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Friday, September 23, 2011

Elizabeth Warren’s Non Sequitur

You can't get to higher taxes from here.

[Updated September 24, 2011]

If you spend any time on a social network, you’re bound to come across this video of Elizabeth Warren, who’s running for the U.S. Senate in Massachusetts. In her remarks she says:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Just goes to show, you can start with a valid premise and end up with an invalid conclusion.

She’s right: When you live in a society you benefit in countless ways, material and otherwise. The language you speak and think in is a social institution and would be impossible without the presence of others. So is custom, which regulates our interpersonal conduct far more than the edicts (mistakenly called “laws”) of legislatures. And the few valid ideas among those edicts had their origin in bottom-up custom. (See my “The Rule of Lore.”) How about money itself? It is also an organic social institution. Of course today money is fiat paper controlled by government, but even that system has a foundation in the institution described by Carl Menger and Ludwig von Mises.

Social Animals

So we need not deny Warren’s premise. Human beings are social animals. We should revel in that fact. Frédéric Bastiat did in Economic Harmonies:

Let us take a man belonging to a modest class in society, a village cabinetmaker, for example, and let us observe the services he renders to society and receives in return. This man spends his day planing boards, making tables and cabinets; he complains of his status in society, and yet what, in fact, does he receive from this society in exchange for his labor? The disproportion between the two is tremendous.

Every day, when he gets up, he dresses; and he has not himself made any of the numerous articles he puts on. Now, for all these articles of clothing, simple as they are, to be available to him, an enormous amount of labor, industry, transportation, and ingenious invention has been necessary. . .

Next, he breakfasts. For his bread to arrive every morning, farm lands have had to be cleared, fenced in, ploughed, fertilized, planted; the crops have had to be protected from theft; a certain degree of law and order has had to reign over a vast multitude of people; wheat has had to be harvested, ground, kneaded, and prepared; iron, steel, wood, stone have had to be converted by industry into tools of production . . . — all things of which each one by itself alone presupposes an incalculable output of labor not only in space, but in time as well. . .

It is impossible not to be struck by the disproportion, truly incommensurable, that exists between the satisfactions this man derives from society and the satisfactions that he could provide for himself if he were reduced to his own resources. I make bold to say that in one day he consumes more things than he could produce himself in ten centuries.

What’s New?

Elizabeth Warren, then, has said nothing startling. This has been the (classical) liberal view of the market social order from time immemorial. But she places what should be a mundane observation in the service of a bad cause: higher taxes. That’s a non sequitur.

Let’s stipulate something before examining Warren’s mission. In today’s society, as in Bastiat’s, great wealth can be made by what Franz Oppenheimer, echoed later by Albert Jay Nock (pdf), called “the political means.” That is, many business people (preaching the gospel of “the free market”) make fortunes from government interventions that directly or indirectly, intentionally or unintentionally, obstruct entry into their industries or limit self-employment opportunities, allowing them to earn oligopolistic rents at the expense of consumers and workers. That’s a traditional classical liberal complaint about government and its connivance with business.

But that is not what Warren means. In the video she says nothing about corporate-state privilege or the long years of intervention that amount to the “subsidy of history.” She mentions only tax-financed roads, schools, and police — three of the worst “services” precisely because they are tax-financed government monopolies. (Roads do entail a subsidy to long-distance shippers, but she seems oblivious to that.) There’s an easy remedy for State-granted privileges: repeal. But like a good corporate-liberal, she prefers regulation to repeal. And as we know, George Stigler’s theory of regulatory capture tells us that the rules will tend to be written with the regulated industries in mind, if not with their active participation. (Not that other-minded regulators would know what to do.)

“[Y]ou built a factory and it turned into something terrific, or a great idea? . . . Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along,” she says.

Produce the Contract

Has anyone seen this social contract that obligates you to surrender a “hunk” of what you produce under penalty of violence? Sorry, I don’t trust unwritten open-ended so-called “contracts” into which any advocate of government power may read conditions ex post. (The idea of social contract can be construed more sensibly. See this.) Moreover, why aren’t honest production and exchange of valuable goods counted as payment forward? Just as our living standard is the fruit of previous generations’ production, so today’s producers are helping to raise the living standard of the next generations.

Boiled down, then, Warren’s argument is that since everyone has paid taxes to provide services without which wealthy people couldn’t have made their money, they should pay more. How does that follow? She’d first have to show that they are paying too little now. She only assumes this. (See Steven Horwitz’s discussion of this matter.) That’s not good enough. And maybe the services are inferior and cost too much — wouldn’t we expect that from a protected monopoly?

She might respond that the presence of the deficit shows that not enough money is collected in taxes and therefore the wealthiest should pay more. Still not good enough. As she herself intimates, the George W. Bush years were marked by unfunded spending. That sounds like a problem of overspending, not undertaxation. Solution: Cut spending.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.