Monday, May 27, 2013

Things that make libertarians sound like jerks

Last week I saw a photo with more profound political commentary (one of that endless supply you see on facebook) that went like this:
1,000 dollar monthly Social Security check for Grandma is bankrupting America.

Yet a billionaire not paying taxes is making America prosperous.

Up is Down in America!
Check and mate. At least as far as our instincts are concerned. Clearly the big greedy corporations are controlling everything, and this is evidence that we are the victims of a cruel right-wing ideology of laissez-faire economics.

There are many points where I can agree with my left-wing friends, including when it comes to corporate greed. No one can be naïve about the lengths to which powerful people will go to maintain their power, or wealthy people to maintain their status. Equally important is the realization that people are not perfect, and left to their own devices they often do pretty terrible things to themselves and others. And I also very much agree with the assertion that a society is only just insofar as it is capable of protecting the weak and vulnerable, and helping as much as possible those who are less fortunate.

It is thus with a deep sigh in my chest that I must point out something critically important about billionaires versus Grandma. Yes, it might make me sound like a jerk, because our instincts are not naturally wired this way, but here is a simple fact: billionaires not paying taxes really do help make us prosperous.

Now, before you jump too far ahead of me, please note that I am not saying billionaires have no duty to pay taxes. The duty to pay taxes comes from the cost of certain necessary public services.

However, a sound understanding of our economic system should leave you with no other conclusion than this: on the whole, every dollar of profit made by a business is, in fact, a sign of added prosperity to the society. (Note: the qualification "on the whole" will be very important later.)

I find that this statement runs counter to our instincts, and it is therefore not very widely accepted even though it is the fundamental principle on which our economic system runs. Most people are willing to say that, sure, if you make a lot of money, you must have worked very hard and therefore deserve quite a lot of it. Good for you is a common way to summarize this feeling. After all, we like personal achievement and appreciate an individual's right to benefit from his own work. What isn't at all clear is how this actually helps the rest of us.

By this reasoning, we arrive at the conclusion that there are limits on how much profit a company (or individual) should make. There is only so much that one person can really deserve. Here is where our instincts go totally off track. Because we so firmly believe that the amount of money one makes should be attached to the effort he puts in or merit he possesses, we react with disgust at the idea of one man making in one minute as another man makes in a whole year. Surely no man is that much better than another.

Very few people indeed are so bold in their egoism as to defend such an economic system on the basis of moral merit. What is unfortunately so poorly understood is that individual merit is not the justification for the economic system that brings some people such astounding profits. No, the real justification is--and here I reiterate--that every dollar of additional profit, no matter how great the profits already are, means more prosperity in the society as a whole--not just for him who gained that profit.

Why is this so? There is no point in trying to search for an original explanation, because the right explanation is very simple and by now very old. It is a simple logical deduction from the definition of profit. Profit is nothing other than the price at which something is sold minus the cost to produce it. If the profit is anything greater than zero, this necessarily means the product was more valuable than the cost--the cost being everything that went into producing it. If the product is more valuable than its cost, this necessarily means society is better off for that product existing rather than not existing. QED

The real question is why we have so much trouble accepting the argument. Perhaps the reason we have trouble is that it seems highly impersonal. Can a number with a dollar sign next to it really tell us that society has benefited? Given the number of things we buy for which we later have no use, or the number of times we actually regret having bought something, it is easy to be skeptical of the idea that profit always means a benefit to society.

Here's where that qualification becomes important: "on the whole" means that profit is never a perfect indicator of benefit added. But I submit that there is no perfect indicator of benefit added. Most of our measurements are very imprecise. Money--that horrible, impersonal device for measuring value--has at least the benefit that we are always critical of it. When you realize later that a purchase wasn't very smart, you are careful not to make a similarly bad purchase again, because it's painfully obvious that you only have so much money.

The market will never give us a perfect representation of value, but it is extremely adaptive, correcting its own failures more quickly than any other system comparably large. Contrast this, say, with our system of government, which continues to fail in the same way no matter how much people complain about the same problems over and over.

Thus, the truth is, billionaires, whether or not they pay taxes, do on the whole add value to society so long as they keep producing things people are willing to buy. Paying taxes is something completely independent of this market process. You don't benefit the United States primarily by earning a lot of money and then paying part of it to the government. That idea is simply economic nonsense from beginning to end. The primary way in which you benefit the society around you is by producing things we need or want. And the only way to know what people need and want, in a world so immensely complex and interconnected as ours, is to follow the prices. It may seem impersonal, but I defy anyone to try bartering one on one with 300 million other Americans, much less seven billion people around the world.

Helping Grandma seems much more personal, and therefore we like to think about helping Grandma and not about billionaires making money. The irony is, helping Grandma in this case really is every bit as impersonal as big corporations that make money. If you think that paying a check to the government means you've helped Grandma, I defy you to verify whether that's true. It is truly astounding to me that people are so spiteful of corporations that produce things which they themselves buy, only to be so blindly trusting of politicians who say that their money is really going to help their neighbor.

So now that you're convinced that I am a mean libertarian who has no heart, I want to encourage you by saying that yes; I do think the state has an important role to play in helping Grandma; no, I don't think billionaires should evade taxes; and no, like I said already, I don't think money can measure the value of everything. There are really many things on which I can wholeheartedly agree with progressives, including many of the excesses of modern banking, monstrous corporations, and the catastrophy that awaits our environment if we do nothing to curb pollution. But one thing always comes back to give me a headache when I talk with people on the left, and that is this unrelenting, gut-level suspicion of a very fundamental economic fact: profit is good.

I want to close on a personal note. I, myself, have very little desire for money, and I really have very little ambition for business. As I write this little blog post, I realize that my own instincts run very much counter to the conclusions I've reached about our economic system. Thus, I hope that those who share many of my ideals about a great many political issues will realize that it is not a set of different values that separates us, but only a matter of interpreting the facts. I think those of us with an interest in political questions have an obligation to think both morally and logically about the economic system, because it will not do to simply follow our gut-level feelings. If those who pride themselves on their ability to think rigorously on political questions cannot bring themselves to understand the fundamental importance of profit in a complex economy, the only direction I see left is for society to hand over more and more power to the state. And that can only end in disaster, as it already has in the past.

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