False Premises

Bill Gates had a thought on how to help workers, especially low-skilled workers facing automation.  However, he’s operating from a number of false premises.

I think tax structures will have to move away from taxing payroll.  …  Software substitution—whether it’s for drivers or waiters, nurses…it’s progressing.  And that’s going to force us to rethink how these tax structures work in order to maximize employment given that capitalism in general over time will create more inequality, and technology over time will reduce demand for jobs, particularly at the lower end of the skill set.  …  Twenty years from now, labor demand for lots of skill sets will be substantially lower, and I don’t think people have that in their mental model.  …  Economists would have said a progressive consumption tax is a better construct at any point in history.  But what I am saying is that it’s even more important as we go forward because…I want to distort in the favor of labor.  …  When people say we should raise the minimum wage—I know some economists disagree—but I worry about what that does to job creation.  The idea that through the Earned Income Tax Credit you would end up with a certain minimum wage that you would receive, that I understand better than intentionally dampening demand in the part of the labor spectrum that I’m most worried about.

The first, and prior, false premise is that taxes should be used to achieve social engineering goals—whether government’s or any others’.  No.  Taxes are for funding the government so it can carry out the tasks for which we’ve hired it.  Our Constitution lays out the sole purposes of spending at the Federal level: paying our nation’s debt, funding our national defense, and the general welfare—which is explicitly enumerated in the 18 Clauses of Article I, Section 8.  Nowhere in there is spending for social engineering listed.  Taxes, then, can only be used to raise funds for those three spending purposes, and not for social engineering.

Gates’ second false premise is that a free market is somehow a zero sum game.  In a free market economy, two men freely arrive at terms of an exchange (e.g., a good for an amount of labor, either of those for an amount of money, etc) and make the exchange.  After that exchange, both men are better off than they were before it, since each man now has something of value to him that he didn’t have before—and that thing did not cost him more than it was worth to him, with the possibility that each man got slightly more than he paid as evidenced by his willingness (now hypothetically) to have paid slightly more than he actually did.  Plainly, a free market economy is a positive sum game.

His third false premise is that “technology over time will reduce demand for jobs.”  Like technology reduced employment when car manufacturing replaced horse buggy manufacturing.  Like Henry Ford’s assembly line technology reduced manufacturing employment.  Like computers have reduced employment.  Again, no.  Technology over time changes the kinds of jobs that have value, but it doesn’t reduce the number of jobs available.

His fourth false premise is that government subsidy (minimum wage or EITC or anything else) somehow makes labor less costly—at least to the employers.  Again, no.  Whether those labor subsidies are paid for by taxes or by borrowing, they’re paid for by taxes: all government borrowing does is shift the taxes onto later generations (and without their being in a position impudently to protest the matter).  Those taxes come out of the citizenry’s pockets, and (under present tax structures) out of the revenues earned by businesses.  Costs to the citizens and to the businesses thus are increased, and they’re increased by an excess amount derived from the difference between the actual value of the man’s labor and the subsidized price paid him for that labor.  Ultimately, too, that excess amount works through the economy in the form of higher prices—inflation—and the man is no better off in the end than he was at the pre-subsidy start.

Finally, there’s the matter of wealth/income inequality about which Gates worries.  Bill Gates, however, is the modern poster boy for that sort of inequality.  That inequality, though, is neither good, nor bad; it just is, like money generally.  It’s a tool, and like any tool, it can be used for good or ill, or it can be left on the shelf to rust.

Gates, in fact, has been enormously generous with his wealth, far more so than any of the rest of us could be, and to a degree that is utterly impossible without the enormous (unequal) wealth that Gates has and the enormously unequal income he earns with which to accumulate that wealth.  As have been the Carnegies, the Rockefellers, et al., of our capitalist nation.

I’ll leave off the mechanics of a “progressive consumption tax” and the inevitably byzantine nature of the sales tax code developed to implement this.  I’d be curious to see how Gates would implement such a thing: a customer in WalMart, at the cash register imputing (in some verifiable manner) his income, and the cash register calculating his sales tax accordingly (oh, wait—there’s that technology putting a cashier out of a job…)?

We all get sales tax refunds on 16 April according to our incomes and the amount of sales taxes we paid through the year?  How will the man living in the region of the Federal Poverty Guideline live on his sales tax-reduced income before he gets his refund?


h/t AEIdeas

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