Someone put an interesting post up on HuffPo, back when I was bothering to follow current news on this. It was short, and to the point, and it cut through thirty years of bad economics with a single stroke.

I’ve lost the link, but the idea is simple enough. The author — a businessman with a successful business — merely stated the blindingly obvious.

Question: What do the wealthy do if the government raises taxes on the top income bracket to 90%?

Answer: They shelter their income.

Doh.
There are lots of ways to shelter income, but the time-honored way that is still the most viable for most of the wealthy is this: they hide it in their businesses. They reduce their personal income by re-investing it in a business they own and control that offers them a shelter from taxation. They hire more employees (pay is written off as an expense), upgrade their equipment (taxes on equipment are deferred through amortization), do research and development (which offers tax credits). All of this is intended to protect and increase their personal wealth.

Conversely, what happens when you drastically lower taxes on the top income bracket? The wealthy take profits from their businesses — it’s why they own them, after all. They de-invest. They cut costs, lay off workers, let equipment age. The increased corporate profits are paid out to stakeholders, rather than keep the profits in the business and pay corporate taxes on them. Company owners sell off their companies and “cash out,” putting large numbers of companies up for sale through mergers and acquisitions.

There are fine points to consider, and you need an accountant to figure out exactly when it is best to invest or de-invest under any particular tax scheme. But the basic equation is very simple.

When the overall personal tax rate is higher than the overall business tax rate, money flows into businesses.

When the overall personal tax rate is lower than the overall business tax rate, money flows out of businesses.

What has clouded this issue has been a very successful snow job put out by Wall Street. They have sold us financial speculation under the guise of corporate investment.

Here’s a very general history of the stock market.

Originally, the idea was to raise large sums of money from many investors (including the Crown) for large undertakings, like building ships to cross the Atlantic, or building bridges, roads, and railways. In return for cash, the corporation would issue shares of stock, or IOUs, to be paid back when the enterprise succeeded and became profitable.

Of course, few such enterprises offered full payback (with investment gains) in a single day. So the stocks offered a payout in the form of annual dividends.

The real value of holding a stock share was originally the dividends. Its total real value was easily computed by multiplying the annual dividend by the number of years the corporation was expected to keep producing them.

Over the course of many years, a shareholder might want to cash out his shares. Perhaps he needed the money to marry off a daughter, or to build a house. Or perhaps he knew the corporation was about to go under, and he wanted to unload the stock before this became public knowledge. He could sell the stock to secondary investors based on its past performance and its projected yield over the coming years. A smart secondary investor would investigate the company thoroughly, and would make an offer somewhat less than the real value, and the seller would accept this — horse trading at its finest, and woe be to the buyer who didn’t investigate the company he was buying into. That would be like buying a thoroughbred race horse based on past performance, without noticing that the horse is now a broken-down nag in a pasture.

Of course, not all buyers are so diligent. Enter the speculator. Like a real-estate speculator who flips houses, the stock speculator doesn’t care what the underlying value of the stock is. His motto is, “Buy low, sell high,” and he relies not on the real value of the stock, but on changes in its perceived value. By timing the buying and selling in a fluctuating market, the speculator can make more money — much more money — than any of the underlying stocks are actually worth. How does that work? The principle is a simple one: “There’s a sucker born every minute.”

If you look at modern stock shares, most don’t pay dividends at all. Their real value is zero, or close to it. The reason people buy stocks is not their real value — it is their speculative value. Holding stock makes you nothing or very little. Selling the stock that you have held over time is what makes you the bundle.

This is no longer investment. It is gambling.

It is still valuable to corporations that enter the stock market for the first time, during the so-called IPO (Initial Product Offering), because it raises a large amount of cash that the company can use to expand — and, as I’ve seen in companies that have approached IPO, to pay out to the ownership for their years of hard work.

If the IPO stock doesn’t yield dividends to its holders, this is free money for the corporation. They have no obligation to pay it back to the investors — indeed, without dividends, there is no mechanism for paying it back to the investors. The investors don’t care, because they aren’t actually investors at all; they are speculators. They believe that they are “buying low” with the intent of “selling high” as the perceived value of the stock shares rises.

Even the company itself plays into this game, speculating on the rise and fall of its own stocks in the market, following the adage of “buy low, sell high,” buying its own shares back and selling them again. Executives are compensated with stock shares, and their concern focuses not on the actual value of the company, but on the perceived value of its stock.

What does this all have to do with taxes and business?

Let’s go back to the basic equation.

High personal taxes equals investing in businesses.

Low personal taxes equals profit-taking from businesses.

When personal taxes are low, as they’ve been for the last thirty years, the wealthy take profits from their businesses, but then what do they do with that money? They spend some of it. The give some of it away through trusts and charitable foundations. Sometimes they use it as a stake for a new business.

But most of it goes into — wait for it — yes, the markets. Stocks, bonds, and commodities. People have been thoroughly sold on the idea that these financial markets always rise over time, and that the gains are higher than anything else they could do with the money. So they “invest” the money — in the financial markets.

Except this isn’t investment at all. It’s speculation. It’s gambling.

Low personal taxes equals profit-taking from viable companies, to gamble the money in financial markets that do very little to benefit non-financial businesses.

I won’t contest that the market serves some people very well. So does gambling — it particularly benefits the house, which in this case is Wall Street itself. But it isn’t very valuable to the the rest of us. If any of you had a 401K in 2001, you already know that. If you had your money in the markets at the end of 2008, you learned the same lesson again. There will be more lessons in the future, in case you didn’t figure it out the first two times, so don’t worry.

These speculative financial markets are also not particularly valuable to the businesses and goods whose names they bear, and they actually cause a lot of damage to those businesses. Like a bank that puts the squeeze on companies for interest payments, stockholders put pressure on companies for “good news” that makes the share price go up, even if that “good news” hurts the company.

Layoffs, for instance, represent a disaster for the actual functioning of a company. It’s like a cargo ship throwing its goods overboard. However, news of layoffs almost invariably drives stock shares up. Why are regular layoffs so popular, despite the damage they do to the company? Why would a company like Hewlett-Packard, for instance, have no fewer than seventeen cycles of layoffs in one year?

Doh.

So here’s a very simple proposal. The top tax bracket — which should probably start at two million dollars per year — should be raised to at least ten percent above the equivalent corporate tax rate.

Why two million? Because it’s ten times the top bracket in 1960, and we’ve had about 1000% monetary inflation since then. A dollar today has about 1/10 the buying power it had in 1960.

Why ten percent? Because Wall Street has sold us the dream of ten percent returns through aggressive stock investment. If corporate taxes and personal taxes are equal, then business owners will still take profits as personal income and gamble it for that brass ring of ten percent returns — no business will net you ten percent growth unless you happen own Google or Microsoft during the early years. If you get taxed an extra ten percent (or more) for taking profits out of your business, your accountant will advise against it.

A couple of other things need to happen as well.

First, the distinction between “capital gains” and “income” needs to be fixed — either eliminate the “capital gains” category entirely, or make it equal to the “income” rate.

Second, the various loopholes that allow money to be shipped out of the country to avoid taxation need to be closed, probably by pulling corporate charters for companies that starve their US divisions. There’s no problem with a company deciding to relocate to China. They just need to really relocate to China.

None of these things will happen, of course. Obama can’t even get the Bush tax cuts to expire at the time they were set to expire — there’s no way the government will raise personal income taxes on the wealthy.

So the tax policies will continue to favor profit-taking from businesses, and the taxpayer bailouts of Wall Street and the banks will continue to guarantee gains in the financial markets that outstrip anything you can make by starting a business (except for the lottery-winners in the business game, like Google.)

And the recession will drag on and on in a stagnating pool of stale rhetoric about taxes and business.

Dear Julian,

As always, many points of agreement and disagreement.

I apparently don’t know what you mean by “independence.”

There is legal/social independence, which does not exist apart from other people, and is in fact entirely dependent upon their agreement about your independence. This independence isn’t generally granted until you reach the arbitrary age of 21 years. It is removed when you are accused of a crime, and reinstated if you are acquitted. It is suspended if you receive certain random numbers in the mail during a general military draft. It is removed permanently if you are deemed (by others) legally incompetent. It is strictly curtailed in very specific ways any time you go to work for a corporation, extending to what you wear, fraternization with certain other employees, at what times you can attend to bodily functions, how frequently you may be ill — these constraints vary widely from corporation to corporation. There are unwritten but effectively-enforced rules of class behavior throughout any community, large or small. Only a century and a half ago, black people were chattel, entirely without legal or social independence. If my legal/social independence is not recognized by other people, then I am not in fact independent; if I try to act as though I am when I am not, I will be punished: the seventeen-year-old caught drinking alcohol, the accused criminal who jumps bail, the soldier who goes AWOL, the black slave who talks back to his master…. No aspect of this independence even exists outside the “intersubjective.”

There is physical independence. People can survive by themselves on deserted islands. But very few choose this kind of radical self-sufficiency, and even fewer survive for very long. I personally know none of them. I personally have only minimal wilderness survival skills.

Most amusing to me is the myth of the “self-made man,” the Independent Industrialist, which seems rampant in Libertarian talk, and seems central to the few passages of Rand that I’ve read (which you sent me a long time ago.) “Some of us prefer to make our own way in the world, rather than living off handouts” was one recent quote. The computer game Bio-Shock has made a rather heavy-handed parody of this philosophy.

I find the sentiment amusing, because I am John Galt. I have owned my own business and been my own captain of destiny since 1996. I am an inventor, an engineer, and a physicist. I provide valuable services, and negotiate payment in exchange, at whatever rate I feel the market will bear. But here is one illustrative paradox — throughout 2010, I have been working a contract paid by NASA, the government agency that defines “boondoggle” and “taxpayer waste” to many conservatives. Like BP, Lockheed-Martin, Haliburton, and all the parasites on K street in Washington DC, I am suckling at the government teat. I am living off other peoples’ incomes, through taxes confiscated from them by the Feds. Were it not for this contract, it’s very possible I would not be working at all, as was the case through most of 2009. Had it continued through 2010, I would very possibly be a candidate for welfare at this point.

So tell me, Julian — am I John Galt, or just another system-manipulating welfare leech?

I’ve spent quite a bit of time throughout my life thinking about these webs of interdependencies, and I have to agree with John Donne: no man is an island. There are no John Galts, and there are no welfare leeches. These are all fictions of prejudice, or alternatively, prejudices of fiction. What are real are simply people, living inextricably within a web of nested dependencies. Some take more, some give more. Simple-minded measures of worth, such as income and wealth, may be the best that simple-minded people living in simple-minded primate cultures can come up with, but it’s insufficient. Recognizing that is nothing more than an act of realism and humility.

It’s why we still have to be careful when we play God and decide who lives and who dies.

More to comment on…..

— Themon

Dear Julian,

An excellent reply. Thank you!

As always, we agree more than we disagree, but our disagreements are coming into sharper focus.

You inspired nearly 8000 words of reply. I do cover a lot of ground, hopefully 8000 words’ worth. It unfortunately takes a very dark turn at the end. Someday I’ll have to write something on where my hopes do lie. They do not lie in politics.

—

Let’s agree to drop the Tea Party for now. As an informal collection of people without charter, platform, or even philosophy, anything said about it, pro or con, is unfair. I find your ideas far more interesting, anyway.

We are both using heavily-freighted, politically-ruined terms. I think we both need to stop that, because it miscommunicates.

“Limited government” is very different from “crippled government.” I’m finally understanding that you aren’t opposed to a strong government, you merely want its domain circumscribed. We seem to agree that within its proper domain, it needs teeth.

“Deregulation” has come to mean “we’ll look the other way,” and as such represents a corrupt abrogation of a fundamental government responsibility. We seem to agree about that responsibility. I’m finally understanding that, as you are using the term, it merely means stripping the vast Mishnah of regulatory minutiae from the law, while at the same time strengthening enforcement of the core principles underlying those regulations, such as anti-fraud, anti-racketeering, anti-negligence. I have no issue with that. There’s a desperate need for that kind of deregulation.

“Redistribution” is also a trigger word that seems to cause issues. I will avoid its use when I discuss this below.

Finally, I’m going to stop referring to Republicans or Democrats, but instead to Corporate Fascists and Populist Fascists, in the interests of clarity.

We’ve come to mostly common ground on the nature of government, but there are some areas of disagreement. I have a few questions and comments before I move to the disagreements.

—

First, you bring up the Gulf Oil moratorium.

I note that the entire Gulf situation is driven by the free market doing what it does best. Demand for oil continues to rise, supply faces peak production. Oil recovery is moving to deeper coastal waters by necessity, which raises costs and increases risks. Raising prices to cover costs and risks will make the oil uncompetitive or destroy demand. So all of the oil companies are skimping on contingency planning and safety to cut costs. If they’re consistently lucky, safety is wasted money anyway — that’s the nature of any contingency fund or plan.

When they lose their gamble, however, the nature, location, and magnitude of the consequences make it a national security threat.

What do you think the government response to this national security threat should be?

—

Second, you object to “the bailout.” Let’s distinguish between the financial bailout and the stimulus spending. The former was given directly to the banks through the Fed. The latter (as I understand it) was distributed through the state governments, most of which used it to cover state budget shortfalls.

Are you equally opposed to both of these, or only one (or the other)? From a strictly utilitarian perspective, why? By which I mean, please paint for me the financial consequences you see flowing from both of these actions — a fiscal prediction.

—

Third, the distinction between a hedge and a public good is useful. The distinction between a public good and social welfare is not clear to me — the terms are synonymous (public = social, good = welfare).

Every society has a permanent or semi-permanent class of people who cannot contribute economically. Call them “the poor” and “the sick” and “the old” and “the incompetent.” It increasingly includes “the obsolete.” As individuals, they come and go. As a class, they are always there, and within modern technological society, it is a growing class, particularly “the obsolete.” What do we do with them?

The free market has a clear answer. If you’re not useful, you aren’t of any interest to us at all. Go die. Or find someone who cares to sponge from. We aren’t running a charity.

What should we do, as a society, with the economically useless? Particularly when we actually have the capacity to support them?

—

Thoughts related to NASA.

The Corporate Fascist cant is that “government doesn’t create jobs, the private sector creates jobs.” Apart from being literally nonsense — since when is being a policeman not a job? — the more insightful statement might be “industries create jobs, government creates industries.” More correctly, government creates marketplaces. This is often done by spending large amounts of money on a “boondoggle” like NASA or the Internet backbone or the interstate highway system, which overcomes the activation energy required to get entrepreneurs into the game with more modest funding. Examples through history are numerous, from Columbus and Isabella, through Japan’s “coddling” of their infant auto industry, through virtually all military funding of technology since the time of Archimedes. Most of these boondoggles are called “Someone’s Folly” by the pundits unless/until they pay off. Not all of them pay off.

This is merely an extension of the government role in creating and maintaining the marketplace.

NASA opened space during the Age of Oil. Without government funding, this would not have happened. The dream of spaceflight has been around for a very long time, and in 1950 Robert Heinlein published a novella, The Man Who Sold The Moon, which echoes many of Rand’s themes of government and private enterprise. You’d like it. He points out correctly that the primary barrier to space travel is cost. In his fictional account, this is (barely) within reach of private fortunes. In reality, it is not within reach of private fortunes, nor in the 1960’s was there any sane or rational justification for investing that kind of private money in space. There is barely enough justification now, even though satellites are the foundation of our global communications and modern navigation.

When it comes to funding energy R&D, the Age of Oil is coming to an end. It’s possible that additional research will find a “magic bullet” solution if we throw enough money at it, but that isn’t the point. There are a lot less fanciful things that need to be done, and they require vision and unattractive low-yield, long-term investment that does not attract the private sector.

The distributed energy of the future will not be liquid fuel — as you point out, nothing compares with oil. It will most likely be electricity. Battery research is incremental, and would certainly benefit from an influx of money. High-speed flight will become prohibitively expensive without breakthrough improvements in battery energy density and weight, which may not be physically possible: high-speed rail is an obvious replacement for flights over land, and a national effort to establish a high-speed rail network would allow private investors to move in and exploit it efficiently. The aging US electrical grid needs an overhaul, especially to accommodate reverse-current electrical systems, such as home solar panels that can feed the network and sell power to the electric company; such a network would allow all kinds of new market activity, right down to the individual household. Government money could be well spent on energy.

—

You make rather bizarre leaps from time to time trying to tie the government to deleterious acts of the free market.

I’ve been working in and around the electronics business for decades, and there are no “government policies” driving the export of jobs to the Far East and India. The only thing driving that is the market. The only thing that would bring jobs back is a) cutting wages to Far East / Indian levels in the US, or b) government barriers that made it illegal to export jobs. We both know what the latter would do to export of American goods.

The real difference is that people in the Far East can live on a dollar a day, because they are still living close to their food supply, in “subsistence” environments, and virtually all their “income” can be applied to discretionary spending. Each place US jobs have been exported to has suffered the same fate as the US job market. Electronics manufacturing initially went to Japan. As the Japanese “standard of living” rose — meaning as the Japanese became more dependent upon their corporate income — pay had to increase, and those same jobs then migrated to Singapore. From Singapore (I’m working from memory here) they went to places like Kuala Lumpur. If/when the US goes back to subsistence living, those jobs will come back. Until then, they won’t.

This has nothing whatsoever to do with government.

—

On to the real differences.

We have very different concepts of wealth, investment, growth, capital, and other “economic” concepts. These differences are deep enough that I can’t simply respond to your comments — I need to back up and cover some preliminaries.

I note that modern courses and books on economics often start of with a preliminary chapter on “how economists think,” which I presume is necessary to get the appropriate suspension of disbelief and buy-in to the mindset. I do not approach this subject as an economist. I’m not educated in that field. I’m also not impressed by the practical results of economics, and I have some core “sanity-check” objections.

The most damning thing about economics is that we have economists who say that the best thing to do for our current economic disaster is to dump large amounts of borrowed government money into it. We have other economists who say this is the worst thing we can possibly do. I’m appalled by a “science” that cannot come to an even approximate accord on such basic matters. It is like a form of physics where one school says an apple released from the hand will fall, while another school says it will rise into the air, while a third says it will explode and kill you. That isn’t a science at all.

Let’s go back to some real basics.

All economic theories seem to support the idea of “wealth creation,” as if wealth can somehow be conjured out of nothing. For instance, I find a forest. I buy it. I discover a use for trees and exploit them — say, for paper. I “create wealth” by building a paper mill, which exports product to other countries, employs local people, adds substantially to the GDP, etc. Wealth creation is the foundation of our expectation of economic growth.

This is simply bad accounting.

Consider: the Earth is an essentially closed system. Negligible mass arrives from space. A lot of energy arrives in the form of sunlight, but every photon needs to be either sequestered, or re-radiated into space, else the Earth would heat without limit, and very quickly. The entire system is in balance.

As soon as I touch the forest to “exploit” it, I alter its natural balance. The wealth I obtain by turning forest into product is not created, it is simply transferred from one place to someplace else. Every property of a raw material that is available for me to exploit was already being exploited in its natural environment, but for a different purpose. Total wealth is always conserved. Because of bad accounting, we never account for the natural wealth we’ve destroyed to create economic wealth.

When done on a small scale, or done by reversible (sustainable) processes, this isn’t such a terrible mistake. When I cut down a small forest, the forest animals can move elsewhere. The soil damage is limited, the loss of oxygen production and moisture transpiration is negligible. The forest will eventually grow back. Every living thing on the planet upsets the local balance to some extent in the process of living, and my small-scale harvesting is no different from squirrels who interfere with the reproduction of trees by eating acorns. Because the whole system adapts so smoothly, we feel we can afford to ignore the natural wealth we destroyed.

However, when humans start harvesting the entire equatorial rain-forest, or stripping the oceans of all the larger fish, or filling the atmosphere and water with synthetic compounds that destroy the ozone layer and entire food-chains, or converting vast tracts of land to monoculture, this economically neglected wealth-destruction becomes significant.

A proper study of economics would include the fact that a “growing economy” based on an expanding human population is not a good thing. A good thing is a steady-state economy that does not need to grow at all. In fact, it should be able to grow and shrink freely, since there are true economic compensations on both sides.

More prosaically, much of economic wealth-creation is simply money moving around in a circle, counting one side and not counting the other (or as in the case of the GDP, counting both sides as a gain). When a corporation gets a government contract, its profits supposedly represent wealth creation, but it has destroyed taxpayers’ wealth in the process. When business sells to the public, it destroys consumers’ wealth. The profits realized by a merger or acquisition are directly offset by the destruction of jobs and capital equipment deemed redundant. Although the field of economics originated the acronym TANSTAAFL (there ain’t no such thing as a free lunch), it doesn’t seem to follow through on that concept.

This blind-spot seems to permeate economic thinking. A real economy is a zero-sum game. It is impossible for everyone to become richer, when “everyone” encompasses the thermodynamic entirety of Earth, and usually not even when “everyone” encompasses merely all the economic players.

You can “create wealth” by owning slaves if you do not see slaves as persons. As soon as you view a slave as a person, it’s immediately apparent that your slave-wealth is based on theft, where your gain is the slave’s loss. You can “create wealth” by exploiting beasts of burden if you do not see the beasts as having their own reason for existence, from which you have diverted them. You can “create wealth” by harvesting trees if you devalue the role trees were already performing by standing there.

The free market promotes efficiency strictly on the basis of its accounting, which is flawed. We can look at British Petroleum as an example. To BP, the entire Gulf Shoreline issue is merely a public relations annoyance that has nothing to do with their business of extracting and selling oil. As a company, they do not care about destroying lives, livelihoods, port cities, wetlands, species, oceans, nations. These things do not appear on their balance-sheet, nor do they directly affect their profitability. They are of concern only as a potential legal liability, and they have many strategies for limiting this liability which are much less costly than contingency preparation.

This is why I fear both the unrestrained free market and corporations. They have a single focus — short-term profit, based on bad accounting. They do not care how much collateral destruction they cause in that pursuit. If it isn’t on the balance-sheet, it isn’t important — and they are accountable to no one (other than those checking the balance-sheet), particularly not a crippled government riddled with Corporate Fascists.

Life, Liberty, and the Pursuit of Happiness are not on any corporate balance sheet.

Government may be corrupt, but at least Life, Liberty, and the Pursuit of Happiness are part of the charter.

—

A brief expansion on the issue of “economic growth” that is required by economists and politicians. It is expressed as a percentage, as in 3% annual growth of the GDP.

Percentage growth, also called “proportional growth,” is mathematically equivalent to geometric growth, exponential growth, and doubling growth. People generally have no sense of what this means.

Let’s assume we have spacecraft of the sort the aliens had in the movie Independence Day, and that we rip through the galaxy “harvesting” entire worlds. Let’s assume we can build as many of these ships as we want, and we can send them out in an expanding sphere at the speed of light. Let’s assume they can harvest a world the instant they fly past, leaving behind a fully-industrialized, sustainable garden-planet that continues to provide resources for our expanding empire at a constant rate forever, and we can build “stargates” to move the resources around within the empire instantaneously.

Our resources expand only as the cube of the time we spend doing this. That isn’t “proportional” growth. It isn’t even close. So, as our empire expands under these idealized conditions, our annual growth drops from 1000% to 100% to 10% to 1% to a number that becomes very close to zero. To sustain a steady 1% growth, our fleet of ships would have to increase their speed exponentially over time.

People are fond of taking credit for things they had nothing to do with. Our Superior American Economic Growth of the 1900’s has had nothing whatsoever to do with democracy, capitalism, cleanliness, or godliness. It has had to do with two things only — the fact that we found ourselves with an extremely small population on a large continent of enormous natural wealth, and the fact that after two world wars, our principal economic competitors (the nations of Europe) had punched themselves silly and couldn’t stand on their own feet. For a short time, our population and our economy could expand exponentially.

We’re back in a world of serious competitors, however, and we’ve squandered our natural wealth in more ways than I can count as we’ve pursued this exponential “economic growth.” Our way of life isn’t sustainable, and we are seeing this in the numbers, which is one reason our economic measures are doctored so heavily. Inflation is a big part of hiding the truth, because inflation is exponential. Since 1960, general prices have gone up by a factor of about ten, which is a relentless five percent inflation per year, on the average. Subtract five percent from all of the economic growth figures over the last fifty years, and you’ll quickly see that most of our economic “growth” has been entirely fictitious.

And that is a nice segue into investment.

—

I have no complaints with someone who works hard (or smart) and earns a million dollars. If he can live comfortably on a hundred thousand per year, he has earned ten years of ease. If he can live on ten thousand a year, he’s bought himself a century of ease and an inheritance for his family. Good for him. But I fail to see why possession of a million dollars justifies a lifetime of ease with no need to spend even one dime of that million dollars.

This brings us to the financial concept of usury, or proportional (exponential) growth of wealth through investment, and there is a whole essay to be written on this. The short summary of that essay is this: such a scheme is an unsustainable pyramid scam, and all the “free money” that comes to the investor through usury comes at the expense of something else, because real economics is a zero-sum game. That free money comes from destroying natural wealth, or it steals from the labor or capital of others, or it is purely imaginary and comes from an inflating money supply, which steals from everyone. There are no other places for investment return to come from. One way or another, usury — and investment — represents theft.

An investor is as big a leech on society as any welfare queen, and more dangerous because the investor’s appetites increase geometrically. We are willfully blind to this, because our culture has an almost religious love affair with proportional gain, usury, and investment capital. Turn the clock back 700 years in Europe and this wasn’t the case.

Talk to capitalists who have dealt with investment money. “Leech” is very polite language. I’ve personally met no experienced capitalist who wants anything to do with investors, for the same reason no individual wants to deal with a loan shark. They’d much rather work with banks and straight business loans. Investment capital is a last resort because it is so destructive to profitability.

Because of our fixation on capital growth, which is increasingly locked up in the hands of the investment class, we’ve become stuck on the idea that we need to entice the investment class to put that capital back into the economy with promises of high-yield exponential gain.

As an alternative to offering an investor returns, consider the von Misean concept of demurrage. I believe this has been tried only with cash, but it effectively taxes stagnant money. You have to get your cash stamped periodically, and you pay a fee for the demurrage stamp, which is a percentage of the face value of the currency. If you want to spend the cash, it’s invalid unless its stamps are up-to-date. It means that if you hoard cash, it loses value over time — so there is a strong incentive to put it back into circulation as quickly as possible. There is no reason that a similar system could not apply to investment capital — you simply tax stagnant (non-working) net worth. That would “free” investment capital in a big hurry, even if there were no investment yield at all.

Or, there’s the tried-and-true method of taxing the living shit out of high incomes. This has the advantage that it doesn’t touch earned capital — my million dollars is and remains mine, and I can spend it down as I wish without being continuously taxed on it. The downside is that it doesn’t address hoarding of capital at all, and unless it goes to 100% marginal taxation, it only slows the drain of wealth out of the general economy and into the investment class.

And that is a nice segue into taxes.

—

The whole theory of “trickle-down” and Reagan’s voodoo economics was based on the idea that freeing up investment capital through lower taxes would free investors to re-invest their capital in the US economy. You make this comment several times yourself.

Investors in general did not re-invest in the US economy in the 1980’s. Instead, they indulged in high-stakes gambling. They turned to mergers and acquisitions, the financial fad of the 1980’s. They turned to “creative mortgage lending” that resulted in the first housing bubble of my lifetime. They turned to high-yield tech IPOs in extremely short-lived, volatile markets. They turned to foreign investments. They turned to day-trading. They turned everywhere except where trickle-down was supposed to go, which was into the core American economy. And most of them did very, very well. For themselves. They loved trickle-down.

The Reagan/Bush years were great for the investment class — they were utter shit for the US economy as a whole. You’re what, in your mid-thirties? So in the early 1980’s, you’d have been around ten. I was in my twenties and dealing first hand with the crappy job market (twelve percent unemployment, until Reagan slashed it to six percent overnight by counting military as “employed”), mortgage interest around twelve percent (up to twenty for some of the “balloon” mortgages, and I had close friends facing default and eviction), and significant inflation — the infamous “stagflation” of the Reagan years. What won Clinton the election in 1992 was his line, “It’s the economy, stupid!” after twelve years of the clueless Reagan/Bush fiscal mismanagement.

Mismanagement it certainly was. If their voodoo theory was right, then their execution was so terrible that it overturned all of the theoretical advantages they started with. But I don’t believe the theory.

To make a credible case for this theory of tax cuts, you and the Libertarians have a formidable set of hurdles to leap.

First, and most significantly, we have a relatively peaceful laboratory experiment right in front of us, and it flatly contradicts the tax cut claims. This theory demands that the period from 1945 to 1982 be a period of utter economic stultification from the extremely high tax rates on high income. Similarly, the theory demands that the period from 1982 to the present be a relative economic golden age, owing to the drastically lower tax rates on high income. Both claims are ridiculous. Indeed, all evidence indicates the exact opposite is true.

So the first hurdle is explaining why the results were the opposite of what was predicted under voodoo theories. Either taxation has a relatively weak effect and something else was (and is) the gorilla in the room driving the economy, or the theory is just plain upside-down. I’m open to hearing what the gorilla might be, but the burden is upon you to explain it. And then, as follow-up, why Libertarians aren’t focusing on the gorilla rather than the tax cuts, since tax cuts are obviously ineffective while the gorilla rules.

Second, how low do you want to go? In 1979, taxes sat at 70% for the top tax bracket, down from 91% in 1963. In 1982 it dropped to 28%, and it hasn’t risen above 40% since. It was at 35% in 2008.

What number do you want? Zero? So it makes sense to tax only the poor and the middle class? Even if the tax cut reinvestment theory were correct (which I’m not buying), there has to be some law of diminishing returns — dropping from 90% to 35% would surely show a much larger effect than cutting from 35% to 30%. Yet the Corporate Fascists and the Libertarians alike carry on as if that five percent is utterly destroying the economy. You need to explain this hysterical screaming about taxes — why dropping from 35% to 30% is going to make any positive difference at all, especially since dropping from 90% to 35% either had no effect (given the as-yet unidentified gorilla in the room), or actually caused the current mess because the theory is upside-down.

Third, there are all kinds of statements floating around about how taxation quenches reinvestment and drives away investment capital, and this makes no logical sense at all. Investors invest capital, not earnings. Capital is not taxed — earnings are taxed by income tax (and capital gains are taxed on gains). Heavy taxation on earnings isn’t going to drive investment capital out of the US. Heavy taxation on earnings will drive investors out of the US. The Bahamas have always been a favored tax shelter for wealthy expats looking to get out of paying federal taxes, and Jackson Hole in Wyoming is popular because Wyoming has no state income tax. Their choice of where to live is simply their choice. It costs whatever it costs, and it doesn’t affect their investment decisions at all. Their money will remain in the US if yields are good, and will flee if yields are bad.

Fourth, you need to explain why reducing the tax rates would result in reinvestment, this time, rather than the gambling we saw through the 80’s, the 90’s, and the ought-noughts. Why would investors put their money into low-yield bonds for power grid upgrades in the US, rather than putting their money in high-yield short-term Chinese opportunities? Or naked shorting of toxic derivatives? Or carbon cap-and-trade futures?

Why, for that matter, would any sane investor invest in any US business, or in the US markets at all? Lowering taxes merely frees more capital to flee the country. Which, given the level of dishonesty in politics, may actually be the intent.

—

So at last we come to the distribution of wealth. I’ll try to avoid the term “redistribution.”

To discuss this, we need to make distinctions between simple labor capitalism, simple resource capitalism, investment, and corporatism.

Simple labor capitalism — exchange of labor for other items of value — is an excellent means of distributing wealth. It is egalitarian, self-adjusting, adaptive, robust, and reasonably fair. Its flaws are relatively minor. We have no arguments of any sort here. I’m very much in favor of simple labor capitalism.

Simple resource capitalism — exchange of natural resources for other items of value — can prey upon third parties, which includes the natural wealth itself. A great deal depends on the accounting used. Individuals who have a long-term living ownership stake in the natural wealth being traded away generally do pretty good accounting, unless they are complete idiots — it is possible to sustainably farm land, manage a forest, cultivate herds and wild game, or fish, particularly when the people doing this want to pass the resource on to their grandchildren as a continuing asset. Strong laws are needed to prevent predation on other owners, else this quickly breaks down into tribal conflict.

In both cases of simple capitalism, inequity is natural but tends to be self-limiting and self-correcting.

Investment and corporatism, however, are both intended to accumulate and concentrate wealth without limit, using self-serving bad accounting. Neither is egalitarian, self-adjusting, adaptive, robust, or even approximately fair.

Investors don’t add to the economy, they subtract from it. Every dollar invested is as a yo-yo that comes back to the investor with more wealth attached: it’s a sticky dollar on a string. It increases the investor’s personal concentration of capital, making it less available to the rest of the economy. The higher the yield, the faster wealth gets sucked out of the economy.

One way this could be sustained is if the investment class, as a whole, made no money: if every gain were eventually offset by losses so that the total pool of investment capital remained a fixed fraction of the total economy.

The only other way this could be sustainable is if the economy were growing exponentially at an equivalent or greater rate than the investment class is drawing wealth out. Investment would be beneficial only if investment caused the rate of an exponentially-growing economy to increase more than the drain it imposed: if investments are yielding ten percent, investment would have to be causing more than ten percent growth in the economy. But an exponentially-growing economy is an artifact of bad accounting, not a reality. The real economy is zero-sum: so every dime that does into an investor’s pocket came from somewhere else. If the investment class is getting wealthier, someone is getting poorer.

If either of these sustainable scenarios were the case, concentration of wealth would be constant or decreasing. However, concentration of wealth is increasing rapidly, specifically within the investment class. This says, unambiguously, that the investment class is looting the general economy. And the general economy, as we know too well, is draining the natural wealth at an alarming rate.

Corporations are more complex. There are different sizes and types. My LLC-of-one is technically a “corporation,” as is the local brewpub, as is Hewlett-Packard, as is British Petroleum.

However, all businesses with a separate ownership class involve moving wealth upward to the owners. As owner of a company, when you hire an employee you expect a portion of their labor to go into your pocket. That’s why you hire them — to make money for you. There are alternative models of both ownership and wealth-distribution, such as cooperatives, employee-owned corporations, loose networks of private contractors, etc. The corporate model takes for granted that the “owners” automatically get a portion of the employees’ labor. In return, they provide tailored access to the marketplace.

For small businesses, this upward-pumping effect is barely distinguishable from simple labor capitalism: it tends to be self-regulating and it is spread out over a large number of owners, who come and go as businesses succeed and fail. Most small business owners are an essential part of the middle class. I don’t see a systemic problem in this.

That changes when the corporation ownership becomes mixed with the investment class, either by accumulating enough capital to feel the need to “diversify their portfolio,” or by becoming a public corporation that trades on the stock market.

It also changes when the corporation begins to prey on simple resource or labor capitalism through its effective monopoly on market access. We have, for instance, WalMart’s “take it or leave it” negotiation on pricing, which is similar to the infamous GM practice of “negotiating” such low prices from captive suppliers that their suppliers would be forced out of business, leaving GM with no parts to make their cars. Such corporations often enter into collusion with governments to forcibly strip resources from the people who are managing those resources conservatively using good accounting. It has been common practice in most corporations to pay exempt salaries for skilled labor based on a forty-hour work-week, while demanding fifty- or sixty-hour work-weeks. One of the (many) reasons I contract is so that I get paid hourly.

Of particular concern are the “locust” corporations, such as mining and oil. Their business model is limited by production peaks — they’re inherently short-timers, with no long-term interest in the properties they “own” whatsoever. In most cases, they don’t live there, either. Sweeping in, extracting the “cheddar” (as in the film Avatar), and destroying everything in their path is simply not a problem. Even such things as commercial fisheries and commercial farming have become locusts, through overfishing and monocropping.

When corporations turn these corners, they become — like investment — a machine for pumping wealth into the hands of the corporate ownership class (which is typically the same people who are already in the investment class.)

So we have two mechanisms moving wealth upward into the hands of the few, and the movement is automatic. How does wealth move back down? If it doesn’t move back down, it continues to accumulate in the investment and corporate ownership classes until the middle class is obliterated. And that is dangerous to the system as a whole.

You have said “capitalism, sound money, and limited government.” If you want to add two more items, we’re now pretty close to being on the same page: eliminate proportional investment returns, and eliminate or limit corporatism. If you don’t add those, then I don’t see what countervails the wealth-pump that moves wealth into the investment and corporate ownership classes, and the system is unstable.

I want to point out that high marginal tax on high income — under the Populist Fascists — does provide some downward relief from the upward-pump.

This is why I believe the tax-cut theory is simply upside-down. The New Deal flow of wealth into the lower and middle classes is what created the American consumer economy, by creating the American consumer. It fueled a burst of demand for manufactured goods that supported the entire post-War industrial expansion.

If we tried that again, it would revitalize demand in the US, but since most manufacturing has gone elsewhere, all that money would flow straight out of the country rather than rebuilding industry here. Not that this changes anything, since investment money is also flying.

The best thing to do, IMO, would be to raise taxes, perhaps back to 90% on top income, and put the tax money into boondoggles — a national high-speed rail system, just to throw one idea out there — that look forward to rising oil prices and create new marketplaces that are tied to US soil and are not exportable. In other words, infrastructure (meaning free stuff that can be exploited by entrepreneurs for modest investments) that isn’t attractive to investors — what the Corporate Fascists would call a Big Waste of Taxpayer Dollars.

This brings us around to the two political parties.

—

Though we have a national obsession with trying to be fair to both sides in an argument, there are some fundamental asymmetries between the Corporate Fascists and the Populist Fascists.

I have personally known only the Corporate Fascism of Reagan and the Bushes, and the Populist Fascism of Clinton and Obama. I was becoming vaguely politically aware at the time of Nixon, Ford, and Carter — Johnson and Kennedy were childhood figures to me, and people like Goldwater and Humphrey were merely names the grownups threw around.

The Populist Fascists may or may not represent a slippery slope into serfdom. That’s an opinion, and a prognostication. I don’t know how that will work out.

The Corporate Fascists, however, are a clear and present danger to the nation.

I know that you have a great concern for individual freedoms, yet you brush off as merely “appalling” the shredding of the Bill of Rights by the Corporate Fascists.

The only “right” that the Populist Fascists have ever gone after, peripherally, is the one embedded in the second amendment. Given that we’ve allowed Congress to felonize individuals for what they carry in their pockets, and thereby strip them permanently of the right to vote, it doesn’t seem unreasonable to me to require a license and training to own a gun — the stated purpose is, after all, a “well-ordered militia.” Most countries that have citizen militias also have compulsory military service where the citizens are trained to use the gun, and they each get a free (tax-paid) weapon when they are discharged.

By contrast, Corporate Fascists have gone after most of our rights with a machete. They have allied themselves with the Religious Right, which wants to overturn the first amendment entirely and establish Christianity as the official state religion. It was Bush who established “free speech zones” and “embedded press” in military actions. Reagan trashed the fourth amendment, and Bush savaged the remains with warrantless wiretapping and surveillance of ordinary citizens going about their peaceful business. The right to a swift and impartial trial has been rescinded, as well as right to legal counsel and habeas corpus. Every overtly regressive and odious proposal against the Bill of Rights that has been introduced to Congress in my lifetime has come from the Corporate Fascists, from flag burning amendments to restrictive marriage amendments to attempts to use government to override individual conscience in matters like abortion. It was Bush and the Corporate Fascists who turned “terrorism” into a six-year political campaign, and who used it to create the infrastructure for an actual Orwellian surveillance state, available for Obama or any future president to use. Cheney said he expected Obama to thank him for that. You blame Obama for inheriting it.

This comparative civil rights record for the two parties should by itself be enough to bury the Corporate Fascist party as fundamentally anti-American, anti-Constitutional, and Abhorrent. It is baffling to me that people like yourself, with such a finely-tuned sensitivity to individual rights, simply let this slide because the alleged “slippery slope into serfdom” is somehow worse.

We add to this overt abuse of power the fact that the Corporate Fascist party is a one-trick dog, lowering taxes. You sent me the links to the Ron Paul site during our discussions of health insurance, and I was intrigued right up to the point where he started boasting about his “solutions” to the problem — tax cuts. Nothing else. Just tax cuts. Corporate Fascists are like the religious converts they’ve taken into their party, for whom the answer to every question is “Jesus.” I don’t believe in the tax cut theories of voodoo economics, as I’ve indicated above; even if I did, there needs to be some connection between government taxation and whatever problem you are trying to solve. The Corporate Fascist response of “cut taxes” appears to be purely reflexive and thoughtless.

This impression is reinforced by the complete absence of alternative policy coming from the Corporate Fascist party right now. Their one trick, cutting taxes, is currently out of favor, and they have nothing else to offer. So they lock arms and simply try to block everything the Populist Fascists try to do. Their “reasoning” is bizarre, and reminds me of the “reasoning” my children used to justify punching each other. The “deficit” is such a huge problem that we can’t possibly extend unemployment benefits, but it isn’t so big that we shouldn’t lower taxes some more?

The Populist Fascists may be misguided by your lights, but on the whole they are at least still trying to govern under the Constitution, and particularly the Bill of Rights. The Corporate Fascists over the last thirty years have reminded me more and more of the Renaissance Popes. “Since God has seen fit to grant us the Papacy, then let us by all means enjoy it.” They don’t seem to believe in governance at all, beyond meddling in the morality of private lives. Their vision of government is merely a series of glory wars, and funneling borrowed taxpayers’ money into preferred corporate interests — including their own.

The question I have for you is this: of what value to me is my freedom to make unlimited profits, when I am under 24-hour universal surveillance searching for evidence of “domestic terrorism” that can get me whisked off to a non-US prison where I am denied counsel, trial, and face torture to get me to confess to crimes I never committed?

—

I’d like to close by coming back to reality. Or maybe it should be called black pessimism.

We do not have a Liberal Party, nor a Progressive party, nor an Environmental party, and certainly no Conservative party. We are stuck with the Corporate Fascists versus the Populist Fascists, fighting perpetual legislative guerrilla warfare within a crippled (but not limited) government. We have an entrenched investment class that demands perpetual ten-percent return on their investments (doubling time of eight years), and they already own most of the wealth — deny them and they threaten to pick up their marbles and send them to China. We have entrenched and predatory multinational corporations fouling our waters, stripping our mountains, cutting down our forests, and emptying the oceans of life. We have a fundamentally trashed, jobless economy, a shrinking, disempowered, and demoralized middle class, and entrenched camps of theo-economists pointing in opposite directions like the Scarecrow in the Wizard of Oz. We have a nation full of dumbshit hicks inflamed by Fox News into hysteria over Death Panels while raging, “Keep the guv’mint’s hands off my Medicare!” We’re fighting two unsupportable, unwinnable wars in the Middle East, fueled by a huge military-industrial complex and a military mindset (War on Terror? What’s next, the War on War?) that won’t let us stop or wind down either war. We’re on top of Peak Oil, and everyone is chillingly silent about what that means — most people don’t even know the term, and can’t think clearly enough to see the consequences even if they did know. Every official source of information tells lies, everyone has an ax to grind, and everyone writes a book spewing the most incredible nonsense as fact. Even an educated, reasonable person cannot keep his footing in this quagmire of lies.

Your Libertarian ideals have no place in this pre-Collapse world. (Neither do my ideals.)

You want limited government, but you are asking legislators to do this? That’s asking them to piss in reverse. They spent serious money and made serious promises to serious people to get power in the first place, and the ones with the most power have the most investment in the way things are. They aren’t going to go backwards just because we ask them, pretty please.

Any sane rework of our currency is going to devastate the already-wealthy. In particular, it will destroy their primary source of income, which is based upon the usury built into the Federal Reserve and fractional-reserve banking systems, and the world currencies built upon the ever-inflating US dollar. You think Rupert Murdoch is going to jump right on this? Much less the Goldman-Sachs crowd that dictates economic policy in this country?

Our very vocabulary regarding “capitalism” has been corrupted to meaninglessness by blending it with investment, corporatism, and perpetual geometric growth. Most people think BP represents capitalism. Most people think Wall Street is about capitalism. The Corporate Fascist party seems to think the government itself should be privatized into US, Inc.

In short, any real Liberal/Libertarian reform (as you’ve described it) represents a complete overthrow of existing power structures and beliefs. That isn’t going to be pretty under any circumstances, and it would be nearly impossible to build anything remotely free or democratic in the aftermath of a violent overthrow.

In 1776, they could have their little war between Britain and the US, and most people could still eat — they had farms, families, and great hopes for the future regardless of how the politics worked out. The US leaders in 1776 were mostly Enlightenment idealists, and they believed a better world could be achieved through reason.

None of this is true now. Simply interrupting shipments of food to supermarkets would kill half the country (or more) within a month — the rest would be too busy burying the dead and trying to rediscover how to stay alive to worry about freedom. The ideals of Enlightenment are viewed as “quaint” and “unrealistic” in comparison to the brutal necessities of Realpolitik, and the marketing experts have discovered that (surprise!) people aren’t the least bit rational, though they are great at rationalizing. Any hint of organized revolt, could our irrational public be organized at all, and we’d be under martial law in ten seconds flat, eating rationed food under the automatic weapons of trained military and mercenaries. The degree of disinformation that would be spewed at that point through the corporate media would keep the survivors pointing fingers and fighting among themselves for generations.

I don’t see much more hope if we simply let the system destroy itself, which is where it’s headed. In collapsing, there is no enemy to fight, so an enemy will be manufactured. “Desperate times….” and all that. “Jews” played well in Nazi Germany, and “Islamic Terrorists” played well in 2001. We could place bets on what group will take the fall for the final collapse of the US. Maybe we can revive the Visigoths as an enemy. Nobody much liked them, anyway.

I see unavoidable tyranny on the horizon. Governments fall, and democracies are the most fragile of governments. There have been very few in history, and none has lasted more than momentarily.

FDR was almost granted dictatorship by both parties in Congress, did you know that? I didn’t until very recently. He chose instead to attempt the New Deal, which made him a bitter enemy of all his wealthy peers (particularly the Fascists, who greatly preferred a dictatorship to Rule by Idiots, as they saw it) — Corporate Fascists still spit when they hear his initials, and they’re still trying to destroy Social Security. A reporter interviewing FDR commented, “If this economic plan of yours works, you will be the most famous President in history!” He replied, “If it fails, I’ll be the last.”

We don’t have an FDR now, and we don’t have the unity in Congress to give him leeway to enact sweeping reforms as an alternative to dictatorship. Nor would a modern FDR have anything to work with in terms of core economic strength — the US economic core is drained. This government (and nation) will tear itself to pieces before very much longer, and what will replace it will be some form of tyranny.

Given that bleak vision, I think you might understand why I would prefer a socialist, European-style tyranny under the Populist Fascists, for as long as it lasts, to the free-market police-state under the Corporate Fascists where, as Reagan, Bush I, Bush II, and Sharon Angle have all repeatedly assured us, the unemployed are simply lazy.

— Themon

Dear Themon,

I meant to add a note about the Durants. I cannot honestly claim to have read any of their rather lengthy work. However, they are correct that a natural civilization will alternate between concentration and disbursement of wealth at various times. At times of collapse, civilization tends to be at either end of these poles. However, what the Durants miss if they claim concentration of wealth causes collapse is that concentration of wealth happens frequently when societies are doing just fine. The Victorian Age saw a great deal of wealth concentration at comparative levels beyond that of today. Despite this fact, both England and the U.S. were stronger than ever and standards of living were going up in all classes.

The Victorian Age prosperity was taxed, quite literally, to sustain WWI debt levels. The U.S. also developed a nasty habit at the same time of taking gold but issuing only paper in exchange. To service debt levels, Great Britain began to suspend gold payments and issue only fiat currency. Foreseeing trouble, Winston Churchill tried to return to the gold standard shortly before WWII saying that it would only shackle England to reality. Because the British had printed so much money, though, the result was to begin a period of large scale deflation which was distinctly uncomfortable for industry. Ultimately, Churchill was right; it was no more than a return to pre war levels and a destruction of bad money and bad credit. It was uncomfortable though. He abandoned the policy on the advice of Keynes who suggested they could manage with a total fiat system if they were careful.

They were not. WWII and the following years produced even higher debt levels and greater inflation. Servicing the empire quickly became cost prohibitive and the British began to dismantle their empire to avoid the crippling expenses and astronomical debt it required. The British Empire dissolved peacefully, but the cause was not concentration of wealth, but over loose credit and inflated money supply.

Go back much further to ancient Rome. Why did the Western empire fall? There are lots of stories about plague, about barbarian invasions, et cetera. But plagues always came and went. Barbarians were always present but the legions remained supreme. So what happened? The legions did not suddenly start losing battles. Was it wealth concentration? There were huge wealth disparities in ancient Rome, far more than today. But this was true even when the empire was strongest under the Julio-Claudians. Rome, however, also had to finance its endless wars and maintain the high standards of living of its ruling class. It ended up not being able to pay fully for legions and had to hire mercenary troops. Even these, however, quickly found that their pay remained the same technically but the coins got smaller and smaller. Eventually, when the Emperor called the legions walked away and mercenaries went elsewhere. Inflation and loose credit did the job no barbarian hoard ever did–they defeated the legions.

Byzantium had similar problems. While plague and other natural disasters compounded the problem, the enormous expense and debt levels the Byzantines maintained had begun a process of massive devaluation by around the year 1000. Though the fall of Constantinople was not until 1453, the rot that led to that event was already poisoning the system so that, by 1453, Byzantium was more of a city state than any sort of empire.

The Soviet Union, which had no financial class at all, still had similar problems in being able to finance its empire. The Durants could easily look at all this and see concentrated financial wealth in France, the Weimar Republic (both already mentioned), and Rome while seeing no financial class at all in the USSR. That misses the point, though, that there are huge concentrations of wealth at other times of prosperity when the societies are actually strong. The key factor is not concentration of wealth, but the credit and monetary cycles which, almost without fail, does try to advantage certain stakeholders in the government at the expense of the rest of society–to disastrous consequences. Take your pick of a collapse situation though (as opposed to a conquered situation) and this will probably be the case.

Huge concentrations of wealth are fine provided a merchant middle class remains, the currency remains strong, and the markets function largely without interruption. If loose credit situations produce massive inflation, though, and if that inflation is severe enough to destroy the middle class, the only money left will be concentrated in the hands of a few and the very top and it will be insufficient to sustain a functioning economy or nation, resulting in collapse. Extreme wealth, however, is not itself negative. As I pointed out earlier, under a functioning market it performs important functions and those who are not up to handle it will soon lose it entirely. It is only in collusion with government that it becomes so poisonous.

Okay. Now I am really done with this letter. At last. You sent me back to Rogoff’s, de Toqueville’s, and Hayek’s books for this one, in addition to a few other minor references I had to check. Quite a lot of reading for a letter. Nonetheless, it was fun, and gave me something to read while briefly in Omaha last week. And I see I have yet another letter from you. Not fair. This one was just accomplished.

Take good care.

Julian Dunraven

Dear Themon,

To be told I make more sense than the most influential philosopher of the 20th Century is indeed a marvelous compliment. I thank you for it. Keeping in mind that you have not yet read any of Rand’s books in full, however, I will try to prevent such praise from going to my head in the interest of getting through doorways. Then again, I am fond of French doors. Perhaps a few more wouldn’t hurt. . .

That said, I will argue most vehemently against any charge of nihilism. Political nihilism rejects any sort of intrinsic value or meaning in the individual or any state and cultural structure and thus advocates the complete abolition of such structures. As a firm believer in the Natural Law and Classical Liberalism, I represent the very antithesis of nihilism. If my letters in this thread focus more on errors than solutions, it is only because we were discussing Bernstein’s article and not my own proposals for a brave new world. I have a laundry list of those, however. The fact that I detest our current system does not mean I oppose the very idea of government nor does it mean I think our system is irreparable. It will, however, take a great deal of work and I have little confidence in the ability of our current politicians to accomplish it adequately. That, though, is plain old disgust and frustration—not nihilism.

I think it is unfair to level the charge of nihilism at the Tea Parties as well. To assert that government has gone too far, taken too much power, and trampled intolerably upon individual rights is hardly nihilism. The assertion of individual rights is quite opposed to nihilism. One need not be an academic capable of illustrating the finer details of these claims and how they came about to recognize their truth. Almost any idiot can recognize the injustice of government granted privilege in such acts as the bailouts even if they cannot explain the economic harms such things bring about. Moreover, the idea that we should limit the reach and power of government is hardly a call for its complete abolition as a meaningless wreck. People are beginning to see they let it get massively out of hand and are now seeking to correct that error. That is not nihilism. It is a return to liberalism.

Now then, if you prefer to say we are trying to create the limited constitutional government we never achieved rather than claiming to restore constitutional government I have no major objection. Certainly, a perfect system is unattainable given the flaws of the human beings trying to make it. Thus, it is a constant struggle to improve and refine. That said, however, I do maintain we have departed rather markedly from the system we did have in place and even returning to that would be an improvement.

You ask when that departure began. That is easy. The Liberalism of the Enlightenment was opposed by Progressivism in the late 1800’s, which basically sought to speed up the freedoms and improvements of Liberalism through government intervention and planning (i.e. socialism and collectivism). In Europe, Progressives and Liberals clashed openly and early. Progressives had already begun to steer European governments by the late 1800s. Progressivism did not take hold in the U.S. until a bit later and was much more subtle when it did so. Progressives even co-opted the Liberal name here and left Libertarians (and here I focus more on the philosophy rather than the modern political party) as the successors to true Classical Liberalism. The first Progressive of note we had was William Jennings Bryan. However, we did not get a truly Progressive president until Woodrow Wilson in 1913. Since then, Liberalism has been slowly obliterated and we have slid, despite a few obstacles, ever further toward socialism and ever expansive government. Whether you would choose to phrase it as restoring limited government or creating better government, I favor ending this trend and asserting the principles of Liberalism. As I mentioned, I have a laundry list of specific policies in which that can be accomplished but those can wait while we hash out basic philosophic principles.

*****
Big government vs. Good Government.

I think we may be using different definitions of big and small in reference to government. As I use the term big government, I do not necessarily refer to comparative budgets. Certainly, by that standard all the states are dwarfed by the Federal Government and appear quite small indeed. Even the British government, which has become one of the most invasive in the world, would be look small next to the U.S. if measured merely in dollars. However, that is not how I use the term. In referring to the size of government, I am looking at the area of our lives it occupies. By that measure, even state governments take up huge spaces. As you rightly point out, governments at any level can be full of corruption and vice. At any level, they can intrude terribly into our lives. At virtually every level, that intrusion has become too much, and thus I say government is too big in its scope. Consequently, its accomplishments are more oppressive and damaging than they are liberating and uplifting.

In Common Sense, Thomas Paine explains that, “Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one.” That is the idea upon which the founders created this nation. Good government was not their objective. They did not believe it was possible. With the Constitution, the founders set out to create a government capable of carrying out its basic functions, but so limited in power and scope that it could not become oppressive so long as the Constitution was followed.

The experiment worked marvelously at first. America was a wonder of the world. The French aristocrat, Alexis de Tocqueville, beautifully described our burgeoning nation in Democracy in America in 1835. However, he did have a few ominous predictions about our limited government. He warned that it would attempt to grow and subject us to a “new kind of servitude” when:

after having thus successfully taken each member of the community in its powerful grasp, and fashioned him at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate to rise above the crowd. The will of man is not shattered but softened, bent and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to be nothing better than a flock of timid industrial animals, of which government is the shepherd. — I have always thought that servitude of the regular, quiet, and gentle kind which I have just described might be combined more easily than is commonly believed with some of the outward forms of freedom and that it might even establish itself under the wing of the sovereignty of the people.

I would say his prediction has come true. Not only has government massively overstepped its original role, it has managed to convince a good portion of our society that such intrusions are not only desirable, they are actually necessary for the survival of the nation and society itself. Your own recent arguments display this attitude rather aptly, despite your skepticism of government’s competency. Your statements about the fundamental purpose of government, for instance, go well beyond the fundamentals. By including equitable redistribution of wealth in your list, you depart entirely from fundamental purpose of government and leap into Progressive policy aims to make society better through government—a proposition that continues to fail yet never seems to go away; it just gets dressed in new fashions and goes out preaching again.

The Purpose of Government

Obviously, I reject the idea that government either is or can be made to be good. At best, it can be limited to its proper role. I hold that the proper role of government is to provide stability in a society where the actions of individuals are insufficient to accomplish that task on their own. All governments in history are formed for this reason (social contract theory); how far beyond this purpose they go is another matter.

Nonetheless, for the sake of stability and survival, providing a military for the common defense, which not even the wealthiest of people could provide individually, would be a proper role. Where individual action can provide adequately (markets, transactions, provisions of goods and services) it should be as free as possible to do so. Where individual action, competition, and free negotiation are insufficient or unable to provide stability, though, they should be supplemented with government (codes of law for contracts, anti-fraud, property rights, et cetera). That is it. That is the most basic purpose of government.

This is why I have a simple test for any policy:

1. Does the policy address a continuing issue of true instability in society?

2. Is the policy narrowly tailored to address the issue while preserving individual liberty to the maximum extent possible?

3. Is the policy uniformly enforceable so as not to be arbitrary or capricious?

4. Finally, after all is tailored thusly, does it fit with the Constitutions of the State and U.S.? If not, it must be redrafted or proposed as an amendment.

This form of government is based upon a particular notion of freedom. Here, the purpose of government is to ensure that the individual is able to go about as he pleases without interference and without interfering with others. This is the idea of true liberty and being free from limiting authorities to the greatest extent possible.

There is an opposing idea of freedom, though. That is the freedom to do something or have something. This type of freedom was conceived of by Progressives who were impatient with all the gains made by Liberalism. They sought to go further and faster. Of course, this type of positive freedom is the exact opposite of true liberty. It requires a rather powerful state which makes certain positive guarantees to people and ensures that they have the freedom, for instance, of universal health insurance. As Hayek points out in, The Road to Serfdom:

How sharp a break not only with the recent past but with the whole evolution of Western civilization the modern trend toward socialism mean becomes clear if we consider it not merely against the background of the nineteenth century but in a longer historical perspective. We are rapidly abandoning not the views merely of Cobden and Bright, of Adam Smith and Hume, or even of Locke and Milton, but one of the salient characteristics of Western civilization as it has grown from the foundations laid by Christianity and the Greeks and Romans. Not merely nineteenth — and eighteenth — century liberalism, but the basic individualism inherited by us from Erasmus and Montaigne, from Cicero and Tacitus, Pericles and Thucydides, is progressively relinquished.

For the purposes of this discussion, I would add that the progressive notions of ‘freedom to’ rather than the classical liberal idea of ‘freedom from’ also abandons the whole history of Druidic and Celtic tradition and law based entirely upon the individual.

The ideas you propose as the fundamental purposes of government grow from both of these notions of freedom. The problem is that these two notions of freedom are irreconcilable. Either you can have liberty or you can have the government grant you privileges until if falls apart under its own weight or is torn asunder by those it oppresses to provide those privileges. However, you may not have both liberty and privilege. Taking your four categories of regulation of individuals, of trade, of providing hedges, and redistribution, I will endeavor to show where we may be in agreement for the structure of a limited government and where your proposals are simply not possible in a free society.

Regulation of Individuals

I agree with you that the social conservatives are fools. They have forgotten why the founders did not want to establish any one religion in this nation. And yes, the attacks on the Bill of Rights have been alarming. However, I think you overlook Democrat attacks on our liberties. Why is it everyone simply accepted the idea that Secretary Salazar could close all offshore drilling? Where does the Executive Branch get such power? The answer, as a federal judge recently reminded them, is that it has no such power. The government may not simply take over businesses in such a manner. This is but one example though. The regulatory schemes which are consistently imposed by executive agencies, enforced and changed with alarming arbitrariness to suit the needs or views of government are manifold, though, and all represent attacks on our liberties in the name of government provided betterment. Did you know you have to have a permit just to have a picnic in any Denver park? No real reason for it that individuals can’t handle on their own. But it does allow police to ticket some they dislike or move groups they don’t agree with. Arbitrary and capricious and certainly a violation of liberty if we have to ask to have a family picnic.

Such behavior does not solve instability in society; it creates it by undermining the rule of law. The rule of law, as Kant put it, says that “Man is free if he needs obey no person but solely the laws.” This creates a stability under which people can live comfortable and make plans, knowing the likely outcomes. They even have set process by which they can change those laws. Under such a system, even an annoying or bad law, properly made and universally enforced, is preferable to an arbitrary one in which no one knows how to act, when or how it will be changed, and who it will ensnare. As members of both major parties seek to use government to regulate everything as fits their particular agendas far beyond what is needed for stability or supplementing competition, they embark into areas where executive agencies cannot help but act with arbitrariness from the vague and expansive laws congress delivers to them. I think you overlook this—especially among Democrats.

Regulation should only be used to address instabilities not adequately provided for by individual actions. It should follow my formula when it is enacted. It should certainly not be arbitrary and capricious. Yet, the recent bailouts and financial regulatory schemes violate all of that. The existence of agencies like Fannie and Freddie violate that. These are areas where both parties are guilty of violating individual liberties with regulations and overly expansive government.

Regulating trade and commerce.

You are absolutely correct in your assessments of both parties here. They are stupid and fascist—both of them. You are also correct that regulation should be simple, clear and relevant, and that enforcement should be consistent, and that penalties should outweigh gains to be made from violations if they are to have any effect at all. I agree wholeheartedly. So why do you oppose removing government interference?

Republicans say they are pro-business rather than pro competition, a seemingly innocuous but important distinction. As a result, they are willing to try to forward all sorts of exemptions, tax breaks, and subsidies to favored businesses. This succeeds mostly in creating large market distortions from the privileges they grant to some, not all. It also encourages businesses to work with the government to try to win those important privileges. A more sensible republican would favor eliminating exemptions and tax breaks altogether in favor of a consistent, uniform and sensible regulatory and tax code. This is rarely heard, though, and our current tax code is a monument to fascist planned economies and arbitrary political acts. Clearly the involvement of government has been a poison, so why continue it?

Democrats do indeed focus on what they deem ‘nice’ or ‘for the public good’ and manage only to massively drive up the costs. Their meddling also encourages businesses to lobby voraciously to avoid being put under their regulatory schemes. Like Republicans, those who do it well get favored positions and exemptions or anticompetitive measures to hurt their smaller competitors or foreign competitors all in the name of public good or safety. Again, government involvement looks like the problem.

Let us take the security regulations. After Enron, Congress came up with the Sarbanes-Oxley Act. It was the first time they touched the securities laws since the 1933 and 1934 Acts. While they trumpeted the supposed reforms, they have not amounted to much. The perpetual auditing system they designed created a various new niche industries of regulation compliance services from accountants to managerial consultants to legal services. Many companies I have looked at spend several hundred million dollars on compliance costs alone. In addition to massively increasing costs, this has created huge barriers to entry as a publicly traded company and damaged competition. However, it has not shown any reasonable benefits of prevented further financial crisis. If anything, it has created an even cozier relationship between SEC regulators and the industry who hires them after a few years in the agency. Despite this, Congress and the President and many on both the left and right are calling for even more regulations and an even closer relationship between governments and corporations. We may as well declare ourselves corporatist fascists and be done with it.

Alternatively, we can deregulate. The ’33 and ‘34 Acts are hopelessly outdated. In an age of instant communication, rather than passing byzantine new laws with huge costs of compliance and enforcement, not to mention the inappropriate relationships such things encourage, we could easily scale back to anti-fraud provisions. Anti-fraud. With just that much, you could take out false transaction and false valuation statements. You could easily use it to fight the problem of naked short selling. And yet, there is no extensive regulatory scheme to sort though, no massive cost of compliance, and no arbitrary enforcement. Do we really need the quiet period and other outdated regs that serve only to provide their niche industries and provide jobs for the regulators in private industry to help navigate such arcane systems? No. Furthermore, with such simple rules, constantly enforced, we reduce the motive to lobby so actively as well, as the system stays the fair and consistent for everyone.

As to the regulators, we can abolish the SEC. We can hand enforcement to the FBI and regulation to Treasury. That eliminates much of the cozy relationship between business and its regulators, as well as the wrist slaps often administered today.

These are just a few examples, but all this accomplishes much of what you desire: simple rules, clearly stated and consistently enforced without arbitrariness. But it is accomplished through deregulation and scaling back governmental interventions—not increasing the role or scope of government. Indeed, it would require actively limiting the role of government to get such desirable results.

Hedges

Yes, hedges of all sorts are inherently socialistic and some are even necessary. We seem to agree completely that virtually all of our social programs and military have grown out of control. Describing the whole affair as bread and circus may be quite apt.

That said, I have to differentiate here between a hedge, and social welfare program, and a true public good. A hedge for government would indeed be like a grain stockpile in case of disaster or drought, or perhaps a healthy surplus of public funds to better weather times of recession. A social welfare program is a bit different in that it affects individuals rather than strictly government behavior. To some degree, such programs may have some limited worth if they are crafted correctly. An unemployment fund of strictly limited size and duration may be useful for stemming popular unrest for instance. Grown and bloated into a long term welfare program, though, produces problems we know all too well. This should be treated with extreme care and caution, but I do not disagree that it should occasionally be done. Finally, a true public good would be a service that individuals on the free market cannot feasibly provide. The military would be an excellent example. Roads would be another. Things like education, however, do not fall into this category. Those are good people have chosen to have the government provide, but they can easily be provided on the market and are not true public goods. They fall back into social welfare programs instead.

I will grant that even limited governments should provide for true public goods such as military and roads. Providing hedges such as a rainy day fund for its own functions may also be wise. I am quite skeptical of the extent to which a government can or should provide social welfare programs, however.

Take, for instance, social security. You characterize it as a hedge. By my definition it would be a social welfare program as it has nothing to do with temporary disasters. However, it was not intended as either. It was intended as a revenue generator. The reason there is no money in the Social Security Trust is that FDR never intended people to receive that money. At most, the government expected people to receive benefits for a year or two. That is it. While the people would see this as a benevolent attempt to care for them in their old age, the great bulk of the wealth could then be used to fund other operations of the government. Unfortunately, people did not obligingly die as they should have. Instead, we had the gall to prolong out lifespan. Social Security now, for the first time, pays out more than it takes in, and is no longer generating revenue. Now it is a burden on the government, a risk for the people depending upon it, and a danger to the people as they ceded power to the government to make them dependant on such a vile lie (I still don’t understand where the government even derives the power for SS, Medicare and Medicaid, and it hasn’t yet been litigated—though the new Obamacare litigation may provide an answer).

In terms of social welfare programs, I rather like the example Colorado Springs is providing (see the Denver Post Story). Private individuals and community groups are maintaining parks, fountains, and street lights. Private clubs are managing pools and recreation centers. Churches and community organizations are filling gaps left by government programs and discovering the meaning of the word community again in the process. Though the author worries about poorer neighborhoods, I disagree. Poor people do not suffer deficits of time any more than other people. They suffer deficits of money and it does not take money to help clean up a park. Our modern welfare state has turned many poor neighborhoods into government dependant slums where the people expect the state to take care of all maintenance, and thus the author may be correct initially. However, U.S. and some European history of poor neighborhoods in pre-welfare days shows that poor people often had close and involved communities, even maintaining schools and keeping areas relatively clean.

You add another interesting category to your ‘hedge’ concept, however. You add a category of guiding industry or national direction. In many ways, this overlaps with regulation of industry and trade, but it is interesting to talk about it in terms of public goods.

I like the example of the prostitutes you cite. I believe Sweeden still maintains a corps of army prostitutes. Anyway, providing for a military is a clear public good, but it does little good if the whole army is decimated by Syphilis or some other STD. The licensing of prostitutes is easy to see as a necessary measure to protect the troops, but it is also a good anti-fraud provision in the marketplace. In the case of an STD, while a client could sue a diseased prostitute for damages, the harm is done: the military is weakened and the client is stuck with an STD. The market has no way to prevent this. A licensing regime can accommodate it easily to the benefit of all.

As I said earlier, where competition and individuals cannot remedy an issue of instability, the government has a legitimate cause to step in and supplement competition. A license for prostitutes, or a government certification that a medication is not filled with poison, fulfills this function. Contrast that, though, with law licenses. Getting legal advice from a non lawyer will not kill you. In fact, a Ph.D. in privacy law might be able to help you protect your online information better than a licensed attorney. Yet, we make it a crime for that Ph.D. to give legal advice. We even make it a crime for attorneys to give advice in other states despite the fact that the bar exam is the same in every state, the only difference being the number of essays used. Here, the regulation is not designed to prevent fraud or ensure fair practices, but to limit competition. A guild certified attorney might indeed be the most valuable representative you could choose, but there is no real reason why the people should be prevented from choosing representation by people outside the guild if they find such representation more effective or more affordable.

Vaccinations are a bit easier in terms of a public good. An outbreak of plague is certainly as big a threat to a state as an invasion. In the case of the Byzantine Empire, it is one of the prime factors which made a Turkish invasion possible. Thus, a state provided vaccination meets the definition of a public good as no individual can adequately cover such a thing and it requires total distribution to be effective.

Jump starting industries gets into much shadier areas, though. NASA began with military goals in mind. You are correct that without NASA the space program would have been much slower to develop. That said, NASA today has no useful purpose. It already subcontracts out virtually all of its functions. Its own role seems to be meddling just enough to screw things up (like not converting between metric and English systems and watching helplessly as their probes smash themselves onto the surface of Mars). My friends at Lockheed have no end of frustrating stories about NASA’s interference. More disturbingly, though, if a business tries to operate outside NASA, NASA immediately underbids them—even in private enterprise. It can do this as it operates on tax dollars. Thus, it has successfully presented all meaningful competition in the U.S. and all private space efforts are conducted outside our borders. Whatever good NASA did in the past is now gone. What it does today is both unnecessary and wasteful. In this case, there is no longer any need to supplement competition and government is actively hampering it. If government has military space interests, it has many options now to help it carry them out. NASA is superfluous. It would have been better had government chartered such research out to begin with rather than making it a separate military effort which morphed and bloated into an immortal agency.

Energy is an even more problematic way to think of the supposed benefits of government on industry. Low oil prices do not stifle alternative energy research and development. We have poured billions into such research privately and the government has maintained that monument to uselessness, the Department of Energy, since the Carter days.

I agree with you, though, that Obama seems to think if he just shuts down oil production here in the U.S. and demands alternatives, our tech gurus will magically produces them. I am reminded of King Knute sitting in his throne on the shore as he ordered the tide not to ebb. He demonstrated to everyone the true power of a monarch when his feet still got wet.

Obama’s problem is that simply demanding something does not make it so. We do have alternatives. However, while about 10-18 barrels of oil are produced for every one barrel used in the production (and declining as oil becomes scarcer), the ratio of all alternatives are much worse. Methanol gives only 3:1 while biodiesel gives 2:1 and corn is actually negative. Hydrogen cells cannot be produced without a net loss in energy. We cannot produce anything as cheaply or as effectively as oil. Also, our infrastructure is not designed for anything else. We face a major lifestyle change. While we need to be doing everything possible to prepare for that change, government attacks on the oil industry as we reach that point are massively counterproductive. I guarantee that we will need every drop of our oil to sustain us before we get to the point where we are living effectively on alternatives. Obama’s efforts and interference here will just make things worse and more painful.

The long and the short of this is that while government might effectively use its power to direct and protect public goods, in general, and even in such instances, it should stilltry to follow the legislative philosophy I laid out so as to accommodate competition where possible and supplement it where it is not. It should not, however, try to supplant it entirely or direct its entire course. That invariably leads to trouble.

From prior conversations, I think you will agree with most of what I have pointed out here. Thus, I must ask again, where does your faith in government come from? The functions I propose here all require a limited government with a focus on free competition.

Redistribution of Wealth

Up to this point, I think you and I share an appreciation of the problems government causes in society. The fundamental difference seems to be that I do not believe government is capable of solving most of these problems unless it is scaled back and limited whereas you seem to maintain a stubborn belief that government may be able to address some of these problems if we just put in the right policies and regulations. I think, however, you would agree with me that so far we have been quite inept at using broad scope government to deal with the problems of broad scope government.

We do massively disagree, however, as to whether redistribution of wealth is a fundamental purpose of government. I adamantly maintain that it is not. Certainly, as I have already explained, such an idea is a rather recent development in history, and was not any part of the original justifications of the state. Thus, it is not a fundamental purpose of government. I will not even grant that such an idea would be a fundamental improvement to government. I find it entirely appalling. There can be no other word to describe the immoral assertion that one person has the right to take away the earnings or property of one person and give it to another merely because the other person doesn’t have it. In addition to the moral travesty that idea represents, though, it causes economic calamity. Removing economic motivations are just the most obvious economic consequences. However, the concentrations of wealth you speak of supposedly requiring redistribution are not even the root cause of our problems.

You mention that Republicans and conservative blame many of our problems on big government while you could say “low wages” and point them at the corporations. I think not. Low wages by themselves are self correcting. People stop working or shift employment. Also, products cannot be sold and profits cannot be made if people are too poor to buy them. People cannot do much about monetary policy though. Inflationary causes do have impacts. Loose credit cycles have major impacts, as we are seeing. The French Revolution didn’t happen because people were poor. They were always poor and often much poorer than at the time of the Revolution. The French Asignot, however, had been destroyed by money printing and loose credit cycles. Inflation was out of control and no one could make use of the money. Poor became starving and it had nothing to do with business interests but rather the collusion between the crown and the banks. The ideology of Rousseau put a nice gloss on the cause though. Now no one much recalls the underlying economics .

You talk about the concentration of wealth and speak as if it is the inevitable result of market capitalism. How does wealth get to be so concentrated without the help of government regulation and monetary policy though? It does not. As far back as 1941, the Congress’ Temporary National Economic Committee (certainly no conservative bastion) took up a study of the “Concentration of Economic Power.” They concluded:

“The superior efficiency of large establishments has not been demonstrated; the advantages that are supposed to destroy competition have failed to manifest themselves in many fields. Nor do the economies of size, where they exist, invariably necessitate monopoly. . . . The size or the sizes of the optimum efficiency may be reached long before the major part of a supply is subjected to such control. The conclusions that the advantage of large scale production must lead inevitably to the abolition of competition cannot be accepted. It should be noted, moreover, that monopoly is frequently the product of factors other than the lower costs of greater size. It is attained through collusive agreement and promoted by public policies. When these agreements are invalidated and when these policies are reversed, competitive conditions can be restored.” Final Report and Recommendations of the Temporary National Economic Committee (77th Cong., 1st sess.; Senate Document No. 35 [1941]), p. 89.

All of Austrian Economics has argued the same. Today it is especially clear. I have no disagreement with you that our present stock market is concentrating wealth among a top few while screwing the majority population. But why? Could it be because Goldman Sachs gets the Fed bonds and printed money before anyone else, then spends them before they trickle down and register as inflation? Could it be because Fannie and Freddie and other pseudo private companies likewise get first money and are backed by the government? Could it be because certain companies are deemed too big to fail and are provided numerous backstops and bailouts to ensure their survival in the midst of clear and unmitigated failure while other companies and individuals go broke? I could go on and on but the story is not much different from the Asignot of France or the Weimar Republic. Government, not capitalism, is responsible for the unhealthy concentrations of wealth and corruption of the money supply.

Wealth without labor — even on highly concentrated amounts– is not the issue. Investment wealth, properly managed, makes labor and production possible. Improperly managed it can and does dissipate quickly. Without investment wealth, businesses would find it difficult to innovate or automate. And while that reduces labor while increasing profits, that labor is then free to go elsewhere in the economy, making certain things possible that were not before due to either a scarcity of labor or of a lack of people properly trained in certain fields. So yes, investment and reinvestment is a basic requirement for economic growth and development. Left to its own devices, often that investment will fail, limiting wealth and how much people are willing to risk. Only when colluding with government does it becomes poisonous to the whole system and lack the natural limiting process.

Despite all this, you dismiss basic wealth freeing policies of low taxes as self serving bullshit and promote using the very system that gave us all our problems—government tax and regulatory schemes—as the proper means of fixing the problems they created in the first place. I have to admit to being somewhat astonished by this. You see all the problems very well. You also seem to acknowledge the government’s role in perpetuating and exacerbating those problems. Yet, despite this, you seem to have an almost religious devotion to the idea of government as the solution to those very problems—contrary to all evidence. Whatever is wrong with the idea of simply removing government from its role as master manipulator of the markets and industry?

You want another way of equitable wealth distribution? I suggest free market capitalism coupled with limited governmental scope and a sound monetary system. You say that waiting for the return of Jesus is more likely. However, the alternative of using more government regulations and controls to compensate for the harm and corruption other government regulations and controls are already producing is frankly insane. Evil cannot be used to fight evil. One of the two will win and take over resulting in evil or they will insidiously combine resulting in more evil. To prevent the evils of government you must chain it up and free the people, depriving the evil of a mechanism with which to assert its tyranny over them. Our failure to do so already has the potential for financial Armageddon and we may all be hoping to meet Jesus before the end. .

Government is like a chained and monstrous giant. We want it just free enough to toss the occasional rock at something for us. Preferably with just two fingers. If it gets its whole arm loose, though, and starts smashing houses, the solution is not to release the other arm in hopes it will control the first; the solution is to chain it up again.

Even if it were desirable to free government to solve these problems, it is incapable of doing so. Better men than myself have demonstrated clearly that the state simply has no way to compensate for all the decisions needed in a market. Only individuals, acting in their own interests, can effectively make a market run. Any government action that goes beyond supplementing competition into controlling it or supplanting it entirely will result in disaster.

Then there are the issues of liberty and equality. Under the solution I propose, we are equal under the law. We are at liberty to do as we please so long as we infringe no one else’s rights. Though the results will be somewhat unequal, there will be no privilege. Alternatively, we can have a society where we are all measured differently under the law based on wealth and ability. We are free to do no more than we are permitted by the state. The results will be equal in terms of what we are permitted to do or have, but there will be privilege in terms of who sets the rules and decides who is affected and how. There is no compromise between these two systems. They are incompatible, and half measures do a poor job of either. We found that out after trying half measures, and have been sliding steadily toward the later idea of freedom and equality.

After reading your letter, I went back and reread Hayek’s The Road to Serfdom. It really is a marvelous little book and I relied heavily upon it in making some of these arguments. Written in 1944, it is perhaps more relevant today than ever. He lays out, with startling clarity, the consequences of trying managed economies or equitable redistributions of wealth outside the processes of the market; as the book’s title suggests, it is always serfdom. He also illustrates, however, the profound justice to be found in the free market and limited scope of government. Indeed, it is only there where the rule of law can triumph over the arbitrary rule of interests or individuals. It is also the only system where wealth can be made rather than taken or looted and individuals in society remain free to achieve what they can.

Last Remarks

In your conclusion you mention the declining production here in the U.S. Much of what we do is make-work, if not quite so bad as Mr. Jetson. The U.S. economy has transformed from an agricultural economy, to a production economy, to a service economy, to what it is today – a financial economy. We produce next to nothing save agricultural products. We trade paper. Again, though, our loose credit system has caused this. In many ways, it has mandated it as our artificially low interest rates propelled people into riskier and ever more bizarre financial schemes in order to get a decent return when saving rates were unprofitable or (as today) even negative. Couple that with extensive regulation and tax systems which has made overseas production more profitable and you have our current situation.

Can this be undone? Yes. However, look at the causes. Again, it originates with government policies. Can production and service be brought back to the U.S.? Can the financial industry control itself? All yes, but not without a massive shrinkage in governmental scope and cost and the enactment of a sound monetary system. This is not new. It happens over and over again through history. The U.S. was just foolish enough to believe it could not happen here, even if we made all the same mistakes others did. We have not learned the lesson even yet, but we will. How quickly we learn that lesson will determine how long the unemployment rate stays above 20%.

If, however, we are unwilling to abandon our faith that more government is the solution to government caused problems, then we will be in for a long haul, likely worse than the Great Depression as it this one is worldwide.

Julian Dunraven.

P.S. My statement that modern U.S. government is so far reaching and all encompassing that no king or emperor or sultan has ever achieved so much power or control over his subjects as the U.S. government now exercises over its citizens is utterly true. We don’t often think of it this way. No king could ever hope to invade the email and phone records of all his subjects. No emperor could boast of having a regulatory process for virtually every product on the market.

Try an experiment. From the time you get up, keep a list of all the government regulations you live under. It will start with the mattress tags you are not allowed to remove. Then there will be the product safety standards for your sheets. The shower will have its standard plumbing and the water will be fluoridated. Your clothes and grooming products will all meet the necessary label requirements. Your cereal will also have label and nutritional labels. Your daily meds will come with any number of FDA regulations. As you look out the windows of the house you will think of the building permit you had to get even if you put them in yourself. You will no doubt be using your standard and regulated electrical systems. You will drive to work in standard vehicle safety constraints along a heavily regulated road and under any number of surveillance cameras. Probably before you ever pass your office door and have to think of all the regulations upon your labor and the money you make from it, you will find that nothing you do is unregulated and, unlike any ancient code of taboos, never has the government had an easier time of enforcing such an all encompassing code of regulations. And no, I have never found any scholar who disagrees with that. In fact, it was a religious historian who pointed it out to me.

Dear Julian,

You make much more sense when you speak for yourself rather than deferring to Rand. 🙂 Just a personal opinion, and intended as a compliment.

There is a nihilistic tendency in your writings, and in what you have related regarding the Tea Party. The focus is on how terrible the current system is, not on where things should go. What little is said about the future is also backward-looking: you and the Tea Party want to “restore” a limited constitutional government, which presumes we ever had such a thing. I’d question that presumption by asking exactly when the Federal Government went off the rails. It was surely before the 1860’s, because the Civil War was primarily about the South believing the Feds had already become too big for their britches. Since the Constitution was written around 1790, our “limited government,” if we had one, lasted a little over half a century, and during that entire period, supported slavery — which is hardly in keeping with ideals of human freedom, dignity, and independence. What, exactly, are you trying to “restore?”

I think it makes more sense for you to say you are trying the create the limited constitutional government we never achieved. But now you can’t just wave your hands and say “Oh, you know,” when asked what this is supposed to look like.

I’d like to reframe the whole issue by pointing out that the problem is not really “big” government — which is a vague, unquantifiable assertion — but is instead “bad” government, which fails in a number of specific ways. Small governments can be quite as bad as big governments. My sister tells me interesting things all the time about New Mexico, where she lives, and of course the government corruption in New York, Wyoming, Alaska, and Texas is legendary. City councilmen regularly run off with the till. Homeowners’ associations can be quite ugly, and their powers are virtually nil. Bad government is visible and brings misery; good government is largely invisible, but promotes stability and well-being for its people. Mere size is secondary, if not irrelevant.

Before considering what good government might look like, I think we need to have some common idea of what government is for in the first place. Historically, it has (at least) three necessary functions:

• Regulating individual behavior. This includes all the “Thou shalt nots,” such as murder, theft, rape, and so forth, as well as some “Thou shalts,” such as paying taxes and military/civil/community service. Different cultures have different lists.
• Regulating trade. This includes weights and measures, a common currency (or established and regulated rates of exchange), security of the marketplace, contract law and its adjudication and enforcement, plugging holes in the system that allow clever individuals and groups to commit systematic fraud and/or tilt the playing field.
• Providing hedges against national risk. In ancient times, for example, this consisted of grain storage as a hedge against bad harvests, and a standing defensive military.

These functions are not “altruistic” or “nice.” They are established and maintained for practical reasons: to ensure that the group — the tribe, the village, the state, the nation — does not tear itself apart, stagnate, or collapse in hard times.

If you (or the Tea Party) want to cut fat out of government, well and good — but if you cut more than peripherally into these essential functions, you destroy the viability of government, and might as well promote anarchy. There won’t be much difference in the end.

I’m going to add a fourth function, which may not belong in government, but I don’t see where else it could be (peacefully) accomplished — equitable redistribution of wealth.

In the idealized labor capitalism you seem to be espousing, this should theoretically take care of itself. If I pedal harder, I get more — if I stop pedaling, I fall behind. The accumulation of wealth is limited by the bounds of the 24-hour day and the span of the human lifetime, especially if inheritance is also prohibited or limited to a fixed and relatively trivial amount.

This is a pipe dream (as in opium pipe). Waiting for the Return of Jesus is more realistic.

What actually happens is that we create legal definitions of ownership that allow wealth to be accumulated without labor — without which you cannot accumulate significant wealth. We create hierarchies of divine rule, and so a fraction of everyone’s labor automatically belongs to the king (or emperor). We create definitions of private property that allow small investments of labor to be leveraged into vast amounts of wealth, or allow one individual (the owner) to appropriate some fraction of many other individuals’ (the workers’) labor. We create the pyramid scheme of monetary interest so that, once wealth is accumulated, it automatically continues to exponentially accrue more wealth without additional labor. We allow vast inheritances that create dynasties of “old money” that bear no current relation to labor or contribution of any sort.

All of these mechanisms of “wealth building” are designed to concentrate wealth, creating an increasingly vertical hierarchy of rich and poor. Unless there is some mechanism of equitable redistribution, this increasing concentration eventually causes instability and collapse, which automatically redistributes wealth, mostly by making everyone poor.

This — not government size — is what Will and Ariel Durant drew from their lifelong study of Western civilization as the most consistent correlate with civilization collapse. They referred to the concentration and redistribution of wealth as the systole and diastole of a living civilization, endlessly alternating. Redistributing all the wealth is a terrible idea — allowing it to concentrate endlessly is equally bad.

A good government should have a peaceful mechanism of redistribution built in, just as the US constitutional system resolved the bloody and disruptive issue of succession by making it frequent, customary, and competitive. Taxing wealth on a progressive scale and redistributing it through social programs is one way of doing this. The von Misean strategy of demurrage on currency is another, presuming it applies to investment money as well as cash. A limitation on inheritance — personal trust-busting — is another. In Biblical times, they had the Year of Jubilee, in which all debts were canceled and everyone went back to zero.

Let’s look at these four functions briefly. And heads up: be patient, I’ll get to the Democrats.

Regulation of individual behavior. We’ve traditionally been very lightly regulated as individuals in the US. This freedom has decayed alarmingly since the Reagan years, and the cause is not “big government,” but social conservatism that wants more and more constraints on “objectionable” behavior, much of which is religiously defined. We’ve already discussed this at length. The only new thing I’d add is that, during our visit to Colombia, Marta’s cousin brought up how “safe” he feels traveling in the United States compared to Colombia. I also felt this. Our “lax and permissive” society has never been perceived as anything like “lawless” by those who live in places that have actually experienced lawlessness, so the social conservatives’ fears about the “damn hippies” are clearly overstated. Conversely, as much as I curse the Republicans for their decades-long assault on the Bill of Rights, they haven’t yet pushed us over the edge in the other direction. Though Bush/Cheney, may they both rot in Hell, came far too close for my comfort.

Regulating trade. I think we both agree on most points of necessary government involvement in the marketplace. What I feel you (and the Tea Party) don’t properly appreciate is the role of corporations — and individual wealth acting through corporate fronts — in distorting the marketplace. You can’t simply remove “government interference” to good effect. A large part of that interference is intended to protect the marketplace. We can argue about whether any specific interference actually gets the job done, but what seems pellucidly clear is that the “deregulation” and “supply side” rhetoric that has disguised itself as homage to the “free market” in the last thirty years is more correctly viewed as abrogation of government responsibility to protect the marketplace. It doesn’t take a lot of insight to see that the Republican Party has been as disingenuous on this subject as it has been on the subject of individual rights. The Republican Party, as a whole, is corporatist, technically fascist — this is not a value-judgment, it is an analytical classification. This has been the case during my entire lifetime, and probably for a long time before. If it were not the case, there would be no need for a Tea Party movement.

Providing hedges. In part, I agree with you — every government hedge has grown monstrously. The military grew far beyond a hedge against attack a long time ago, and became a machine for taking on incredible risk in the form of foreign adventurism and conquest. “From the halls of Montezuma…..” to simultaneous wars in Iraq and Afghanistan, while supporting a viable career path with lifelong benefits for military desk jockeys all around the world. Social Security was originally a hedge to get people through hard times, and has become a potential welfare career path. Medicare is morphing into socialized medicine. I have no argument with any of these statements.

Where I part with Libertarians is in going so far as to say we don’t need hedges. Perhaps they don’t go that far, either, though it certainly doesn’t come through the Tea Party rhetoric.

One thing to point out about hedges is that they are inherently socialistic: from each according to ability, to each according to need. The purpose is to preserve the nation, and distribution must be as rigorously equitable as rationed food being doled out during a famine. If the Tea Party wants to replace a socialist defensive military with private mercenary forces procured on the open market, I will conclude they are simply fools who are unclear on the concept, and stop paying any attention to them. But this applies to any government hedge. It is funded by confiscation from all (taxes) — it is distributed to any citizen in need. Otherwise, it isn’t a hedge, it’s a hedgehog (as in pork).

Redistribution of wealth. Give me a real alternative to taxing the shit out of the rich, and giving it back to the poor and middle class.

Your description of the Tea Party as being above average in income and education does not surprise me, upon reflection. They are from what used to be the middle class, and the reason they are pissed off is because they are getting screwed by the endless concentration of wealth — away from them. It’s wrecking their dreams and hopes. It doesn’t matter to them whether the government is taking their income, or the corporations are squeezing their benefits to nothing, or both. Either way, they work hard, then get screwed.

They are the class that the rich and the government need to be worried about, because they are where true social instability starts. Not among the poor. Even if times become desperate, the poor are usually content to riot, loot, and go home. The middle class wants their opportunity back, their country back, and they will eventually organize and go to war to get it. In this respect, the Republicans, by exclusively representing the wealthy and corporate interests, are idiots. Unless they actually want a revolution, which I would put in the category of truly Miltonesque — better to rule in Hell than serve in Heaven — and a step or two beyond idiotic toward the insane.

You say the rank and file of the Tea Party are full of rage, but that few can articulate the causes. This is by definition irrational rage. They are angry, but they can’t tell you why. What you meant to say is that it is justified rage, but that’s your opinion, not theirs. They’re just inarticulately pissed — and looking for a scapegoat.

The Tea Party leadership is harnessing that rage by providing the scapegoat of “big government.” I could equally well say the problem is “low wages” and set them against the corporations. Someone else could say the problem is the Jews and we could put them to work building concentration camps. The Tea Party rank and file isn’t thinking, it is just an angry mob, and those who lead it are saying, “Ready, Inflame, Fire!” I find that very disturbing.

Let’s turn to the Democrats.

Regulation of individual behavior. You have a big uphill battle to argue that Democrats are deliberately undermining the Bill of Rights the way the Republicans have done over the last thirty years, with the exception of handgun control — which has been grossly misrepresented by the NRA and the Republicans, much like the “Death Panels” nonsense. You might argue that a lot of Democrats are quietly complicit in the Republican assault on the Bill of Rights, and you might be right. But they aren’t proudly leading the way, they’re slinking along in the shadows — they at least know what they are doing is wrong.

Regulation of trade. I don’t think the Democrats have a clue, because they’ve absorbed too much of the Reagan rhetoric about deregulation and “government is the problem.” They have traditional touchy-feely “nice” things they do for “people,” which (as you point out) simply drive up costs. They do NOT go after the the market distorters like a rabid pit-bull, which they should do — that’s their job, and they are the only ones who can do it. Businesses are currently very cozy with Federal regulators — they should be scared spitless when a Regulator steps into the lobby and exposes his badge and his six-gun. Regulation should be straightforward, clear, and relevant — confirmed violations should require a really good reason to not revoke the corporate charter, sell the company assets (or nationalize the company), and put the leadership in prison. Lesser, slap-on-the-wrist kinds of regulation should go away entirely — if it isn’t worth a prison term, it isn’t worth regulating at the federal level.

I’m deliberately overstating the case for effect. But I always find it peculiar that lawmakers (particularly “tough on crime” conservatives) love to talk about capital punishment to deter crimes of passion, like murder — where it’s obvious that the perpetrator is not thinking about consequences, rendering “deterrence” totally ineffective — but they are completely unwilling to unleash capital punishment on a corporation, when the crime is committed in cold blood with precise calculation and would, in fact, be very effectively deterred. In many cases — I’m cynically tempted to speculate in all cases — the actual fines and penalties and scoldings from regulators are only a small fraction of the profits obtained through the violation, and are simply folded in as a cost of doing business. Wink wink, nudge nudge. Consider Big Pharma and off-label marketing that turns fatal, which runs around 10 parts additional profit to 1 part in fines and penalties. We had a situation here a number of years ago where the county commissioners were talking about a Big Hairy Fine of $10K/day, and I asked the awkward question of how that fine compared to the cost savings of going ahead with the illegal activity. The dumb f-cks didn’t even know. Or maybe they knew and the answer was … awkward. I never got an answer.

Providing hedges. I do think Democrats have lost sight of the difference between hedge and handout. It’s a pretty clearly case of bread and circuses at this point.

On the other hand, it isn’t always easy to determine where benefit becomes boondoggle.

Here’s an example from England in the late 1800’s. Syphilis was effectively destroying the British Army, contracted from prostitutes who set up shop around the barracks. Education of the troops did nothing. Harsh penalties and curtailing leave damaged morale and accomplished nothing. Running off the prostitutes was a full-time job, and the soldiers on leave merely sought them out in other locations. In the end, the government did something smart and creative: they licensed the prostitutes, and required medical exams and treatment to obtain a license: exams and treatment were free to the prostitutes, paid by the government. The men liked it, since a license meant the prostitute was more likely “clean.” The prostitutes liked it, because they got free medical care, and it cut down on competition from unlicensed hookers, while simultaneously increasing business from a less-fearful clientele. And the Army saw a substantial decrease in incidence of syphilis among the troops. Win/Win/Win, and for a pittance in cost. There’s a whole essay in how and why this licensing was eventually abolished on “moral” grounds. It’s reminiscent of clean needle programs in this country, and the idiots (primarily Republicans) who oppose them.

Similar issues arise with things like DPT panels, as well as mass inoculations for polio or other diseases. You need a high percentage of prophylaxis to prevent epidemics. If the drugs are too expensive to be affordable by everyone, the free market doesn’t work — those who can’t afford don’t get, so you don’t get the necessary prophylaxis coverage, and you get epidemics even with the vaccine. Since vaccines generally only provide partial immunity, those who could afford and got the shot don’t always get benefit when the epidemic breaks out. It is to everyone’s benefit for the government to subsidize the cost to make it universally affordable — even free.

This also raises the issue of government jump-starting industries. Let’s pick NASA, which you called a boondoggle. Space travel was unaffordable to private industry in the 1960’s, and there was no conceivable reason for private industry to even be interested. It wasn’t until NASA “wasted” all that taxpayer money to put different payloads in orbit that we eventually got things like GPS, international phone calls, satellite television (of questionable value), and all of the things that now are just starting to provide an economic incentive for private firms to provide launch services. You can say that the government overregulated space activities — I’m not interested in arguing — but there is little question that without NASA and the space program, there would be no private enterprise in space — there would be no use for satellites, and no business opportunity.

The same thing is true of the Internet. Without Senator Al Gore’s “wasteful” bill to fund the first high-speed Internet backbone in the US — what a boondoggle! — there would never have been an Internet. We’d still be paying premium dollars to use the antiquated telephone network with modems, as I did through the 1970’s and 1980’s. Now there’s all kinds of private money in the Internet infrastructure, but it would never have been invested unless someone (the government) first wasted substantial sums to provide a free infrastructure.

This is currently relevant in the energy sector. Low oil prices stifle alternate energy research and development. There’s no short-term profit in developing alternatives, and while everyone knows that oil prices will rise essentially without limit, no one knows when. In particular, no one knows if the government is going to subsidize oil prices to keep the economy running, which will continue to make alternatives unprofitable, for perhaps a very long time. So investment in alternative energy is seen as very risky, and few people are doing all that much yet. Especially in the current economic climate. The problem is that by the time oil prices rise enough to make the alternatives initially profitable, the economy is going to be in flames from the high price of oil. The government could jump-start alternate energy development, as it did spaceflight and the Internet — if it weren’t a fascist corporatocracy in bed with the oil business, which does NOT want to see substantial competition right now. This is exactly what Obama seemed to be talking about in his national address regarding the BP crisis in the Gulf. We really need the government to jump-start new energy, or we’re going to hit a speed bump in a few years that will take out the transmission, regardless of what else is going on.

Redistribution of wealth. The Democrats’ general answer of taxing the rich is reasonably direct and impartial. FDR’s progressive tax rate of 90% on ultra-high income was perhaps too much for steady-state. Ronald Reagan’s 28% was certainly too low. Rich people and Libertarians want to see even less than 28%, which is … ok, let’s not mince words, it’s self-serving bullshit. Wealth is never “reinvested” in anything, unless there is a promise of exponential growth for no additional labor. The whole “reinvestment” argument is simply part of the concentration-of-wealth game, not the redistribution game. It’s putting $10 into circulation with the expectation of taking $20 back out tomorrow — and the extra $10 came from someone else’s labor. Though with the stock market, that $10 is more likely to be taken from some other gambler speculating on the market. Either way, the goal is exponential growth of wealth without significant labor, and it results in further concentration of wealth, not redistribution.

I’m open to hearing other ways to do the redistribution, but please note that the purpose is to reduce the relative wealth of the wealthy, and yes, it most likely must be done (implicitly) at the point of a gun.

The point here, Julian, is that if this is not done by systematic and uniform means, it will happen anyway, but far more violently. There is no question that Presidents do not serve long enough in office to get anything really significant done. This is by design, because if they stay too long, it becomes very difficult to pry them out of office, and often involves bloodshed. Our system of replacing our President every four or eight years is insane — but it has successfully prevented wars of succession for over 200 years. Similarly, the idea of taking excess wealth from the ultra-wealthy may seem objectionable — but it rebalances a perennially growing inequity that is screwing the middle class and creating the Tea Party right now.

A few closing comments:

I don’t know what you are talking about when you say the “the modern U.S. government is so far reaching and all encompassing that no king or emperor or sultan has ever achieved so much power or control over his subjects as the U.S. government now exercises over its citizens.” That doesn’t make any sense at all. Ancient Egypt reportedly had a religious system that governed the daily life of its citizens down to trivial details, as did the Aztecs. The US has been following the former Nazi Germany and the former Soviet Union down the road into totalitarianism, and took Big Steps in that direction under Bush/Cheney, but we aren’t there yet. What are you talking about?

The statement “all scholars agree” is certainly false.

The 40-50% figure you cite is of concern to me, but for a different reason.

I think we are running out of work.

Our food production and fabrication has become so efficient and so automated that it takes only a fraction of our population to supply all of us with more stuff than we can possibly handle. We recently had a spike of up to 20% unemployment. The biggest problem that caused was that, since they didn’t have income, they could no longer consume all the stuff we could still produce. Production sat idle, not because there was a labor shortage, but because there was a demand shortage.

Which leads to the inevitable conclusion that our work is increasingly make-work. This was an ironic part of the old Jetsons cartoon on television. Do you remember George Jetson’s job? He sat at a desk, and his job was to push the big red button once a day. The rest of the day he had his feet up on his desk, because everything was automated.

This leads to the question of what we do with 20% chronic unemployment. Or 30%. Or eventually 90%. The entire Calvinist idea of virtue through work breaks down, and our economic system…. Well, it’s too late tonight to speculate. But I can easily see us moving into a future where we never recover work for a significant fraction of the population. What happens then?

— Themon

You know Bioshock? Fabulous game. I bought it for two reasons: the explicit Rand connection and the Art Deco design. I love Art Deco. I would argue, however, that the game does nothing to parody anything but the most cursory understanding of Rand. Though morally interesting in its own right, it contradicts her philosophy consistently. An interesting interview I saw with the designers explained this divergence as they simply do not believe people have the moral capacity to live up to her philosophy and thus deliberately created a mutation of it. Ironically, it was more like corporatism, which Rand loathes, than it was capitalism.

Themon,

But of course. I am always out here as you put it. I am just not always as noisy as I might like to be. Then again, as I find myself saying the same cynical things repeatedly, I might just be sick of hearing myself talk—or write as the case may be.

As to the Tea Party, I do happen to have some connection. It seems that the People’s Press Collective (PPC) is now considered one of the foremost conservative news and commentary organization in the nation and THE foremost such organization in Colorado. Given our traffic numbers, and the number of times national news organizations and columnists have cited us, I suppose that perception is not without justification. It mattered enough that the people, having lost faith in Republican leadership, asked PPC to verify the voting process at the state Republican assembly. As it turns out, it was not actually corrupt, just wildly incompetent. Surprisingly, Julian Dunraven, as a board member and editor of the PPC, is also thought of as a leading member of the conservative movement here in Colorado. Thus, I have been invited to damn near every Tea Party event in the state, sometimes as a journalist, sometimes to consult, frequently to train activists, and occasionally to edit or review books for conservative publishers. The fact that I am pagan and bisexual is quietly ignored as the Tea Party members, who draw from social conservatives, social libertarians, fiscal conservatives, and independents, all try to come together on issues of limited government, free markets, and individual rights. Thus, while I am not a part of the Tea Party myself, I am heavily connected with it here in Colorado and well acquainted with all of its organizing members and opinion leaders.

Thank you for the article. It was . . . strange. Bernstein is clearly no natural law philosopher. I found it rather ironic that a man who asserts that we have no value but what we find reflected in one another would accuse the Tea Party of nihilism for rejecting such a notion. Normally the assertion of natural law rights is considered the very opposite of nihilism. Odd.

Of course, he may be arguing high points of theoretical philosophy rather than practical politics and economics, neither of which he seems to grasp. The Tea Party does not want nothing, though. The economic crisis has indeed made them aware of how thoroughly our government has intruded into every aspect of human life and they object to such encroachment. The monetary policies have undermined their wealth and savings, ensuring that we must work harder and longer for less. Though few people can articulate the actual causes for that, most understand the basic premise that government is meddling in everything and everything sucks as a result. That is hardly irrational. Austrian Economics and Natural Law Philosophy both have many noteworthy scholars articulating the finer details of that general premise.

He is also incorrect in asserting that the Tea Party movement wants “radical independence” or the overthrow of civil society. Though I do have the dubious pleasure of knowing a few anarchists, they have yet to hold up in an argument with me and are universally ignored by the rest of the conservative movement as harmless fools. I have yet to encounter any of their ideas in the Tea Party movement. Far from the overthrow of civil society or radical independence, the Tea Party seems to call for an adherence to a constitutional legal framework and a reliance between people to live by that contract without overstepping and to help protect one another’s rights. Thanks to people like Glen Beck assisting the Tea Party Movement with the 9-12 groups, there is even a call for constitutional and historical education in the movement. Some of the history they have uncovered has surprised even me (which, especially as a lawyer, is quite embarrassing). Though it came as a shock to many in D.C., the latest surveys show Tea Party members tend to have above average educations and income levels. Also surprising to many in D.C., blacks and minorities are leading figures in many Tea Party movements (including here in Colorado). These are not forces of chaos. They are forces of order. In fact, at every Tea Party event, the only reported violence thus far has come from those opposed to the Tea Parties. That was certainly true in Denver, where 5000 Tea Party members were overseen by three police officers while the liberal counter-protest of 70 people across the street drew the attention of dozens of officers due to vile slogans and attempts at rushing the officers. To most Tea Party members, our current government is the true threat to civil society and they are actually trying to restore civil society.

As to the positions of the Tea Party, Bernstein seems to mistake it for an actual political party. The Tea Party is not. It wants a constitutional limited government. It wants government rolled back and spending under control. That is it as a movement. Republicans might want to preserve Social Security and Medicare, but the Tea Party movement has no such policy positions to speak of. Some of the members might even agree with Republicans. Some might realize those programs are ultimately doomed. But policy positions are not what the Tea Party is about. The name refers to the Boston Tea Party of old—not a political party.

Where I agree with Bernstein, though, is that the Tea Party, at its roots, is an almost metaphysical expression of anger. I also agree that, if things continue as they are, that anger is likely to boil over beyond the peaceful demonstrations of the Tea Parties and into street violence. In fact, I am quite certain that will happen in the very near future. It has already begun in California. Unlike Bernstein, though, I have no confusion as to why people are angry. Is it so hard to understand that government is too big? Does he really need a complex Hegelian analysis of the illusion of independence? Doesn’t it make more sense to look at the past millennia or so of human history and see that every time government gets too big and lives beyond its means economies tend to start collapsing and people tend to get really angry? A wonderful book called This Time Is Different: Eight Centuries of Financial Folly charts that process rather nicely. In America, we are fortunate to have a constitutional system to fall back on which can—hopefully—mitigate some of the destruction that typically erupts from such situations.

I tend to agree with you that we are not likely to escape violence and traumatic collapse, though. Another thing about Tea Party people is that they are all new to politics. They can elect all the solid conservatives they want. If those conservatives don’t know what they are doing, though—and at this point I will only give one statewide or federal candidate in Colorado credit for knowing much of anything—then it won’t make a bit of difference. Frankly, even if all conservatives currently running knew what they were doing, it would be difficult to elect enough of them in time to make any real difference.

That said, I do not think you have an illusion of independence. Perhaps complete autonomy would be an illusion, but I do not think we are all so dependent upon the state as you maintain. Oh, we are not without problems, but huge chunks of government could be chopped away and few people would ever even notice the change save that the deficit was smaller, there was less paperwork, and more money in the real economy. The teat of government produces remarkably little actual milk. Wouldn’t you agree?

Julian

Julian!

Good to hear you are still out there!

I’m forwarding this article, which Jim sent out to the drumming group. The author has some interesting observations. I don’t think you have to agree with him much to extract value from it.

As we’ve both noted, the Republican party (like the Democratic party) is deplorable in its hypocrisy and bad faith. I don’t know what kind of personal identification you feel with the so-called Tea Party movement, but it seems equally deplorable if not worse as a social movement, as it seems dominated primarily by irrational rage and nihilism. That seems consistent with the general tenor of rank idiocy going around the Web right now regarding BP and the Gulf oil spill as well as any number of other issues. All issues that are going to sort themselves out in the next few decades the hard way, our mortal opinions be damned.

What I find interesting here is the author’s take on our complicit agreement to keep our true dependency upon the state invisible and out of public discourse. In its place we have manufactured a sociopolitical fantasy — a dogma, even — of radical independence. That rings particularly true to me.

You read about the occasional individuals who are truly independent: they live in a tent; they hunt, trap, fish, and forage for food; they are invariably young and in excellent health. There are even fewer truly self-sufficient sustainable farmers. Most “intentional communities” that strive for self-sufficiency — monastic communities have the longest experience at this — have a very difficult time of it. The rest of us? Squalling infants on the community teat, every one of us.

I’ve been pondering this a lot, lately, because I’m not terribly hopeful that the US is going to make a graceful transition into the post-oil world. If so, we’re going to see the invisible hand of government handouts crumble and go away, along with everything else the government represents, good and ill alike.

I’m concerned because I happen to like the fantasy of independence, though I do recognize it as a fantasy. I’m not psychologically very well suited to community life. My skills, outside our fragile construct of high-tech interdependence masquerading as “independence,” are not terribly useful. I’m a lousy salesman.

This all came to a particular focus this past weekend in the mountains, and I’m trying to let the experience mellow enough to write about it without totally pissing off everyone I know. Because that’s important in community settings: you cannot afford to piss off everyone you know. You can only do that within the illusory world of independence — meaning a world where our interdependence has been radically depersonalized.

— Themon

June 13, 2010, 5:15 pm
The Very Angry Tea Party
By J.M. BERNSTEIN for the New York Times

Sometimes it is hard to know where politics ends and metaphysics begins: when, that is, the stakes of a political dispute concern not simply a clash of competing ideas and values but a clash about what is real and what is not, what can be said to exist on its own and what owes its existence to an other.

The seething anger that seems to be an indigenous aspect of the Tea Party movement arises, I think, at the very place where politics and metaphysics meet, where metaphysical sentiment becomes political belief. More than their political ideas, it is the anger of Tea Party members that is already reshaping our political landscape. As Jeff Zeleny reported last Monday in The Times, the vast majority of House Democrats are now avoiding holding town-hall-style forums — just as you might sidestep an enraged, jilted lover on a subway platform — out of fear of confronting the incubus of Tea Party rage that routed last summer’s meetings. This fear-driven avoidance is, Zeleny stated, bringing the time-honored tradition of the political meeting to the brink of extinction.

It would be comforting if a clear political diagnosis of the Tea Party movement were available — if we knew precisely what political events had inspired the fierce anger that pervades its meetings and rallies, what policy proposals its backers advocate, and, most obviously, what political ideals and values are orienting its members.

Of course, some things can be said, and have been said by commentators, under each of these headings. The bailout of Wall Street, the provision of government assistance to homeowners who cannot afford to pay their mortgages, the pursuit of health care reform and, as a cumulative sign of untoward government expansion, the mounting budget deficit are all routinely cited as precipitating events. I leave aside the election of a — “foreign-born” — African-American to the presidency.

When it comes to the Tea Party’s concrete policy proposals, things get fuzzier and more contradictory: keep the government out of health care, but leave Medicare alone; balance the budget, but don’t raise taxes; let individuals take care of themselves, but leave Social Security alone; and, of course, the paradoxical demand not to support Wall Street, to let the hard-working producers of wealth get on with it without regulation and government stimulus, but also to make sure the banks can lend to small businesses and responsible homeowners in a stable but growing economy.

There is a fierce logic to these views, as I will explain. But first, a word about political ideals.

In a bracing and astringent essay in The New York Review of Books, pointedly titled “The Tea Party Jacobins,” Mark Lilla argued that the hodge-podge list of animosities Tea party supporters mention fail to cohere into a body of political grievances in the conventional sense: they lack the connecting thread of achieving political power. It is not for the sake of acquiring political power that Tea Party activists demonstrate, rally and organize; rather, Lilla argues, the appeal is to “individual opinion, individual autonomy, and individual choice, all in the service of neutralizing, not using, political power.” He calls Tea Party activists a “libertarian mob” since they proclaim the belief “that they can do everything themselves if they are only left alone.” Lilla cites as examples the growth in home schooling, and, amidst a mounting distrust in doctors and conventional medicine, growing numbers of parents refusing to have their children vaccinated, not to mention our resurgent passion for self-diagnosis, self-medication and home therapies.

The events precipitating the Tea Party movement demonstrated the depths of the absolute dependence of us all on government action.

What Lilla cannot account for, and what no other commentator I have read can explain, is the passionate anger of the Tea Party movement, or, the flip-side of that anger, the ease with which it succumbs to the most egregious of fear-mongering falsehoods. What has gripped everyone’s attention is the exorbitant character of the anger Tea Party members express. Where do such anger and such passionate attachment to wildly fantastic beliefs come from?

My hypothesis is that what all the events precipitating the Tea Party movement share is that they demonstrated, emphatically and unconditionally, the depths of the absolute dependence of us all on government action, and in so doing they undermined the deeply held fiction of individual autonomy and self-sufficiency that are intrinsic parts of Americans’ collective self-understanding.

The implicit bargain that many Americans struck with the state institutions supporting modern life is that they would be politically acceptable only to the degree to which they remained invisible, and that for all intents and purposes each citizen could continue to believe that she was sovereign over her life; she would, of course, pay taxes, use the roads and schools, receive Medicare and Social Security, but only so long as these could be perceived not as radical dependencies, but simply as the conditions for leading an autonomous and self-sufficient life. Recent events have left that bargain in tatters.

But even this way of expressing the issue of dependence is too weak, too merely political; after all, although recent events have revealed the breadth and depths of our dependencies on institutions and practices over which we have little or no control, not all of us have responded with such galvanizing anger and rage. Tea Party anger is, at bottom, metaphysical, not political: what has been undone by the economic crisis is the belief that each individual is metaphysically self-sufficient, that one’s very standing and being as a rational agent owes nothing to other individuals or institutions. The opposing metaphysical claim, the one I take to be true, is that the very idea of the autonomous subject is an institution, an artifact created by the practices of modern life: the intimate family, the market economy, the liberal state. Each of these social arrangements articulate and express the value and the authority of the individual; they give to the individual a standing she would not have without them.

Rather than participating in arranged marriages, as modern subjects we follow our hearts, choose our beloved, decide for ourselves who may or may not have access to our bodies, and freely take vows promising fidelity and loyalty until death (or divorce) do us part. There are lots of ways property can be held and distributed — as hysterical Tea Party incriminations of creeping socialism and communism remind us; we moderns have opted for a system of private ownership in which we can acquire, use and dispose of property as we see fit, and even workers are presumed to be self-owning, selling their labor time and labor power to whom they wish (when they can). And as modern citizens we presume the government is answerable to us, governs only with our consent, our dependence on it a matter of detached, reflective endorsement; and further, that we intrinsically possess a battery of moral rights that say we can be bound to no institution unless we possess the rights of “voice and exit.”

The great and inspiring metaphysical fantasy of independence and freedom is simply a fantasy of destruction.

If stated in enough detail, all these institutions and practices should be seen as together manufacturing, and even inventing, the idea of a sovereign individual who becomes, through them and by virtue of them, the ultimate source of authority. The American version of these practices has, from the earliest days of the republic, made individuality autochthonous while suppressing to the point of disappearance the manifold ways that individuality is beholden to a complex and uniquely modern form of life.

Of course, if you are a libertarian or even a certain kind of liberal, you will object that these practices do not manufacture anything; they simply give individuality its due. The issue here is a central one in modern philosophy: is individual autonomy an irreducible metaphysical given or a social creation? Descartes famously argued that self or subject, the “I think,” was metaphysically basic, while Hegel argued that we only become self-determining agents through being recognized as such by others who we recognize in turn. It is by recognizing one another as autonomous subjects through the institutions of family, civil society and the state that we become such subjects; those practices are how we recognize and so bestow on one another the title and powers of being free individuals.

All the heavy lifting in Hegel’s account turns on revealing how human subjectivity only emerges through intersubjective relations, and hence how practices of independence, of freedom and autonomy, are held in place and made possible by complementary structures of dependence. At one point in his “Philosophy of Right,” Hegel suggests love or friendship as models of freedom through recognition. In love I regard you as of such value and importance that I spontaneously set aside my egoistic desires and interests and align them with yours: your ends are my desires, I desire that you flourish, and when you flourish I do, too. In love, I experience you not as a limit or restriction on my freedom, but as what makes it possible: I can only be truly free and so truly independent in being harmoniously joined with you; we each recognize the other as endowing our life with meaning and value, with living freedom. Hegel’s phrase for this felicitous state is “to be with oneself in the other.”

Hegel’s thesis is that all social life is structurally akin to the conditions of love and friendship; we are all bound to one another as firmly as lovers are, with the terrible reminder that the ways of love are harsh, unpredictable and changeable. And here is the source of the great anger: because you are the source of my being, when our love goes bad I am suddenly, absolutely dependent on someone for whom I no longer count and who I no longer know how to count; I am exposed, vulnerable, needy, unanchored and without resource. In fury, I lash out, I deny that you are my end and my satisfaction, in rage I claim that I can manage without you, that I can be a full person, free and self-moving, without you. I am everything and you are nothing.

This is the rage and anger I hear in the Tea Party movement; it is the sound of jilted lovers furious that the other — the anonymous blob called simply “government” — has suddenly let them down, suddenly made clear that they are dependent and limited beings, suddenly revealed them as vulnerable. And just as in love, the one-sided reminder of dependence is experienced as an injury. All the rhetoric of self-sufficiency, all the grand talk of wanting to be left alone is just the hollow insistence of the bereft lover that she can and will survive without her beloved. However, in political life, unlike love, there are no second marriages; we have only the one partner, and although we can rework our relationship, nothing can remove the actuality of dependence. That is permanent.

In politics, the idea of divorce is the idea of revolution. The Tea Party rhetoric of taking back the country is no accident: since they repudiate the conditions of dependency that have made their and our lives possible, they can only imagine freedom as a new beginning, starting from scratch. About this imaginary, Mark Lilla was right: it corresponds to no political vision, no political reality. The great and inspiring metaphysical fantasy of independence and freedom is simply a fantasy of destruction.

In truth, there is nothing that the Tea Party movement wants; terrifyingly, it wants nothing. Lilla calls the Tea Party “Jacobins”; I would urge that they are nihilists. To date, the Tea Party has committed only the minor, almost atmospheric violences of propagating falsehoods, calumny and the disruption of the occasions for political speech — the last already to great and distorting effect. But if their nihilistic rage is deprived of interrupting political meetings as an outlet, where might it now go? With such rage driving the Tea Party, might we anticipate this atmospheric violence becoming actual violence, becoming what Hegel called, referring to the original Jacobins’ fantasy of total freedom, “a fury of destruction”? There is indeed something not just disturbing, but frightening, in the anger of the Tea Party.

J.M. Bernstein is University Distinguished Professor of Philosophy at the New School for Social Research and the author of five books. He is now completing a book entitled “Torture and Dignity.”

Julian,

I recently ran across a book which, despite the cover (and the awful title) has brought up some interesting issues and some questions. The book is America on the Brink: It Could Happen Here, by Bruce Judson. (I told you it was an awful title.)

There’s a statistical measure called the Gini coefficient that measures the “spread” of any concentration throughout an abstract population. When applied to concentration of wealth among a population of people, a Gini coefficient of 0.0 would mean that everyone has exactly the same wealth, while a Gini coefficient of 1.0 would mean that one person gets all the wealth, and everyone else gets nothing.

The Gini coefficient shows a U-curve during the past century. It stood at a high of 0.450 in 1929, had dropped to 0.397 by 1947, reached a low of 0.386 in 1968, and had climbed to an all-time high of 0.470 by 2006. This is one statistical measure (of many) that illustrates the general fact that FDR’s New Deal brought about a significant redistribution of wealth from the elites to the masses (which is why those elites hated him so bitterly), and the Free Market exuberance that began with Reagan in the 1980’s brought about an equally significant concentration of wealth. Every measure of wealth indicates that wealth has become far more concentrated in the United States since 1980 than it was between WWII and 1980 — if you don’t like Gini, use something else, all measures show the same trends.

The rich get richer, the poor stay poor, and the middle class is getting pinched out of existence.

There is no sensible reason to believe this trend should have been otherwise. Under FDR, income tax climbed to roughly 90% for the top tax bracket. Reagan dropped it to 50% in 1982, and to 28% in 1988. When you tax the top income at 90% and redistribute it to returning GI’s (education), farmers (agricultural subsidies), unskilled laborers (CCC, WPA), and the elderly and indigent (Social Security), you’d certainly think that it would result in redistribution of wealth from the rich to the poor — it would be very surprising if it didn’t. Conversely, when you systematically reverse government barriers to wealth-building and seek to “privatize” massive sections of government, as has been happening since 1980, you would expect the rich to take advantage of that and become richer very quickly.

The concept of “trickle-down” was always counter-intuitive — that’s why Bush I called it “voodoo economics.” Had it worked the way it was sold, we would have seen “all boats lifted” by the rising tide of investment. That didn’t happen. The Gini coefficient rose (it did not fall), along with all other measures of concentration of wealth. Far from lifting all boats, Reagan’s “free market” preferentially lifted the highest boats.

Every political commentator from Aristotle to Will Durant has noted that economic inequality and political instability go hand-in-hand. It is one of the few correlations in history that stands out repeatedly in the fall of governments and civilizations. The absolute level of the economy doesn’t matter — what matters is the relative difference between the rich and the poor.

So here’s the reality-disconnect I’m continually suffering while reading Libertarian views. The “free market” so obviously benefits the rich more than the middle class or the poor, and it demonstrably increases the distance between rich and poor. Yet increasing the disparity between rich and poor is one of the best ways to court political instability and revolution. Do Libertarians want to bring down the government?

The religious ones do, of course. You’ve mentioned that they seek a Sharia-style government. I don’t think they actually have that much respect for law or social stability. The rank and file wants Jesus to return and kick unrighteous butt (others), then sit and drink non-alcoholic grape juice with the righteous (them), but their eschatology says this will not happen until the world collapses into terror and ruin. So they are willing to act (or passively refrain from acting) as agents of ruin — as nihilists, expecting a Deus ex Machina to “save” them, hopefully in a Rapture that pulls them bodily out of moving vehicles before they have to suffer, but certainly seven years later after they’ve “toughed it out” in their mountain redoubts. The religious leadership, I suspect (very strongly) is also willing to cultivate ruin because it creates personal political opportunity for them that does not exist in a stable democracy. So it makes perfect sense for them to encourage disparity between rich and poor, especially since many of them are already members of the wealthy class anyway.

Even the non-religious Republicans — including yourself — speak of the government with such a scathing contempt that I have to wonder if you really think we’d all be better off entirely without it. How much nihilism does the party platform harbor?

I’ve felt that way myself in the past — I’ve noted that the human misery that would be caused by releasing every thief, murderer, child-molester, and drug-user the government has ever “protected” us from doesn’t amount to a fart in a windstorm compared to the human misery caused by even a small war. But the more I look into where the “free market” takes us, the more I realize that without law and government, we’d be living incredibly impoverished lives. By “we,” I mean (of course) the middle class and the poor. The rich would be fewer and much richer, but they’d actually be more miserable as well — they would have much more trouble protecting their wealth in such a world, and would, like Lorenzo de Medici, bemoan that fact bitterly.

What is the answer to this disconnect? Do Libertarians believe wealth is not concentrating, contrary to common observation and every measure available? Do Libertarians agree that it is concentrating, but it is the fault of that standard bugaboo, government regulation — and therefore, do they believe that regulation actually decreased in the 1940’s under FDR and has increased since the 1980’s, accounting for the shape of the trend? If not government regulation, then what? Do Libertarians agree that wealth is concentrating, but believe it’s completely harmless (at worst) or beneficial (at best), in defiance of history? Or do Libertarians agree that wealth is concentrating, it is harmful to the nation, and that’s okay?

What did I miss here?

— Themon