The Great Fiction

by on July 11, 2011 at 7:31 am in Current Affairs, Philosophy | Permalink

Catherine Rampell, Bruce Bartlett, and Matt Yglesias are all pushing the chart below from a paper by Suzanne Mettler. According to this gang, people who use, for example, the mortgage interest deduction or who have a 529 college savings program are willfully ignorant about how they benefit from government (Rampell’s terminology).

As Bastiat said, Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”  What Rampell et al. want to do is to make people believe in this great fiction. But there are always taxpayers and taxeaters, even though government has so wormed its way into every organ of the body politic that it is sometimes difficult to tell which are which. (Indeed, part of Mettler’s point is that the government shell game of ‘hide the subsidy, hide the tax’ is often designed to obscure taxpayers and taxeaters.)

Nevertheless, there are dividing lines. In a laissez-faire world we don’t get rid of 529 programs, instead all savings, not just savings for college, become tax-free. A 529 program is not a government program like food stamps, it is the absence of a government tax. (N.B. I am not taking a position here on the best tax structure.)

People who use 529 programs and who think that they have not used a government social program are not willfully ignorant, they are demonstrating a healthy if fading appreciation of the distinction between civil society and government.  What Rampell et al. implicitly imagine is that the natural state is slavery and any departure from that state a government benefit. Thus, if the government taxes your saving for a college education less than your other savings, you should be grateful for how government has benefited you and your children.

And if the government doesn’t jail you today, you should be grateful for how government has granted you the benefit of liberty.

This is the attitude of a serf not an American.

http://yglesias.thinkprogress.org/wp-content/uploads/2011/02/program.jpg

Gabe July 11, 2011 at 7:44 am

I vote for default. Anyone who lends money to this government deserves to lose their money.

Rich Berger July 12, 2011 at 2:24 pm

Could this thing reach 300 comments? Keep the pot boiling.

Rich Berger July 12, 2011 at 2:27 pm

She forgot to list roads – aren’t they government programs? How about dog licenses, and drivers licenses, too? Hasn’t everyone who has been stopped by a policeman for a traffic violation also benefiting from a government program? Government, it’s everywhere you look.

Loren F. File July 16, 2011 at 7:59 am

So if I lend U.S. Dollars (i.e. promissory notes against the U.S. Government) to the U.S. Government and they pay me back with more promissory notes against the U.S. Government have I gained or lost any treasure?

lff

AndrewL July 11, 2011 at 7:47 am

Spot on! It upsets me when people argue that tax cuts have to be “paid for”, for this very reason. That kind of logic suggests that the government owns 100% of your income and whatever they don’t tax you on is a government benefit that the government had “pay for”. It makes no sense.

steve July 11, 2011 at 10:57 am

AndrewL, does it follow that there should be low or no taxes regardless of the amount of government spending. Does the desired level of taxation vary at all with spending policies in your view? Or is your view simply that taxes and spending are separate issues and you wish to reduce/eliminate either one whenever an opportunity arises regardless of the consequences for the solvency of the federal government? If that is your position, do you believe there is no connection between the government’s solvency and the welfare of the people? Or do you see that there is a connection but your moral views against government are more important than the utlitarian consequences of the policy choices that those views require?

Anyway, enough of me being cute. My point is that if you seriously answer these very honest straightforward questions (which you probably won’t based on my experience with the type of person who posts the kind of thing you just posted) it will be clear that you have a philosophy that people who care about normal things would reject.

Anon July 11, 2011 at 11:57 am

Yes, let’s seriously answer the “very honest straightforward questions” from the guy who believes you are a dishonest idiot who won’t answer because of his “experience” with the “type” of person who posts “the kind of thing you just posted” (“a comment I disagree with”).

I think he means black people.

Anon July 11, 2011 at 12:03 pm

steve, does it follow that there should be high spending regardless of the amount of government revenue? Does the desired level of spending vary at all with taxing policies in your view? Or is your view simply that taxes and spending are separate issues and you wish to increase either one whenever an opportunity arises regardless of the consequences for the solvency of the federal government? If that is your position, do you believe there is no connection between the government’s solvency and the welfare of the people? Or do you see there is a connection but your moral views favoring government are more important than the consequences of your utilitarian policy choices?

Anyway, enough of me being cute. My point is that if you seriously answer these very honest straightforward questions (which you probably won’t based on my experience with the type of person who posts the kind of thing you just posted) it will be clear that you have a philosophy that people who care about normal things would reject.

Tom July 11, 2011 at 12:15 pm

It does Seem that AndrewL has the better thought out position, certainly the more honest.
Steve, as for your questions that actually don’t really follow, nor are cute, why don’t you give us your answers first. Maybe they will sound as ridiculous as I image and you’ll learn something from yourself.

AndrewL July 11, 2011 at 12:27 pm

I did not argue about what the ideal level of taxation is. I am arguing about how taxes should be thought of.
Do we (as taxpayers) work for the government? or does the government work for us?

I argue that the Government works for us.

g July 11, 2011 at 6:52 pm

Which doesn’t change the fact that your post is almost nonsensical. The idea that tax cuts have to be paid for says absolutely nothing about the government ownership of your income, in fact the most common way to pay for tax cuts (when you are not a republican), is to cut spending. And that is all the phrase connotates, that taxation must equal spending at some point. As Milton Friedman said, ‘to spend is to tax’.

And to the other posters on this thread. What is wrong with you?

Morgan Warstler July 11, 2011 at 8:10 pm

wrong. tax cuts simply mean the government has decided not to take your money by force. as in, you having the money is better for whatever reason.

govt. SPENDING has nothing to do with equation. If the government could only spend what it took in (no debt, no borrowing), we’d have either a far smaller government, or a far, far more cost-efficient government.

So either lower taxes OR public employees paid so little, there is no natural constituency for higher taxes past cash transfers.

Dan Dostal July 13, 2011 at 2:02 pm

False dichotomy. Third option. We are the government.

Mike July 11, 2011 at 12:41 pm

You’re not “cute” Steve. You’re a mug, condescending punk who conceals insult in seemingly civil, fallacious arguments.

I can’t speak for Andrew, but I’ll speak as someone who agrees with his statement. We were founded as a nation of limited government and maximal liberty. The federal government has no power not specifically given to it. Direct taxes were prohibited in the original constitution, and taxes paid by the states were proportional to their population. The Senate was elected by state legislatures. This wonderful system created a minimally sufficient federal government whose powers and funding were controlled.

We now have government off its leash and, as Andrew says, tax revenues are considered as belonging to the government by default. Any tax cut is viewed as depriving some party in the “shell game” of benefit to which it has become accustomed, dependent, or entitled.

From an economic standpoint, the only efficient actions of government are those which properly deal with market failures such as public goods, externalities, natural monopolies, etc. Sticking to public goods, without loss of generality, we decide through our political process what level of public goods to provide and draw upon tax resources to meet those funding requirements. But the funding would and should be intrinsic to the optimal public goods decision. Clearly not all admissible projects that are public goods can be funded. We know that the excess burden of taxation increases at an increasing rate with the marginal tax rate.

Taxes impose costs on society, and they are prudent inasmuch as the benefits exceed the costs. Cutting taxes reduces the excess burden. There is also the opportunity cost of income which in private hands would contribute to private savings and investment.

Note well that most of the items on this list confer strictly private benefits, and there are little to no positive externalities. There has been much talk about positive externalities of home ownership and college education, but little evidence to support it. There’s even less evidence that any benefits justify the cost.

Indeed, seeming “benefits” like the mortgage interest deduction distort the buy vs. rent decision, resulting in overallocation of resources to single family housing. It also reduces labor flexibility, encourages private debt, contributes to contagion. It raises house prices, but spreads the costs over many years and provides a small rebate.

The mortgage interest deduction is a rebate for dancing to the government’s tune. This is the subtle form of control which the serf-brain of people like you cannot comprehend. The government takes away 40% of your income, gives you back 10% when you do as they wish, and then you THANK them for it, grovelling at their feet.

You have the soul of a slave.

MyName July 11, 2011 at 12:47 pm

1) Someone drops a useless flamebait comment at the top of a thread.

2) Bored people respond.

3) ???

4) Profit!

Shay July 11, 2011 at 3:55 pm

“We were founded as a nation of limited government and maximal liberty.”
Except for…. [begin list here, to stay in theme, I suggest you start with *actual* African slaves]

Tax cuts, refer to cuts from the standard tax rate, or a baseline rate of taxation. Any amount of taxes lower than this baseline, must be accounted for, with regards to spending outlays (to which we have become accustomed, entitled, or dependent upon).

I am personally accustomed to, entitled to (by nature of citizenship? by being a taxpayer?), and dependent upon public protection from a host of maladies, from crime to disease, to corporate malfeasance, to natural disasters.

That’s a nice suite of benefits. Let’s be a little more careful before we casually bandy around about the souls of slaves and the free.

Mike July 11, 2011 at 9:52 pm

There is no such thing as a “standard” tax rate, and there’s no reason to believe that prevailing tax rates are optimal.

A free man should NEVER become accustomed, dependent, or feel entitled to any public expenditure. If you own a dry cleaning business outside a military base, you might be put out of business by Base Realignment and Closure, but 1) you have no right, entitlement, or reasonable expectation for continued operations, 2) government and the public have no duty to remunerate you, and 3) you bemoan your unexpected misfortune but how quickly you forgot your windfall gains!

Public protection from maladies, crime, and disease, justice for torts, and general responses to natural disasters are PUBLIC GOODS, and hence are within the realm of proper government action, both under the Constitution and economic theory. So be a little more careful and learn the definitions of public and private goods before you casually scold me for recognizing the obvious signs of an enslaved soul.

mulp July 11, 2011 at 3:34 pm

AndrewL is arguing the US Constitution was a mistake and the confederation where wars and other acts of congress were funded with debt that would be defaulted on was the best system of government. Any State that didn’t want to pay to support wars that other States wanted, weren’t paid for, because States should get to be free riders. Why should New England defend the South?

And the US Constitution has just been one huge theft of New Englander wealth to pay for stuff the South wants.

Those damn Southerners snuck in those first two enumerated powers of Congress just to steal from the real Americans.

robbl July 11, 2011 at 7:49 am

Come on Alex;

that is a complete quibble. What about the mortgage deduction? What about Pell grants? What about food stamps? What about most of the other things on the list EXCEPT the 529 deal?

Ron Potato July 11, 2011 at 9:01 am

The mortgage deduction is the absence of a tax, and house prices are much higher because of government-stoked demand by GSEs, credit, and other programs. Pell Grants are nice, but its #8 on a misleading list, and the list price of university education is much higher in the first place /because of/ the government-stoked demand. Who said anything about food stamps not being a government program? It’s last on the list and has only 25% “willful ignorance”, irrelevant.

Andrew' July 11, 2011 at 10:07 am

The question is do homeowners et. al. ACTUALLY cost someone else something. And no, it doesn’t count to say that they cost you something because you THINK they should pay equally. You have to really do the accounting and that is the last thing the government would want to do.

Mo July 11, 2011 at 4:45 pm

You have three people with identical earnings and family situations. two who own homes and one who rents, one has a mortgage and the other owner has their home paid off in full and the renter pay rent equal to the PITI of the owner with the mortgage. Why is the person with the mortgage the one who has the lowest taxes of the three? It seems like the government is encouraging bad behavior, as the person without the mortgage would be better off taking a mortgage on the property and investing the money trying to get a return >66% of their interest rate.Also, why should the owner pay lower taxes than the renter?

Bernard Guerrero July 11, 2011 at 12:53 pm

Same logic works fine for the mortgage deduction, LLTC, etc. Also, the GI Bill is part of payment for services rendered. I know I had it very clearly in mind when making the decision to sign up.

Tim July 12, 2011 at 6:32 pm

All how you look at it. I could look at the military as socialized defense, the largest welfare program in the world, or a massive work/study program.
Unfortunately they don’t release comparisons of the ratio of ex-military and ex-welfare recipients and how many end up with college degrees and how many end up in prison. So I don’t know which is a better use of my tax dollars.
I could look at the government as a traitorous enemy or as a group made up of every US citizen. I chose the later.

TheophileEscargot July 11, 2011 at 7:50 am

Um, that’s a bit silly.

Suppose you’re a slave who gets one bowl of thin gruel per day, every day.

Now yes, it’s immoral and abhorrent for someone to be enslaved like that.

Nevertheless, if the slave says “I never get fed”, he’s not making a true statement. There’s something odd going on if he actually believes a statement that isn’t true.

Alex seems to be trolling a bit lately…

Ron Potato July 11, 2011 at 9:07 am

You seem to be assuming that you are a slave.

If the slave says “I am not a slave”, he is not making a true statement. There’s something odd going on, if he actually believes a statement that isn’t true.

derek July 11, 2011 at 9:32 am

Right now it is the Obama administration saying that they are not fed enough.

Ron Potato July 11, 2011 at 9:41 am

Ah, it turns out We are the Masters, so we must give our civil Servants more and more, to be good to them, even if we poor masters end up with less than the servants.

Foo Fighter July 11, 2011 at 12:04 pm

Ron your straw man arguments represent nothing but your imperceptive biases. You’re not teaching us anything except how unhelpful caricatures of the other side can be. Please stop, for the sake of reasonable dialog.

Tabarrok, same goes for you.

AMeyer July 11, 2011 at 12:16 pm

You’re right, your ad hominem arguments are much better.

Foo Fighter July 11, 2011 at 1:15 pm

Thanks for noticing, AMeyer. The secret ingredient is truth.

Passing By July 11, 2011 at 7:51 am

” In a laissez-faire world we don’t get rid of 529 programs, instead all savings, not just savings for college, become tax-free.”

Does your laissez-faire world include taxes, or do we somehow get along without government? If your world does include taxes, then why should “all savings” be “tax free”? Perhaps you have some reason to believe that societies generally under-save; or at least, that the USA does? And you want the taxpayers to subsidize saving with a special exemption? Why?

Ron Potato July 11, 2011 at 9:09 am

Does every penny the government lets you keep qualify as a “special exemption”?

swedenborg July 11, 2011 at 12:32 pm

The exemption for X is an increased tax burden for Y, even one penny.

JHi July 11, 2011 at 12:37 pm

Not if the exemption for X represents less spending.

The increased tax burden for Y is a choice to have an increased tax burden for Y.

g July 11, 2011 at 7:03 pm

To spend is to tax.

Tim July 12, 2011 at 6:34 pm

If the you have to give two pennies to a private corporation when the government could have provided the same services for one penny. Are you more free for having spent a penny more?

Ryan P July 11, 2011 at 9:24 am

Actually, the standard “optimal tax” result is also a zero tax on savings — that money is already taxed by the income and sales tax, so the way to “tax everything the same way” is to not tax savings.

Andrew' July 11, 2011 at 10:09 am

It doesn’t have to be tax free in order to not be double-taxed.

Ryan P July 11, 2011 at 10:35 am

As it happens, yes it does, if by “tax free” you mean “no tax on savings”. For any positive tax on savings, the tax on earning today and spending tomorrow is greater than the tax on earning today and spending today.

Ed July 11, 2011 at 12:34 pm

No tax on “savings” is a ploy so that people who WORK have to pay all of the taxes while people with money get all of their income tax free. Even though most of government goes to protect rich people. Courts, police, military – all pretty much are protecting the wealth and property of the rich!! The poor have nothing to “protect”. Rise up against the corporate overlords people!! Rise up against the rich and their toady apologists!!! ( that’s you, Alex T!)

Unburdened Water Spout July 13, 2011 at 1:44 pm

It is clear that Ed does not understand economic theory. Of course, neither does Alex Tabarrok, so he fits in quite nicely.

Benny Lava July 11, 2011 at 7:52 am

As I was reading this I thought boy was drivel full of invectives towards emotion. Calling Harvard grads serfs? What terrible writing, this must be an Alex post. Lo and behold, the weakest link makes his stamp on blogging mediocrity again. Happy Monday.

Ron Potato July 11, 2011 at 9:10 am

Right, how could a college graduate possibly have the /attitude/ of a serf? Why would they believe the opposite of their actual station in life?

Dan July 11, 2011 at 9:54 am

The post made a lot more sense and was much better written than your comment thereon.

Benny Lava July 11, 2011 at 6:11 pm

Alex, is this what you’ve come to? A sock puppet on your own blog? How pathetic.

Morgan Warstler July 11, 2011 at 8:16 pm

Alex’s intellectual serfs are simply the incompents folks who can’t cut it in the real world, a real private market. Dem leadership is 100% a cast of losers who figure they get the most for themselves by whipping up a dumb incompetent mob.

And you Benny Lava, appear to meet that description.

taybul July 11, 2011 at 9:45 pm

…says the moron partisan hack. How you could say that of only one party, and especially the party sans Palin, Bachmann, Jindal, etc. is a real laugher. Go back to sleep.

Alan Gunn July 11, 2011 at 7:58 am

This argument has been making the rounds since the 80′s, and it’s wrong. The government interferes with people’s lives and subsidizes politically favored things by giving them money for doing what it wants. Whether it gives them the money by writing them checks or by letting them out of a tax that others don’t have to pay is a trivial detail. To argue, in effect, that those who point this out are claiming that “everything belongs to the government” is either disingenuous or stupid. This rhetoric appeals to the worst inclinations of both political parties: The left likes it because it makes some forms of messing with the economy seem quite harmless. The right likes it because they are so besotted with “not raising taxes” that they forget what few principles they had about freedom and “level playing fields.”

Anon July 11, 2011 at 9:13 am

You’re either disingenuous or stupid.

Ryan P July 11, 2011 at 9:25 am

Good argument — informative, convincing, and well-spoken.

Passing By July 11, 2011 at 7:58 am

AndrewL–”It upsets me when people argue that tax cuts have to be “paid for”, for this very reason. That kind of logic suggests that the government owns 100% of your income and whatever they don’t tax you on is a government benefit that the government had “pay for”. It makes no sense.”

Andrew, the logic is simple. The general tax rate required to fund governemnt at its current level of spending is X%. If you want to give the avocado farmers, or whomever, a tax break then tell us how you’ll make up the difference … what spending will you cut or what other taxes will you raise?

TallDave July 11, 2011 at 3:01 pm

I think the objection is to the description, not the logic.

“Paying for” a tax cut is like “saving money” by buying something on sale.

g July 11, 2011 at 6:37 pm

Either way it is a stupid point. One way we pay for a tax cut is by cutting spending. The phrase in no way implies anything about the governments ownership of anything, only its need to match revenue and spending.

wophugus July 11, 2011 at 8:00 am

In the laissez fair world *everyone* is taxed less (or not at all), it just isn’t the case that in the laissez fair world everyone is taxed a certain amount but some special people get taxed less in order to subsidize whatever it is they are doing. That’s inequitable taxation both to a progressive and a libertarian, and I don’t think there is anything wrong with both of them seeing it as a subsidy for the person getting taxed less. If not, you enter into the strange philosophical world where it is slavery when congress gives me a hundred dollars to buy a home and freedom when they tax me a hundred dollars less because I bought a home. That’s the same policy with the same goal and the same effect! No libertarian should support either version of that market distorting crap.

John Personna July 11, 2011 at 8:00 am

Isn’t the accounting equivalency between cash grant and tax credit well established? Except when we like the tax credit?

John Thacker July 11, 2011 at 10:15 am

In the same sense that the accounting equivalency is established between tax credit and “tax rise on people not eligible for the tax credit.”

Right Wing-nut July 11, 2011 at 10:33 am

There is a HUGE difference between a “tax credit” and an income tax deduction. If I make $0 and have a dependent child, the standard deduction on my income will never result in my receiving money from the government. The “tax credit” will.

Ryan P July 11, 2011 at 10:43 am

That’s not the question. The question is, what’s the difference between writing someone a check for $100 and taking $100 off of their tax bill. That tax credits and tax deductions are different doesn’t mean that either of them is different from one sort of subsidy or another. (Note that the way a tax credit & a tax deduction differ from each other is that a tax credit is equivalent to a straight subsidy and a tax deduction is equivalent to a subsidy that varies in size depending on the recipient’s income.)

I have to say, I’m kind of startled by Alex’s claim that the difference between standard subsidies and subsidies via the tax system is clear-cut.

TallDave July 11, 2011 at 3:02 pm

Is it really surprising there’s a difference between giving and not taking?

To put it another way, would it seem unfair if I argued that there’s no difference between saying I just gave you $100 and I didn’t just take $100 from your wallet?

Ryan P July 11, 2011 at 3:19 pm

That’s not the question. The question is, would it seem unreasonable if you said there’s a big, obvious difference between saying “I’m going to take $X from you with my left hand and give you $100 with my right” and saying “I’m going to take $X-100 from you”? And the answer is, yes, that would seem unreasonable. And yes, for all values of X it would still seem unreasonable.

Brian July 11, 2011 at 4:38 pm

“Is it really surprising there’s a difference between giving and not taking?

To put it another way, would it seem unfair if I argued that there’s no difference between saying I just gave you $100 and I didn’t just take $100 from your wallet?”

You oversimplify the issue. The story goes something more like: you and I agree to split the cost of a meal. Is it unfair to argue that there’s no difference between me eating 3/4 while paying for 1/2 and me eating 1/2 while paying for 1/4?

Philip W July 11, 2011 at 8:00 am

Alex, I’m afraid that this sort of rhetoric is Grover Norquist’s bread and butter, and consequently is no help to maintaining well-ordered liberty in America.

Nor do you need to resort to any such high-flying defenses of freedom to show why Yglesias and company are wrong to make the inferences they do from this study. The survey question’s wording is whether you “use a government social program.” In colloquial usage, people just don’t think of tax subsidies as “social programs,” and filling out your taxes in a particular way doesn’t feel like “use” to most people. So the results of this survey are pretty meaningless right from the get-go.

Jonm July 11, 2011 at 8:02 am

How much would we have to pay to stop Alex posting?

Ted Craig July 11, 2011 at 8:14 am

I hope you’re using the Royal We.

Anon July 11, 2011 at 9:16 am

How much would we have to pay to stop you commenting?

Fan of Anon July 11, 2011 at 10:36 am

+1

g July 11, 2011 at 6:40 pm

really?

Stefan July 11, 2011 at 11:08 am

I’m going to side with Jonm on this one, and here’s some general advice to libertarians: whenever you unironically use the language of serfdom or slavery to describe the status of contemporary Americans, you immediately lose everyone in your audience who isn’t 100% committed to your very narrow strain of political belief. You come across as at best idiosyncratic, and more likely as absurd.

I’m not making any value statement about the content of your beliefs. You may very well be right. I’m just letting you know that this is a good way to immediately lose any argument in the important sense of failing to effectively promote your view. For example, with this and other recent posts, Alex has placed himself in the “ignore” category for much of the audience. Perhaps that’s a price that he feels is well-justified for the benefit of speaking his true thoughts on important topics. So be it.

Relatedly — and perhaps more controversially — libertarians might want to think harder about the fact that this sort of language is very popular among political factions in the U.S. that actually do wield power, and those factions are in no way friendly to the larger libertarian project. It amazes me that libertarians think the best way to achieve their ends is to pick fights that reek of culture war with liberals.

So go ahead and attack me now. But keep in mind that I’m someone who would actually like to see libertarianism have a greater impact in U.S. politics. Just not if I have to endure any more lectures about my serfdom…

Tom July 11, 2011 at 12:25 pm

“you immediately lose everyone in your audience “. I stopped reading after that. You’re too narrow minded.

MyName July 11, 2011 at 12:58 pm

How is it “narrow minded” to point out that if I (or most non-extremist readers) wanted a diet of worthless flamebait and overheated rhetoric, I’d be over at http://www.foxnews.com.

ladderFF July 11, 2011 at 2:18 pm

Turns out slavery stops being slavery and stops being wrong as long as the slaves are well-fed, well-entertained, and best of all loudly insist that they aren’t slaves. You sheep bleating, but we all get shorn. It sucks.

Foo Fighter July 11, 2011 at 2:58 pm

Democracy is like that. For better and worse.

Matthew July 11, 2011 at 3:32 pm

I’m not going to attack you. You’re wrong, and your position is going to be proven wrong by history in the near future as unaffordable, do everything government collapses under its own weight. It is not a matter of “political beliefs”, it is a matter of reality, as we are already seeing in California, Illinois, Greece, Italy and other harbingers of the end of an unsustainable political philosophy and system. But there is no reason to attack — reality trumps all else, and the end of this particular chapter of history is well within sight.

lol July 11, 2011 at 9:56 pm

And don’t forget China. They’re reeling too.

Stefan July 11, 2011 at 5:21 pm

Yep, I will continue loudly to insist that I am not a slave. I am very definitely not a slave.

Of course,it isn’t the merely the rhetorical excess here that is so alienating to us sheep. It’s that life continues to get better — and more free — for entire classes of people who seem to be pretty much off the libertarian radar. This is why hardcore expressions of libertarian rage seem not just a bit oddball (I’m a world-traveler, business owner, and a serf?) but actively offputting.

I know that libertarians often try to paper over this seeming indifference towards forms of injustice other than taxation by pointing out that they are the only ones speaking with a clear voice on matters of great significance to the downtrodden: drug prohibition, incarceration, excessive police force, unnecessary foreign adventures, etc. And this would be a very good point! If not for the fact that posts like this one make all the rhetoric ring desperately hollow.

As for whether I’m wrong — well, tax levels aren’t particularly high or unsustainable by historical standards, so I’m not sure why it is that we’re inevitably headed toward armageddon. Nor does it seem obvious to me that libertarianism is the one solution to our genuine fiscal problems. What does strike me instead is how much hardcore libertarians resemble hardcore environmentalists — it’s all doom and gloom unless the rest of see the light. This makes sense, though, because hardcore libertarianism is shot through with far more culture war than is commonly admitted.

Matthew C. July 11, 2011 at 7:21 pm

No, this economic system is going to collapse, regardless of whether Ron Paul gets elected or not.

Why? Because the ratchet only moves one way, until collapse. Look at the trajectories, from concentration of wealth (through gaming the system by the super-rich), falling levels of employment, level of regulation, amount of debt, public faith in the system, unfunded pie in the sky promises of free health care and retirement, FedGov expenditure versus income. All of this says collapse (beginning with currency collapse, probably within 3-5 years or less).

TimK July 12, 2011 at 9:37 am

Are you that same guy who was predicting the end of the world a few weeks ago?

Dan Weber July 11, 2011 at 11:18 am

I am collecting Bitcoins for this purpose. Send contributions to 1JBanYJPv2J273dqtVxm1feZB64f7M3zRt

jonm July 11, 2011 at 12:58 pm

Tempting, but http://marginalrevolution.com/marginalrevolution/author/tyler-cowen actually has its own RSS feed. Small steps …

nnostrum July 11, 2011 at 8:05 am

Tyler Cowen must be prosecuted for calling his intellectual rivals “gang” and “serf” and the particularities of his charges shall be determined by the ICC, for Tyler has great contempt for government.

Martin July 11, 2011 at 8:07 am

The only way I see this argument working is when you separate taxes and tax deductions from subsidies. This is rather an artificial distinction as the sole reason for doing this through the tax code is that this is the cheapest way of doing it. Would your opinion be any different when those people would’ve been taxed on those savings instead and received a subsidy from the proceeds?

Now a debate could be had when it comes to the proper role of government, but that is a different question altogether. The existence of tax expenditures is due to the fact that we see a role for government in those areas and that is best carried out through the tax code. Recognizing this, is not due to the assumption that Americans are slaves. You’re conflating recognition that this is a g-program with acceptance of the program’s existence.

nnostrum July 11, 2011 at 8:07 am

The prosecution concerns Tyler because he is the editor-in-chief of this popular blog on which Alex has been free riding for years.

Michael July 11, 2011 at 8:08 am

Well said, but I believe you miss the point of the complaint. The true fiction (pardon the expression) is that many middle class whites (notably those in the tea party) believe that they bear the greatest burden of government yet receive the least in benefits. They feel put upon and exploited. Mettier’s study supports the idea (I’ve seen other stuff with similar findings) that in fact a large number of this group is NOT paying their fair share. So we might look at it this way: there is a fixed amount that the government will require each year; in a completely fair world, that fixed amount would just be divided by the number of households in the country. Instead, for a variety of reasons, many households pay less than that number, others more, and the ‘willfully ignorant’ are those who think that they pay the greater share but actually pay the lesser. A large part of our tax structure is effectively transfer payments from young, childless, renters to older, home-owning parents, and yet it is members of the latter that often feel the most put upon. There’s a fitting dinner party analogy available here (about the guy who complains that he’s paying for the wine he didn’t drink…) but I don’t have time to work it up…maybe someone else can…

ladderFF July 11, 2011 at 9:30 am

yeah ok maybe so but wouldn’t it be a lot easier if we just kept our hands to ourselves? That’s Alex’s point, that freedom is the answer, that people used to speak of it as a birthright, and it’s sad that it earns him and others so much vitriol.

Foo Fighter July 11, 2011 at 3:04 pm

Freedom is actually not the answer. We’ve always been social creatures, slaves to the rest of society, since before he concept of freedom even existed.

Whether you believe in genesis or evolution, there was never that perfect state of natural freedom that libertarians love to espouse, except in the imagination of course.

ladderFF July 11, 2011 at 3:11 pm

Freedom and society are not opposed. I never posited such a primordial state of affairs, and I never advocated freedom for individuals in a band of gorillas either.

Ted Craig July 11, 2011 at 8:11 am

How is the government taking less of your money a benefit? Most people who rent don’t make enough money to pay income taxes, so you’re really not getting an edge over them.

The General July 11, 2011 at 9:24 am

“Most people who rent don’t make enough money to pay income taxes…”

Wait, what?

John Thacker July 11, 2011 at 10:13 am

This is fairly close to true in many parts of the country. It is, of course, not nearly true in New York City.

Urso July 11, 2011 at 10:49 am

This is completely wrong in every part of the country.

Ted Craig July 11, 2011 at 10:33 am

According to the National Low Income Housing Coalition, the average income of a renter is below $30,000 a year.

The General July 11, 2011 at 12:40 pm

And this has what to do with what?

Ted Craig July 11, 2011 at 9:37 pm

From The Atlantic:
Consider households earning less than $30,000 a year. They make up 45% of all taxpayers, but fully 80% of NOFITs.(No federal income tax)

UserGoogol July 11, 2011 at 12:22 pm

MONEY. IS. FUNGIBLE.

There is no difference between giving money to someone and refraining from taking it from someone, either way you end up with the same result. It’s all just accounting conventions.

Tom July 11, 2011 at 12:31 pm

Depends who owns the money in the first place. When the Gov’t gives me money, it is money I did not have before. When they do not take it, it was my money already. This only makes sense to someone who beleives the gov’t does not already own everything.

UserGoogol July 12, 2011 at 12:33 pm

Prior ownership is kind of a sunk cost. As such, it doesn’t really make sense to take into account prior ownership of wealth in order to consider which future distribution of property is optimal. Individual slices of time need to be judged on their own merits.

mc July 11, 2011 at 8:25 am

I expect more from MR than this dribble…

ziel July 11, 2011 at 9:12 am

It’s “drivel”

Ted Craig July 11, 2011 at 9:14 am

Dribble? Do you mean drivel?

anonymoose July 11, 2011 at 8:27 am

Are you actually an economist? Do you even understand the concept of the subsidy? And even granting your argument re: tax credits- which are clearly a government granted subsidy to encourage behavior- over 50% think the student loan programs are not government programs. Which is wrong by definition. I notice you didn’t pay attention to that while you were putting yourself on the cross so that lady liberty might pay some attention to your pathetic musings.

Michael July 11, 2011 at 8:31 am

Ted, I’m just saying there are two ways of looking at this, one Tabbarok’s way, and the other the way he criticizes. I’m ignoring the ‘why do I benefit from the government taking my money’ because, frankly, I’m just not that whiney. Comparing even the most heavily taxed Americans to Russian serfs is, if taken as anything more than early -morning rhetoric, willfully stupid. As for: “Most people who rent don’t make enough money to pay income taxes, so you’re really not getting an edge over them” — I just don’t know that that’s true. Remember that a large number of renters are not uneducated minorities but young, college-educated urban singles and couples. I do doubt that they’re a majority of the renting class, but I’d bet they’re a very sizable minority.

Ted Craig July 11, 2011 at 9:24 am

Michael,

First, don’t use dismissive terms like “whiney” if you want to be taken seriously in a debate. It makes it seem as if you lack a reasoned response and that you are instead resorting to name calling.

Second, if you want to argue about facts, present them.
“Most” means “the greatest amount.” So, a sizable majority is the opposite of “most.” Here’s some actual facts from a Harvard demographic study:

The disparity between owner and renter income gains is even
more dramatic. During the economic slowdown in the early
1990s, median renter incomes fell so sharply that they failed to
regain even pre-1990 levels by the end of the decade. With the
mild recession early in the 2000s, renter incomes declined
almost 10 percent in four years. Meanwhile, median owner
incomes in the 1990s not only returned to their previous peak
but also weathered the short recession in 2000 without major
setbacks. As a result, the gap between median owner and
renter incomes increased in real terms from $22,500 in 1990
to $26,700 in 2004.

The General July 11, 2011 at 9:44 am

Where in that study are renters’ income taxes mentioned?

I liked the section touting the wealth of homeowners due to their accumulated equity. A bit dated, no?

Zach July 11, 2011 at 8:34 am

This is silly. It’s clearly less laissez-faire to have the government in charge of defining what is and isn’t taxable than to simply tax income at a given set of rates. Subsidizing savings is government directly in the markets to discourage spending relative to savings. A consumption tax would be even better. Obviously income and consumption taxes have market effects, too, relative to alternatives, but hidden tax subsidies seem the least ideal.

Jay July 11, 2011 at 8:40 am

They need to run the poll again. And change the wording to… have you used a government social ENGINEERING program?

I bet many of those numbers at the top of the list would plummet. I’d make a distinction between ‘social program’ – something designed to be beneficial to all participants and ‘social engineering program’ – something designed to encourage the populace to act as central planners see fit but may make you worse off (see underwater homeowners and bankrupt, jobless, college grads and dropouts).

James B. July 11, 2011 at 8:46 am

I am happy to say that I’m 46 and have never used any of those programs. I’m a renter and worked my way through a state college without taking any loans. Laid of twice, but never took unemployment

Noah July 11, 2011 at 8:55 am

Well, in addition to the tax credits you mention, the paper listed Pell Grants, student loans, unemployment insurance, veterans’ benefits, the G.I. Bill, Medicare, Head Start, Social Security Disability, Supplemental Security Income, Medicaid, welfare, subsidized housing, and food stamps.

Those are benefits that are not dependent on the level of taxation.

John Thacker July 11, 2011 at 10:13 am

Yes. But the percentages are indeed different on those. Most people realize that those sort of benefits are benefits; the disagreement comes on the tax credits and cuts.

Of course these numbers aren’t independent, so many of the people who got one might say that they got “some social benefit” but actually be thinking of another program.

People do seem to be fooled by the fiction on student loans, though there it is government student loan proponents who like to pretend that it’s a free lunch.

Similarly to student loans, pretty much anyone who got a home loan that was conforming got some amount of government subsidy through Fannie and Freddie, but again we like to pretend it’s a free lunch. (Until the defaults happen.)

really? July 11, 2011 at 8:55 am

I don’t know how you can consider yourself an adult when, after having lived at the pinnacle of human existence for your several decades up until now, you immediately adopt the terminology of slavery to describe the tax system. The point is simple–it is necessary to have taxes to have civil society. If you want no taxes, please go to the DPRC. The Rampell chart merely highlights that many people who benefit from lower taxes than they otherwise would (that is, who assert circumstances that cause their effective rate to be lower than it would be under flat rates) are not aware of that benefit. I do not understand how you transition from that simple point to “the attitude of a serf”-are you going to fight a freedom war to be free from taxes?

The General July 11, 2011 at 9:29 am

The cost of my uniform was tax deductible, so therefore I am using a government benefit program?

really? July 11, 2011 at 9:57 am

TG,

Are you not aware that civilians can’t deduct the cost of their work clothes?

My father took advantage of the benefit you describe during his 20 years, and I don’t think it’s bad policy. But it certainly is an additional form of compensation.

Tom July 11, 2011 at 12:37 pm

They can if the clothing can’t be worn out as regular clothing. Firemen, plocie and other people have no problem deducting specialty clothing. Be carefull not to wear those welding glasses to the beach, or you’ll lose that write-off.

TimK July 11, 2011 at 9:58 am

Yes, of course!

Ron Potato July 11, 2011 at 9:32 am

If the rightful tax rate is 100%, but is tempered down by the mercy and expediency of our overlords, and the government has a plenary right to spend, tax, and regulate anything, then yes, that is the attitude of the serf.

TimK July 11, 2011 at 10:12 am

Ron, the government is us – you remember “by the people, for the people….

“We” decide what services we want from our government, and then a responsible “we” would raise taxes to pay for those services.

What is happening is that we are uninformed and don’t even realize that we are beneficiaries of the government programs we passed into law and then start making silly claims that we are being enslaved – by ourselves, no less!

We live in a democracy, and within the boundaries of the constitution, the majority rules. You can’t opt out of those laws that you don’t approve of; that’s not how democracy works.

But it’s just schizophrenic to vote ourselves benefits and then refuse to pay for them.

Ron Potato July 11, 2011 at 11:24 am

That is the mythology of democracy, but that just means the majority can outvote the minority and even enslave them. Which is why you see resort to principles of reason and religion, such as in the form of “civil rights”, or “human rights”.

In the end, it comes down to who are in positions of authority, Who determines “within the boundaries of the constitution”? And also in the end, it comes down to who are in positions of natural power: you can opt out of the laws that the government is unable to enforce.

In fact, USG today is not a pure democracy or even an egalitarian republic. The civil service bureaucracy, the press, the universities, special factions and voting blocs from environmental groups to oil lobbyists, and the judiciary, are the instruments of power.

So, a democratic Proposition Against Same-Sex Marriage is overridden by judicial action unappealable to the democratic majority, while a Join the EU vote is put up six times until it passes, and then no more votes. If the legislators step out of line, they can be shamed and defamed in the press, while they lose their votes and money that came from wealth and activist organizers, not a free-thinking democratic majority.

So, I personally didn’t vote for these policies, the actual majority didn’t vote for these policies, and they are not “within the boundaries of the constitution”.

TimK July 11, 2011 at 1:20 pm

No, you can’t enslave the minority. The constitution forbids that.

Nobody ever claimed that democracy is perfect, but it is certainly, without any doubt, the best form of government that exists.

(Or do you disagree?)

The judiciary determines the constitutionality of laws passed by the majority, and we have always agreed to abide by their (certainly, imperfect) decisions.

There will always be jockeying for power and influence in any society, but the rules in our democracy are clear and have been followed, more or less, for a couple hundred years.

Thank goodness!

Anything else would be anarchy.

TallDave July 11, 2011 at 3:06 pm

The constitution only means what people agree it means.

That’s why, for instance, it required an Amendment to ban alcohol, but not marijuana.

Matthew July 11, 2011 at 3:35 pm

“it is necessary to have taxes to have civil society.”

It would be good if you would provide evidence for controversial statements under dispute.

amazed July 12, 2011 at 12:15 am

Seriously dude? Who pays the cops and the judges?

Fucking idiot. I feel dumber for responding to this.

J Thomas July 12, 2011 at 7:09 am

The trouble is, for many people this has become a moral issue.

If government is morally wrong, like slavery, then it deserves an abolition movement and if necessary a civil war to end it. And you can’t argue that this is impractical, because it’s immoral to argue for practicality in moral issues. There was nothing practical about the US civil war, but everybody knows that without it we would have slavery to this very day.

Apart from moral issues, I like the idea in general of short quick feedback loops better than long slow feedback loops. And government tends to give us long slow feedback loops. So does insurance.

So for example, people learn not to do crimes better when they get punished immediately every time. Immediate negative feedback is the most effective way to learn not to do things. What can be more immediate than do a crime and immediately get shot? But government police usually fail to catch criminals — they repeat the crime 30 to 300 times before they get caught. Then they get a long, slow trial process, and then maybe spend years in prison with other criminals. What kind of learning experience is that?

So, with or without government, maybe we’d do better to shorten the feedback loop. If you want somebody in jail, you ought to be able to pay to put them in jail. Don’t wait for government to collect the taxes to pay for the jail, and catch the victim by accident, and go through a complex adversary process. Instead, when you get kidnapped and held, they can give you a note to say which rich or powerful person you have offended. You find out right away what you did to get this to happen, and how much they’re willing to back up their indignation with dollars. It doesn’t have to be a long sentence, even a few days in a private jail can persuade somebody not to be so offensive again.

I wouldn’t say that’s a good system, but it would have some big advantages over the “justice” system we have now.

Martin July 11, 2011 at 8:58 am

Just wanted to note that it is interesting that Ted defines a benefit as getting an edge over someone else or another group.

@James: I hope you were not expecting praise.

Ron Potato July 11, 2011 at 9:28 am

“Edge” or proportion was the basis of the comparison in the first place. Who benefits more but feel they benefit less.

The middle-class, college-going home-mortgagers are the basic tax-paying center of the country. Do you think the poor pay more or receive less benefits? Do you think these little deductions and grants compare to the benefit that the large class of Wall Street and Government leeches receive?

Ted Craig July 11, 2011 at 9:28 am

From Dictionary.com: ben-e-fit something that is advantageous or good; an advantage.

Anon July 11, 2011 at 9:38 am

It is odd when people do not understand the meaning of basic words, when dictionaries even use the same definitions.

It’s from the philosophy that says an “advantage” cannot be “good” (bene). To be good, everyone must be disadvantaged, and equally so.

Martin July 11, 2011 at 10:06 am

Ted, when you benefit from something, your relative position changes, but so does your absolute position. It is therefore not required to define a benefit wrt others when you can define a benefit wrt yourself without the benefit.

I find that interesting as I do think it tells me something about your view.

Do recall that these were your words:

“How is the government taking less of your money a benefit? Most people who rent don’t make enough money to pay income taxes, so you’re really not getting an edge over them.”

It is a benefit because you now have more money. The mere fact that this subsidy is distributed through the tax code rather than through some other way does not make it any less of a subsidy. Arguing against it would be tantamount to arguing against the concept of income.

Ron Potato July 11, 2011 at 10:14 am

So the government benefit programs that reduce the relative position of taxpayers by transfer payments to net-taxeaters are actually examples of an unfair “edge”?

If tax cuts improve the absolute position of the economy by encouraging growth, they are actually a government “benefit”?

Ted Craig July 11, 2011 at 10:39 am

No, you don’t have more money. You just don’t have as much money taken from you. It is still more than someone who pays no income tax, since any number is larger than zero. Granted, you started out with more, but we’re talking about taxes on income, not income.

Lord July 11, 2011 at 9:27 am

You can attempt to redefine the income tax as a spending tax, but that doesn’t make it so. If it is an income tax, then these should be taxed since they are income. If you want to change it into something else, you need to argue for the reasons to do so. Redefining words to mean what they do not is not productive of anything.

Jeremy July 11, 2011 at 9:28 am

The point of Rampell et al. is not that the upper-middle income recipients of 529 plans ought to be grateful to the government for this tax exemption. Instead, the point is that they simply ought to realize they receive preferential treatment (or, from the perspective of a free state of nature, avoid punishment) and, serf/Galt mindsets aside, revise their opinions of their moral deserts vis-a-vis their poorer countrymen.

Ron Potato July 11, 2011 at 9:55 am

So the people who pay at the 28% of a large salary, should feel they are paying as much as people who pay 15% of a small salary, or people who pay 0% of nothing, because they get some minor tax adjustments and other benefits from social engineers trying to manipulate them into certain behaviors?

Where is the labor and cash for these social programs actually coming from? Do these payers want the programs in the first place, or would they prefer a lower, simpler tax rate?

Norman Pfyster July 11, 2011 at 9:36 am

I think the response to Social Security benefits gives a clue as to the responses as a whole. How could 44% of beneficiaries not think they were participating in a government social program? My guess is that about 44% of people believe they are just getting back money they paid in, which means they think of a “government social program” not as just getting money from the government, but getting “unearned” money from the government. That probably explains the responses to tax credits, student loans and veteran benefits. The responses to food stamps and government subsidized housing are just puzzling. When 25% of food stamp recipients don’t know they are participating in a government social program, it makes me question all of the numbers in the survey.

figleaf July 11, 2011 at 9:40 am

“But there are always taxpayers and taxeaters…”

By this logic, of course, it’s idiotic to buy fire insurance as well because there are always insurancepayers and insuranceeaters as well.

And sure, you could whine that one is not obliged to purchase fire insurance in the same way one is obliged to pay taxes, and so insurance isn’t a categorical evil the way taxes are.

Except, of course, that even in your most cupidic anarchy all mortgage companies will stipulate purchase of fire insurance with a rigidity indistinguishable from coercion.

Nor, I would add, is this a trivial case. My father lives in a part of southern Appalachia that is considerably closer to anarchy than I’ll ever feel comfortable. Specifically his area isn’t served by the privatized Rural Metro Chimney Savers organization that sat and watched Gene Cranick’s house burn because he hadn’t paid a $75 premium.

Instead his rural neighbors have traditionally relied on a local volunteer fire department. Which would be gloriously libertarian and anarchic and all. Except that the volunteer fire department has been dominated by a single, notoriously physically aggressive family for several generations. (Hey, it’s a *voluntary* organization, buddy, and they don’t volunteer to let you join them unless they’re friends of yours.”) Now unlike their semi-privatized Rural Metro brethren they’ll do their best to save your chimney even if you haven’t voluntarily contributed to their firehouse fundraisers.

But when my dad moved to the area 41 years ago he got a no-kidding “courtesy visit” from the fire chief and family patriarch who hemmed and hawed politely and suggested what a good thing it was that his organization was around because they could keep track of when people weren’t home and golly isn’t it surprising how many people’s houses catch fire for no reason at all and that the VFD was sure they could count on his generous support to make sure that never happened to him.

My dad said the communication was crystal clear, that everyone in the valley knew it (and still knows it.)

According to you, Alex, that simply can’t happen because only government is evil and the closest my dad’s local VFD comes to “government” is the fact that as a 503(c)3 non-profit they’re tax free and that they’re also eligible to apply for various grants for training and equipment purchases.

And yet despite being not only private but *entirely volunteer* unless and until a much (much) larger and better-organized entity comes in from the outside (and in economic terms population density has only recently increased to the point that such an entry has become likely) they’ve nevertheless behaved indistinguishably (but not inextinguishably!!!) from government. Even more so than the commercial Rural Metro Chimney Savers who operate in adjacent unincorporated areas. And, though I know you’ll find this anathema, they behave even more like a “government” than the entirely, 100%-taxpayer-financed Seattle Fire Department. Who some years ago showed up at the house I now own to put out a fire, on a Christmas morning no less, at the exact moment the homeowner was dialing 9-1-1. (The firehouse is only a block away and a fireman who was raising the flag out front had seen the first tendrils of smoke and sounded the alarm.)

Not to put too fine a point on it, Alex, but I live a hell of a lot more “free” as a taxpayer in Seattle than the families in my dad’s virulently “live free or die” unincorporated community ever have. And likely ever will.

I keep coming back to this over and over, Alex, and disagreeing with you on the same point: you seem only concerned about coercion by government entities but are somewhere between willful denial and gleeful endorsement about isomorphically identical coercion by private entities. You repeatedly wet your pants over costs imposed by government (I’m looking right now at a notice from the public water utility saying I need to hire a plumber perform and certify an annual backflow test on my hydronic heating system) but practically jizz in your pants when private banks collude to jack up bank card interchange fees.

I strongly suspect this is because you’ve always lived entirely cocooned in the shelter of government, and have never lived in areas (like my father’s) or in demographic subcultures (like the homeless/hippie/druggie subculture I came of age in) where what amounts to organized crime… or even disorganized crime… spontaneously emerges to perform roughly the same functions as government. Only in extraordinarily more arbitrary, less accountable, more violent, and socially- and economically-inefficient forms.

I’ve had friends cracked on the head by cops, and I’ve had friends cracked on the head by bikers. And guess what, Alex? There’s a difference: police chiefs are elected. Bikers never are. And yeah, I know you libertarians say I get only one vote so I shouldn’t even bother to vote for the police chief.

But you know what? You get exactly zero votes for the biker chief. I get exactly one vote for the Seattle mayor and maybe another for the fire-district levies. My dad gets exactly zero votes for the VFD chief in his valley and exactly zero votes for funding the VFD.

And you know what else, Alex? Turns out that one vote makes a surprising amount of difference.

You know what else? I know you’re a big-shot economics professor and all that. But maybe you should take a class in the economics of cost avoidance, abatement, and mitigation. Because a lot of the stuff I’m talking about here — between public and private “government” amounts to the most efficient *reduction* in freedom. Like all occupations of economic niches government, or “government” is spontaneously self-organizing. And as long as there are people like bikers who are more willing to die violently than you are, there’s always going to be *something* that resembles “government” and thus something that imposes inefficiencies in freedom. In my personal, first, second, and third-hand experience government inefficiency in freedom is almost never the greatest inefficiency in freedom.

Failure to recognize that economic and social reality, and to deal with it like a grownup instead of some kind of pothead, makes you more than a bad economist, it makes you a bad person.

Oh, as for Bastiat? “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.” No, that’s real-world anarchy. Government instead is the great fiction through which everybody endeavors to live with the least violent, inefficient, and costly imposition on themselves.

What totally kills me is that you libertarians practically tattoo “There ain’t no such thing as a free lunch” on your foreheads! You’re going to get government no matter what! Because at its most fundamental “government” amounts to an economic niche, and because almost by-definition economic niches attract economic actors, imagining everyone would just avoid occupying that niche out of the goodness of their hearts and for the benefit of their fellow man is just… asking for a free lunch! There ain’t no such thing.

And since there ain’t no such thing the question becomes what’s the least inefficient way to organize it. And again, in my first, second, and third-hand experience anarchy just means the bikers or their VFD equivalents take your lunch.

Screw that.

figleaf

Jeremy July 11, 2011 at 9:46 am

“what amounts to organized crime… or even disorganized crime… spontaneously emerges to perform roughly the same functions as government”

I call this the Law of Conservation of Government.

Great post!

John Thacker July 11, 2011 at 9:52 am

Specifically his area isn’t served by the privatized Rural Metro Chimney Savers organization that sat and watched Gene Cranick’s house burn because he hadn’t paid a $75 premium.

That wasn’t a privatized fire department. That was a public, government-run fire department. It is, however, the government-run fire department for the city contained within the rural area that city dwellers pay taxes too, not Gene Cranick. His rural area doesn’t have a Volunteer Fire Department. People who live outside the city have the option to pay the premium, and he chose not to, so that public, government-run fire department let his house burn, rebuffing his attempts to offer them as much money as it would take for them to put it out. Have to follow the rules, of course.

A volunteer or privatized fire department would never have done that. At the very least, they would have gladly taken Gene Cranick’s extra money that he offered in order to put out the fire now.

Only the government would choose to lose money now in order to teach someone a lesson. If Gene Cranick had had a VFD, his house would not have burned down. If there were a privatized fire department, his house would not have burned down.

John Thacker July 11, 2011 at 9:55 am

The fire department that let Gene Granick’s house burn was a public, government-run fire department of the nearby city. They are the ones who let his house burn because he hadn’t paid them the premium ahead of time, and he didn’t belong to the city.

A privatized fire company, even if they wouldn’t do it voluntarily like most VFD, would at least have been greedy and shortsighted and taken his offer of lots of money right then in order to put out the fire. Only a governmental body would let his house burn to the ground to teach him a lesson, and because those are the rules and they can’t break them.

Your example is the opposite of what you think it is.

Foo Fighter July 11, 2011 at 3:34 pm

Well there should have been a free market competitor in his area that did offer that service. Market failure.

figleaf July 11, 2011 at 6:47 pm

“…there should have been a free market competitor in his area…”

Bwahahah! Yeah, right! A rural area that’s too disorganized and sparse that it can’t afford one organization capable of fielding firefighting equipment that easily runs north of $100,000/unit can always afford two? We’re not talking about lawyers here, or economics professors, where the startup cost amounts to a new cellphone contract and a 2nd-hand desk.

J Thomas July 11, 2011 at 7:16 pm

Which doesn’t keep it from being a market failure.

There are people who want to say that market failures can never happen. They are fools.

Foo Fighter July 11, 2011 at 3:42 pm

Also if you really believe a private company would have accepted genes money you’ve never heard of health insurance and pre existing conditions. You don’t even know how much he offered: $76?

figleaf July 11, 2011 at 7:01 pm

Interesting data point about the entity that let Cranick’s house burn, but not germane to the general case.

But my apologies for assuming Cranick’s case was identical to the 100% private companies that offer commercial subscriber-only service to unincorporated areas near (but not in) the four-way stop my dad’s neighbors call “town.” Instead it was only similar: despite being a private service if you’re not a subscriber they absolutely will sit there and watch your house burn to the ground. Actually that’s not true. If you’re not a subscriber they won’t even come watch. As As Foo-Fighter says, below, healthcare insurance providers operate on the exact same business model.

But at least, unlike the VFP in my dad’s valley, they won’t actively torch your house if you don’t “voluntarily” contribute to their volunteer department.

figleaf

ladderff July 12, 2011 at 10:46 am

Are you stupid? What do you think the IRS will do if you don’t contribute to: the war on drugs, the war on “terror,” free hand jobs by TSA employees, the redecoration of Libyan cities, federally funded abortions, payments to people you’ve never met and never will, payments to people who would hate you if they did meet you, needles for junkies, police to make sure those in need of a kidney die instead of buying them from those with an extra, three million prison cells and counting, bridges in Alaskan wastelands, EEO officers, “farmers” who get paid to not sow, and on and on and on and on?

Yeah, it will be worse than burning your house down: they drag you away and stick you in a cage. And if they have to burn your house down to do it, they’re fine with that too.

The only difference between your firefighting example and the government’s scheme for the same is, as you said, voting. And if you think that matters, you’re a fool. No amount of verbiage or secular prayer will make the likelihood of your vote affecting an actual outcome any higher than it is.

Your example is not on your side. Nowhere did you mention how effectively this fire cartel puts out fires, or what they charge relative to the alternative. What we call the “government” is just the winning cartel. Part of the reason it won is good advertising. They used to sell their product as divine right; now it’s “democracy.” (An improvement? I’m willing to say that maybe it is.) All the libertarians are really trying to say is that we should acknowledge that when we compare different kinds of institutions.

J Thomas July 12, 2011 at 2:10 pm

The only difference between your firefighting example and the government’s scheme for the same is, as you said, voting. ….

Your example is not on your side.

You two make it look pretty bleak. Government is bad. Self-appointed government is no better.

I say, a pox on both your houses.

Government attracts bad guys. OK, and no government attracts bad guys who make government. I ask libertarians how they stop that. They say they will educate people not to do it. Then they say if an armed gang tries to start a government, they will make a bigger better armed gang to stop them. But they won’t do anything bad themselves, because they’re the good guys.

I say it’s spinach, and I say the hell with it.

Dan in Euroland July 11, 2011 at 9:56 am

Summary?

Andrew' July 11, 2011 at 10:16 am

“But there are always taxpayers and taxeaters…”

Figleaf: “By this logic, of course, it’s idiotic to buy fire insurance as well because there are always insurancepayers and insuranceeaters as well.”

No, there is no “logic” in Alex’s statement of fact. You are projecting.

Foo Fighter July 11, 2011 at 3:39 pm

Read the definition of logic again and come back to the semantic part of your argument. But good summary.

Mine would be shorter. Private action is at best comparable to government action but at least you have a tiny say in government.

figleaf July 11, 2011 at 7:19 pm

Fair enough: “Only morons, potheads, and, evidently ivory-castled urban libertarians think that if you get rid of government nothing else will fill the same niche. It will. Only with radically less Pareto-efficiency.”

figleaf

ladderFF July 11, 2011 at 10:33 am

What an asshole.

Andrew' July 11, 2011 at 10:41 am

“There is no free lunch” is not an opinion, it is a law, it just is. Libertarians don’t have claim to it. It works for everyone.

That government is the most efficient means of obtaining your goals is an opinion. I’m not saying it’s wrong, but it is an opinion. Government is monopoly. That’s another fact, not opinion. Again, not a value judgment. There might be some things for which monopoly really is the most efficient. From what I’ve seen of the justice system I have doubts that it is more efficient than some alternatives people could come up with.

J Thomas July 11, 2011 at 3:19 pm

“There is no free lunch” is not an opinion, it is a law, it just is.

I wouldn’t call you stupid to believe this, since lots of people say it without thinking about what it means.

There are lots of free lunches. Somebody’s likely to come eat your lunch whenever you aren’t ready to make it too expensive for him. And you might pay more to stop him than he does, but that isn’t the point is it?

Maybe the saying can be salvaged. “Usually there’s no such thing as a free lunch.” “On average, there’s no such thing as a free lunch.” “There’s no such thing as a free lunch for the average citizen.” They all lack that false zing.

I prefer the chinese version.

“A man can wait a long time with his mouth open before a piece of roast duck flies in.”

John Thacker July 11, 2011 at 9:48 am

I would be interested in seeing how many government employees view themselves as “benefiting from a government social program.”

TimK July 11, 2011 at 10:23 am

I’m not sure I understand.

Are saying that if you work for the government and receive a wage that you are on a government social program?

Am I on Citibank’s “social program” when I get my pay check?

Norman Pfyster July 11, 2011 at 3:56 pm

The fact that veteran benefits are included in the survey list seems to imply that someone thinks they are a social program and not compensation.

Sbard July 11, 2011 at 3:59 pm

It’s not an unreasonable position. If you work for the government, your paycheck comes from tax revenue and you are a net beneficiary of government programs. I would similarly classify those who work for a contractor on a project funded by government grants. Hell, as a grad student, my stipend and expenses are funded by my boss’ federal research grants. Sure I pay income taxes on what I earn, but the money I earned came from the taxpayers’ pockets in the first place.

TimK July 12, 2011 at 9:31 am

The question isn’t whether the gov’t pays you; the question is whether that payment is compensation for work performed or part of a “social program”.

really? July 11, 2011 at 9:49 am

I wonder if laissez-faire world is closer to every-day-is-saturday-and-I-can-eat-as-many-doughnuts-as-I-want-without-getting-fat world or the magical Imgonnagettapony land.

I bet that there is nothing important in your life (and, given the increased prevalence of emissions in my lifetime, I’ll include oxygen) that you receive without the involvement of large institutions. I’ll believe you want to live in laissez-faire world when you succeed in obtaining favorable terms on an individual basis in a negotiation with monsanto, a local utility, a home insurance company, a cell-phone company or a credit card company.

Ron Potato July 11, 2011 at 10:00 am

In laissez-faire world, what government program is going to sustain the lives of non-working donut-eaters? Government is the magical pony.

Also, as you know, the laissez-faire government still enforces contracts and protects against fraud.

You may wish to check the source of your increased prevalence of emissions.

John Thacker July 11, 2011 at 10:07 am

I’ll believe you want to live in laissez-faire world when you succeed in obtaining favorable terms on an individual basis in a negotiation with monsanto, a local utility, a home insurance company, a cell-phone company or a credit card company.

You don’t choose between multiple credit cards, cell-phone companies, or home insurance companies? I have certainly succeeded in obtaining favorable terms on an individual basis from a credit card company, getting them to overrule their initial decision on the size of a credit card line. I also know plenty of people who have individually obtained favorable terms from cell phone companies by threatening to switch.

Trespassers W July 11, 2011 at 10:42 pm

I usually don’t “negotiate”, I just switch. I have obtained more favorable terms from a local utility (cable company) through negotiation, however. And, come to think of it, I believe the credit card company increased my limit when I asked.

How’s that foot taste?

bob July 11, 2011 at 9:49 am

the point is that people are taking advantage of government programs that benefit them and not others, and that people don’t realize they are benefiting from programs. while many programs involve less government intervention in private lives (taxing less or not taxing at all), the point is that these policies are favoring some over others, or are redistributive. many people benefiting from these types of government laws go around bashing government, even though these people reap relatively large benefits from particular government programs and would be worse off without them. i still think Mettler’s research is interesting and important, and that the 3 journalists have a point

Ron Potato July 11, 2011 at 10:04 am

Is it possible they don’t think they are benefitting from the programs? They are just getting back a rightful part of what they paid in?

That’s a major problem when government pay-outs are so vast, and people know millions are benefiting from corruption. In this world, there is simply no reason for any taxpaying person who gets something from the government to believe he doesn’t deserve it, at least as much as others who pay less.

Andrew' July 11, 2011 at 10:35 am

Actually, the point is that noone is benefitting from all the programs in the aggregate. Not the authors’ point, but that’s my and I think Alex’s point with his reference to Bastiat.

Spot on! July 11, 2011 at 9:54 am

Spot on, Mr. Tabarrok!

It is truly amazing how we’re now shifting toward a mindset that it is a boon from our benevolent overlords to get to actually keep any of the economic value that we create through our talent and labor.

It’s the tell of the progressives/statists — they want to go back to a feudal world. They will be the noblemen at the Court of the Government, a vast, disembodied and wonderfully benevolent being.

And we will be the serfs.

We toil for them, and should be grateful for the scraps that they let us have.

Look, I think we can all agree that it only raises welfare to broaden the tax base (by eliminating deductions etc.) and lowering marginal rates (of course, it’s also the progressives/statists who have been resisting making this change).

But since when do you have to endorse feudalism in order to design a more pro-growth tax system?

Brandon Berg July 11, 2011 at 9:56 am

“Have you ever used a government social program?” strikes me as a question with more potential to obscure than to illuminate. Intentionally so, I suspect.

Our governments’ systems of social and economic engineering run so deep that everyone is touched by them in one way or another. The fact remains that some people are net beneficiaries of these programs and others are net subsidizers. If I pay $40,000 per year in taxes, which would but for the mortgage interest deduction be $48,000, then yes, I benefit from the mortgage interest deduction, but when you consider the effects of the welfare state as a whole, I’m clearly coming out behind.

The real question is, “Are you a net tax eater or a net tax subsidizer?”

That said, I’m fascinated by the 25% or so of people who have been on the canonical welfare programs who say that they’ve never used a government social program. Seems to me that this should call the results of the whole thing into question.

efp July 11, 2011 at 11:48 am

That’s consistent with the fraction of people who think the Sun goes around the Earth, the Earth is 6,000 years old, and Sarah Palin is awesome. This is not a coincidence.

Laserlight July 11, 2011 at 9:56 am

To the extent that “I’m not using a government social program” is a problem, I suspect the problem is that the pollsters didn’t define “social program”. I wouldn’t have thought of any of the tax exemptions or credits as a “social program”.
By the way–it’s entirely possible that someone who says “the Federal tax system is overly burdensome” is correct, even if the speaker isn’t paying Federal taxes. If half the people in the country have influenza, I can be immune myself and still recognize that it’s bad for the country.

Sbard July 11, 2011 at 4:03 pm

It also neglects to include categories such as “works for a defense contractor”.

zbicyclist July 11, 2011 at 10:03 am

When my congressman (Robert Dold, R-IL) was running in the primary for the open seat in 2010, he had a bus with several slogans on it, two of which were: “Keep government out of health care” and “Preserve Medicare”.

You can hardly get more “willfully ignorant” than that — but the Dold campaign hardly seemed to be alone in this sentiment.

Ron Potato July 11, 2011 at 10:09 am

Are you sure they don’t mean, “Preserve a government savings/insurance program that pays out money to needy or elderly people”, but “Don’t give government control of the health care and insurance industries, require universal health insurance, and replace Medicare with a new program”?

Andrew' July 11, 2011 at 10:24 am

Or, don’t spend the surplus. I know this meme is great for yucks, but there is a sense in which the people could mean it earnestly.

If all the government did was organize the coordination of a voluntary insurance program, which I agree a lot of people probably think that’s what it is, then keeping further government meddling out of it could be a useful goal.

John Thacker July 11, 2011 at 10:19 am

I assume that the slogans meant the standard things:

“Let’s pay money to help elderly people.” but
“Let’s not have the government making decisions about what health care people should get, it should be up to them and their doctor.”

Now, of course in reality he who pays the piper calls the tune, and it’s unsustainable to have the government pay for everything and not establish control. But even many PPACA supporters try to argue that the famous IPAB won’t actually really do anything other than find totally free lunches that people would want anyway. (And some of them who voted to pass the overall package immediately started scheming to remove the cost controls.)

John Thacker July 11, 2011 at 10:23 am

And you also can’t forget that (intentionally), Social Security and Medicare are sold as “insurance” programs that are “only getting people out what they paid in for.” As a result of how they were framed, people view it as just getting back their fair share.

After having sold programs (this applies to the “free lunch” of Fannie/Freddie and student loans) as something totally different than welfare, politicians can hardly be surprised when people view them as something totally different than welfare. Those who support the programs should take heart, as it makes them hard to cut. But it doesn’t appear to make people any more likely to support programs for the poor that can’t be dressed up in such a way.

Andrew' July 11, 2011 at 10:47 am

It’s funny that people think they own their medicare and SS payments. Yes, I get it.

But, it’s even funnier to me that there are some politicians and pundits liberals don’t realize what it means to laugh at those people. It means that even they have forgotten the ruze that they used to get it over on those folks. They always say that those programs are popular, but they are not popular because people think of them as getting money from the government and having to go hat in hand for it. The people think of the programs as what the programs should have been, pay as you go transfer coordinations. Now that the programs are increasingly being recognized as not that and thus need to be restructured, I hope politicians get their yucks in while they can.

Andrew' July 11, 2011 at 10:05 am

Go back and watch the guy who was debating with Justin Wolfers. It’s a useful illustration. The buck has to grow antlers even though in the aggregate it costs a lot of bucks!

Ecksoh Aitchteeaitch July 11, 2011 at 10:05 am

hair was swept back by the ferocity of that last line, good one

Andrew' July 11, 2011 at 10:05 am

And they mucked up the Coverdell.

Slocum July 11, 2011 at 10:09 am

A tax deduction is not a ‘government social program’ in any but a fun-house mirror sense of the words. Or would Yglesias et al argue that anybody who is receiving employer-provided health benefits is, in fact, covered by a government health program (because the insurance is paid for by pre-tax dollars)? Would they generalize to argue that to have any portion of one’s income not exposed to taxation means ‘participation in a government social program’? Sheesh.

Andy Harless July 11, 2011 at 10:32 am

This is a good point, but I would say that anyone receiving employer-provided health benefits is covered by a government health program and that people who support the exemption but claim to be broadly opposed to government health care programs are being hypocritical.

Ron Potato July 11, 2011 at 10:44 am

Nonsense.

First priority is opposition to the programs.
Second priority is get back as much money as you can, because you are losing out in the Some Pigs Are More Equal Than Others revolution…

AMeyer July 11, 2011 at 11:00 am

Double nonsense.

You say I am morally compelled to avoid the best part of the job market, because of government shenanigans I don’t even agree with?

Under that logic, don’t you think it is hypocritical for a person who supports universal health care to be employed by a company that do not guarantee health care for their workers?

Slocum July 11, 2011 at 12:45 pm

There’s nothing hypocritical about playing by existing rules that you oppose while also seeking to change them. But that’s aside from the ‘newspeak’ labeling of all forms of differential tax treatment as ‘government social programs’. Is the standard deduction a ‘social program’? Is the system of lower income tax rates on smaller incomes a ‘social program’? Is a 35% top rate a ‘social program’ because, hypothetically, it could be 75%?

Trespassers W July 11, 2011 at 10:48 pm

Ooh! Ooh! Don’t forget to call libertarians hypocrites for driving to work on PUBLIC ROADZ.

The only solution for which, apparently, is to move to SOMALIA.

J Thomas July 11, 2011 at 4:29 pm

Or would Yglesias et al argue that anybody who is receiving employer-provided health benefits is, in fact, covered by a government health program (because the insurance is paid for by pre-tax dollars)?

To the extent that those health benefits are subsidized by the government in the form of employer tax benefits, yes.

But take it further. If that employer is part of the military-industrial complex which would mostly not exist without government sales, he is mostly subsidized by the government. The government could pay him to dig holes and fill them in. But instead the government pays him to build bombs that make craters somewhere else, doing nobody any good. Surprisingly similar.

Or perhaps he works in the prison industry, which cannot exist without government.

Or maybe he has a cushy trash removal business, and could only make 2/3 as much paid by free enterprise. That’s 1/3 subsidized.

Or his trash removal business has MI-complex members as important customers, or lawyers, prisons, prison guards, police….

If you’re subsidized because you get paid by people who’re subsidized, then pretty much everybody is.

Of course, if things were different then things would be different. Say the government didn’t exist. Nobody would pay any taxes, so on average we’d all have about 60% more money, and we’d work hard and earn a lot more money from each other, and we could on average save 20% each for our old age and still have plenty to expand the economy far, far more than it is now. People who barely work for the government would perk up and work hard and productively and we’d get so much more work done that we’d all be rich. And there would still be a labor shortage, because there would be more work available than people to do it.

So here we are, we’re all constrained by the way things are. You’re working hard and barely getting by under your giant tax burden. And I can’t find any job at all and have to live on what I can get from charity and the government. If the government wasn’t there we’d both be better off. But can you blame me for taking the pittance the government allows me, when the jobs aren’t there? If so, how about we switch places awhile and you let me take your job. When it’s a game of musical chairs, it isn’t immoral to not get a seat. With 90 people and 60 seats, somebody’s got to lose. So let me work hard at your job for a few years to prove how hard I’m willing to work while you take a break, and I get to prove I’m not lazy while you get a chance for some leisure. How about it, huh?

(If I didn’t have work and was was looking, I might try that line on some of the HR people at places where I didn’t have a chance anyway. What’s to lose?)

Floccina July 11, 2011 at 10:12 am

In i think Alex and my case you say we need to fund the Gov. to do XYZ everybody lets throw in x of x percent of our income or spending or what ever. The other side says OK we need to fund the Gov. so we will only allow you to keep X of what you make or own.

Though subtle I think that the difference is real and important.

Andrew' July 11, 2011 at 10:18 am

The underlying assumption is that government already has authority over everything. So, something they let you keep is somehow a social program. The flipside is that they levy a tax on other education financing mechanisms. So, in that way, we call say that we “participate” in all government social programs, just that some of us benefit from them and others don’t.

Alex is correct to point out that there is not a total government sovereignty and not a total equivalence in all taxes, credits, subsidies and grants.

Andrew' July 11, 2011 at 10:22 am

The authors also forget that the very reason we have certain tax-sheltered sectors is BECAUSE voters think those sectors are different.

Jeff July 11, 2011 at 10:15 pm

The underlying assumption is that if Congress passes a law to the effect that you pay a certain percentage of each dollar of income depending upon the particular bracket that dollar falls within, then the government has authority over that money. You have to pay that amount, or you face fines or even prison. Therefore, if Congress passes another law stating that money spent on whatever isn’t to be taxed, then people who spend money on whatever are getting a kind of benefit. Maybe it’s a stupid benefit, but it is a _kind_ of benefit.

Andy Harless July 11, 2011 at 10:21 am

Suppose that, instead of having the 529 program, there were a private charity that sought to encourage education by giving people grants to offset the tax they paid on the money saved for college. And to make it interesting, let’s have this charity receive government support and introduce a parameter between zero and one that determines the fraction of its costs that are offset by government support. If the parameter equals one, this is exactly equivalent to what Alex calls “the absence of a tax,’ but surely it would be viewed very differently by the recipients. It would be an interesting experiment to see how changes in this parameter affect Alex’s view of the program.

Personally, I’m with Rampell, Bartlett, and Yglesias. Exemption from a tax is not the same as the absence of a tax. A program that allows you to avoid an existing tax does not nullify the tax; it gives you a separate benefit.

Ron Potato July 11, 2011 at 11:42 am

Obviously the difference is that it’s the person’s own money and labor.

A tax break takes less from the laborer, so he decides more what to do with the product of his own labor, while a spend aggregates and transfers it, with loss, to some random fancy project, taking it away for some conceivable general benefit.

The higher the tax, the more the alienation of labor. The higher the government spend, the more your life is controlled by a central bureaucracy, that is now better paid than you.

And these people call themselves progressives.

mark July 11, 2011 at 10:24 am

“(N.B. I am not taking a position here on the best tax structure.)”

Of course not. That could be construed as a practical, useful, thoughtful contribution to an important sociopolitical debate that one would expect of a professor of economics. Better to go with pointless philosophical, emotional outburst we can get from ranting, raving guys dressed up as like it’s Colonial Williamsburg, screaming at passersby in Times Square.

Andrew K July 11, 2011 at 10:33 am

Very disappointing polemical rant that is not up to the normal very high standards of MR.

Of course the Great Fiction that Mr Tabarrok appears to pushing is really that no government (and therefore no tax is possible).

Andrew' July 11, 2011 at 10:42 am

I think your opinion of the post is based in part in that you didn’t understand it.

Andrew' July 11, 2011 at 10:34 am

Student loans: it’s really the banks that are participating in the government program. Unemployment insurance, mortgage guarantees, and some others are similarly structured. These are marginal interventions that are funded primarily because people assume that they do not affect behavior (although we know different). Others are cases where voters have decided that some things shouldn’t be taxed. A tax structure has to be determined, and some things really shouldn’t be taxed. This may or may not be a social program depending on your definition. I think Alex is right that the authors are short-circuiting that analysis and just defining social program as anything the government has structured. By this definition, I could say that everyone has ‘used’ the space program because they obtained all the benefits therein (such as they are). This is more obviously problematic, thought not easily disputed. After all, didn’t we all ‘use’ national defense if you believe it has been saving us from death?

Bellisaurius July 11, 2011 at 10:51 am

Isn’t letting all savings go tax free a government subsidy, just of a different sort than the 529; assuming an income tax system (in an exclusively sales tax system, it would be of course, automatic)?

It would seem anything government does distorts the market, and affects one group worse than others. Of course, going to this extreme is kind of a strawman libertarian nihilistic sophistry. What I think we all mean to say is that all of us benefit from some law or other in some way. Clear claim to property is probably one of the most basic benefits we get. Court enforcement of contracts another.

Going down further, those with the most benefit the most: This is a trivial identity if we use money as a measure of benefit. The real question is whether or not there is a general agreement that the distortions are morally or economically worthy, and something tells me, a person who doesn’t think of a 529 as a government program is telling themselves that this particular program is worthy.

Andrew' July 11, 2011 at 11:40 am

“Isn’t letting all savings go tax free a government subsidy”

It depends on your premises, which is what this post is about.

“It would seem anything government does distorts the market, and affects one group worse than others. Of course, going to this extreme is kind of a strawman libertarian nihilistic sophistry”

No, it’s what economists like to call “the way things actually work.” For example, see your first sentence.

“a person who doesn’t think of a 529 as a government program is telling themselves that this particular program is worthy.”

I don’t know, but I preferred the Coverdell, which they have neutered, because it allowed more education options. In other words, it was less interventionist and more of a tax break to education as opposed to a tax break to preferred institutions of preferred education. When and how we tax certain investments may be a government program, but again, that depends on your premises and definitions.

Andrew' July 11, 2011 at 11:51 am

More to the point, if the interventions don’t affect behavior, then the term “social program” loses all the meaning the authors are meaning!

But, it’s also very complicated. I will probably use a 529 for my kid because I have to play by the rules I’m given, but I don’t consider myself benefitting from it, because I prefer we lived in a world without the distortions created by such subsidies.

Yancey Ward July 11, 2011 at 10:56 am

If all these people are net beneficiaries of government largesse, then who are the nonbeneficiaries? Who is holding the short end of the stick?

Ron Potato July 11, 2011 at 11:50 am

Obviously it must be the poor. The rich are rich, so they obviously have it good and don’t pay enough. The middle class has all these deductions, so they can’t be paying their fair share. But the poor have it real bad, even the ones who don’t pay at all.

Jeff July 11, 2011 at 2:20 pm

Not sure if serious.

However, anyone who truly feels that the poor are lucky because they make too little money to pay income tax, and only pay payroll and sales taxes, has never actually been poor. Growing up in the bottom 20%, but now being in the top 20%, has taught me that there is nothing good or lucky about being poor. (Or, more succinctly, the WSJ can go eff itself.)

Jay July 11, 2011 at 3:03 pm

No one is on the short end of the stick. You see the Krugman Constant (the multiplier on government spending) is so large that everyone is a net beneficiary. If only we could get to the Krugman Utopia (G = GDP; C = I = NX = 0).

Andrew' July 12, 2011 at 6:49 am

I also wonder if it is just that a person getting food stamps is also participating in 10 other programs and they also spend significant time in a line at the local government office so it’s just more obvious to them to answer yes.

Jeju July 11, 2011 at 10:58 am

If the comments on this post are representative of the Republican vs. Democrats achieving an agreement on the debt ceiling, then it is time to buy food and gold.

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