More Taxes Solve Everything

The Washington Post ran a column today by David Ignatius entitled "A Backlash Against Billionaires." Echoing the sentiments of many in the Democratic Party (at least those running for president), he complained of billionaires' ability to sidestep taxes, placing most of the burden on the lower and middle classes.

Of course, Mr. Ignatius is, like most liberals today, more concerned with appearing to help the poor than actually helping them. Not once does he mention reducing government spending so that we can cut taxes for the poor. Instead, it's raise taxes higher and higher. This might make sense if all our tax dollars were going to building roads and hospitals, but as we all know, far too much government spending is on huge defense contracts, outlandish farm subsidies, and completely nonsensical oil handouts at a time when oil companies are making record profits.

It's that sentiment a try to express in my letter, mailed to the Post earlier today:

I would like to thank David Ignatius for calling attention to our dysfunctional tax system that all too often leaves the lower and middle classes shouldering a disproportionate amount of the tax burden while corporate executives and Wall Street financiers fly under the radar (“A Backlash Against Billionaires,” July 19). What is disconcerting about his argument, however, is that he would choose to raise taxes for the rich rather than lower them for the rest of us.

While it sure would feel nice to slap the wealthy with some hefty new taxes, it’s neither necessary to shift the tax burden nor beneficial to the poor. With billions of dollars a year going to unnecessary farm subsidies, oil subsidies, pork barrel spending, and the like, only a fraction of the increased tax revenue would help those in need. And although a few percent of a few hundred million dollars isn’t going to save Social Security, a few hundred dollars can be the difference between a family just scraping by and having enough to start a college fund.

What we really must do is reduce wasteful government spending so that everyone can keep more of their money. Mr. Ignatius has pointed out a significant problem in our tax system. In solving it, let us focus not on hurting the rich, but helping the poor.

China Outlaws Young Love

China's Ministry of Education (MOE) announced July 14 that it has overhauled the dance program originally slated to enter the primary and middle school physical education curriculum by the end of the year. Originally comprising the waltz as well as six other group dances, the new program allows for students to dance either by themselves or in large groups. Why the change? According to Xinhua News, the Chinese state-sanctioned news agency, its all about the down-home family values -- and intense academic pressures coming from home:

Parents with traditional values are alarmed at the prospect of boys and girls dancing hand in hand, believing the risk of their children falling in love and losing track of exam results would increase.

This is especially interesting due to the Chinese government's efforts to direct students away from the one-track, exam-is-all-that-matters mentality that has produced a workforce with advanced (and useful) technical skills but lacking in the interpersonal skills that foster cooperation and creativity in America. The MOE has already outlawed the use of exam scores in determining admittance into the competitive, nationally-renowned middle schools and high schools that boast a luxuriousness (and intensity) on par with the most selective American prep schools.

But even ignoring the fact that Chinese youths aren't learning the social skills necessary not only for healthy adult lives but for the effective creation and management of large-scale businesses, which rely on high social intelligence, it looks like what the schools really need is a basic economics course.

Diminishing marginal return is the theory that the output produced from each successive unit of input will steadily decline after a certain point. Take, for example, your own productivity at work. You arrive in the morning, get settled in, and for the first couple hours get a lot accomplished. As the afternoon wears on, you'll likely feel yourself beginning to slow down. Even if you're a real tank in the workplace, you can easily imagine that by the 24th straight hour of work, you'll be burnt out and sneaking some Z's behind your computer monitor no matter how high your Blood Coffee Content. But as we all know, rejuicing helps. Go home at 5, come back the next morning at 9, and you'll likely get more done than you would have had you worked the whole night through.

The same idea can apply here. Cracking the whip can lead to good grades, and perhaps even some very nice financial returns, but not as nice as might be attained by loosening the reins a bit. Besides, you can't buy happiness; this is likely the reason that China is having such a problem with suicide among its young adults. Nor can you stop the Internet and/or Love (though believe me, China would like to).

So, China, take a chill pill. Let kids dance, let kids date, and let kids be, well, kids. It will not only provide them a more fulfilling life, but likely a richer one (in monetary times) as well. Localize and liberalize your curricula. Let the administrators in each area that know their students and parents best work with the interested parties to develop the best educational program. Otherwise, you'll end up with the government in Beijing wasting everyone's time debating whether students should be allowed to bump and grind to the latest Lil John beat.

Voting Ourselves Rich

The New York Times' front page on Monday, July 16 featured a story entitled "A New Populism Spurs Democrats on the Economy." The article explains how growing income inequality between the rich and middle class, along with decreasing job security as a result of off-shoring, are pushing Democrats toward more protectionist and populist trade policies. Problem is, raising taxes and keeping foreigners out will only further encourage businesses to go overseas, not only for cheaper labor but lower taxes as well. And the rock-bottom interest rates we've enjoyed, courtesy of foreigners' willingness to inject money into the safe and stable American economy, will be no more. Sorry Joe Sixpack, kiss your house goodbye.

Unfortunately, the NY Times maxes letters to the editor at 150 words, so here are the ones I chose:

I was disappointed to read that Democrats in Congress are turning their backs on Bill Clinton’s economic legacy, opting instead to build straw men out of long-debunked economic myths about income inequality and the middle class’s economic stagnation.

While increasing taxes may have an emotional appeal, it will do little to help the middle class who, as Democrats admit, are not floundering but rather becoming wealthy at a slower rate than some others. Instead, such policies will inhibit growth and drive away investment – and jobs – especially as the rest of the OECD nations continue to lower taxes. After proving their inability to constructively address the nation’s most pressing issues, including our Iraq policy, the expansion of the Executive’s power, and the potentially-crippling government budget deficit, one must wonder whose job security the Democrats are really concerned about: the middle class’s or their own.

Video Game Politics Redux

Turns out the Pittsburgh Post-Gazette also ran the Michael Gerson column discussed in the last entry on Saturday, July 7, under the title "A Libertarian Utopia in Cyberspace is not so Utopian." While I'm yet to hear anything from the Washington Post regarding my previously-posted letter, a separate letter sent to Pittsburgh's city paper was published on Wednesday, July 11. Either click the link and check out the second to last letter, or just read the letter here:

I was disappointed to see the Post-Gazette publish Michael Gerson's factually inaccurate explanation of spontaneous order in "A Libertarian Utopia in Cyberworld Is Not So Utopian" (July 7 column).

Mr. Gerson argues that the online video game Second Life provides a window into what a libertarian America would look like, since the online world relies on the same localized spontaneous order supported by proponents of libertarianism.

Spontaneous order is a theory advanced by Nobel-winning economist F.A. Hayek to explain the process by which individuals acting in their own self-interest will organically develop the best -- not perfect, but best -- solutions to social problems. Far from being uncoordinated, as Mr. Gerson asserts, spontaneous order arises from the overlapping interests of members of society who bond together to realize these interests for their mutual gain. Examples include language, the first forms of currency and even the communal relationships that Mr. Gerson falsely identifies as antithetical to libertarianism. To quote Dr. Hayek, "We have developed these practices and institutions by building upon habits and institutions which have proved successful in their own sphere and which have in turn become the foundation of the civilization we have built up."

The reason spontaneous order does not emerge in Second Life is because, unlike in real life, individuals can hide behind their avatars and escape responsibility for their actions. Mr. Gerson should realize that video games may provide a great source of fun, fantasy and escape but are no basis for a political philosophy.

Video Game Politics

Michael Gerson, Washington Post columnist and former speech writer for George W. Bush (he coined the term "Axis of Evil"), published a piece on Friday July 6 entitled "Where the Avatars Roam." Essentially he asserts that because the online game Second Life lacks any sort of rule enforcement mechanism, which he confuses with libertarianism's limited government philosophy, we can expect the vice and violence of the video game world to enter the real world should we adopt libertarian policies. Here's my letter to the Post in response:

Michael Gerson's recent column "Where the Avatars Roam" (Editorials, July 6) displayed a misunderstanding of libertarianism that borders on sheer ignorance. In the piece, he argues that because the online video game Second Life has little in the way of centralized governance, and because libertarians support a world with limited government, therefore if libertarian policies are adopted, we should expect the same vice and violence that occurs in the video game to occur in the real world.

The error comes in confusing the limited government propounded by libertarians with the limited responsibility characteristic of video games such as Second Life. While libertarians certainly do believe that spontaneous order will produce the best – not perfect, but best – society, spontaneous order is built upon interactions between people within a community. In such communities, laws and rules will naturally develop to protect individuals from those who may abuse their rights by hurting others: in the real world, where people cannot hide behind false names and personalities, communities "spontaneously" develop and impose consequences to sexual predation and terrorism that are not present in video games.

Of course, the anonymity of video games makes personal responsibility a difficult concept to realize, and so at the end of the day, players of Second Life operate as they do because they are aware that the game is nothing more than a fantasy world with no bearing upon or relation to the real world. Now if only Mr. Gerson could realize that.

Wages, Compensation, and the Income Gap

A recent survey by the Associated Press shows that approximately 70% of the American population feels that the income disparity between rich and poor has grown too large, and two-thirds said the government should ensure a job exists for all who want one; further, a slim majority said that the government should do this by such measures as employing those who can't find a job in the private sector, providing training programs to unemployed workers, and imposing higher taxes on the wealthy to redistribute their earnings to the poor. Most interestingly, the same proportion said it was not the government's responsibility to ease income differences.

To begin, wide income gaps are, in general, a bad thing for society. Despite all you'll hear from economists about the labor market determining what a fair wage is, political stability depends upon perceived economic justice. And when somebody's sweating away 40+ hours a week for $30,000/year while folks on the other side of town are working from home making five and six times that, they'll quickly become jaded, and as a result push for rash political measures to attain their version of distributive justice.

So what surprises me isn't that your average Joe would be concerned about this gap, but that there's the belief that the average worker is so much worse off today than he was in the past. The Bureau of Labor Statistics reports 4.5% unemployment in May, slightly lower than average unemployment in 2006, which itself boasted the lowest unemployment rate of the Bush Administration and was right on par with the Clinton years (at least the later ones). Overall unemployment of 4.5-5% is far below the 7%+ of the late '60s through early '80s, and job growth has surged unabated since mid-2003 (and I'm figuring all those new jobs can't be in the military), with over 150,000 jobs created in the month of May alone.

Of course, employment levels aren't really the issue. The issue is compensation. Hip hip hooray if we can give everyone a job, but if they're all working at McDonald's for minimum wage, it's not the ideal state of affairs. And as we saw cited in the survey above, the real issue underlying these sentiments is the declining real wages of workers. For evidence, just check this out:
But what's this really telling us? Sure, it's pretty clear that workers' real average hourly wages are heading south, but this fails to account for overall compensation. Over the past few decades, the trend has been toward cushier benefits packages to replace direct monetary compensation. And indeed, although real wages have generally declined since the 1970s (with the exception of Clinton's second term), real compensation (including benefits, IRA/401k contributions, etc.), are increasing at their highest annual rate since Gerald Ford, even beating out the Clinton years by narrow margins:(I urge you to take a look at a few other charts - and a host of great links and resources - at macroblog, the source of the chart and table provided above.)

So it seems pretty clear that, if nothing else, on the whole the poor aren't getting poorer. But again, we said the issue was not so much compensation, but the differential between the best-compensated and the worst-compensated. How do we address this?

Sure, we can raise marginal tax rates for the wealthiest. But even though we call it a "redistributive" policy, in reality it's first a growth-inhibiting policy: rather than simply splitting
$100 - $80 to the rich guy and $20 to the worker - we're splitting a smaller total between the two. How much that new, reduced sum is, and whether it's a worthwhile trade-off is an empirical question open for discussion, but it certainly should not be a default solution to income gaps. We saw what excessive tax rates do to an economy during the '60s and '70s, and it's always a painful process getting out of the messes they can create (witness Reagan's first term).

Another proposed solution mentioned in the AP survey was providing jobs to those who can't find work in the private sector. But as we discussed with unemployment rates, difficulty finding jobs isn't the real issue. And as I see it, with a national debt that will burden our children and our children's children, expanding the federal payroll is the last thing we need right now. We could also look at this suggestion from a more Keynesian perspective, which would lead us to cut taxes and increase government spending to create demand in the private sector, thus raising employment and wages, but that still only exacerbates the debt. And further, policies pursued in such a manner as an offshoot of the Full Employment Act of 1946 have, sadly, caused higher rates of unemployment than in the pre-FEA period.

Thus, we are left with training programs and education. These are, indeed, the most promising policies to effect a real and sustainable change in income levels, especially as it targets the victims of structural shifts in the American economy, namely the blue collar manufacturing/industrial workers that are watching their jobs flee across the seas to low-wage, low-tax countries. The exact way to frame this program so as to not push people into sectors that are not the most lucrative or efficient is a complex and important question, and one I hope to hash out in more detail in a later post.

I am also happy and eager to hear other proposals to address the income gap in a manner that helps the average worker without causing widespread economic woes. While it's tempting to get caught up in the heart-rending stories of those who have lost their job, or who have labored long and hard in a Sisyphan struggle only to see their relative position in society decline, we must first remember that, despite data on real wage growth, overall standards of living are improving. People who once wondered how to feed their family or provide healthcare are now asking how to put their children through college or save for retirement. There are real issues out there, issues of great importance that we must discuss, but we must keep these issues in perspective and avoid letting our concern for helping the worst-off be manipulated by politicians of either persuasion who rest their prescriptions on rhetoric rather than economic reason.

Newsies

As my first post, I'd like to detail what exactly inspired the creation of this blog. A few nights ago I was hanging out in Fairfax, VA with a few friends when we decided to break out a classic movie of my youth: Newsies. For those not familiar with it, Newsies is a 1992 Disney musical starring Christian Bale (and also featuring Bill Pullman, Robert Duvall, and Max Casella, of Doogie Howser fame). The film chronicles the 1899 strike of New York City newsboys, launched in response to an increase in per-paper cost of one-tenth of a cent, hardly negligible for a poor working-class newsie in turn-of-the-century New York. The skilled juxtaposition of ragamuffin newsies with evil boss William Pulitzer's life of excessive opulence sweeps one away in a wave of populist sentiment against such robber barons who selfishly exploit their honest, hardworking employees. My first time watching it (now almost seven years ago), I was ready to form a union of my own. This time around I was not so naive.

The problem we see in American society is a misconception of what capitalism is. When talking heads say "privatization," when think tanks say "market solutions," when economists say "competition," the picture that comes to most people is akin to those displayed in movies such as Newsies. We think of Andrew Carnegie and John Rockefeller calling in Pinkertons to beat up strikers, we think of Jungle-like scenes of human and rat matter in our meat products, and we think of children losing their hands in deplorably unsafe sweatshops.

But this is not capitalism.

We make the mistake in America of believing that capitalism is anarchy, and that, at some point in American history, capitalism actually existed. But in reality, capitalism is built upon certain key institutions which, although abstract and often not dependent upon government, are imperative to the realization of the mutual benefits that the economic system promises. Among these are competition (non-collusion), free and (relatively) perfect information, and freedom of contract, along with many others.

When watching Newsies more closely, one finds hidden in the scenes indications that capitalism is conspicuously absent from the industrial revolution-era America. An early discussion between Pulitzer and his advisers shows one of the latter criticizing the price increase to the newsies, as "every newsie we've got will head straight to Hearst." Indeed, it is only due to the close relationship between Pulitzer and Hearst that the scheme can work (P: "...as gentlemen, as businessmen, we also see eye-to-eye on certain things. Now, if we do it, Hearst and I, if we do it, then the other papers will do it.") The New York Sun, which posts the newsies grievances on the front page, is dissuaded from continuing to do so at a late-night poker game with media magnates Pulitzer and Hearst (not to mention New York City's mayor). In this way, collusion has artificially raised the cost of newspapers above what it should be, and the suppression of information prevents the public from knowing about it an making an informed moral decision to boycott the newspapers (think of the American public's voluntary choice to consume dolphin-free tuna, once it knew that dolphins were being killed by traditional tuna-fishing methods).

The legacy of turn-of-the-century business practices (and its vastly inaccurate association with capitalism) is the American public's deep distrust of terms like "privatization" and "market-based solutions" mentioned above. My aim in this blog is to address various issues with a view toward obtaining a liberal result in which the good of both the individual and society is realized. To do this, we must dispel myths about the nature of the market as well as its exlusivity from morality. Further, we must annul the fictitious marriage between American history and capitalism, a system which we are yet to truly see in America, and which has created from capitalism a straw man to distract us liberals from the true obstacles to achieving our goals.