Thursday, October 28, 2010

A Wealth of People

I have to say that I'm a little excited about the current state of US politics, which is unusual for me. It's been a fairly depressing decade or two for a political mutt of my particular pedigree. My leanings are somewhere in the constellation of Republican, Conservative, Libertarian, Constitutionalist, or perhaps even Federalist. It's hard for me to find any party that shares most of my beliefs, and I always find myself saddened when I stand firm, then watch the major parties wander further and further away from me. That's why I find myself deeply gladdened to see a major force within the Republican party taking up as their core issue a push to decrease federal spending. It's like I'm getting Christmas early.

But nothing's so good that it can't be made better, and there's something about the current crop that drives me to confusion. At the base of it is a question of the value of a person. Not the emotional or spiritual value of a human being, but the economic value. I've long held that one of the core differences between Capitalist and Socialist systems hinges on the value of people. In a free market, the minimum economic value that a person can have is zero. But most people have more value than that. Every person in the society is someone with whom I may engage in trade. In a free market, all trade is voluntary, so if my trade with another person has negative value to me, I will chose not to engage in it. Expanding the volume of people gives me both a broader market to sell what I produce, and a broader market of people producing things I may want to buy. Both ways, I win. Adding a person to the society doesn't mean he's taking "his share" of the overall production of the society, it means he's adding his share to it, participating in the overall flow of money and wealth. In contrast, a Socialist society takes on the responsibility of caring for its citizens. While that may sound noble and generally laudable, in practical terms it means that the value of an individual to society is negative. Each person in that society is a liability, not an asset. Each person is someone with needs that must be met. They certainly may have value as well, and in general people who live in Socialist or Communist societies do end up creating value and wealth, but while the Capitalist philosophy guarantees that a person's value can be no lower than zero, a Socialist philosophy can only guarantee that there is a negative component to each individual's value, with no such guarantee as to the magnitude or even existence of any positive component. My gut feeling is that this is the reason why so many of the mass murders of history were committed by Socialist dictators such as Mao and Stalin - for those societies, there existed the possibility that a person's value to society could be increased if they ceased to exist.

So this brings me to my perplexity at the attitude of our staunchest Capitalists towards immigration. In a free market, every immigrant will add to the overall health and well-being of the economy, just as every other person does. You could say that the problem stems from the fact that we have strayed so far from a free market that immigrants may bring with them a negative value, but I see no one articulating that point. If that's what people are thinking, then I have to respond that the solution to that problem is to fix the free market, not try and cure the symptom by restricting immigration. You could argue that illegal immigration is bad, and I'd have to agree with you there, at least insofar as when laws are broken, and even more so when the breaking of those laws is ignored, it foments a general contempt for the rule of law as a whole. The problem with illegal immigration isn't the immigration part, it's the illegal part. Once again, it's a problem of too many laws.

When I read The New Colossus, I can't help but get a bit misty-eyed. It's a powerful poem. When I see those words
Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
I think that may be descriptive of some, but certainly not all. Immigrants aren't necessarily tired nor poor. We shouldn't refuse to allow entry to those who fail to prove that they are wretched refuse, or that the shores they hail from are insufficiently teeming. Hidden within all of that loose description is the one requirement that I believe should be the foundation of our immigration policy. Those that wish to join this great nation, be they rich or poor, strong or weak, wretched refuse or shining beacon of humanity, they must meet one fundamental requirement: They must yearn to breathe free. If we wholeheartedly embraced that philosophy, I think we would all be better for it.

Avoiding Taxes

A "moderate" friend recently sent an e-mail to me and some of our mutual friends, and I felt like the answer should have a wider audience and discussion, so I'm putting it here. He asked:
Remember how we had a conversation a few weeks ago about taxes? Can my conservative friends help me understand why something like this is NOT a bad thing?

I don't want to raise taxes, I just don't think that having a tax code that allows you to dodge them in this way (provided you're a corporation and have enough money to do so) is something that should be tolerated. However, any attempt to close this "loophole" (or whatever you want to call it) is attacked as "They want to raise taxes!!!!!".
Google is saving money. Let me assure you that they don’t have a secret cave in the hills of Nevada filled with millions of mattresses stuffed to overflowing with $20 bills. They’re going to do something with it. That something will involve buying things or hiring people. If you make things or want a job, or provide services for people who make things or have jobs, then you might be happy to know that there’s more of that going on. Cash sitting in a vault does not equal an economy. An economy consists of money moving. Kind of like electrons sitting in atoms are fine and dandy, but when they start moving around, then you’ve got power happening. People generally want money to move. They want it to move into their wallet as fast as possible, but they also want it to move out of their wallet and be replaced by a nice big flat-screen in their living room. Money moves in three ways: first, by freely executed exchanges. This generally makes up the bulk of an economy, and in a micro scale consists of a bidirectional flow where money flows in one direction while value flows in the other. The money is neither created nor destroyed, but by its movement creates value. On a macro scale, this appears as a turbulent flow of money that generates a steady stream of value. The second manner in which money moves is by individual forcible action, such as theft, extortion, fraud, etc. In these cases, money still moves, but in the process of doing so generates no value. If a guy mugs me, he gets my money, but I don’t get to demand a flat-screen in return (or if I do demand it, I’m likely to be disappointed. Also shot). The third way is through taxation, which in economic terms is indistinguishable from theft, extortion, or fraud in that money moves, but no value is created. (there are actually some sub-categories of taxation, for instance fiat currency can be created out of nothingness, or time-shifted taxation in the form of bonds can be used to divert money from useful endeavors into zero-value transactions, but they all fall under the same umbrella concept of moving money without creating anything useful)

Closing these loopholes is all well and good, but if that’s all you do, then you’re taking money that could be creating value and stopping it from doing so. So yes, it is “raising taxes”. Any work to close loopholes such as this needs to be balanced with work on lowering other taxation. Or, more importantly, with lowering government spending, no matter what you do with taxes. (actually, it is possible to go too far with this. If you reduce spending below the level of taxation, you end up with a surplus, which is fine and dandy while you have a national debt, but once that debt is paid, the surplus equates to money coming out of circulation, which causes deflation of the currency, which is bad in its own ways. Much as I generally dislike inflating the monetary supply, it is useful in some ways. It discourages the hoarding of cash, thus encouraging a higher velocity of money, and it lets employers lower functional wages for unproductive employees without having the psychological burden of actually enacting a pay cut. The one nice thing about a fiat currency is that it gives you precise control of inflation. The down side is that you aren’t forced to exercise that control, and can let it run rampant, the Weimar Republic being the poster child of exactly that problem)

It’s also a great object lesson in how lowering taxes can raise revenue. Here’s a huge chunk of tax revenue that would stay in the US if the US taxes were low enough that it would be unprofitable to export that money elsewhere.