High Income Does Not Equal Being Wealthy

Leaving aside the impropriety of taxing rich Americans at a higher percentage, we should recall an important fact that is buried in all the claptrap going back and forth about the current tax rates.

That fact?: Income is not wealth.

Everyone who earns in one year more than whatever arbitrary demarcation line divides the "rich" from the proles is assumed to be wealthy.  (What is that number this week?  Last I heard it was inching up to $1 million a year.) This assumption leads to the next step of wanting to categorically tax these individuals' incomes as if they themselves are rich.

Yes, many "rich" people have high incomes, and many high income earners are "rich."  But many is never all.  High income earners and "the rich" is no exception.

The wealthiest safe-made people in America were not "rich" the first year they brought home $x or more.  Many people earning high incomes this year are not yet "rich" or are on their way down from being "rich" onto their way to being in the middle class. We just do not live in an economic caste system, all the bellicose class warfare bilge notwithstanding.

As Thomas Sowell points out in Intellectuals and Society, the Treasury Department (that bastion of people interested in abolishing the progressive income tax system) reported that among the highest income earners of 1996--the top 1/100 of 1%--a mere 25% remained "rich" by 2005.

This underlying assumption of this assumption holds that everyone getting hit with higher taxes has sooooo much loot lying around they can use their riches to buy, invest, and promote economic growth.  So tax, tax, tax away.  Wrong.  Tax high income earners who are not "rich" and you're confiscating out of their hands and the economy that much more possibility for real capital investment and growth.   

Again, we're leaving aside the debate over the propriety of progressively taxing some people more than others.  The above assumption is simply incorrect.  Moving along tax policy based on this assumption is simply not justifiable.  Using demagogue verbiage like "...the richest Americans" to push such tax policy is either a poorly thought out effort or just thinly veiled partisan chicanery.

The assumption articulated in the caption below is better grounded and more thought out than this high-income-equals-being-rich assumption.  And both are hilarious.

Video: Beware the Omnipotent Government

Below is a brief and worthwhile video of F.A. Hayek. Democratic forms of government require constitutional limitations of power.  The fact such governments are in some way democratically chosen does not do away with the need to limit their power.  Believing democracies need not be limited in their powers relegates voters to a a choice of masters, not a participation in their government.  

In The Constitution of Liberty Hayek deals extensively with the indespinsable need for democratic governments to observe the rule of law, not be the a law unto themselves.

Germ-o-Phobia and Liberty

"[E]veryone is a 'progressive' by their own lights."  Thomas Sowell, Intellectuals and Society

I'm a germ-o-phobe.   I also love liberty.  Enjoy the confluence.

Progress and the status quo are primarily antithetical of one another.  Primarily because the goal at which one wishes to inch along society might well be something worth preserving or, put another way, not progressing away from.

Example: C.S. Lewis reminds us that washing the bacteria from our hands is a way of maintaining a very important status quo, the status quo of clean hands that predate dirty hands.  Every time we wash our hands we are retarding the progress of bacterial growth, hoping to regress toward the clean hands we had at one point in time before we had to interact with all those other germ-toting agents of disease we call other people in the petri dish we call society.

But regressing bacteria on one's hands and, consequently, one's community is a very progressive thing to do to.  Only a regenerate, uncouth, backwards-looking reprobate would knowingly build up and spread around bacteria in society.   Taken to an extreme, such a person could be considered a purveyor of biological warfare.

That would definitely be regressive.

(Side note: For the love of Pete please wash your hands after using the restroom,  blowing your nose, or touching anything you would not put directly into your own mouth.  If you think it is none of my business to request so much, think how many other people will have to touch the same door knobs and dollar bills that you grace with your disgusting fingers.  Come on, it's not 1802 anymore.  Don't let Louis Pasteur's life's work be in vain...) 

As Thomas Sowell points out in Intellectuals and Society, everyone believes they are progressive.  We all have an ideal for society we think best.  For self-described "progressives" that ideal is a society whose organization is primarily controlled--that is, regulated--by the decisions and planning of an elite few.

The crescendo of such command-and-control of society in the United States occurred during the New Deal of the 1930s.  The extent to which elites in government controlled everything from the price of pressing suits to how many hogs would be slaughtered while millions wallowed in hunger is what was new about the New Deal.  These drastic power grabs were certainly a break from the status quo of a primarily free market and concomitantly American free society.  And we have never washed our hands of the overreaching legacies of the New Deal.

Taking the long (and sad) view of freedom in world history, however, we need to ask: Just how progressive was the New Deal?  In this light, is such government control of society ever really a step forward?  

"Progressive" for liberty-minded conservatives, libertarians, and constitutionalists is a progressing away from the New Deal center of politics whereby state-control of the direction of the economy and society is the default setting for government policy.  Free and responsible people cooperating peacefully is the best way to organize society.  It's work every time it has been tried.  As Milton Friendman remarked, distrust of the "private sector" or "the market" is nothing less than a distrust of freedom itself, and a distrust of people to be trusted with freedom.  That's terribly patronizing and elitist, in addition to being regressive.  

Considering how America has always been the world's freest society (the New Deal notwithstanding) diminishing liberty was a terribly regressive policy, then and now.  And since the redistributive, bureaucratic model has had its tentacles in D.C. for over seventy years, at this point in time it would be very progressive to move beyond its premises and (re)embrace freedom.

To return to Lewis' analogy, if we are going to wash our cultural and political hands we have a great deal of government bacteria to wash off.  Ever since the New Deal, such infringement of liberty has been caking up like so many layers of germs eating away at liberty.  Clean hands would be nice, but at this point I'd be happy with cleaner hands.

Now go was your hands, America, both literally and figuratively.

On Pilgrims, the New Deal, and The Stimulus.

Thanksgiving is a uniquely American experience.  It is grounded in our early history, has been made an official national holiday, and is supposed to encourage us to be grateful for our blessings.

The history of why the Pilgrims had reason to be thankful to God, however, has become grossly inaccurate and reflexively been made to serve the worldview of the redistributive, collectivist Left.  It is not the proper season--yet--to crank out some Bah! Humbug! so consider the following a premature but no less appropriate Bah! Humbug! to this revisionist whitewashing of a great American tradition.

My wife and I were attempting to enjoy a History Channel presentation on the (presumable) history of Thanksgiving.  Right out of the gate we were instructed that the first harsh winter nearly wiped out the entire population of Pilgrims and that were it not for their communal living all probably would have perished. 

So the lack of private property rights and profit incentive saved the Pilgrims?  Interesting history, on the History Channel, the week of Thanksgiving.

In his excellent book, How Capitalism Saved America, in a chapter devoted to the Pilgrims, Thomas DiLorenzo notes,

"The first American settlers arrived in Jamestown in May of 1607.  There...they found incredibly fertile soil and a cornucopia of seafood, wild game...and turkey, and fruits of all kind.  Nevertheless, within six months, all but 38 of the original 104 Jamestown settlers were dead, most having succumbed to famine."

Hmmm.  Sounds like the lack of that whole private property, lack of a profit incentive, and having all things in common thing they had going caused the famine and destitution of 1607.

But wait, let's not jump to historical conclusions and use one measly man-made famine that nearly wiped out 104 otherwise industrious and adventurous people to conclude that collectivism does not work and freedom among cooperating adults is the better way to organize society, or have society organize itself, rather.  The severity of that first winter could have been the sole reason their socialist paradise did not come to fruition.

Two years later the Virginia Company sent 500 more settlers to give it another go at socialism.  Within six months 440 were dead.

After private property and profit incentive were introduced, Jamestown went from destitution and famine to sustained plenty and agricultural surpluses.  The natives began coming to the settlers to buy and trade for staples and even non essential.  Peaceful exchange wrought from division of labor, property rights, and a profit incentive made famines a thing of the past.

But all this collectivist destitution turned free market plenty predates the Pilgrims of 1620, and occurred in what would become Virginia, not Massachusetts Bay where the Pilgrims landed.   That could be why the History Channel really did not think all this worthy of mentioning when they stated collectivism and the lack of property rights saved the Pilgrims.

Well, as DiLorenzo points out, roughly half of the 101 Cape Cod settlers of 1620 were dead in a few months.  William Bradford went on to lament the cause of misery was their policy of collectivism.  The real moment of honest reflection was Bradford's admission that believing they could design a community against human nature was akin to believing they were "wiser than God."

If the Pilgrims had reason to be grateful, it would have been for throwing off of the presumptuous and disastrous belief that a utopia could be designed and implemented by forcing common ownership of the means of production and property.  Being free to produce and exchange in pursuit of their own self interests created bounty for the entire colony, and that was worth celebrating.  But, hey, I'm just shooting from the historical hip here.  I did not get any of this from the channel presumably devoted to an accurate portrayal and preservation of "History," so draw your own conclusions.

The reflexive belief that well-intended designs kept Pilgrims from suffering even worse, rather than being the actual cause of their misery, is similar to the historical framing of the Great Depression and the New Deal.   Think of how bad things would have been if FDR did not assume nearly dictatorial control of the economy is the default premise for explaining away the only depression in our history that has been remembered as "Great." The very possibility that nine years of prolonged misery, high unemployment, and perpetual economic uncertainty were actually caused or compounded by New Deal central planning does not even make it onto the table.  Like the early settlers, if Americans were left to their own devices with freedom, free markets, and property rights during the 1930s,  matters would have been even worse!

Bah! Humbug!

More recently, we are called upon to believe that had the wildly wasteful and counter-productive "stimulus" package had not been implemented, things would be even worse today.  Actual economic history and common sense matters not; we are supposed to be grateful for our 21st century planners, much like how those Pilgrims were thankful for their communal designers?  

See a pattern forming here?

Bah! Humbug!

This Thanksgiving I'll be grateful that America has always been the most peculiarly free, and therefore prosperous, society in the world, despite the efforts to paint its history otherwise.  And I'll be watching the Ohio State Michigan game and fling leftover turkey gravy at the History Channel, if anyone dares flip to it during commercials.
  
(And remember this, the first Bah! Humbug! of the season...There will be more.)

John Stossell on Friedman's Free To Choose

Here is a very good introduction of an excellent book, Friedmans' Free to Choose:

"The Options Destroyers"

"The Options Destroyers" by Thomas Sowell originally appeared as a newspaper article; it is narrated in this video:


This piece dovetails with what I recently read in Sowell's Intellectuals and Society, as well as a recent video post by the folks at Reason.

Top-down regulations, by their very nature, reduce the number of options for consumers in the market.  That's what they are designed to do: reduce the number of perceived bad options that otherwise free people might act upon.  (Soon we will no longer have the option--freedom, that is--to purchase incandescent light bulbs.)  Real life choices become fewer as a result of the near-sighted effects of reform crusaders and their vote-catching politician allies in legislatures.  What's a recent and real world example?  Oregon's state wide ban on payday loan interests rates above 36%, mentioned in a recent Freedom Lessons post.  Poor and options-strapped folks in Oregon now are even more options-strapped.

Worse still, excessive regulations introduce a third set of terms between consumers and the purveyors of goods and services.  When left free to cooperate and interact freely, consumers and businesses make mutually beneficial transactions.  That's mutual consent between two parties.  Intrusive and short-sighted regulations introduce a third party--the options destroyer--and force a third set of acceptable terms into the transaction, thus providing disincentives for economic activity.

Rent control is a good example.  Landlords are forced to satisfy both their tenants' demands and the demands of local governments.  With less profit to make there is less incentive to upkeep buildings, let alone provide new living quarters to the public.  An artificially high number of people want to rent due to an artificially low rent, and an artificially low number of apartments are available to rent.  Real shortages occur, existing buildings deteriorate, slums crop up, and commuters are forced to travel great distances past empty and boarded up buildings.

In a free market unhampered by well-intentioned busy-body do-gooders pushing intrusive interventionalist policies upon us, we self-interested people who know best about what is best for ourselves would find a way to get by just fine.

Just think about all the options we would enjoy!

If I Had To Recommend One Book...(Video)

Repeat, had to.  My one recommendation for anyone interested in freedom, and both its friendly and hostile forces, would be Henry Hazlitt's Economics in One Lesson.  Hazlitt's conversation masterpiece is oncise, grounded in fundamental economic principles, illuminated with historical examples, void of arcane economist-speak and pointy-headed graphs (Sorry, economists.  You know it's true.), and crisply written.

Line one, chapter one: "Economics is haunted by more fallacies than any other study known to man."

Here is a good introduction to the book, Hazlitt, and the enduring impact of this brief book, compliments of the Ludwig von Mises Institute:

Control Freaks

Does anyone enjoy being called a "control freak"?  Put another way, who does not shrink from thought of being one?  The mere hint of the accusation causes most socially sensitive people to tone down the I-know-better-than-you, paternalistic, patronizing attitude toward other adults that precludes their acting according to their own judgment.

Most would say, "Oh, I'm sorry about that.  Please, I beg your pardon for being a nosy nanny.  Go on about your business."

That is, of course, if you are a bureaucrat institutionally vested in the regulatory state, a vote-catching demagogue politician, or a preening intellectual desirous of imposing through the coercive power of the government your vision of reality onto the rest of us poor unenlightened proles.  In any of these circumstances deciding for individuals what one believes individuals are incapable of deciding for themselves is lauded as "progressive" and mindful of some nebulous notion of "social justice" and the common good.

The more government takes it upon itself---and we as a society ask it to take it upon itself---making decisions we individuals are best suited to make ourselves, the less free we become as a market economy, and society.  From price controls to excessive regulation to protective tariffs,  every choice that is removed from individuals acting freely and cooperatively interacting within a free market is a choice made on our behalf using coercion.

In a free society the consumer controls 100% of the market through free exchange; in a socialist state central planners control the market through the use of force.  One is voluntary and the antithesis of everything a control freak would abide; the other is arbitrary and made to order for a control freak holding the regulatory reigns of power.

From Thomas Sowell's Intellectuals and Society: 
"The fundamental difference between decision-makers in the market and decision-makers in government is that the former are subject to continuous and consequential feedback which can force them to adjust to what others prefer and are willing to pay for, while those who make decisions in the political arenas face no such inescapable feedback to fore them to adjust to the reality of other people's desires and preferences."

If only we could make those control freaks in government feel ashamed at being, well, control freaks over our otherwise free lives.

Who Said That?

 Who said this:

"The only way America succeeds is if businesses are succeeding.  The reason we've got a[n] unparalleled standard of living in the history of the world is because we've got a free market that is dynamic and entrepreneurial...That free market has to be nurtured and cultivated."

Speaker-elect John Boehner?  No.  Milton Friedman?  Nope.  Thomas Sowell?  Strike three.

President Obama said it.  The day after the the midterm election, in his televised news conference,  he said it.  And, much to my surprise and delight, he did not appear to throw up a little in his mouth right after the words, free market.  (Although, there was a significant pause there somewhere.  Could be a slight case of acid reflux...)

Begin at the 46 minute mark.  Comments follow the video:


Explanations for such a public statement from a president who gives every indication of a deep hostility to an unplanned free market can abound.  Let's entertain just three:

1. Timing.  It was said the day after the midterms.  The Tea Party influence on the results was significant, what, with all this talk and rally signage about socialism and free markets.  With all this talk of compromise and working together, it makes sense to pretend you've just read the dust cover to one of von Mises' tracts.  (It was Mises who said, "The people of the United States are more prosperous than the inhabitants of all other countries because their government embarked later than the government in other parts of the world upon the policy of obstructing business.") So It could just be prudent political posturing, or at least reflexive lip service.
2. Politics.  Surprise!  Related to #1, and probably interchangeable with it, he felt the calculating urge to drop a little homage to free marketeers on the Hill.  (All four were probably listening.)
3.  He actually believes it or at least acknowledges the historical fact that our prosperity and standard of living are the result of the level of freedom we've always enjoyed.   The progressive Left can indeed acknowledge so much and still embrace a radically different vision for the future of American society.  After all, who should be running the fate of the country, hordes of unorganized and uncoordinated free people pursuing their own self interests or the wiser-than-thous with Ivy League degrees?  That's a no-brainer, depending on who you're talking to, of course.

Actually, after considering all three possibilities I really don't care what the motivation for saying was.  Yes, forget all that conjecturing.

The important matter is that he said it.  Just as importantly is the fact that only the most strident outspoken socialists publicly denounce capitalism, individual freedom, and constitutional limitations on government that protect so much.  In America one still has to at least pay lip service to that whole freedom thing, and most times pay lip service to that whole Constitution thing, too.  As has been stressed here and will be stressed again and again, we have much reason for---dare I use the term---hope that politicians still feel the political urgency to give a public tip-of-the-hat to freedom.  This belies what their advisers and pollsters and focus groups tell them: "Americans are still hung up on being the freest people in the world.  Demagogue over it, prevaricate around it, bulldoze your way  over it, but you have to deal with it."

This is still the home field for freedom.  If we want to be the visiting team we can move to Europe and slug away there.

I wanted to discuss what follows these words, comments about the financial crises, health care, and BP but am running long.  Just remember to ask: How free is the market in health care, the financial markets, and petroleum?   But that's for another Chalk Talk.

Video: Economics In One Lesson

I'm working my way through Thomas Sowell's book, Intellectuals and Society.  Many of the points he articulates reminds me of the importance of acquainting and reacquainting ourselves with the first principles of freedom and freedom in the market.

Freedom makes sense; convoluted policies that suppress freedom do not make sense.  Society is broadly trained to accept bad policy.  Hence, we instinctively want to be free but reflexively reject free market capitalism.

Below is a very good video to explain why.  Here is a book to counter the trend: Economics In One Lesson

Voting With Your Feet

We would never tolerate paying $16 for a gallon of milk.  We would simply go elsewhere.  I'll take my wallet and use my feet to go elsewhere, thank you very little.

Way too many Americans have the opposite view of government and laws.  We tend to look past local and state governments and expect problems to get addressed inside the Beltway.   Besides local potholes and school taxes, no problem seems too small (local) for Congress.  This attitude reduces our opportunity to vote with our feet and wallet, leaving us with only one lonely ballot and a set of crossed fingers every two years.

We are simply less free when every political issue becomes federalized: we can no longer move elsewhere to escape the (over)reach of bad laws.  If, for example, enough people in Maine want single payer state-run health care, they can have it at the state level.  People can leave and people can move there.  Businesses will come and go.  An economic force is created, equal and opposite forces will react within the state of Maine.  But once the same titans of finance that brought us Social Security, Medicare, and the Post Office grasp control of health care, where can we move?

Likewise, federal bailouts of profligate state legislatures punish individuals who live in fiscally responsible states by confiscating their property and transferring said property to irresponsible states.  What's the point in living in Texas if you are going to be taxed twice, once for your own state budget and a second time for California's?  And what's the incentive for California legislatures to get things right?

The Tea Party certainly does it part to encourage Congress to step back into its constitutional role.  Expecting government to control itself from the inside, however, has its obvious limits, no matter how many Tea Party candidates breech the Beltway mote.  Like any good reform, change has to begin with the public opinion of us benighted proles.  This process begins by no longer expecting Congress to tackle every single issue, then encouraging fellow proles to see the light.  With enough public opinion and time, the holier-than-thous in D.C. will play along.

I hope you voted today.  You vote every day many times a day just by existing in a market economy.  If you enjoy the options that allow you such a high and affordable standard of living, expect similar options politically.  Our political standard of living really should not be any lower than economic one.