Tuesday, July 19, 2011

“Your Money or Your Life?” What is the Difference?

This the my first essay for my summer class.  It is a work on the morality of property, democracy, and individualism.

            The scenarios presented by Dr. Thomas Rustici strike at the issues of sovereignty, property, and government. The first scenario is one of theft transfer, the second of a government transfer. The crux of the question is whether social welfare transfers are immoral. To address this question I will examine the morality of property, government, and welfare. These are important topics for any economist because much of what economics looks at involves transfers of one type or another through the institution of government. Before advising or engaging in such an activity, all economists should first look at the morality of the action.

            The first scene is one of a simple theft. Sam exclaims “Your money or your life!” Coerced by the threat of physical violence, Joseph hands over $50. Sam is later apprehended, convicted and sentenced to prison for the crime. The second scene involves the same two individuals. In this scene, Sam votes for a politician who is interested in raising the taxes of Joseph by (specifically) $50. This $50 is then statutorily directed to Sam because of an unspecified entitlement. Joseph then decides not to pay the additional $50 tax, but does pay the amount that he would have paid before the new statute. The Internal Revenue Service declares Joseph to be insufficient in his tax payment and he is arrested by the police. Although there is not a verdict, the scene does call Joseph a criminal and Sam a victim. One can assume that Joseph was found guilty.
            The commonalities lie within the structure of the scenario. The reader is meant to infer laws of logical equivalence (transference of $50 by personal theft and by taxation). The inference has not closed off all of the paths. The difference is that the second scenario is indirect. The former victim cooperates with fellow voters of similar political aims to elect a politician that will enact a new entitlement wealth transfer system. We may assume that Joseph also has a vote and may vote against this scheme. Ultimately the majority of voters express their preference towards the wealth transfer option. The moral question at the heart of these two scenarios is whether wealth transfer systems can be morally equated with theft. If left simply to those terms, it can be (i.e. authoritarian political systems). However, the additional element of a Constitutional democracy must be dealt with and this makes the scenario much more complex.

            The issues of the scope of government, taxation, and distribution of income have been fertile grounds for philosophers of all types for centuries. John Locke writes that we live in, “a state of perfect freedom to order their actions and dispose of their possessions and persons as they think fit, within the bounds of the law of nature, without asking leave, or depending upon the will of any other man.” (Locke, 4) I believe that any debate within these topics must start from the very concept of one’s self and our own individual sovereignty. Do we own our life? Do we own our choices? If those arguments are true, then wouldn’t we also own our own creative works or product? This sound argument is the moral justification for private property. The concept of one’s product may be alternate way of looking at one’s past.
            We live in social arrangements, which require degrees of cooperation. Cooperation requires ceding elements of control. If we may morally cede elements of control to a government, we also cede elements of sovereignty (if not in a true sense, in a working sense). We agree to a Constitution which governs us, and creates a means to a government that will function under a system of representational democracy. Of course, this is not the only system of human cooperation or non-cooperation, but this is ours and it is a simple explanation of the moral case for the United States (U.S.) government.
            An essential element of the moral case for the U.S. government is willing participation. When the Constitution was being argued, signed, and ratified, those individuals that signed and voted for ratification were willing participants. They freely ceded elements of their sovereignty. Immigrants that have journeyed to this country and become citizens of the United States willingly cede elements of their sovereignty. The majority of U.S. citizens do not have this relationship with their government. They were born here as citizens and never had the opportunity to express their preference. Has that individual legitimately ceded their sovereignty, or have their natural rights been infringed upon? In theory, they have not, and their rights may be infringed upon. In practice, this is an unclear area of morality. Humans have a logical tradition of inheritance. As we inherit genes and property from our parents, it seems that we also inherit elements of their choices (moral or otherwise). The moral decision of Constitution or citizenship, in practice, is also inherited.
            Based on the principle that we have a natural right to our self and our own product but desire cooperative social arrangements, what is the proper role of government? Philosopher Ayn Rand wrote that there were three proper functions of government, “to police, to protect men from criminals – the armed services, to protect men from foreign invaders – the law courts, to settle disputes among men according to objective laws.” (Rand, 288) The U.S. government does many more than those three functions. Is it immoral that the government expands or contracts its functions?
            The U.S. government is constrained by its Constitution but it is not unyielding. There are provisions within the Constitution for how amendments may be made. These amendments are difficult both for logistical reasons and the degree of agreement. We have amended our Constitution twenty seven times and may again in the future. In theory, the group of individuals that comprise the United States of America could change the Constitution to read whatever we would elect.
            The existing Constitution is upheld as our primary document of law by the Supreme Court. For much of U.S. history, the Supreme Court blocked Federal legislation aimed at controlling business and creating welfare policies. In 1936, the Supreme Court threw out taxes of the Agricultural Adjustment Act, but wrote an opinion that diverged from existing rulings about the legality of welfare programs. They stated that Congress’ enumerated right “to provide for the common defense and general welfare,” (U.S. Constitution Art. 1, §8) could have wide applications. Justice Owen Roberts, in his majority decision, notes the long standing debate between followers of Alexander Hamilton and James Madison. Roberts ultimately agrees with Hamilton, writing, “While, therefore, the power to tax is not unlimited, its confines are set in the clause which confers it, and not in those of § 8 which bestow and define the legislative powers of the Congress. It results that the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution.” (U.S. v. Butler)
            This decision is one of the relevant precedents for our scenario. Joseph does not object to government in general, but rather the marginal taxation incurred by the politician and directed to Sam. Yet our government is a dynamic organization bound by its Constitution. This system of government is backstopped by the Supreme Court and its ultimate upholding of that primary document. To the extent that the Supreme Court ever fails in its readings of the Constitution, is this a failure of the U.S. Government? No, because the U.S. government is one of process justice and not end justice. The system of government described by the U.S. Constitution is not foolproof. It can fail to serve and protect our natural laws just as any system of governments organized by men can. If the Constitution and corresponding government has been evaluated to ill-protect natural laws, then amendments should be made to sure up any logical holes.
            The size of government is not a relevant function within the moral logic of a democracy that is operating within its Constitutional framework. Rand’s proper functions of government, as reasonable as they may be, do not limit the choices of the Constitutional electorate. If one accepts our principle of the willing participant (whether a signer, immigrant, or heir), one is willing to participate within the defined scope of that specific Constitution and following laws, whatever they may be or secede. James Buchanan writes of this prospect, “The existing legal order may have lost its claim to efficiency, or, in a somewhat different sense, to legitimacy.” (Buchanan [1975], 169)
            Secession is a costly enterprise, you could end up stateless as an individual or you could endure a civil war as a group. Both of these are potentially catastrophic and undesirable experiences. The U.S. Civil War also strains our concept of willing participation. Although individuals in the former Confederate States adopted the Constitution again (with new amendments), it could be argued that they did so under duress. This introduces a flaw in the logic of our willing participation not only for descendants of the former Confederate States but also for all citizens of the U.S. because of the violent precedent that was set. To the extent that individuals do not secede only in fear of reprisal, they are not willing participants and they are ruled by an immoral government. I acknowledge this flaw, but because it is difficult to ascertain the scope of this problem within the population, I will leave it. As the essay continues, it is assumed that the individual is a willing participant.
            The public choice philosophy of government and politics started in the 1940’s but came into full with Anthony Downs’ An Economic Theory of Democracy in which he explains government as political entrepreneurs whose sales come in the form of votes.
“political parties in a democracy formulate policy strictly as a means of gaining votes. They do not seek to gain office in order to carry out certain preconceived policies or to serve any particular interest groups; rather they formulate policies and serve interest groups in order to gain office." (Downs, 137)

            Elected officials are not the only political entrepreneurs. Lobbyists attempt to create subsidy programs, specialized tax breaks, and other means of advantage. They work in concert with elected officials to join voter blocks to opportunities of all types. One of these opportunities is welfare, in various forms. Welfare is a direct government transfer to an individual. It is redistributive by nature because it is generally targeted to individuals who have been defined as lacking in a specific manner by elected officials and bureaucrats.

            Economist Kenneth Arrow wrote specifically about how social welfare may be determined by voting in his book, Social Choice and Individual Values. He begins by attempting to equate voting preferences with market preferences. He then attempts to introduce the concept of alternative social states, which he defines as the same set of individuals with different bundles of commodities and leisure. This creates an opportunity for ordinal choices. The theory itself, known as the General Possibility Theorem, falls apart under the falseness of its own assumptions, especially, “All individuals are assumed to have the same values at any given instant of time, but the values held by any one individual will vary with variations in the tastes of all." (Arrow, 71) This is not a correct description of the human condition, so while these assumptions may allow for an interesting theory, it will have limited or no relationship to the real world.
            Economist James Buchanan criticizes Arrow writing that, “the market does not belong in the category of collective choice at all." (Buchanan [1954], 114) He goes on to criticize the assumptions on individual values, “Can the rationality of the social organism be evaluated in accordance with any value ordering other than its own?" (Buchanan [1954], 116) All of economics since the marginal revolution has defined value in terms of marginal and subjective. It is subjective to the individual entity in the transaction. Therefore, a state or philosopher king economist cannot understand the value of any individual, never mind their total individual values or collective values.
            Downs also writes of the vagueness of the term “social welfare” and economist’s lack of agreement about how to maximize it. (Downs, 136) Welfare economics is an entire sub-discipline that is generally concerned with both the distribution of wealth in a society and economic efficiency. Nicholas Kaldor and J. R. Hicks used a graphical explanation of concave substitution curves that they then “sit” one atop the other, reversed, and then superposed (see chart one). (Hicks, 702) This allows them to show how alternative distributions may be optimal. Hicks wrote, “It is only when curves touch that an optimum organization is realized.” (Hicks, 703)


            Allan Meltzer and Scott Richard wrote an economic article A Rational Theory of the Size of Government. They describe the role of income on rational voting preferences. In their equation, the deciding vote is one past the median income voter. The voting population has a median income below the mean. This feature creates a demand for wealth transfer programs. (Meltzer and Richard, 916) In their assumptions they assume that there are individual heterogeneous preferences for labor/leisure. Naturally, this preference has a direct impact on the individual’s income. Once this option of welfare payments versus productivity is created, each individual that does work must weigh the effect of the redistribution on their preferences. Based on an equation for per capita income, it is derived that once either units of consumption per capita or the tax rate is chosen then the other is determined.



            To the proportion that the median income dips below the mean, the more likely the voter is to be interested wealth redistribution. Because of an assumption of balanced budgets, the voter is aware that their choices must burden others and affect their labor-leisure incentives. Although I have only shown the most critical elements, it is a good series of equations that allow for individual choice and feedback mechanisms. Chart two shows x0 when the median, deciding voter has no income and has maximum demand for revenue transfers. X 'bar' is when the median is equal to the mean income and would not have a demand for revenue transfers.

            Despite these qualities, even this equation is a theoretical rationalization of a dubious solution. The problem remains of the costs of such a system. Taxes and their subsequent dead weight losses weigh down any economy with a substantial welfare system. Entire industries may be priced out of existence within a given political system of multiple Pareto optimal welfare subsidies. One could even argue that welfare economics is an economist’s professional attempt at rent seeking.

            The basis of sovereignty and property are that we own and control ourselves. The basis of government is secondary to that and is based on our desire to cooperate for increased productivity. The commonality of the two scenarios is a $50 transfer from Joseph to Sam. The difference is that one is defined as a crime, whereas the other has been found by the Supreme Court to be a legitimate political act. The final point is the issue of taxation as slavery, and this is where the “willing participant” idea comes in. If we are not willing participants, all taxation is slavery. The initial taxes and the new welfare taxes in the scenario are all theft and therefore we are a slave to the government. If we do accept the system of government created by our Constitution, we must accept it whole with defects and all. It is a fantasy to think that there is a Constitution that is beyond the reach of man’s evolving grasp. Whatever system that individual has agreed to (whether by signature, immigration, or heir) they must understand the importance and fragility of this founding document and take care not to squander what was so difficult to acquire.


Works Cited:
Arrow, Kenneth J.  Social Values and Individual Choice.  New Haven: Yale University Press. 1972.  Print.
(originally published in 1951)
Buchanan, James M.  “Social Choice, Democracy, and Free Markets.”  Journal of Political Economy.  Chicago:
University of Chicago Press.  Volume 62, No. 2.  1954.  Journal.
Buchanan, James M.  The Limits of Liberty.  Chicago: University of Chicago Press.  1975.  Print.
Downs, Anthony.  “An Economic Theory of Political Action in a Democracy.”  Journal of Political Economy.
Chicago: University of Chicago Press.  Volume 65, No. 2.  1957. Journal.
Hicks, J. R.  “The Foundations of Welfare Economics.”  The Economic Journal.  London: Wiley-Blackwell.  Vol.
49, No. 196.  Dec. 1939.  Journal.
Locke, John.  The Second Treatise of Civil Government.  Oxford: Basil Blackwell.  1948.  Print. (originally
published in 1689)
Meltzer, Allan H. and Scott F. Richard.  “A Rational Theory of the Size of Government.”  Journal of Political
Economy.  Vol. 89, No. 5.  1981.  Journal.
Rand, Ayn.  Capitalism: The Unknown Ideal.  New York: New American Library.  1966.  Print.
Samuelson, Paul.  Foundations of Economic Analysis.  Cambridge: Harvard University Press. 1983.  Print.
(originally published in 1947)
U.S. Constitution.  Print.
U.S. v. Butler.  No. 401.  The Supreme Court of the U.S.  6 January 1936.
(last retrieved 18 July 2011).  Web.

Works Consulted:
Jeffries, Richard.  Formal Logic.  New York: McGraw-Hill.  1967.  Print.

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