://ordinary-times.com/timkowal/2011/08/the-affluent-and-downgraded-debt-laden-society/. Here are a couple excerpts relevant to our discussion here:
Regarding your concern that “creat[ing] a society of thinking, discerning citizens would require a level of authoritarianism that many (most?) would reject,” conservatives (including myself) reject this not because they disagree that “a society of thinking, discerning citizens” is not vital—it certainly is. They would disagree that virtue can be instilled or replaced by authoritarianism, but a virtuous citizenry most certainly is a necessary precondition to a viable republic. And it cannot be lightly assumed that this requisite virtue will always exist. It depends on our cultural norms and institutions, which is why conservatives worry so about disrupting them.
Some externalities are more easily factored in that others. Factoring in pollution, for example, is relatively straightforward in principle, although it may be technically difficult.
As you note, many parties with genuine interests have no voice. Future generations obviously, but even living children who haven’t attained the age of majority. And there’s others as well. What obligations to we owe the deceased to, for instance, honor bequests and things like deed restrictions? What deference do we really need to pay to the long-dead founders of the U.S.A. in interpreting the Constitution? What about non-human entities? Do bears have a property interest in the woods? Do fish have a property interest in clean oceans?
75% of the average white person’s wealth was derived from racist laws.
(see the average Hispanic/Black person’s wealth, which is one tenth of that of a white person’s)
What should we do?
You owe me a citation before I can respond to that. 🙂
My stats are old:
http://www.pewsocialtrends.org/2011/07/26/wealth-gaps-rise-to-record-highs-between-whites-blacks-hispanics/
http://en.wikipedia.org/wiki/Thomas_Shapiro
Enjoy.
Thanks for the links, though the extent to which whites’ wealth is “derived from racist laws” is a characterization, not a fact. We could at least stipulate that past discrimination is an issue. But I don’t think progressive taxation, the issue on the table, is directly related to that. Vigorous argument has been made along the lines that throwing money at that problem just exacerbates it and fosters dependency. The Pew study acknowledges the recent downturn in Hispanic and black household wealth relates to those groups being hit particularly hard by the housing crisis, and as we know, federal housing and banking policy made a special effort to subsidize home ownership for these groups. Unintended consequences.
Tim,
Respectfully, if you’re going to disagree with research, do it the courtesy of calling it such. Calling it a characterization is just nonsense.
It’s like you’re saying that Blacks weren’t forced into Projects while whites were given new homes under FHA (this claim can be substantiated by looking at Pittsburgh’s documentation).
The fact that racist homelenders got away with murder, in terms of unfairly giving poorer loan terms to blacks does not mean you can say “unintended consequences” about the FHA…
agreed that i’m not making a very awesome case for progressive taxation.
Kim, I’m not disputing the Pew source. I just didn’t see it make a claim like the one you made. It touches on the recent effects of housing on minority groups, but no sweeping claims about “racist laws” generally, or whether it can fairly be said that whites today “derive” wealth from past racist laws. Those, as I say, would be characterizations, not data.
I might try to do a post soon touching on what should be done to help systematically disadvantaged groups. We can resume the discussion then.
Tim,
Shapiro’s written the books on the subject AND done the research. I went to one of his speeches (which I’d cite as reference, but since you couldn’t attend…).
BTW, in case derive isn’t clear enough, that mostly means “inherit.”
Re: “fairly” earned wealth;
I think there is a compelling interest in enacting policies that restrict extreme wealth inequality, regardless of whether the wealth is fairly earned or not.
The single most difficult task any society does is to create a sense of kinship and cohesion among its citizens. When the group splinters and begins to have such extreme differences of interest, eventually the ability even to exist as an entity is lost.
There’s something to that argument. I just prefer a narrower approach directed at limiting the accumulation of unfair wealth, not all wealth.
Yes, but… a central feature of capitalism is exemplified by compound interest. It’s the proposition of “earning” a revenue simply by the ownership of property, by having your “money work for you.”
Something any engineering student learns is that stable systems are characterized by negative feedback loops. In such a system, when some relevant quantity grows in magnitude, there’s a countervailing force that works to move the system in the opposite direction. Absent such negative feedbacks, dynamical systems will self-destruct. Examples are a squealing PA system or an un-governed engine tearing itself apart.
Capitalism, with its feature of property generating a revenue over and above and apart from the labor efforts of the owner, is a system characterized by positive feedback. Which isn’t to suggest that fortunes can’t or aren’t ever dissipated; they are, but just that the tendency for fortunes to grow unattended is part of the design. It’s not like this is any secret. I remember often listening to a call-in radio show about personal investing where the host was constantly going on about achieving “critical mass,” by which he meant the accumulation of sufficient capital that one could easily live off of the interests and dividends from prudent investments.
For Capitalism to be a stable system, it needs a control mechanism to add an element of negative feedback. Progressive taxation is just such a mechanism. Unaltered, in a Capitalist system it’s easier, due to the power of property to generate more wealth, for someone to accumulate the second million than it is to achieve the first. Easier still for the third, and fourth, and so on. Progressive taxation pushes against this structural design, making it more difficult to accumulate more property as one’s income increases. I understand that social stability is a value among conservatives, so I find it curious that so many of you rail against the very control mechanism that renders Capitalism a stable system. Either you don’t understand the dynamics involved, are willfully blind to it, or you’re simply being disingenuous.
Thanks for the good post. I tend to agree that the raising of rates on the upper income is more about principle than it is about politics. I’m not necessarily opposed to it, but it’s not going to come close to dealing with the deficit.
I’m hardly an economist, but I wonder if only focusing on the upper incomes for tax increases (which could be raised again in the future) has the perverse effect of sheilding the rest of society from the costs of government.
I’ve never heard anybody claim raising upper income rates will completely deal with the deficit. It’s just one of the pieces of the puzzle.
In my personal experience it certainly rings true, having spent years after college before law school making less than $30k. I’m much more concerned with what things cost now that I’m called on to pay for them.
On a related note, the redirection of taxes through Washington goes a long way to pulling the wool over the people’s eyes regarding the cost of government programs. From William Voegeli’s book Never Enough:
the redirection of taxes through Washington goes a long way to pulling the wool over the people’s eyes regarding the cost of government programs.
I had a chance to teach my daughter this lesson yesterday. My town has put in a new recycling drop-off station on a side street we regularly traverse. 12 year old daughter thinks it’s cool (and it may be), and asked if there was a cost to use it. No, you don’t have to pay to use it, I said, but we’re all paying for it through our taxes. She thought that was good. But, I noted, in my best dad-as-political-scientist voice, that means we don’t know how much it’s costing us, so it’s hard to tell whether it’s worth it to us.
Paying for it through which taxes? Fed, state, local? I wonder if there have been studies comparing the efficiency of programs (e.g., running public parks, other natural resources-oriented programs) run by the federal government, as compared with those run by state governments, as compared with those run by local governments. One of my go-to rebuttals against government programs is the federalism angle: “But that’s not the business of the federal government! Let the states do it!” Which raises the question of whether this stuff actually looks better at that level. I want to think so, and I can cite some anecdotes, but it would be cool if there was a more comprehensive source.
EnergyStar got efficiency ratings that were off the charts. one of the environmental folks wrote about it. 😉 Federal program that.
It’s a local program, although it’s possible there are state funds involved.
I don’t think taxation is legitimately property.
From personal property, a forfeiture may be assessed for an infraction of the law. Everyone pays the same there. The law is not able to consider means when establishing a forfeiture.
Taxation is a different form of property. This is governmental property which the individual retains, and then produces. It doesn’t begin as personal property, but as government property.
That’s where the parallel with the forfeiture breaks down.
Dispersion of services applies to the same principles; it’s something that begins as government property.
The law is not able to consider means when establishing a forfeiture.
It currently doesn’t here, but it can. One of the Scandinavian countries, Finland IIRC, enacts penalties in proportion to the offender’s net worth (or income). I remember reading a story a few years back where some rich dude had to pay a fine of something like $300k for a speeding ticket.
It makes a certain amount of sense to me.
Interesting, nuanced discussion. Many thanks to all who are contributing.
Can we look at the question from the point of view of a simpleton? That would be me
To set the stage, five cave-dwelling families of Homo neanderthalensis live in neighboring valleys. Two of the five families hunt and gather just enough food and fuel to stay alive. Two of the five families do not gather enough food and fuel to stay alive and are slowly dying of starvation and exposure. One of the five families includes a talented hunter and a woman adept at cultivating plants so that family has excess food and plenty of fuel – enough to make up the shortfall of one of the families that isn’t doing too well.
All the families see each other all the time so everyone knows how everyone else is faring. The valleys are small and close together.
The head-of-household of the prosperous group makes a deal with the head-of-household of one of the starving families. If the starving family will send one of its members to the cave of the prosperous family, the prosperous family will teach that individual how to preserve the meat the hunter brings in and the grain the woman grows and will then give enough of each to the starving family so that they can all stay alive. The time that the hunter and farmer save by not spending time preserving what they produce can be spent bringing in even more meat and producing more grain. The prosperous family ends up with more surplus than they had the year before and the starving family all live through the winter.
The new arrangement is so successful that the prosperous family offers the same arrangement to the other starving family. The oldest member of that family died of starvation during the winter. They have been talking to the two families that produce just enough to live on about the inequity of the surplus that the prosperous family has. The two families with just enough agree with the moral outrage of the starving family, they all grab their clubs and descend on the prosperous family. They thump the heads of the prosperous family and take their surplus plus today’s kill.
The prosperous family lays off the member of the formerly starving family and goes back to just producing what they need. They don’t want to risk getting attacked again because have too much.
Having seen how having the most clubs works, the two starving families demand part of what the once prosperous family is producing. That winter all families except the two hunting and gathering just what they need die from starvation and exposure.
The two families that are left get together occasionally, and talk about their moral superiority for helping force the prosperous family to share. They don’t talk about the envy they felt towards the prosperous family when they were alive.
Mr. Griffin, your statement, “I suppose my point is really that I think that, since it is difficult-to-impossible to determine whether any wealth is fairly and honorably earned, then little-to-no people can lay claim to an individual moral right to property and income” presumes that all externalities are negative and that no one actually earns anything fairly. The propaganda that all externalities are negative has been drummed into several generations of Americans. It is not true. It is not even close to true but it has been used very successfully as a political tool. If you can overcome your current instinctual bias for accepting negative externalities and ignoring positive ones you will have a much better basis for judging for yourself whether or not property rights are good or bad.
Mr Kowal, I encourage you to expand your investigation along the lines of your statement that “…at some point, someone is going to have to put a value on these intangible values. Doing it in the context of a regulated market system based on a principle of property rights seems certainly no more problematic than government ownership of all property.”
Your mileage may vary.
We need to stop thinking in terms of redistribution to produce some manner of equity and instead consider just distributions in the first place. I think we can all agree that there’s a fairly dense underbrush of preferences, subsidies, restrictions, etc. that has encrusted the legal framework of our economy and tax system. I agree wholeheartedly with whoever it was–one of our libertarian commentators–that we need to clear away the preferences and subsidies starting at the top and the taxes and restrictions starting at the bottom, until those waves of reform meet, cross, and finally come to rest on the opposite shores. Lovely image but I’m not holding my breath.
While I applaud your criticism of cronyism and other types of favoritism that tend to further unjustly enrich the already rich, I believe the fundamental problem lies deeper than that. In your comment above, concerning “fairly and honorably earned and where the unequal distribution of wealth owes entirely to effort and skill” I believe the relevant concept here isn’t actually in the “fairly and honorably” part of the “effort and skill” so much, since these are things we can all agree on, at least in principle if not in content, but rather in the simple word, earn.
Consider the following scenarios:
1. A truck driver, let’s call him Rod, puts in a full week’s work, and earns a gross paycheck of $800.
2. A lawyer, let’s call him Tim, puts in a full week’s work, and earns a salary of $2500.
3. Rod’s wife, let’s call her Shawna, inherits a fractional share of royalty interest in gas and oil producing properties in SW Kansas. She receives a small monthly income from those properties.
4. Tim purchases a home, lives there for some years, and feeling the desire to move to better accommodations, sells that home for a profit, and uses the proceeds as down payment on a larger home in a nicer neighborhood.
5. Rod signs up for his company’s Employee Stock Purchase Program.
6. Tim purchases shares of a mutual fund.
7. Rod buys his own truck, and leases onto his company as an Owner-Operator.*
8. Tim becomes a full partner in his firm.
Assuming fair and honorable behavior, in each of these cases we can ask, Is the resulting revenue “earned” by any reasonable meaning of that term?
I think in 1 and 2 the answer is unquestionably, yes. We’re each working, exerting ourselves, and being compensated fairly by the market for our labors. The fact that you make more money than I do presumably the result of greater demand for your skills relative to the supply of people capable of doing that sort of work. I have no problem with that, it’s how markets work.
Similarly, for 7 and 8. Labor with the added component of business risk. In both cases we can expect to make more than in situation 1 or 2 and rightly so.
But for situations 3 and 4, I just can’t see how the concept of “earn” comes into play. Shawna didn’t do anything to receive those monthly checks other than being born to the right parents. We’re not idiots; we cash them, but I’m under no illusion that desert enters into it. Similarly, it’s nice and all when you can make a profit in real estate, but let’s not flatter ourselves into thinking we did anything to earn those profits. The housing market goes up… and sometimes it goes down. And it’s mostly a matter of luck and timing but it’s not a result of your labors.**
As to 5 and 6, the issue is muddier. In my case, as an employee of the company, I’m perhaps marginally responsible for its success or failure. At least I’m involved at some level, although realistically I’m not making the kinds of decisions or contributions that are going to have a discernible impact. When it comes to purchasing an investment, there is skill involved in choosing the right vehicle, and there’s the element of risk. But that’s not materially different than the skill and risk involved in picking the right pony down at the track. And you’re not directing the operations or making decisions that affect the company’s performance in any way. Basically, you’re just jumping along for the ride. You can comfort yourself that you’re “participating in the market” or something, but really, what is it that you’re actually doing to earn any profits? What value are you creating?
One can categorize actions as ethically required, ethically forbidden, or ethically neutral. Viewing taxation under this lens, and considering the Lockean formulation of self-ownership and property rights, I would place taxation of 1,2,7, and 8 under the ethically forbidden category. Oppositely, taxation of 3 and 4 are ethically required. And 5/6 are sorta neutral. The notable difference between 3/4 and 5/6 is that the object of value in 3/4 (land and natural resources) is not of human creation and could only be brought originally under a property scheme by appropriation and/or theft/conquest. Whereas, the object of value in 5/6 is of genuine human origin and acquired through exchange.
This schema of property distinguishes between making and taking in terms that apply to original distributions and ethically justifies, even requires!, redistribution of certain classes of revenues without resorting to questions of either how much is too much to take or needs of the have nots vs the resources of the haves.
I hope you can appreciate that politically this is neither liberal nor conservative as currently conceived. And while libertarians may howl, the ironic part is that I learned all this from… libertarians. Weird, huh?
* This industry lingo is a little confusing since the word “lease” here doesn’t mean what you usually would take it to mean. Terms vary, but basically it’s an agreement to operate under the ICC authority of the other company and getting paid to haul freight for them, essentially like a company-employed driver, but you’re responsible for the care, fuel, and maintenance of your own vehicle.
** Except for the part that is, like remodeling the kitchen. But in that case, you’re not really selling the same thing that your purchased, are you?
Rod,
A running hypothesis of mine is that centralizing power, whether at the state level but more particularly the federal level, coupled with removing the limits of federal power, results in an ever greater incentive for special interests to lobby for favors.
Here are some highlights from (conservative U of Chicago economics professor) Luigi Zingales’s new book, A Capitalism for the People:
• The 2004 American Jobs Creation Act gives $62.5 billion in tax savings to 93 firms who lobbying efforts cost just $282.7 million.
• “The debate over the Bankruptcy Reform Act of 2005 was completely dominated by the credit lobby and organized by the National Consumer Bankruptcy Coalition. In the words of one legal scholar: “Never before in our history has such a well-organized, well-orchestrated, and well-financed campaign been run to change the balance of power between creditors and debtors.”13 Prior to the repeal of the Glass-Steagall Act, an important barrier kept creditors from pooling together to lobby: they often had different interests.”
• “The sector in which the government share of the economy has ballooned the most is health care. At the beginning of the twentieth century, the US government spent little on health care, and until 1960, the amount remained a bit less than 1 percent of GDP. By the beginning of the 1970s, that share had doubled to 2 percent, and it doubled again by 1991. In 2009, health-care spending reached 8.4 percent of GDP.8 This flood of government cash into the health-care sector has created an enormous monetary return for lobbying.”
• Public-Private Investment Program announced in March 2009 by Treasury secretary Timothy Geithner, subsidized investors chilled by populist backlash, thus creating more populist backlash: “In response to the uncertainty stemming from today’s populist backlash, companies have begun to demand special privileges and investment guarantees. Witness the Public-Private Investment Program announced in March 2009 by Treasury secretary Timothy Geithner, in which major private investors essentially received a subsidy of $2 for every dollar they put in. Such privileges and guarantees stoke the public anger that generated the populist backlash in the first place by confirming the sense that government and large-market players are cooperating at the expense of the taxpayers and the small investors. Then, to avoid being linked in the public mind with the companies they are trying to help, politicians encourage and even take part in the populist assault. No longer certain they can count on contracts and the rule of law, legitimate investors then grow scarce. This, in turn, leaves troubled businesses little recourse but to seek government assistance, thereby reinforcing crony capitalism. I saw this happen in Italy: a vicious cycle from which it is difficult to escape.”
• The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act: “From the beginning of the process, large banks made it clear that they wanted to be regulated by the Federal Reserve. The reason wasn’t that the Fed had the best record in solving problems or that it was the most logical regulator (there is a potential conflict of interest between supervising banks for stability purposes and protecting consumers). Rather, it was that the Fed was already influenced by the large banks, which choose the board of the New York Fed and provide much of the information needed by the Fed to operate. Few objected to the proposal, perhaps because banking experts who want to consult or work in the banking world, whether on the private-sector side or the government side, have to deal with the large banks or the Fed (or both). Between the lobbyists and friends of the Fed and the lobbyists and friends of the large banks, the debate was ruled by the theme that the Fed, in spite of its major past regulatory mistakes (such as its failure to clamp down on mortgage lending standards before the crisis) was the best agency to supervise the banks. The 2010 Dodd-Frank Act—unsurprisingly, in my view—handed this responsibility to the Fed.”
• As of 2010, student loan subsidies and grants, and earmarks to universities, cost taxpayers $43 billion: “Student loans are subsidized as well. According to the Congressional Budget Office, the federal direct loan program costs taxpayers 12 percent of the amount lent.3 With student loans reaching $107 billion in 2010–2011, the total cost for taxpayers that year was $13 billion. To these subsidies we need to add student grants. In 2010, 8 million students received Pell Grants, for a total of $28 billion.4 Thus including earmarks, the total amount of subsidies to university education was $43 billion a year, even before we start counting tax subsidies (for college funds); tax breaks (for example, the fact that returns from university endowments are not taxed); and subsidies dedicated to research.”
• By 2011, there are close to 400 expiring tax cuts compared to 40 in 1991.
• By 2012, seven of the 10 richest counties in the United States now are in the suburbs of Washington, DC.
Very similar points are made by liberal Harvard law professor Larry Lessig. It’s a populist thing (populist in the good way). This is in no way a left-right thing.
Lessig reported that, on average, a dollar in lobbying returns eight, if I recall correctly, for a 700% return on investment. Now, I think lobbying is immoral. At the very least, it’s not “fair and honorable.” But if you’re the CEO representing shareholders, you have an obligation to maximize their investment through all available legal means. Morals, fairness, and honor are no defense. Given that legal framework, I think that as a preliminary matter it is immoral for our political leaders to create and sustain such a lucrative “investment opportunity” for lobbying.
And even all that doesn’t get to your 8 points/comparisons. I see the differences you point out. I agree there may be some issues with inheritance (point 3). I have a rough idea of the argument against rents derived from land ownership, having read a bit of Henry George. I’m still skeptical about both sides of the argument, actually. In the U.S., land has historically been so cheap that it can be hard to sustain the argument that the landowner has earned his rents by forgoing other investment opportunities. Rampant prosperity gave these early land speculators a windfall. Couple that with the inheritance issue, and I can appreciate the argument. But then without those early investors, we wouldn’t have had the prosperity. U.S. land was akin to a “penny stock” that materialized into a wonderful investment, and we’re all the beneficiaries, even if some are greater beneficiaries than others. I’ll have to keep thinking on it. For now, I’ll admit that my presumptions (biases) for now will probably lead me to hold that even rents are valid property rights.
Thanks for your reply and the civil discussion, Tim. This is interesting and fun. Now for a few thoughts:
I agree it’s not a liberal/conservative thing. Dean Baker makes similar points in his book Loser Liberalism in which he tells liberals to quit focusing so heavily on taxing the rich and look harder at how they got that way in the first place. Unfortunately, a lot of this is a game of whack-a-mole. Eternal vigilance and all that.
Now, I think lobbying is immoral. At the very least, it’s not “fair and honorable.”
It’s also constitutionally protected under “petitioning the government for redress of grievances” if I’m not mistaken. My understanding is that when Reagan took office there were only something like 300-400 registered lobbyists in Washington. Now it’s more like 30,000. Sorry to go partisan on you, but this problem does seem to have a connection to the conservative ascendancy since the ’80s. And there’s always lobbyists for both sides of any issue, it’s just that the corporations have a lot more money to throw at it than opposing groups.
Ultimately the real problem, though, is who we elect to office. Senator Bernie Sanders claims that corporate lobbyists simply don’t bother trying to see him because they know he isn’t going to give them anything. He’s a rarity that way.
“The sector in which the government share of the economy has ballooned the most is health care. At the beginning of the twentieth century, the US government spent little on health care, and until 1960, the amount remained a bit less than 1 percent of GDP. By the beginning of the 1970s, that share had doubled to 2 percent, and it doubled again by 1991. In 2009, health-care spending reached 8.4 percent of GDP.8 This flood of government cash into the health-care sector has created an enormous monetary return for lobbying.”
Comparing health care spending going back to 1900 is more than a little specious. The first antibiotics were developed in WWI, for example, and penicillin came later than that. It’s like comparing our expenditures on telecommunications over that period. An illness that used to be “treated” by trying to make you comfortable while you died may now entail some fairly expensive treatment but you can survive and enjoy life. For example, my wife has endured, over her life, at least three or four separate situations that would have certainly killed her prior to the 20th century. But here she is, working and being a mother (btw, our two kids wouldn’t exist either), so it’s not like we’re not getting anything of value from our increased expenditures in health care.
If you’re bleating about the mere existence of medicare and medicaid (since the quote was about government expenditures), well… I can think of a lot worse things to spend money on. Like killing brown people, for instance.
Which isn’t to say that those programs don’t have problems, but the real issue is the differential increase in medical costs over the base rate of inflation since 1973. You’re a lawyer, so I’m asking you directly: Why have the prices of legal services exceeded the base rate of inflation exactly like medical services over that exact same period? I mean the lines lay right on top of each other, the correlation is that close. This topic is frustrating to me, because I’ve laid out the evidence and offered up something of a hypothesis, although I grant you it’s incomplete, and the response I get is chirping crickets. That and vehement exclamations that everybody knows that the cause is government involvement in healthcare. Except… there’s no actual evidence for that. There’s no correlation with specific government actions or policies and this inflationary divergence other than what I’ve offered for my own hypothesis. Roger acts like I just kicked his puppy any time I mention it.
I’m going to work on a response to your response to my eight points and Georgism in the morning. Good-night and peace out.
And even all that doesn’t get to your 8 points/comparisons. I see the differences you point out. I agree there may be some issues with inheritance (point 3).
My primary point there wasn’t about inheritances, that’s really a separate issue. It’s about the nature of the property itself, an exclusive claim over natural resources. Nobody ever created those resources through labor. They’ve been discovered and developed and extracted through the efforts of labor aided by physical capital. But the resources themselves have a value that precedes development and extraction; we know this because oil and gas companies will bid and pay money for the right to develop such resources.
All contemporary title chains to landed resources are corrupt at their root. This particular one originates in a homestead of land purchased from the French who simply appropriated it from the Native Americans who, not being “civilized” Europeans, simply didn’t count as “owners” then. Even setting aside the theoretical issue of appropriation vs. theft, the doctrine of original appropriation prejudices those born earlier, and by extension their descendants, against those born later who arrive at the play to find the seats are all taken.
I have a rough idea of the argument against rents derived from land ownership, having read a bit of Henry George. I’m still skeptical about both sides of the argument, actually. In the U.S., land has historically been so cheap that it can be hard to sustain the argument that the landowner has earned his rents by forgoing other investment opportunities.
That’s not really the argument. The argument is that rents, by definition, aren’t earned. That’s easier to see in cases of blatant cronyism such as you describe. The Georgist argument is that even in a regime completely free of such explicit cronyism, the nature of allodial property in land is itself, a kind of baked-in cronyism.
Rampant prosperity gave these early land speculators a windfall. Couple that with the inheritance issue, and I can appreciate the argument.
That’s a lot closer to it…
But then without those early investors, we wouldn’t have had the prosperity. U.S. land was akin to a “penny stock” that materialized into a wonderful investment, and we’re all the beneficiaries, even if some are greater beneficiaries than others.
… and then you run off the rails. Exactly what did those early investors produce? How did their ownership of something that they didn’t create cause that prosperity to spring into being? If anything, they slowed down that prosperity. The standard formula for the land speculator was to purchase (or sometimes simply be granted by government) title to land, which they would then sit on, allowing it to “ripen,” as adjacent and surrounding development increased the values of their holdings. Eventually, they would then sell that land at a great profit. They in now way created that prosperity. They simply rode on the back of it.
I fear you’ve fallen into the neo-classical trap of conflating private gain with social benefit. You’re confusing rentier gains with entrepreneurial profits.
I’ll have to keep thinking on it. For now, I’ll admit that my presumptions (biases) for now will probably lead me to hold that even rents are valid property rights.
Then you really have no principled position from which to distinguish valid rents from invalid rents. The both spring from the government grant of a privilege. The only real distinction is in the raw number of people that can potentially benefit form one versus the other.
Georgism is a hard sell precisely because our current system of property rights is so thoroughly baked into the cake that people are horrified and deeply offended at the notion that they somehow may not actually have earned all the revenues that they’re legally entitled to under the current paradigm. Never mind that they can’t exactly tell you how they’ve earned it, they’re sure that somehow they have simply because that’s the way it has always been done.
Consider even the very language of landed property. You pay rent to a landlord. My wife’s payments for the oil and gas are called royalties. It all stems from the ancient regime where the king in legal actuality owned everything in the kingdom and granted special privileges to favored subjects, generally in exchange for fealty to the crown. You weren’t officially a chattel slave, but your life and property were only contingently your own.
The chain of title issue is indeed a troubling one. But it seems to me that challenging the Europeans’ ownership as a product of theft from the Native Americans itself presupposes a moral right of ownership in the Native Americans. This would appear to confirm rather than deny the premise of a moral right in property as opposed to merely a positive right, for in the positivistic framework, “right” is only a question between those equal in power.
I think we run into trouble when we look to merit rather than value. Here’s Hayek again, also from The Constitution of Liberty:
Hayek acknowledges that we will often dismay in finding people who will take credit for value they had little or no part in creating. While disappointing, this is to be favored over the alternative, in which we must set up some authority to determine what is meritorious and what is not.
Aye, we look to value, and with that view in mind, we find the thieves.
The moral lobbyist is paid in cocktail weenies. (as in, he’s not actually paid enough to eat in DC any other way).
I believe in property rights, and that property rights derive from the individual, not from government. For purposes of the balance of this post, I’ll ask that you assume that as a working premise. I do not intend to debate the premise itself. What I want to explore is whether there is any room for compromise on the fiscal cliff rather than a winner-take-all scenario on the issue of property rights versus redistribution.
Well, you’re asking to discuss something on a premise unrooted for American history.
Property rights extend from the government. My grandmother’s house, at the time of her death, had three deeds. The first was a land-grant, from King George to a gentleman, I believe his name was Phipps; the grant was called Phipps Canada. The second was from Phipps to the Laden family. They held the land until my grandparents purchased it, making the third deed. But that original land grant was a government taking of land perceived unowned, though there were people here that used it, and had used it, for many many generations going back. So private property rights, as we envision them, began when European Kings began claiming land where other people lived.
As we expanded our holdings on these shores, government claimed more and more land to the west, until those claims reached from sea to shining sea.
And until the end of the 1800’s, the early 1900’s, government funded itself by selling that land it had claimed. The income tax was introduced at the point where there was no longer enough land to sell to fund government, in particular, no source of income to fund WWI.
The whole notion that income tax is theft of private property stems from the myth of private property right, when the reality is property theft, a violation of rights, funded our government. That income-tax free 150 years rode on violating the private property rights of the people already here, using the incomes their lands generated to fund government.
Look, it took a constitutional amendment to inflict the income tax on us. I do not particularly like the income tax but it is far better than a sales tax, which by its nature is a regressive tax and therefore a fundamental market impediment.
We have never known a time without an income tax. Income taxes were levied as far back as the American Civil War. But there is a very real complaint about Theft in both income tax and corporate taxes: a few well-heeled lobbyists can carve out vast holes in the tax code to their benefit. As surely as those land barons violated the rights of the native peoples, the current tax grifters attempt to shirk their obligations to the government and the people.
The ascendancy of taxation in this country was in the late 19th and early 20th centuries. By the early 20th century, the perceived sins of the general property tax were manifold. Jon Teaford provides a good account of the experimentation of different forms of taxation throughout the country in The Rise of the States: “Many complained that widespread evasion of taxes on intangible personal property especially burdened farmers. Farmers’ wealth was in their lands, and land was eminently visible. Whereas urban holders of stocks and bonds could evade their share of taxes, farmers could not hide their property.” Taxing all forms of wealth equally turned out to be a disaster: “Constitutional provisions requiring uniform and equal taxation of all property in fact produced a system plagued by inequality. Intangible property, if discovered, bore a heavier burden than tangible, but little intangible property was listed. Consequently, the prevailing rule of dishonesty ensured that wealthy holders of money and securities bore a light tax load.”
Through lots of trial and error, the states came upon much more effective taxation regimes. Registration fees were very effective. “Although the rate of increase slowed in the late 1920s, the registration tax remained the largest source of state highway revenues through 1928, generating approximately one-fourth of highway income during the middle and late 1920s.” So were gasoline taxes, and by the close of the 1920s, the states had largely solved their highway financing problems. “””The gasoline tax has taken the country by storm,”” wrote one observer in 1929, and indeed, the new levy seemingly had worked a financial mniracle.”
Tax evasion of intangible property was pervasive. “In 1870 the intangible property listed on the grand duplicate of Ohio was valued at $136 million; in 1906 the intangible total had risen to only $148 million. The sum actually declined between 1890 and 1906.'”” During the period from 1870 to 1906, industrialization transformed Ohio, and great magnates like Cleveland’s John 1). Rockefeller and Mark Hanna accumulated multimillion-dollar fortunes. Yet according to the tax rolls, the total value of cash, stocks, and bonds had remained virtually constant.”
In 1910, California tried to replace property taxes with corporate taxes, but with only partial success since corporation taxes “proved insufficient to finance expanding state functions and services, leaving the state in a fiscal bind every biennium.” According to Teaford, “Other states also complained that the corporation and inheritance taxes were not proving flexible enough to satisfy the growing appetite of the states for cash.”
By 1910, 17 states had experimented with income tax, finding it impossible to enforce. “Taxpayers were no more likely to list their incomes honestly than their intangible property, and locally elected assessors were not willing to ferret out the true resources of the voters in their communities. Thus, evasion and lax enforcement were the rule. Revenues from the tax were therefore insignificant. In 1898 North Carolina’s yield was less than $3,900, and according to a student of that state’s tax system, “”in considerably more than one-half of the counties of the state, no person was reported as in possession of a taxable income!”””” In 1899 only two of Louisiana’s fifty-nine counties reported taxable incomes, which yielded a grand total of $104 for the state.”
In 1912 (a year after the Seventeenth Amendment was ratified), Wisconsin began requiring businesses to report “the incomes of employees, the dividends of shareholders, and interest payments to bondholders. Thus assessors did not need to rely solely on the honesty of the individual taxpayer in determining tax liability.” This proved to be the winning formula. “It also reached intangible wealth, which previously had evaded taxation, and thus shifted more of the state’s tax bill to the affluent.”
Live and learn. It hadn’t occurred to me how difficult the income tax was to enforce but it’s obvious, based on what you say. If only the taxation debate was grounded in genuine principles instead of all this whinging about Fairness, we’d be concentrating on the fundamentals of simplicity and enforceability.
In a sense, all the rhetoric behind these Deductions and Loopholes and Subsidies are a tacit admission progressive taxation isn’t such a good idea. Devil’s Advocate: an elderly person has salted away his money in the market since he was a boy and now cashes out his investments to pay for his retirement. Now he faces a huge capital gains tax burden. He’s done all the right things in life, you’d think. But without a competent tax advisor, this oldster will get skinned. He doesn’t know how to manage a structured sale.
Why not treat his gains as simple income? Too simple, right? The more complex the tax code, the more need for third-party advisers and estate lawyers and bankers and insurance guys. The complexity of our tax code has created a whole market in specialists who earn their daily bread keeping good people from being skinned alive. Progressive taxation is as bad as regressive taxation and few are they who see them as the same problem. We have more tax code than criminal code. Thousands of lobbyists daily besiege our lawmakers, corrupting them with campaign donations, promising them lucrative positions after they leave office, if only they’ll twist the tax code to their benefit. This nightmare must be abolished: it’s a perversion of justice.
Amen.
But let us also note that if US government spending (all levels) was significantly lower than the current 38.9% of GDP, then the issue of “who pays” would not be such a BFD.
You should probably pick a better year than during the largest downturn since the Great Depression. (Given the counter cyclical programs built into the budget AND the huge drop in GDP, you get a non-representative number).
Average expenditure/income over a decade is more honest.
Picking 2011 in isolation would be like, oh, taking an unemployed man and claiming his problem was a lifetime of spending more than he earned — because he spent the last year living off savings. (Due to, you know, being out of work).