Category Archives: ethics

Income (In)equality and Freedom

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It is the view of some that the primary task of our government is to engage in wealth redistribution so as to tend to equalize income—to equalize the results of individual effort, regardless of the level or quality of that effort.  There are problems with this asserted purpose, though, historical, practical, and moral.

During the extended discussion of our nation’s blueprint, James Madison wrote in The Federalist No. 10, for instance [emphasis mine],

The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government.

But these differences must, inevitably, result in different degrees of wealth, and of different degrees of income on the path to the accumulation of that wealth.  This diversity, though, is not a failing, but one of the strengths of our nation, one of the things that makes us exceptional, as we’ll see shortly.

Madison added, perhaps in anticipation of today’s debates, this:

The apportionment of taxes on the various descriptions of property is an act which seems to require the most exact impartiality; yet there is, perhaps, no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice.

This is especially a propos in light of the present effort to use taxes explicitly to achieve that wealth redistribution, rather than let men effect their own redistribution through a free market, wherein they freely exchange their wealth among each other as they exchange their goods and services—and money—at freely agreed prices.  The inevitable outcome of these exchanges is that all participants are richer after them than they were before, since all participants, after the exchanges, have gained something of value to them that they had not had before.

This takes me to the practical aspects of the failure of government-driven wealth redistribution.  Our nation’s principles statement acknowledges that all men are created equal.  The only way a government can redistribute wealth is to take from the wealthier and give to the less wealthy—i.e., to tax some more heavily than others, and then to give the proceeds of those taxes to the those less taxed—or today, to those not taxed at all.  But consider what happens when this is done.  Those from whom the fruits of their labor are taken—of necessity, arbitrarily—will have less incentive to continue their labors, and to the extent they do continue, it will not be with their original zeal.  What would be the point?  Their compensation for their labor will only be arbitrarily reduced.  Similarly, those who receive the fruits of others’ labor without having labored to the same extent or quality (those differing faculties) will have a reduced incentive to continue trying with their original zeal: they’re going to receive from government those others’ wealth, in any event.

Yet if each is left to his original equality of opportunity, to use to the fullest his own skill, work ethic, innate ability—his own faculties—he will be free to achieve his fullest potential—and yes, that will be differing levels of income and of wealth.  But that freedom to satisfy one’s own full potential, without government interference, is a part of that exceptionality of the United States.

It’s easy to see how this has played out over the last few decades of ever more active government-driven wealth redistribution.  Taxes on the middle class have been steadily reduced, the yet lower income classes have had their taxes reduced to near nothingness (and often receive tax credits—the wealth that others have earned).  This has been balanced by ever-increasing taxes on the upper classes—the so-called rich, the “millionaires and billionaires.”  Over the years until the 2010 mid-term elections, for instance, the top 10% of income earners have seen their share of the nation’s total income tax rise from 66% to 70%, while the bottom 50% of income earners have seen their share of the nation’s total income tax fall from 4% to 3%.  Yet the recipients of this wealth redistribution are even worse off—as Progressives insist with their plaints about today’s “increasing” income and wealth disparities.  Wealth redistribution, income leveling, doesn’t work by their own offered evidence.

This brings me to my third point, the morality of income redistribution.

Again from our principles statement, we understand that among our natural, inalienable rights is each man’s right to pursue his own happiness.

Here, John Adams is instructive.

All men are born free and independent, and have certain natural, essential, and unalienable rights, among which may be reckoned the right of enjoying and defending their lives and liberties; that of acquiring, possessing, and protecting property; in fine, that of seeking and obtaining their safety and happiness.

Taking from some and giving to others denies to each their moral obligation.  One of the obligations resulting from all men being equal and all men having (an equal) right to pursue their own happiness is the obligation of each man to not be, routinely, a burden on other men either directly, or by imposing on each man’s obligation to help his fellows in their hour of need.  That hour cannot be allowed to last indefinitely.

Government-forced taking and giving denies the one the opportunity to satisfy his moral duty to see to his own happiness, and it denies the other the moral outcome of having seen to his happiness. Further, by routinely imposing on the obligation of the better off, the one imposing (or the government imposing in the one’s name) is, in effect, asserting a dominion over the one who is better off: he owes me because I exist, and he’s richer.  (And never mind that diversity of faculties that are spread across us all.)

In the end, equality of wealth, or of the income that contributed over time to the wealth, is not guarantor of individual freedom.  Indeed, this is quite the opposite: it is the destruction of freedom, since government, in ensuring greater “equality” must also ensure lesser freedoms through the necessary mandates and takings inherent in the redistribution.

A Bipartisan Government?

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In yesterday’s The Wall Street Journal, pollsters Doug Schoen and Patrick Caddell had an editorial that urged President Obama to do the honorable thing and withdraw from the Presidential campaign in the manner of Harry Truman and Lyndon Johnson.  Although interesting in its own right, it was another remark of theirs that caught my eye.  “[Hillary Clinton] is the only leader capable of uniting the country around a bipartisan economic and foreign policy[,]” they wrote.

To have a bipartisan government, though, there must be fundamental agreement on the nature of American values and on the role of government in protecting those values.

To have a bipartisan government within the present framework of partisans, modern Conservatives—Americans—must accept into their governing principles elements of the empirically demonstrated destructiveness of Progressives’ ever-rising taxes and Keynesian spending.  Americans must accept the legitimacy of the destruction wrought by the Progressives’ 2009 Stimulus Bill.  Americans must accept as legitimate that government need not be responsive to its American employers, as it was unresponsive with the passage of Obamacare.  Americans must accept the Progressive attacks on business, large and small, of Dodd-Frank and its wholly unaccountable Consumer Financial Protection Bureau, the latter with an unlimited budget.  Americans must accept the legitimacy of the Progressives’ Stimulus Light, which masquerades as a jobs bill.  Americans must accept the blowup of the Supercommittee from the Progressives’ demand for a $1 trillion tax hike, coupled with their refusal to cut spending or reform entitlement programs in any way, or there can be no agreement—more of that rising taxes and profligate spending.

To have a bipartisan government within the present framework of the partisans, modern Conservatives—Americans—must accept into their governing principles elements of the empirically demonstrated destructiveness of a foreign policy of apology and retreat.  Americans must accept the premise that there’s nothing special, nothing exceptional, about the United States or our values, and we must apologize for our having touted them in the past.  Americans must accept the legitimacy of the Progressive insistence that we have no right to defend ourselves, and so we must forego a missile defense system—because Russian feelings might be hurt.  Americans must accept the Progressive view that Russia and China must have veto authority over our foreign policy and so, given Russian and Chinese objections, we do nothing serious to prevent Iran getting nuclear weapons.

In short, to have a bipartisan government Americans must accept into their governing principles elements of an ever-expanding and intrusive central government, abandonment of the primacy of individual liberty and of Federalism, and a retreat from our global responsibilities to our friends and allies.  How can there be compromise, how can there be bipartisanship, when one of the partisans so plainly does not share the values of limited Federal government and individual responsibility, or does not see the importance of American global leadership?

How is such “bipartisanship” possible, and the United States to survive as an independent political entity in today’s world of an active, militarily strengthening and increasingly aggressive People’s Republic of China that does not at all have the interests of a strong America at its heart?  How is such “bipartisanship” possible, and the United States to survive as an independent political entity in today’s world of an active, soon-to-be-nuclear armed Iran, whose sole purpose in obtaining nuclear weapons is to obliterate Israel and to give nuclear warheads to terrorists so the latter can use them in American cities—and European cities?

No.  The destructive policies of the Progressives, however heartfelt or well-intended, have led our nation to the brink of oblivion.  These policies must be utterly, completely repudiated; only then can we begin to repair the horrendous damage done by them.  Indeed, I wrote earlier how our President had made himself a laughingstock on the world’s stage.  After three years, he’s made our entire nation a laughingstock on the world’s stage.

Insurance, Bonds, Risk, and Welfare

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Insurance policies and bonds are quite similar in an important respect: they both are instruments used by industries that are founded on the transfer of risk from one person or entity to another in return for a fee of some sort, a fee which most often is characterized by an ongoing transfer payments from the one transferring the risk to the other accepting the risk.  The policies and bonds are the documents that represent these exchanges of risk and fee.

In essence, insurance transfers both the risk—the likelihood—of an undesirable event happening (vis., a person getting sick or dying, or one’s house burning down) and the cost of that event, to another entity, an insurance company.  In return for paying out that cost to an insuree, the insurer receives from the insuree a stream of premiums.  Notice that: the exchange is solely between the two parties; no one else is involved.

It’s quite similar with bonds.  A lender transfers a sum of money to a borrower in return for a stream of payments from the borrower back to the lender.  Here the risk  transferred from the borrower to the lender—the undesirable event—is the risk that the borrower won’t repay the principle transferred at the start.  In return for accepting this risk, the lender charges a premium to the borrower—the interest to be charged that represents an additional amount included in each payment beyond simply a prorated repayment of the principle.  Notice here, too: the exchange is solely between the two parties; no one else is involved.

The insurer makes its money by insuring lots of people so that the cost of having to pay out on any particular policy is covered by the totality of the stream of premium payments from all of the company’s customers, and the expectation that those customers will not suffer their loss simultaneously.  Similarly, the lender makes its money by pooling borrowers so that the cost to the lender due to default of a particular borrower is covered by the totality of the stream of bond repayments from all of the lender’s customers, and the expectation that those borrowers will not all default simultaneously.

The aspects of these two risk transfer industries that are of interest here are the sizes of those premiums and the relationships of the risks from one insuree/borrower to another.  In both cases, the risk transfer fees must be commensurate with the risk being accepted.  If an event—dying, or defaulting on a loan—is highly likely, than the fee must approximate the cost of the event, else the risk acceptor quickly will go bankrupt from routinely paying out more than it receives in return for taking on the risk.  If the event is not very likely at all, than the risk transfer fee similarly can be quite small.

Note, though, that insurance only works if the risks being pooled are similar.  Forcing into a pool people of significantly different risks—mixing a healthy, exercising young women into the same pool as octogenarian, heavily smoking men, for instance—artificially inflates the cost of that insurance to those young women, who won’t benefit from the insurance; it artificially deflates the premiums for those geriatrics who would benefit from the (relatively high risk) insurance; and it distorts the measures of risk for the pool insured, making it difficult for the risk acceptor to accurately price the cost of that risk transfer.

Bonds, also, only work only if the risks being pooled are similar.  Forcing fiscally sound, low borrowing entities to pay the same interest rates as unstable, heavily spending (with little income to cover the spending) borrowers makes such bonds similarly riskier: the risk is pooled on artificial criteria and so the interest required can have nothing to do with the condition of the borrowers in the pool.  This makes it next to impossible for a lender accurately to price this risk transfer.

This arbitrariness also makes it difficult for investors to evaluate the efficacy of a bond or an insurance company investment.

Wealth transfer schema, welfare payment plans, on the other hand, make no pretense of transferring risk, nor should they—that’s not their purpose.  Wealth transfer programs have only one purpose—to subsidize those whom the relevant government has determined should be subsidized.

That’s a long-winded introduction for my briefly stated thesis.  Only when the concepts of risk transfer and welfare are understood to be separate, and kept that way, can we have serious discussions of the utility of providing health cost welfare for some in the form of tax payments from all, or of  the utility of providing debt cost national welfare for some nations (their citizens) in the form of tax payments from all nations (their citizens).  Both Progressives and modern Conservatives (and social philosophies in between) routinely ignore these differences.  Instead, the insurance industry gets treated as a privately funded, government controlled welfare program, and the bond industry (of which the proposed Eurobond is an example) gets treated as a privately funded, meta-government controlled national welfare program.  This conflation invalidates argument on both sides of the question.

America’s Future—Foreign Policy Principles, Part III

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I have written earlier on this subject here, here, and here.  In this post, I’d like to address the remaining two principles that give substance to our national interest: protection of American citizens while they are abroad and assured access to the resources we need for our economy.

One of the purposes of our government, within our social compact, is to see to the safety of our citizens: to protect each of us from the others of us and from those outside our compact.  This protection, of course, cannot stop at our national borders; it must be extended to our citizens wherever they might be.  All that changes with location is the means by which that safety is effected.   It remains as important to protect our citizens while they are in foreign lands as it is while our citizens are home, and this is so for a number of reasons.

The Romans used the citizenship status of Roman citizens as an instrument of power projection.  Rome operated under the modus that even if a Roman citizen, within another nation’s borders, violated that nation’s law, punishment of that citizen by the host nation would be taken as an attack on Rome itself, with appropriate Roman response.  Further, this attitude that only the nation of citizenship could prosecute a citizen’s violation of host nation law persisted into the 20th century, primarily as a tool of colonialism.

While the United States does not use our people’s citizenship status as a means of power projection, the safety of our citizens abroad is a manifestation of American power.  Attacking Americans with impunity demonstrates that the United States is a paper tiger and that we can be manipulated according to the imperatives of our competitors and our enemies.

There is a practical reason for protecting the safety of our citizens, also.  Beside tourism, our citizens travel to third world nations on goodwill missions and to provide concrete assistance to their citizens, often in dangerous conditions.  That personal foreign aid (the Peace Corps, for instance) not only does concrete good for these nations; by doing so, it helps spread American influence, and the interaction exposes those people to American values, also to our mutual benefit.

Our citizens also travel to other nations—friendly nations, competitor nations, and third world—on business matters.  This interaction, too, exposes others to American values, and the mutual benefit from the business and values interaction also contributes to the spread of American influence.

If our citizens are not protected in those environments, the aid cannot be provided efficiently, if at all.  The trade exchanges cannot be worked out, and the values learned are those of American timidity.

And there is a moral reason.  These are American citizens; they are entitled to the protection of our—their—government wherever they are.  This does not mean that, like a Roman citizen, an American can act with impunity and without regard to the host nation’s laws, but it does mean that while Americans are acting lawfully, they must be free from harassment or outright persecution, and our government must be prepared to step in—using all means necessary—to help our citizens leave or to extract them if they are not safe.  It does mean that our government must be prepared to ensure our citizens are treated lawfully and humanely—and yes, that means our definition of humane—when our citizens do violate local law, including extracting them by any means necessary here, too.  To be sure, it’s a fine line between this stricture and the Roman impunity, but it’s one we must have our government prepared to walk.

That trade, and the spreading influence from both trade and aid, lies at the heart of the third principle, assuring access to resources critical to our economy.  There are, in the end, three fundamental mechanisms for assuring access to critical resources that are outside our borders.  One is to seize the resources through force of arms, and another is to seize the people and, by making them a colony, bringing the resources within our borders.

Both of those mechanisms were extant well into the 20th century.  Quite aside from their moral deficiencies, these two mechanisms are economically suboptimal.  The moral deficiencies are illustrated by the principles of our Declaration of Independence: all men are created equal.  Flowing from this is the principle that all men have an ownership in their property, their labor, and the outcomes of their labor.  Taking resources, then, either by force of arms or by force of colonialism, violates our own moral tenets.

The third fundamental mechanism for assuring access to those critical resources is free trade.  Agreements freely entered into by both parties to the trade agreement are sound and durable for a number of reasons.  The first is fairness: the parties to the trade agreement are, by definition, getting goods satisfactory to one at prices satisfactory to the other.  From such an arrangement, both parties are better off than they were before the agreement: both parties have gained something which they wanted and did not have before the trading.

Another, closely related reason, is the wealth creation that such free trade generates.  As just noted, both parties have gained something of value to them that they did not have before: one has gained a good that it wanted, the other has gained wealth from the sale of that good, whether money, another good that it wanted and didn’t have, future considerations, and so on.

A third reason that free trade is mutually beneficial is the positive feedback loop that is generated, and this is one aspect of what makes free trade the optimal means of access.  We’ve seen that free trade increases wealth creation.  That increasing wealth facilitates further trade: more goods can be produced, development of new goods can be afforded, infrastructure for that development, and for the transportation, of tradable goods can be built.  All of this then leads to lower costs, yet more revenue, for the citizens of the nations involved.  With more readily available goods, more varied goods, more easily transported goods, and so on, prices to the buyer must inevitably come down, while that increasing volume and new good development maintain and increase total revenues to the seller.  In the end, nations don’t buy things from nations.  People buy things from people; businesses and nations simply act as intermediaries for these transactions.

And finally, the national good will between the nations engaged in free trade is greatly facilitated, and this is another aspect of what makes free trade the optimal means of access.  Free trade did not create the strong relationships the US has with Canada, Great Britain, Japan, the Republic of Korea, and so on, but it has helped maintain and strengthen those ties.  Free trade between the US and third world nations—as opposed to colonialism or naked resource seizure—has helped us to gain influence in those areas.  The US is a very powerful nation, militarily, but it was not only that strength that led Somalia to ask for US soldiers earlier this month, and it was not only that strength that led the Libyan rebels last spring to call out, “Bring Bush!”  The values for which we stand contributes to such requests, and those values are made apparent from the interactions inherent in the trade which we conduct that third world nations experience directly or that they see by observing their neighbors interact with us.

Government-Guaranteed Loans and Taxes

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This is a brief tale of taxes and loans as they apply to American education.

In a time when our governments think the answer to correcting our public education system’s decades-long failure to improve our children’s education, as demonstrated by poor and unimproving standard test scores, is to continue their decades-long practice of throwing our taxpayer money at the system (what was it that Albert Einstein said about doing the same thing repeatedly and expecting different results…?), some of our state governments, and the good citizens therein, are rejecting the idea and doing something different.

As  The Daily Caller reports, in the recent special election in Colorado, the voters overwhelmingly rejected a ballot proposal that would have raised, yet again, taxes earmarked for public schools, when no discernable improvements from those increases were expected (by those taxpayers).

Florida, on the other hand, has been doing something different since the turn of the century: it’s lowered taxes by giving tax credits to businesses that donate to a non-profit  K-12 scholarship program that are equal to those donations.  The scholarships then are awarded to low-income families to help pay their costs in sending their children to private schools selected by those parents.  (Notice that phrase, too: “help pay.”  The families have to commit significant funds of their own; by having their own skin in this game, they have incentive to ensure their children do well in the new school.)

The effect of this Florida program is four-fold: the public schools, now having to compete for students, are doing a better job of teaching the children they retain.  The low-income families get better choices in how to get their children educated.  The state saves money: despite losing $1 in education tax revenues, it actually saves nearly $1.50 because despite the stereotype, it’s cheaper to educate a child in a private school in Florida than it is in a public school.  The local communities come out ahead because a dollar taken in taxes is only about six bits actually spent back into the local community due to the internal friction of the various government agencies each taking their taste of that tax dollar, whereas that same dollar left in the taxpayer’s hands is entirely spent in one form or another.

Now let’s look at government-guaranteed student loans for college (those guarantees, don’t forget, are covered by tax dollars from all of us).  What are these loans used for, and what should they be used for?

This table from The Daily Caller is instructive.

Bachelor's Degrees AwardedLook at this table against the backdrop of the global economic competition in which the United States is engaged.  From business, to resource development, to production, to defense, and everything in between, the United States needs well-trained and -qualified scientists and engineers.  What are our students studying?  Visual and Performing Arts.  Education(!?).  Social Science (how are we doing in this field, by the way?).  What are international students, the students of our competitors, studying?  Engineering.  Physical and Life Sciences.

If we’re going to have a government student loan program (I think we should not, but that’s another story), might it not be a little bit beneficial to target those loans in some way?  How about, if we’re going to commit our tax dollars to covering student loans at all, we at least use the program to encourage our students to study—and to stay with through graduation—the engineering and science, technology, and/or mathematics that will actually do our nation and our society some good, instead of just spotting our unformed (and uninformed) high school graduates the bucks they want simply to follow their bliss?