Can Republicans Stomach the Idea of Free Money?

Since I left the Libertarian Party a decade ago, I have reverted to a more pragmatic and utilitarian vision of liberty, more Milton Friedman and less Murray Rothbard. Way back when I was in high school I was impressed with Friedman’s Negative Income Tax. Today, I want to simplify the idea and have a flat tax for The 99% coupled with free money for everyone.

But one of my favorite political pundits, P.J. O’Rourke, says NO. He says that a universal basic income is one of this month’s two worst political ideas. He points out that if his younger self had gotten a thousand dollar a month stipend, he would have remained an insufferable useless hippie.

He has a point. Some people will manage to live unproductive lives on a universal basic income, writing bad poetry, chanting Marxist slogans, crafting bad art, and sporting bad hair.

But people are doing this now, with much bigger government grants. We call them college professors, and fine artists.

P.J. makes a major mistake in applying the UBI idea to his younger self: $1000/month today would be far less than a thousand a month was back when he was an insufferable hippie. We had a rather serious bout of inflation in between then and now. To live as a happy hippie on a kilobuck/month today would require serious frugality, or even a bit of farming and other productive, if non-monetary, work. But under a UBI, unlike welfare, you could supplement your free government check with some legal monetary work without losing your benefits. Yes, you would pay taxes on that work, but the rate would be no more than what doctors and lawyers pay today — and they still show up for work from time to time.

Yes, this money is “unearned.” So are inheritances. I have a question for the Republicans in the audience: should inheritances be banned? I can say from direct experience that some who receive major inheritances do live lives of unproductive socialistic yammering. (I knew a few trustafarians back in my Asheville days.) Should we ban all inheritance to make such people get a job?

 

A Double Tax on Labor

2014 is the year of the tax form — at least for me. Having quit my day job last year in order to start a web company, while doing some independent contracting on the side, my taxes have become far more complex. Just getting the information together to send to my accountant is taking days.

And then I became a true masochist and wrote a C# program to simulate a wide range of taxpayers for my latest Simple Tax proposal. We could approximate the current system with a simple two-tier income tax combined with citizen dividend. We could go back to a 12 page 1040 instruction book like we had in the 1950s — without going to the horrendous marginal tax rates of the day.

For my Simple Tax, a bottom rate of 30% to replace federal income tax, FICA, Medicare and unemployment insurance for most workers and a 40% rate for individuals making over $400,000 would do the trick. With many payroll headaches removed, we can expect more people to go into business and hire others.

However, even without the need for a payroll service, this income tax still has a hidden disincentive towards paid labor. 30% doesn’t seem super terrible on the surface. But when I did an end-to-end analysis the true marginal rate was 51% for members of the working class.

Consider a call center worker with a dripping faucet at home. Should he take time off to fix it himself or should he call a plumber? To pay the plumber he has to earn the money; the government takes 30% and he has 70% left over. When he pays the plumber the government gets another 30%, leaving 70% of the 70% or 49% in the hands of the plumber. 51% of the marginal dollars go to the treasury. Even if most of those dollars come back as citizen dividend, the marginal impact is significant, and a pretty good explanation why Main St. has boarded up businesses and people opt for do-it-yourself even for tasks that aren’t that fun.

Regardless of the urgency to do something about global warming, we might want to do that carbon tax thingy just to reduce the marginal tax burden on labor.

On Monopoly and Toys

It’s that time of year again. Time for kids to experience the joys of new toys. I remember Christmases from my childhood. There were toys and games made by Ideal, Kenner, Tyco, Milton Bradley, Selchow and Righter, Parker Brothers, Playskool, Fisher Price, Tonka, Mattel, and Hasbro.

Today, all these companies have been merged down to two: Mattel and Hasbro. I find this a wee bit disturbing. Merger mania is the Marxist dialectic in action.

I’d like to run the process in the reverse: away from socialism and toward free agency. To that end, I have launched a new site, Finance and Freedom, to focus on just this issue.

I do intend to continue posting new material here at Holistic Politics, but sometimes it’s better to have a tighter focus. Many small town Chamber of Commerce types might find the color scheme and hippie fonts here off-putting.

Beyond Capitalism

Capital. The rich have it and the poor need it. The poor work for wages while the rich can sit back and collect dividends and interest. Karl Marx declared the arrangement unfair. He had a point. But Marx’s solution was worse than the problem. Take capital out of the hands of the capitalists and put it in the hands of a central bureaucracy and alienation increases. Plus you usually get a capricious god-emperor and a few years of mass starvation. Gulags and slave labor camps make capitalist sweatshops look pretty good.

Of course, many modern Marxists would claim that Marxism has never been tried, that what the Soviet Union and similar states practiced was State Capitalism, not Marxism. Well, the Soviets never got to communism, but Marx thought something akin to what the Soviets tried was the next step to communism. Methinks these modern Marxists are closer to the truth than Marx himself.

Freedom for all requires pushing capital down to the masses. A worker with his own tools is a free agent. The Marxist and the Bible agree on this: freedom of speech, religion, voting, etc. are mere “bourgeois freedoms” – important but incomplete. Freedom includes financial freedom, owning your own farm or business – or at least being able to shop employers so you are not a wage serf. A truly free society is one with an economy dominated by sole proprietorships, family businesses, partnerships and human scale corporations.

Capitalism will always be with us. Where tools are expensive, we must concentrate capital. And capitalism is usually the better way to allocate and manage these capital concentrations. Large scale worker democracy is often inefficient, and government ownership downright dangerous.

But both Marx and defenders of modern capitalism overestimate(d) the inherent power of centralization. Adam Smith wrote at a time when economic centralization was just getting started, when the returns on centralization were enormous. Marx extrapolated from Smith and assumed that the optimal economy was complete centralization – a gigantic error!

The need to centralize waxes and wanes by industry. Consider flour. Once upon a time, people ground grains by hand between stones. Then waterwheels powered the process, so people brought their wheat to central milling facilities to grind it into flour. We generally do so today, but more out of habit than necessity. With electric motors, you could have fresh flour ground on demand by an affordable kitchen appliance, and some hardcore foodies go that route. Most people don’t bother because they are used to bread made in giant automated bakeries. But once again, technology is turning full circle: you can buy an automated bread bakery that fits on your kitchen counter.

Computers were once centralized. Then the technology became cheap and personal computers became the norm. I am writing this chapter on a machine more powerful than the multimillion dollar supercomputer I shared time on in graduate school.

The music industry was centralized until recently because recording studios were expensive, and distribution channels limited. Top musicians put themselves under contract in return for recording facilities and promotion. Nowadays good quality recording equipment is within the range of high school students who flip burgers during the summer break. Distribution is trivial over the Internet. CD burners are standard equipment on even cheap used computers. Music is becoming a freelance business again.

Computerized machine tools and computer aided design tools have plummeted in price. Were it not for cheap labor in China, we might already see human scale manufacturing businesses displacing the industrial behemoths of old. We used to have over a hundred auto manufacturers in this country; we might again. The collapse of GM and Chrysler could be the start of something good.

We could have an economy which is neither capitalist nor socialist. We could have an economy which is dominated by human scale firms: family businesses, partnerships, small corporations, etc. It’s a matter of taking advantage of technological trends which have already happened, and discontinuing government policies which lock in the 20th Century economy. (This is not to say that large scale capitalism can or should be eliminated. Big business has is place. Likewise, some large scale government owned enterprises have their place as well. But both could be relegated to being minor features of the economy.)

To get back to a human scale economy we need to get rid of artificial economies of scale: unnecessary bureaucratic overhead and high transaction costs. We need to rethink our education system to prepare the average person for the possibility of being a free agent; the basics of business should be part of the core academic curriculum. We need to reform the tax code so it doesn’t encourage people to be wage serfs their entire lives; most especially, we need to disconnect health insurance from employment. Finally, we need to get cheap capital down to the smallest businesses. The big corporations succeed in part because they can afford to be less efficient, since they have access to cheap capital. Smaller businesses pay higher interest rates; startup corporations need a huge upside to justify venture capital or an IPO.

And the poor pay high interest rates on just about everything.

(This article was originally the intro to my updated Loans for the Poor. I decided it was a bit too long as an intro for said chapter, but it kind of stands up well on its own. Could even start new series…)