Why do we expect stuff to be free? (part 2)

In my last post, I wrote about my frustration with so many people who seem to believe that all taxation is bad. I listed three major social benefits gained by paying taxes: economy of scale, adjusting for flaws in the economic system (without destroying the entire economy), and the ability to better achieve long range plans. Having written about economy of scale, I want to look at the latter two.

If a society is to address the flaws in its economic system, it first must admit that flaws exist. I believe in a system founded on capitalism, but even it has massive imperfections. I don’t mean the problems that result from greed and unethical people; greed and lack of ethics can derail any economic system. I’m referring to the flaws that arise in capitalism, regardless of how well-behaved its participants are; often, these flaws are byproducts of what makes capitalism function in the first place.

We all should know the fundamentals of the market system. The price paid by a consumer for a final product or service, or by a firm for the components needed to manufacture the product or service, is where demand and supply curves intersect. For instance, a farmer would love to charge $5 per pound for apples and a customer would like to pay 1¢ per pound, so the market price represents the price at which farmers are willing to sell their apples and that customers will purchase apples available for that price. The system has many advantages, but the most important for society in general is that the best people will end up supplying particular products and skills. I, for instance, am a terrible plumber, terribly inefficient, so the money I would have to charge for me to make a living would draw no customers, discouraging me from entering the profession. The system means that we obtain the best results for the money we spend and, in doing so, means that we can purchase the maximum amounts of goods and services with our available incomes.

How, then, can something go wrong? The most obvious one is that the very success of capitalism can lead to its own downfall. Remember, the system depends upon there being competition among various suppliers to keep prices at the level that is best for consumers. What happens, though, when one producer is so efficient that all of the competitors are forced out of business? Obviously, the one remaining supplier no longer has any incentive to keep prices at a level that is optimal for society in general. This may not seem like a big deal, but what if that product is something that is essential, like water or basic food? If government doesn’t intervene well….does the name “Marie Antoinette” ring a bell?

So, unless you want the system to be totally overthrown, government has to intervene in cases like this, and government intervention requires tax dollars to fund whatever programs are created, and this is what Ayn Rand disciples just don’t get. They scream for deregulation, that government destroys the incentive for people to create. An overly-oppressive government does destroy that, but they believe that any amount of regulation is overly-oppressive. Baloney.

Another example is the use of subsidies. Subsidies have gotten a bad name in recent years, deservedly so. The specific programs are flawed and there are people who receive monies who have no business getting them. However, we should never assume that a flawed program means that there should be no program at all. Subsidies are especially useful if the product is essential and there forces that are beyond human control that affect supply.

When I was in high school, my classmates and I looked on in horror at a film clip that showed dozens of milk trucks backing up into a field and dumping out hundreds of thousands of gallons of milk into a field. They were doing this because the market price of milk had plunged so low that dairy farmers couldn’t even recover their production costs, due to an oversupply of milk. Granted, part of our horror was based on what was then the universal belief that milk was almost as essential as water for children, but the basic point remains. Sometimes, suppliers of essentials, through no fault of their own, find that the market price of their products is too low for them to stay in business; if that isn’t bad enough, imagine what happens when the market recovers and there aren’t enough products to meet need.

These are just the crises that result from the success of the market system. No one is evil or conspiratorial; everyone is acting as she or he should. In these cases, a well-funded government is needed for our good, and it is further called upon for those cases where people do misbehave.

 

Why do we expect stuff to be free?

I don’t like paying taxes. I don’t know anyone who does. However, I also don’t like going to the dentist or getting a tetanus shot. If I indulge these dislikes, my teeth will be horrible and I might die. Shouldn’t we start looking more at what benefits we obtain from tax dollars?

When I taught AP Economics, I joked that Americans paid the lowest percentage of income in taxes, of any country in the industrialized world, but we complained about them more than anyone else. The first part, at least, is pretty close to the truth. There are 34 countries in the OECD (Organization for Economic Co-operation and Development), which consists of the world’s industrialized democracies. The average tax burden among these countries is 34%; the U.S. burden is 26%. Only Mexico, South Korea, Ireland, and Chile have a lower burden than the U.S. Finland, the country with the highest standard of living, has a tax burden of 44%.

I recognize that freedom of choice lies at the root of U.S. attitudes about taxation. Perhaps our greatest strength is the emphasis on this freedom. Volumes have been written, determining that our economic strength and other areas of innovation are derived from it; I’m not about to argue with them. Every dollar spent on taxes is an expenditure that was not freely chosen.

However, no quality exists in a vacuum, nor should it. To paraphrase the late Meg Greenfield, a world with total freedom is chaos, not paradise. All of us understand how that applies to criminal law and property law, but it is not always apparent how that applies to paying taxes. There are at least three major social benefits gained by paying taxes: economy of scale, adjusting for flaws in the economic system (without destroying the entire economy), and the ability to better achieve long range plans.

The first, economy of scale, refers to how all of us benefit when we pool our resources. It is the driving force behind the success of large-scale industry; its two primary determinants are the costs of the natural resources and capital needed for production and the need for a labor force highly focused on a specific task while having more than one person available to fit an individual niche.

Obviously, then, all-but-boutique automakers use economy of scale to make cars that we Americans enjoy and expect; iron and conveyer belts (capital) are very expensive, and laborers must have special skills and workers repeated execute the same series of tasks. In fact, some countries have auto and steel companies that are publicly owned (implicitly, paid for by taxes), although a market-based economy like that of the U.S. would never tolerate such companies. What are the elements, then, that make it desirable for a specific good or service to be paid for by taxes? The four primary questions are:

1. Is it needed for survival?
2. Is it something not needed on a daily basis by an individual, but constantly needed by society in general?
3. Is it something for which innovation is unnecessary, even undesirable?
4. Is it something that benefits people besides those who are using it at the time?

The more firmly the answer to these questions is “yes”, the stronger the argument that it should be provided by taxes. To clarify, here are two examples that are found at opposite ends of the spectrum: fire departments and fine dining. Fire departments obviously benefit from economy of scale. Just as obviously, they directly save lives. We would hope that no one person would need fire services on a daily basis, but these services are demanded all of the time. While there are periodic improvements in technology and techniques, firefighters are not supposed to improvise away from their routines. Finally, putting out a fire significantly reduces the chances that adjoining buildings will catch on fire. By contrast, fine dining is none of these: restaurants that emphasize economy of scale drop in quality, as luxury goods they don’t fit either #1 or #2, #3 is necessary for all but the most iconic restaurants, and it would be hard to argue that my going out to dinner would benefit you (no matter how hard I try to convince you.)

Most goods and services fall somewhere between those two extremes and, therefore, are the root of most political debates about public, tax-based ownership vs. private. Should prisons be privatized? Should we adopt universal health care? Use the criteria above and see if your answer corresponds to your gut-level response.

 

 

Some reflections upon grief

About ten days ago, my younger brother died, unexpectedly. He and my wife are my two best friends; as you can imagine, this derailed me. Fortunately, because of my past experience as a hospice volunteer, I have received training in grief counseling, and this has kept me sane and stable.

I have been more introspective than usual these past ten days and have drawn some conclusions that I would like to share. I know that most of us will go through a similar experience, and I would like to help those who face this challenge in the future.

My two major observations have to do with the grieving process itself. Many of you are familiar with Kübler-Ross’s five stages of grief: denial, anger, bargaining, depression, and acceptance. First, I learned in my training that this is not a linear process; that is, almost no one goes through these stages in a direct sequence at anything resembling a standard pace. More commonly, people will slide back and forth a bit and, even more commonly, people will tend to get stuck in one of these stages.

This brings me to the next observation. Two or more of these stages can combine into one. For me, bargaining and depression have combined to form guilt. My brother was a much-beloved icon of our community, so much so that the executive director of our largest local theater made the 750-seat facility available for his memorial service, without any request from the family. That pretty much tells you all that you need to know about him. I have been told by, literally, hundreds of people that my brother’s death is a huge loss and that he was the kindest man they had ever known. Consequently, I am dealing with a strong sense of “why him, and not me?”

Obviously, this would be a frightening and unhealthy attitude to have. Fortunately, I know that this feeling is an outgrowth of the grieving process and that the guilt is irrational, and that irrational thoughts are perfectly normal at a time like this. Certainly, the hundreds of people who love my brother are not wishing me to die.

This brings me to my concluding observation. Besides me, my brother’s widow and children have been overwhelmed by the outpouring of support. We calculated that inviting all of the people who wanted to talk or sing for my brother’s memorial would lead to a six hour-long service. Personally, I have struggled to avoid aggressively turning well-wishers away, to cite the difficulty all of the offers can pose. For me to do this, though, would be the epitome of selfishness. When loving people offer condolences, they are not only seeking to ease your pain, but are also dealing with their own grief. Regardless of my relationship to my brother, it would be extraordinarily unkind to minimize the grieving of others.