A Third and a Fourth Reason Libertarian Societies Must Fail

A Third and Fourth Reason Libertarian Societies Must Fail

We previously presented two social problems libertarian societies are incapable of solving.  The first is the producer-consumer problem:  Without a compulsive mechanism to continually, or at least periodically, redistribute demand, that is, a government capable of effective taxation, the net consumers, (which is to say, those who actually allocate consumption,)  end up with all the money, and the producers end up decapitalized.  The second is the bully problem:  In the absence of a government, there is no mechanism to prevent the strong from victimizing the weak. 

A third reason is the necessity to regulate competition among the powerful.  The problem here is that, among the powerful, there are two incompatible expressions of self interest. 

Consider the rest of society as the common resource of the wealthy. Clearly it is in the collective interests of the wealthy to manage, maintain, and nurture society, since they are dependent on it.  However, it is in the individual interests of the wealthy to exploit society as much as they can, since any one who does not will be left with less, and weaker than the others.  The wealthy are thus in competition with each other to exploit society, and to the greatest of their ability.  It is the tragedy of the commons, where the commons is the entirety of society.

Now there are (many) cases of successful community regulation of shared resources.  But they are invariably local in scale, and associated with strong and close community relationships.

In the absence of close community, there are only two solutions.  One is to divide up the resources.  In terms of a country, this would be the fragmentation of that country into smaller ones, and the assumption of the government functions of each new country by a single individual. In this case, the libertarian society fails by fragmentation into a collection of independent autocracies. However, the force of competition between nations need not allow this as a solution at all, as resources may be consumed in a greater than sustainable rate in an arms race.  That is, the competition between the new, smaller, nations to build force will impose a higher rate of discounting the future. 

The other solution is to restrain and direct the self interested behavior of the wealthy by an overarching agency. That is, the institution of a government of sufficient strength to restrain the wealthy.  One of the necessary requirements of strength needed to accomplish this is an effective monopoly of force by the government.  So the third reason, then, that a libertarian society will fail, is that either it will tear itself apart, or it will acquire a government.

And this is already incompatible with the premises of Right Libertarianism.  However, even this government is not sufficient. The monopoly of force will merely prevent the competition between entities from itself degenerating into a balance of realized and potential violence.    The other required ability of the government is to force the internalization of costs.  The internalization of costs must be done in both space and time.  In particular, pollution must be eliminated, or at least paid for in real, compensatory, investment.  Also, all resources must be consumed at a sustainable rate. Since the consumption of non-renewable resources by definition cannot be sustained, they must be either recycled or, if they are of a nature where they cannot be recycled, dependence on them must be eliminated. Only with this requirement can society be assured that the benefits of production are greater than the costs. 

One note here. The greater the concentration of wealth, the greater the powers of government required to counterbalance it.

To put the point nicely: Right Libertarianism, except perhaps on the smallest scale, lacks the necessary organization to respond to the demands of its physical environment. This includes the demands made by other, more organized, societies.  This is the fourth reason libertarian societies will fail.  

Regarding organization, the body politic of Right Libertarianism might be regarded to most closely resemble that of a jellyfish, rather than any higher life form with some sort of functioning brain.  In consideration of that, the increasing rise of moneyed power, the concomitant reduction in government functionality as it increasingly becomes subject to control by the wealthy, the "Libertarianization" of our nation, are given additional perspective. 

The Evolution of Power and Society in Late Capitalism

Power is the ability to impose consequences, on the world, and on people. It is the ability to impose positive consequences, or negative consequences. Usually, these consist of rewards, for behavior pleasing to the powerful, or punishments, for behavior displeasing to the powerful. Of course, consequences may also be applied arbitrarily, but this wastes power. Power may also be applied inefficiently, which is also wasteful of power.  

In today’s world, the wealthy and many political leaders have the most power, and thus the ability to impose the most consequence.  The power of other institutions to influence the evolution of society and the economy has been significantly reduced.  While there are also other indicators of this, the reduced influence of these institutions can be seen in the combination of diminished material income, and increased dependency upon capital for such income as they retain. 

In a democracy, political leaders are expected to represent the will of people, and the interest of the people and the wealthy do not coincide. While both the wealthy and the people desire order and security, the wealthy and the people are always in competition for wealth and power. Since the people are dispersed, and the difference between what they have and what they need is less, unless they unite in will and action, they are at a decisive disadvantage to wealth.  The most important and unified instrument of the will and action of the people is their government.  Where the government is the strongest and most coherent agent of the wealth and power of the people, the wealthy will always seek to overcome, corrupt and capture it, that they may use it to help gather the wealth and power of the people to themselves.  On the other hand, seldom does an established government seek to take the wealth and power of the wealthy from them, since these tend to be regarded by the government and the people as legitimately acquired, and generally supposed to be applied to the benefit of the people.   

The wealthy are not monolithic.  However, they all share the same desire to enhance their own personal wealth.  While some are less principled in seeking and achieving this goal than others, none is so principled as to willingly give any substantial portion of his wealth and income to the people.  And so, few can afford to allow the unprincipled behavior of other wealthy to go without answer. Where some of wealthy still act as a check of the unprincipled behavior of other wealthy, the efforts of the wealthy to seize control of the government may be mitigated.  However, where the rewards for unprincipled behavior become substantially greater than the rewards for more responsible behavior, the ability and inclination of those wealthy who might be regarded as responsible, must be expected to decrease.   The pressure on the government to first pass laws and adopt policies allowing for its corruption, and then laws which further its corruption, thus increases, along with the degree of control of the government by the wealthy.  Efforts to oppose this process by interest groups from among the people are also increasingly repressed.     It should be noted that the effective transfer of control of government is an enormous transfer of wealth and power from the people to the wealthy, a transfer which usually goes unremarked. 

 As wealth becomes concentrated, and its influence on politics increases, the political leaders lose effective power, however, and become mere agents of the wealthy in the application of their power.  As this happens, political leaders, through the government, increasingly impose the will of the wealthy upon the people, whose interests they, and the government no longer represent.  Interestingly, even those interests the people once had in common with the wealthy, order and security, no longer completely serve the people, since they now also serve to enable the oppression of the people by the wealthy.  Once their government is captive of the wealthy, so long as the people are orderly and seek security, the wealthy and their captive government, through commerce and law, will strip the people of their property and rights. In this respect, an important instrument of positive power becomes degraded, as the people increasingly perceive their desires for order and security to be in, the net, harmful to themselves. 

In theory, of course, in a democracy, political leaders never ‘had power,’ as they were expected to be agents of the people, in transmitting and executing their will. However, the ability of the people to control these agents, that is the power of the people over them, was always limited.  The people were always limited in how and how much they could reward their representatives.  While they could offer rewards besides the material, those material rewards they could offer were in principle limited. Further, the perceived value of these non-material rewards were always under attack by the wealthy. And in general the people could only punish their representatives by not re-electing them to their office. The people were also limited in their ability to acquire information about many of the actions of their representatives.   For these reasons, and also because there were often a variety of ways to accomplish goals, political leaders always possessed a certain amount of discretion.  That is, a certain amount of their power actually originated from their own office.  Where, however, they are ‘elected’ by the wealthy, the wealthy have much more control over them, being able to both reward and punish them more, and also being more informed as to their actions, so most of this discretion is absent. (Because the wealthy are able supply greater reward, the expectation of that reward is higher.  Thus the punishment associated with the withdrawal of that reward would be greater.) Because of this, an ‘elected’ government can be expected to become a more effective agent of the wealthy than it ever was of the people.  Since the rewards to politicians change, we would expect the people who choose to become politicians to change, also.  We would expect them to become more self interested, and less public spirited.  We would also expect them to become more authoritarian and dogmatic, and less authoritative and pragmatic.  We would also expect them to be more sectarian and divisive, and less inclusive and unifying. 

We would expect them to identify with and seek to emulate their wealthy patrons, and devalue the rest of the population, especially the poor and other groups whose interests diverge from those of their patrons. Indeed, we would expect many to become wealthy themselves. However, so far as they must maintain the appearance of serving the interests of the people, they may be expected to engage in tactics which enable this.  Since their actions no longer serve the people, but favor the wealthy, those actions must be hidden from the people and obscured.  The people must be misled, and distracted by other activities which are irrelevant to the projects of the wealthy.  In particular the wealthy are indifferent to the divisions of the people, Yet, because these divisions are a powerful distraction to the people, the wealthy are prepared to exploit and aggravate them.

In this they are aided so far as the wealthy control the media. The media serves its owners. As society is segmented, so too is the media. Through the media the attention of the people is channeled, directed, and to a large extent, molded. The real actions of the wealthy and their servants in government, and the consequences of those actions, are downplayed or even ignored.  The importance of events which distract the people is exaggerated and those events dwelt upon. The information provided by the media increasingly diverges from reality, and action based on that divergence becomes counterproductive.  However, the information provided by the media is also what the wealthy wants the people to hear.   The wealthy are aware of this process.  It is circular,  and insofar as it progresses, it is perceived by the wealthy, and at some level at to some extent perceived by the people themselves, to render the people unfit for self-government, and requiring outside control of their activities.  It is this self-perception which renders the police state increasingly palatable to the people.  It is, however, not because they see themselves as requiring greater external restraint, but because they see their neighbors as requiring greater external restraint.  This heightened level of fear also increases the motivation in the individual to arm himself.      

Different segments of society become aware of the unresponsiveness and even the oppressive nature of their government at different times. Those people long at the bottom of the economic ladder do not notice, since they are most disadvantaged in any society. However, as society is plundered, each level of society plunders the levels below it.  Awareness thus tends to progress up the economic scale, but may be uneven, depending on the institutional  and economic relationships between the levels.  This awareness erodes the belief in the legitimacy of the government by the people.

So wealth, or capital, has power so far as it is able to impose both positive and negative consequences on labor and consumers. It gives rewards to labor through increases in wages and grants of authority, and punishes labor by discharging it, or laying it off.  (Of course, capital does not always interpret its own actions this way.)     However, as society becomes increasingly unequal, the ability of the wealthy to impose positive consequences decreases,  This because the rewards to labor that the wealthy bestow come from the income consumers spend on goods and services, and this income is decreasing as the wealthy increase their share of both that income and the wealth that comes from accumulating it. Indeed, this quantity can only decrease, unless compensated for by a greater rate of growth, or transfer of income from the wealthy to the worker.  This transfer, however, is contrary to the goal of the wealthy, which is an ever increasing stream of income to themselves. 

The reward the wealthy offer to labor of accumulated wealth is decreasing, and the income from that wealth also.  And, in its reduction of everything to material worth, the intrinsic value of labor, of work for works sake, is also devalued.  The wealthy see actual work as degrading, and this is eventually understood by labor; that laborers are regarded as fools, a vision that is reinforced by the abstract forms that work takes among the wealthy, and the disproportionate rewards the give to themselves and each other for such work as they do perform.

This means the wealthy must increasingly rely on negative consequences to exert their power. In particular, they must increasingly use force to contain and restrain the activities of labor.  Further, these negative consequences must continually escalate, to compensate for the negative consequences of the diminishing reward schedule given labor. 

It is intrinsic to capital and the wealthy that they devalue the other rewards that a society has to offer its members, since this relatively enhances the value of the rewards they offer society, and so enhances their power. They do this through their control of the media, through their control of government, and directly by how they invest their capital. (And of course, they also spend resources exaggerating the value of the rewards, and diminishing the apparent costs of those rewards, that they offer.)  It is necessarily part of their strategy to corrupt and co-opt the social, intellectual, and spiritual institutions that otherwise would provide these rewards, and which otherwise might provide a countervailing authority to their exercise of power.  Doing so, they necessarily corrupt and devalue the rewards that these institutions themselves provide.  But this process is part and parcel of capital’s decapitalization and plundering of society.  All institutions require both wealth and income to sustain themselves.  Where the wealth and income of these institutions can remain independent of capital, they can remain an independent and countervailing force.  Therefore, capital seeks to both erode and co-opt the sources of wealth and income that support these institutions.  Once the sources of wealth and income of these opposing institutions are co-opted, they may be withdrawn, and the institutions destroyed. Institutions that are dependent on income from the government, thus become vulnerable when the wealthy gain effective control of that government.  Indeed, it is evidence of capital’s control of government that they are able to do this.  And even where these institutions are not destroyed, they will be rendered compliant to the interests of capital, since the only other source of income is increasingly capital itself. 

 Further evidence of the control of the government by capital is that the government is set to tasks which, while beneficial to the wealthy, are either of no benefit to the people, or damaging to the wealth and income of the people.  Further, tasks which might be beneficial to the people are attacked and diminished, especially if they cost the wealthy income.    Most importantly, while war may be beneficial to the people, despite its costs to the people, and on occasion also be necessary, war need not be either of these.  However, whether or not war is either beneficial to the people or necessary, it is always a great source of profit to the wealthy.  When war is fought for profit, however, its goal is not victory, but perpetuation, and the maximization of that profit.  Since without victory, there can be no profit from the capture of foreign resources, all profit must be taken from the people.  What also must be taken from the people is the stream of resources from which that profit is derived.  These resources could otherwise be spent to the benefit of the people, and instead are effectively destroyed.  

So, the question arises, why hasn’t capital captured the government before now?

The first reason is the fact that the activities of government are, of themselves, not particularly profitable.  This is because, ordinarily, the discount rate for government investment is much lower than that of private capital.  One could say that, ideally, and in the limit, government is in the business of the preservation of resources, and the discount rate goes to zero.  Thus, a government responsive to the needs of its society will maintain its infrastructure.  When government is captured by capital, however, the discount rate goes up, public assets are sold at a discount, and infrastructure is allowed to decay. (The discount rate goes up because capital is effectively taking its profits from government in reduced taxation.) The second reason is that it is often much more difficult for a private entity to capture the return on these kinds of investments, than it is for the larger society.  (For these reasons together, education tends to be relegated to the public sphere.)

So taken together, these reasons imply that ordinarily capital will seek greater profits elsewhere.  And as long as it can do so, that is where its efforts will lie.  And as long as it has access to an expanding base of resources, capital will remain dispersed. That is, as long as access to resources expanded faster than the profit rate, capital would remain dispersed. But in recent times, this has ceased to happen, and return to real capital has declined.

However, the acquisition of resources and their modification and distribution throughout society, the provisioning of society, is merely an instrument to capital’s actual goal of acquiring a society’s wealth through ever greater monetary profits. Where greater profit can be obtained through manipulation of an economy, rather than providing for it, this is where capital will next turn.  Since this is process is essentially the wealthy transferring assets from the people to themselves without any substantial compensation, it can be expected to be resisted by the government. Thus, the government must be captured by the wealthy before it can be done efficiently.

  And the final reason that we haven't previously observed capital to capture the government is that one of the most important activities of government is to counterbalance the accumulation and concentration of profit in society. The government must distribute final demand throughout the economy, in order to sustain the people and their institutions.  When government ceases to do this, the ability of the people and their institutions to sustain themselves collapses. So the final reason is that no society long survives the capture of its government by the wealthy. 

Tax the Rich More

The idea of cutting taxes on the rich, so they will have more money, so they will ‘create jobs’ and hire more people, is nonsense.  Why would they hire more people, to make money, when they already get the money with the tax cuts? And why would they hire anybody, if the people have no money, and are already in debt?  If the people have no money, they can’t buy anything. (O, sure, they could go deeper in debt.)  So the rich can’t sell the people anything, so there is no reason to hire anyone to sell them anything, nor is there any reason to hire anyone to make anything to sell.

What can you rely on the rich to do?  You can rely on the rich to try and take money from other people. 

So the way to get the rich to hire someone is to get the money to the people.  Then the rich will hire that someone to take that money from the people.  The rich will hire someone to make things, and others sell those things to the people, to get their money.

But getting money to the people is inflationary, you say.  Well, take the money from the rich in the first place.  Tax the rich. Tax the rich more.  

Letting the rich have all the wealth is not in anyone's interest, not even the interests of the rich themselves. With the rich having all the wealth, the interests of the people and the rich diverge.  No longer is the promise of advancement plausible to the people.  No longer do the people see the benefits to contributing to a society which has taken everything they had, and left them effective slaves. Only compulsion will continue to secure their grudging labor, and this will not be enough to sustain the commonwealth, which is itself the foundation of all private wealth.  And without its foundation, private wealth will dissolve. 

The rich have more power when they are less wealthy, for then their society is richer, and more powerful, and they can protect, and project, their interests into the world more fully.

Concentrated Wealth as an Enemy of the People and their Liberty

Some obsess over the idea that the only enemy to a person's liberty is a tyrannical government.  This seems to be a carryover from the Cold War, where, in the East, the government was indeed its own instrumentality. Disallowing the private accumulation of capital, the governments of the Soviet Union and the Peoples Republic of China had no rivals in their power to oppress their people.

In the United States, in 2014 however, the government has become the instrument of wealth, and it is the wealthy who use it to oppress the people. Thus the source of this oppression, and the ultimate enemy to a person's liberty, is concentrated wealth.  

A person's liberty comes in different forms.  First is the time to do things.  Time spent in labor is time spent which cannot be spent doing other things.  

Second is the freedom to do things.  The nation's laws forbid some activities, mostly those that harm other people.  And the law grants persons the freedom to do other things, things which a person finds desirable to do, which do not harm other people.  

Third is having the resources, or the money,  to do things.  There are many things a poor person cannot do, that a rich person can.  A poor person cannot pilot his yacht, or vacation in distant places, or buy expensive cars and houses.  Neither can he invest his financial capital, since he has little.

The laborer gives up his liberty for his labor. He may enjoy his labor, but it is a loss of liberty all the same.    In exchange for this liberty, he is paid.  Depending on  how much he is paid, and how he values the liberty his time provides him, he gains or loses liberty.  Indeed, it might be said he exchanges one form of liberty for another.  He exchanges some of his time for money.  But money is necessary for him to profitably employ his time. What is time, when you have no money, and no resources? 

Some of what he is paid he must spend on his subsistence.  The longer he has to work for his subsistence, the more liberty he must surrender.  If he is paid above his subsistence, and he has the time to do things, he gains liberty, for that money he may spend on what he chooses.  It grants him the resources to do things.  If he is paid less than his subsistence, he must make up the difference, somehow, if he is to survive.  If he makes up the difference by borrowing, he loses liberty, for he must pay back the lender, with interest.        

So when the wealthy take an increasing share of his income, they are taking liberty away from the worker.  First, by making him work longer for his subsistence.

Second, by leaving him less income, and fewer resources to do and buy things.

Third, by charging rent, by taking more than normal profits on all activities, they reduce the quantity of the goods and services his money purchases.  He must work even harder for his subsistence, and has less discretionary income.  

Further, the goods and services his discretionary income buys are less, thus reducing his liberty in a fourth way.

Fifth, the wealthy, by avoiding taxes, reduce the common wealth, which is the liberty shared equally by all.  

Sixth, the wealthy run up the national debt.  Much of what the government spends is on them.  Since they are responsible for it, as they effectively  control the government, they thus devalue the commonwealth.  

And who is the debt owed to?  Why, the wealthy.  So seventh way they take from the liberty of the people is by charging rent on this money, which interest reduces the amount available to the people. They are charging rent on money, loaning money to the government which they should be paying in taxes.  

Eighth, they force the worker to pay more for his government, for the commonwealth.

Ninth, by privatizing public services, and taking extra-normal profits for them, they further reduce the liberty of the people.    

Tenth, by compromising the regulations, the wealthy enable themselves to charge more and deliver less in the way of goods and services. 

In each of these ways, the wealthy take from the liberty of the people, using the government to oppress.  Yet the wealthy are not oppressed.  They grow even wealthier, while the people do not.  And the laws that seek to bind the wealthy, to limit their depredations on the people, grow ever looser. Their crimes, the harm they do to society, is ignored or pardoned, while great numbers of t he people lose liberty for doing small or even no harm to others.  And from even this imposition of tyranny, some of the wealthy profit.   

Graphs on Inome Inequality

A graph that has been doing the rounds, lately.

See eg: http://www.nakedcapitalism.com/2014/02/stay-classy-greg-mankiw-rich-deserve-deserve.html

And here:

http://www.correntewire.com/for_whoever_has_will_be_given_more_especially_the_top_001

And here:

http://www.washingtonsblog.com/2014/02/money-hasnt-gone-1-gone-01.html

 The source is:

The World Top Incomes Database:

http://topincomes.g-mond.parisschoolofeconomics.eu/#Home:

This is my own version, taken from an EXCEL download of the relevant data, the graph drawn using the EXCEL graphics wizard, (since I couldn’t figure how to copy the graph itself directly to my website.)  All data includes capital gains, which for the bottom 90% isn’t much.  All data is for the United States.

Note that the .01% are doing really well. Their average income is currently at almost $22 Million.  So well, in fact, that we have to redraw the graph with out the top two brackets get some sort of perspective:

With this graph, we can see that the top 10 - 5% bracket have made some progress since oh, say 1985, say,  and the top 5 - 1% a little more.  And the other two brackets have done quite nicely, though, as Washington says, peanuts and chump change respectively compared to the .01%.  If we look at the bottom 90% however, it seems as if their glory days are in the past.  From 1941 or so to 1975 their income more than tripled.  It has remained largely static since then, however, and since the 2007 recession has declined about 15% from its peak. 

Of course, looking at the graph of the top percentages, we could say: “Hey, that’s the income of just a few.  There’s still plenty to go around for the rest of us.”  

But let’s look at that.  Here’s the Share of Total Income for the top percentiles, starting at the top 10%., which we see now take home about 50% of the country’s personal income. (To recover the brackets in the above graphs, take the difference between two adjacent curves.  Thus, the top 10 – 5 % bracket is the difference between the top line and the magenta line, about 12% in 2012, the 5 – 1% bracket the difference between the next two lines, in 2012 about 15%, etc.)   

As is clearer in the next graph, the top 1%  pull in about 23% of the nation’s total personal income.  This is up from a low of about 9% in the late 1970’s. The top .01%, that is the richest 30,000 people or so, in 2012 took down over 5% of the nation’s personal income, up from less than 2% in 1980.

Looking at it share-wise, one person’s share is a share denied another. So where in 1979 the bottom 99% of the population shared 91% of the nation’s production, in 2012 they shared only 77%.  If we consider just the bottom 90% of the population, in 1979 they shared 67% of the nation’s production.  In 2012  the bottom 90%  shared less than 50%. That's a 17% decrease in their share of the nation's production.     But to them, it's a 30% decrease in their income.  That is, instead of $30,000 per year, the bottom 90% would be averaging over $40,000 per year.  

The question for the second 9% is are they doing better than they would it the top 1% had not absconded with so many of the gains.  The answer may be no, and even if it is yes, they have to realize that much of those gains were at the expense of the 90%.

Inter-Generational Borrowing

Nick Rowe addresses the problem of inter-generational borrowing at:

http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/12/debt-is-too-a-burden-on-our-children-unless-you-believe-in-ricardian-equivalence.html

The issue is brought up again by Dean Baker: http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds

If I read Nick Rowe right, he assumes (using a toy economy based on apples,) that A: Apples don’t last.  And concludes:  B:  Each generation, in borrowing apples from their children,  consumes an increasing share of the apples produced by their children.  That is, each generation consumes more than they themselves produced, taking from the production of their children. (The second generation gives to the first, but borrows even more from the third, etc.) I think this is correct, and is Nick’s point: Inter-generational borrowing is not neutral. Succeeding generations end up short. And Dean Baker, who claims that there is no transfer of wealth with inter-generational borrowing, is wrong.

If I read this right, then the only moral position is to grow the economy at a rate greater than the increase in (real) inter-generational borrowing. ( Of course, this eventually comes up against physical limitations.) That is, plant apple trees at an increasing rate, greater than the increase in inter-generational borrowing. But this requires (it seems to me) that the present generation consumes less than they would if they hadn’t borrowed in the first place.  That is, the present generation must invest more than they borrow.   

But in terms of the present, real value, this just means the present generation should consume less than they produce, and invest the rest. The borrowing of money is irrelevant, except where it affects this. 

In fact, the borrowing of money is rather inverted, because the younger generation is forced to borrow money from the older, established, wealthier generation, pay that older generation back with interest, and thus end up with a diminished share of the  real pie. 

So this is what the government is doing.  It is the younger generation borrowing from the older, who refuse to pay their taxes, and instead consume more than they produce.   Social Security and Medicare notwithstanding,  (Who, after all, will be cheated, if Social Security and Medicare are not adequately funded in the future?) the government, in principle, represents the interests of the young. Its proper purpose is to invest in the future, which is more the younger generation's than the older.

But the government has been co-opted by the older generation, who, instead of holding it in trust, exploit it to their own profit. 

The Republicans’ stated goal, then, and that of Austerians in general, the shrinking of government, (especially those parts of government that pertain to investment,) is to cheat the young out of their interests.   This is what we are seeing in youth unemployment across the globe, so much being taken away that the younger generation is even being decapitalized.  Here in the US, it is seen as higher costs of college, and lower investment in primary education, the neglect of infrastructure, etc.  (Infrastructure is of greater benefit to  the young, since they can expect to use it longer.)

So not only is it the 1% vs the 99%, but it is the old vs the young.  

The problem for the old, of course, is that by decapitalizing the young, they are decapitalizing themselves.  Because it is on the backs of the young the old hope to take their ease.  

 Running a trade deficit is also borrowing from future generations, and is thus also immoral, unless it is done for investment.

Private Wealth, Public Debt, and Taxes

Well, well. Over at VoxEU somebody just connected a couple of the dots:

http://www.voxeu.org/article/eurozone-crisis-time-tax-rich

“Increased levels of public debt are accompanied by mounting private wealth, which is increasingly concentrated on the wealthy elite.”

Could there be a connection?  Could the public debt increasingly be held by a wealthy elite?  Could that wealthy elite be charging their sovereigns rent for the use of the sovereigns own money, money only owed that elite in the first place because that elite have used their power over their governments to lower their own taxes?  And the governments have had to borrow to maintain their services, and now they owe that elite too much to ever repay? 

But note the key step:  The elites used their power over governments to reduce their own taxes, and forced those governments to borrow from them instead.  And now those governments owe too much, threatening the very stability of the system which supports their own wealth.  Greed, greed, greed. 

At Vox they propose a one-off tax of 10%  on the assets of the top 8% of wealth.  (The top 10%, in Germany, for instance, own 2/3 of the wealth.)  They figure it will raise 9% GDP. 

Good, but not good enough.  The entire increase in the concentration of wealth since the 1970’s has been engineered by the elites.  They should give it all back.  The top 1% share of the pie more than doubled, for instance, so they should be taxed, on average, 50% of their assets.

It’s quite remarkable.  They demand disproportionate compensation, because they are so important, and they run things.  But when you ask, who’s responsible for the increased inequality, they deny responsibility, and point the finger somewhere else:  Education, for instance.  Globalization.  

They manage the system, and the system is tottering.   They take too much out of the system for a modern economy to support.  But is it due to their mis-management and short-sighted greed? Or can we, they blame circumstances beyond their control?  Well, if they do not run things, perhaps they are paid too much.   

But we know very well who’s responsible for the financial predicament.  Our elites, and their greed.  So taxing their ill gotten gains is good for us.  And good for them.  Stave off collapse of the system, on which they, and the rest of us, depend.  Will they? Or will our elites, who purport to run things, be shortsighted to the end?  If the US elections are any indication…

On the Economics of Evil

Elsewhere, http://www.truthabouttheone.com/2010.07.01_arch.html we have talked about how evil arises in the mind, and a little of how it is made manifest in the world.

One may wonder how one talks about evil in an economics blog. It is almost impolite. After all, evil is, in the end, irrational, and ignorance part of its nature. And economics is the domain of the all knowing, rational agent. One might say, economics is the study of the behavior of God, or gods, at least, anyway, under some of its more implicit assumptions. Perhaps this is one of the profession’s problems, then, when trying to explain the behavior of men.

Evil is as evil does. So what is as evil does? What is the economics of evil?

Evil sacrifices the greater good for its immediate gain. Since its own welfare is ultimately dependent upon the greater good, it thus consumes the foundation of its own wealth, and must look ever farther to feed its hungers, until it can no longer support itself, and collapses. But before it collapses, it may have consumed the substance of many. Those incapable, those inattentive, or those ineffectual in opposing it.

Eventually, good always triumphs. Good may triumph through might. But the reason, though, good always triumphs is because in the end, evil always fails. But it may succeed for a time, and the damage it may have inflicted be awful.

And when the good turns evil, it fails. Signs of turning evil are signs of failure. But not all signs of failure are signs of an internal evil. Failure may be imposed from above, inflicted.


It first seems as if we can talk about evil in terms of what are called discount rates. An individual with the lower discount rate is a person who ‘values the future more.’ He is a person more prepared to reduce consumption today so that he has more to consume tomorrow, and is held as somehow more virtuous, ‘more good,’ than someone who consumes more today, with perhaps less thought of tomorrow.

But we are living through a period where this virtue turns into exploitation, and destructive of the foundations of all wealth. An individual with a lower discount rate, exchanging with a person with a higher discount rate, will eventually come to possess all the other has, no matter how small the difference in discount rate. Even if the person with the larger discount rate is a person of relative virtue, he is not virtuous enough to retain his wealth. Is the gradual confiscation of the wealth of the less virtuous, then, itself a sign of virtue, or a sign of a lack of restraint, and of evil?

Or is instead the failure of the person with the higher discount rate a sign of his ‘evilness?’ For failure is what will result. He will lose his capital. Should he now be condemned to labor as a slave on behalf of the person with the lower discount rate, who now may consume the fruits of the labor of both, in perpetuity? Who is evil? The slave, who has become so because of his inadequate virtue, or the slaver?

The slaver, having consumed the wealth of his slave, is reduced to consuming the slave’s surplus, which it is in the slave’s interest to minimize. Having reduced the slave to subsistence, the slaver must then compel him to produce more.

So we see that commission of a lesser evil, what can be just a tiny difference in discount rates, by one, becomes, if not countered, the making of a greater evil, by the other.

Where is the happy median?

The accumulation of capital by a society is a great virtue. But so is its proper allocation. And this proper allocation is necessary, for when the wealth of a society becomes excessively concentrated, it can no longer maintain itself without the consumption of the capital of the rest of that society. Virtue pursued to excess has become Evil.

It justifies itself by its earlier successes still, yet its ends have changed. No longer is virtue seen as the pursuit of the common good. For the common man has proven himself to be without virtue, and dross, unworthy of the considerations of the powerful. What was Virtue turns to the fulfilling of its own now insatiable needs, and, at first just incidentally, the impoverishment of others. It goes too far, first blighting the lives and hopes of those less endowed, or less lucky, and then becoming corrupt and turning on itself, feeding on itself.


Evil is seldom pure. How do we recognize when virtue has turned evil, and harnessed to evil ends? How do we recognize the deterioration of our society, our nation, and our world? How do we recognize the infliction of evil, and the imposition of failure?

After all, Evil will cloak itself in virtue. Its agents may even, at first, imagine themselves virtuous. And what it imposes will not be called failure. It will be called something else. Evil deceives, doing one thing while saying it does another. And where it does what it says, its motives and goals are not what it says they are. But because Evil’s ends are irrational, as these become clear, irrational too become its justifications. Its speaking, and its actions, become increasingly detached from reality, and from each other. And its speaking and its actions become increasingly incoherent

Evil inflicts misery, whether or not it profits. And its profit is always less than the misery it inflicts. Evil provides no nourishment. What it seems to provide is never worth the price.

Evil does not create, except implements of destruction. It only manipulates, and takes. Indeed, creation is anathema to Evil, which opposes creation at every turn. It destroys what it cannot have, and pollutes, both what it does not possess, and what it does.
Evil cannot control its appetite. No amount of wealth is sufficient to its needs. And what to others are wants, mere desires, to Evil are needs, and needs that can never be satisfied.

Evil’s end is not what power can do, to the benefit of others, but power itself, and what it can do to gratify its needs. Evil considers itself to be justified in its extravagance.
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We coddle the wealthy. We are told that they are the creators of jobs. Yet, there were more jobs when they were not so coddled. There was more wealth, and more creation of wealth, when the wealthy did not have so much. And now, we are told, we must give them even more. We, the people, must tighten our belts, and sacrifice of our own wealth, to feed the needs of the wealthy, the wealthy creditors who hold our debt, the debt of the people.

But ask the wealthy. Are they not virtuous? Do they not deserve the rents they extract from the people? Have the people, the debtors, through their inferior virtue, not embonded themselves to their creditors, the wealthy?

We will always have the wealthy. They will always extract their rents and fees from the people. But when are they too much? When are they more of a burden, than any benefits which the people might gain from them? Or are the rents and fees extracted from the people put to good use? Who, or what do they feed? If the wealthy would be the masters of the people, are they good to the people, or are they not? Are the extractions returned to the people, as the virtuous master would do? (But why should they be? Are not the people of inferior virtue to the wealthy, and undeserving?) Or are they not instead turned on self consumption, and the feeding of the worms of competing corruption which are now at the economic processes at the heart of the nation, and perhaps the world?

With the growth of the global economy, the reach of Evil is the ends of the earth, and, unless effectively opposed and contained, it will consume the sustenance of all else before it consumes itself.

But- perhaps we should look at the latest corruption in high places as- justice. Tolerating Evil, even perhaps, as some claim, inflicting it on others, Evil comes to us.

There are those who believe that, or say that, having achieved wealth and prominence, that this is evidence of moral superiority; that they are morally superior to those of us who have not. (Have we ourselves not said this? Have we not used our nation’s wealth and power to justify our- ‘Exceptionalism?’) Do the wealthy use this to justify their stewardship, or their extravagance? Is it become an instrument to do good, or wealth to conspicuously consume, resources denied to others, and wantonly destroyed. Do they nourish others, or deprive them of things they value, of the resources needed for the enjoyment of such liberty as they have?

The moral justification of those in high places can be rephrased: They rule for the benefit of the people, to shower them with the blessings of their making. Or, instead, they rule to inflict punishments on the people, who by their inferior virtue, come to deserve them.

The powerful cannot be merely indifferent. Then they are only self-serving, and there is no basis to their claims on wealth, and no reason for society to grant them.

Are the poor and undeserving supposed to accept these hardships, laid upon them by the demands of the wealthy, as justice served?

And what do we see, but the enforcement of this process, the reduction of debtor to slave, by our government. Are we surprised then, by reaction against the government, since it has become an instrument of compulsion, for the extraction of rent from the people, to the vast enrichment of a few. The protector of the people, having become enslaved by the wealthy, is despised by the people. Do the people, rather than seeking their government’s freedom, despair of their government, and turn on it, and seek its destruction?

Do those who tolerate evil deserve evil things to happen to them? Is it a form of justice that those who tolerate evil, though they do no evil themselves, should be punished? Is tolerating evil itself evil? Is being a bystander to a crime itself a crime? Is to allow evil to consent to evil?

Justification for government and regulation is seen by the behavior of the wealthy. Without a strong and free government, the wealthy cannot do other than they do, and that is to wreak great harm on the society that supports them, and their wealth. And we, the members of that society, may react one of two ways: We may accept the punishment, allow the destruction of our society and our wealth, and consider it just reward for our failures, or we may oppose the evil.

Finally, though man is limited in knowledge and rationality, the shape of the future is becoming increasingly clear. The earth is limited. The ends of the earth have been found, and been found to be not so very far. Consideration of and action to counter overpopulation, global warming, the depletion of resources and increasing toxicity of the environment, are all becoming more imperative. Will man pursue the course of evil, with evil consequences, or will he seek the course of rationality, and act accordingly?

Who Really Pays Taxes

Steven Landsburg, at "thebigquestions.com" considers the issue of Mr. Robert Kendrick, who, though wealthy, does nothing but drive and park his four cars. Can Mr. Kendrick be taxed? Steven Landsburg says no. Many others say yes.
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Mr. Landsburg is drawing a distinction between the nominal and the real. They are too often confused. Nominally, Mr. Kendrick can be taxed, and nominally everyone else is better off. However, Mr. Kendrick cannot be taxed of real resources, because he basically doesn't produce any, so nobody is really any better off. Good.

More generally, (really) only production can be taxed: All taxation is a transfer of production, goods and services, to the government. Consumption cannot (really) be taxed, since it is still a transfer of what is produced away from the consumer and to the government, which then consumes. Consumption can only nominally be taxed. For example, were we to tax Mr. Kendrick to such degree as to change his behavior, on the whole, there would still be no net improvement in the economy. Any real improvement in the rest of the world would be less than Mr. Kendrick's loss.

Further, (really) only consumption, demand, can be subsidized: All subsidy is a transfer of demand, that is, consumption of goods and services, from one producer to another, through the instrumentality of the government. Due to handling expenses, the subsidy is always less than corresponding tax, that is, on the whole, an economy is always, in the present, worse off for a subsidy. This is not to say a nominal subsidy need be useless. For example, when the subsidy goes to develop infrastructure, that is future production, an economy may be better off in the future.

Above xposted to:
http://www.thebigquestions.com/2011/04/18/the-man-who-cant-be-taxed/#more-5896

To continue: An economy is a transfer of production to consumption, of producer to consumer. However, producers are also consumers, and must get back a certain percentage of their real production in order to survive and expand. The various mechanisms of an economy may prevent producers retaining this percentage, in which case, a nominal subsidy may be necessary to compensate. This combination of processes is, however, less efficient than just letting producers retain sufficient resources on their own account. For instance, labor, particularly low wage labor, is increasingly coming under subsidy, as eg earned income tax credit, and in the future, ‘universal health care.’ It is more efficient simply to arrange that they are paid more. However, this seems to be politically infeasible.

From the above, it should be clear that the real, or essential, tax base is much smaller than the nominal, or apparent, tax base. This is because most labor, and most industry are involved in activities which are essentially non-productive, in the most basic sense. The financial services sector, for instance, cannot really be taxed, because it produces nothing real. Government employees, for instance, cannot really be taxed. Neither can Calvin Klein or Brad Pitt. Or your neighborhood plumber. Unless the government directly uses their services, their production, and is not buying these services, the government is merely transferring other, more basic production, away from them and to itself. They are not part of its real tax base, however much a part of its nominal tax base they may be. The government, for instance, cannot really tax the military industrial complex. It can, and must, tax those industries whose production goes into sustaining that complex. The production of steel and coal and electricity can be taxed, but the production of a jet fighter engine cannot be. The engine is instead really paid for by the steel and coal and electricity and labor, and whatever else goes into it, that the government had collected as real tax. This is clear because what ever nominal taxes are charged to the jet engine will merely be added to the (nominal) bill the government pays for it.

So, are you really taxed, that is do you directly contribute to your government, or are you just nominally taxed, and your welfare reduced somewhat by the transfer of demand, and thus resources, away from you? Probably (mostly, if not all) the latter.

Thus your complaint is not that the government takes too much from you, since it takes nothing. It is merely that it does not allow you to keep for yourself as much of what others have produced as you would like.

--- Further consideration has led me to the conclusion that real assets can be taxed, since all real assets have previously been 'produced.' Thus, taxes on Mr. Kendrick's nominal wealth, which represents a demand on real wealth, would represent a real transfer of wealth from Mr. Kendrick to the government. However, Mr. Landsburg's point that the government spending this would leave everyone else a little worse off is still correct. But so too if Mr. Kendrick had just taken the money and spent it himself.

A point of MMT, however, if I have it correct, is that the purpose of taxes is not to raise revenue. The government can spend its currency as it wishes. (Nominal) taxes are to maintain a demand for that currency, and to destroy excess demand in that currency, that is, to maintain the value of that currency, ie fight inflation. According to MMT, then, the real cause of inflation is a lack of political will. ---