1. The Big Lie about corporate power is disintegrating in front of our eyes Monkey Cage
  2. How close is Hong Kong to a second Tiananmen? Jude Blanchette, Foreign Policy
  3. Preaching the American Gospel Glenn Moots, Law & Liberty
  4. Aging, death, and the law Joona Räsänen, Aeon

Senator Rand Paul on Taxes: Chip off the Old Block

Sen. Rand Paul, the nominally Republican presidential candidate, has inherited an uncommon trait from his father. He manages to inspire distrust in his credibility even as he conveys a message I want to hear and believe. On Thursday June 18th 2015, he had an op-ed in the Wall Street Journal about his proposed tax reform. Any national tax reform involves fiendishly difficult calculations about complex matters. Sen. Paul wants to junk the whole repulsive, disgusting, oppressive income tax and the IRS in favor of a flat tax. Music to my ears but difficult to believe his assertion that this replacement would be revenue neutral.

I don’t especially want federal revenue neutrality. I want the federal government’s share of GDP to decline. Yet, I understand that Mr Paul wishes to avoid conducting two discussions in one. (Junk the personal income tax; decrease the power of the federal government.) So, he has not done anything wrong there.

My problem is that in the course of a longish piece, he misuses grossly two sets of simple, basic economic terms. In this second paragraph, he refers to “duties and tariffs…” Toward the last third, he states something about “small businesses” and “corporations.” Both statements would be unacceptable in a sophomore basic economics class, even in a introduction to economics in a reasonably good high school.

Here is the first mistake: duties and tariffs are the same object. A “duty” is a tax on imports (or, very rarely, on exports). A tariff is the mechanism used to levy such taxes. It could be 10% of the value of the import or it could be $1 per bottle, for example. (Both methods are common.) That’s it. Referring to “duties and tariffs” proves beyond any doubt that you don’t understand the ordinary and oldest form of taxation. It looks bad in an essay devoted to …taxation.

Contrasting, or building any sort of parallel construction between “small business” and “corporations” is a common mistake but it does not belong under the pen of an elected politician who wants, as his main contribution, to overturn the way we have been financing most government for fifty years. “Small” businesses are in fact small. “Corporations” can be of any size, including two people, such a dentist and his wife. Most American corporations are small. The word corporation refers to a legal arrangement. It has nothing to do with the size of the business.

It’s as if Sen Paul did not know simple stuff when he talks about complex stuff. It’s as if, even more seriously from the standpoint of his credibility, he had no one to proofread his writing for blatant errors. It’s as if he were so convinced of knowing everything that he did not need -ever – anyone looking over his shoulder. If these two mistakes are the product of carelessness, they also imply hubris. That’s worse than simple ignorance because it has no cure in a grown man.

How can I trust someone to unravel the complex relationship between taxes, government revenue, economic growth, and personal liberty when he sounds like one of my indifferent former students?

Karl Marx Was Right (Pretty Much)

Karl Marx spent a lifetime arguing that the motor of history, what caused social change, was the “class struggle.” (Marx said other, more complicated things in relation to the class struggle. I don’t care to talk about them right now because they are obscure and there is little agreement among Marxists about what they mean.) Marx also did not assign enough importance to technological progress, it’s true. That would happen largely as a result of ever greater densities of population, irrespective of any political system. Many people in close contact in cities are more likely to come up with better ways to get things done than few people who barely ever meet anyone outside their small group. Literacy also helped of course by helping preserve accumulated knowledge. With these major lacunas, I think Marx was mostly right.

Marx had an elaborated conceptualization of social class that he never really completed. First, what “class” is not, according to Marx (also according to Delacroix). Class explicitly does not refer to “the rich and the poor” as many think. That would have been of limited usefulness when Marx was writing and it would be utterly useless now. The fact is that the distribution of wealth in modern, capitalist societies (the ones Marx had in mind) is continuous, that is, there is not break-up point. Next to the person, or family who owns $1,000, 000 there is one that owns $999,000, and next to that one, there is another that owns $998,999. Likewise, next to the person or family who owns $50, there is one that has $51 in wealth. And so forth. Moreover, who owns what is not fixed except at the lowest end. I was poor when I was thirty, I am not anymore. People who own vast wealth are liable to lose large portions of it in a day or two, thanks to the normal operation of the stock market, for example. Thus, there is frequent re-shuffling and rich and poor are pseudo-categories and therefore, useless.

Marx explained at length that what social class one belongs to is determined by one’s “relation to the means of production.” This is a bad translation of the bad German that prevailed at the time Marx was writing. Generations of Marxists everywhere have striven to conserve this opaque language because it made them sound profound, not least in their own eyes, and because it made them look like possessors of higher, “scientific” knowledge. Let me dispose of the scientific claim right away. It’s pure propaganda, deliberate bullshit, one of Marx’s public relations achievements. He made his claims seem more serious than they otherwise would have seemed by calling them “scientific” at a time when the word conveyed much intellectual prestige. Again, it’s bullshit. What makes anything scientific is that it can be refuted by comparison with reality. Another way to say nearly the same thing is to say that scientific claims can be tested. (Don’t worry about the “nearly” in the previous sentence; the statement is good enough for our purpose.) Marx’s claims cannot be tested in a rigorous, logical manner. All Marxists can do is to cry, “See, Marx said so,” after the fact, whenever something develops more or less according to one of Marx’s many unclear predictions. One issue about which Marx was clear was the class struggle. More on this below.

The world in which Marx lived was different from ours in important respects two of which are crucial for understanding the idea of social class in the 21st century.

1 When Marx was observing and writing, in the second half of the 19th century, land was losing much of its age-old importance as a source of income, in comparison with manufacturing and mining, and later, railroads. While agricultural productivity was making steady gains in the richest countries, manufacturing and, in its wake, mining, were growing explosively thanks to the Industrial Revolution. (Note what I am not saying: Income from agriculture was not shrinking in absolute terms, it was expanding.) It was clear to most observers then that the quick way to riches was to capture the fast rising income generated by those industries. The best spigot was thus the material industries of manufacturing, mining and later, railroads.

The claimants to this income were uncommonly well-defined. On the one side were a small number of mostly family-based companies like the Krupp in Germany, the Schneider in France, the Rockefeller in America, and so on. These highly visible companies owned the manufacturing plants, the mines, and later the railroads. Here is a useful digression: Marx seemed not to have understood the importance of publicly owned companies in which small people and other groups could invest their small savings. He probably thought big corporations would remain in a tiny number of hands forever. Correspondingly, he did not understand well the role of stock exchanges either. He was wrong on this, wrong by large omission.

The other claimants to manufacturing, mining and railroad income were also highly visible. They were the masses of workers flocking to the cities and mining centers from the countryside. Those people were visible because of where they lived, near the centers of cities. Originally, they were also poorly paid and overworked. Marx observed that they were in a favorable situation to organize along labor union lines and also politically to an extend unimaginable by their peasant forebears. This, because of their geographic concentration and because of their ability to realize that they shared a certain type of misery.

From these accurate observations, it was fairly natural to predict that there would eventually be a clash between the super-rich owners of the means of production, manufacturing plants, mines and railroads, and those who toiled for them. It looked like there was at any time, a zero-plus sum game being played: Whatever the owner took, the workers did not get, and vice-versa: capitalists (owners) vs proletariat (industrial workers, broadly defined).

But everyone who was not a worker was not a capitalist in that sense, and everyone who was not a capitalist was not necessarily an industrial worker. The lawyers who serviced the capitalists could be expected to join with them. The tavern owners whose own income came from workers’ drinking would side with the workers, and so forth. This scheme makes it clear that a starving lawyer could be in the capitalist camp and a prosperous pub owner in that of the workers. Hence the idea that people would line up politically according to their “relationship to the mean of production.” This is a more sophisticated idea and also one much more applicable than the “rich vs poor” of the popular imagery of social class.

2. The second big difference between Marx’s time and ours is the size of government. Throughout the 19th century, governments everywhere were small and poor. There was no income tax; they derived revenue largely from customs (border taxes) and from excise taxes. Governments then were a fiscal burden on everyone if not equally, then commonly, but a fairly light burden most of the time.

Today, governments in the developed world are large to huge. They consume anywhere between 40% approximately and 70% of Gross Domestic Product. They are also everywhere by far the largest accessible source of income.

Superficially, the amorphous, ill-defined “service sector” seems even larger since it accounts regularly for more than 70% of GDP (in rich countries including the US). However, it’s fragmented, heterogeneous, controlled (to the extent that is is controlled) by a myriad of owners. Much of it is not very profitable, as opposed to 19th century manufacturing, for example. The services workforce is also extremely fragmented and it tends to be transient. It would be difficult for that workforce, or for anyone else to get together to capture anything of value. There is not much to take from the service sector and it would be hard to get.

By contrast, the large to very large chunk of money that is in governments’ hands at any one time is easy to capture. It does not take much more than a well-engineered vote to get one’s own hands on it. Furthermore, unlike the private sector’s funds that depend on the vagaries of the market and on management’s competence, government grants in various forms tend to have a long shelf life. The WWII subsidy to chinchilla farmers was only repealed about ten years ago, fifty years late! Civil service pension funds are another case in point. Obtaining money from government entities is well worth the effort. The government is both a big spigot and an easy one to turn on.

I know I promised to tell you that Marx was almost right. Well, what we see in America today is a classical Marxian class struggle. The classes in conflict are not those Marx described because he was writing almost 150 years ago and he had not foreseen the monstrous growth of government. (No one else had.) The Obamanian/Obamist faction of the Democratic Party has engineered and is engineering an alliance between the main social class of today, government workers, on the one hand and a few other, opportunistically selected groups, on the other hand.

First among the government workers class allies are the small minority of workers in labor unions (maybe 7 or 8% of all employed and unemployed people). Labor unions have always used government to grab what their own muscle failed to achieve. Second, are the majorities of racial minorities. Many – but not most – are poor for reasons that ceased a long time ago to be related to racism. The largest racial minority, so-called “Latinos,” is heterogeneous and many of its members are immigrants or one generation removed from immigration. The Obamists are trying to grab them before they meld into the traditional American dream.

The second largest minority is “blacks.” Only about half of so-called “African-Americans” are descendants of slaves with a historical grievance that is supposed to be addressed by affirmative action. Many in that half, of southern church background, are addicted to resounding speeches about injustice and to the idea that the remedy to their ills can only come from government. They will vote for the best “injustice speech” giver irrespective of what they gain afterwards. (Usually nothing. The Democratic Party had been using and abusing blacks for thirty years.) The other half of Americans with African blood are immigrants and their children. Like Obama himself, in my book, they have no historical claim on the nation. That second half of the second minority might surprise us soon, politically. They are experiencing normal American social mobility, like general Colin Powell for example, the son of Jamaican immigrants. They are at best temporary members of the Obamian recruits, I think. He, and his Left-Democrat conspirators cannot count on them for the long haul.

A flat and slow-growing economy is always especially hard on immigrants. That’s the main reason western Europe has always – until now – had worse immigrant problems than we have. Immigrants in America open a small business and their kids go to college and they become the doctors and lawyers and engineers our normally expanding economy requires. Immigrants in France, for example, go to college and then remain underemployed forever because the French escalator is hardly moving at all.

There are no other racial minorities in America today that want to be considered minorities. They are all doing well without recourse to government favor. Many may have voted for Obama without understanding what they were doing. If I were an American communist trying to take over by legal means, I would not count on them further. In the same breath, I would refer to the scarce but disproportionately influential American Jews. I think more than 75% voted for Obama. That was a downright perverse and obstinate vote. I don’t think many are communists. I suspect many more are coming to their senses right now. (I may be placing too much confidence in an unsystematic sample here. All the Jews I know are conservatives. Ten years ago, I did not even know of Jewish conservatives.)

Finally, the Obamists exercise control over a large under-class that they are trying to enlarge yet: All those who are not working but who exist temporarily or permanently thanks to government payments. Marx had described something like this when he spoke of the politically unstable lumpenproletariat, the sub-working class “dressed in rags.”

So, here we are: On the one side, the large and growing class of government employees and the small allied class of union members. Both classes earn considerably more in wages and benefits than the employed in the private sector, nearly twice as much on the average. One bus driver in my small town belongs to both classes, as a government employee and as a union member. Last year, he earned $160,000 (that’s with overtime, let’s be frank). The job requires a high-school education. (I hope he is the one bus driver in this town who is not habitually gruff.) This is the same town where coffee shop baristas with a college degree earn $9/ hour if they are lucky, with no benefits. (I am speaking of Liberal Arts and Environmental Studies majors. Again, let’s be frank!)

To summarize: Government employees and union members owe their superior earnings to their relationship to the means of re-distributing income forcibly, government. They seek to extend and consolidate their hold on government with the help of precariously allied ethnic minorities and of unstable recipients of welfare under various names. On the other side is everyone else, everyone who does not work for government and who pays the taxes that feed the others. They too are defined by their relationship not to the “mode of production,” (see above) but to the spigot of government.

Here is a key figure: Almost 50% of Americans paid no federal income tax last year. That’s a lot of people who are not against the government confiscating legitimate income though legal means.

Once you start looking at the events and policies of the past 18 months as elements of a normal class-struggle, you gain much clarity. And, incidentally, this thesis does not contradict my repeated statements that the Obama administration and the President himself, are not very bright. They are relying on an old play-book that tells them pretty much what to do and that does not require much inventiveness.

I am astounded – if I say so myself – by the predictive power of my historical explanation. We even have the third highest elected official in the land ( third in order of succession to the President) engaging overtly in fascist intimidation: Speaker Pelosi threatened around August 16th “to investigate” those who oppose a mosque near Ground Zero! (See my column on this: “The ‘Ground Zero’ Mosque Issue Clarified”)

And, by the way, for those of you who got Cs in public school, or Bs in private school because the school needed the tuition, no, I am not confused. The Obamians are a species of communists and, communism is just one brand of fascism. See my two essays on the topic on this blog:“Fascism Explained,” and “How About Communism?