Tax Cuts for the Rich
Philosopher Keith Burgess-Jackson dissects the phrase.
Nobody, to the liberal, has a valid claim on anything, even his or her talents. Those who produce or acquire wealth do so not because of effort, initiative, creativity, or sacrifice. They’re just lucky. They were born healthy and into loving families. Others are unlucky. They were born unhealthy or into indifferent families. Since none of us is entitled to what we have at birth, none of us is entitled to anything we produce thereafter. We might call this, to borrow a term from the criminal law, the fruit-of-the-poisonous-tree doctrine. Wealth, to the liberal, belongs to all of us in common, not to any of us in particular. There are possessions, but not property.
For Discussion. John Locke argued that man has an inalienable right to the fruits of his labor. Is there a reasonable compromise between that view and the view attributed to contemporary liberals by Burgess-Jackson?
Jun 18 2004 at 11:47am
We need an “Equal Taxation Amendment” which institutes a flat tax over a legislatively set threshold (and EITC below), specifies a legislatively set capital gains rate (hopefully recognizing that it’s double taxation to begin with), eliminates the death tax, and phases out all deductions. Gotta do something to equalize corporate taxes too.
Anyone know what the numbers would be to keep the same revenue into the government today? I would guess they would be salable enough that you could demagogue the lefties who are against it as just wanting to instigate class warfare in every budget process.
Jun 18 2004 at 11:51am
“Galbraith would never have predicted Wal-Mart, Federal Express, Apple, Microsoft, eBay or Amazon, much less the tens of thousands of less spectacular entrepreneurial enterprises that have had a large cumulative impact on our economy.”
Interesting, since it seems to me that the cumulative impact on our economy of the companies you mention is a //negative// one.
Wal-Mart -> lower national income due to deflationary price pressure and the elimination of many small regional ‘Mom and Pop’ enterprises.
FedEx -> Cherry picking of most profitable delivery services inflates cost for the public mail service.
Microsoft -> Intellectual Property is anti-market protectionism, anti-competitive practices, etc. Wal-Mart effect of reducing competition. (Apple is the same, only irrelevant)
Amazon -> Wal-Mart effect on book stores, book distributors.
eBay -> Reduced revenues for classifieds, buy and sell publications, traditional auctionions and second hand shops.
Question: Given the reduced Income Effect this all suggests, is the economy not worse off because of these companies? Is income now more concentrated?
Jun 18 2004 at 11:55am
Dmytri — I strongly suggest you google the phrase “broken window fallacy.”
Jun 18 2004 at 12:07pm
I have never understood how the anti-free market types have linked lower prices with lower incomes. It seems to me that lower prices are beneficial (especially for the poorest individuals in a society.) Wasn’t the 19th century in the U.S. a period where prices steadily came down, but incomes increased?
Jun 18 2004 at 12:08pm
John Rawls’ (wait, come back!) flawed conclusions for his thought experiment stem from the same flaw in his game design that often occurs. His game (in the game theoretical sense of “game”) assumed a “veil of ignorance” regarding which body the designer of a society might be born into, and thus promulgated a highly risk-averse, redistributive (“liberal”) ruleset.
The flaw, just as in Prisoner’s Dilemma, is that he is assuming you only play once. Those who are highly risk-averse have a high personal discount rate and therefore a very short time-horizon. The solution, again just as in Prisoner’s Dilemma, is to consider the game as having many turns or plays. Force an expanded time horizon and conclusions differ radically. Throw in either, say, reincarnation, or an uncertainty about when a society-designer might be born (maybe 1000 years in the future, a possibility that forces a concern about how the game has been played up ’til then), and redistribution gives way to ideas of progress, technological invention, efficiency, and other capitalist (“conservative”) concerns.
This way, the “liberal” from your citation would be looking to increase the amount of “luck” going around, and conversation would quickly turn to a method for growing the pie before we cut it. Voila, Locke’s concern for life, liberty and property seems uncannily effective as well as just.
Jun 18 2004 at 12:20pm
asg — I stongly suggest you google the phrase ‘strawman’
How is Microsoft paying any Hidden Costs when anti-competitive practices reduce competition, how is Intelectual Property anything other than protectionism. Both these things reduce the efficiency of the market do they not? Please explain.
Oh and by the way, in what way did George W. Bush earn his money? Do you think being born rich is a form of contribution to productivity all on it’s own?
And further more, why do you seem to have the notion that using Public money for social programs is bad, but using it for foreign military adventures is good. The economic justifications of the war economy are the ultimate ‘Broken Window Fallacy’.
Jun 18 2004 at 12:24pm
Price has an income effect as well as a cost effect. Total Income = Total Expenditures. Monopolistic deflationary pressure can unbalance market forces in exactly the same way that state price fixing can. Economics 101.
Jun 18 2004 at 12:39pm
Oh geez Dmytri… Sans Microsoft and Intel, the computer you are typing on would be 1/10 the speed and 10x the price. And I’m using a Mac PowerBook, which would be comparatively worse not to mention 3x as heavy. Microsoft made it possible for everyone to afford a computer with a GUI.
Jun 18 2004 at 12:50pm
I was going to reply to your post, Dmytri, but then I got to the following bit:
“why do you seem to have the notion that using Public money for social programs is bad, but using it for foreign military adventures is good.”
Is this some attempt at irony? To accuse me of committing a straw man and then construct one the size of the Statue of Liberty yourself? Where did I say, imply, or link to any idea resembling the one you attribute to me? I realize it is fun and easy to make up stuff, and debate is a lot more straightforward when you get to decide what your opponents say, but at the grown-up table life doesn’t quite work that way.
Jun 18 2004 at 12:58pm
BTW, sorry for posting my original message to the wrong thread, it belongs under the Galbraith thread.
But since I’m here, what is the origin of the strange American usage of the word ‘Liberal’ to mean ‘Socialist,’ especially weird to find it on a site apparently about economics. To economists the word ‘Liberal’ means someone in favour of Market Liberalization, meaning against the interference of the State, liberalism is the opposite of Socialism.
Also, why do some people use the language of liberals, i.e. Market Efficiency, etc, to justify the policies of the NEOCONSERVATIVES!
The conservatives are not liberals, they are not for a free market at all, but rather are mercentilists and protectionist, the agents of vested interests.
American politics are so confusing! Secret deals to give money to Haliburton are apparently the actions of a //pro-market// government??? ‘Liberals’, who’s primary theory is that property is most efeciently utilized by private ownership as described as synonymous (or at least homonymous) with socialist, who believe the exact opposite! Spending Tax money on infaltionary yet unproductive waste like foreign wars is somehow Capitalist. Spending Tax money on Capicity Building like education and infrastructure is somehow Socialist.
Can someone please explain America to me?
Jun 18 2004 at 1:09pm
Sorry asg, yes that comment is a straw man in the context of our discusion, it was meant in the context of some of the stuff written on this site in general, apologies for being unclear, I should have said ‘why do some people seem to think…’
Can I take then that you agree with me that the economic justifications for war are a broken window fallacy?
Anyway, you did not answer the part of my question that was not a straw man, how can microsoft’s using it’s monopoly position and it’s intellectual property position to combat competition be described as anything other than a market inefficiency?
Brad did, unfortunately his response is unsubstantiated, how exactly do anti-competitive practices make my computer faster or better?
Jun 18 2004 at 1:15pm
The Democrats are historically the party of Jefferson and Jackson (liberals.) Over time, however, the party gave up on the idea of a liberal economy (in the late 1800’s & early 1900’s), but maintained certain terms such as “liberal” to describe themselves. You are right that there are many conservatives who are mercantalists and protectionists, this is the historical position of the Republican party. It can be confusing, the ideas have switched parties (to a degree), but the language (for the most part) has stayed the same.
Jun 18 2004 at 1:20pm
At the time FedEx and UPS were formed, the US Postal Service claimed it lost money on package delivery, and this was subsidized by the first class mail monopoly. This is why the government allowed competition to exist, and if the claim was true (there’s no reason to doubt it), it should have made the US post office more profitable that private firms leapt at the chance to offer this loss-leader service. Also, the Post Office had nothing resmbling “express mail” service until long after FedEx pioneered the technologies that allowed for it.
The post office is thus the one that is “cherry picking” by keeping to itself, even today, a legal monopoly on non-emergency first class mail and on the right to put stuff in your mailbox. The only reason private companies haven’t undercut standard postage and put the Post Office out of business is that they aren’t legally allowed to charge less than the Post Office or deliver non-urgent paper mail.
Note also: FedEx/Airbore/UPS even have better coverage in remote areas of the country. FedEx delivers packages “to the door” in places where the Post Office only delivers to the nearest “mail stop” that might be miles away from the recipient.
Jun 18 2004 at 1:45pm
“Can I take then that you agree with me that the economic justifications for war are a broken window fallacy?”
Certainly I agree with that.
As for Microsoft, I’ll let others talk about that; I’ve been over the issues there many times and have no desire to return to them.
Lawrance George Lux
Jun 18 2004 at 2:28pm
There is the Fair Wage view, which finds taxation necessary to fund certain communal activities. This is not the great element to Fair Wage philosophy. The great element lies in the statement that Wage differential should be determined only by skill and productivity, completely eliminating non-economic criterea for the setting of Income. It would state in its most ruthless form that Inheritance and Gift tax should be 100%. Milder forms state there should be a “Provide for the Children” allowance before 100% taxation. A greater importance lies in statement Wage differential should be proven in law, so that institutional and personal position should not be allowed discriminatory power, while the efforts of the Individual would still determine the largesse of his gain. lgl
Jun 18 2004 at 3:12pm
I’m puzzled by your assertions regarding Microsoft. You seem to be confounding legitimate competion with monopoly.
Monopoly position – Anyone can enter the market for operating systems and software. Microsoft’s large market share does not make Microsoft a monopoly, just an efficient producer. Brad Hutchings makes a good point – Microsoft has lowered costs. It’s achieved its market share through succesful competition, by raising productivity and lowering costs. I can grasp that more efficient production would lower prices, but would you care to explain how monopolistic pricing causes deflationary pressure? I must have missed this in EC 101.
Intellectual property – Do you mean that intellectual property owned by Microsoft is somehow illegitimate? What makes Microsoft’s intellectual property different from anyone else’s?
P. S. You really should do that google on the “broken window fallacy.” Also try “creative destruction” while you’re at it.
Jun 18 2004 at 5:13pm
I have been scratching my head about how monopolies cause deflationary pressures since I read the post earlier. Isn’t one of the criticsm if monopolies that they keep prices artificially higher? Also, I still do not see how lower prices cause lower incomes. Total Income = Total Expenditures, does not really explain it to me. Won’t lower prices on some goods make other goods less expensive relative to one’s income?
Jun 18 2004 at 6:17pm
1- As I understand it:
A monopoly position causes deflationary pressure on their costs, due to unchecked leverage with suppliers, the other side of thisis reduced income for these suppliers.
The monopoly need not reduce it”s own prices, thus it”s profit is increased, if this profit is not immidietly spent on capital or consumer good, for instance, if the company has a high liquidity preference or perfers foriegn investments, then the entire national income shrinks. Do I realy need to explain here why monoplies are bad for the market?
2- And yes, All intellectual property ammounts to protectionism and makes the market less efficient. Is this surprising?
3- Brad makes no point at all, only an unsububstantiated claim, *HOW* has Microsoft lowered costs? By eliminating competition?
4- Microsoft is anything but an “efficient producer” and no, anybody can not simply enter the market for OSes, because of compitablity issues. Microsoft got where it is through LEGAL, not technical inovations, first in it”s deal with IBM, which gave Microsoft it”s monopoly position, then in it”s anticompetatibe deals with PC vendors, made from this dominant position.
5- On a further, thought not directly related note, isn’t Linux a great example of how eliminating restrictive intellectual property is great for the market? Even so, it”s important to note that Linux is less that 4% of the desktop market. It has alreadz surprassed Apple though.
Jun 18 2004 at 7:34pm
I’m having a hard time understanding why a monopolist would have leverage with suppliers. Do you mean to say that the monopolist is actually a monopsonist in an input market and a monopolist in the output market?
Jun 19 2004 at 7:03am
“Do you mean to say that the monopolist is actually a monopsonist in an input market and a monopolist in the output market?”
And I don’t meat than the monopoly/monopsony position is absolute either, it could also be oligarchichy/cartel as well, or just a company who’s size and capitalization makes competition impossible.
For instance, a gentleman that runs a bookstore here in Berlin was explaining to me how Amazon.com frequently has books listed at Prices that are lower than he gets from the Publishers/Distributors.
How is he supposed to compete with that?
The tendency of Capital to accumulate is a big threat to the free market.
In this light I ask again, even if you agree with Locke, that a man has inalienable right to the fruits of his labour, what labour exactly is George W. Bush earning fruit from? Again, is being born rich considered a form of productivity?
Jun 19 2004 at 10:04am
Who cares what labor G.W. is earning his “fruit” from. Even if he inherited his wealth (or made it on his own) what right does someone else, or “society” have to come in and confiscate it from him? If capital really accumulated in a manner that threatens the free market, why have the Rockefellers and Morgans not become our masters? The extremely wealthy of hundred years ago are no longer really relevant to the economy, they do not control major corporations, they have largely divested themselves of the businesses that brought their families great wealth, and their wealth has actually shrunk instead of continually accumulating in the hands of the few. Much of this wealth has dissipated through more and more individuals inheriting wealth (and cutting the pie into smaller and smaller pieces), bad investments, spending, and simply giving the money away. Wealth does not accumulate in a manner that threatens free markets, there is no evidence of such an event occurring without the help of governments that create laws to protect the rich. Furthermore, in order for a free market to be free, private property (whether inherited or earned) has to be fee simple. This means claims against property can not be concocted by other groups for their benefit, whoever bought or inherited the property has the only claim to it.
Short answer, Locke is right.
Jun 19 2004 at 10:18am
Nobody, to the liberal, has a valid claim on anything, even his or her talents.
This sentence is so idiotic that it is difficult to read further.
Hence there is no need to compromise between Locke and Burgess-Jackson. (What a joke).
Look. If you think government should exist, then however big or small it is, it needs taxes to operate. And paying those taxes, whatever they are, is no fun. And it necessarily involves surrendering some of the fruits of our labor, or our grandparents’ labor.
Jun 19 2004 at 10:54am
So, would it be preferable to tax consumption instead of income? Would it not be less “painful” if the government extracted it’s vig from consuming rather than producing? Also, would this switch in tax policy increase how much people save (no tax on interest bearing accounts, bonds, etc.) and give more power to the consumer in how government spends?
If the government taxed consumption as opposed to income we would probably have less of a philosophical problem in the way government extracts it’s pound of flesh.
Jun 19 2004 at 11:03am
The only monopolies that can exist in perpetuity are those created and/or protected by the force of government. Monopolists become more and more inefficient both in administration and in purchasing of inputs to their process. Monopsony is hardly an arrangement for getting the best price for anything (ask the US military). This makes them more vulnerable to competition.
Buying up your rivals is very expensive and reduces the return on investment of the owners of the buying firm. There is also a limit to how big a firm can get before it starts to use up more and more of it’s resources just trying to manage everything. These situations also open the door to competition.
But the single biggest check on monopoly in the free market is choice: People can simply choose not to do business with the offending company. If you don’t like Wal-mart don’t shop there. If they overstep their bounds, eliminating them will be a lot faster than waiting around for an election to get rid of a bad politician. If the population thinks they are somehow working against them they can put them out of buisiness in a rapid amount of time. Pure Democracy at it’s essence.
Rockefeller could have vastly speeded up the introduction of the light bulb if he had raised the price of Kerosene to the point at which it would be beneficial to find a substitute. The fact that Standard Oil made gasoline cheap instead of expensive during the early development of the automobile is the reason we didn’t drive battery-electric cars (of which there were more in 1900 than gasoline powered cars)for the last century. The fact that he recognized this fact is probably the single biggest reason that his empire didn’t succumb to the fate of most monopolists: Over-reaching.
Cartels and price fixing arrangements have 2 possible outcomes: raise prices to the point where cheating provides an irresitable reward to secretly sell more of their given product at the higher price for pure profit (thus increasing supply and reducing price), or maintaining essentially free-market prices or lower than market prices in order to fend off such cheating and outside competition. Either way, the consumer benefits, as the consumer of the late 19th century benefitted from Standard Oil’s enormous economies of scale. Standard Oil was broken up because it’s less efficient, politically connected competitors complained, not it’s customers.
The long-term monopoly that rapes the public for decades and holds it hostage by charging inflated prices that bankrupt it’s customers who have no choices is a historical fiction. It has never happened. It is a superstition.
The US government has been on a mis-guided path for more than 100 years trying to destroy the very engine of economic growth in this country. The list of companies that are now dieing or losing market share every year (like General Motors) that at one time the Justice Department thought such a threat to the country that they tried to break them up is almost laughable.
This reminds me of the story of 2 very rich men. One rich man earned his wealth by creating a great product that revolutionized the world and brought cheap goods to everyone. The other rich man inherited his wealth and used it to systematically murder people in vast numbers.
Which rich man did the Clinton Administration spend more effort trying to eliminate?
Jun 19 2004 at 11:55am
Natural Monopolies occur when there are large infrastructure costs associated with the product or service. A second set of power lines, phone lines, water pipes or natural gas pipes is too expensive and inefficient.
In the software application world, an operating system is infrastructure. As an application developer, you’ll spend a lot more money developing an application to run on two or more operating systems than just one. Hence, you’ll first develop your application to run on the operating system with the largest market share and then see if you ought to port it to something else. As a consumer, over time, you’ll go to the operating system with the largest application base. In addition, you’ll want to use the system most other people are using in order to lower your training costs and increase the pool of potential employees with the right skills. These phenomenons reinforce each other making one operating system predominate in the marketplace.
It’s all about lower costs.
Note that when the infrastructure is no longer necessary, the monopoly starts to disappear. That’s what’s happening to phone service in the US. Also, when a new infrastructure emerges, there is an initial fight over market share. In the US we see that in game system pricing.
Jun 19 2004 at 12:45pm
‘Who cares what labor G.W. is earning his “fruit” from. Even if he inherited his wealth (or made it on his own) what right does someone else, or “society” have to come in and confiscate it from him?’
Some better questions:
What right do the unproductive have to confiscate the income of the productive? Isn’t this more in line with what Locke is suggesting?
What is the difference between the dividends of being born rich, and the dividends of state wealth distribution? Are the they not equal in there impact the efficiency of the market?
(Of course one key difference is the that later is far more likely to result in Income-causing expenditure)
It is clear to me that both Conservatives and Socialists are against market liberalization.
The later propose market inefficiency in the interest of a more equal distribution of income, the former for a less equal distribution. Neither like the distribution set by the market.
So the market inefficiencies supported by the the Socialists are progressive taxation, price fixing of wages and rents, the market inefficiencies supported by Conservatives are Intellectual Property, “Corporate Welfare”, The Military-Industrial-Prison Complex, Untransparent Government Contracting, and numerous regulatory barriers to competition.
And when you say ‘Who cares’ where GWB is earning his fruit from, should I also not care when it comes from Theft?
Regarding the accumulation of Capital, the reason that the old empires of yester-years rich do not control today’s economy, is that there empires too have been assimulated in even larger ones. Does anybody seriously doubt that wealth is is getting increasingly more consentrated?
With the world’s richest 1% consuming more ‘fruit’ that the world’s poorest 95% does any reasonable person believe that the fruits are being reaped by their producers?
Regarding the historic roles of Republicans and Democrats, I don’t know about the 1800s, but it is pretty clear that there are neither Liberals nor Socialists with a major role in American Politics. There are two Conservative parties.
Both parties support the Conservative model of Masters and Slaves, the differ only in how to get he most productivity out of your slave.
The Republicans believe in whipping your slave, the Democrats in lying to your slave.
Beyond that, their differences are entirely noneconomics related, such as wether Gays should marry, which God should be taught in classes, the God of the Christians or the God of the Atheists, and wether abortion or capital punishment is really murder.
Jun 19 2004 at 2:46pm
Burgess-Jackson’s article is astonishingly silly. The only economy that will work long-term is a mixed economy. The answer to your question, Mr. Kling, is that we must continually re-balance liberty and equality, and THAT will best be done in a democracy of educated people–and there will be no end to this dance. I tend to doubt whether there will be a “reasonable compromise” that can be fixed in words, or else it would have been found by now–although perhaps something will come out of systems theory, or institutional economics?
You could at least argue that, after a few centuries of hope and counter-hope, the real outlines of our system are becoming clearer…
In contradiction to Burgess-Jackson, the idea that the rich, or any others, are entitled to all their wealth has been discussed for millenia, and usually answered in favor of a more equalizing sacrifice all the way around, for reasons from religious to moral to political to economic-technical. Each of these of course could take an essay. To outline some of the economic-technical:
Distribution: The idea that everyone could be equally rich if only they were equally ambitious and capable is false. This is because (1) technological innovation gives returns to scale, and (2) the unregulated free market allows ownership of capital assets to become more and more concentrated (that observation would be from–shudder!–Karl Marx). This leaves you defending the social-Darwinian idiocy, now abetted by the assumption that life is a “game”, or a set of games.
Not only that, but the widening distribution of income appears to continue unabated, as a natural consequence of the free-market system, NOT individual skills.
Efficiency: And on the other side, the idea that the rich should be allowed full fruits of their labor, in order to best spur competition and efficiency, is also false. Here we’ve taken a narrow theoretical result from economics (“narrow”, because it dismisses the various externals and imperfections), and matched it to the real results of the last few decades in the economy–using statistical significance–and those real results are anyway equivocal, because much of the innovation might have happened anyhow.
Burgess-Jackson’s article is also a little dishonest because payroll taxes were already raised in the Reagan Administration to make Social Security solvent (just revised upward, to the year 2050!), and the Social Security surplus, un-lockboxed, is NOW being used for general expenditures, to cover for tax cuts skewed massively to the wealthy. And we’re being told Social Security is unsustainable! So who’s entitled to what?
As for Krugman’s supposedly socialist tendencies (“nobody is entitled to anything”, “belongs to all of us in common”)–also just silly!
Why do people want simple answers of complex systems?
Jun 19 2004 at 4:35pm
Why do people want simple answers of complex systems?
Easy. It saves a lot of tedious thinking.
Jun 19 2004 at 6:36pm
“Regarding the accumulation of Capital, the reason that the old empires of yester-years rich do not control today’s economy, is that there empires too have been assimulated in even larger ones. Does anybody seriously doubt that wealth is is getting increasingly more consentrated?”
Based on what? Which larger empires assimilated the smaller empires?
Yes, I doubt that wealth is getting more concentrated. Even if it were, so what?
Jun 19 2004 at 8:18pm
You can “doubt” that the distribution of income, and the distribution of wealth, are becoming concentrated at the top, and doubt that the gap between rich and poor is getting wider, but of course you would be fantasizing. Those data are secure.
As to “so what”, do you ask this religiously? morally? politically? economically? It’s not of small consequence.
To doubt one thing, you must believe something else…
Jun 20 2004 at 9:28am
If the current distribution of income is incorrect, what is the correct distribution of income? And who gets to decide what that number is, you? Why is the distribution you would decide to force upon society (backed by the brutality of police and miltary force) any less arbitrary than the distribution that the free market produces?
The biggest problem that 20th century American liberals (i.e. the left) SHOULD have with using government coercion to redistribute income is that throughout history the governments of the world have almost exclusively used their power to redistribute income to steal from the poor to give to the rich, not the other way around. Once you empower govenments to forcefully take without respect to the will of the people (which is what you have to do in order to take from the many to give to the few), it is inevitable that such overwhelming power will be abused in the future.
Even scarier is when socialists actually achieve the power for redistribution and use it to captivate the masses and brutalize the few as the German National Socialist (NAZI) party did in the 1930’s. Hitler redistributed incomes in a fashion that would make any socialist proud. He then used the power required to redistribute incomes and turned it on his citizens and the rest of Europe.
Joseph Stalin did the same, murdering 30 million of his own people in the name of socialism and redistribution of income. When the Kulaks resisted giving up their land and their property to be redistributed to “the people”, Stalin starved and then slaughtered them by the millions.
The founder of the American Democratic party, Thomas Jefferson, saw this very, very clearly and was absolutely opposed to concentrated government power that could accomplish such things as foreceable redistribution of income. He opposed them because he was a student of history and saw the clear and uninterupted string of tyrrants throughout history that had used government power to destroy the lives of their mostly un-willing subjects. His 20th century successors in the party he founded have ignored him and embraced all of the things he abhored.
Redistribution of income is at the root of all of the horrors of the 20th century, all of them perpetrated by governments whose ideology drove them to murder their own people at alarming rates in persuit of redistributing income. Once they had that power they used it to murder millions.
Didn’t anybody learn anything from the 20th century?
Jun 20 2004 at 9:33am
“Yes, I doubt that wealth is getting more concentrated. Even if it were, so what?”
That’s right. One should care less if Bill Gates is fabulously wealthy. The poor in this country usually live better than the wealthy living in the early part of the last century. I have such contempt for the thinking of the well meaning John Rawls. He was an economic illiterate. We should be focussing on making a bigger economic pie—and not on sharing a smaller one.
Jun 20 2004 at 10:42am
First off, I could not agree more with the last two comments (referring to Mr. Thomson and DSpears.)
In reference to “Some better questions:”, I agree those are better questions. I believe the unproductive have no right to confiscate from the productive. I believe these are rights that are created by political elites in order to cater to their constituents and maintain political power.
There is a difference between being born rich and the state forcibly confiscating and redistributing property. An individual who is given wealth through inheritance or gifts is not taking it away from someone else; that individual is not using force to take, but is simply the beneficiary of some one else’s good will. By the nature of how that wealth is transferred it is more effecient than the state confiscating and redistributing that wealth for political reasons. The redistribution of wealth by the state is more often political than economic, simply it is vote buying.
I agree when you say socialists are not interested in market liberalization, but I do not agree that all conservatives are not interested in market liberalization. There are plenty conservatives who are interested in market liberalization as there are plenty conservatives who are not interested in market liberalization. I do not agree that conservatives support market inefficiencies, many support the list you detailed many also do not support that laundry list (excluding Intellectual Property, it is private property and those who created it have the right to reap the benefits from it.) Also, the Federal government has some of the most transparent contracting around; it still has a political component, but it is more transparent than European governments. Please no rants about Haliburton, because the only other company that has the infrastructure in the Gulf region is Total Fina (a French company.)
As far as GWB, do you mean that since his paycheck is financed by taxes it is stolen? If this is main thrust of your point I couldn’t agree more. If you are alluding to something else I have do idea what you are talking about.
“world’s richest 1% consuming more ‘fruit’ that the world’s poorest 95%”, the richest 60,000,000 consume more fruit (if they indeed do) than the poorest 5,700,000,000 because they produce more. Are you saying that the poorest should live beyond their means? Or simply that we should brutalize the most productive because the poor are poor? I think we are better off “focussing on making a bigger economic pie—and not on sharing a smaller one.”
“There are two Conservative parties.” I think you have a point here. The parties themselves are more focused on conserving their political clout through government intervention.
“model of Masters and Slaves”, could you clarify this model? I have no idea what you are talking about.
Finally, apologies for the long post.
Jun 20 2004 at 11:13am
I agree with John Locke. But one must remember, man or woman does not get to be where he or she is right now (be succesfull) without receiving help from society. After all humans are social creatures…
Therefore man or woman has to pay society… its rightful dues!
Jun 20 2004 at 11:33am
“That’s right. One should care less if Bill Gates is fabulously wealthy. The poor in this country usually live better than the wealthy living in the early part of the last century. I have such contempt for the thinking of the well meaning John Rawls. He was an economic illiterate. We should be focussing on making a bigger economic pie—and not on sharing a smaller one. ”
Exactly. Only if you believe in the fixed quantity of wealth falacy that views the world economy as a zero-sum game can you be concerned about the distribution of income. The poorest people in America are simultaneously the richest people in the world.
Wealth can be created and destroyed.
Redistribution destroys wealth by transferring it from the productive (activities that lead to capital accumulation which produce more wealth) to the non-productive (activities which tend to reduce capital accumulation). Capital accumulation is the concentration of wealth in the hands of those whose basic comsumption needs have already been met. The excess must therefore be invested in productive activities in order to maintain it’s value. Those productive activities expand the wealth of the world as a whole and increase the demand for the labor and services of those without significant capital. As John F. Kennedy said “a rising tide lifts all boats”.
The contra-example is that redistribution destroys wealth by reducing capital formation and eliminting the amount of wealth that could have been produced by the use of that capital. Ironically the destruction of wealth also reduces the demand for the labor of those without significant capital, thus making them WORSE off.
How ironic that a policy meant to benefit the poor actually ends up hurting them.
What most leftists just can’t accept is that in order for everyone to be better off, some people have to accumulate more than others in order for the whole of society to achieve their goals of elimination of poverty (i.e., the lack of basic human needs to survive without considerable physical pain). But to eliminate poverty you must accept inequality. This is the socialist paradox, of which most socialists have chosen to try to eliminate the latter at the expense of the former, then try to blame poverty on the lack of equality.
In order to eliminate poverty people must drop their most base prejudices like jealousy, envy and class hatred. Some find it exceedingly difficult to triumph over these human failings, and are thus doomed to perpetual poverty. Others try to take advantage of these human failings in order to control them.
Jun 20 2004 at 11:40am
That we are social creatures is true, but what are the rightful dues that is owed to society? Is it all of society that we owe, or only those that help us? What if those who helped us are only are parents and siblings and they want nothing in return? What if the idividual is a mentor and desires no monetary reward? What claims does all of society have against our success especially if the overwhelming percentage of society did nothing to help us? Who determines what is the appropriate tribute to pay society? How is the tribute determined? Is there ever a point in time where the successful have paid their tribute in full or will we always owe to society?
Let us say I become fabulously wealthy (which happens to be real goal of mine) and the only people who help are my parents and a few friends. Why am I indebted to all of society for my success when only half a dozen people helped me? That I am indebted to the half dozen individuals does necessarily mean I have repay them. What if my parents and friends are satisfied with my success or the fact that they will no longer have to support me?
Lawrance George Lux
Jun 20 2004 at 12:11pm
I have a problem with some of the previous argumets. The ‘Fixed Wealth’ fallacy certainly does not apply, yet no one has presented the ‘Declining Value of Capital Accumilation’ truism. Accumilated Capital is almost never innovative, and produces Profits at statistically an approximate half the rate of initial innovation. This is true even for the Bill Gates and Donald Trumps of the world. Their Progeny show even worse rates of Business innovation. A lot of this has to do with diminishing returns of scale, but most has to do with loss of business concept.
Retention of old wealth through Generations can be statiscally proven to slow down the pace of business initiative. The very arguments many use here to justify retention of economic profits through Generations, holds some economic fallacy. lgl
Jun 20 2004 at 12:33pm
I agree with lgl. I am unable to show any technical evidence of this as I am not an economist. My read on history is that individuals who inherit wealth of long periods of time become less capable (or at least show little interest in) of investing or building new businesses. The Morgans are a great example of this. J.P. was less capable than his father as a banker, he benefitted from a rapidly growing economy not any amazing ability as a banker (he also benefitted through the contacts his father and grandfather had established throughout the years.) J.P. son was incredibly incompotent as a banker, but he retained the name and control of the his family’s bank. This is what happens to many of the children (and their children) of the ultra wealthy. I am not arguing for inherited wealth, I am simply saying that the state or society does not have a claim against inherited wealth. They have no implicit right to collect a vig on inherited or created wealth.
I also believe that inherited wealth does not concentrate through the generations unless there is some type of government intervention, like the kings of France who were prohibited from selling their land holdings. When this occurs, I do believe it when lgl says, “Retention of old wealth through Generations can be statiscally proven to slow down the pace of business initiative”. I simply believe when left to their own devices a pie that is inherited through generations will diminish; not simply because it is cut into increasingly smaller pieces, but also much of it will be destroyed through spending, bad investing, and more secure lower return investment vehicles (like Treasury bonds.) I would say inherited wealth is not dynamic.
Jun 20 2004 at 2:17pm
1- “world’s richest 1% consuming more ‘fruit’ that the world’s poorest 95%”, the richest 60,000,000 consume more fruit (if they indeed do) than the poorest 5,700,000,000 because they produce more.”
This is simply insane, delusional thinking, if the richest 1% is “producing more” why is it that what they are consuing is produced by the poorest 95%?
It seems to me that the laziest textile worker in all of Asia is far more productive than GWB, I would love to see anyone explain otherwise.
2- The Poor in the US are among the the poorest and most misarable in the world, even so, the Rich would quickly starve without the impressive productivity of these poor.
3- Master/Slave = Class system. Propertied (idle) class exploits unpropertied (working) class by accumulating control of the factors of production.
4- Consertvatives *ARE NOT AND CAN NOT BE* Liberals, aby more than Socialists can, they are incompatible ideologies. Conservatives believe the Elite should control the market and the government for their own benefit, they are the idiological (and sometimes biological) decendents of the Artisticrocy, the revolutions in the US and in France where precicely revolutions of the Liberals against the Conservatives. Conservatives want to *CONSERVE* (or in the modern context regress) the social structure, not allow it to change at the whim of the market. Liberals who think that Conservatives (Republicans) are on their side are dupes, just like Poor people who believe in the “Trickle Down Effect”. They are also Dupes, of course, if they believe the Democrats are Liberals. The American Politcal Spectrum is, as I said, about Gay rights, Abortion and other issues better suited for Kitchen Gossip than economic debate. Both parties are Conservative.
5- What most “Rightists” (whatever that means) can’t seem to except is that not all “Leftists” are Fabians or Bolshevics, the vast majority agree that ABSOLUTE equality is not a desirable goal, so this a straw man. The economic system, is a system, it does have rules and it needs them to survive, with any rules, Robery by Force becomes the Rule! This is the system the liberals faught against: fuedalism. Property is also a social construct, //an object deos not know who owns it// the whole idea of “ownership” is a social construct. Money as well, is an elastic fiction invented to make the market more effecient, not an actual commodity. Income Redistribution is no more far fetched or any less of a natural component of a free market that laws against theft and police to protect property, paper money, or public capacity building projects.
6- “Whater that means” is written in brackets after Rightists above, because Rightists have no ideology or economic theory, except that Might Makes Right. I believe that Liberals are leftist: they rejected the Aristocracy, the previous incarnation of “Accumulated Capital” to our current “Conservatives.” Socialists, are more on the Right, they want to rule by controlling the state (like the Crown), just like the Conservatives, they simply have different objectives. Liberals want to minimize the state. I realize I’m getting way off topic here… feel free to ignore this item if you want to keep within more traditional bounds. Anarchism is however, left, according to my way of looking at it: Right/Conservative = Authoritarian/Centralist vs Left/Liberal = Diplomatic/Laissez fair
7- Intellectual property is //not// property, it is neither exhaustible nor rivalrous and its authorship is never certain or absolute, all ideas are extensions of previous ideas, Intellectual Property is nothing more that a Conservative Market Regulation whose only objective is to eliminate competetion, it thus chills innovation and reduces the efficiency of the market.
Jun 20 2004 at 2:24pm
The argument here seems to be that unalloyed economic growth is best, because the homeless people will eat out of better dumpsters than previously.
In some of the comments above, we also see:
TERMINOLOGY PROBLEMS: there is no “incorrect” or “correct” distribution of income, there is only more or less unequal;
POLICY MISUNDERSTANDING: because Bush’s fiscal policy is actually redistributing from Poor to Rich, from the prior distribution formed during the economic boom in the 90’s;
THE HAYEK FALLACY: that redistribution from Rich to Poor in a liberal democracy will lead to socialism, totalitarianism, murder, and is the basis of all horror!;
PARTIAL CITATION: since Jefferson also despised concentration of wealth, and would have supported the estate tax;
INCOMPLETE ECONOMICS: since (1) a bigger economic pie DOES in fact happen with a little more Rich-to-Poor redistribution, for several reasons–for example, it can eliminate some market inefficiencies experienced by the poorer segments, such as externalities, neighborhood effects and transactions costs, thereby increasing worker productivity as well as the general welfare; and since (2) wealth has IN FACT BEEN CREATED even under a little more redistribution in the past history of this country.
The idea that wealth will be created fastest with no redistribution, ignores that the OVERRIDING economic variable is actually: total social welfare (Walras + all externalities).
EMOTIONAL MISAPPREHENSION: in supposing that immediate relief for the poor, and the working poor, is born of jealousy and hatred of the rich. Egads!
You can in fact be VERY concerned about the distribution of income without believing that wealth is a fixed sum into the future–as almost every economist is indeed concerned!
You can in fact be certain that private capital accumulation is a fundamental necessity in our system, while maintaining that (minor) redistribution is an ongoing requirement. This is the understanding under Arnold Kling’s question as to exactly where and how that line might be drawn, was it not?
It is, for the immediate future of our country, the most important question.
When did people start to suppose the market does, or can do, everything? Not even MIlton Friedman maintains this. Please learn beyond the simple theories of Econ. 101.
Jun 20 2004 at 6:49pm
“TERMINOLOGY PROBLEMS: there is no “incorrect” or “correct” distribution of income, there is only more or less unequal;”
We can phrase the question any way you like. What is the correct amount of inequality, and why do you get to force that definition on the population in general?
“POLICY MISUNDERSTANDING: because Bush’s fiscal policy is actually redistributing from Poor to Rich, from the prior distribution formed during the economic boom in the 90’s;”
I reject this entirely. The “rich”, i.e., the top 50% of income earners pay the vast majority of taxes in America. Letting them keep more of their own money is NOT redistribution. This confusion of terms has served leftists well over the years and I will admit is a brilliant political ruse.
“THE HAYEK FALLACY: that redistribution from Rich to Poor in a liberal democracy will lead to socialism, totalitarianism, murder, and is the basis of all horror!;”
There is no fallacy, this is the exact pattern followed by Germany starting in the 1870’s and progressing to the third reich. The fact that “social-democracy” has stagnated at the socialism phase for now is hardly a repudiation of Hayek. Hayek may have underestimated the power of the democratic impulse to restrain the more extreme forms of government depredation, but Hayek never put any sort of time frame on his predictions. We’ll see.
“PARTIAL CITATION: since Jefferson also despised concentration of wealth, and would have supported the estate tax;”
What exactly leads you to believe that? Jefferson despised concentrations of power, including the accumulations of wealth through collusion with government, i.e., the 18th century English mercantilist system. But the idea that he would be in favor of a tax that would transfer income from individual citizens to a powerful central government violates every Jeffersonian principle.
“The idea that wealth will be created fastest with no redistribution, ignores that the OVERRIDING economic variable is actually: total social welfare (Walras + all externalities). ”
How exaclty do you calculate a nebulous, subjective quantity such as “total social welfare” anyway? It seems that anybody can attribute any value they to please to such a thing. In the real world we can only deal with actual economic quantities denominated in dollars.
“You can in fact be certain that private capital accumulation is a fundamental necessity in our system, while maintaining that (minor) redistribution is an ongoing requirement. ”
Why is redistribution “required”? It seems like you need to answer the first question (what is the correct amount of inequality) before being able to make such a statement. What do you mean by “minor”?
Jun 20 2004 at 9:14pm
You are stuck in the need for some theoretical law or limit. There is no correct or incorrect amount of inequality; there is only more or less of it.
(A) Payroll taxes were raised on workers in the ‘80s to put Social Security in surplus, which is now covering almost half the deficit caused by the tax cuts skewed to the rich. (B) Interest on treasuries is paid at their retirement, out of general expenditures, to bondholders. –Both of these instances are net transfers from poorer people to richer people.
Redistribution and socialism are different things: one is a controllable policy, administerable by an electorate, and the other is a form of government. Hitler was a psychopath who would have used any system to get to power, and we have to guard against these people, no matter what. Hayek’s thesis has never been realized. The Reagan-Thatcher era changed the political rhetoric for a while. That is all.
Jefferson feared and despised, as did almost all of the framers, the rise of any sort of aristocracy, –and he could put two and two together.
Since “actual economic quantities denominated in dollars” does not account for all the things that happen inbetweentimes of transactions, economists for many decades have studied various aspects of valuing the “extraneous, inbetween things” that still require physical effort and mentation: including neighborhood effects, externalities, public goods, transactions costs, asymmetric information, imperfect competition, monopoly, and institutions. It’s simpler stuff to calculate now, due to their long efforts. Only some parts of some of these things (to be short) can be automatically determined and regulated by well-defined property rights and markets.
Of course, welfare economics, which has to do with total social welfare, has been studied since the late 19th century.
Redistribution and regulation have been continuously required (although not necessarily enacted!) since the Enclosure Laws initiated the total market system. Within a hundred years of the first enclosures, they had Poor Laws to penalize people who couldn’t find a job. The reasons are given in Dickens, among many others. ASimply, there are some categories of people who are left behind by economic growth. Capitalism has never been any different.
You are stuck in the need for some theoretical law or limit. We need to take care of the people who are hurting. Since neither charity nor, to date, wage growth, are following this extraordinary run-up of corporate profits, politics will be necessary again, and as always. I think the answer to your question is: the requirements and stipulations for Redistribution are decided and re-decided, adjusted and re-adjusted, through the turmoil of election politics, and that is the way it will remain.
Jun 21 2004 at 3:05am
Lee A., thanks for your contributions, can you please let me know what other blogs/forums you consider interesting are, either post them here or email me at dmytrik at trick dot ca
Jun 21 2004 at 8:11am
Let me know when the next Tom Clancy Book is coming out, so I can copy it, and then distribute it for one fourth the price than the publisher. It will be great – Tom does all the work, and then I can profit from it. While spy novels are not new, there is labor that goes into creating the work. I believe that the main issue withy intellectual property is indefinite or overly long protections (e.g. 75 years), and that is arguably a hindrance to economic growth. The point of IP is to protect people’s labor for a limited time period.
Jun 21 2004 at 9:28am
mcwop, please note that you have not refuted my statement: that IP is not property at all, but rather a Conservative Market Regulation that makes the market less efficient.
You simply believe that we should make the market less efficient because doing so benefits Tom Clancey!
I don’t believe this, without going too far into the topic here I simply present four facts:
– Many great works where created before the copyright regime.
– 99% of books that are written are never published (there is no shortage of supply)
– wealth distribution among writers currently is terrible (this market regulation therefore doesn’t accomplish what you say it does)
– Most IP is controlled by Capitalists not creators.
Secondly, do you really believe that 3/4 of the _Cost_ of the Book you buy results from paying Tom Clancey? It’s not even close.
Perhaps 3/4 (or more) of the _Price_ if the book is caused by a lack of competition due to IP, but that has nothing to do with Paying Tom Clancey.
Jun 21 2004 at 11:09am
“I don’t believe this, without going too far into the topic here I simply present four facts:
– Many great works where created before the copyright regime.
– 99% of books that are written are never published (there is no shortage of supply)
– wealth distribution among writers currently is terrible (this market regulation therefore doesn’t accomplish what you say it does)
– Most IP is controlled by Capitalists not creators.”
How about the category “paintings?”
-1. Many were created before copyrights.
-2. 99% have never been sold.
-3. Wealth distribution among artists is terrible. That’s right. Terrible!
-4. Most great paintings are owned by the wealthy.
Therefore, there is no difference between a painting by Claude Monet or Clem Monet.
Since intellectual property is not property, all paintings are equally without value.
Jun 21 2004 at 11:40am
Yes! Burgess-Jackson joins a long line of conservative critics who attack straw-man liberals. What serious liberal has stated that all higher income people can attribute 100% of their good fortune to nothing more than luck or variables outside their control (good parents, nice neighborhoods etc.)?
Now the comprimise rests on the fact that wealth is created in partnership between the individual and the state. Take Microsoft, it would have never gotten as rich as it is today if it didn’t benefit from the following:
1. Contract law – Otherwise IBM might have ripped off their first operating system and refused to have paid them.
2. Intellectual Property – Which keeps every other corporation from just making blackmarket copies of MS’s expensive Office product and its operating systems.
3. Corporate Law- Which allows the pooling of capital and limited liability. This is probably one of the most important innovations in the last 1000 years in terms of economics.
4. Protection of private property by law – Keeps those anti-Microsoft guys from throwing rocks at their headquarters!
So is it unjust really to charge a ‘sliding scale’ for the benefits of government, charging a portion of the benefits derived from a free society and even a progressive rate structure? Take a peek at the commission structure a lot of companies offer to sales agents. To a company, a commission is a bit like a tax in that their expense goes up when sales go up & often commission rates increase for heavier sales.
Jun 21 2004 at 11:43am
Mike, I don’t understand your argument at all, Painting are craft works, they are not Intellectual Property.
Unlike IP, works of craft are both _exhaustible_ and _rivalrous_.
Unless you mean //copies// of the paintings, in which case your four points make little sense, since yes, a poster of a Monet painting has about the same cost, whether it is Claude or Clem, in fact The Claude Monet would be cheaper, since it is more likely to be produced in greater numbers. (if the Clem were available at all, I’ve never heard of Clem Monet)
The Original work, however, is real property, not Intellectual Property.
Again, my argument is that IP is a Conservative Market Regulation and a Market Inefficiency. This is a fact that stands unrefuted, nor do I think it can be refuted.
My further point (response to mcwop) is that the idea that this Market Inefficiency is justified because it ensures the welfare of creators is also wrong. This is my personal belief, there are of course other points of view.
Same may believe that the market inefficiency caused by IP has a worthwhile benefit. I do not,
you (and mcwop) may, but I’m not sure we’ll settle this issue here though.
I only brought up IP to demonstrate that Microsoft can not be claimed to be a proof of the success of the Free Market, as is made in the Galbraith posting (which I mistakenly responded to here).
Linux, however, can be.
Jun 21 2004 at 11:52am
I’m not overly concerned with inequality. However, I don’t believe anyone has ever tried to target inequality in the way you suggest. I mean in the way the Federal Reserve tries to target interest rates or the overall inflation rate. Why can’t we simply assert there is such a thing as ‘too much inequality’ just like we assert ‘perfect equality’ would end up being an economic diaster.
I’m not a Jefferson scholar but I don’t believe he was so niave as to believe that large concentrations of wealth could be so easily seperated from gov’t. Certainly he would have recognized the holders of large amounts of wealth would have both the means and ability to try to influence gov’t of any type to serve their own interests.
This is an argument I’ve had on other lists. Socialism, from everything I read, can be summarized as ‘collective ownership of the means of production (aka capital)’. A classic example of a socialist policy would be to nationalize the railroads or coal mines and run them ‘at cost’ thereby permitting lower prices to consumers while preserving workers income by cutting out the owner. Europe undertook a lot of this but the US, with some exceptions did not. At this point I think most reasonable people recognize this was an utter failure. While it may work briefly, it destroys the incentive to innovate and ends up costing more and more in stagnation every year that it is implemented.
Redistribution assumes the market is allowed to do its work and the gov’t policy simply redistributes some of the income after the fact. This is a very different policy because the former depends on the elimination of the private economy while the later depends on a private economy to exist….
A classic socialist answer to unemployment, for example, may be to take over the major industries and stop layoffs. A redistributionist policy would be to tax everyone and provide unemployment benefits to those who are laid off. In the later the private economy is free to decide who has a job and who doesn’t.
Jun 21 2004 at 11:58am
Another thing, what you ignore is that transfer programs (programs that tax one group and provide benefits to another) do not transfer income to a powerful central gov’t in the sense that Jefferson would have understood. Social Security, for example. Whatever you think of its structure, rates, and benefits basically transfers just about every dollar that comes in out to someone else. Maybe a bit less than $0.01 per dollar going in stays with the ‘central gov’t’ to pay for the cost of administering collections, cutting checks and keeping track of things.
It was only until the first ‘information revoluation’ which happened in the US around the time of the Civil War (when the knowledge of managing large organizations like railroads, corporations, and gov’t agencies was developed) that such a redistributionist policy by gov’t became even thinkable. There was no way, for example, that the Roman Empire could have pulled off Social Security or Unemployment Insurance.
Jun 21 2004 at 12:12pm
Dmytri Kleiner: Other than Arnold Kling on the right and Brad DeLong on the left (and they might object to that characterization, I don’t know)–along with some few other websites which they themselves have found and linked to–it is hard to find policy people in this format who are qualified, who care about the subject matter, and who think clearly and want to find the truth, no matter where that path leads–and who also have a majority of Correspondents who seriously study economics and other subjects, are literate, and try to write engagingly and well.
At these sites, while the partisanship is spirited, it always remains secondary to finding out what is really going on.
So Dr. Kling, thank you!
And Dmytri, if you find anything else, please let me know!
Jun 21 2004 at 12:43pm
“Mike, I don’t understand your argument at all, Painting are craft works, they are not Intellectual Property.”
Is creativity of value?
Can you see creative similarities in the production an oil painting and the writing of a novel?
You are arguing that the novel has no value because it is reproducible.
If printing presses didn’t exist would novels become craft works, and therefore acquire value?
Jun 21 2004 at 4:30pm
The property that IP law protects is much more abstract. In a non-IP environment, the physical medium is still owned. Penguin Press owns the copies of Shakespeare’s Romeo & Juliet it prints. What IP creates, though, is the concept of a license which is not the actual original work itself but the information it contains.
So if I print 100 of Arnold’s columns and bind them into a book and run 10,000 copies…there is no dispute over who owns the paper, ink, glue and other materials that make up that book. But there would be a dispute over my right to sell those books because the content is Arnold’s. But it’s the actual ‘idea’ that the content represents…the actual ink blots on the paper are mine so if they were rearranged to be the text of Romeo & Juliet Arnold’s property infringement claim would disappear!
So if Stephan King writes a novel on a stack of typing paper, he sells the publisher not the typing paper but the information ‘stored’ on it. The publisher can come after me if I happen to transmit that information in any form without their permission (such as by Morse Code to a friend in Alaska).
Jun 21 2004 at 7:35pm
“Another thing, what you ignore is that transfer programs (programs that tax one group and provide benefits to another) do not transfer income to a powerful central gov’t in the sense that Jefferson would have understood. Social Security, for example. Whatever you think of its structure, rates, and benefits basically transfers just about every dollar that comes in out to someone else. Maybe a bit less than $0.01 per dollar going in stays with the ‘central gov’t’ to pay for the cost of administering collections, cutting checks and keeping track of things.”
100% of every dollar that is collected by the government is re-distributed to “somebody else”. It was no different in Jefferson’s time or any other. The government has no mechanism for saving money akin to a bank account. It spends every dime it takes in, always.
Unfortunately government takes from the productive and gives to the un-productive, leaving us all worse off. In some cases that’s fine, I’ll trade a little economic growth in order to maintain a strong military, and other people would trade some economic prosperity in order for the government to achieve certain noble goals. If the EPA would be honest about how much it’s regulations and unconstitutional administrative law-making really cost I might be a little more inclined to accept them. As long as they try to sell their presence as free of cost I will be highly sceptical.
But the big problem is that most of the govenments doings are sold to the public as free, at no cost or even worse, paid for by somebody else.
Even worse, much government meddling is sold as a way to stimulate the economy and create jobs. This is an economic falacy largely left on the scrap heap of history, but nobody told the politicians or the people they have swindled into believeing these things. The Interstate Highway system was a great creation, but it didn’t create any jobs it simply moved them from one place to another. The military is no different. Every soldier represents a factory full of workers that doesn’t exist. I’m willing to make that trade-off as long as I make in consciously.
One more point: Redistribution of income is the fundamental goal of socialism. Owning the means of production is only a means to achieve that goal, not it’s fundamental feature.
Jun 22 2004 at 7:06am
Boonton writes – “The property that IP law protects is much more abstract.”
Of course. But you (and Dmytri) haven’t addressed what I believe is a fundamental question: Is creativity of value? If you choose to answer, please stick to economics.
If the answer is yes, then can, or should, an individual own the results of his creativity? If not, who should? (Assume that by definition creativity results in something that is distinct and unique.)
As I reread Dmytri’s posts, I note that he seems to have embraced two fundamental errors of Marxian economics. These are (1) that all value is the result of labor and (2) that ownership of all capital is the result of rent-seeking behavior. Therefore, all forms of pure creativity (and their real results, whether literary, artistic, and entrepreneurial), are not “property.” They can’t be property because no “labor” produced them.
Jun 22 2004 at 9:18am
You are missing the point. Gov’t in Jefferson’s time did not re-distribute money to others, they purchsed things & this provided the gov’t with power since they usually purchased armies, prisons, fortresses and so on. The idea of collecting money just to send it back out (redistribution) was foreign in Jefferson’s time.
Except if there wasn’t a strong military there wouldn’t be economic prosperity…therefor a sufficiently strong military must somehow be part of the equation to generate prosperity.
Every soldier may also represent an office building that would have been bombed to dust or a plane load of people who are still working because they WERE NOT killed by terrorists. How can you be so sure about the Interstate Highway System? Certainly dozens of businesses were able to add jobs because they found new markets as transportation costs were cut (as well as lowering their costs for receiving supplies). Can you show me how these gains were not really real but simply transfers from some other sector? What sector lost jobs due to the Interstate Highway system?
Incorrect, Marx & most socialists identified ownership of capital as the key problem with a market economy. Some socialists opposed reforms like unemployment insurance because they felt it would *delay* the revolution by making capitalism more tolerable. While there is always movement between different schools of thought, the New Deal reforms were generally an alternative to socialist reforms…not a ‘starting point’ or ‘other means’ of establishing socialism….unless your view of economics is only two-dimensional recognizing Ayn Rand Capitalism and Socialism as the only two possibilities.
Jun 22 2004 at 9:33am
Ok, Yes; creativity is certainly of value. Should an individual own the results of his creativity? I’m not really sure about this one. Take a ream of typing paper owned by Stephan King. Certainly he owns the typing paper, if he types a novel on it he still owns the paper with the writing on it. That’s pretty easy.
Your question is does he own the combination of words that stretch accross 400-500 pages? I suggest you ignore Dmytri’s other comments and center in on his IP statement:
He certainly has a point here. King’s typing paper is certainly exhaustible. If the next door neighbor kid breaks into his house and scribbles all over the paper, that same paper can no longer be used for typing a novel. If King owns the paper, then the kid cannot also own it at the same time…it is rivalrous. But what about a combination of 25,000 words? It’s certainly not exhaustible…in fact quite the opposite. Because I happen to have a King novel it’s not like there’s ‘one less’ combination of those words for you to read. It’s also not rivalrous. I may own a King book (paper, ink, glue) but that doesn’t mean you cannot also own the same ‘combination of words’ as an ebook or a book-on-tape.
So my inclination is to lean towards:
1. No one should own ‘creativity’. Of course it is of value, so is inspiration. Certainly it would be silly if the Greek gov’t could charge a fee to every sculpter, author, painter etc. who was inspired by Greek mythology! (Aye, but the rent seeking Greek diplomat will say ‘isn’t inspiration of value! If so, who should own it!’).
2. Given #1, you should recognize a remarkable feature of copyrights. They are not really property but simply public policy. What other type of property reverts to ‘public domain’ after a period of time?! What other type of property has to be ‘unique and distinct’ to own it? I can own the most mundane, boring, cookie cutter house in the world…yet I have all the rights that ownership grants me. Yet if I misspell bread as breaad I can’t copyright that and ‘own’ it!
Jun 22 2004 at 9:45am
I think insisting on thinking of IP as real property has had the insideous effect of IP owners seeking to solidfy their rents into law. Just like the monopoly holders, public office holders, and so on who felt they ‘owned their lifetime positions’ in France before the revolution, IP owners have a natural inclination towards rent seeking by using gov’t policy and the use of the term ‘property’ only distorts the argument in their favor.
Recently the estate owners of _Gone with the Wind_ sued the author of _The Wind Done Gone_, a parody of the story written from a slave’s perspective. Fortunately IP law has not yet been so distorted so as to have allowed the owners from winning, but what is happening in that transaction?
Instead of encouraging creativity, IP is being used as a tool to dampen it out and if not then to tax it for the benefit of people who are basically contributing nothing (it’s not like the estate of _Gone with the Wind_ is going to plow the royalities it receives into creating more compelling stories).
Jun 22 2004 at 10:43am
A few comments/clarifications:
I have not seen definitive proof that IP law is making the market inefficient nor is a “fact”. I do agree it is a market regulation, but I would not label it “conservative”, which seems to be nothing more than an inflammatory label.
Use of the term IP, which has broad legal meaning. Based on your posts I think you are referring to intangible property, or more specifically ideas. IP includes many different legal concepts: copyright, and patents that cover works of craft or intangibles. Maybe you can calrify here.
You take issue that companies are defending their monopolies with IP law – well of course they are why wouldn’t they? IP law has been around since the 15th century. If it is there they will use it. There are interesting free market initiatives developing to combat this, since IP law seems tough to change. One example is Creative Commons. Their goal is to expand the range of creative work available for others to build upon and share. I find this fascinating that the free market has developed a back door to get work into the public domain, which makes it hard for companies such as MSFT to acquire more IP protections. Another example of creativity to deal with abusive IP law can be found at O’Reilly:
Santa Clara, CA–Technology publisher O’Reilly & Associates has launched the latest of its initiatives to shake up the intellectual property establishment. At the O’Reilly Emerging Technology Conference today, founder and CEO Tim O’Reilly announced his company’s commitment to applying the Founders’ Copyright to O’Reilly books.
I think your point is that we need regulatory IP reform, the market itself not bad, but that regulation in this area is simply bad? I sense we agree to an extent. Some examples, I do not agree with the DMCA, and think the recent extensions on copyrights before entering the public domain are harmful to the markets. I think that a patent grant for Amazon’s one-click process is stupid. On the other hand, I do see positive aspects of IP that has limited terms (10 years or less). In the end it seems that the market is developing means to deal with the shortcomings of IP.
Jun 22 2004 at 11:23am
You seem unable to distinguish between (1) a bottle of ink and a ream of paper and (2) a completed novel manusscript.
Consider this. There is no clear way to separate organized matter and the ideas which underlie its organization.
Normative economic statement – Capital formation is a process of changing materials from lower-valued uses to higher-valued uses.
What makes the difference between the two?
Answer – Ideas.
Jun 22 2004 at 12:04pm
“creative work available for others to build upon and share. I find this fascinating that the free market has developed a back door to get work into the public domain, which makes it hard for companies such as MSFT to acquire more IP protections. Another example of creativity to deal with abusive IP law can be found at O’Reilly:”
I certainly agree, but just because the market is finding a backdoor doesn’t mean the regulation is good. Black markets are a back door to wage and price controls, that certainly doesn’t make them good policy 😉
Matter can be owned as property, organized or not, while ideas cannot. Mr. King owns his typing paper whether it’s organized neatly or scatters all over the floor. The idea of typing paper being scattered on the floor, however, cannot be owned….nor can the idea of a story about a haunted mansion be owned in the sense that matter can be owned.
So to respond to your question, a creator doesn’t have a ‘right’ to his ideas in the sense that he can force, thru the state, others not to use them without paying him a fee.
Question for you: Suppose Congress reformed the copyright laws to state that copyrights will only last 15 years after the work’s creation or the death of the author (whatever is shorter). Is this a violation of property rights by the state?
Jun 22 2004 at 12:30pm
Is a free market IP of Adam Smith? Should he have been entitled to collect royalties on England’s GDP to the extent that they used his ideas in shaping their economic policy?
Jun 22 2004 at 2:17pm
Intellectual property rights provide an incentive to develop and market innovative ideas.
The Soviet Union had legions of smart, creative engineers and inventors but their ideas contributed little to Soviet economy, and the welfare of Soviet citizens – in comparison to, say, the experience of the United States. Consider that the Soviet creators of ideas had no property rights, and therefore couldn’t bring them to market.
Jun 22 2004 at 2:36pm
Never said that made IP good policy. Just showing that the market is fighting back against bad government regulation. And thses initiatives are not Black Market – they are perfectly legal.
Current law disagrees, but it depends on what the idea at hand is. You cannot patent the law of physics, but if you have an idea on an improvement to an ice cream maker you can apply for a patent for that idea.
Jun 22 2004 at 3:37pm
Your Soviet Union comment is almost too silly to be worth a response. The US has had regimes of strong IP and low IP & I have not seen any evidence that strong IP promotes economic growth or the discovery of new ideas.
A while ago there was a book about IP whose premise was that it was a hidden asset. It’s premise was that many large companies like IBM, GE and so on are sitting on billions of dollars worth of patents that they don’t even realize they own. If only they could enforce those patents they could reap millions.
That is a textbook example of how strong IP laws can hinder economic growth. Instead of coming up with new ideas, try to link something in your competitors project to something one of your researchers did 10 years ago and sue like crazy! Like many things in economics, the devil lives in the extremes and heaven is in the middle!
I agree current law somewhat disagrees but not entirely. If you made your own ice cream maker out of spare parts, the law to that property is very strongly in your favor. For example, 75 years later that ice cream maker is still your property. If, however, you simply patented an idea about an ice cream maker the ‘property’ of that patent is much more limited than real property.
So even current law recognizes that IP isn’t really property but something a bit less. Nevertheless, I feel there is a lot of danger in making IP law swing more towards the scale of regular property law. I also think the dangers of IP laws being too weak is highly exaggerated.
Jun 22 2004 at 3:41pm
There I agree 100%. Recent IP law changes have been terrible, and the patent office is granting dumb patents.
Jun 22 2004 at 7:15pm
“How can you be so sure about the Interstate Highway System? Certainly dozens of businesses were able to add jobs because they found new markets as transportation costs were cut (as well as lowering their costs for receiving supplies). Can you show me how these gains were not really real but simply transfers from some other sector? What sector lost jobs due to the Interstate Highway system?”
The interstate highway system probably did spur economic growth and still does today. But the act of spending the money to build it did not create any jobs, the money used to pay for it was simply diverted from other productive activities. Just because people were employed in building it doesn’t mean that it was some sort of “jobs program”. The net gain was most probably zero if not negative.
The argument about whether the interstate highway system itself spurred growth through reduced costs is an entirely different argument. But I’m not aware of any cost/benefit analysis to prove that. In any event, the interstate highway system is certainly an exception, not the rule.
As for military spending, I have no problem with it, we must be safe before we can prosper. But economic growth and employment have been retarded since 9/11 due in no small part to the increase in government spending and increased regulation and security. These are real and permanent drags on the economy, which I personally am willing to accept. But I have no delusions that they come for free or will be taken from somebody else at no cost to me.
“You are missing the point. Gov’t in Jefferson’s time did not re-distribute money to others, they purchsed things & this provided the gov’t with power since they usually purchased armies, prisons, fortresses and so on. The idea of collecting money just to send it back out (redistribution) was foreign in Jefferson’s time. ”
Are you suggesting that Jefferson would have discarded all his Republican, Minarchist principles and be in favor of profligate taxes if he thought the money would be redistributed instead of used to for the government to buy things? I seriously doubt that.
Jun 23 2004 at 4:02am
Boonton has answered most of the question regarding IP very well, so there is no need for me to expand on the Incentive/’Value of creativity’ argument.
“I have not seen definitive proof that
IP law is making the market inefficient
nor is a “fact”. I do agree it is a
market regulation, but I would not label
it “conservative”, which seems to be
nothing more than an inflammatory
Here it is as syllogisms:
1- Regulations that disallow competition make the market less efficient, intellectual property regulations disallow competition, therefore intellectual property regulations make the market less efficient.
It is the above that I mean is a fact. As for the conservative part, that I admit is not a fact, but rather my point of view, here is my reasoning:
2- Conservativism is a descendent of protectionist advocates like the landed aristocracy and the mercentilists who believe that the market should be protected from new (especially foreign) competition inorder to protect (or ‘Conserve’) established incumbents. Therefore Intellectual Property, which is designed to protect established incumbents (The IP Holder, vs potential competition) can be described as ‘Conservative.’
Sorry about the overly wordy syllogism, I wanted to be clear, if you understand the distinctions I make it can be summarized as follows:
2b- Conservatives support market regulations that benefit incumbents, IP protects incumbents, therefor IP is Conservative.
Why make this distinction?
As I see it market inefficiencies are proposed for one of two reasons: to Protect Established Interests (Conservative), or to benefit Society as a whole (Socialist). Since a socialist answer to the Incentive question would be some kind of State Institutional Support for Creators, not IP, IP is not a Socialist Market Inefficiency, rather it is a Conservative one.
I think the Creativity Incentive question is a Red Herring. Normal market incentives (out performing your competition) are sufficient incentive for Creativity, protectionism is not needed. This is, of course, only my opinion, that IP _is_ a market inefficiency is a clearly a fact. Some argue that it is a worthwhile inefficiency. I disagree.
Jun 23 2004 at 4:44am
“Are you suggesting that Jefferson would have discarded all his Republican, Minarchist principles and be in favor of profligate taxes if he thought the money would be redistributed instead of used to for the government to buy things? I seriously doubt that. ”
This is getting into the subject of Speculative Historical Fiction, and not economics, why not look at a Contemporary liberal thinker, Milton Friedman, who proposed the Negative Income Tax as a Redistribution system.
Money and Property are both social constructs of the Market, which are not natural but rather invented, Redistribution is just a refinement of the model to make it more efficient, it does not make the market less efficient any more than grounding makes an electric circuit less efficient.
Market efficiency depends on Perfect Competition, disproportional Accumulated Capital is a barrier to perfect competition.
Jun 23 2004 at 10:07am
I don’t accept the premise that the US Government currently takes more money from the rich and gives it to the poor. I’ve looked over the Federal Budget on numerous occasions, and spent a great deal of time thinking about where the money probably goes, and I have come to the conclusion that the US Government is currently taxing the middle class for the benefit of the rich AND the poor. Take, for example, the money the US spends on road building. At first glance I thought that this benefitted everyone equally, as anyone (who has a car, or can ride a bus) can use the excellent system of public roads in the US. But a wealthy person derives a greater benefit from the roads by virtue of the fact that they can effectively have multiple vehicles on the road at the same time. A lower middle class person only has one car that they drive whereas Wal-Mart has tens of thousands of trucks on the road at any given time. It is possible that the lower middle class family could own stock in Wal-Mart, but in general they would have less then a wealthy family. So in the case of transportation who derives a greater benefit from the money paid in taxes? I think that thinking about where money spent by the government is actually going has led me to the conclusion that concentrating the debate on a small number of programs has given people the perception that most government spending is for the benefit of the poor.
And I do realize that some of the road building is paid for by gasoline taxes which tends to spread the burden more fairly, but the cumulative damage done to roads over time is disproportionately done by big trucks.
Jun 23 2004 at 10:36am
I’m not sure you’ve made up your mind here. Either the system boosted economic growth or it didn’t. BTW, ‘created jobs’ is too vague to really use in an economics discussion. Jobs are not all equal. Two $75K a year jobs are certainly not worse than 3 min wage jobs yet if you restrict ourselves to ‘created jobs’ we will fall into this trap. Looking at GDP is better because that represents the sum of goods and services produced by our economy.
You seem to be attacking from two different fronts without being clear.
1. The Keynesian argument would be that the System created growth by putting $ in the hands of the workers that built the highways who then boosted demand by spending those dollars.
2. The supply-side argument would be that the system made the cost of doing business for everyone lower thereby allowing an expansion of output. Hence if the Panama Canal was destroyed today in some horrible accident, it would hurt the world economy even though most of the work building the canal was done long ago and the maintaince is relativly small in comparision.
No but I’m not sure Jefferson would have opposed the ‘safety net’ reforms that arose in the 19th and 20th centuries. Remember, Jefferson was an enemy of big business in a time when over 90% of the population were farmers and you’d be hard pressed to find a non-agricultural business with more than 20 employees.
IMO, it’s pretty dangerous to try to extrapolate what he would have made of the industrial revolution, the corporate revolution & the boom-bust nature of the business cycle that it drives if he had lived to be 200+ years old. It is important to recognize the type of powerful central gov’t he feared would arise in the US would have looked more like Louis XVI of France rather than FDR’s New Deal.
Jun 24 2004 at 10:36am
“I have not seen any evidence that strong IP promotes economic growth or the discovery of new ideas.”
Why do people bother to invent things? Boonton seems to believe that if Steven King couldn’t own the copyright on his books, then Steven King books somehow would be cheaper, or stacked up in piles like free real estate circulars at the supermarket.
In reality, if Steven King couldn’t copyright his books, Boonton would never have heard of Steven King.
Jun 24 2004 at 10:51am
“Your Soviet Union comment is almost too silly to be worth a response. The US has had regimes of strong IP and low IP & I have not seen any evidence that strong IP promotes economic growth or the discovery of new ideas.”
Boonton, perhaps you didn’t notice that your statement is a non-sequitur. My “silly” point was that new ideas are of no value unless they can be commercialized.
Jun 25 2004 at 8:08am
In reality, if Plato couldn’t copyright his ideas, Mike Everett would never have heard of Plato.
In reality, if St. John, St. Luke, and St. Paul couldn’t copyright their writings, Mike Everett would never have heard of St. John, St. Luke, and St. Paul.
In reality, if Miguel de Cervantes couldn’t copyright his plays, Mike Everett would never have heard of Miguel de Cervantes.
In reality, if Shakespear couldn’t copyright his plays, Mike Everett would never have heard of Shakespear.
In reality, if Baruch Spinoza couldn’t copyright his ideas, Mike Everett would never have heard of Baruch Spinoza.
But wait! All these writers wrote before Copyright existed!
Hmmm… I smell a fallacy.
However, this syllogism remains unrefuted:
Regulations that disallow competition make the market less efficient, intellectual property regulations disallow competition, therefore intellectual property regulations make the market less efficient.
Jun 25 2004 at 8:16am
‘My “silly” point was that new ideas are of no value unless they can be commercialized.’
A silly point indeed, not only does it suffer from an overly narrow idea of value, but it somehow misses the point that since IP makes the market less efficient it thus //limits// the commercialization of ideas.
Jun 25 2004 at 9:06am
Mike, why do you bother quoting me in your post if you aren’t even reading what I write? Here is what you quoted:
“I have not seen any evidence that strong IP promotes economic growth or the discovery of new ideas.”
Note the phrase ‘strong IP’, which is hardly the same thing as ‘no IP’. But for the record, it doesn’t follow that the absense of copyright would make for the absense of authors. Obviously King’s publishers would not pay him as much if there were no copyrights but they would pay him something. No doubt King would negotiate a private contract with the publisher requiring a portion of each book printed. After all, no one can publish a King book until King releases the manuscript. His earnings would be less but it’s not clear that he would loose all incentive to write. Say King would only have $1M instead of $50M yet he would continue writing. Do you know what that means? By classical economic theory King is collecting economic rents to the tune of $49M and the copyright law is inefficient.
Gee Mike, even if it could be patented or copyrighted, calculus has long since passed from a discovery by Newton into the public domain. Certainly you aren’t going to tell me it isn’t being used in millions of commercial processes?!
But not so fast Dmytri. Certainly a lot of great stuff was done when there was no copyright laws. A lot of great stuff was written under regimes of censorship as well!
Let’s be frank about media. We consume a lot of entertainment. We consume more entertainment than any previous generation & that means we need a lot of entertainment to be produced. Yea, it’s good that GREAT STUFF(tm) is out there and hopefully being added too every day. But we also need a hell of a lot of OK stuff. That includes silly sit-coms, forgettable movies, novels that are easy to read and good for passing the time and so on. Indeed, we both want and need disposable culture as much as we need disposable consumer products.
Could a regime of no IP, simply culture produced as an act of charity, vanity, or patronage really supply us with what we need? I’m not 100% convinced. IP laws, IMO, can act as a tax on the development of ideas. Instead of thinking of new things, people are encouraged to see if they can sue someone else who has come up with a new idea for infringement. This is what has happened with Linux & other corporations spend a good amount of brainpower seeing if they can find a dusty old patent somewhere in someone else’s design rather than dedicating those brains to coming out with new things.
Jun 25 2004 at 10:31am
“But not so fast Dmytri.”
Just pointing that Mike Evert’s statement, that without copyright you could not know of a writer, is a fallacy, which it is, as my examples show.
I have avoided debating the Incentive issue here as it is not relevant to the argument I proposed in this thread: Microsoft is not an efficient producer.
I have tried to confine my argument to saying that IP is a market inefficiency, which my syllogism shows (although I have wandered considerably)
Many people believe that IP is a beneficial market inefficiency, I think those people need to understand that what they are supporting is a Conservative Market Regulation.
Personally, I don’t believe that the Market is ever benefited by protectionist policies for incumbents (Conservatism), if a case can be made that the Market can not manage a certain factor of production effectively, and therefore some sort of corrective inefficiency needs to be introduced (such as arguments made regarding Residential Rents and Wages) then I prefer a redistributionist or even socialist model to conservatism.
If there really are certain types of Creative works the Market can be demonstrated to provide in insufficient quantity, Public Institutions that promote the creation of such works can provide the needed incentive (Grants, Prizes, Wages) while keeping the intellectual benefits available to all who wish to bring them to the marketplace.
However, these deficiencies are more likely to happen in Medicine and Science than they are in pop horror novels, where I can not imagine a supply problem, except maybe oversupply.
Again, all this is my personal belief, the only thing I am //insisting// is that IP //is// a Market Inefficiency.
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