Inserting the envy variable into the economic equation
September 24, 2012 Leave a comment
In response to a staggering totem of liberal condescension, presumption, and ignorance such as what Nobel laureate Joseph Stiglitz recently penned, it’s tempting to respond with two words:
However, this would make for a rather dull post. So…
The underlying issue in Stiglitz’s arguments is a familiar one: bound theoretical constructs often fail when applied to unbound human behavior. It’s the liberal’s primary conceit that all problems are solvable given enough centralized power utilizing a rational method of control over a population.
Stiglitz’s biggest problem is that he’s a first rate mathematician. His brilliance shines in controlled situations with knowable and controllable variables that behave predictably given certain constraints and that possess logical consistency within given applications.
It does not necessarily follow that being clever enough to create a new mathematical tool provides the creator with the wisdom and sound philosophical judgment to use it well. A scientist who discovers he can split an atom can use that power to energize homes around the world, or he can use that power to create bombs able to blast the earth into a barren wasteland.
In his latest political opinion piece, Stiglitz engages several liberal fallacies that we’ll take apart one by one:
- “For example, the financial crisis that began in 2008 demonstrated the need for adequate regulation.”
- Government policy such as the rigid enforcement of the Community Reinvestment Act coerced banks into riskier and riskier loans. Brilliant mathematicians like Dr. Stiglitz helped investment banks protect themselves from these risks through ever more complicated financial tools, knowing via a wink & a nod that if even these contingency investments failed, that the government would bail them out. The risk became so burdensome and untenable that it ripped through the elaborate netting that investment banks had used to protect themselves. Socializing risk doesn’t make it go away. It just makes it hit all at once.
- “Modern economies are founded on technological innovation, which in turn presupposes basic research funded by government.”
- Government funded grants to universities and subsidization of research and development is wise policy. The GOP platform agrees with that, and current tax rates provide more than enough revenue to enable such funding. The problem is when government picks specific companies and their products as the wave of the future. Government should fund basic solar research, not pay Solyndra to produce the panels.
- “Conservative politicians in the US underestimate the importance of publicly provided education, technology, and infrastructure. Economies in which government provides these public goods perform far better than those in which it does not.”
- This particular trope was a bizarre interjection, seemingly a cheap shot at the strawman that conservatives reject public schooling, technology, and infrastructure. The argument is generally not over whether these should exist, but rather the most efficient way to pay for them, which should favor local control over bureaucratic federal dictates slanted towards special interests.
- “…those at the top of the income distribution who pay 15% of their reported income… clearly are not paying their fair share.”
- To make an overall argument that tax rates should be altered to increase revenue to cover mammoth increases in spending (an aspect of his Nobel winning research) is at least a legitimate argument. To make the philosophical argument that the “rich” don’t pay their “fair share?” The top 10% of income earners pay 71% of Federal income taxes. The top 50% of income earners 98%. To pay their “fair share,” under any recognizable definition of the term “fair,” the rich would pay less.
- “Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme.”
- Stiglitz obviously has an accountant do his taxes, which is the only explanation for his staggering practical ignorance on the topic for which his theoretical work made him a Nobel laureate. While “trust and cooperation” is good for a democracy’s health, if Americans don’t pay their taxes (unless they work in a Democrat administration), the IRS hunts them down and sends them to prison. As for devoting energy and resources to avoidance, millions of Americans spend countless time and money on accountants and TurboTax-like products in an attempt to minimize their tax liability. Finally, the system is already both “intrusive” and “coercive.” Before working Americans see a dime of their paycheck, that citizen’s local, state, and federal government has already directly confiscated a portion of that paycheck, often for more than the citizen owes. California’s government even held back the appropriate refunds from deserving citizens to cover its financial malfeasance.
- “…a market economy could not work if every contract had to be enforced through legal action. But trust and cooperation can survive only if there is a belief that the system is fair.”
- The reason not every contract has to be enforced through legal action is that aside from the honest people, the dishonest people are held in check by the prohibitive legal costs of reneging on a contract as well as the legal strictness of contract enforcement. Anyone who’s watched Judge Judy adjudicate between two people fighting over a $148 dry-cleaning bill understands this.
Stiglitz’s Nobel work involved calculating how tax interventions affect Pareto efficiencies, i.e. how raising and lowering taxes can potentially make the economy mathematically more efficient. What his Nobel work fails to take into account is the damaging social and cultural engineering aspects of an increasingly complex and confusing tax system, which picks winners and losers while stoking resentment between various income levels.
Encouraging envy of Mitt Romney, a man who gave $4 million to charity last year (and has been incredibly generous in other ways throughout his life), is a good way to undermine the “trust and cooperation” Stiglitz considers vital. Trust in the system is not damaged by inequality, but by the perception that success is arbitrarily decided by forces beyond an individual’s control. The USSR, a utopia of equality and “tax fairness”, was notorious for the envy between its citizens (see: this joke).
Politicians carving out legislative exceptions for special interests, a revolving door between the White House and Wall Street, and even Elizabeth Warren exploiting affirmative action benefits are problems that undermine the faith people have in their government, and by extension the economic system it is charged with keeping honest. Higher tax rates on Mitt Romney will solve none of these problems, but instead exacerbate them by giving more power to the guilty parties in the federal government.