Socialism in Seattle: Travel Reflections

I grew up in the great Pacific Northwest.  I recently visited my family there.

I immediately noticed construction of a government-run light rail system as we left the airport.  There wasn’t too much in the way of other construction I noticed.  Residential construction has slowed considerably.  While we pinch our pennies, the government takes money to fund something we wouldn’t contribute our own money towards.  Well, it’s not my money.  It’s the money of western Washingtonians.  My parents were a little hazy on the specifics of the funding stream.  Can’t say I blame them.  Who can keep track of all the government revenue streams out there?  Not me.

Roads are well kept, but traffic is terrible.  Shortages abound in the road socialism found in Seattle.  I don’t remember traffic ever being so bad.  The market is much more averse to shortages, but free roads are considered a necessity by most.  And so demand continues to increase, and taxes go up to keep the roads maintained.  I admit they are looking pretty good: recently paved, green medians, flowers, etc.  But it would be nice if the funding stream was more voluntary and less compulsory.  Silly me.

Got into a discussion with my brother-in-law about government regulation.  He’s a left liberal, basically a socialist.  I admire him for his intellectual honesty.  Too many are socialists and refuse to admit it.  His optimism about the potential good of government solutions is roughly comparable to my pessimism about the inevitable negative consequences.  There must needs be opposition in all things, right?

I tried to explain to the best of my ability why government (top-down) regulation is unnecessary, but I find I always come up short.  Only in hindsight do I find a decent way to express the resolution of common problems.  For instance, he mentioned that letting the wealthy keep their money (i.e. not taxing the rich so heavily) keeps the wealth concentrated in the hands of the wealthy.  I did a meager, if not inept job of explaining how the wealthy among us provide for jobs. 

For instance, a wealthy individual may purchase a Lexus.  Who sells the Lexus?  Who assembles the Lexus?  Who designs and engineers the Lexus?  Who drives the Lexus from the factory to the car dealer?  When a rich person buys a Lexus, or any other item we may feel is excessive, unnecessary, or exclusive, (and we should be perfectly free to feel that way whether that is an accurate reflection of reality or not) we too often miss the many individuals that get a chunk of that purchase price.  Same thing goes for any luxury item: who designs a private jet?  Who assembles them?  Who flies them?  Suppose they eat at an expensive restaurant, one I would never eat at.  Who works there as a waiter or a chef? 

Suppose a wealthy individual wants to invest in a start-up company.  There’s all sorts of individuals whose paycheck and livelihood depend upon this seed money. 

Suppose a rich man put it in a bank account.  It collects interest and guess who works at the bank?  Guess who can get a loan as a result of the deposited money? 

I think you get the point that the more money spent or invested by the wealthy, the more it gets dispersed among the rest of us.  There is almost no exception to this.

On the other hand, suppose we want to tax the wealthy.  Obviously, there are bureaucratic, administrative, and enforcement costs.  And there’s the question of who to give to money to, and how to give them the money?  There will be some things our wealthy example will be unable to invest in: a small business, some luxury consumer items, an exotic trip, etc.  Less money spend there means less money going to ordinary joes like you and me. 

Even if the right people get the right amount of money in the right way, a graduated income tax discourages wealth creation.  There is a disincentive to be wealthy.  Not only is money being taken in the form of taxation which would have constructive alternate uses, but the tax system discourages making more money.  This discouragement to wealth generation leads to less spending and investing in the economy over time, even with a static tax rate: one less luxury item or fewer trips to the restaurant mean less money in the hands of ordinary joes like you and me.  This is economically destructive.  The constructive alternate uses of this money are destroyed.

A related myth of the well-meaning liberal is that the divide between rich and poor is a market defect and can only be bridged by government interference.  This is very much tied to the Marxist idea of the proletariat.  I believe the opposite.  I have met several individuals who, while not elite in background, are property owners.  There was a market opportunity they capitalized on.  Maximizing these opportunities (i.e. making them more available) maximizes the ability for those from a disadvantaged socio-economic background to leap to middle or even upper classes. 

Government barriers which make it difficult to start and maintain a business do the opposite: the Marxist model of a rigid proletariat and their greedy capitalist masters becomes ever more real as the barriers make it ever more difficult to move from lower to middle class.  The divide widens as a result of government intereference, not in spite of it.  The liberal understands there is a divide between the rich and the poor, but misunderstands the nature of it and the proper solution.  He is too optimistic about the nature of the state and its ability to promote goodness and resolve problems.

The conversation with my brother-in-law was very civil and cordial.  It was a good paradigm for me.  I think we have a mutual respect for one another.  His beliefs, like most others, are quite nuanced and relatively complex, according to my rudimentary understanding.  Too often, small government-advocates like myself tend to dumb down these complex beliefs into one or two heated epithets, which both inaccurately characterizes their beliefs but also takes away any hope of having a civil discussion between two disparate individuals.  Demonizing and contention is not the way of God.  Nor should it be the way of the Latter-day Saint.  Respect, understanding, and compassion, (and even empathy) coupled with gentle persuasion, can go much farther in building bridges between individuals.

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6 Comments

Filed under Austrian Economics, fiscal policy, Libertarian, Personal, politics, role of government, Social Commentary

6 responses to “Socialism in Seattle: Travel Reflections

  1. I’m all for a flat tax, and/or national sales tax. Get rid of the income tax. Deductions and tax loopholes are stupid. Let’s simplify the tax code by getting rid of 99.9% of it.

  2. plato04

    Simplifying the tax code may be nice, but it wouldn’t result in much change in government spending. Perhaps a few billion dollars of savings. Peanuts compared to our $400 billion dollar deficit spending habit. What a national sales tax would likely do is become a regressive tax, hitting those with lower and middle incomes hardest. That’s essentially what the federal gas tax is.

    Reducing taxes and government spending dramatically is the best answer. In my dream world, there would be no taxation. Governments would have such a legitimate function and purpose that individuals would voluntarily contribute. Most people think this to be ridiculous, at least before the Second Coming. So, if I had to pick a lesser of two evils in taxation, I would prefer excise taxes, user fees, or tariffs to any sort of income tax. An income tax assumes that the government owns part of our income, and that they can adjust how much they own based on the tax code. To me, this is an infringement on property rights. The government should not be entitled to a quarter of the land I live on, so why should they be entitled to a quarter of the pay I earn? This is another iconoclastic idea I hold, that the income tax is an infringement on property rights.

  3. socialist brother-in-law

    As the socialist brother-in-law mentioned in this post, I thought I should respond just a bit. (There are many things here on which I could comment, but I’ll just pick a couple.)

    Over the course of the Bush administration, tax rates have been reduced and become less progressive. Is it only a coincidence that real median income has fallen over the same time frame? Or that the poverty rate has increased? Or that wealth has shifted dramatically to the super-rich? (For reference, please see http://www.census.gov/prod/2007pubs/p60-233.pdf) If you think these are good consequences, then we probably simply disagree, but I’d be curious why you think each of these things is good for society.

    Second, since your blog focuses from time to time on religious issues, can you explain in such a framework how wealth concentration–by itself–is a moral good? (Please don’t use arguments such as “rich people can be more charitable”: I will refer you in advance to Mark 12:41-44.)

  4. plato04

    Socialist brother-in-law,

    I think that there are several reasons why median income has fell in recent years. I recommend this article to explain my perspective on wealth concentration:

    http://www.lewrockwell.com/orig6/sennholz2.html

    Basically, I have no problem if someone makes money on their own. Our society should allow for and not obstruct money-making. When barriers are erected to growth or market entry, wealth becomes more concentrated. Huge increases in government and a huge housing and inflationary bubble are two large reasons for an increase in wealth concentration. Tax cuts are good, but deficit spending is bad, and can lead to wealth concentration. Some of the government spending we do creates an overwhelming benefit for the rich. For instance, public funding of sports stadiums reduces the cost for those that can afford it: the team owners and managers. As a result, salaries of managers and athletes are inflated. Reducing or eliminating public funding would correlate with a lower salary for these top-tier economic individuals. This is just one example of how our current system is set up to benefit the rich at the expense of the middle and lower classes, thus leading to wealth concentration.

    Why is wealth concentration by itself a moral good? Very interesting question. I am opposed to wealth concentration, in that I am opposed to state mandates which limit and oppose wealth creation, thus encouraging wealth concentration. However, should some wealthy man choose to get more wealthy of his own accord through peaceful, voluntary means, I really have no problem with that. As I have stated before, I believe that in a free market (we are not in one today), money spent by the wealthy does benefit others economically. Reducing the money they have to spend, or giving them an easier revenue stream (i.e. malinvestment from artificially low interest rates set arbitrarily by the Fed) distorts this picture and can result in wealth concentration.

    As with most people, when they see a problem like this, the automatic response is more government. I am the complete opposite. When I see a problem like this, I look for state intervention (including economic meddling), which I attribute the problem largely towards.

    You really get the juices flowing with such excellent questions. Thanks again.

  5. Let me toss a monkeywrench into the ideas surrounding free enterprise: externalities. You’re perfectly correct, with the Lew Rockwell stuff, as far as it goes— the Ayn Rand stuff. The individual goes forth into the world, knowing his/her own needs and engages in trades and contracts of various sorts. And that’s fine– of course it is unstoppable anyway.

    But the problem is, almost all of these contracts and exchanges impose some harms and costs on other people in the environment. This is well recognized by any serious political scientist as well as economist.

    The magnitude of these externalized harms and costs varies among different types of private transactions. Some impose little cost on the rest of us, while others are quite substantial, and many are banned or criminalized.

    Externalities impact both the outer, physical world of air, water, soils, distribution of goods and services, etc. and our inner world as well. The mental, social and psychic world is as material or more material to many people, as another dollar or even a longer life for themselves.

    Externalities quite often fall on people faraway, the textbook example is US wars, all of these wars since WW2 have transferred power and profits to a few in side America and of course all the harms on the other country (who don’t vote or have money-power in America)

    TOdd Boyle
    retired CPA burned my license in 2003, in protest

  6. plato04

    Thanks for weighing in. From a perspective of Austrian Economics, the free market, in reality, deals with externalities quite well: free market environmentalism, for instance, takes care of the environment better than our bloated, over-regulated, corporate state could ever hope to.

    Warfare is of course a violation of the non-aggression principle, and thus should be unilaterally condemned.

    But perhaps I should address the broad perspective associated with externalities.

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