Friday, September 23, 2011

What is "the social contract" of which Krugman and Elizabeth Warren speak?

[Update]: Sheldon Richman, editor of The Freeman, offers another perspective on Elizabeth Warren and her now-famous words. Between what we are hearing from Washington and Michael Moore's latest veiled call for violence against people who make less money than he does, one can bet that private capital investment in this country is going to be stunted for years.

From what I can tell, the Keynesians and the Depublicans (or maybe the Remocrats) have declared war on private capital. The rest of us will pay dearly for this, and I will say that the U.S. economy NEVER will recover as long as the present gang of thieves holds power. [End Update]

Paul Krugman makes millions of dollars a year. While I am not privy to his actual income numbers, I have been told by a very reliable source that it is in the millions. Furthermore, he has no children and a wife who also earns a high income. The guy clearly makes more money than he needs to live, and many poor families could live well if Krugman were willing to give them a "big hunk of it." (If the man has a charity by which he feeds the hungry, I am not aware of it.)

Thus, we can conclude that Paul Krugman -- if we wish to consistently apply his words, and the recent words of Elizabeth Warren -- is responsible for making other people poorer. Krugman makes a lot of money, and according to Krugman, one only can make money at the expense of others who are worse off, so by Krugman's own admission, he is violating a "social contract."

That is not what Krugman would say, and I am sure that if government agents were to seize his property and most of his holdings, he would scream bloody murder, but that is for another post. Instead, I want to zero in upon this notion of the "social contract" that suddenly seems to be the rage among the Left.

In a recent meeting that has gone viral on YouTube, Elizabeth Warren, the Harvard law professor who President Obama unsuccessfully tried to appoint as a de facto "banking czar," now is running for the U.S. Senate in Massachusetts. This is that quote that the people from Moveon claimed was perhaps the most important thing EVER said:
There is nobody in this country who got rich on his own. Nobody. You built a factory out there – good for you.

But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory….

Now look. You built a factory and it turned into something terrific or a great idea – God bless! Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.
At one level she is right, but no one I know claims that a person has gained wealth by no one's efforts but his own. However, we need to read between the lines of what both Warren and Krugman are saying, and we can find something much more sinister and economically ignorant than what their supporters would like to admit.

When I heard Warren's quote, the first thing that came to mind was the scene in "Godfather II" when Don Fanucci tells a young Vito Corleone that Corleone must let him "wet my beak." In other words, Fanucci was telling Corleone that the neighborhood was his own territory and if Corleone wanted to do business there, he had to pay up -- or else.

Call it what you will, but Fanucci was presenting his own version of "the social contract." Given that Murray Rothbard on more than one occasion likened government to a criminal gang or a mafia, I would say that the "social contract" of which Warren and Krugman speak falls into that category, something neither of them ever would acknowledge.

Yet, what was Warren saying? She was making the claim that entrepreneurs -- people like Steven Jobs -- somehow reap ALL of the gains of their commercial success, and that the ONLY way that other people outside the successful entrepreneur can gain any benefit at all from that successful company is through taxation. That is it. According to Warren, companies like Apple might sell products, but they benefit only the company Big Wigs.

While the Usual Suspects applaud these words, I cannot help but think of the story of "The Little Red Hen," who prepared bread by growing wheat, making flour, and baking the loaf, all while others looked on and did nothing. In the end, the Little Red Hen shared the bread with her chicks.

In the Elizabeth Warren/Paul Krugman version of "The Little Red Hen," however, the other animals could claim that their very presence at the farm was the REAL reason that the Hen could make bread in the first place. The animals might say that since they did not knock down the wheat or burn down the hen house, that it was THEY who were responsible for the Hen's success.

As for "marauding bands," who is Warren kidding? Has anyone ever seen a police raid (and especially from the Feds) on business firms. Please don't tell me that these "law enforcement" raiders are orderly and respectful. They behave exactly like "marauding bands, and all-too-often it is discovered afterward that there was no good reason for the violent raid in the first place.

The word from Krugman and Warren is this: entrepreneurs gain success ONLY at the expense of the people who really are responsible for the entrepreneurs' success in the first place. Entrepreneurs, in their view, really are parasites for they drain the "community" of its rightful wealth.

Now, I agree that many Wall Street firms have gained wealth through political favoritism and from bailouts, but since Krugman and Warren actually supported the bailouts of those banks and financial houses, as well as the bailouts of GM and Chrysler, I'm not sure why they are complaining. The Austrians wanted those entities to bear the costs of their entrepreneurial errors, and permit those firms whose principals had not made the bad choices to be able purchase the assets of the firms that failed, but because the Austrians have wanted the "banksters" to bear the costs of their errors, Krugman and others have claimed that Austrians are "enemies of the people."

Do people have obligations to their neighbors? I believe they do, although the "social contract" of which Krugman and Warren speak is a "contract" that demonizes people who have taken risks and been successful and goes well beyond any relationship and responsibilities that I would be willing to support.

I'm sorry, but the notion that everyone else should have a claim to the income of Steven Jobs -- or even Elizabeth Warren and Paul Krugman -- because of a "social contract" they claim exists is nonsense. But I will go further; Steven Jobs has contributed much more to the well-being of people in this world than Krugman, Warren, and all of the other leftists in the world combined.

Elizabeth Warren and Paul Krugman want us to believe that the Political Classes ultimately create wealth, and that the parasites are people who saved, invested, took risks, and took an idea and were successful in business. This is not a "social contract;" it is turning reality upside down.

35 comments:

W.C. Varones said...

I like this response.

Lord Keynes said...

"Krugman makes a lot of money, and according to Krugman, one only can make money at the expense of others who are worse off, so by Krugman's own admission, he is violating a "social contract.""

(1) Where has Krugman ever said that "one only can make money at the expense of others who are worse off". Do you have a reference for that or did you just make it up?

(2) Doesn't Krugman advocate higher taxes on the rich?? Doesn't he advocate, according to you on previous posts here, very high income tax levels on the rich that are "insanely" high? Haven't you just refuted yourself in a puff of logic and vanished with the stink of sulphur?

"That is not what Krugman would say, and I am sure that if government agents were to seize his property and most of his holdings, he would scream bloody murder, but that is for another post."

Right. And so he should. What moral theory says that mere arbitrary and random confiscation of property is moral?

"She was making the claim that entrepreneurs -- people like Steven Jobs -- somehow reap ALL of the gains of their commercial success, and that the ONLY way that other people outside the successful entrepreneur can gain any benefit at all from that successful company is through taxation. "

That is a total non sequitur. In no way does it follow that she denies that people benefit from the production of the entrepreneur's good or service.

"The Austrians wanted those entities to bear the costs of their entrepreneurial errors, and permit those firms whose principals had not made the bad choices to be able purchase the assets of the firms that failed, but because the Austrians have wanted the "banksters" to bear the costs of their errors, Krugman and others have claimed that Austrians are "enemies of the people."

Except they wouldn't be the only ones to "pay". The collapse of the financial system would cause loss of life savings to millions, causing massive misery. Austrians would push a liquidationism on America, something very much like the deflationary depression inflicted in Weimar Germany.

If Austrians are the "friends" of the people, then with friends like that who needs enemies.

Mike Cheel said...

I'm just curious Prof Anderson about which obligations you think we have for our neighbors.

Anonymous said...

"Except they wouldn't be the only ones to "pay." The collapse of the financial system would cause loss of life savings to millions, causing massive misery. Austrians would push a liquidationism on America, something very much like the deflationary depression inflicted in Weimar Germany."

You mean inflationary depression; The Weimar Republic was subject to massive, crippling inflation. This basic, yet intentionally ignorant, error makes me hesitant to take anything you have to say with any credulity.

William L. Anderson said...

To Mike,

First, we have to be able to differentiate between community and state. Warren and Krugman hold that the state IS the community, and I would differ on that.

Second, I will be happy to answer that question if you will tell me what you believe your obligations are to others. Do others have a right to what you own? Should they be permitted to just take what they want or claim to need?

My wife and I often have given money to others who need it, and sometimes have taken in people temporarily who did not have places to live or needed a place to stay. We once took in three young men who were sleeping in their car and kept them at no charge for six weeks.

No doubt, LK and others are much more generous, and I am sure that Warren and Krugman use their very large incomes to care for others.

I remember Jesse Jackson's 1983 tax returns, in which he made $115,000 and gave $500 to charity. A lot of candidates who preach community and obligation are like that. But no doubt Jackson is generous because he wants others to pay lots of taxes.

Pete said...

LK:

(1) Where has Krugman ever said that "one only can make money at the expense of others who are worse off". Do you have a reference for that or did you just make it up?

It wasn't a quote. It was a (correct) interpretation. People can advocate for things using some words and it would still be possible to show that they are advocating for something in particular that they didn't explicitly say.

(2) Doesn't Krugman advocate higher taxes on the rich??

Krugman probably wants more taxes on billionaires. Billionaires like Buffet want more taxes on millionaires.

Doesn't he advocate, according to you on previous posts here, very high income tax levels on the rich that are "insanely" high?

Doesn't that imply Krugman is consistent and principled?

Haven't you just refuted yourself in a puff of logic and vanished with the stink of sulphur?

No, but you certainly have.

"That is not what Krugman would say, and I am sure that if government agents were to seize his property and most of his holdings, he would scream bloody murder, but that is for another post."

Right. And so he should. What moral theory says that mere arbitrary and random confiscation of property is moral?

Anderson meant more taxation on Krugman, not a special one time only transfer of money.

Besides, taxation is arbitrary, since the social contract is arbitrary.

"She was making the claim that entrepreneurs -- people like Steven Jobs -- somehow reap ALL of the gains of their commercial success, and that the ONLY way that other people outside the successful entrepreneur can gain any benefit at all from that successful company is through taxation. "

That doesn't justify the government taking Jobs' money. It would be like me taking your money against your will, then finance the construction of something that you then utilize (to get something back at least), and then after you utilize it, I say "Aha! You didn't make your money alone. You used what I have provided to you! That means you shall pay me more of your money today."

Money comes before services. The government cannot offer roads or bridges or schools unless it first takes people's money without having offered any services for that money. The confusion you and so many other Keynesian statists make is to muddle the order of taxation services, and believe that after some time, the repetitious order of taxation-services, taxation-services, etc, can magically transform into services-taxation, services-taxation, etc.

Your economic worldview is that income, consumption, and production are all simultaneous, so arbitrarily claim that those who earn money now owe the government taxes now, even though the services the government offered are financed by PAST TAXATION, which means all producers have already paid for those services through past taxation, which means they don't owe the government MORE money for earning money over the course of time those services were utilized.

Pete said...

LK:

In way does it follow that she denies that people benefit from the production of the entrepreneur's good or service.

Anderson did not claim that she denies that people don't benefit from the entrepreneur's good or service.

Anderson claimed, correctly, that her argument was that people like Jobs somehow owe money "back to society" for getting wealthy, and she totally ignored the benefits he already provided with his production.

To say that because people like Jobs got rich "not alone", thus they "owe money back" to the government, is like saying people like Jobs haven't already produced value for others, and he is in a state of obligation to others on account of his wealth as long as he hasn't yet paid his taxes. The logic of this argument is that Jobs only benefits "society" back once he is taxed.

Anderson is right, you're wrong.

"The Austrians wanted those entities to bear the costs of their entrepreneurial errors, and permit those firms whose principals had not made the bad choices to be able purchase the assets of the firms that failed, but because the Austrians have wanted the "banksters" to bear the costs of their errors, Krugman and others have claimed that Austrians are "enemies of the people."

Except they wouldn't be the only ones to "pay". The collapse of the financial system would cause loss of life savings to millions, causing massive misery.

The collapse of the financial system would not cause loss to depositors if the banking system were Rothbardian 100% reserve.

Austrians would push a liquidationism on America, something very much like the deflationary depression inflicted in Weimar Germany.

No, very much like 1920-21, where the Fed and government did basically nothing, and there was a massive, but short, correction.

The Keynesian final solution in Weimar caused hyperinflation. The depression was caused by past inflation, not current deflation. The deflation facilitated a correction that had to be severe because the prior hyperinflation was so severe. That's why Austrians say don't inflate a boom because it will just require a bust to fix.

If Austrians are the "friends" of the people, then with friends like that who needs enemies.

To be an enemy of enemies of liberty is to be a friend to humanity.

Lord Keynes said...

"You mean inflationary depression

No, I don't.

I mean the deflationary depression in the Weimar republic 1931-1933, in which by 1932 the Nazis won the most seats in the Reichstag.

You're thinking of the early 1920s hyperinflation. Totally different event.

William L. Anderson said...

Deflation doesn't CAUSE depressions, LK. Deflation can occur during a depression, as it did in this country in the early 1930s and in Germany and elsewhere in Europe at the same time.

As for liquidations, you are correct in that many others would hurt during the temporary fall at the beginning of the liquidation. Nonetheless, the poor and others are being hurt now, while many people who benefited from the inflationary boom and whose recklessness helped cause the crisis, still are prospering because of the bailouts.

Austrians do not say that the depression is a time of great happiness and joy. Instead, we say that because the excesses of the boom cannot be sustained, one has to deal with those assets that the economy can no longer prop up.

You and Krugman and others claim that we can go on into perpetuity by just printing lots of money and finding clever ways to inject it into the economy. It seems to me that you are trying to claim that there were no malinvestments that cannot be cured with some inflation.

Fine, but are you also saying that we could have sustained the housing bubble forever? Are you saying that was NOT a series of malinvestments? I mean, you cannot have it both ways, sir.

William L. Anderson said...

Keynesianism is built upon false ideas of cause-and-effect. To them, a drop in consumer spending is a cause when, in fact, it is an effect of the depression.

In the Keynesian world, things just happen. All of a sudden, consumers stop spending. It just happens. Nonsense.

Dennis said...

What's missing from Warren's commentary on factory owners is any discussion or acknowledgement of the concept of risk. What sets a capitalist apart from anyone else is that when they establish a factory or business, they are putting their time, their money, their savings and their livelihood at risk. There is no guarantee that the business venture will succeed; in fact many will fail, and the owners will lose everything in the process.

In many businesses, you are only one wrong decision away from living in a cardboard box under a bridge. Just when you have proven your ability, jumped over all the hurdles that the market throws at you and succeeded, along comes a parasite-broker like Warren or Krugman who declares that they deserve a "hunk" of your livelihood, like some grunting caveman, while refusing to acknowledge, much less share, in any risk that you may have undertaken to make your venture the success that it is.

Lord Keynes said...

"Deflation doesn't CAUSE depressions, LK. etc etc

Red herring. I didn't say it did.
I noted that deflationary depression in the Weimar republic caused a lot of suffering.

"Austrians do not say that the depression is a time of great happiness and joy."

Yeah, you don't say. Mass unemployment, poverty, homelessness, mass business collapses - and you have the gall to complain that some regard you as "enemies of the people".

Fine, but are you also saying that we could have sustained the housing bubble forever? Are you saying that was NOT a series of malinvestments?

(1) You rely on a totally discredited business cycle theory.

Back in 1932, Piero Sraffa showed Hayek how the Wicksellian unique natural rate of interest, the fundamental equilibrating rate that is supposed to prevent the cycle effects from happening which is present to this day in expositions of ABCT like that of Roger Garrison, was totally non-existent outside a fantasy world of equilibrium.

Try reading just one paper from your fellow Austrian Robert Murphy. In particular:

“In his brief remarks [sc. in reply to Sraffa], Hayek certainly did not fully reconcile his analysis of the trade cycle with the possibility of multiple own-rates of interest. Moreover, Hayek never did so later in his career. His Pure Theory of Capital (1975 [1941]) explicitly avoided monetary complications, and he never returned to the matter. Unfortunately, Hayek’s successors have made no progress on this issue, and in fact, have muddled the discussion. As I will show in the case of Ludwig Lachmann—the most prolific Austrian writer on the Sraffa-Hayek dispute over own-rates of interest—modern Austrians not only have failed to resolve the problem raised by Sraffa, but in fact no longer even recognize it.

Robert P. Murphy, “Multiple Interest Rates and Austrian Business Cycle Theory.”
http://consultingbyrpm.com/uploads/Multiple%20Interest%20Rates%20and%20ABCT.pdf

Yet you spin your imaginary business cycle theory as if nothing ever happened.

Mike Cheel said...

@Prof Anderson

"Second, I will be happy to answer that question if you will tell me what you believe your obligations are to others. Do others have a right to what you own? Should they be permitted to just take what they want or claim to need?"

I only believe you have an obligation to the ones whom you have promised obligation to, either implicitly (such as having children) or explicitly (such as in a contract). I do not believe that others have a right to what I own and they should not be able to just take what they want or claim they need.

I believe no one owes me anything and I don't owe anyone anything (other than what I have mentioned as obligations). This doesn't mean I don't believe in personal charity or that I don't believe in treating others they way I expect or want to be treated. My ethics and views dictate what I do, not other people's.

How about you?

Lord Keynes said...

Fine, but are you also saying that we could have sustained the housing bubble forever?

Nope. Keynes was himself deeply concerned about the effects of bubbles from asset price speculation. That is whole point of his passage:

"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation."

The asset bubble needs to correct. You can stimulate the real sectors of the economy (where goods and services are produced) to provide employment while that happens.

You

(1) clean the banks up by the normal method by which the FDIC deals with insolvent banks: allowing deposits to be guaranteed by the government, the banks are then liquidated, shareholders wiped out, senior management fired, assets than sold off to pay for the losses. Whatever is left over goes to the bondholders.

(2) re-impose financial regulation to stop leckless lending standards and future asset bubbles

(3) implement large scale fiscal stimulus to drive the economy back to high employment, exactly as was done in post 1945 America:

http://socialdemocracy21stcentury.blogspot.com/2011/01/keynesianism-in-america-in-1940s-and.html

As for the real capital structure, consumers will purchase whatever commodities satisfy their subjective utility preferences, companies that don't do that will go bankrupt. Malinvestments clear.

Pete said...

LK:

"Deflation doesn't CAUSE depressions, LK. etc etc

Red herring. I didn't say it did.

I noted that deflationary depression in the Weimar republic caused a lot of suffering.

No, it is the prior inflation that caused the suffering. The deflation was a consequence.

"Austrians do not say that the depression is a time of great happiness and joy."

Yeah, you don't say. Mass unemployment, poverty, homelessness, mass business collapses - and you have the gall to complain that some regard you as "enemies of the people".

Oh yeah, government spending and inflation, and you have the gall to complain that MANY regard you as enemies of the people.

Fine, but are you also saying that we could have sustained the housing bubble forever? Are you saying that was NOT a series of malinvestments?

(1) You rely on a totally discredited business cycle theory.

You have not shown that it is "totally discredited."

Back in 1932, Piero Sraffa showed Hayek how the Wicksellian unique natural rate of interest, the fundamental equilibrating rate that is supposed to prevent the cycle effects from happening which is present to this day in expositions of ABCT like that of Roger Garrison, was totally non-existent outside a fantasy world of equilibrium.

The existence of multiple natural interest rates does not in any way invalidate the core of the ABCT's theory.

Yet you spin your imaginary business cycle theory as if nothing ever happened.

It's not imaginary. The Keynesian myth that spending creates prosperity is imaginary.

Fine, but are you also saying that we could have sustained the housing bubble forever?

Nope. Keynes was himself deeply concerned about the effects of bubbles from asset price speculation. That is whole point of his passage:

Bait and switch. He didn't say "speculation", he said BUBBLES. There is speculation in bubbles, just like there is speculation all the time. But BUBBLES are financed by credit expansion and inflation.

Pete said...

LK:


"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation."

Too vague to be of any consequence. He might as well have said "Speculation is good in some amount I cannot say, and speculation becomes bad after some amount I cannot say."

The asset bubble needs to correct. You can stimulate the real sectors of the economy (where goods and services are produced) to provide employment while that happens.

You

(1) clean the banks up by the normal method by which the FDIC deals with insolvent banks: allowing deposits to be guaranteed by the government, the banks are then liquidated, shareholders wiped out, senior management fired, assets than sold off to pay for the losses. Whatever is left over goes to the bondholders.

That just dirties them up with moral hazard, dirties them up with further inflation, and dirties up the market by infusing it with more ignorant political destruction.

(2) re-impose financial regulation to stop leckless lending standards and future asset bubbles

The unhampered price system is the only way to stop reckless government standards in banking.

(3) implement large scale fiscal stimulus to drive the economy back to high employment

Government spending only dirties up the economy more by making it dependent on a productionless consumer who can replace it's spending with coercive taxation and inflation.

Any employment gained in this process is detrimental to innocent people's lives who have to work and pay for it and get nothing in return.

exactly as was done in post 1945 America:

Government spending collapsed post-1945 after the war ended. But production rose in 1946.

As for the real capital structure, consumers will purchase whatever commodities satisfy their subjective utility preferences, companies that don't do that will go bankrupt.

They can't know what consumer preferences are temporally because interest rates are manipulated by the central bank.

Malinvestments clear.

You just claimed that equilibrium is capable of being reached in the economy you moron, after countless posts denying such a thing.

William L. Anderson said...

Gee, impose both an easy money scheme and claim that if we have enough regulatory agencies, we won't have any problems. How is it that regulators are going to do any better than profits and losses?

Krugman himself has said he supports the government both pushing down interest rates AND making programs that enable people who can't put down 20 percent buy houses. In other words, the same regime but he says that if only we put in people who "believe in government," then we can make it work properly.

It wasn't the government that put the kibosh on the housing and stock bubbles; it was the market. And please don't tell me that if we let Elizabeth Warren determine regulation, that it will be anything but what we already have seen. I've had enough comedy for the day.

Bala said...

"Nope. Keynes was himself deeply concerned about the effects of bubbles from asset price speculation."

LK the genius will never realise that every asset price is by definition speculative. His lack of a theory of capital handicaps him and prevents him from understanding this fundamental truth.

Lord Keynes said...

"impose both an easy money scheme and claim that if we have enough regulatory agencies, we won't have any problems."

Yeah, I guess you're incapable of ever responding to substantive issues.

E.g., you want to explain how ABCT works without a unique natural rate? Any thoughts?

Any thoughts on Murphy's work on ABCT?

Oh, and what's the ethical theory you subscribe to by the way? Do you even have one?

Daniel Hewitt said...

For those interested, Dr. Anderson has a powerful and compelling article today on LRC on state homicide.

http://lewrockwell.com/anderson/anderson324.html

Anonymous said...

I stumbled onto your blog thanks to Google, and after reading your comments (which are mostly distortions) - and then your bio - all I can say is I hope you present more accurate information in your classes than you do in your blog. This would only be considered to be a "fair" analysis on Fox News.

American Patriot said...

Arguments of commenters here have a way of degenerating in to unrelated or loosely related areas.

The Professor is right on. As the studies also show, these progressives are the stingiest of all people yet want the government to hand out the goodies. Why? How else would you have statism/collectivism? That is why private charity has been under attack by progressives for several years now.

I'd be willing to bet Krugman gives next to nothing to charity.
As for Warren:
Her (and other progressives') demented rationale goes: the factory owner is indebted to the rest of the society for building the roads that enabled him to become rich. I don't know about you, but as much as I expect this kind of Marxist drivel coming out of their mouths, I never cease to be amazed. By their logic, everyone owes everyone else their good fortune. If this clip does not define what philosophically lies at the core of communism, I do not know what does.

http://defendourconstitution.blogspot.com/2011/09/more-videos-of-week-with-commentary.html

Pete said...

"impose both an easy money scheme and claim that if we have enough regulatory agencies, we won't have any problems."

Yeah, I guess you're incapable of ever responding to substantive issues.

I guess Keynesians are incapable of ever responding to the substantive issues of economic calculation and inter-temporal coordination.

E.g., you want to explain how ABCT works without a unique natural rate? Any thoughts?

Do you want to prove your claim that ABCT is invalidated by the assumption of multiple natural interest rates? No?

Oh, and what's the ethical theory you subscribe to by the way? Do you even have one?

Do you have one? Or do you just reject natural rights ethics and say that they should pick from a LK-pre-approved list of mutually exclusive ethical theories?

nimrod said...

And then there is Warren Buffet, who uses his “status” as billionaire capitalist to promote the progressive vision of a worldwide Stalinistic caliphate. Indeed, Satan is laughing and spreading his wings!

Anonymous said...

I agree that the social contract theory, put forward by Elizabeth Warren amd Paul Krugman, is incredibly cynical and dangerous to individual rights. An efficient government that promotes infrastracture, enforces property rights, and fosters other public goods can aid wealth creation but is not solely responsible for it. It would be hard to ignore the fact that some people work harder than others, are more intelligent, or have an above-average share of whatever qualities and talents society deems to be valuable. An individual should be able to benefit from his talents and efforts.

Besides by Warren's logic, if all wealth created is a product of good government, then it would follow that all income should be taxed at the same rate. For example, if you make 50, 000 and pay 5, 000 dollars in taxes, then I, who make 100,000 dollars and receive twice the benefit of government's wealth creation properties, should pay 10,000 taxes. Why is it the high-income earners not only pay more taxes in absolute terms but also pay a higher rate?

Anonymous said...

To add to my previous comment, Warren also seems to be double-counting. Under our current progressive tax system, the rich pay more to maintain the roads, fund public education, support police forces. Warren points to these benefits and says the rich benefit disproportinately from the resources provided by "all of us" and need to pay disproportionate share of the taxes. It's circular logic.

In addition, it is clear that for some government resources high-income earners aren't benefitting more than others, yet the still pay more than others. The per-person cost of our national defense is not greater for a high-income individual than it is for a low income one. Bill Gates likely pays exponential more taxes than the average person, yet he doesnt send 300 kids to public school. But then Warren is arguing that he benefits whenever anyone else goes to public school. So a benefit to one person is a benefit to everyone else and everyone should be taxed accordingly. Needless to say, I think this argument is absolutely absurd.

Mike Cheel said...

In a free society the only legitimate function of the government is to secure the rights of the people.

We do not live in a free society.

William L. Anderson said...

And we live in a police state. I would guess that Warren and Krugman support that, too. At least I never have seen Krugman complain about it.

Mike Cheel said...

@Prof Anderson

If you support either party then you are indeed supporting the police state (and a lot more as you know).

So following the logic they must (whether they say it as much or not!).

Also I noticed in the quote from Elizabeth Warren that the left seems to love so much she doesn't mention anything about the zillions of other boondoggles. Only paying back for the roads. If only we had to pay for roads...

Mike M said...

LK, since you appear to be so generous in offering your statist / Keynesian / Neo-Keynesian / whatever named solutions to things, what is your answer to the present environment dominated by:

An insolvent banking system
A central bank filled with toxic waste paper assets backing the worlds reserve currency
25% of homeowners with negative equity and upwards of another 5 -10% near negative
Three years of 0% interest rates and negative effective rates with no recovery
Stimulus games that pulled demand forward but solved nothing
And on and on ...

Please LK, tell us what your wise and powerful economic philosophy can offer as a solution to this tar pit we find ourselves in. Please tell us you can offer something more than "we didn't do enough, red herring, straw man or a laundry list of egghead citations. Please tell us you have something that will work in the real world. Please.

mickeyhobart said...

"gains of their commercial success"

I could swear I once read something on RealClearMarkets Entrepreneurship Resource Center about this... searching...

mickeyhobart said...

Here is the quote: "Yale economist William Nordhaus estimated that inventors, which I will assume
here to be proxies for innovative entrepreneurs, capture only 4 percent of the total social
gains from their innovations"

Of the accuracy and value of such, I don't know.

William L. Anderson said...

Interesting, and I suspect that the actual percentage might be less than that. I doubt that would persuade Warren, who is going to campaign on a platform of confiscating capital, which means that she is going to base her campaign on making this depression worse.

William L. Anderson said...

Regarding LK's claim that since there is not just ONE rate of interest, the entire ATBC is discredited really does not deserve an answer. It took me a long time to realize that the guy was serious.

For example, there were lots of different interest rates for borrowers during the housing bubble, but that didn't mean that malinvestments were not happening. Overall, they not only were lower than they should have been, but government policies and programs were pushing far more people into home ownership than should have been the case.

As for rights, I go with Natural Rights over utilitarianism. Sorry you don't like it, LK, but 'dass life.

João Marcus said...

It's quite obvious that there is not ONE rate of interest to rule them all. After all, that would be a "LK-ism": trying to make the world fit the theory.