Tag Archives: Collectivism

Collectivism Is Not the “Natural” State

03 Tuesday May 2022

Posted by in Collectivism, Property Rights

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There is a great myth that primitive man was some sort of “noble savage”, perfectly attuned to the natural environment and disposed to an egalitarian principle. All that, of course, is balderdash. A related myth is that primitive societies were essentially collectivist and that private property was largely an unrecognized institution. This is something I’ve heard too often from individuals wishing to characterize leftist ideals as natural and wholesome. So I welcomed a recent piece in Aeon called “Primitive Communism”, by Manvir Singh, which reviews evidence on a number of hunter-gatherer societies and cites several scholars on the subject of ownership and the distribution of goods among those peoples. A preponderance of the evidence suggests that private property and private rewards were (and are) quite common in primitive societies, and those practices predated agriculture.

The assertion that the advent of private property and trade was somehow unnatural for mankind, or even unjust, might owe its widespread acceptance to Friedrich Engels’ “The Origin of the Family, Private Property and the State”. Singh summarizes one of the book’s primary arguments thusly:

“Once upon a time, private property was unknown. Food went to those in need. Everyone was cared for. Then agriculture arose and, with it, ownership over land, labour and wild resources. The organic community splintered under the weight of competition.”

While there were a few primitive societies in which economic output was shared, it is not clear whether any central authority was relied upon for determining the distribution of output. Instead, in those cases, sharing seems to have been a matter of social convention. Singh posits that interdependence played a major role in motivating output sharing, but mechanisms for dealing with interdependence differed in societies with stronger property rights, including voluntary sharing, which was often but not always based on reciprocity. Volunteerism still has a strong role in modern, developed economies, but for better or worse, social insurance is increasingly viewed as a function of the state, with its monopoly on legal coercion.

And how “natural” is social insurance? Not very in a world of extreme scarcity. One of the more interesting passages in Singh’s article has to do with the brutality of subsistence-level societies. The weak were often abandoned or killed, which Singh discusses in the context of the collectivist Aché people of Paraguay. This “culling” applied variously to orphans, the disabled, the unsightly, and the aged. It’s unclear whether these decisions were collective or left up to individual families. Noble savages indeed!

It’s astonishing how often Engels’ faulty premise is accepted as historical fact. The argument, however, often serves as a subtext for collectivist rationales in the modern era. As Singh says:

“For anyone hoping to critique existing institutions, primitive communism conveniently casts modern society as a perversion of a more prosocial human nature.”

I’m not sure whether it’s possible to marshall evidence that primitive societies with strong property rights were more successful than their collectivist counterparts. That would be a good topic of further research, but it would be tough to control for the difficulties posed by varying natural conditions faced by these societies.

On the other hand, suppose we stipulate that property rights developed as a consequence of, or in tandem with, organized production, as Engels would have had it. We’d have to categorize that development as a kind of technological breakthrough in its own right. By aligning incentives with production, property rights were critical to the phenomenal growth in prosperity the world has enjoyed over the past several centuries. Nevertheless, the evidence on primitive societies suggests that the alignment came more “naturally”.

It’s about time to put the fiction of “primitive communism” to rest. Private property was sensible for the denizens of most primitive societies. Even the most collectivist of the those societies made certain concessions to that reality. These facts comport with a view of property ownership as a natural right.

How Empowered Bleeding Hearts Do Harden

01 Friday Feb 2019

Posted by in Collectivism, Socialism, The Road To Serfdom, Tyranny

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Here’s an empirical regularity: altruists attaining power to collectivize society’s productive machinery do not stay nice for long. In fact, aggressive pursuit of their goals might compel them to participate in brutal tyranny. But why? What happens to these sweet egalitarians who are, after all, imbued with the most earnest desire to elevate the common man by equalizing the fruits of society’s bounty?

Bryan Caplan offers Venezuela as Exhibit A in “A Short Hop from Bleeding Heart to Mailed Fist“:

“When Hugo Chavez began ruling Venezuela, he sounded like a classic bleeding-heart – full of pity for the poor and downtrodden. Plenty of people took him at his words – not just Venezuelans, but much of the international bleeding-heart community. … Almost every Communist dictatorship launches with mountains of humanitarian propaganda. Yet ultimately, almost everyone who doesn’t fear for his life wakes up and smells the tyranny.”

Venezuela’s collapse is merely the most recent in a long history of socialist debacles. Authoritarians certainly come in other stripes, but collectivists seem especially prone to the development of vicious alter-egos. But again, why?

Caplan knows the answer, and in something of a dialectical exercise, he proposes several explanations for the nice-to-nasty phenomenon. It’s not the infiltration of “bad guys”. Plenty of evidence suggests that the same people are at both ends of the transition, and for now let’s give the benefit of the doubt to the nicest elements of the avant guarde, or even those who go simply along on the basis of their idealism. It’s implausible that such humanitarian souls could believe it will be necessary, at the outset, to crush their opposition by force. Moreover, that approach risks immediate outcomes that are far too dire. Might an authoritarian or militaristic turn be necessary to deter hostile foreign actors who might attempt to foil collectivization? If so, it still doesn’t explain why subjugation of domestic citizens is ultimately accepted as a legitimate use of force by sincere altruists.

Caplan moves on to more compelling explanations of the disorder. Perhaps the expression of bleeding heart intentions is propaganda from the very start. Perhaps the rhetoric is really just hate speech disguised as noble intent. Surely those two explanations comport with the behavior of those having uglier motives for collectivism: envy and vengeance. And while those elements are certain to be active in any socialist front, they don’t explain why the bleeders also abecome beaters.

The best explanation for the horrid metamorphosis of empowered altruists is that egalitarian policies simply do not work very well. Caplan says:

“Bleeding-heart policies work so poorly that only the mailed fist can sustain them. In this story, the bleeding hearts are at least initially sincere. If their policies worked well enough to inspire broad support, the bleeding hearts would play nice. Unfortunately, bleeding-heart policies are exorbitantly expensive and often directly counter-productive. Pursued aggressively, they predictably lead to disaster. At this point, a saintly bleeding heart will admit error and back off. A pragmatic bleeding heart will compromise. The rest, however, respond to their own failures with rage and scapegoating. Once you institutionalize that rage and scapegoating, the mailed fist has arrived.” [Caplan’s emphasis]

The compulsory nature of policies advocated by leftists makes their system of social organization inherently unstable. With the imposition of every rule limiting the operation of private markets, with every compromise of the price mechanism, and with every new confiscatory policy, the economy becomes more feeble and inflexible. As several commenters on Caplan’s post note, socialists are people who simply do not understand economics.

The path to collectivism always involves promises that are impossible to keep. Personal concerns must be renounced in favor of the collective. Individuals are denied their freedom to act on creative impulses and their ability to cooperate freely with others in pursuit of personal well-being. Those are human rights that are quite unnatural to part with. That means it is impossible to achieve the collective without an implicit or explicit threat of enforcement through violent police power. Bleeding hearts will actually participate in the inevitable tyranny because they are so convinced of the righteousness of their cause.

Whether you call it socialism or social democracy makes no difference. The latter merely cloaks tyranny in a majoritarian dominance that would have enraged our nation’s founders. They understood the despotism inherent in allowing a majority to dictate the existence of basic rights. However, the bleeding hearts are always sure they know “what’s right” without weighing implications beyond the injustice du jour. That demands the application of force. And when confronted with the catastrophic results of their peremptory whimsy, they have no choice but to use still more force.

The banality of evil is truly a progressive disease. Fortunately, we have a preventive vaccine: the U.S. Constitution. But it will work only if we’re wise enough to rely on the framer’s original intent.

 

Risks, Costs and the Sharing Kind

23 Thursday Mar 2017

Posted by in Abortion, Health Care, Subsidies

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Of all the health care buffoonery we’ve witnessed since the Affordable Care Act (ACA, or Obamacare) was first introduced in Congress in 2009, one of the most egregious is the strengthening of the notion that health insurance should cover a variety of wholly predictable, and strictly speaking, non-insurable events. Charlie Martin recently posted some interesting comments on insurance and why it works, and why public perceptions and public policy are often at odds with good insurance practices. He says that “Insurance Is Always Just Gambling“. True, real insurance is like any other rational hedge against risk, and that can be called a gamble. Unfortunately, public policy often interferes with our ability to hedge these risks efficiently.

Hedged Risk Or Prepaid Expenses?

To begin with, insurance is a mechanism for individuals to manage the financial impact of events that are unpredictable and potentially costly. These are insurable risks. But if an event recurs regularly, like an annual physical exam, a breast exam, or a pap smear, or if an event is largely within the individual’s control, like whether an ugly mole should be removed, then it is not an insurable risk. Paying for such “coverage” through a third-party insurer amounts to prepaying for services for which you’d otherwise pay directly when the time comes. We’ve essentially adopted this prepayment scheme on a national scale through Obamacare’s mandated benefits: we get broad coverage of non-insurable events in exchange for premiums and/or deductibles high enough to cover the prepayments! Big win, huh?

The rationale for a broad coverage mandate is that it will induce healthy behaviors like, well… getting an annual checkup. Therefore, it is said to be in the interests of insurers to include such benefits in basic coverage. That might well be, but the insurers don’t do it for free! Indeed, a combination of premiums and deductibles are correspondingly higher as a result, and the mandate introduces a “middle man”, the insurer, who adds cost to the process of executing a relatively simple transaction.

Unlike these prepaid health care expenses, real insurance is really a sort of gamble. An insurer makes a bet that you won’t have a major, unanticipated health care need, and you put up the “premium” as your bet that you will have such a need. If you are healthy, then the odds are low, so it’s a fairly cheap bet for you, but you have to put up a little extra to pay for your insurer’s administrative costs. Down the road, if you need acute care, your bet pays off. Yippee! You’ll be covered.

But who knows the odds that you’ll need expensive care? And why would an insurer take the risk of losing big if you get sick?

The insurer can estimate those odds via actuarial data and experience, and they can assume your risk by playing the law of large numbers: if they make similar bets with many individuals, their actual losses will be more than covered by premium revenue (most of the time… as Martin explains, it’s possible for an insurer to make a bet with a so-called reinsurer as a hedge against the small risk of a huge loss on its book of business, beyond some threshold).

Shared Risk Or Shared Cost?

Martin objects to the use of the term “shared risk” in this context. Many individuals make similar bets, which makes the insurer’s aggregate payout more predictable. That allows them to offer such bets on reasonable monetary terms, and they are all voluntary contracts sought out by people facing risks of the same character. If an individual seeks to insure against a demonstrably heightened risk, an insurer might or might not agree to the “bet” voluntarily, but if it does, the risk is not truly “shared” by individuals who face lower risks. The high-risk bet is reasonable for the insurer only to the extent that: (1) the premium is actuarially fair in conjunction with a larger pool of high-risk bets, or (2) it can be cross-subsidized by more profitable lines of coverage. If the answer is (2), then premiums for healthy individuals must rise to cover risks they do not share. That is one basis under which Obamacare operates and it is a subtle aspect of Martin’s argument against the notion of “shared risks”. Perhaps we can avoid the semantic difficulty by speaking of “sharing the costs of risks that are not shared”.

A more obvious aspect of Martin’s objection to “shared risk” relates to the expectation that predictable medical costs must be “covered” by health insurance, as discussed above. If so, no risk is shared because there is no risk! Yet we often speak of health insurance “needs” as if they combine a variety of such things, and as if all those “needs” embody risks that are shared. They are not.

Sharing the Cost of Prenatal Care

In another post, Martin tackles the question of whether certain people should be expected to pay a premium that includes the cost of prenatal care. Martin was prompted by a tweet from the National Association for the Repeal of Abortion Laws (NARAL), which read:

“WOW. The #GOP’s reason to object to insurance covering prenatal care? ‘Why should men pay for it?’ #Trumpcare #ProtectOurCare”

There was a link in the tweet to a video, which was captioned by NARAL as follows:

“The GOP reasoning to object to prenatal insurance
Two male Republicans object to prenatal care coverage under the ACA because—while it ensures women have healthy pregnancies—it means men pay *a tiny bit more* for insurance. WOW.”

To the extent that pregnancy can be considered a risk, it is certainly not shared by seniors, gays and lesbians, and infertile individuals, let alone unattached males. And from an insurance perspective, an obvious difficulty with NARAL’s point is that many pregnancies are planned. As such, they are not insurable events (though complications of pregnancy clearly are insurable). Yet people speak as though others must “share” the costs. That is fundamentally unfair and economically inefficient. Subsidies for couples who might wish to have children lead to greater rates of fertility than those couples can otherwise afford, saddling society with the medical bill. Incentives are no joke.

There are also unplanned pregnancies among singles and married couples, however. That sounds more like an insurable event, but it’s usually impossible for a third party to determine whether a pregnancy is planned or unplanned, so moral hazard is an issue (except in extreme circumstances like rape or incest). The risk of pregnancy is confined to a subset of the population, so sharing these costs more broadly is inefficient to the extent that it subsidizes some pregnancies (oops!) that individuals cannot otherwise afford. Individuals and couples who face pregnancy risk must manage that risk in any way they chose, and they might wish to purchase a form of coverage that will help them smooth the cost of pregnancies over their fertile years. It’s not clear that coverage of that nature is better for the prospective parent(s) than a line of credit, but it is a form of insurance only because of the “unplanned” component, and at least it allows them to spread the cost ex ante as well as ex post.

Sharing Costs of Common Risks 

The basic point here is that sharing a risk across all individuals, whether they do or do not actually face the risk, is not a natural characteristic of private insurance. In fact, the idea that this cost should be shared broadly is a collectivist notion. The major flaws are that 1) individuals and couples at risk are not financially responsible for certain cost-causing decisions they might make; and 2) it forces individuals and couples not at risk to pay for others’ risks, which is an act of coercion. NARAL feels that individuals who subscribe to these sound principles are worthy of rebuke. And NARAL asserts that “men pay a tiny bit more“, without providing quantification. Of course, it’s not just men, but this is a variation on the old statist argument that diffuse costs are not meaningful and should be disregarded, ad infinitum.

Public Aid Dressed As Insurance

There are segments of society that are often depicted as incapable of managing risks like pregnancy and unable to afford the consequences of mistakes. Subsidizing those individuals is a second collectivist front for “risk sharing”. Those subsidies can and do take the form of “family planning”, as well as prenatal care and childbirth. That’s part of the social safety net, and while it is perhaps more tolerable as aid, it entails the same kinds of bad incentives as discussed earlier.

The welfare state has seldom been praised for its impact on incentives. Most studies have found a link between public aid and higher fertility, and mixed effects on the dissolution of marriage (see here and here, and for international evidence, see here). But aid for health care expenses should not interfere with the sound operation of the insurance market. Vouchers for catastrophic coverage would be far preferable, and that aid could even cover some regularly recurring health care costs, despite their non-insurable nature, but that would be a compromise.

The misgivings voiced by Martin are partly driven by two fundamental issues: guaranteed issue and community rating. The former means that an insurer must take your bet regardless of the risks you present; the latter means that the insurer cannot charge premiums commensurate with the risk inherent in the various bets it takes. As David Henderson writes, both underpin the ACA. In other words, the ACA imposes cost sharing. Here is Henderson:

“As I wrote over 20 years ago, the combination of guaranteed issue and community rating, a key feature of Obamacare, leads to the destruction of insurance markets. No one would advocate forcing insurance companies to issue house insurance policies to people whose houses are burning, at premiums equal to those paid by others whose houses aren’t burning. And the twin requirements would cause more and more people to refrain from buying insurance until their houses are on fire. Insurance companies, knowing this, would charge astronomically high premiums.“

Rainfall, Individualism and Income

23 Friday Sep 2016

Posted by in Capitalism, Collectivism

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Highly variable rainfall in a country is associated with less individualistic attitudes, according to a provocative paper by economist Lewis Davis (HT: Marginal Revolution). He leverages this relationship to estimate a positive impact of individual responsibility on economic development. Both results are potentially important, if somewhat controversial. Davis admits that he confronted a number of measurement issues and methodological complexities.

Davis notes that the variability of rainfall creates agricultural risk. He posits that countries having to deal with such recurrent, exogenous risks tend to develop institutions that might allow risk to be shared more broadly. In other words, such uncontrollable events as droughts, destructive flooding and uneven agricultural output lead to a social tendency toward collectivism, which is also reflected in the attitudes of individual citizens. He first builds a mathematical economic model with that implication:

“… the model predicts the equilibrium level of collective responsibility will be greater where nature is more capricious.“

Davis finds that the relationship holds up empirically using cross-country data on rainfall and surveys of social attitudes. His real interest, however, is to exploit that relationship to obtain estimates of the impact of individual responsibility on economic development. The complication he grapples with is that more favorable survey ratings of individual responsibility are themselves a function of economic development, so causation runs both ways. To tackle this problem, he uses rainfall variability to create an empirical “instrument” based on survey measures of individual responsibility, and in turn uses the exogenous variation in the instrument to explain differences in per capita income. Controls are used in the fitted equations for other social and economic factors. Again, he finds that his instrument for individual responsibility is positively related to income.

Another way to summarize Davis’ results is that natural risks are associated with greater acceptance of collectivism, but collectivist attitudes are associated with lower income levels. The empirical finding of a preference for heavy reliance on the state to insure against common risks is fascinating and it comports with the theory that the government has a legitimate role in the provision of public goods, social risk mitigation being among them. One should not place too much faith in the state as a reliable problem solver, however, or as an engine of economic growth. After all, there is a good reason for the second result: an economy dominated by the public sector is doomed to long-term decline. Individual initiative and capitalism, on the other hand, are more reliable in producing long-term economic gains and ending poverty, even when the rain is spotty. General prosperity might be more difficult to achieve when the weather is fickle, but prosperity is a much better cushion against risk than government.

Don’t Call Leftists “Liberal”; They’re Not!

29 Wednesday Jul 2015

Posted by in Liberty

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Lenin_Got_Rope_Capitalists

Nor are statists, collectivists and socialists, but I repeat myself. The simple plea above is made by Daniel Klein in an essay appearing in the Intercollegiate Review and in Modern Age. He asserts that libertarians (and conservatives) fall into a semantic trap when they use the term as a pejorative for leftists. I have touched on the mangled, modern usage of “liberalism” several times on Sacred Cow Chips, but Klein brings some interesting empiricism into consideration and makes several points worth emphasizing.

First, Klein traces the historical record of appearances of certain words related to liberalism in published literature using the “n-gram viewer” on Google. He shows that the political use of “liberal” began around 1770. For the next 110 years, liberalism referred to a philosophy and policies associated with small government and individual autonomy. In the U.S., however, the term began to be co-opted by the political left in the late 1800s. Around the turn of the twentieth century, references to “New Liberalism” and “Old Liberalism” became more frequent. So the term was subverted in that time frame, a decade or two before the term “left-wing” came into use.

“The literature of the so-called New Liberals declaimed openly against individual liberty and in favor of state collectivism and socialistic reform.“

Today, the association of “liberalism” with the left is confined mostly to the U.S. and Canada:

“…when we step outside North America, we see that, by and large, liberal still means liberal (in the UK, usage is in-between). …

Where liberal still means liberal, such as in Europe and Latin America, leftists have no reluctance in calling their imaginary bogeyman ‘neoliberalism.’“

By way of suggestion, Klein reviews a few alternative labels for the left. In doing so, he notes that in general, the left supports the “governmentalization of social affairs”. For that reason, one of my favorite labels is “statism”. Oddly, Klein never mentions this as a possibility. (Klein concedes that the left supports liberty on a few issues, which happen to be issues upon which most libertarians are in agreement.) He does refer to the old standby “collectivists” in passing.

Klein likes the label “Progressivism” for the left, despite the positive associations some might make with that term. He argues with some merit that progressivism implies activist, goal-directed policy, as opposed to non-intervention and the spontaneous social order favored by true liberals.

“That collectivists should join together for what they imagine to be progress is perfectly fitting. For them the term progressive is suitable. By contrast, conservatives and libertarians look to, not progress, but improvement. …

Another fitting term for leftism is social democracy, which is standard in Europe. Social democracy is a compromise between democratic socialism and a tepid liberalism. The socialistic penchant is foremost, but a vacillating liberalism gnaws at the social democrat’s conscience.”

I fully agree with Klein that we should never refer to leftists as liberals. They are completely undeserving of the description, and doing so concedes a glaringly false premise. Every leftist I know advocates the increasing governmentalization of social affairs and a naive acceptance of an impossible proposition: that government can ever possess the detailed knowledge necessary to successfully regulate individual actors from above. And leftists are foolishly willing to place faith in the benevolence and wisdom of political agents and central controllers. Klein mentions a recent editorial by Kevin Williamson in National Review:

“Williamson ends the piece by quoting two leftist authors writing in The Nation, one decrying ‘unbridled individualism,’ the other ‘unfettered capitalism.’ Williamson concludes: ‘A ‘liberalism’ that is chiefly concerned with the many clever uses of bridles and fetters does not deserve the name. It never has.’”

Dismal Implications of Aggregate Analysis

12 Thursday Feb 2015

Posted by in Macroeconomics

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Economic aggregation is basic to traditional macroeconomic analysis, but it distorts and drastically oversimplifies the enormous number of transactions and the vast network of decision-makers that comprise almost any economic system, especially a market economy. There are some basic problems with aggregating across individuals and markets, but these are typically glossed over in macro-policy analyses. Instead, the focus is on a few key outcomes, such as aggregate spending by sector and saving, masquerading as collective “decisions” amenable to behavioral analysis. In this kind of framework, the government sector occupies an equal place to consumers and business investors. It is usually depicted as a great exogenous demander of goods and services, capable of “stabilizing” demand in the event of underconsumption, for example.

An insightful post by Gary Galles at the Mises blog drives home the inherent distortion involved in the analysis of macro-aggregates: “How Economic Aggregation Hides the Problems of Interventionism“.  The problems start with a nearly complete misapplication (if not neglect) of the basic problem of scarcity, as if that problem can be solved via manipulation of aggregate constructs. Galles offers a simple example of the macro distortion of “net taxes,” or aggregate taxes minus government transfer payments. Both taxes and transfers are complicated subjects, and both are subject to negative incentive effects. The net-tax aggregation is of little use, even if some rudimentary supply function is given treatment in a macro model.

By its very nature, aggregate government activity is distorted by the prices at which it is valued relative to market activity, and intervention in markets by government makes market aggregates less useful:

“For example, if government gives a person a 40 percent subsidy for purchasing a good, all we know is that the value of each unit to the buyer exceeded 60 percent of its price. There is no implication that such purchases are worth what was paid, including the subsidy. And in areas in which government produces or utilizes goods directly, as with defense spending, we know almost nothing about what it is worth. Citizens cannot refuse to finance whatever the government chooses to buy, on pain of prison, so no willing transaction reveals what such spending is worth to citizens. And centuries of evidence suggest government provided goods and services are often worth far less than they cost. But such spending is simply counted as worth what it cost in GDP accounts.”

Galles article emphasizes the unintended (and often unpleasant) consequences that are bound to flow from policies rationalized on the basis of aggregate macro variables, since they can tell us little about the impact on individual incentives and repercussions on the ability of markets to solve the problem of scarcity. In fact, the typical Keynesian macro perspective lends itself to slow and steady achievement of the goals of collectivists, but the process is destined to be perverse: more G stabilizes weak aggregate demand, or so the story goes, but as G expands, government entwines itself into the fabric of the economy, and it seldom shrinks. Taxes creep up, dependencies arise, regulation grows and non-productive cronies capture resources bestowed by their public sector enablers. At the same time, the politics of taxes almost ensures tat they grow more slowly that government spending, so that the government must borrow. This absorbs saving that would otherwise be available for productive, private investment. As investment languishes, so does growth in productivity. When economic malaise ultimately appears, we hear the same policy refrain: more G to stabilize aggregate demand! All the way down! Perhaps unemployed dependents are simpler to aggregate.

Aggregation masks the most basic issues in economics. A classic lesson in the complexity of creating even a simple product is told in “I, Pencil“, by Leonard Read. In it, he allows the pencil itself to tell the story of it’s own creation:

“Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this: Each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

There is a fact still more astounding: The absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred. “

How many individual decisions and transactions are involved, throughout all intermediate and final stages of the process? How many calculations of marginal value and marginal cost are involved, and ultimately how many prices? While the consumer may think only of the simple pencil, it would be a mistake for a would-be “pencil czar” to confine their planning to final pencil transactions. But macro-analysts and policymakers go a giant leap further: they lump all final transactions together, from pencils to pineapples (to say nothing of the heroics involved in calculating “real values”, an issue mentioned by Galles). They essentially ignore the much larger set of decisions and activities that are precedents to the final transactions they aggregate.

The Dire Wolf’s Collectivist Dues

24 Saturday Jan 2015

Posted by in Taxes

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Inequality does not imply poverty for anyone, and inequality is a reasonable outcome of voluntary economic interactions between individuals who vary in their ability to create value. But inequality arising from artificial advantages conferred by the force of government and cronyism is indefensible. Sheldon Richman draws this useful distinction between the market’s distribution of rewards, which is a consequence of an unequal distribution of value-creating energy, ingenuity and talent, as opposed to the unequal rewards of a system of centralized control in which subsidies flow to cronies, monopolists are protected, barriers to activity are erected and political elites enjoy the fruits of value-destroying privilege. Here’s a sample from Richman’s post:

“Unlike market inequality, political-economic inequality is unjust and should be eliminated. … How? By abolishing all direct and indirect subsidies; artificial scarcities, such as those created by so-called intellectual property; regulations, which inevitably burden smaller and yet-to-be-launched firms more than lawyered-up big businesses; eminent domain; and permit requirements, zoning, and occupational licensing, which all exclude competition. …

Instead of symbolically tweaking the tax code to appear to be addressing inequality—the politicians’ charade—political-economic inequality should be ended by repealing all privileges right now.”

And yet we get fatuous rants from Obama about the ravages of market inequality and more tweaking of the tax code. Tweaking is too kind a word. The State of the Union address last week was a collectivist’s wet dream, replete with visions of central planning and a long list of non-neutral incentives and favors for the president’s base. He did his best to stoke the flames of class division and envy. One must ask: how long can the surviving market economy and a shrinking share of actual taxpayers support the growing dependent class and the nonproductive state apparatus?

In “Uncle Sam Is Coming After Your Savings?“, Megan McArdle warns of the dire wolf waiting at the door of every hopeful saver and middle class taxpayer. She cites Obama’s proposed tax on college savings plans (529s) as one piece of evidence, and asks “How would you feel if they did this to Roth IRAs”?

“… the very fact that we are discussing taxation of educational savings — redistributing educational subsidies downward — indicates that the administration has started scraping the bottom of the barrel when seeking out money to fund new programs. Why target a tax benefit that goes to a lot of your supporters (and donors), that tickles one of the sweetest spots in American politics (subsidizing higher education), and that will hit a lot of people who make less than the $250,000 a year that has become the administration’s de facto definition of ‘rich’?”

Then there’s the proposed elimination of the stepped-up tax basis at death, covered a few days ago at this blog, and the increase in the tax rate on capital gains and already double-taxed dividends from 24% to 28%. Of this, and the more general issue of investment incentives and efficient revenue generation, McArdle says:

“… we don’t try to tax the bejesus out of capital income, much as many would like to; old capital flees, and new capital doesn’t get formed, as savers decide it’s not worth it.”

No we don’t, for now, but that lack of capital formation is a dire implication of heavier taxes for the economy. It is an achilles heal of the redistributionist policy agenda, as a lack of new capital undermines productivity, income growth and opportunity across the board. Middle-class economics? Please, no. Glenn Reynolds has some additional thoughts on McArdle’s column:

“The truth is, in our redistributionist system politicians make their careers mostly by taking money from one group of citizens that won’t vote for them and giving it to another that will. If they run short of money from traditional sources, they’ll look for new revenue wherever they can find it. And if that’s the homes and savings of the middle class, then that’s what they’ll target.

For the moment, Americans are safe. With both houses of Congress controlled by the GOP, Obama’s proposals are DOA. But over the long term, the appetite for government spending is effectively endless, while the sources of revenue are limited. Keep that in mind as you think about where to invest your money … and your votes.”

Statistics on inequality are brandished by progressives as if to prove the existence of a great market malfunction, but as Richman points out at the link given above, an extreme form of inequality is an inevitable outcome of privilege conferred by the state. On the other hand, market inequality is no tragedy for humankind. It is an artifact of the most peaceful, productive system of social coordination ever devised. Market inequality is not related in any way to the absolute welfare of the median earning family or the least fortunate, as Robert Higgs explains in this interesting essay:

“Probably no subject in the social sciences has created so much unnecessary heat. Yet, at the same time, economists actually know a great deal about it and can dispel the public’s confusion about it if they try.” [Emphasis added]

Collectivists Need Police Power To Tread On You

26 Saturday Jul 2014

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Dissent

Most people have no trouble understanding that increasing government control imperils individual freedoms, including freedom of expression. Sandy Ikeda discusses this linkage in “Dissent Under Socialism,” which inevitably means suppression and oppression.

First, to the degree that the State undertakes central planning of the resources it controls it can’t allow any person to interfere with or oppose the plan. Or, as Hayek puts it, “If the state is precisely to foresee the incidence of its actions, it means that it can leave those affected no choice.”

Second, the more resources the State controls, the wider the scope and more detailed its planning necessarily becomes so that delay in any part of the system becomes intolerable. There is little room for unresponsiveness, let alone dissent.

Statists and radical egalitarians harbor a naive belief that their goals for society, and for “social justice,” can be achieved by collective action. That belief is naive on several levels. In practical terms, government is incapable of achieving complex social goals, and it will botch the effort. Even more ominous is that police power must always stand behind the effort. That police power will be brought to bear on a wider range of issues seems to surprise collectivists, as illustrated by the following quote used by Ikeda:

“Fascist states stop people demonstrating against wars—it is beyond belief that French Socialists are following their example.”

Really not too surprising.