Friday, March 21, 2014

The Reality Of Compulsory Taxation

Mike Konczal really wants to have his cake and eat it too.  His essay over at the Democracy Journal,  The Voluntarism Fantasy, was a very valiant attempt to destroy the conservative and libertarian dream of replacing government welfare with private charity.

In order to clearly see the glaring and gaping logical flaw in Konczal's argument, it's necessary to see things from an economic perspective.  Let me try and help you with that...

The Nobel Prize winning liberal economist, Paul Samuelson, provided the best (most widely cited) economic justification for government...The Pure Theory of Public Expenditure.

Samuelson's argument was basically that compulsory taxation is necessary because if we simply ask people (surveys, voting, polls) how much they value public goods then it would be in their selfish interest to give false signals.

Unlike with private goods, people can benefit from public goods without having to pay for them.  It stands to reason that far too many of you are only far too happy to take the benefits of public goods and pass the costs onto others.  Everybody wants a free lunch (cost externalization).

So sorry Mike Konczal.  I know that you really want to have your cake and eat it too...but you really can't have it both ways.  If you agree with Samuelson that people want a free lunch...then you can't trust their superficial signals when it comes to public goods.  If you disagree with Samuelson that people want a free lunch...then you must agree that taxes should be voluntary.

Now let's get super dialectical.  Starting with Konczal...
One reason Progressives looked to the state to provide social insurance was that it was seen as necessarily compulsory. By making it universal, low-wage workers could be included. Also, forcing employers to participate was fair because they would directly benefit from such coverage. As Rubinow argued, American workers “must learn to see they have a right to force at least part of the cost and waste of sickness back upon the industry and society at large, and they can do it only when they demand that the state use its power and authority to help them, indirectly at least, with as much vigor as it has come to the assistance of the business interests.” Because of all this, insurance had a direct public purpose, and should in turn be publicly provided. - Mike Konczal
Corporations and unions both want to pass the costs of their benefits onto others.  Again, everybody wants a free lunch...
As it is the interest of the freemen of a corporation to hinder the rest of the inhabitants from employing any workmen but themselves, so it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market. - Adam Smith, The Wealth of Nations  
Back to Konczal...
He later backtracked, creating the Reconstruction Finance Corporation to provide emergency credit to hard-pressed relief agencies as well as banks and railroads. However, these loans were not made available until early 1933. Hoover, in Hawley’s words, allowed for the New Deal to emerge because of his “reluctance to recognize that the private sector was inherently incapable of meeting the demand for social services on its own.” - Mike Konczal
The demand for social services?  As in...counting all the people who line up for free lunches?   Konczal completely fails to give any plausible way to truly measure the unmet demand for public goods...



More from Konczal...
This is precisely what they did in the decades after the Great Depression. As the historian Andrew Morris describes in The Limits of Voluntarism, FWAA members began adding the term “service” to their titles, as well as “welfare,” both of which suggested character-building enterprises. There were also extensive moves into marriage counseling, and other ways to supplement civil life outside of providing bare necessities. Rather than simply crowding out private charity, the welfare state allowed it to evolve and become more targeted. There would be a new arrangement between the public and the private sector, with the public taking on the heavy weight that the private sector could no longer bear. - Mike Konczal
The line for free lunches was too long for the private sector?  Because nobody saw that coming...
When the state is responsible for establishing fraternity [distributive justice] on behalf of its citizens, we shall see the entire people transformed into petitioners. Landed property, agriculture, industry, commerce, shipping, industrial companies, all will bestir themselves to claim favors from the state. The public treasury will be literally pillaged. Everyone will have good reasons to prove that legal fraternity should be interpreted in this sense: “Let me have the benefits, and let others pay the costs.” Everyone’s effort will be directed toward snatching a scrap of fraternal privilege from the legislature. The suffering classes, although having the greatest claim, will not always have the greatest success. - Frédéric Bastiat, Justice and Fraternity
Yup, this is definitely brand new territory...
This monopoly has so much increased the number of some particular tribes of them that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The Member of Parliament who supports every proposal for strengthening this monopoly is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists. - Adam Smith, The Wealth of Nations
Another passage from Konczal...
The first is what Salamon describes as philanthropic insufficiency. This occurs when the voluntary sector can’t generate enough resources to provide social insurance at a sufficient scale, which, as noted, is exactly what happened in 2008. There is also the problem here of geographic coverage. As Hoover discovered, charity will exist in some places more abundantly than in others; the government has the ability to provide a more universal baseline of coverage. - Mike Konczal
Again with the "shortcomings" of the private sector.  Again and again, how does Konczal know what the actual size is of the unmet demand for public goods?   Is he going to argue that Samuelson was wrong about the incentive that people have to give false signals?  Maybe people's shouts really do reveal their true preferences?
As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market.  A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. - Geoffrey Brennan, Loren Lomasky, Democracy and Decision 
Maybe popular feelings, opinions and sentiments really do reveal true preferences?
They will not indeed submit to more labours and privations than other people, for the relief of distressed fellow creatures: but they make amends by whining over them more.  It is not difficult to trace this sort of affectation to its cause. It originates in the common practice of bestowing upon feelings that praise which actions alone can deserve. - J.S. Mill 
Maybe an absence of active concern means absolutely nothing?
If a woman told us that she loved flowers, and we saw that she forgot to water them, we would not believe in her "love" for flowers.  Love is the active concern for the life and the growth of that which we love.  Where this active concern is lacking, there is no love. - Erich Fromm, The Art of Loving
More from Konczal...
The third element of voluntary failure relevant here is philanthropic paternalism. Instead of charity representing a purely spontaneous response by civil society, or a community of equals responding to issues in the commons, there is, in practice, a disproportionate amount of power that rests in the hands of those with the greatest resources. This narrow control of charitable resources, in turn, channels aid toward the interests and needs of those who already hold large amounts of power. Prime examples of this voluntary failure can be seen in the amount of charitable giving that goes to political advocacy, or to elite colleges in order to help secure admission for already privileged children, even as the needs of the truly desperate go unmet. - Mike Konczal
The amount of charitable giving that goes to political advocacy?  It's a lot?  So the wealthy want a free lunch too?  Of course that's what happens when the tit's that big.

Back to Konczal...
At a basic level, much of our elite charitable giving is about status signaling, especially in donations to elite cultural and educational institutions. And much of it is also about political mobilization to pursue objectives favorable to rich elites. As the judge Richard Posner once wrote, a charitable foundation “is a completely irresponsible institution, answerable to nobody” that closely resembles a hereditary monarchy. Why would we put our entire society’s ability to manage the deadly risks we face in the hands of such a creature? - Mike Konczal
Hey Posner...what's going on?  How could a non-profit fail to be answerable to the people who voluntarily contribute to its continued existence?  Who would choose to continue to fund a non-profit that failed to respond?  Imagine the horror of contributing more and more of your life to an unresponsive organization that you weren't free to exit from...
The distinguishing characteristic of [public] goods is not only that they can be consumed by everyone, but that there is no escape from consuming them unless one were to leave the community by which they are provided. Thus he who says public goods says public evils. The latter result not only from universally sensed inadequacies in the supply of public goods, but from the fact that what is a public good for some - say, a plentiful supply of police dogs and atomic bombs - may well be judged a public evil by others in the same community. It is also quite easy to conceive of a public good turning into a public evil, for example, if a country's foreign and military policies develop in such a way that their "output" changes from international prestige to international disrepute. - Albert O. Hirschman, Exit, Voice, and Loyalty
We can easily exit from private hands...just ask Lenny Bruce...
Capitalism is the best. It's free enterprise. Barter.  Gimbels, if I get really rank with the clerk, 'Well I don't like this', how I can resolve it? If it really gets ridiculous, I go, 'Frig it, man, I walk.' What can this guy do at Gimbels, even if he was the president of Gimbels? He can always reject me from that store, but I can always go to Macy's. He can't really hurt me. Communism is like one big phone company.  Government control, man. And if I get too rank with that phone company, where can I go? I'll end up like a schmuck with a dixie cup on a thread. - Lenny Bruce
...but exiting from public hands isn't so easy...
But in the case of PGs they may not have an avenue for criticism nor a feasible exit opportunity. They may be compelled to consume a particular good. Therefore, it is important to ascertain whether a good’s publicness in form goes hand in hand with publicness in substance – actual enjoyment of the good by all. - Inge Kaul, Public Goods: Taking the Concept to the 21st Century
Posner wants to redeem himself (a bit) by sharing some insight into why liberals think it's ok to block the exit from public hands...
The problem would disappear if government were omniscient, as implicitly assumed by Hotelling, but government is not omniscient and throughout his career Coase has insisted very sensibly that in evaluating the case for public intervention one must compare real markets with real government, rather than real markets with ideal government assumed to work not only flawlessly but costlessly. - Richard A. Posner, Nobel Laureate: Ronald Coase and Methodology
Why would anybody want to exit from God's hands?
This brings us back to President Truman’s vision of true charity. The public’s role in combating the Four Horsemen by providing for social insurance doesn’t kill private charity. It allows it to fully thrive. It enables private charity to respond with targeted and nimble aid for individuals and communities, rather than shouldering the huge, cumbersome burden of alleviating the income insecurities of a modern age. A public social insurance state gives every individual the security necessary to take risks, which enriches both our economy and our society. And it also establishes a baseline of equality and solidarity among all citizens, so that charity enhances the lives of the less fortunate instead of forcing them to rely on those with money and luck. - Mike Konczal
How are we forced to rely on those with money and luck?  The market works because producers are forced to rely on their ability to cater to the true preferences of consumers.  If a producer fails to make our lives more fortunate, then, just like Lenny Bruce, we can take our money and head for the exit.

The freedom to exit from specific organizations has extremely beneficial consequences.  It's understandable for liberals to fail to grasp how beneficial these consequences truly are (that's why they are liberals)...but what excuses do conservatives and libertarians have?  Their "solution" is to exit more or less entirely from the public sector.  Seriously?  They should really know better.

The only thing wrong with the public sector is that we aren't free to exit from specific government organizations.  That's it.  We can't pull a Lenny Bruce in the public sector.  Reducing the size of the public sector doesn't change that.  All it does is ignore the painfully obvious fact that everybody wants a free lunch.  Therefore, the real solution is simply to facilitate exit from specific government organizations...aka pragmatarianism aka tax choice.

So libertarians and conservatives...it's imperative that you stop attacking the size/scope of government.  This will free up your creative energy for far more beneficial uses...such as turning the contents of this messy blog entry of mine into a reality that even Mike Konczal wouldn't choose to exit from.

******

HT Marginal Revolution

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