Statists, Meet Petard

Northern Virginia and the other DC suburbs are going to be hit hard by the Obama tax plan. I’m guessing that these are areas that went overwhelmingly for The One, to give him his overall Virginia victory. Here’s a good example of Mencken’s dictum that democracy would give the people what they want, and ensure that they get it good and hard. And this points out the economic mindlessness and absurdity of picking an arbitrary income level to start punishing achievement:

Besides raising tax rates in 2011 on the highest income brackets, this year’s budget would lower the deductions families earning $250,000 can make from their income.

“In my district, we have a high household income, but I would say two things about that,” Himes said. “No. 1, there’s huge diversity in my district. It includes some of the poorest families in the country and some of the wealthiest.

“And second, income has to be held against expenses. We have one of the highest costs of living in the country as well, which is problematic for all sorts of things,” Himes said.

The median sales price for a home in Greenwich, according to the real estate website Trulia, is $735,000, but that’s down significantly. Bloomberg reported in February that home sales in Greenwich, where the nation’s hedge fund industry generally lives, plunged 84 percent in January 2009 compared to a year earlier.

It’s still cheaper to buy a home in Fargo, where the average listing price is $192,436, according to Trulia. It’s also safe to say that wages are a little lower in the Red River Valley.

There is a reason that federalism is a good idea. Like a national “minimum wage,” to the degree that such a thing should exist at all, it’s ridiculous to apply a one-size fits all to the entire country. Both tax rates and wage and price controls should be left to the states, not Washington. But hey, they wanted “change.” Don’t come crying to me.

21 thoughts on “Statists, Meet Petard”

  1. It seems everyone is trying to tie two separate market downturns on the same cause. The talking heads are of the opinion that the latest down numbers are just an extension of the problems with liquidity. The real cause was the budget proposal and its analysis by investors. The market does not see any stimulus in the budget. In fact it is seen as counterproductive. This is not a left or right thing. Investors are voting with their feet.

  2. Alan, I’ve seriously thought about that. But no. The Caymans are in pretty much all economic respects a US satellite. When we go down, they come down with us.

    Further, I’m pretty sure the Obama Administration will ramp up the IRS’s “shelter war” in offshore economies.

  3. Oh, and as for the post, I’d like to see the Federal marginal tax rate at a flat, across the board 5%, just to pay for Defense, State and Justice. All the other Departments can be delegated to the State level. If California wants to keep Medicaid and Social Security at its current funding level, let ’em.

  4. I don’t understand the reasoning regarding California. If the USA is too big and diverse, isn’t California also too big and diverse? Wouldn’t you prefer further subdivisions?

    I should leave it there, because I might get a sensible answer, but I can’t resist asking two more questions. On the other side of the equation, at what point, for what functions, does the subdivision get too small? Many state borders are drawn such that a large city is right at the border, which means that states and metro-areas don’t overlap – is this a bug or a feature? (In other words, would it be better to redraw the state borders around distinct economies, if you believe economies are distinct?)

    I anticipate that the answer will be “states are what we have, states are what we have to use”, but I’m interested in what people think would be ideal.

  5. Bob,

    To answer your first question, “Yes”, California probably would be better off with strong intra-State Federalism, but I don’t even expect State-level Federalism let alone County-level Federalism. Mainly though I was just using it as an example of a State that would probably enact policies a lot more Socialized than I want.

    To address your “Right Size” question, “too small” really depends on the program at hand. I always prefer the “smallest possible jurisdiction” to handle an issue. If it’s a local school then there’s no need for any State or Federal involvement – only the local kids go there, so it’s a local issue. National Defense should be handled nationally.

    There’s even a good argument for a National Department of Roads, Ports and Rails – as the national trade network should be standardized to allow for minimum barriers to trade. But the funding should be market driven (aka, use tolls).

    To address your last question, the ideal situation would probably allow for fluid and overlapping political borders. A Department of Water might cover an entire river basin and watershed, while the Department of Education would be abolished in favor of hundreds of local districts. States would only be relevant for purely arbitrary matters, such as Court & Police Jurisdictions. Borders would be organic, flexible and occasionally redrawn as rational need demands.

    But we’re never going to get that.

  6. To address your last question, the ideal situation would probably allow for fluid and overlapping political borders. A Department of Water might cover an entire river basin and watershed, while the Department of Education would be abolished in favor of hundreds of local districts. States would only be relevant for purely arbitrary matters, such as Court & Police Jurisdictions. Borders would be organic, flexible and occasionally redrawn as rational need demands.

    But we’re never going to get that.

    Actually, we do get that within the states. Water districts often cross county lines. School Districts typically cross city and county lines. Only in the case of law enforcement are such political boundaries typically followed for jurisdiction.

    I do think you knew that, but so long as the “Bob”s of the world remain ignorant, we won’t get rid of the expanding role of federal government.

  7. Brock says it well. The principle is well established in the most successful, long-lived firms. You put the management authority at the lowest, and most forward (towards the customer) position possible, because people acting as managers are the most effective and efficient when they are as close to the problem as possible, and when power is matched as closely as possible to accountability. You only create layers of upper management — colonels and general staff officers and brigadiers and committees — when you absolutely must, when there are problems that are insoluble at lower levels.

    Why anyone believes government should run on radically different principles, with even picayune decisions bucked up to czars and Cabinet-level appointments for every conceivable function of government, is beyond me. I can only imagine it comes from Caesarist delusions, wishing for some mighty Lord who can cut Gordian knots caused by the squalid squabbling and necessity for painful compromise that so often runs through human management endeavors.

    It might be a good idea, too, if we kept a race of supermen on tap, frozen at the North pole, humanoids so much wiser and nobler than ourselves that they wouldn’t dream of abusing absolute power. We could thaw one out and hand him the leash around our necks whenever we realized we were acting badly.

    To answer Bob’s substantive question: the principle behind states is, first, the belief of the Founders that larger republics inevitably self-destructed through a “bread and circuses” degeneration of public morality, since the constraining forces of shame and public honor were weakened by the increased anonymity in huge polities. Kind of like how the hugeness and anonymity of the Internet brings out the inner asshole in people.

    The second, and more important principle. was that people of similar origins and cultures should be allowed to run their own community, to the extent possible. Separate but equal, ha ha.

    It’s hard to say that either well applies now. No state is less than enormous, by 18th century standards. Although cultural distinctions remain, they are far weaker, and few of us identify primarily as Californians or New Yorkese, instead of as Americans. So the modern state is a pretty arbitrary subdivision, like a French Department.

    That doesn’t make it worthless, as variations do emerge. California is very different, politically, than Alaska or South Carolina. There’s a lot to be said for allowing, even encouraging, these political differences, the “fifty laboratories of democracy” theory, so that popular political theories can be put to the empirical test, and people can vote with their feet which solutions they like best.

    California is indeed experimenting with the Marxist theory that people work primarily for the intrinsic satisfaction of doing so, and that you can therefore pay no attention to the motivating or demotivating nature of the tax code you impose. Californians are indeed responding by voting with their feet. This has some nearby states both anxious and gleeful, as they anticipate picking up talented ex-Californians, but fear absorbing talentless rats fleeing the sinking ship. The story of American attitudes towards Mexico writ large, ironically.

  8. Actually, we do get that within the states.

    Sure, but they very rarely cross State lines even when it makes a lot of sense to as Article I, Section 10 of the Constitution forbids it without Congressional approval. To use an example local to me, there’s simply no reason that Minnesota should have a say in how the Port Authority of New York and New Jersey is operated.

    My concept of ideal Federalism is “the smallest possible jurisdiction of directly effected parties” would automatically have jurisdiction over a program or activity, and that third parties could only “butt in” by showing that they are also directly effected.

    To use the water district example, towns in my county in New Jersey should be able to incorporate the New York towns that are upriver of them – but only for water purity purposes. Schools would not be directly effected and therefore remain local.

  9. I’m very short on time, but thanks for the interesting replies. Perhaps you could also have non-geographic opt-in for some functions, like Medicaid, so that “marxists” (whatever you want to call us) could unify at the national level even while you right thinking people experiment with smaller divisions. It would also be interesting if you could address specific governmental functions as well: Some national functions seem indispensable to me. For example, the FDA comes in for a lot of justified criticism lately, but the FDA at its finest made the US much better, and even today’s FDA is the envy of much of the world. Sticking to the theme of health, the CDC also comes to mind as something that I wouldn’t want to relegate to the states. And then we could start a laundry list of non-health related national functions, such as science as a whole through the NSF (not to mention NASA, NOAA, etc). The Dept of Commerce might seem unnecessary, but does NOAA (run by Commerce)? Gotta run. Thanks.

  10. I hear you, Brock. I just wanted to point out that there is precedence to your concept of government that exists today. Much in the same way Carl explained how it works with corporations.

    I live in Texas, where the state boundary is large enough to see many examples of what you suggest. I’ll admit to not appreciating some of the difficulties for smaller north east states. Indeed, when I think of the watershed issue, I think of Arizona and California.

  11. People often talk about NY city and New Jersey in this context (that’s one of the places I was thinking of). A friend in Albany and a friend from Newark were recently arguing whether NYC should be part of NY or NJ (nobody wanted it) but there is a third option: google for the proposal to make NYC the 51st state!

  12. You’re absolutely right about having non-geographic opt-in for functions without geographic relevance, like health care and pensions, Bob. You’d want to make these associations voluntary, of course. And detach them from general tax funding, make them depend on satisfying their adherents enough to get them to voluntarily pony up the money necessary to run them.

    You do realize you’re talking about massive Thatcher/Reagan privatization of government functions, right? Replacing mandatory, monolithic, centralized association (government) with voluntary, diversified, decentralized associations (firms)?

    Turn to the Dark Side, Bob!

  13. You do realize you’re talking about massive Thatcher/Reagan privatization of government functions, right?

    Heh, yeah. I was going to point out that if Medicare was opt-in (which I’m fine with, by the way, as long as the taxes that pay for are opt-in too) it would be no different than any other free market participant in the insurance space. That’s fine with me (as long as it never receives a bailout).

    But in all fairness to Bob and the issue, there are a host of practical and ethical reasons a State-level jurisdiction should use tax money to defend an absolute level of welfare below which we will not let our neighbors fall. The problem is when you try to use the law to specify what sort of welfare they receive. That never works and imposes huge costs on society. Just cut them a welfare check once a month once they quality and let them buy housing, health insurance, etc. from the free market like everyone else.

  14. There are a host of reasons against it, too, Brock. The most obvious being that if it doesn’t well and truly suck to be poor, then people aren’t motivated to avoid it. And it’s politically impossible to set your “welfare” levels somewhere above “fatal” but below “well and truly sucky,” so that you avoid whatever ethical blemish there is in letting your idiot neighbor die of his idiocy without corrupting the motivational structure of your society.

    We all have built-in “fairness” and “empathy” instincts which let us make these decisions when we make them personally, with people we know well, and using our own money. We know whether Uncle Frim with the drinking problem, who is about to lose his home, deserves our charity, and when to cut him off with a little tough love. Furthermore, if we do goof that decision up, only Uncle Frim and we ourselves really suffer.

    But we mortals do not have the ability to sit down and rationally construct computerizable algorithms, laws, that will calculate whether millions of people about whom we know zero in advance deserve our charity, and exactly how much to give them. Surely anyone who’s actually had to decide the exact level of charity to give a friend or family member in a hole appreciates how very difficult that decision is even when you know all the data. Imagine making the decision by a computer program you set up ahead of time! That’s nuts. But that’s what state-run charity amounts to.

    I suggest it’s one of those ideas that work well only in the fantasy land in which all humans are perfectly rational robots, and every ripple and bump in our experience is perfectly predictable.

  15. “I suggest it’s one of those ideas that work well only in the fantasy land in which all humans are perfectly rational robots, and every ripple and bump in our experience is perfectly predictable.”

    This is where Technocratic principles break down. Intellectual elitists are highly adept at formalizing plans within their lab space of expertise. These ‘experts’ quickly grow frustrated and perplexed by all the real world external forces and attitudes that serve to undermine and alter the original plan in unintended ways. So, generally the response is to grow dictatorial in order to enforce the kind of strict adherence to the plan they originally outlined. The plan is perfect, the plan doesn’t need to change, and it is the people that must accept the plan — as is.

  16. Carl, I think it’s a fairly simple decision. Welfare is a bribe to keep the poor people from breaking our stuff. Personally, I think it’d be better, if the minimum wage were scrapped and government just paid said welfare bribe to anyone who works a certain number of hours. Eg, pay $2-4 per hour for each hour of work up to 2000 hours.

  17. And it’s politically impossible to set your “welfare” levels somewhere above “fatal” but below “well and truly sucky,”

    In China or India, maybe. In the developed countries the gap between those two levels of subsistence is big enough that you can target it with some confidence.

    But we mortals do not have the ability to sit down and rationally construct computerizable algorithms, laws, that will calculate whether millions of people about whom we know zero in advance deserve our charity, and exactly how much to give them.

    Although imperfect there are some good rules of thumb. For instance:
    1. Are there dirty bums sleeping on my lawn? Charity it too low.
    2. Are the poor buying flatscreen TVs and PlayStations? Charity is too high.

    You won’t get it right the first time, but you can fine tune the system over time.

    I suggest it’s one of those ideas that work well only in the fantasy land in which all humans are perfectly rational robots, and every ripple and bump in our experience is perfectly predictable.

    I suggest that your expectations are too close to “perfect” and have strayed from “good enough.” I fully understand that the powers of government are a blunt instrument that will rarely get the level of welfare “just right.” But I do believe it’s possible to get it close enough for government work.

    The key is responsible government charity is to get rid of all the wonky programs (like Section 8 Housing Vouchers) that hide the true cost and benefit levels of the program and to instead just cut people a check (one with income tax taken out if you like). That way the charity number can be expressed as a salary-equivalent number that the electorate will immediately understand in context and henceforth vote up or down.

    Also, what Karl said.

  18. Thanks for the response, gentlemen. No one wants to call me a heartless bastard? Where are your lacks of manners? This is the Internet!

    Josh, I would say you have paraphrased The Road to Serfdom and the founding philosophy of libertarianism. No argument here.

    Karl, you’re right. But why should government run the bribery program? Is there any evidence it does a better job than the centuries of private charity and entry-level jobs shoveling shit that preceded it? It’s not like the solid citizens aren’t aware of the need to keep the peasants from revolting, and there aren’t any obvious collective-action problems, as when we need a bridge built or a power plant put up in somebody’s backyard.

    How about if the government sticks to its traditional role in this game of allowing nearly anybody to volunteer for the military, and earn social honor and a modest pay by standing in the rain rigidly for hours, following simple orders (“left! right!”), and getting shot at. They do this well. Welfare, not so much, cf. Cabrini Green and similar horrors. Let’s leave charity to individual effort, voluntary associations, or at most local government, who have some chance of directing it appropriately. What the leftists call “community based.” We can encourage it by keeping the tax deduction at the Federal and state level.

    Brock, you’re hopeless. All the reckless confidence of the Best and Brightest. If you were really talking about something brand new — going to Mars, moving most workplaces into virtual reality so people stop commuting, genetic engineering of the species for optimization — I might say, well, give it a shot. Nothing ventured, nothing gained. Maybe your clever plan will work.

    But charity for the poor? C’mon. Poverty and the underclass have been a problem from the time of the Romans on down, and empathic and thoughtful people have always described the obvious “solutions” you describe. You could be quoting Cicero and Pliny. Civilized peoples have attempted to implement those solutions for not merely centuries, but millenia. So far, the results are poor. We’ve still got poor people. Still got an angry and bitter underclass. There were homeless people on the streets of Pompeii in 70 AD, and they’re on the streets of San Francisco in 2009 AD, arguably in no smaller percentages, and with no obviously improved route to a better life.

    In short, unless you can point to some radically new plan containing either technology or philosophy that hasn’t been seen in the Western world in the past 2000 years, I’m going to suggest the theorizing here is sterile, more or less the perennial philosophical complaint that bad luck comes along just about as exactly often as good luck, and wouldn’t it be grand to use the power of our wealth and technology to change that fact?

  19. Carl,

    There are a number of innovative programs out there that produce ridiculously better results than the mess of government programs implemented by the government, and at far lower cost.

    Just two examples:
    1. Giving homeless shelter attendees a free phone number with voice-mail inbox. They don’t have a phone, but they have voicemail which employers can reach them at. This is very cheap using open source software and has helped many, many people get jobs.

    2. Giving welfare a recipients a non-transferable debit card into which $20/day is deposited as long as they apply for benefits. This is cheaper and more efficient than the welfare programs run by the government and (in the jurisdiction it was tried) it’s enough to make sure they can get a room to sleep in for the night and one good meal.

    These have been tried. They work. The programs are expanding. If adopted by government they could radically lower costs (and thereby taxes) and improve welfare. The problems to adoption have nothing to do with the effectiveness of the program and are instead hindered by the shibboleths of government unions protecting jobs and the status quo (because when you automate all these systems there’s no reason for 95% of the employees to continue collecting a paycheck).

  20. Fair enough, Brock. Those actually sound like plausible innovations. Take advantage of new tech, easily scaleable (either way) if they work or don’t work.

    And I love the part where it eliminates the jobs of lots of social parasite meddlers who sit around and tell other people what to do. I would like to know how you expect to get any Democrats to vote for it, though.

    If it were on offer, I’d consider supporting it. But I would hire the Salvation Army or Goodwill to run it, and I would fork over at most some base level funding from taxes that evens out the fluctuations in private donations, which would be expected to pick up most of the tab.

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