Why High Taxes Are Good

...or the invisible hand is senile old drunk.

If you don't know what the invisible hand is, go check wikipedia and I'll wait here.

Done? Good.

I have a friend who has a robot vacuum cleaner. Without his controlling the thing at all, it vacuums his entire living room. How does it work? Some secret AI doing advanced pathing? Careful memory mapping of the room? Stochastic dimensional area-ization formulas? It bounces into a wall and randomly turns. It's dumber than a staggering drunk. And so is the invisible hand. 

Now, if I ran that vacuum long enough, it would vacuum every corner and every square inch of carpet. However, a person could do it with less waste. So how efficient is it? Well, it depends on what is to be measured. If I measure the effort I must put in, the robot is more efficient. If I measure the energy and time used, I am more efficient. If I measure the cost of electricity and what I would have to do to earn that electricity, well, that would depend on my job and wage. 

So, if you love the idea that government does no work and should do no work, then by all means, let the invisible hand vacuum your floor and watch it painfully bouncing into the same wall and turning only to bounce off the same wall again. If you think maximizing time and resources is the most important, then have the workers control the means of production and watch the incredibly efficient production of stuff nobody wants. But, if you are like most of us who really just want the biggest bang for the buck, then it depends on what else could be done with that time and effort.

I'm going to turn things on their heads for a minute and apply economics to the schools of economics. Economics is all about making choices when faced with limited resources. Economics is "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses." 

So economic philosophies attempt to decide what is the “right” way to use scarce resources. Marx believed that profits and rent were improper wastes of scarce resources and only labor should be rewarded. Libertarians think that only the market can decide value and only through complete privatization can a correct value be placed on anything. Others believe that the most efficient method to get goods and services from those who can provide them to those who want them by any means necessary. Keynesian economics believes that markets can only run at peak efficiency through government intervention.  

So now we see the variables at play. Government intervention; Market Freedom; Productive Capacity; Profit; Labor; Rent;

So, if I were a libertarian, I would measure the government intervention and declare success regardless of productive capacity. If I were a Marxist, I would declare victory when rent and profit were zero regardless of productive capacity. If I wanted the most stuff for the least effort, I would declare victory when productive capacity were as high as possible. 

I know some will complain that this is not fair. Both Marxists and Libertarians believe their philosophy does maximize productive capacity. But, my counter argument is that they should then put that at the beginning of the equation and let the rest just happen. But they don't. They have decided an outcome and want to prove they are right. Some solutions favor free markets, some favor communism. Most are both and neither.

Here are some interesting things to think about. They are macroeconomic principles:
There is infinite work to be done.
There is infinite demand for goods and services
There is an infinite potential for productive capacity

If there is infinite work how could there be unemployment? Because the invisible hand is a dottering old fool that wanders around like a robot vacuum only sometimes looking smart and the rest of the time we anthropomorphise the thing to the point we cease to see its flaws. Same answer for questions on the other subjects.

Markets attempt to reach equilibrium. Ok, fine, but they don't do it very well. If I asked you to drive straight down a road then you would drive straight down a road. If the invisible hand drove the car, it would drive straight until it started to swerve off the road and then over correct only to bounce off a passing car in the other lane. Or put another way, economics, like water, always seeks its own level. But, Tsunamis and hurricanes still cause massive disasters. And floods don't go away overnight. 

Does anyone doubt building an interstate highway system would increase a country's productive capacity? How about a court system that protected contracts? How about an energy grid or a rail system? We know that these raise the productive capacity of a country, but the market rarely builds these. Why? Because they benefit the competitor as much as it does them and if they didn't we would have 50 different roads between Chicago and St. Lois. They also require massive spending and in many cases, no clear way to collect money after. Toll roads reduce the benefit of having the road in the first place by forcing drivers to slow down and fumble for change. A partial destruction of the benefit is necessary for the profitability of that road. Now, imagine driving to work where every road is owned by somebody else. They may be in competition with you and simply refuse to allow you to buy passage on their road. 

We have a unique advantage in a democracy that other forms of government do not have. We can collectively decide what should be done and though it is flawed, we often make better decisions this way. If we look at the things we spend our government money on, it goes to what we want it to go to. I know I'd like to see a shuffling of priorities, but the point isn't that I get exactly what I want, but rather I get roughly what I want. I can't afford a tank let alone an Army. I can't send a man to Mars. I can't cure AIDS, but I can vote for my tax dollars to do that. And, the budget becomes a compromise of our collective values. As long as we get rid of this idiotic notion that we will get a better mix in the private sector, we can all be pretty happy with a 10-20% increase in government spending. 

So I can't afford everything that I think will make the country a better place. And neither can Bill Gates, or Warren Buffet, or anyone.

Bill Gates is doing an admirable thing by taking his money and spending it on Africa. That's great, but I think it's a waste of time and money. Africa is a political problem, not a monetary one. Maybe I'm wrong, maybe I'm right, but if it were government money we would debate the merits and then act. By deciding that only the wealthy can decide is to say that only the wealthy know the best course of action, or are not being self serving. If Gates is wrong in Africa, I can't fire him, but if Obama is then I can.

This has always been the downfall of other collectives. Monarchies rely on one person to be really smart. Communism almost guaranteed failure by turning the economy into a committee meeting. Free markets rely on the drunk old invisible hand to bounce perfectly into the right oncoming car and squeak through the right decision. Needless to say this almost never happens.  

When we had high taxation on the wealthy we built dams, roads, nuclear bombs, won a world war, went to the moon, built an interstate highway system, electrified the nation, built a national phone system, built a national trail system.

Now that we have decided that you can spend your money better than the government can we have collapsing bridges, deteriorating rail system, not a single new mile of trails though wilderness usage is way up, no national fiber optic system, an outdated electrical system, a decrepit space program, and a productive capacity that can only sell houses to ourselves using money borrowed from China.

This is not a useful investment in our nations future. This is not the way to be the leader of the free world. This is not the way to be a major player in future technologies. We became a manufacturing superpower by following Alexander Hamilton's “Report on Manufacturers” which advocated strong government involvement in building infrastructure and funding young industries. We created canals and railroads making us the most powerful industrial economy in the world. Despite a devastating Civil War. We then became a military power through massive government seizure of production during WWII. That became a massive technology investment making us the inventor of the new economy. 

Now after 200+ years we have decided that all that stuff government did to get us where we are was no good and we shouldn't pay for it. Government has no role in the market and the market can do this all by itself. But ask this. What has a pharmaceutical company ever cured? Oh sure, they are great at managing a disease for the rest of your life, but a cure? Why do that? How about a space station? Surely there's a market for that? So why isn't there one that is privately funded? How about a weather service? Everyone complains how the weathermen are so bad. There's a clear demand for better weather forecasting and yet all those weathermen get the same data from the same government. How about a super-collider? Or a unifying theory? How about doing the human genome project itself rather than combing data provided by the government.

The truth is the market sucks at pure research. Markets suck at infrastructure. Markets suck at science. Markets suck at exploration. What they are very good at is exploiting what governments pave the way for. Governments paid to discover a trade route to India. The East India Trading Company brilliantly exploited that discovery, but didn't discover anything on its own.

Here's a big one. What do we have that is fundamentally different than we had in 1958? What major, life disrupting invention have we come up with in the last 50 years? Sure, we've made computers better, jets better, rockets better, cooler TVs, better ways to distribute movies. Now, compare that to 1908 - 1958. We got the Airplane to the jet airplane to rockets. Steam engines to diesel electric. Rural electrification. Sewage systems. Water systems. End of the horse as primary transportation. Nationwide phone system. Helicopters. A cure for Polio. Blood typing. We went from the world of Malthus to the world of Galbraith. A world of barely surviving to a world a affluence. 

This was done with government money spent on things that we the people thought reflected our values and desires for the future. 

It's said that there are three ways to order and organize the means of production, and I'm not talking Marx just because I use that term. 
Central Planning
Free Markets
Mix The Two.

Well, I don't think I have to convince anyone that Central Planning has problems. In a way I am trying to show that might not actually be the case, but let me continue. Free markets? Well, I think they suck, but similar to Democracy, it's the worst except for all the others. But what about a mix?

The problem with central planning takes root in another notion of economics. It's the question of value. If I want something really badly that costs $100 and I buy it. It may be worth $1000 in my happiness. A $20 life jacket is worth every amount of money to a drowning man. But, a glass of water is worthless. And that's what happens with Central planning. Too often the life jackets, or Louisiana's amphibious vehicles, go to the desert and the water goes to the flood victims. This is when we all laugh at government and say what a lousy job government does.

OK, so the free market would never do something so stupid. It would never sell dog food or lumber over the Internet. It would never overvalue homes to offer bad loans at the height of a housing bubble. Nor would it ever use heavily leveraged mortgage money to jack up the price of oil futures. I think you get my point.

Here's where Democracy makes a big difference. Political pressure made Brownie lose his job. The same is not happening on Wall Street. When a Democracy does something stupid, the voters get a chance to correct it. If the government does not respond to our values, then we vote for those who do. We don't get to vote on Wal-mart building a new highway to the massive store they just built. They expect us to build it for them. And that's fine, because then we get to decide if that's the best thing for our town. Maybe we want Wal-mart to be a little difficult to get to. Maybe we don't, but that's a debate we get to have.

But what about voting with your dollars? Well, that means Paris Hilton gets more votes than you, but her vote can have a massive impact on you. Let's say she wants to build a perfume factory next door to your house. Well, if you don't like it, don't buy her perfume! That will show her!

The point of all of this is look at what government can do and has done. Look at our values and compare it to the values of our government. If you don't like those values, try to change them. But, government spending is not the enemy. People telling you it's the enemy while they spend like crazy on things that don't reflect our values are the enemy. They want us to debate low taxes and evil government spending rather than looking at what they do with our money. And my favorite is when we catch them doing it, they say “see! Government spending is evil! I just proved it!”

Tell the Europeans the Marshal Plan was evil.