November 17, 2004

What Hume can teach us about our partisan divisions

Elizabeth Anderson: November 17, 2004

How can "the Left" can get across to "the Right"?  To figure out how to do this, we need to understand what divides us.  On this question, Hume offers indispensable guidance.  In his great essay, "Of Parties in General," Hume argued that partisan divisions can be traced to three sources:  differences in interest, differences in principle (ideology), and differences in affection (identity politics: sympathy for "us," antipathy against "them").

Hume observed that differences in interest are the most "reasonable."  They are most open to compromise and negotiation.  Moreover, arguments about what policies are in people's interest are most open to revision in light of evidence.   If interests were all that divided us, the Democratic Party (what there is of the Left that has institutional power) would enjoy an overwhelming majority, since it represents the interests of the bulk of the population, while Republican policies favor mainly the rich.  Most people understand this, and the Left can offer sound arguments and evidence to persuade those who disagree.

Differences in principle or ideology are less tractable, because they are less open to revision in light of evidence.  For example, arguments over the morality of abortion turn in part on when a person with human rights comes into existence.  This question cannot be settled by evidence.  And few are persuaded by academic arguments, although such arguments can soften up excessive confidence in certain ideologies by highlighting incoherencies, and pointing to evidence that the roots of one's commitments lie elsewhere than in the principle to which one has avowed allegiance.   For example, arguments can show to those who oppose abortion except in cases of rape that the claim that abortion is murder cannot explain their views.

Hume, who took religious conflicts as his paradigm, thought that disagreements of principle were almost wholly intractable and often bordered on madness. 

(Call this "the fact of unreasonable pluralism.")  The classical liberal solution to such conflicts has therefore been to privatize them:  get the state out of the business of promoting one principle or another, and leave decisions about such matters up to private, voluntary decisions.  This solution is looking less viable for today's conflicts of principle, for at least 3 reasons.  First, the things we expect the state to do these days make it harder for the state to claim neutrality.  Is teaching evolution in the public schools a neutral scientific position, or an attack on fundamentalist Christianity?  Is offering partner benefits to gay public employees a neutral nondiscriminatory position, or an endorsement of homosexuality? Second, some of today's conflicts over "moral values", including abortion and gay rights, are also conflicts of justice that require an adjudication of conflicting claims.  Privatization does not so much adjudicate such claims as completely ignore one side.  Third, the Left needs to face up to the fact that people do look to politics for inspiration, not just for the advancement of their interests. Privatization looks to many like flabby, unprincipled moral relativism, indifference to moral concerns, or worse, in light of the Left's interest-based politics, an advocacy of crude materialistic values over more vital moral and spiritual concerns.

How can the Left get through to the Right on matters of principle? First, by recalling the inspiring principles of human dignity, equality, and democracy that underwrite liberalism's greatest achievements.  When was the last time a Democratic politician delivered a speech as awesome as President Johnson's "We Shall Overcome"?  (I know, Obama's speech at the 2004 Democratic Convention:  but that was jaw-dropping precisely because the Left hasn't talked this way for 40 years.)  Second, by recalling that there is a domain of experience to which principled convictions are accountable:  only it is a personal, emotional kind of experience, revealed not in social scientific data, but in compelling narratives that people tell of how awful they found it to be forced to live under certain principles, and how splendid they found it to live under others.  (I'll illustrate this in a future posting on abortion.)

Finally, we must confront the least-discussed source of the Left's political misfortunes:  identity politics.  Hume recognized that identity politics is at least as much about mobilizing antipathy toward "them" as it is about shoring up solidarity among "us."  Although the fractious Democratic party contains elements of identity politics among its constituents, liberal politicians, committed to universalist, cosmopolitan principles, have never had much stomach for playing it themselves.  The current conservative complaints about the contempt blue-staters have for red-staters ignores this difference.  While there are plenty of secular liberal Democrats in the rank-and-file who hold fundamentalist Christians in contempt, no Democratic party leader has based a campaign on railing against "Bible-thumping religious fanatics."  By contrast, Republican party leaders have been playing a nasty style of identity politics for a long time, ranging from outrageous smear campaigns against individual Democrats (e.g., Swift Boat Veterans against Kerry) to demonization and mockery of broad groups of Democratic constituents (blacks, gays, feminists, liberals, immigrants, single mothers, seculars, urban cosmopolitans, environmentalists, trial lawyers, etc.).  They have aggressively mobilized every form of antipathy--hatred, contempt, fear, resentment, anger--against the Left, making it timid and ashamed of itself.  No incident was more telling in this regard than the moment in the Bush-Dukakis debates when Bush held up Dukakis' membership in the ACLU as a point of dishonor, and Dukakis failed to respond, choosing instead to change the subject to "competence."  By such means, Republicans successfully turned "liberal" into a pornographic term, fit for mention ("the L-word"), but not use.

How can the Left get through to the Right in the face of its mass mobilization of individual and group antipathies?  By standing up for ourselves, proudly defending our positions, ideals, and identities, and exposing the Right's tactics for what they are:  ugly, nasty, small-minded bigotry.  To open up free and common space for high-minded dialogue based on reason and evidence, for "deliberative democracy," the ground must be cleared of the toxic waste of slander and hatred. As Dukakis showed through his negative example, this is a task that cannot be accomplished by high-minded discourse itself.  It is time for the Left to muster up outrage, to call out the Right when it stoops to despicable tactics, and yes, even to mock and deride it for doing so (not when it argues from genuine principles, however benighted we might think such principles to be).  It is time for the Left to make the Right feel ashamed of its nastiness.

December 08, 2004

Experience, Segregation, and "Diversity"

Elizabeth Anderson: December 8, 2004

So, the first wave of comments has come in to Left2Right.  Some display the lamentable character of much of the blogosphere, of dismissing the opposition as stupid and backward for disagreeing with the author, or assuming that another author, in expressing disagreement, must be claiming that those who disagree are stupid and backward.  Others, however, display the level of thoughtfulness I hope will be the norm on this blog and the blogosphere more generally.  I speak in particular of the comments to "The Politics of Homosexuality."  Coming from the Right, Steve 's comments in particular get to the heart of the matter in a particularly constructive way.  I'd like to take them up here as a way of tying together several of the themes that have arisen in this blog, concerning data vs. personal experience, segregation and antipathy, ideological diversity and affirmative action.

Steve asks: "Is homosexuality 'like' heterosexuality, or is homosexuality 'like' bondage fetishism?  And by 'like' we mean two things-both is it psychologically and emotionally 'like', AND should it be treated socially/politically 'like.'

I'd like to ask Steve:  does he have any gay friends?  In my first post, I suggested that arguments over moral principle, while they cannot be settled by scientific or social scientific data, are answerable to personal experience.   Although I am not gay myself, I am friendly with various gay people in committed relationships, and can testify that their relationships with their partners, in terms of care, commitment, respect, love, and aspiration, are not deficient in any observable respect, compared to heterosexual relationships.

Polling data suggest that the more personal experience people have with gays and lesbians, the more they accept them.  It is possible that the causal direction runs solely from acceptance to experience (people who condemn homosexuality are less likely to befriend gay people), but I doubt that the causal arrow is unidirectional.  Personal experience changes people's views.

It's this dimension of personal experience, I suggest, that explains much of our partisan divisions, on both matters of principle and of antipathy.  It's easier to morally condemn people who aren't one's neighbors, colleagues, and friends.  It's also easier to despise, fear, and hate them.  I agree with some of the conservative commentators to this blog that the antipathy runs both ways.  Surely this has something to do with the fact that  we live in increasingly segregated regions, as judged by partisan affiliation.  As Steve Darwall notes, levels of racial segregation also remain high, in part due to the growth of virtually all-white exurban communities.  Of course, gay people are not physically segregated in the same way.  But closeting is a functional equivalent.  Greater tolerance is both cause and consequence of more people being out of the closet.

I have argued in my work on affirmative action that if segregation is a problem, then integration is a solution.  Segregation along multiple dimensions is a problem for us, both for the ways it impairs the development of personal experiences we need to inform our moral principles and our competence at respectful interpersonal interaction, and for the ways it undermines democracy.  Because the knowledge we lack is personal knowledge, in all senses of this term, there is no substitute for direct engagement with those whom we don't know, who come from different walks of life.

I have made this case for racial integration.  And I accept its implications for idelogical integration of the academy.  So, contrary to David Velleman's view, if the representation of ideologies is wildly skewed in institutions of higher education, I believe this does give us a reason to seek more diversity, including of conservatives.  I am completely opposed to external, politically imposed mandates of this kind.  Nor are quotas or goals appropriate in this sort of case. Rather, departments should handle the distribution of ideologies on a par with the way they handle the distribution of faculty across and within subfields of a discipline.  We already allow that a philosophy department loaded with Kantian moral theorists would do well to hire people who do moral philosophy in other modes--utilitarian, virtue ethics, ethics of care, etc.  Seeking such ideological diversity does not impugn the merits of those hired, since they contribute to the merit of a department by expanding its range.  We have good reasons to extend the same principle further, and positively seek out conservative moral and political theorists who otherwise meet a department's intellectual standards.  (In other disciplines, where political and moral views are not an explicit subject of study, matters need to be handled differently.  It depends on how such views bear on the subjects of study.)

December 12, 2004

On Patriotism

Elizabeth Anderson: December 12, 2004

Perhaps the most politically damaging smear against the Left is that we lack patriotism.  The smear has its origins in McCarthyism, but really took off during the Vietnam War, when the Left turned against the war.  I don't deny that certain elements of the Left bring the charge against themselves, by eagerly imputing to the United States the most nefarious motives in international affairs, even when the charges are patently ridiculous.  (The latest example is Michael Moore's suggestion that the U.S. went to war against the Taliban in order to get an oil pipeline built across that country.  Only slightly less absurd is the suggestion that the U.S. went into Iraq to seize its oil.)  I do deny that the charge is applicable to liberals in general.  There is a certain understanding of the demands of patriotism with which the Left is uncomfortable--one that insists that the United States can do no injustice to others; that loyal citizens must unequivocally support its foreign policy, especially in matters of war; that advocates pursuing U.S. national interests to the fullest, regardless of the costs inflicted on others.  I believe the Left is right to reject this understanding of patriotism.  But it has done little to explain what should take its place.  The silence only serves to confirm the Right's suspicions that we have no patriotism at all.  Without presuming to speak for all liberals, I want at least to explain how I enact my patriotism.

I love my country, and I am proud of it.  How do I convey these feelings to my two elementary school children?  This summer, my husband and I took them to New York City. Why do we love New York City, this bluest of blue metropolitan areas, as the embodiment of what is so great about America?  And how did we show its glory to our kids?

We took them to the top of the Empire State Building and showed them the Chrysler Building, the Brooklyn Bridge, and other great architectural wonders of New York, telling them the stories of how they were built.  We took them to museums and plays.  New York architecture and drama embodies the city's, and America's, first great virtue:  it unabashedly strives for excellence at nearly everything it does.  Moreover, in a vast range of human endeavors--athletics, the arts, dance, music, drama, museums, finance, publishing, trade, higher education, architecture, medicine, and much, much more--it succeeds, in a thrilling, exuberant way.  Give me the pursuit of excellence over "self-esteem" any day.  New York overwhelms the rest of the country and indeed the world in its sheer concentration of talent, combined with unrivaled opportunities to excercise it.

We took them to Chinatown.  Those bustling streets, bursting with entreprenurial energy, great food, and wonderful Asian goods on sale, show best what it means for America to be the Land of Opportunity, not just for native-born Americans but for millions of immigrants from distant lands.  Our willingness to welcome them, learn from them, and readily accept them as equal citizens when they naturalize, is exemplified to the highest degree here.

We took them to Central Park, every day exploring another delightful and surprising corner of this greatest of urban public parks.  Fully restored and enhanced to great glory, it is a far cry from its dismal state in the 1970s, when it was a decrepit haven for drug dealers.  Now families don't hesitate to take their children there to play.  There is no more vivid sign of the spectacular revival of New York City than this (except perhaps for the clean, grafitti-free subways).  The new reign of civility--and yes, I do give former Mayor Giuliani credit for this--while still a bit rough around the edges, is breathtaking.  To illustrate: one evening the family emerged on the north end of Central Park, on 110th Street, a neighborhood in sad decline, with abandoned buildings facing the Park.  Ahead of us, a tough-looking man was sitting on a bench, swearing in a voice just loud enough to overhear.  As soon as he saw us, he apologized--profusely!

I could go on and on.  But there are enough points here to offer lessons to both Left and Right.  To the Left:  Chinatown shows how free trade in goods and free movement of people are inextricable from the free exchange of ideas and willingness to learn from and welcome them, no matter their origin--attitudes that lie at the core of the cosmopolitan ideal.  It also forces us to acknowledge the special cultural conditions needed to foster "diversity" at its best.  Not every national culture is as good as the U.S. at opening itself up to immigrants from so many lands and enabling them to become fully "us" (and this is not to say that we are all that great in other regions of the U.S., or with respect to certain immigrant groups).  To promote the cosmopolitanism we love, we need to treasure the local conditions for its flourishing, and this requires robust support for and love of America itself.  We also have to acknowledge that former Mayor Giuliani brought spectacular benefits to the city by insisting not just on a crackdown on crime, but on restoring order and civility to the streets, without which people cannot raise families in the city, nor enjoy the great diversity it offers, but will rather retreat behind closed doors and ethnic enclaves hostile to outsiders.  (This is not to deny the costs of Giuliani's crackdown.)  Cosmopolitanism needs patriotism to survive.

To the Right: New York City shows how much excellence and opportunity need Big Government to flourish.  The greatness of New York City in both excellence and opportunity depends in large measure on its extraordinary population density.  This requires an enormous public infrastructure.  Before the subways were built, nearly the whole population of the city was stuffed in the lower end of Manhattan.  Population and economic growth exploded with the expansion of mass public transportation.  Big Regulation is needed, too.  The city's stunning skyscraper density was made possible by zoning laws, which forced buiders to set back their towers as they scaled greater heights, lest the shadows cast by tall buildings deter urban development in neighboring blocks.  And so are Big Taxes, to support all the infrastructure and regulation.

So, how else does this patriotic American express her love and support for her country?  By gladly paying her taxes, and not resenting a single penny I pay.  I want to keep America great, and that requires great public expenditure.  I love my fellow Americans, and that love demands that I do my part to ensure that none of us is deprived of the considerable goods we need to function as equal citizens in a rich democracy.  (It helps that anyone at my household income level or above--i.e., close to the point where Kerry proposed to raise them--who is managing their finances responsibly should feel little pain even from sharply higher taxes, because the money should be just piling up anyway.)  I call on all my fellow patriots, at least at my household income or above, to share this love for our country and repeat: no resentment of taxes. not. one. penny.

January 06, 2005

How not to complain about taxes (1)

Anderson on Political Economy, Anderson on Taxes, Elizabeth Anderson: January 6, 2005

"Governments cannot be supported without great charge, and it is fit every one who enjoys his share of the protection, should pay out of his estate his proportion for the maintenance of it."

That's John Locke, the great defender of private property, writing (Second Treatise of Government, ch.  XI, par. 140).  It pays for defenders of private property to listen to Locke, so as to avoid silly complaints about taxation.  Here's one common one I hear:  that government, in taxing my property, is taking away what is really mine.  This complaint is often conjoined with the accusation that liberals, in order to justify taxation, must believe that the government owns all property to begin with and by rights could confiscate it all.  Two points should put these fallacies to rest.

First, a technical point:  the fact that some property is mine does not entail that other people do not have rightful claims to some portion of it.  I am entitled to my salary; it's mine.  But my children have a rightful claim to support from my income.  In some states, such as California, I have a legal obligation to support my parents out of my income, if they cannot support themselves.  I have to pay my bills out of my income.  If I negligently injure someone, I am liable to pay them damages from my income.  The fact that this income is mine does not settle anything about who else might have legitimate claims to some portion of it, and on what grounds.  Note also that I did not have to give my personal consent for some of these others to have a claim on it.

So far, I've just been talking about property as a legal institution.  But perhaps the complaint I am criticizing is talking about supposed "natural" property rights, following theorists such as Locke. So here's my second point:  unless one is a bomb-throwing anarchist, an advocate of natural property rights must concede the legitimacy and indeed necessity of a state, at least as an institution for collective protection and impartial adjudication of claims--the so-called "minimal state."  And such a state will have a legitimate claim on every member's property, to the extent necessary for everyone to pay their fair share for its maintenance, as Locke rightly insisted.  Even in a minimal state, the fact that my income is mine does not constitute an argument against the taxation necessary to support the state.

In fact, Locke himself went much further than this minimal claim. In the Lockean mythology loved by libertarians, it is supposed that individuals, upon joining a minimal state, retain full claim to all of their natural property rights, except to the small extent needed to support a minimal state.   The fallacy here is to suppose that, when people join together to form a state for the protection of their property, they are concerned only to protect their property from the encroachment of others.  According to Locke, however, individuals form a state not just for protection against violations of their negative liberties but for the preservation of their lives (which are part of their property):

"the first and fundamental natural law, which is to govern even the legislature itself, is the preservation of society, and (as far as will consist with the public good) of every person in it." (Locke, Second Treatise, ch. 11, par. 134)

Unless one could show, contrary to fact, that death rates under publicly funded health care systems are higher than under systems that leave people to pay for their health care with whatever resources are at their disposal, some kind of publicly funded health insurance entitlements are compatible with, and may even be required by, Locke's theory of natural property rights.  Moreover, Locke insists on our obligation to provide for the poor:

God hath not left one man so to the mercy of another, that he may starve him if he please: God the Lord and Father of all, has given no one of his children such a property in his peculiar portion of the things of this world, but that he has given his needy brother a right to the surplusage of his goods; so that it cannot justly be denied him, when his pressing wants call for it. . . .  As justice gives every man a title to the product of his honest industry, and the fair acquisitions of his ancestors descended to him; so charity gives every man a title to so much out of another's plenty, as will keep him from extreme want, where he has no means to subsist otherwise: and a man can no more justly make use of another's necessity to force him to become his vassal, by with-holding that relief God requires him to afford to the wants of his brother, than he that has more strength can seize upon a weaker, master him to his obedience, and with a dagger at his throat, offer his death or slavery. (First Treatise, ch. 4, par. 42, emphasis mine)

Locke's point is not just that some kind of entitlement-based welfare system is required by morality and built into the structure of natural property rights (the poor have a title to what they need).  It's also that, to prevent a free property system from degenerating into feudalism, constraints on freedom of contract are required.  Just as contracts into slavery are invalid, contracts into vassalage are.  People are not entitled to use their superior bargaining power to drive others to the wall, or into subjection. 

So, you can't get an argument against a welfare state from Locke's theory of natural property rights.  I won't pretend that Locke was as generous as modern welfare states; his preferred system of provision for the poor was in fact very harsh.  And, given the primitive state of medicine in his day, no one at the time imagined it would have done much good to universalize access to it.  But nothing in his system  prevents a more generous welfare state.

In fact, given the wide scope of the legislature to pass laws for the common good of society (Second Treatise, ch. 11, par. 135), it isn't even clear that the distribution of natural property before people joined a state provides a constraint on the legislative power.  Locke insists that any just government establish some system of private property or other.  But there is no indication that it must mirror the distribution of property people brought with them into civil society.  He never says that people in civil society have a right to the goods which were theirs in the state of nature.  Rather, he says "they have such a right to the goods, which by         the law of the community are their’s" (Second Treatise, ch. 11, par. 138, emphasis mine).

Does it follow that Locke, in accepting the legitimacy of taxation to promote the general welfare, including the establishment of welfare entitlements, really believes that the government owns everything and so could by rights dispose of all property arbitrarily?  Of course not.  He lays out the following constraints on legitimate taxation in ch. 11 of the Second Treatise:

1. It must be consistent with some system of private property or other (par. 138).
2. It cannot confiscate people's private property arbitrarily, but only in accordance with duly passed laws (par. 135-8).
3. The people must consent to these laws, not in the sense that they must obtain the personal consent of each individual, but in the sense that they have the consent of the majority of representatives in the legislature (taxation "must be with his own consent, i.e. the consent of the majority, giving it either by themselves, or their representatives chosen by them") (par. 140).
4. The laws must be for the common good of society, and in particular, promote the preservation of each member in it (par. 134-5).
5. The level of taxation cannot be so great as to reduce anyone to poverty or subjection ("It [the legislative power] . . . can never have a right to destroy, enslave, or designedly to impoverish the subjects" par. 135).

Although I'm no Lockean, I'm happy with these constraints, as I think all liberals are. (Personally, I would add another constraint, that requires the distribution of tax burdens to be fair.  Locke may also implicitly be insisting on fairness in the quote that opens this post.)

So please, stop the silly rhetoric that liberals suppose that the government owns everything already.  Stop the silly rhetoric that supposes that the fact that some property is mine offers any argument whatsoever against the legitimacy of taxing it.

I hasten to add that this still leaves plenty of room for reasonable dispute about proper levels of taxation.  For all I've said so far, it's fine to argue that current levels of government spending are excessive, so that the levels of taxation required to support those levels are unjustified.  It's fine to argue that the tax system we have unfairly distributes its burdens on the rich (I'll be posting later on that subject).  It's fine to argue that our tax system stupidly rigs incentives in unproductive ways.   It's even fine to argue that government welfare entitlements are illegitimate in principle, and hence that taxation to support them is unjust.  (For my point here is narrow:  merely that one can't get any support from Locke's theory of natural property rights, and hence not from the general idea of natural property rights, to argue this point.  I'll be posting later on why I reject theories of natural property rights.  My answer will surprise you.)  This post is simply a plea to focus on real arguments about taxation, not silly rhetoric.  But I wouldn't mind if you also learned a thing or two about Locke.


January 09, 2005

Toward a Post Cold-War Political Economy

Anderson on Political Economy, Elizabeth Anderson: January 9, 2005

The Cold War was a necessary war.  But many of its battles were not.  On the intellectual front, it distorted our readings of leading figures in the history of political economy so as to recruit them to one side or another.  The classic case of this is scholarship on John Locke, who was eagerly recruited by the likes of Robert Nozick and others to the side of laissez-faire capitalism.  Academic Marxists such as C.B. MacPherson were more than happy to cede Locke to that side, so they could bash him.  Yet, as my last post argued, Locke was hardly the advocate of absolute property rights that Cold Warriors on both sides took him to be.  And as Don Herzog has argued on this blog, Adam Smith was no advocate of pure laissez faire either.  It's time to rethink the canon of political economy from a post-Cold War perspective, in which we don't feel forced to assign figures to one or another side of a war they did not participate in, and that is over for us, too.  Some scholars have made a start on this.  Jeremy Waldron's recent book on Locke, which stresses the Christian roots of his thought, is a step in the right direction.

Here's another legacy of the Cold War that should be discarded:  the convention of classifying the systems of economic organization on a continuous spectrum from left to right, with communism on the far left, then socialism, then the so-called "mixed" economies of Western Europe and North America, and, on the right, the laissez-faire capitalist minimal state, and on the far right, anarcho-capitalism.  We should know this spectrum is in trouble when we recollect that when fascism was still considered a serious alternative, or threat, it was represented as the far-right position.

There are many difficulties with this way of classifying economic alternatives.  For one, the extremes on both left and right are no longer credible options, if they ever were.  (On why anarcho-capitalism is not credible, I share Brad DeLong's views here.)  For another, it doesn't make much sense to represent the economies of Western Europe and North America as "mixtures" of two deeply incompatible and doomed systems.

The American Republic was once understood as a "mixed government," in that it incorporated elements of monarchy, aristocracy, and democracy in its President, Senate, and House, respectively.  Today we find the idea that the jobs of the Senate and House are to represent distinct class interests of society quaint and ridiculous.  A way of classifying regimes that once seemed to make sense in light of the other genuine alternatives available in the 18th century makes no sense at all, now that monarchy and aristocracy are thankfully dead, and our institutions have been democratized, through such reforms as the massive expansion of the franchise, the destruction of slavery, and direct election of Senators.  Good riddance to the idea of "mixed government."

It's time we got rid of the contemporary conceptual analogue to "mixed government"--namely, the idea of a "mixed economy."  We still tend to think that the economies of the advanced democracies in North America and Europe are "mixed" in some kind of combination of laissez-faire capitalism and socialism.  The idea got a lot of traction from the seeming viability of communism as an alternative mode of organizing an economy, plus a mythology of capitalism as at its most pure in its laissez-faire version.  It turned out the both the (far) left and the right had an interest in representing "true" capitalism as laissez-faire capitalism--the former, to stress the ill fates of those who get chewed up in a dog-eat-dog economy, the latter, to celebrate the freedom to be top dog in such a system.

Now that communism is thankfully dead, along with such lamentable economic ideas as centralized economic planning, state ownership of major industries, and comprehensive wage and price controls, which were tried by many "mixed" economies as well as communist regimes, we should start reflecting on the economy we have with a clearer eye.  The key features of the economy that amount to departures from laissez-faire are:

1. State provision of public goods, such as roads, public health programs, and schools.
2. Centralized banking.
3. Regulation of the environment, securities markets, food and drugs, auto safety, etc.
4. Social insurance, and, to a much smaller extent, "welfare."
5. Laws enabling labor unions (weak in the U.S., but much stronger in Europe).

We still have barriers to trade, to be sure, but the long-run trends here are definitely in the direction of reduction, even in the stubborn area of archaic agricultural subsidies, which should certainly be eliminated.  (Here right and left ought to enjoy real common ground.  The (libertarian) right hates them because they involve departures from free-market principles.  Some parts of the left (e.g., NGO's such as Oxfam), including myself, hate them because they impoverish poor countries that could improve their economies if they were free to export their agricultural products, textiles, and cheap manufactures to rich countries without barriers.  Alas, neither element of left or right is numerically dominant in domestic U.S. and European political institutions.  But the WTO may force the hands of the U.S. and Europe anyway:  chalk one up in favor of sovereignty-compromising global institutions.)

What I'm suggesting is that the kinds of departures from laissez-faire that it made sense to call "mixed," in the sense of borrowing elements from socialism/communism--things like centralized planning and state ownership of major industries--have either largely been eliminated or, like trade barriers, are on their way out, and none-too-soon.  The five that remain I support, but that's not the point of this post, and I won't argue that here.  My point is rather that these five should be seen as developments internal to the dynamics of democratic capitalism itself, rather than borrowings from fundamentally alien economic systems.  So it makes no sense to call economies that have them "mixed," as opposed to advanced variants of democratic capitalism.  Public provision of infrastructure and education, and sponsorship of science research, has long been a great engine of capitalist development.  Even if socialism and communism had never existed, it would have been necessary to invent centralized banking to moderate the effects of capitalism's business cycles.  (By contrast, socialists and communists had always hoped to eliminate business cycles through centralized planning.)  Regulation of private sector actions to reduce pollution, ensure public safety, etc. was brought to capitalism by popular demand.  (By contrast, communism never tried to repair its catastrophic environmental policies and its workplace safety record is disastrous, nor was  environmentalism ever much of a socialist issue until capitalist economies embraced it.)  Ditto for social insurance and independent labor unions, neither of which were part of the imaginary communist utopia, nor happy in the dreadful communist reality (recall the wretched state of health care in ex-communist Europe, and Solidarity in Poland).  Socialists and progressive liberals can take the historical credit (or blame, depending on your point of view) for some of these five.  But that's no more reason to call the five "socialist" than it is to call the Senate "aristocratic" because aristocrats designed it.  They are integral parts of advanced capitalist democracies.

Getting beyond the "mixed economy" would have three salutary consequences.  One would be to dethrone "laissez-faire" from its position as definitive of capitalism in a classificatory system that is supposed to be useful for empirical understanding.  (I hasten to add that I don't intend this to imply that laissez-faire capitalism is refuted as a normative ideal.)  Another would be to focus our attention on the varieties of capitalism that actually exist, and on the highly consequential choices we face among different versions of capitalism as we know it.  This would, third and most importantly, remove ideological cover from U.S.-sponsored attempts to impose on developing countries a particularly harsh version of capitalism (involving drastic restraints on public investment in human capital, public health, social insurance, and freedom to organize labor unions) that no advanced capitalist democracy has chosen for itself, on the premise that "capitalism" is the one viable path to development.

January 20, 2005

How Not to Complain Against Taxes (II): Against Natural Property Rights

Anderson on Political Economy, Anderson on Taxes, Elizabeth Anderson: January 20, 2005

In a previous post, I argued that the claim "it's mine" does not by itself constitute an argument against taxation.  Nothing follows about the legitimacy of taxation from the mere fact that something is one's own property, nor, as Locke's example shows, even from the fact that something is one's own by a natural property right.  Several comments and a trackback on that post supposed that I was arguing from the truth of Locke's theory of natural property to my conclusions.  This is odd, since I explicitly disavowed theories of natural property rights in that post.  My point was only that "it's mine" is no argument against taxes; it's at best a begged question.  This of course does not rule out anyone's offering an alternative comprehensive theory of natural property that entails the illegitimacy of taxation, or taxation beyond what the minimal state requires.

Now I'd like to take on the idea of such a comprehensive theory of natural property more directly.  In that earlier post, I promised to explain why I reject theories of natural property rights, dropping the teaser that my answer would surprise you.  Here I spill the beans:  I reject theories of natural property rights because they are incompatible with capitalism.  More precisely, they are incompatible with the forms of modern capitalism that have proven so successful in  expanding people's opportunities, prosperity, and the scope of cooperation--that is, the forms worth supporting.  Far from being the foundation of capitalism, natural property rights, construed as putting constraints on state action, are its bane.

By a theory of natural property rights, I mean a theory that (a) identifies first principles by which individuals may initially own or acquire property without the help of a state; (b) upholds principles of virtually unrestricted voluntary transfer (freedom of contract, gift, and inheritance); and (c) limits the state (if it is to exist at all) to enforcing these strict property rights and whatever obligations arise from unrestricted freedom of contract.  Crucially, these rights and obligations may not be abridged, limited, or revised by the state in order to produce various desired consequences.  Some natural property rights theorists allow exceptions to these principles at the margins (Nozick, for example, allows that property rights may be abridged to avoid catastrophe).  But by and large they see free market capitalism as a spontaneous self-sustaining product of systems of property whose logic lies outside state definitions and social engineering.  The great danger to capitalism, on this view, is state "intervention" into a market sphere that runs by its own natural laws.

I think this picture of capitalism is misguided.  The forms of capitalism that exemplify its greatest virtues rest on artificial, not natural property formations.  The state does not "interfere" in a "natural" capitalistic realm; rather, state action constitutes this realm as distinctively capitalistic.  Advanced capitalism requires a vast apparatus of socially engineered institutions to sustain itself.   To put some specificity on these claims, I'll argue as follows.  (1) Certain types of property rights and rules found in advanced capitalism have no sound basis in "natural" property rights but are nonetheless essential to advanced capitalism.  (2) Natural property claims do spontaneously arise independent of state action, but they are incapable of generating the distinctive form of property needed for capitalism--namely, capital.  State action is required to turn property into capital, and such action will inevitably, and rightly, abrogate these "natural" claims.  (3) A pure system of natural property rights with unrestricted freedom of contract contains inherent tendencies to revert to feudalism if the state does not limit freedom of contract by restricting property transfers from the desperate to the well-endowed.

(1) Advanced forms of capitalism depend on types of property that have no natural foundation. 

Consider, for example, the limited liability corporation.  In a natural property regime, groups of people contracting together can enjoy no more rights vis-a-vis third parties than what the sum of their individual property rights already gives them.  Since individuals do not enjoy any "natural" limitation on their liability, they can't naturally acquire such a limitation just by combining their property with others.  Limited liability is justified not because it could arise from a system of natural liberty, but because investment in firms that separate ownership and control will be retarded, and hence overall economic growth will be depressed, if investors don't enjoy it.  Limited liability does leave some rightful claimants uncompensated when firms go bust.  Capitalism makes up for this in part through generally higher growth (which socializes some of the benefits of this property form).  It also partly makes up for this through social insurance schemes that prevent some of the worst costs from being so concentrated as to produce hardship (which socializes some of the costs of this property form).  For example, the state bails out pension funds that bankrupt firms owe to their workers.

Intellectual property rights are also both indispensable to capitalism and deeply artificial.  They contain two features that, in combination, cannot be rationalized by a theory of natural property:  (a) they afford monopoly rights to inventors, and (b) they are temporary.  A theory of natural property could reject intellectual property altogether, on the ground that thought, once made public, becomes part of the commons, and no one coerces anyone else in using a valuable idea.  Or it could insist that inventors have an absolute and permanent right to their ideas.  (This would, for example, grant to the heirs of the inventor of the alphabet the permanent right to determine who is permitted to use it, and how much they must pay for the privilege.)  But it is difficult to envision any theory of natural property that could both acknowledge the existence of such rights and insist on their expiration.  There is a sound economic justification for a property regime like this, but it isn't "natural."

Many other examples of property rules important to capitalism, but not rationalizable within a theory of natural property could be cited--for example, bankruptcy (which discharges an insolvent debtor's debts, thereby abrogating the "natural" property claims of creditors), the rule against perpetuities (some version of which is needed to ensure that property rights ultimately vest entirely in living people, to prevent the dead hand of the past from permanently weighing down future uses of property), anti-commons rules (which prevent owners from dividing their property into uselessly small bundles), and rules against shareholder oppression (which limit what majority owners can do to undermine minority shareholder interests).  Some version or other of these types of artificial property rule are vital for dynamic economies. (I don't pretend to defend the details of the ones currently in force.)  Of course, one person's modus ponens is another's modus tollens.  One might reject these types of property on the ground that they violate natural property rights.  But don't pretend that one's preferred system would still be able to sustain capitalism or preserve its observed advantages.

(2) Natural property systems do not generate the distinctive form of property essential to capitalism, namely, capital.

Natural property exists, in the sense that people do successfully establish private property regimes, based on local conventions, that are independent of and often in opposition to the state.  (Like my fellow-blogger Don Herzog, I happily embrace distinctions between state and society!) Indeed, natural property is by far the dominant form of property in the developing world.  The great Peruvian economist Hernando de Soto has documented that in major regions of the developing world, 65-85% of housing is extralegal (that is, it consists of squatter settlements).  The vast majority of retail markets and mass transportation in these regions also exist outside of the formal sector.

Since natural property systems exist as an empirical reality, and not just in the state-of-nature fantasies of philosophers, we can compare their performance with artificial property systems established by capitalist states.  De Soto's verdict is clear: natural property is inferior to artificial property.  The people who have only natural property are poor.  Moreover, they are not poor because the state actively interferes with their natural property systems.  For the most part, developing countries acquiesce in their formation.  Rather, they are poor because natural property systems cannot convert property into capital.  The distinctive feature of capital is that it has market value to strangers, to people who do not belong to the parochial community in which the property exists.  Capital can be sold to strangers and used as collateral on loans.  Capital's value rests on the fact that it is the locus of a massive expansion of the scope of cooperation and trust, beyond the face-to-face community, ultimately encompassing the whole world.  It is a great engine of cosmopolitanism, which is one reason why I support it.

The natural property theorist might insist that all that natural property lacks is formal recognition  by the state, exactly as it has been created by the locals.  This ignores the fact that natural property systems are profoundly idiosyncratic.  They vary in innumerable details from one locale to another, just as languages vary.  And just as language variation puts sand in the gears of cooperation and trust across linguistic groups, variations in natural property conventions impede the conversion of natural property into capital.  Strangers are reluctant to buy it, or accept it as collateral, and not just because they lack confidence that their property claim will be enforced (by either the state or the locals) if a dispute arises.  They are reluctant also because they literally don't know what they are getting.  The local conventions that define and encumber the property are not written down.  Even if they were, they are too idiosyncratic in form to enable effective comparison with other parcels of natural property.  Without easy comparison with other parcels, natural property lacks fungibility and so lacks a market value to strangers.

When the state grants legal recognition to natural property, as when it issues squatters title to the land they have been occupying extralegally, it incoporates that property into a vast system of artificial rules that are not of local making and that may well contradict the local conventions that previously defined the property.  Of course, as Robert Ellickson has shown in his wonderful Order Without Law, the locals remain free to observe the local conventions instead of the formal property rules.  But, as his work also shows, those conventions lose their force when strangers, who care little for local opinion, buy the property.  This is the price of the conversion of natural property into capital.  But the price is worth it.  This means that the state is not, and ought not to be, bound to respect natural property.

This is not to say that there cannot be a compelling case at times for the state to formalize natural property.  My point is rather that the case cannot be made on the ground that people have a fundamental right to whatever property they have acquired naturally.  This can't be the ground, because formalization does not merely recognize the property that was already there, but subjects it to a distinct and often contradictory artificial regime.   The case for formalizing natural property--incorporating it into the artificial capitalist regime--is rather that  in many cases this is the best way, of the available alternatives, to enable the owners to escape poverty, provide for their needs, and gain prosperity and a wider range of opportunities.

Now here's the rub:  those very same grounds also justify, at times, infringing on natural property and instituting new artificial property rights, such as social insurance entitlements, and hence the taxes to support them.  The general justification for any property regime rests on its ability to enable, to the highest feasible degree, everyone under it to live a decent life, enjoying dignity, personal independence, freedom from poverty and oppression, a wide range of opportunities, and the effective power to participate in the social and economic life of the community.  No one has a right, "natural" or otherwise, to a property regime that in fact deprives others of effective access  to such a life, if there is an available alternative property regime that does effectively secure these others such a life.  Such alternatives have been found through experience to require measures such as social insurance entitlements and the taxes needed to support them.

(3)  A pure system of freedom of contract, in which all property is fully alienable, tends to degenerate to feudalism.  Capitalism therefore needs restrictions on freedom of contract.

Feudalism is based on the principle that private property in land confers political power over whoever is on the land.  One's landlord is one's lord.  Feudalism permits the conversion of property over things into subjection over people.  Theories of natural property rights, which suppose that people have property in themselves, and that all property is alienable in contracts, permit the same conversion.  If the state places no limits on such conversions, then, given the volatile nature of capitalism, many people will be pushed into a poor bargaining position.  In such a position, many will sell their personal independence for subsistence.  Thus arise oppressive forms of contract feudalism such as those into slavery, bonded labor, and debt peonage.  Thus arose company towns in the U.S., which issued scrip instead of cash wages to their workers (redeemable only in company-owned stores), required workers to rent company-owned houses (with leases enforcing what the company deemed a proper lifestyle), and crowned the firm owner as mayor for life (without those pesky elections).  Thus arise modern factories in quasi-capitalistic China today, which keep their workers locked up in factory-owned dormitories, forbidden by contract to wander outside, lest they hire out their labor (enhanced by the training provided by the firm) to competitors.

Theories of natural property misidentify the objection to feudalism.  They suppose that what made feudalism objectionable is that the landlord's political power lacked the consent of the people.  On this view, contractual forms of feudalism, such as debt peonage and company towns, are legitimate.  But if fedualism is objectionable, it is not for lack of consent.  As Hume observed, the people did consent to the rule of their lords.  Their consent, however, had no legitimating force, because they had no reasonable alternative:

Can we seriously say, that a poor peasant or artisan has a free choice to leave his country, when he knows no foreign language or manners, and lives, from day to day, by the small wages which he acquires? We may as well assert that a man, by remaining in a vessel, freely consents to the dominion of the master; though he was carried on board while asleep, and must leap into the ocean and perish, the moment he leaves her.

The same objection applies to contemporary forms of contractual feudalism.  But even this objection does not get to the core of the issue, which is not consent, but rather the content of the relationship.  Feudalism, whether contractual or not, is objectionable because it constitutes a relation of personal subjection, in which one party enjoys arbitrary power over another.  Because personal independence is essential for liberty, it should be considered an inalienable right.

This entails limitations on freedom of contract that go well beyond the abolition of contract slavery, debt peonage, and company towns.  It justifies legal regulation of rental contracts, for instance, so as to guarantee tenants a right to privacy against unannounced or too-frequent invasions by their landlord.  It justifies laws against quid-pro-quo sexual harassment.  (In light of this analysis, quid-pro-quo sexual harassment should not be viewed as any ordinary contractual term, but as contract feudalism's analogue to the droit du seigneur, now applied directly to the vassals, whether male or female, rather than their wives.)  It even justifies laws restricting corporate contributions to politicians.  Without such restraints on contract, we don't get capitalism.  We get contract feudalism.  Capitalism can't survive as a distinctive formation without restrictions on the conversion of property into political power.

Under the capitalist system we have today, people's claims to property arise from a vast artificial system that has no natural foundation, and that rightly contradicts many natural property claims.   The system couldn't be capitalistic if it didn't.  Within such a system, people have no property claim against other parts of the artificial property system, including social insurance entitlements and the taxation needed to support it.  Since their prosperity arises from artificial property, no less than the economic security of those receiving social insurance entitlements does, their property claims enjoy no superior or prior status that could constrain the state's constitution of new entitlements and taxes that advance the proper goal of any property system--effectively securing a decent life for all.

January 26, 2005

How Not to Complain About Taxes (III): "I deserve my pretax income"

Anderson on Political Economy, Elizabeth Anderson: January 26, 2005

Today's post is a tribute to F. A. Hayek.  I was going to commend Hayek earlier, for nailing the economic case against comprehensive planning, but fellow-blogger Don Herzog beat me to it.  This is the third installment in a series of posts on the justification of taxation for social insurance.  Instead of launching directly into a positive argument for social insurance,  I've been clearing the ground by explaining why certain sorts of arguments against such taxation don't work.  The question at stake is whether there are sound arguments for the proposition that individuals have such a strong claim to their property that the state cannot justly tax them for the purpose of funding social insurance.   In my first post, I explained why the claim "it's my property" does not constitute a sound argument against taxation.  In my second, I explained why claims based on natural property rights don't do so.  In this post, I'll explain why the claim "I deserve my property" doesn't do so, and on the way, start to build the positive case for social insurance.  Throughout this series, I am presuming the superiority of capitalism as a mode of organizing economic life.  So, arguments against taxes that are incompatible with capitalism I take to be refuted for that reason.

The claim "I deserve my income," as applied to an individual's pretax income in free market economies, has considerable intuitive force.  If true, it suggests a powerful moral claim against taxation for redistributive purposes, on the intuitively plausible supposition that a just economic order ought to ensure that people get what they morally deserve.

But, however intuitive these claims may be, they are unjustified.  In two of his important works of political economy, The Constitution of Liberty (see esp. ch. 6), and Law, Legislation, and Liberty (vol. 2), Hayek explained why free market prices cannot, and should not, track claims of individual moral desert.

1. Let's consider first Hayek's claim that prices in free market capitalism do not give people what they morally deserve.  Hayek's deepest economic insight was that the basic function of free market prices is informational.  Free market prices send signals to producers as to where their products are most in demand (and to consumers as to the opportunity costs of their options).  They reflect the sum total of the inherently dispersed information about the supply and demand of millions of distinct individuals for each product.  Free market prices give us our only access to this information, and then only in aggregate form.  This is why centralized economic planning is doomed to failure:  there is no way to collect individualized supply and demand information in a single mind or planning agency, to use as a basis for setting prices.  Free markets alone can effectively respond to this information.

It's a short step from this core insight about prices to their failure to track any coherent notion of moral desert.  Claims of desert are essentially backward-looking.  They aim to reward people for virtuous conduct that they undertook in the past.  Free market prices are essentially forward-looking.  Current prices send signals to producers as to where the demand is now, not where the demand was when individual producers decided on their production plans.  Capitalism is an inherently dynamic economic system.  It responds rapidly to changes in tastes, to new sources of supply, to new substitutes for old products.  This is one of capitalism's great virtues.  But this responsiveness leads to volatile prices.  Consequently, capitalism is constantly pulling the rug out from underneath even the most thoughtful, foresightful, and prudent production plans of individual agents.  However virtuous they were, by whatever standard of virtue one can name, individuals cannot count on their virtue being rewarded in the free market.  For the function of the market isn't to reward people for past good behavior.  It's to direct them toward producing for current demand, regardless of what they did in the past.

This isn't to say that virtue makes no difference to what returns one may expect for one's productive contributions.  The exercise of prudence and foresight in laying out one's production and investment plans, and diligence in carrying them out, generally improves one's odds.  But sheer dumb luck is also, ineradicably, a prominent factor determining free market returns.  And nobody deserves what comes to them by sheer luck.

2.  If free market prices don't give people what they morally deserve, should we try to regulate factor prices so that they do track producers' moral deserts?  Hayek offered two compelling arguments against this proposal.  First, if you fix prices on a backward-looking standard, they will no longer be able to perform their informational function.  Producers will produce for what was demanded last quarter, even if it isn't demanded today.  This creates enormous waste and generates huge opportunity costs.  We'd be much poorer in an economy that worked like this.

One could imagine a way around this problem.  Let prices move according to the free market.  But set up a government agency to compensate people for their undeserved bad luck, from taxes raised on that part of people's property that they receive on account of their undeserved good luck.  This way, prices would retain their informational function.  This idea, which I have dubbed "luck egalitarianism," now dominates contemporary egalitarian thinking.  I have argued in print that it's a very bad idea ("What is the Point of Equality?," Ethics 109 (1999): 287-337), for numerous reasons.  One is that there is no coherent way to determine how much of what people get is due to luck, and how much is truly their responsibility.  (To see some of the complexities involved, consider work by Mathias Risse, here and here.)  Hayek focused on a more fundamental reason:  any attempt to regulate people's rewards according to judgments of how much they morally deserve would destroy liberty.  It would involve the state in making detailed, intrusive judgments of how well people used their liberty, and penalize them for not exercising their liberty in the way the state thinks best.  This is no way to run a free society.

Hayek was right.  It might sound like a compelling idea, to make sure that people receive the income they morally deserve.  But orienting the economy around this goal, assuming it is achievable at all (and there are principled doubts about that), would doom us to poverty and serfdom.  It would abolish capitalism, along with its chief virtues.  It isn't worth the draconian costs.

3. Several implications follow from Hayek's insights into the nature of capitalism.

(a) The claim "I deserve my pretax income" is not generally true.  Nor should the basic organization of property rules be based on considerations of moral desert.  Hence, claims about desert have no standing in deciding whether taxation for the purpose of funding social insurance is just.

(b) The claim that people rocked by the viccisitudes of the market, or poor people generally, are getting what they deserve is also not generally true.  To moralize people's misfortunes in this way is both ignorant and mean.  Capitalism continuously and randomly pulls the rug out from under even the most prudent and diligent people.  It is in principle impossible for even the most prudent to forsee all the market turns that could undo them.  (If it were possible, then efficient socialist planning would be possible, too.  But it isn't.)

(c) Capitalist markets are highly dynamic and volatile.  This means that at any one time, lots of people are going under.  Often, the consequences of this would be catastrophic, absent concerted intervention to avert the outcomes generated by markets.  For example, the economist Amartya Sen has documented that sudden shifts in people's incomes (which are often due to market volatility), and not absolute food shortages, are a principal cause of famine.

(d) The volatility of capitalist markets creates a profound and urgent need for insurance, over and above the insurance needs people would have under more stable (but stagnant) economic systems.  This need is increased also by the fact that capitalism inspires a love of personal independence, and hence brings about the smaller ("nuclear") family forms that alone are compatible with it.  We no longer belong to vast tribes and clans.  This sharply reduces the ability of individuals under capitalism to pool risks within families, and limits the claims they can effectively make on nonhousehold (extended) family members for assistance.  To avoid or at least ameliorate disaster and disruption, people need to pool the risks of capitalism.

This fact does not yet clinch the case for social insurance--that is, universal, compulsory, government-provided, tax-funded insurance.   For all I've said so far, maybe private insurance would do a better job meeting people's needs for insurance in the event of unemployment, disability, loss of a household earner, sickness, and old age.  That depends on the relative performance of social and private insurance with respect to each of these events.  Or perhaps some kind of mixed system, combining social and private insurance, would be optimal (I'm inclined to this position).

I do think, however, that the arguments I have provided so far go a considerable way towards justifying the view that, whether the insurance provider is public or private, not all individuals can reasonably be expected to pay for their insurance premiums out of their pretax incomes.  For the reasons just discussed, pretax incomes provide a morally arbitrary baseline for determining the means within which people may reasonably be expected to live.  Equilibrium factor prices may well be below subsistence or a decent life for millions.  (This doesn't mean we should seek to institute a morally deserved baseline.  My goal is not to ensure that people get what they morally deserve.  It's to avoid gratuitous suffering, and to ensure that everyone has effective access, over their whole lifespan, to the means needed for a decent life.)  And so far, no argument that people have a  moral claim to their pretax incomes, sufficient to preclude taxing it for insurance purposes, has survived critical scrutiny.  Certainly, "I deserve it" doesn't.

February 03, 2005

Bush hasn't cut taxes

Anderson on Taxes, Elizabeth Anderson: February 3, 2005

This is a plea for terminological honesty, as a prerequisite for fiscal sanity.  President Bush boasts, as one of his major policy achievements, that he has "cut" taxes.  Virtually all media outlets and partisan sources, including Bush's critics, follow Bush in calling his tax policies tax "cuts."  But Bush has not cut taxes.  He has merely postponed them.

Suppose you buy a $200,000 house by putting $100,000 down and taking out a loan for the remaining $100,000, to be paid off at 5.5% compound interest over the next 30 years.  Would it be accurate to say that you had to pay only $100,00 for the house?  Of course not.  You've simply postponed payment of the $100,000 balance.  According to this handy mortgage calculator, the cost of doing so--your total interest payment--will be $104,403, for a total 30 year housing cost of $304,403.

Ok, then.  Suppose, in 2004, you bought $2,292.2 billion of government outlays by putting $1,880.1 billion in tax revenues down, selling $412.1 billion in IOU's to the general public, and $151.1 billion in IOU's to the Social Security trust fund (in return for spending an equivalent amount of Social Security tax revenues on non-social security projects, included in the $1,880 billion figure above).  Would it be accurate to say that you had to pay only $1,880.1 billion for government?  (Data from the Congressional Budget Office.) Of course not.  You will have to pay, on top of that, $563.2 billion ($412 billion borrowed from the general public + $151 billion borrowed from Social Security), plus interest (which, according to the Bureau of Public Debt, was running on average at 4.5% at the end of 2004) in future years to pay for government spending in 2004.

Let's face the facts.  The nominal "price" of government (not the same as its total cost) is equal to the amount of government spending, not the amount of tax revenues.  If the spending isn't paid for today, it will have to be paid for tomorrow, with interest.  Bush has been steadily increasing government spending, as you can see here.  Falling tax revenues today mean rising tax bills tomorrow.  To be honest, we should call Bush's tax policies, given the absence of commensurate spending cuts, tax postponements.  They are not tax "cuts."

Against this, supply-siders have, since Reagan, promised that cuts in current tax rates will increase future tax revenues enough to close the deficit, by stimulating economic growth.  But that didn't happen in the Reagan years, and it didn't happen with Bush's tax policies, either, as the data show.

Of course, the government could avoid raising taxes by defaulting on its debt.  But doing so would be far more costly than raising the taxes needed to pay it off.  We'd face a run on the dollar, soaring interest rates and inflation, and likely economic collapse.  Indeed, at current rates of borrowing, we are likely to face these consequences long before default is imminent.

It could also be argued that it's ok to call Bush's policies tax "cuts" if they will be paid for in the future with spending cuts, rather than future tax increases.  But Bush's own spending policies, notably including the new Medicare drug benefit, are plainly inconsistent with the kinds of spending cuts that would be needed to prevent future tax increases.  In fact, according to the Government Accounting Office's latest report, "today’s fiscal policy Is unsustainable" (p. 5).  Among the nuggets reported there:

  • "In fiscal year 2004 the federal government added $13 trillion in new liabilities, unfunded commitments, and other obligations, principally due to the new Medicare prescription drug program" (p. 7).
  • "The federal government’s net liabilities, unfunded commitments, and other obligations now amount to more than $43 trillion, or about $350,000 for every full-time worker, and these unfunded commitments are growing larger every day" (p. 7).
  • If Bush carries out his promise to make his tax "cuts" "permanent," and discretionary spending [only 1/3 of total federal spending] grows at the same rate as the GDP, "by 2040 the government would have only enough money to pay interest on the federal debt" (p. 8).
  • "Social Security is a relatively small part of the long-term fiscal challenge when compared to spending on health care. . . . [T]he estimated Social Security shortfall is about one-third the estimated cost of recent tax cuts if made permanent" (p. 12).

Bush's fiscal policies are leading us to disaster.  It's time to call Bush out on his fraudulent bid to make his tax "cuts" "permanent."  A good start would be to stop calling them "cuts" and start calling them tax postponements.  That would make the fraud transparent.  You can't postpone bills forever.

I'm not claiming that tax increases can solve this mess by themselves.  Clearly, strong steps will be needed to rein in spending increases on health care entitlements as well, since they are a chief cause of the problem.  (For the reasons stated here, Social Security presents no more than a minor problem, and Bush's plan would make it worse.  Why are we wasting time on a hangnail, when heart failure looms?)  But please, let's stop pretending that Bush has "cut" taxes.  And let's stop taking seriously his talk of making tax "cuts" "permanent." 

February 05, 2005

Social Insurance and Self-Sufficiency

Anderson on Political Economy, Elizabeth Anderson: February 5, 2005

Many people are troubled by social insurance not so much from considerations of justice as of virtue.  They worry that social insurance debases people by making them dependent on government.  It saps people's self-sufficiency and makes them a burden on others.  People should provide for their own futures and not expect other people to step in and support them if they haven't set aside enough to do so.

I think this view is fundamentally misguided.  Social insurance does not offend any worthwhile ideal of self-sufficiency.

It might be thought that self-sufficiency requires that each individual build their own personal savings and live exclusively on that.  The offensive feature of social insurance is the pooling of assets and risks.  But that can't be right.  Private insurance also pools assets and risks.  No one holds that it saps one's self-sufficiency if one purchases private insurance to provide for oneself and one's family in the event of disability, death, sickness, retirement, and the like.  The fact that one has pooled one's personal risk with others does not offend any reasonable ideal of self-sufficiency--even if it does mean that, if things go badly, one will end up drawing more from the pool of assets than one contributed in the first place.  So what is supposed to make social insurance any different?   One pays one's contributions--in the U.S., mostly in the form of wage taxes--thereby pooling one's risk with everyone else.  And one receives medical care, a retirement pension, income in the event of disability, etc., in return.

Perhaps the objection is that the contributions of the less well-off to social insurance yield benefits greater than what they could have obtained from willing private insurance providers.  They lack self-sufficiency and hence are a burden on other payers into the social insurance system, in that the benefits they receive are more than what private insurance would have given them for their contributions.  Note that this objection contradicts the more common argument on behalf of private insurance--namely, that it provides higher benefits for everyone than social insurance, whatever their level of contribution.  Note also that this objection does not condemn all recipients of social insurance for lacking self-sufficiency, but only those who would have gotten a worse insurance package under a purely private system.  More fundamentally, the argument ignores the distinction between virtue and luck, noted in my earlier post on Hayek.  If one's risk is known to be high, one may not be able to obtain private insurance at any price within one's budget constraint.  For private insurers need to guard against adverse selection, lest they fail.  But the fact that one's risk is known--say, one is older, has a pre-existing condition, or works in a dangerous occupation, such as firefighting, farming, or metal stamping--is typically independent of any considerations of virtue.  Being subject to a known high risk does not make one a degenerate dependent, but it may make one uninsurable on the private market.  That's why social insurance is needed: it's the only way to ensure that everyone has access to insurance.  Because social insurance is universal, it doesn't suffer from adverse selection.

Perhaps the self-sufficiency objection applies specifically to Social Security's pay-as-you-go system.  Each generation pays for the next, instead of putting away savings on its own account, and spending those savings upon retirement.  Hence, the older generation is objectionably dependent on the younger generation, when it ought to have provided for itself.   

Consider by analogy the Amish practice of community barn-raising.  When a young farmer starts out on his own farm, he does not build his barn all by himself, nor does he pay others to help him build it.  Instead, he enlists his community to build it without pay.  This is no offense against self-sufficiency:  he will reciprocate when other members of the community need their barns raised.  This system involves an intergenerational transfer from older to younger farmers, since the older ones got their barns raised before the younger ones had a chance to help them.  Nevertheless, no participant is a net burden on others over the course of an entire life, since each farmer receives and gives in turn.  So no participant lacks self-sufficiency.  The fact that the generation that gives is different from the one that receives is irrelevant to the virtue of self-sufficiency.

Social Security simply reverses the timing of the giving and receiving, with the each generation paying for the retirement of its parent's generation.  From the standpoint of intergenerational reciprocity, this is even better than the barn-raising case, since the parent's generation already endowed the tax-paying generation with most of its capital, human and fixed, without charge.

Why ask each generation to pay for the retirement of its parent's generation, instead of asking each generation to pay for its own retirement?  The immediate demands of relieving poverty among the elderly had to be met when Social Security began.  That locked the intergenerational transfer in place.  This has always been the intergenerational social contract.  When parents became too old to work, they relied on their children to support their retirement.  Social Security merely pooled the children's responsibilities in this regard, rather than leaving each family to fend for itself.  And we've already seen that the mere fact of pooling risks and benefits does not offend the virtue of self-sufficiency, since private insurance does the same thing.

One might think that the demographics of the baby boom retirement fundamentally disrupt the general pattern of intergenerational reciprocity inherent in demographically stable pay-as-you-go systems. The thought is that under today's system, current and near-future retirees are making out like bandits at the expense of their children, who will be left with a much poorer retirement than their parents enjoyed.  I agree that if this were true, a significant question of intergenerational justice would arise.  But it isn't true. Even under the Social Security Administration's pessimistic assumptions about productivity growth (without which there would be no projected "crisis" at all), the real value of the retirement benefits future generations can expect after the misnamed "bankruptcy" year of 2042 is higher than the benefits retirees enjoy today.  This doesn't settle all questions of intergenerational justice that arise under Social Security.  But it does suggest that they are much less urgent than has been made out.  (Medicare is different.  As I've noted before, I do believe that, unlike Social Security, the current Medicare system does raise gave issues of sustainability and hence of intergenerational justice.  That's due to features peculiar to Medicare, rather than to social insurance in general.)

It could be objected that the Amish system is voluntary, while the Social Security system is coercive.  But the Amish system isn't voluntary.  Ever been shunned?   Private associations have their own legal means of coercion.  One might object to the coercive character of both systems.  All right, but It's not clear why that would mark a difference between self-sufficiency and dependency.  It's not an objection from virtue.  (Later, I'll be posting on why the coercion involved in social insurance is no different in kind or character from the coercion involved in any private property system.)

Some people feel that relying on a check from "government" makes one dependent.  But in a democracy, government is nothing more than citizens acting together, through state officials functioning as their agents.  It's no different in principle from the barn-raising system.  It's just on a vastly larger scale that, due to its size, requires an intermediary administrative apparatus.  If the Amish aren't a bunch of degenerate dependents in running their barn-raising system, then neither are citizens at large in contributing to, and receiving from, social insurance.

Many important questions remain about the justice and wisdom of social insurance.  But worries about sapping the virtue of self-sufficiency are not among them.


P.S. Numerous comments and trackbacks to my post on Hayek suggest that I missed the boat, since the best arguments against taxation don't suppose that anyone morally deserves their income as a reward for their virtue. They claim that people are entitled to their income because they obtained it through a system of voluntary, uncoerced exchange.  I'm familiar with this argument, and never supposed or suggested that my post addressed it.  Readers, there's only so much one can do in a single post!  This isn't a scholarly paper, where one can blather on for 30 pages, much less a law review paper, where one can blather on for more than 100 pages.  I'll be posting on the entitlement argument soon . . . .


February 08, 2005

Understanding Social Security

Anderson on Political Economy, Elizabeth Anderson: February 8, 2005

Go over to the Heritage Foundation's Social Security Calculator and you can indulge your outrage at how little retirement income you will get from Social Security compared to what you would get if you invested your Social Security tax contributions in private stocks and bonds.  Then you can sober up by reading Pandagon's debunking of the economic assumptions behind the calculator.  (Matthew Yglesias does a similar debunking of the Cato Institute's Calculator).

I've got a different criticism of the calculator.  It forgets that Social Security is a form of social insurance, not a simple retirement plan.  So it's comparing apples with oranges.

This might seem puzzling.  Insurance is supposed to shield us against risks, not against certainties.  Against certainties, individuals should be expected to save up and provide for themselves.  Retirement is a near certainty.  So how can Social Security count as a form of insurance?

The answer is that Social Security isn't a simple retirement program.  The purpose of Social Security is to insure against a whole battery of risks that are difficult or expensive for many people to insure on the private market, especially if they have modest means or lack financial sophistication.  Some of these risks are inherent in strategies that rely exclusively on private sources for retirement (IRA's, 401(k) plans, corporate pensions, etc.).  What are the risks Social Security shields us from?

Let's count them up:

1. The risk that you will outlive your retirement savings.
2. The risk that inflation will eat away at the real value of the income derived from your retirement savings.
3. The risk that your private investments will go sour.
4. The risk that your lifetime income will be too low to accumulate enough savings to avoid poverty in retirement.
5. The risk that you will lose your prospects for a decent retirement due to personal bankruptcy. (Some private retirement accounts, particularly those available to the self-employed, are not protected from bankruptcy proceedings).
6. The rapidly increasing risk that your post-retirement standard of living will plunge precipitously because your employer ran your pension plan into the ground. (Although there is an independent federal program that takes over bankrupt corporate pension funds, it offers a far lower payback than promised by these plans, making additional guaranteed sources of income more important for retirement security).
7. The risk that you will become permanently disabled during your working years, leaving you and your family without your income, and hence also without retirement income, given your inability to save up for old age.  (Workers' comp only covers disability due to work-related causes, and ends upon reaching retirement age.)
8. The risk that you will die, leaving your spouse and dependents without support from your income.

Social Security protects you against all of these risks, either directly or indirectly.  These protections are substantial.  Considering just the last 2 risks, it's worth noting that about 1/3 of the current beneficiaries of Social Security, and 1/3 of its expenditures, go to survivors of deceased working-age contributors and to disabled workers, not to retirees.

Social Security calculators like Heritage's compare a fairly pure retirement investment against a package that combines a modest retirement supplement with ample insurance against multiple risks.  They assume that nearly all of the dollars you contributed to Social Security are dedicated to retirement.  This means that they assume that you aren't going to die, leaving survivors in need of support.  They assume that your retirement accounts are protected from bankruptcy proceedings, and that you aren't going to go bankrupt.  In assuming steady, high rates of return on your private investments, they also assume that your private investments will not go sour, either through poor investment strategies or through a general fall in the market before retirement.  And they pretend that the life annuity you can buy on the market is inflation-indexed, as Social Security's is, even though their figures are unrealistic even for a non-indexed annuity.

(The Heritage Foundation claims that its calculator is for an inflation-indexed annuity.  However, when I asked for data on a generic 45 year old female, it popped back a current salary of $31,592 and claimed a lifetime SS contribution nestegg of $559,111 if privately invested, yielding a $4,554 inflation-indexed lifetime monthly annuity.  Go over to, which actually has to make a living selling these things, and you get a different story.  Buy a non-inflation-indexed single life annuity for $559,111 for a 67 year old Michigan female, and they'll pay her $3,618 per month for life.  The more responsible and cautious Cato calculator claims to preserve insurance against most risks and presumes workers may invest only 1/2 of their SS taxes in private accounts.  But its annuity estimates are also optimistic.  It claims a 45 year old female earning $31,592 and investing 1/2 her SS taxes privately will retire at 67 with a nestegg of $262,142, which can buy an inflation-indexed annuity of $21,237/year or $1,770/month.  TotalReturnAnnuities will offer a lifetime annuity of only $1,696/month for that lump sum--not so bad, only their annuity is not inflation-indexed.)

It's a trivial exercise to show that, if nothing goes wrong, you'll be better off never having paid for insurance than having paid for it.  I could produce a calculator like Heritage's, showing how much better off you'd be if you never bought home or medical insurance, on the assumption that your home never gets destroyed and you never get sick.

A true comparison of Social Security with privatization would compare Social Security benefits with the package of retirement + multiple types of insurance that you could get on the market.  The comparison would not be easy, however, because some of the types of benefit provided as a matter of course by Social Security are very hard for many workers to match in the private sector.  Inflation-indexed life annuities, for example, are rare and expensive.  Most disability insurance companies aren't willing to insure blue-collar workers, perhaps because of the problem of adverse selection (they are more likely to become disabled). (Maybe this is why the Heritage Foundation shrinks from advocating the privatization of the disability portion of Social Security.) Most financial institutions don't want to bother with dozens of minute payments per year into millions of low-balance accounts.  Without tight regulation, they would either not offer retirement accounts to low-income workers, or charge draconian fees for administering them. (This is true for Bush's favored TSP model for partial privatization of Social Security.)  A few years ago, Dean Baker (now at the Center for Economic and Policy Research) calculated the insurance value of Social Security and found that it compared favorably to what low- and medium-income workers would be able to get in the private sector, even if the Social Security Trustees are right in their gloomy predictions for Social Security a few decades from now. (High-income workers will not do as well, because of the progressivity of Social Security benefits, which are skewed toward lower-income workers to keep them above the poverty line.)  Baker shows us the substantial value of Social Security as an insurance package.  Check it out.