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The wheel of misfortune

August 9th, 2009 - 8:17 am

Economics professor Gregory Clark argues in a Washington Post opinion piece that the earning power of unskilled American workers may have already peaked. He cites evidence which suggests that in the future  income increases will accrue only to the highly skilled because there are no more productivity gains to be squeezed out of providing better tools to the unskilled.  To keep real incomes  among the unskilled steady and keep them increasing ever so slightly, Peter will have to pay for Paul. Thus, in order to maintain social peace taxation will have to be used to level the field — at least to the extent of guaranteeing basic social services to everyone — no matter how unproductive. He claims the need to transfer income between those who can make the money and those who can no longer do so will put government squarely on a collision course with traditional American individualism. He concludes that while that’s regrettable, one might have to get used to it because there is now way out. Clark writes:

The battle will be over how to get the economy’s winners to pay for an increasingly costly poor. Last weekend Treasury Secretary Timothy Geithner and Lawrence Summers, the director of the White House’s National Economic Council, refused to rule out raising taxes. Despite the White House’s subsequent denials, this may be an early acknowledgment of an inexorable trend. In a future with higher taxes, the divide between rich and poor would be the central economic challenge. …

So, how do we operate a society in which a large share of the population is socially needy but economically redundant? There is only one answer. You tax the winners — those with the still uniquely human skills, and those owning the capital and land — to provide for the losers. …

The last great hope may be to design a more efficient tax system. … Unfortunately, such measures are only stopgaps. In the end, we may be forced to learn to live in a United States where, by stealth, “from each according to his ability, to each according to his need” becomes the guiding principle of government — or else confront growing, unattended poverty.

Where have we seen that line before? Tom Palmer of the Cato Institute, writing about the recent death of Marxist philosopher G.A. Cohen, says that the central theoretical problem of Marxism for the last twenty or so years has been how to get to “from each according to his ability, to each according to his need” regardless of its past failures. Everything Marxist has been a dead end, it’s true, but that doesn’t mean it doesn’t lead anywhere. Palmer saw Cohen’s work as a relentless attempt to reach the desired conclusion whatever the facts. Cohen

was an “analytical Marxist,” i.e., someone who agreed with what he took to be Marx’s conclusions, but who thought that the arguments by which Marx reached them were erroneous or fallacious, so his job was to come up with new arguments. If those didn’t work, you kept the conclusion and looked for other arguments. To get a sense of what kind of man he was, think a bit on this defense of the Soviet Union:

The Soviet Union needed to be there as a defective model so that, with one eye on it, we could construct a better one. It created a non-capitalist mental space in which to think about socialism.

… Millions had to die so that Cohen and his rich friends could enjoy … the “mental space” it created to construct fantasies of an ideal life.

Maybe fantasy is too strong a term. But there is undeniably a certain spookiness about the way the Communist solution appears at the end of every sequence of propositions, even those that contradict each other. Those who remember the original Marx will recall that old Karl described things the other way around from Gregory Clark. In the old days it was the people who worked with their hands that were the engine of creativity and the effete intellectuals who were the parasites. Hence, the only way out of that onerous situation according to Marx, was to establish a society guided by the principle of “from each according to his ability, to each according to his need”. Today it is possible to start from completely opposite assumptions — that the manual laborers are the parasites and the effete intellectuals (the participants in the “creative economy”) are the productive ones — and reach exactly the same conclusion: “from each according to his ability, to each according to his need”. Heads I win, tails you lose.

But in this picture of class struggle, something is left out. It is the invisible person of the historical drama, who like the omniscient narrator in many a work of fiction, is is always present yet never part of the situation. That invisible agent is something called the state, who by convention in these stories, is the actor who must act and therefore be continuously empowered from whichever end of the argument one starts. One possibility that is rarely examined in these excluded middle arguments is what happens when the government — when the “change agents” — are themselves considered part of the problem. Suppose for example, the reason why there are so many unskilled people is because the public education system is broken, or the border is porous? Would that not at least in part modify the necessity of raising taxes? What if the level of taxes themselves were the problem? Clark to his credit, is aware that some people are actually making the argument. He writes:

The United States was founded, essentially, on resistance to taxes, and to this day, an aversion to the grasping hand of the state seems fundamental to the American psyche. The share of total income collected in taxes by all levels of government in the United States is 27 percent, compared with 51 percent in Sweden, at the other extreme. The conflicts to come are foreshadowed in California, where popular anti-tax sentiment has forced substantial reductions in medical care for the state’s poorest children.

But it is unclear that the California’s  refusal to vote tax increases is the real reason for “substantial reductions in medical care for the state’s poorer children”. Maybe  California has simply bought too big a government for it’s own good in the misguided belief that taxes could be raised forever, and finds like an improvident homeowner with too big a mortgage, that there’s not enough left for the bread and milk. I think Clark’s argument would be better if he recast it to include the effect of the “change agents” on the situation. Government after all spends real money. It doesn’t subsist upon thin air, and may actually operate on the principle of “from each according to the roster, to each according to the luck of the draw”.


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