The 0.000179%…

…is the federal government.  Or, the 535 members of Congress + 1 President.

If my calculations are correct, those few currently “control” about the same amount of income as the 3 million, or so, in the much ballyhooed Top 1%.  Thanks to commenter, Xerographica, for pointing that out.

I wonder why those who fret about 3 million people earning that much money, by and large by producing value, don’t seem at all bothered by the 536 controlling just as much, through taxing and spending.

Because we vote for our elected representatives? Because they’re not spending the money directly on themselves?

These are reasons we should care even more about the 0.000179%, not less.

I believe many people will intuitively defend Congress having so much spending power by saying, but they are held accountable by our votes, we get to choose them.

How has that worked out for us?   Not well.  Public choice economics tells us why our intuition about elections is wrong.  Thomas Sowell explained it well in his book, Applied Economics.   I wrote about it in my post, How to Get People to Respond to Other People’s Desires.   This is Sowell’s key paragraph:

Politics and the markets are both ways of getting people to respond to other people’s desires.  Consumers deciding which goods to spend their money on have often been analogized to voters deciding which candidates to elect to public office.  However the two processes are profoundly different.  Not only do individuals invest very different amounts of time and thought in making economic vs. political decisions, those are inherently different in themselves.  Voters decide whether to vote for one candidate or another but they decide how much of what kinds of food, clothing, shelter, etc. to purchase.  In short, political decisions tend to be categorical, while economic decisions tend to be incremental.

I can also imagine some people defending the immense spending power that has been concentrated into the Federal government vs. the Top 1% by saying, well, they’re not spending the money on themselves.

Milton Friedman explained why this should make us more concerned in his Four Ways to Spend Money.  Government spending falls under Type IV spending — spending other people’s money on other people.  Friedman explained that with Type IV spending you have little incentive to spend it wisely since you don’t pay the consequences if you’re wrong or receive the benefits if you’re right.

Though, sometimes politicians do get benefits.  I get the pleasure of driving over a bridge each weekday named after a still living Senator from my state, for no other reason than he played politics with the rest of the 534 folks in Washington to get enough of them to agree to spend our money on that bridge.

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18 thoughts on “The 0.000179%…

    • That would probably depend on a number of factors, like how long it had been since the last attack from a foreign invader and the strength of potential threats to our safety.

      The feature about the military that makes it different than other government programs is that the success/failure feedback loop is crystal clear. It’s easy to tell whether the U.S. has maintained it’s sovereignty or not.

      However, that feedback loop hasn’t prevented it from growing beyond its charter.

      • See…it was kind of a trick question. Imagine what your answer would have been if I had asked you whether Google is over or underfunded. Your response might have been that the amount of funding/revenue that Google receives reflects exactly how much society values Google’s products/services…therefore it’s a nonsensical question.

        If you think that congress can “predict” the “optimal” level of military funding…then that same line of thinking can be applied to any of the other public goods that liberals want the government to supply. Congresspeople/planners…either can…or can’t pick the winners/losers…but it can’t be both.

        As I mentioned on your other blog entry…this is the “Fatal Conceit” concept. We can have our “theories” regarding what the scope of government should be…but when we see our “theories” as “truth” then libertarians fall into the same trap that liberals do. The scope of government is just way too complex for any of us to truly understand. It can only be accurately determined by allowing taxpayers to directly allocate their taxes.

        • You’re presenting a a straw man of the fatal conceit.

          The military’s service has a clear failure signal, so it’s easy to determine if it’s underfunded. Running the military is a closer to planning a birthday party (http://ourdinnertable.wordpress.com/2010/07/02/steven-landsburg-on-a-decentralized-economy/) than producing individual products and services for hundreds of millions of folks.

          The failure signal for Google’s products and services isn’t so clear. That’s why it’s best left to individuals.

          • So if it’s easy to determine that the military is underfunded…then we should just allow taxpayers to be in charge of funding the military?

        • Sure. That may be a good feedback loop to add to keep the uses of the military contained to its charter. I do know folks who say they want the military to do more than protect our country, but they might not be willing to put their money where their mouths are.

        • Have I ever said they shouldn’t?

          To be honest, I’m not sure. I’m not omniscient enough to believe that I could predict all the consequences of that. I wouldn’t mind seeing a test of it somewhere and somehow to see how it would work.

          Even Google has a governing board, so investors don’t have direct control over how their capital is allocated within the firm. So, while Google’s users and customers get final say in what they value, the investors just hope that the Google board and management are picking the right things to try.

          I’ve read that Google has a more distributed allocation process where its associates (who probably also happen to be owners) basically play an Intrade-like board to “invest” (not real dollars) in new ideas to figure out which ideas get funded. I like it, but I think I’d like it even more if it were real dollars and if the process was open to non-associate investors.

          • True…you’ve never said whether taxpayers should…or shouldn’t…be allowed to directly allocate their taxes.

            The non-profit sector provides a perfect example of this idea in action. The main difference would be that taxpayers wouldn’t have a choice whether they paid taxes…they would just have a choice which government organizations received their taxes. Of course, congress would still be around so taxpayers could also just give all, or some, of their taxes to congress.

            In terms of more specific experiments…here’s one…Your Money, Your Choice. What’s completely fascinating though is that this experiment was conducted by a liberal! That really surprised me.

            Part of the challenge to pragmatarianism is that it represents a compromise…the tax rate would stay the same and there would be no arbitrary attempt to narrow the scope of government. But what good is a compromise when both sides are absolutely certain that their respective positions are correct? Why compromise when the other side is clearly wrong?

            Yeah, nobody could predict the specific outcomes…but it defies everything we know about economics to believe that 538 congresspeople can allocate public resources more efficiently than 150 million taxpayers could. The question is…why wouldn’t we want to guarantee the best possible use of public funds?

        • The non-profit is a good example. I actually use that all the time to try to convince people that private action could feasibly replace government programs. Just set a % you want to donate to United Way and then determine which programs and charities you’d like them to distribute it too.

          But, in your last paragraph, I’m not convinced that 150 million would allocate their taxes much better than 538 people. Maybe differently, but not necessarily better.

          The key missing element in both scenarios is the lack of a clear failure signal (and sometimes a positively reinforcing failure signal) for failing government spending, not necessarily the number of people making the decision. Neither taxpayers or congress pay the direct consequences for poorly allocating government spending. And even when they do pay costs for doing so, they can be convinced otherwise easily enough.

          That’s why I favor reducing the amount of the economy that has an unclear failure signal, rather than simply trying to get more people to decide on the stuff with unclear failure signals. Though, I wouldn’t mind seeing this tested with a portion of taxes somewhere at some level. I wouldn’t be presumptuous enough to gut and replace the Federal system with over 200 years of history with a notion that hasn’t been tested, but I wouldn’t mind seeing the Federal government maybe put a set of Federal programs on the blocks and ask people to donate to those programs based on their own tax contributions and/or a state or local government doing something similar.

          • Oh, we’re pretty far from being on the same page. Here’s a snippet from my entry on a taxpayer division of labor

            ******
            Even though the average congressperson might have more information than the average taxpayer…the cumulative information held by 150 million taxpayers far exceeds the cumulative information held by 538 congresspeople. When it comes to the efficient allocation of public goods…we need to consider sums…not averages. It’s interesting to consider though just how many average taxpayers it would take to equal the amount of information held by the average congressperson.
            ******

            If this doesn’t make sense then if you get a chance I’d really recommend carefully reading over my entry. It’s really lengthy for a blog entry but the goal is to consider how other people’s unique values/perspectives/experiences/information all relate to the efficient allocation of public goods. You just can’t allocate resources by proxy and expect that the outcome will be efficient.

        • Trust me. I appreciate how much more information 150 million people have over 535.

          But all the additional information doesn’t mean much if they don’t have clear failure signals — that is directly feeling consequences of their choices — on which to process that information and are forced to support something even if they support nothing.

          The fatal conceit is forcing taxpayers pay something and having them select what to spend it on because you think that produces better results than not forcing to pay in the first place.

          • You say that you understand the disparity of information between 150 million taxpayers and 538 congresspeople…but how does this information disparity fail to include “failure signals”?

            My girlfriend provides therapy to abused children whose families receive Medi-Cal. How can congress truly understand and evaluate the failure signals that my girlfriend has access to? When kids in public schools have inadequate resources…how does congress understand and evaluate these failure signals better than parents can? When people are mugged how can congress understand and evaluate these failure signals better than the victims can?

            Taxpayers…as a whole…have access to an infinitely greater quantity of failure signals than congress does. As such…their tax allocation decisions…as a whole…would produce an infinitely more efficient allocation of public goods than congress ever could hope to produce.

            Like I said…taxpayers would still have the option to give their taxes to congress. I wouldn’t force anybody to directly allocate their taxes. Anybody that did choose to directly allocate their taxes would do so in order to try and address the “failure signals” that concerned them.

            If if turns out that the private sector truly is more effective at providing education/healthcare/environmental protection than the public sector…then the tax allocation decisions of people who care about education/healthcare/environmental protection would reflect the truth of the matter.

        • Failure signals are not processed well unless you feel the consequences. Would your girlfriend choose not to fund Medical with her tax dollars even though she sees the failure signals or would she continue to fund it and just hope someone better would be put in charge?

          As I think about it more, I believe your scheme would simply change the lobbying organizations from what they are today into something that looks like the marketing department of Nike.

          You are forcing them. You are forcing them to pay taxes and to allocate those taxes — even if one of their choices is to let Congress decide.

          “If if turns out that the private sector truly is more effective at providing education/healthcare/environmental protection than the public sector…then the tax allocation decisions of people who care about education/healthcare/environmental protection would reflect the truth of the matter.”

          So, why not just let decide for themselves anyway without forcing them to pay taxes?

          • People who allocate their taxes to a public good would only do so unless they were concerned with the consequences. Otherwise…why would they bother directly allocating their taxes?

            Sure, lobbyists would have to try and convince taxpayers that we should “purchase” their products…that’s a good thing.

            Well…I’m really not forcing people to pay taxes. I’m just advocating that taxpayers have more freedom than they currently do.

            On my page on libertarianism I created a timeline of prominent libertarian thinkers on the proper scope of government. Here’s what David Brin has to say on the pattern…

            “In a market — one of your beloved markets — an entrepreneur who presents the same product over and over, deriding customers for not buying it, would be the real fool. You’d laugh at such a fellow and tell him he deserves what he gets — bankruptcy. Yet, you never view your political program that way, do you?” – David Brin, Essences, Orcs and Civilization: The Case for a Cheerful Libertarianism

            That’s the same conclusion I came to a while ago. You’re welcome to sit around the Dinner Table having the same exact debates for the rest of your life…and it’s very well possible that your “truth” is actually the real “Truth”…but personally I’d prefer if we actually just tasted the pudding rather than just sitting around debating how it tastes.

            Consumers don’t purchase unnecessary goods in the private sector and taxpayers wouldn’t purchase unnecessary goods in the public sector. Additionally, taxpayers would not purchase goods in the public sector that they could purchase in the private sector for less money. Therefore, allowing taxpayers to directly allocate their taxes would eventually reveal the proper scope of government.

        • “Well…I’m really not forcing people to pay taxes. I’m just advocating that taxpayers have more freedom than they currently do.”

          Since you don’t seem to advocate a reduction in taxes or overall government spending, you do advocate forcing people to pay into a common pool and forcing them to allocate. I’ll give you that’s a bit more freedom than just forcing them to pay into a common pool, but I’m not convinced it’s much better.

          “but personally I’d prefer if we actually just tasted the pudding rather than just sitting around debating how it tastes.”

          So taste it. Convince your city or county officials to try it to demonstrate how well your idea works. If it works well, then maybe other governing bodies will adopt it. I have nothing against such experiments. I like them so we can stop debating theories. I love to see how things work in practice. While I might not think that this idea is politically feasible or as good as letting people have the most freedom, I could be wrong.

          “Consumers don’t purchase unnecessary goods in the private sector and taxpayers wouldn’t purchase unnecessary goods in the public sector…”

          Again, I think the key thing that you’re missing here is the lack of processing direct consequences. Your proposal moves spending from Friedman’s Type IV bucket into something of hybrid of Type II and Type IV spending (http://ourdinnertable.wordpress.com/2009/10/02/its-the-thought-that-counts/). Type II, because it’s kind of/sort of your money, but I really think it has more of the characteristics of Type IV because it’s not really your money, since you are forced to pay it. And, either way, the key part is that you are spending it on someone else. As Friedman points out, this is not as carefully spent as when you spend it on yourself.

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