Saturday, August 20, 2016

Is Virtuous Rent Truly Virtuous?

Reply toUniversal Income as a Good Form of Rent by Peter Barnes

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I clicked the *heart* button because… there’s a considerable amount of economic goodness in your story. However, there is a pretty glaring logical inconsistency. You start with a not unreasonable criticism of traditional rent… “traditional rent is income received not because of anything a person or business produces”… but then you go on to propose and promote virtuous rent. However, virtuous rent would also be “income received not because of anything a person or business produces”.

It can be very reasonably argued that your criticism of traditional rent is far more applicable to virtuous rent. With traditional rent, you have to spend your own time and money in order to make money. There’s uncertainty and risk and you might lose your shirt. But with virtuous rent, you’re not even spending your own time and money. You’re certainly not managing a property. You’re certainly not endeavoring to keep customers happy. You’re certainly not wining and dining politicians and gambling that they’ll keep their word. With virtuous rent there’s absolutely no sacrifice or diligence or effort or risk involved. It’s pure reward.

Income isn’t a function of owning resources, it’s a function of using them…

Moreover, what is a resource today may cease to be one tomorrow, while what is a valueless object today may become valuable tomorrow. The resource status of material objects is therefore always problematical and depends to some extent on foresight. An object constitutes wealth only if it is a source of an income stream. The value of the object to the owner, actual or potential, reflects at any moment its expected income-yielding capacity. This, in its turn, will depend on the uses to which the object can be turned. The mere ownership of objects, therefore, does not necessarily confer wealth; it is their successful use which confers it. Not ownership but use of resources is the source of income and wealth. — Ludwig Lachmann, The Market Economy and the Distribution of Wealth

If it didn’t matter how resources were used, then all lottery winners would increase their wealth.

Even if there wasn’t a logical inconsistency at the heart of your support for virtuous rent… you still have a fundamentally flawed premise with regards to externalities. There are numerous and significant negative externalities associated with producing sofas. Do these negative externalities represent a cost to society? Sure. Definitely. But do you think that you can adequately guess the size of this cost? If so, then do you also think that you can also adequately guess the size of the benefit? Of course there’s absolutely no need for you to do so because that’s what consumers are for. But in the absence of the spending decisions of consumers… do you think that you could adequately guess the size of the benefit? I’m sure that you recognize that this is the very premise of socialism. I’m also sure you’re aware that socialism doesn’t work so well at guessing society’s benefits or costs.

It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community’s utility and sacrifice against each other. — Knut Wicksell, A New Principle of Just Taxation

Sofas, like every product, have a light side (yang) and a dark side (yin). The yang of sofas is having a comfortable place to cuddle. The yin of sofas is living in a more polluted world. It’s just as beneficial to know how much consumers are helped by sofas’ yang as it is to know how much consumers are hurt by sofas’ yin. Consumers have the freedom to use their cash to communicate their valuation of sofas’ yang… but they have far less freedom to use their cash to communicate their valuation of sofas’ yin. This is because of taxes.

The premise of taxes is pretty reasonable…. the free-rider problem. When you spend your money to communicate your valuation of a sofa’s yang… then you and your cuddle buddy get the sofa all to yourselves. I can only sit on, and enjoy, your sofa if you give me permission to do so. However, if you spend your money to communicate your valuation of a sofa’s yin… then you don’t get the marginally more clean world all to yourself. You have to share it with me and everybody else.

So the premise of taxes is pretty reasonable. What is not reasonable is the fact that planners get to decide for us how our taxes are spent. It really doesn’t matter that we get to elect our planners… it’s still socialism. The logical and detrimental consequence of having socialism in our public sector is that planners will not adequately guess our true valuations of the yin of products… just like planners cannot adequately guess our true valuations of the yang of products.

The solution is simple. We create a market in the public sector by allowing taxpayers to choose where their taxes go (pragmatarianism). To give credit where credit is due… the Nobel prize economist James Buchanan deserves credit for this idea… The Economics of Earmarked Taxes. Netflix subscribers already have to pay a fee… so they might as well use their fee to accurately communicate their valuation of the content. They have absolutely no incentive to pretend that they value some content less than they truly do. “Lying” won’t reduce their Netflix fees… so they might as well be honest.

Right now we have a market in the private sector. Consumers have absolutely no incentive to lie about their valuation of sofas’ yang. If we had a market in the public sector…. then taxpayers would have absolutely no incentive to lie about their valuation of sofas’ yin. Instead of progress being lopsided and skewed to the superficial, it would be balanced and harmonious.

Economic enlightenment means clearly seeing that the true source of society’s problems is not the market in the private sector… it’s the absence of a market in the public sector.

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