Thursday, September 29, 2011

Societal Debt

The following is a response to a picture going around on the internet:

Yeah, I saw the picture, but I find that it has several nearly insurmountable shortcomings as an argument for the increasing the marginal tax rate on the rich.

First off, it is not at all clear that the premise necessarily implies the conclusion. In other words, the fact that society contributed to the making of you does not necessarily entitle society to the sweat of your brow. I would be remiss to not point out the works of a philosopher on this matter of justice: http://www.econlib.org/library/Columns/Jasaydog.html
"There is a minor and a major point to recognise. The minor point is that the "framework" is not a person, natural or legal, to whom a debt can be owed, "institutions" do not act, "society" has no mind, no will, and makes no contributions. Only persons do these things. Imputing responsibility and credit for accumulated wealth, current production and well-being to entities that have no mind and no will is nonsense. It is a variant of the notorious fallacy of composition.
Once this is understood, we can move on to the major point. All contributions of others to the building of your house have been paid for at each link in the chain of production. All current contributions to its maintenance and security are likewise being paid for. Value has been and is being given for value received, even though the "value" is not always money and goods, but may sometimes be affection, loyalty or the discharge of duty. In the exchange relation, a giver is also a recipient, and of course vice versa."

In the broad scheme of things, all this is part of the universal system of exchanges. Some of these exchanges may be involuntary. Such is the case where redistribution, a coercive act, is taking place. We then lose the trace, the precise measure and the assured reciprocity of contributions to wealth and income, but this circumstance can hardly serve to justify the very redistribution that has caused it. However, where exchanges are voluntary, tracing and measuring become, in a strong sense, otiose and irrelevant. For in a voluntary exchange, once each side has delivered and received the agreed contribution, the parties are quits. Seeking to credit and debit them for putative outstanding claims is double counting.
In other words, the fact that others worked to make you who you are does not entitle them to what you produce unless they have gone uncompensated for their work.

My second major objection is that it is not at all clear that the recommended course of action follows from the conclusion of the argument. Even if I were to grant that because the rich benefit disproportionately they should pay more, the only taxation method that this argument rules out is a per person flat tax. If there was a simple 17% flat tax on income or consumption, the rich would still pay a disproportionate amount of taxes relative to their percentage of the population. The argument pushed by Elizabeth Warren, and others of the same ilk, does little to philosophically recommend that the rich should pay a higher percentage of their income relative to the poor. Putting that aside, what we have already is a highly progressive income tax, in which the top 50% pay for almost all government operations, and the top 10% pay more than 70% of the taxes that go to the IRS.

Even if I do grant the conclusion that the rich ought to pay more, it has absolutely no practical application in the real world. Why should I believe that a flat percentage tax is any more unjust than a progressive tax? Why should I believe that the current progressive tax is less just than a more progressive tax? This argument does nothing to answer either of these questions.

Finally, there's the matter of consistency. If this is indeed the premise that we operate under, then the government ought to tax business leaders proportionally to the resources they use. That means that in order to remain philosophically consistent, we ought to tax businesses that hire graduates from public high schools and colleges at a higher rate than those that hire private school graduates. We should also tax businesses that sell products and services to public school graduates at a higher rate than those that sell to private school school graduates. Such a policy would be literally absurd, but falls well in line with the line of reasoning. If a business leader should pay higher taxes because he uses more of "society's resources," then it is only fair that a business leader who uses less of society's resources be taxed at a lower rate.

Other than those three crippling points, I find the reasoning to be flawless.

anachronism n. - person or artifact appearing after its own time or out of chronological order
tyro n. - beginner; person lacking experience in a specific endeavor.

Wednesday, September 14, 2011

An Unteachable Moment

A cursory examination of the facts will lead to the undeniable conclusion that universities have perverse incentives. Before analyzing universities, one needs to first look at the basic economics of subsidies. Every economist and their grandmother will tell you that when you subsidize a good or service, its price increases. This is as a direct result of people being willing to pay more for a good or service. A quick look at tuition prices will find that every year since 1958 tuition has trounced inflation. More is afoot in the war on parent pocketbooks than inflation. There is clearly an underlying force that keeps pushing tuition upwards.

Government policy on making tuition more affordable could not be more counter productive. Before Uncle Sam pulls out his pocketbook and lays some dough on the table for a student's education, he turns to the parents and finds out precisely how much they can "afford" to pay. Anything above the affordability marker, Uncle Sam is willing subsidize either directly in the form of grants, or indirectly in the form of loans. This has grave implications for a university administrator looking to maximize the number of students applying to a given university. One way to increase applicants is to decrease tuition pricing. In a sane world, where markets operate free from government subsidy, that is precisely what the administrator would do. We do not occupy this sane world.

Because of the subsidies offered to universities that scale up and down with tuition, universities have every reason to keep costs up in order to attract stampedes of students. These costs include using tuition money to build attractive new facilities such as stadiums, dorms and *ahem* student unions that would encourage would-be students to apply to the university. The cost is then unloaded upon the students. In a university like San Jose State, where most students receive financial aid, this means that demand becomes inelastic and administrators are forced into non-monetary competition like the airline industry pre-deregulation.

Is there a solution to this problem? Therein lies the beauty of punditry. I don't need to give you a solution. A gadfly cannot be seriously asked to propose a solution to the horses ailments. The gadfly's job is to aggravate the horses ailments till it can ignore them no longer. Nonetheless, here is my modest proposal to fix the system. Stop subsidizing education and watch prices fall. Given the political impossibility of my proposal, I will return to my conservative hermitage until next week.

chimerical- imaginary, impossible
choleric- easily angered, short-tempered

Wednesday, September 7, 2011

Laugher's Curve

Economic theories are often utterly ridiculous. One claim that seems particularly implausible to me is that of the Keynesian belief in stimulus spending . In short, stimulus spending is the belief that when the economy has slowed, and unemployment is high, the government has an imperative to remedy the situation by increasing spending on anything that will get people to work. John Maynard Keynes half-jokingly proposed that hiring someone to dig a hole and fill it back up would have a stimulative effect on the economy.

One skeptical satirist named P.J. O'Rourke came up with the perfect Keynsian solution. The premise is simple, legalize the shooting of convenience store clerks. First, jobs would increase in the high paying domestic manufacturing sector of guns and ammunition. Furthermore, Additional security guards, emergency medical technicians and undertakers would be hired to care for the convenience store clerks. Finally unskilled job seekers would have opportunities due to the incapacitation of those currently in the workforce. Talk about a Keynsian multiplier. By using this system of logical reasoning politicians are able to justify nearly everything in terms of stimulus. On the 8th of September 2011, President Obama is scheduled to give a big speech concerning jobs. How many times will he use the very same tenuous Keynsian logic that P.J. O'Rourke jokingly put forth before giving up?

Apoplexy – sudden loss of consciousness
Bucolic – rustic