Taxation as Penalty

“That the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create;”
– Chief Justice Marshall, McCulloch v. Maryland (1819)

“Government taxes what it wants less of.”
– Commonly heard modern-day version

The first statement is generally true, while the second is generally not true, or at least, there is no necessary connection between the two things. Yet, the second is often stated as either a summary or a consequence of the first. Where is the difference exactly, and why do people who think they’re similar make this mistake?

First, why is the original statement true? Well, it’s mostly true, not strictly, axiomatically true in some lock-step logical manner. It’s true, to the extent that it is enforceable, because if taxation is increased to 100% on some product or activity, then there is no economic reason to produce that product or engage in that activity. A tax of 100% on income of any kind would effectively be slavery. (The history of tax revolts shows that you don’t need anywhere near a 100% tax rate to make taxation unenforceable. But there is as long a history of actual slavery, too.)

So, it’s easy to see that taxation can destroy an economic activity. Tax blueberry muffin income at 100%, and you won’t get very many blueberry muffins sold anywhere.

When we look at the second statement, though, we’ve moved from a statement about power and cause-and-effect to one about goals. In short, the first statement is one of means, and the second is one of ends.

Consider the story in The Seven Samurai (1954) by Akiro Kurosawa where a band of raiders plans to take most of the harvest of a local village. The first statement above could be re-stated as such: “The raiders have the power to destroy the village by taking all their food (or enough that they starve anyway).” But the second statement, similarly re-stated, makes little sense: “The raiders want the villagers to produce less food.”

Of course, it may be that the raiders are a combination of opportunistic and sadistic and would really like to see the villagers dead. But it’s easy to imagine that the raiders would be quite happy to have the villagers continue to produce food, even at a higher level, so that they might return season after season and steal from them. This makes perfect sense as a long-term plan, and if anything, the raiders should be quite happy to see the villagers produce more food than ever if that were possible.

Consider another story, that of Robin Hood, wherein a tyrannical usurper taxes the local populace mercilessly. As Rothbard says, the government is a gang of thieves writ large, and there is no essential difference between the two stories in that sense. And again, we don’t see the villainous king wishing for the population to have less income necessarily. He may wish it to the extent that a poorer population is less capable of fighting back, but this must be balanced against the fact that a starving population is not a great tax base, either. All else equal, he wants the tax revenue to increase.

Again, we see that the second statement is not necessarily true, even in cases where taxation is heavy-handed and vicious.

So, why does it seem like such an obvious conclusion to many?

At least partly, it stems from the idea of Pigouvian taxation of externalities. The actions of some (wrongly) impose costs on others. Taxing those actions will thereby reduce (or eliminate) those actions and thus reduce (or eliminate) the costs put on others. Here we have a clear connection between means and ends; taxes are the means, reduction of an activity is the end.  And with this connection, it’s easy for some to then view that means as essentially connected to that end. If you tax something, you must want less of it. Otherwise, why would you tax it? Don’t you know what that gets you?

Thus, for example, corporate taxation is intended to limit the number (and/or the power) of corporations. Taxing capital gains is intended to limit speculation. And so on.

While it’s possible that an individual politician has exactly that intent in mind, I don’t think it’s at all obvious that one implies the other. After all, there are many ways to limit an activity. Regulation is an obvious one. The number of doctors is limited primarily by the monopoly of the AMA and other enabling legislation, not by imposing a tax on doctors. The same goes for immigration, teaching, and so on.

Another reason for the conclusion is that most people assume that political planners intend most, if not all, of the consequences of their plans.  To take an action is to intend the consequences of that action.  But there are at least two problems with this.  One, government policies routinely result in unintended consequences.  In fact, this is unavoidable, not a matter of incompetence or lack of interest in forming good policy.  Two, politicians and bureaucrats have their own set of incentives that have little to do with the stated purposes of whatever legislation they put into place.  (Was the PATRIOT Act written by and voted for by patriots?  Of course not.)

To highlight this second point, consider the role of regulation.  In general, regulation can be thought of as a version of taxation because it imposes costs and can quite easily destroy an activity, either through an explicit ban or through the accumulation of indirect costs.  And so, people also tend to associate regulation with the desire to limit an activity.  However, regulation often tends to concentrate power in an industry, making it easier for certain dominant corporations to keep out rivals.  Often, the regulations are written and promoted by the industry itself in support of this end.  (Obamacare was primarily a gift to the insurance industry, even though it was portrayed as a way to rein in the power of the same industry.)

So, in conclusion, the fact that someone wants to tax something tells us very little indeed about their attitude towards it.  It’s theoretically possible that the intent is to destroy some activity, but given the array of other means available, the presumption should be the opposite until/unless some positive evidence is provided.  Just like regulation, both the intent and the result may be counterintuitive.

Thanks, Ron, Now Shut Up

Ronald Bailey over at Reason is talking about the need for consumer-driven health care. Well and good. He mentions the problems of the current healthcare – which are legion – and says that a solution is needed. His solution?

My advice to President Bush on how really to jumpstart consumer-driven health care: mandatory private health insurance. Poor Americans would be offered a voucher with which they would buy private health coverage. Such vouchers could be paid for by abolishing Medicaid and the State Children’s Health Insurance Programs.

But they won’t be, Ron, and you know it, because you know what underlies all of this: the barrel of a gun. Why you think the solution is to point the gun in everyone’s face is beyond me, but you’re either clearly ignorant or clearly evil about this.

Proving Too Much on Education

With John Stossel’s recent report on the failure of American public schools, libertarians are coming out of the woodwork talking about the need for competition in public schools and the failure of public education. I don’t disagree, but there’s more to it than what they say.

If Bulgaria is stomping the crap out of America in high school mathematics, science, and foreign languages, the first question is “Why do their public schools work so much better than ours?” Libertarians seem to ignore that the countries embarassing American students don’t have a free market in education. Their public schools are whipping ours.

Secondly, there may be cultural problems underlying American educational failures. A free market expresses people’s preferences and beliefs; it does not change them. If American parents think that the schools are currently doing a good job, will they demand anything better in a free market? To overuse a common example, in a free educational market, a number of parents will make sure their children are ignorant of the centerpiece of modern biology. A free market won’t solve these underlying things.

It is true indeed that a free market in education is the only moral educational system, but let’s not kid ourselves that it answers all questions.

Cato Bound

Cato launched a new blog/magazine this month and their first feature has been a discussion of three prescriptions from James Buchanan for fixing the Constitution.

Buchanan’s first proposal is a pretty tame piece of wonkery: a balanced budget amendment. His second proposal is more interesting because it’s incoherent, he advocates a generality wherein the state can make no laws which discriminate in imposing costs or providing benefits for individuals. He quickly demonstrates the incoherence of the idea by offering a flat income tax as an example of a law that doesn’t discriminate. Anthony de Jasay explains why this notion of generality makes no sense.

Buchanan’s final proposal:

“The Madisonian construction is flawed by its authorization of government regulation through the much abused Commerce Clause. The authorization should be restricted to the prevention of interferences with voluntary exchanges and should not extend to the prohibition, or the coercive dictation of the terms, of such exchanges. Nor should any differentiation be made between exchanges within the domestic economy and those made with others outside the political jurisdiction.”

Buchanan adds:

“Such a requirement is little more than explicit acknowledgment that persons possess the natural liberty to enter into and exit from agreements, without concern for collectively imposed constraints.”

Well. How will this constitution, even with Buchanan’s amendments, be anything but collectively imposed constraint?

Maybe I’ll consider my natural liberty to enter into, and exit from, agreements credibly acknowledged when Buchanan explains how I can opt out of his arrangement.

The Primary Problem With The War On Terror

What should we expect from The War Against Terror? Consider this:

Writers jailed in 2002 for political satire
After three years at Guantanamo, Afghan writers found to be no threat to United States

PESHAWAR, Pakistan — Badr Zaman Badr and his brother Abdurrahim Muslim Dost relish writing a good joke that jabs a corrupt politician or distills the sufferings of fellow Afghans. Badr admires the political satires in “The Canterbury Tales” and “Gulliver’s Travels,” and Dost wrote some wicked lampoons in the 1990s, accusing Afghan mullahs of growing rich while preaching and organizing jihad. So in 2002, when the U.S. military shackled the writers and flew them to Guantanamo among prisoners whom Defense Secretary Donald Rumsfeld declared “the worst of the worst” violent terrorists, the brothers found life imitating farce.

For months, grim interrogators grilled them over a satirical article Dost had written in 1998, when the Clinton administration offered a $5-million reward for Osama bin Laden. Dost responded that Afghans put up 5 million Afghanis — equivalent to $113 — for the arrest of President Bill Clinton.

Given this, and scores of similar items, given the demonstrated failure of central planning in general, how can this government be expected to conduct a War On Terror any better than it conducts any other affair? Supporters of the Terror War need to answer this, or ignore it, in order to proceed.

Nobody’s answered it yet. And why not?

Because the honest, rational answer is that there’s no reason at all to expect the government to handle the Terror War any better than it handles any other matter. That’s an awkward admission to make if you’re a supporter of the War On Terror:

Yes, this government’s going to fuck the matter at hand up in a spectacular fashion, and likely enough will actually make whatever problem it supposedly started out to solve worse. Instead of fixing things, which it can’t do, it will create a self-perpetuating crisis managed by career bureaucrats whose primary motivations will be ensuring their continued employment and the steady growth of their mini-empires. Everything remotely connected with this will be deemed a national necessity and naysayers will be branded as unpatriotic. Dire pronouncements of doom will be forthcoming, based on rumors at best, at regular intervals or whenever the public starts to grow weary of the whole mess. Every election cycle, various candidates will make noises about “fixing” the matter, but their fixes will to a man involve increasing the budgets of the government agencies involved.

But you should support it anyway, because it’s all we’ve got.

I could be describing support for AmTrack. In fact it’s a pretty fair comparison, since to make either of them work right, you need to do one thing:

Solve the socialist calculation problem.

Except, oops, you can’t. How does it get decided where trains run or who gets bombed? Not a price system, with near-instant feedback of market demand, but central planning overlaid with political patronage. Socialized trains don’t work any better than socialized Terror Wars, which is why you get what we have now: the Afghani Jonathan Smith in jail for three years, and a rail organization that loses money on three dollar hot dogs.

Thus the primary problem with the War On Terror: socialism.

Hotel Communism

This is the Ryugyong (“Capital of Willows”) Hotel in Pyongyang, North Korea. In 1987, Great Leader Kim Il-Sung started building this monstrosity. No one’s exactly sure why North Korea started building this eyesore, but in a communist dictatorship, it’s hard to explain why the government does anything. Work on the hotel is believed to have stopped in 1992, during a brutal famine.

Japanese newspapers have estimated that the hotel’s construction cost $750m, which would have been about 2% of NK’s Gross Domestic Product. The hotel stands 330 m tall (about 1070 ft.). The crazy angle of the roof is 75 degrees.

Number of customers since work ceased? 0. The building is structurally unsound and lacks electrical wiring and bathroom fixtures.

According to reports of those who have visited Pyongyang, tour guides act as though the 1070 ft. building doesn’t exist.

“You can check out any time you like, but you can never leave.”

Gadflying Good Statistics

I’m an natural statistics skeptic. I disbelieve 78% of all statistics I read or hear.

Over at CafeHayek, Russell Roberts has some apparently good news for us, by way of the Grey Lady:

In 1972-73, for example, just 42 percent of the bottom fifth of American households owned a car; in 2003, almost three-quarters of “poverty households” had one. By 2001, only 6 percent of “poverty households” lived in “crowded” homes (more than one person per room) – down from 26 percent in 1970. By 2003, the fraction of poverty households with central air-conditioning (45 percent) was much higher than the 1980 level for the non-poor (29 percent).

Emphasis mine. On first reading, this looks like a tremendous development. But I bolded the words for a good reason: we see three different terms used in the same paragraph: “bottom fifth”, “poverty households”, and “non-poor”. My legal training tells me, when I see three different terms, there are three different things meant. There are exceptions, of course, but statutes, provision, and even judicial opinions are drawn with careful attention to language.

The question here is: are the “bottom fifth”, “poverty households”, and “non-poor” the same group of people? My spider sense tells me “no”. If they’re roughly the same, there isn’t much problem. If they’re not, the statistics are essentially meaningless.

EDIT: Thanks to the somewhat anonymous Anarchist in the comments, I should clarify that I meant to ask whether the “non-poor” be identified with the top four-fifths, the non-poverty households, or something else entirely.

Attention Scott Rosen: Central Planning Will Not Work

Scott Rosen, on

Of course, for libertarians, all of this does raise another important question: What should be done about this unnatural influx of immigrants? The optimal solution would be to eliminate all public property and services, abolish the welfare state, and abolish all restrictions on how private property owners and local communities may govern themselves. This, however, is highly unlikely.

While there is room for debate on an imperfect solution to the issue, it would probably be best to emulate a private property system by permitting the states and localities to restrict entry to only those it feels would be of benefit to the community.

Did you get that? Rosen is suggesting that the government emulate a private property system. That would “probably be best” as an “imperfect solution”.

Think: how would Scott Rosen have the government go about emulating private property? Which properties would be protected? What rules would he have put into place? Who decides all of this, and how? The answer is that it can’t be done.

Now it’s fair to note that Rosen in fact says he wants to abolish government as a first solution, but he says that doing so is “highly unlikely”. That’s quite true, and I won’t dispute it. I’d merely note that the only thing more unlikely than the abolition of government is central planners creating a successful emulation of the free market.

Ludwig von Mises showed that socialist calculation isn’t possible:

Only because of the fact that technical considerations can be based on profitability can we overcome the difficulty arising from the complexity of the relations between the mighty system of present-day production on the one hand and demand and the efficiency of enterprises and economic units on the other; and can we gain the complete picture of the situation in its totality, which rational economic activity requires.

Government not only won’t, but can’t “emulate” a free market. Central planning isn’t an “imperfect solution”, it’s no solution at all. The solution to concerns about immigration isn’t even further collectivization of property, even more central control, another layer of socialism pasted on top of all of the others in the vain hope that this time, the planners will get it right.

The solution is a free market.

Another Victory In The War On Terror

Military targets illegal gas sales (Bolding mine):

On any day in many Iraqi cities, men with plastic containers full of gas line the roads outside gas stations, offering the same product for a much higher price but faster. Motorists pull up, hand a wad of dinars out the window, and wait as the bootlegger fills the tank using a funnel and a hose.

Filling your tank illegally takes only minutes, but costs as much as 8,000 dinars ($5.50), whereas a legal tank of gas might cost half as much, but requires hours of waiting in lines that stretch as long as a half-mile.

In Nineveh and Diyala provinces, U.S. troops are shutting down bootleggers and giving their gas away for free in an effort to control the price of gasoline, protect the livelihoods of gas-station owners and employees, and in the long term, reduce the wait and encourage investment in gas distribution.

Government agents with guns interfering in peaceful commerce?

Sounds like America.


I’m Difficult

I took my sons to Cost Cutters for haircuts yesterday. The young lady behind the counter asked for our names, which makes sense, since we would have to wait for our turn and she would need to know who to call.

“Andy, Geoffrey, and Dylan,” I replied.
“Telephone number?” she asked, oh-so-casually.
“You don’t need that.”
“Last name?”
“You don’t need that, either.”
“Well,” she explained, “we need to know the name to call.”
“You can just call Andy, Geoffrey, and Dylan.”

She then entered three customers as “No Name” in the computer, as I watched, but I could tell from the look on her face: I was “difficult.” As we sat waiting, another employee came to the computer and said, loudly, “what’s with all these ‘no name’ entries?” I raised my hand, “that’s us.” The look on her face was a combination of confusion and disapproval.

About five more customers came in during the next ten minutes. All of them gave full names, telephone numbers, and addresses, without hesitation, even spelling out names and streets that gave the employees trouble. The same people are no doubt annoyed with the quantity of telemarketing calls and junk mail they receive, but are evidently unable to think enough to connect the two, or even to ask the obvious question: why do you need this information to cut my damn hair? The punch line is that every one of the stylists has prudently covered her address on her framed State Cosmetology License, which is displayed on the wall as required.

Best Buy and Toys-R-Us are two stores I occasionally buy from, where the cashiers ask for a telephone number from each and every customer at the checkout. I used to give random fake numbers, but a couple of years ago I decided that this didn’t properly communicate my disapproval of the process, so I started simply responding with a firm “no.” The first few times, I received dumbfounded expressions, protests that “well, it’s the computer that needs it,” (answer: “oh, the computer needs it, why didn’t you say so?… no,”) and semi-panicked calls to a manager because the cashier didn’t know what to do. Lately, though, they don’t do more than just look a little affronted, before going on with the transaction. I don’t shop at either store enough to fantasize that they remember me specifically, so they must be getting enough “difficult” people, who aren’t going along with this silliness, to have an official procedure now.

I’m not, by any means, trying to portray my refusal as some kind of protest against the state. It isn’t. However, I think that there is a relationship in the reverse direction. The state has, through its petty bureaucrats at the DMV, IRS, Social Security Administration, and similar pointless wastes of time, created a populace that simply doesn’t question requests for such information. Refuse one of these mini-tyrants a piece of information, and you know you won’t get your driver’s license, construction permit, or whatever piece of paper you’re trying to get today. They have no motivation to work with you (unless you’re bribing them appropriately, of course.) It simply never occurs to most people that, conversely, Best Buy will still sell you the printer, Toys-R-Us will still sell you the bicycle, and Cost Cutters will still cut your hair, even if you refuse to add yourself to their database. Sellers in a free market know that if they won’t, someone else surely will.