Life would be better if more people understood this

Here’s a great post from Don Boudreaux at Cafe Hayek on the nature of wealth and politics.

In it, he criticizes the all too typical, and wrong, view that wealth is a fixed pie and why the concern that the wealthy use their wealth for political influence is a good marker for someone who seems oblivious to root cause thinking.

Here’s a snippet on the second point:

…Mr. Reich fails to connect the dots by complaining that the rich spend more and more of their wealth in the political arena.  What else to expect when that arena becomes ever more central to Americans’ daily lives and, simultaneously, becomes ever more crowded with redistribution-mongers (such as Mr. Reich) whose squeals to soak the rich grow louder and harsher?

Folks like Mr. Reich think that the solution to their perceived problem of politically powerful wealthy is a more powerful government. But, a more powerful government just raises the stakes for the wealthy to use that power to their advantage.

In other words, without a powerful government, the wealthy could not be politically powerful. The problem is not the wealthy gaining political influence. The problem is that with a powerful government there will always be unsavory characters seeking to gain that power for their own good.

Think about the plot line of every movie that has an object with immense powers. There’s always a fight between multiple groups, good and bad, to get the object so they can use its power to their advantage.

The problem in Reich’s thinking is that he cannot fathom a limited power government. He wants a powerful government, but he just wants to somehow (through even more power for the government) restrict the holders of its powers to people who think like him.

He doesn’t realize that’s a self-fulfilling prophecy. The more power we bestow on the government, the more likely there will be unsavory people seeking to control that power.

Now You’re Talking

I like some of the latest batch posts that I’ve read on minimum wage.  Here’s a roundup.

1. In this post on the minimum wage on Cafe Hayek, Russ Roberts does a great job articulating a world more complex than any of our models can replicate. True. That’s one reason cost benefit analyses suck. Models are to complex systems as caricatures are to people. They’re nice to hang on the wall, but they don’t talk or anything.

Here’s a sample:

So that when legislation artificially raises price, the debate is over the impact on quantity–how many jobs will be lost (or gained if you’re on the other side.)

But price and quantity are not the only way market forces work. And they are certainly not the only attributes of a job. There is how hard you have to work, how many breaks you get, how much training or mentoring or kindness. What amenities are in the workplace–snack bar, vending machine, nicely decorated walls and so on. When the government requires that wages be higher than what they would otherwise be, that creates an increase in the number of people who would like to work and reduces the number of opportunities available.

2. The Grumpy Economist, John Cochrane, suggests that discussing the minimum wage is “fiddling while Rome burns”, even if the economic magic of raising the minimum doesn’t effect employment were true.

3. Kudos to Russ Roberts’ co-blogger on Cafe Hayek, Don Boudreaux, for his response to a colleague who questioned why he spent so much time writing about the minimum wage:

I protest the legislated minimum-wage because I have a visceral hostility to shabby economics.

Encountering arguments premised on the (typically unconscious) notion that most employers routinely sit on figurative piles of excess profits or returns that can be tapped into by government diktat (“Raise your workers’ wages!”) without any compensating adjustments or reactions by employers makes my head ache.  Encountering otherwise respectable economists performing rococo theorizing in their attempts to explain why unskilled human labor is somehow exempt from the simple application of the law of demand makes my head ache.

Encountering otherwise respectable economists who lend credence, usually unawares, to the person-in-the-street creationist superstition – a creationist superstition held by non-economists on the ideological spectrum ranging from the likes of Harold Meyerson to Bill O’Reilly – that prices, wages, employment conditions, and other economic phenomena are determined arbitrarily, and more or less consciously, by someone in power rather than by decentralized and largely spontaneous market, competitive forces makes my head ache.  Letting stand unchallenged this Meyerson-O’Reilly sense that, therefore, the only question is which powerful group of people will determine prices and wages – the government or the oligarchs? – makes my head ache.

Encountering claims that human welfare can be increased so easily and so surely by mere diktat makes my head ache.

Challenging such claims is the equivalent, for me, of swallowing two aspirin tablets.

The root cause of progressive taxation

Don Boudreaux of Cafe Hayek recently posted this bit of wisdom from  “Walter J. Blum’s and Harry Kalven, Jr.’s 1963 “Introduction” to the ten-year-anniversary re-issue of their 1953 classic and insightful book, The Uneasy Case for Progressive Taxation“:

At the time of an emergency which brings about a tax increase, it appears that a sudden new burden can be more easily borne by the rich, thus suggesting that the tax system is made more progressive in the upper-income ranges.  When tax reduction is in the air, it appears that the less rich are more deserving of the reduction, thus suggesting that the system should not return to the tax pattern which prevailed before the increase brought on by the emergency.  It is almost as though tax reduction is viewed, not as the erasing of a prior tax burden, but as an independent distribution of a “bonus” by the government.  Neutrality in tax reduction … would in a simple fashion often require that higher-bracket taxpayers benefit from the tax cut substantially more than those in lower brackets.  But this symmetry is not likely to persuade the popular mind.


For me, as soon as we start talking about ‘fair’ tax systems, we’ve gone too far because we’ve changed the conversation away from ‘what we want government to do’. We now have taken the bait and assumed that all functions of government, existing and proposed, are legitimate and the biggest problem we have is how to fund it.

Government should be something that everyone pays for so we will think very carefully about what we are getting for our money.

If (especially in non-emergency times) you want more government than you are willing to pay for, then I think you owe it to whomever asks to show your work without being grumpy.

My guess is, if you belong to an organization that has a group of people charged with figuring out how to spend money that you have put into the pot, like a church, that you also expect a reasonable accounting and justification for that spending from those folks.

When it comes to thinking about what we want government to do, I like to think of example a little closer to home like my Homeowner’s Association to check my rationale.

Each homeowner in my neighborhood pays a flat, relatively small, sum of money each year to maintain our neighborhood pool and common areas. I’m okay with the HOA overseeing those functions.

However, I’d get concerned if my neighbors started talking about setting HOA fees based on income because a) they want a ‘fairer’ collection of fees, b) they want more fees or c) they have other things they want to do and need more money.

I don’t think it would be hard for anyone to see this would lead to lower-income neighbors freeloading on the higher income neighbors (“sure we can afford that playground and shelter, as long as you are paying for it”), while simultaneously (and illogically) becoming a channel for lower-income neighbors to alleviate their envy for their higher income neighbors while also leading the HOA to want to do things beyond its initial charter of caring for the pool and common grounds without sound reasoning for doing so. Why do I want the guy in charge of hiring and paying the pool guy to also use our money for an unemployment insurance program for my neighbors?

Don Boudreaux asks some good questions

Don Boudreaux, of Cafe Hayek and George Mason University, asks some great questions in his column, And the answer is?, in today’s Pittsburgh Tribune.

Here are a few:

Why do so many conservatives distrust Uncle Sam when it meddles at home, but trust it when it meddles abroad?

Why do so many “progressives” who preen publicly about their magnanimity toward the poor want to prevent foreign workers — most of whom are farpoorer than is any American — from bettering their lots by competing freely against relatively rich American workers?

Why are “progressives” madly obsessed with inequality of incomes but not with inequality of work effort, risk taking, prudence, courage, honesty, integrity, ambition and dedication? Monetary incomes, after all, are largely a result of the application of these qualities: Those who apply more of these qualities to their lives and careers generally earn higher incomes than are earned by those who apply fewer of these qualities to their lives and careers.

Why is it considered bad form today to point out that personal character plays a large role in determining one’s fate in life — including one’s income?

If the current American model for supplying K-12 education is desirable, why do we not also supply college and post-graduate education in the same way? That is, why not fund state colleges with tax dollars, charge zero tuition and assign each post-secondary student to that college in his or her geographic district? Going to a public college outside of the district would be prohibited. Does anyone believe that implementing this model of supplying college education would improve post-secondary education?