Free Thoughts Blog

Eduardo Saverin’s decision to renounce his U.S. citizenship, presumably to avoid a few billion dollars in taxes, has Internet moralizers gnashing their teeth.

Saverin, a co-founder of Facebook, could expect to send Uncle Sam an awfully large chunk of his Facebook IPO earnings–that is, if he’d decided to stick around. The result of his leaving, aside from less money for foreign wars, bank bailouts, and farm subsidies, is articles like this one on Pando Daily, headlined “What Eduardo Saverin Owes America (Hint: Nearly Everything).” Condemning Saverin’s decision, the author asks,

Is this fair? No. It’s worse than that, though. It’s ungrateful and it’s indecent. Saverin’s decision to decamp the U.S. suggests he’s got no idea how much America has helped him out.

The author goes on to “list all the ways Eduardo Saverin has benefitted from America,” including the safe life he lived in Miami compared to his native Brazil, the fact that he met Mark Zuckerberg in America, his education at Harvard, and “the American government’s creation of the Internet.”

It’s Elizabeth Warren’s “nobody in this country who got rich on his own” speech all over again. I’ve written several posts on her remarks. Here’s one on whether benefiting from the state creates obligations to repay those benefits. Here’s another on whether a duty to pay for those benefits necessarily means a duty to pay taxes.

In Saverin’s case, the same rejoinders apply: Why should “paying taxes” be the only or even best way to discharge any debt Saverin might have to America? And what about America’s debt to him?

Because it’s not like Saverin did nothing to earn his billions. They didn’t fall out of the sky onto his head, at which point he gathered them up, stuffed them in his pockets, and said, “Screw all of you.”

No, Saverin got rich by creating immeasurable value for Americans (and billions others around the globe). He co-founded an enormously successful company, one that in turn lead to the creation of many other enormously successful companies. All of those business employ thousands of Americans, who not only are more prosperous than they probably would’ve been without Facebook, but also pay taxes on all their earnings. So even without its cut of Saverin’s IPO windfall, Uncle Sam comes out ahead, as do all those American workers.

The rest of us gain, too, because we get to have Facebook. Which is cool enough that most of us spend far more time on it than we’d like to admit. Facebook made America (and the world) better.

Which means that instead of raging at Saverin for not wanting to give the bloated federal government in Washington more-more-more of his wealth, maybe we should just call it even.

Here’s my follow-up post expanding on these ideas and further making the case that a “debt to America” does not mean the same thing as a “duty to pay taxes.”

The fair play theory of political obligation goes as follows: We’re all in this together. Every one of us got where we are because of the sacrifices and tax dollars of those who came before. We benefit from the group endeavor that is government and so, when the time comes, it’s only right that we pay our fair share, both by cutting a check to the IRS and not mucking the whole thing up by disobeying laws.

Fair play’s probably the most common argument of the five I discuss in this series. It’s the sort of obligation-creating situation we’ve all encountered. The neighborhood collects money for a playground. If you enjoy it, you should pitch in. Your church group hosts a potlatch. If you plan to eat, you should bring something to share.

To put it more formally, if we benefit from a cooperative scheme, we need to abide by its rules or else we’re free-riding. Here’s H. L. A. Hart’s useful capsule version from his 1955 essay, “Are There Any Natural Rights?”:

When a number of persons conduct any joint enterprise according to rules and thus restrict their liberty, those who have submitted to those restrictions when required have a right to a similar submission from those who have benefited by their submission.

In Anarchy, State, and Utopia, Robert Nozick sets out an example: Imagine that your neighbors have all agreed to use the town’s public address system as an entertainment outlet. Each day, a new person spends several hours broadcasting music, amusing stories, and community news. You don’t actively seek out these broadcasts, but because you live in the neighborhood and it’s summer, so you’re often outside or have your windows open, and you hear quite a lot of it. Most days, the programming’s pleasant enough and, in some case, you enjoy it greatly.

Then your day comes around. Clearly you’ve benefited in some way from this cooperative scheme, and those benefits came via sacrifices made by your neighbors (they gave up their time to run the system). So are you obligated to pick out old records, polish off your anecdotes, and spend the day entertaining your peers?

Whether you are will depend an awful lot on what choice you had in benefiting. If your neighbors, counter to your wishes, decide to form a mob and wander from house to house cleaning cars, and if they come in the middle of the night or when you’re out of town and clean your car, it’s difficult to see how this would obligate you to become part of the car-cleaning mob yourself.

For fair play to create obligations, the benefits must be accepted. They can’t merely be received. If you never had a choice about rejecting the benefit, how can you possibly be compelled to repay it? In the public address example above, it’s clear you as the listener received the broadcast entertainment, but not at all clear you accepted it. For if you hadn’t wanted to hear the broadcasts, how would you have avoided them? Closed all your windows? Never gone outside?

With this in mind, the issue for fair play and political obligations becomes one of whether state benefits are typically accepted or just received. Do we have a choice about accepting the services our tax dollars pay for? What would be involved in avoiding them if we decide we don’t want to contribute to this particular cooperative scheme?

Another problem has to do with the kind of obligations fair play creates. It may be true that benefiting from the sacrifices of my neighbors and fellow citizens means I’m obligated to sacrifice similarly on their behalf. But does this moral obligation rise to a political obligation? Do I owe it to the state–or just to my fellow citizens? Because we can readily imagine a situation where, while my peers benefited me by paying taxes, I’d benefit them more (and thus improve the whole cooperative scheme to a greater degree) if I do something other than pay taxes. I might offer my services as a carpenter. Or take the time now afforded me because of state programs to invent a cure for cancer.

In short, even if fair play suffices to create obligations, it remains an open question whether it creates political obligations and whether the obligations it creates must only be fulfilled by paying taxes and obeying the law. It remains an open question, in other words, whether fair play applies to the state.

That’s a question I’ll explore next time.

As editor of Cato Unbound, I don’t actively take sides. Here, though, I’m going to be a bit polemical. My thesis is simple: If you want to square libertarianism with social justice, John Rawls’ A Theory of Justice is probably not a book you should reach for.

As the term is usually used, the advocates of “social justice” are not Rawlseans. You will not win them by quoting Rawls. You will not win them by thinking like Rawls. They know what they want, and Rawls isn’t it. Rawls is for the milquetoasts of the academy; social justice is radical stuff. Whatever their origins, the two have diverged, and there’s no sense denying it.

(This leaves aside Rawls’ effect on libertarianism proper, which Todd Seavey has aptly described as “attaching a washing machine to a soufflé.” The only way to improve would be to specify, more elegantly than I’m doing right now, that the free market is the washing machine, a durable good that benefits everyone; and Rawls is the soufflé, a fragile, delectable confection, enjoyed for half a minute by a well-stuffed class of elites.)

Now we may certainly debate the merits of Rawls’ system (I say it’s flawed) but we should recognize that Rawls is tangential to the debate about libertarianism and social justice.[1]

Rawls’ distinctive move in political theory was to recommend a shift in strategy. Those who are most concerned with the poor should reject both egalitarianism and utilitarianism, he argued. In their place he urged a maximin strategy, in which inequality of wealth would be tolerated, and even welcomed, on the condition that relative disparities in wealth always worked to the absolute benefit of the poor.

I’d like to ask the libertarians who are keen on Rawls: Have you ever tried pointing out the absolute wealth of the American poor? Have you ever mentioned this fact to a progressive? And did their hair not immediately catch fire?

A Rawlsean ought to love this report from the Heritage Foundation:

For decades, the U.S. Census Bureau has reported that over 30 million Americans were living in “poverty,” but the bureau’s definition of poverty differs widely from that held by most Americans. In fact, other government surveys show that most of the persons whom the government defines as “in poverty” are not poor in any ordinary sense of the term. The overwhelming majority of the poor have air conditioning, cable TV, and a host of other modern amenities. They are well housed, have an adequate and reasonably steady supply of food, and have met their other basic needs, including medical care. Some poor Americans do experience significant hardships, including temporary food shortages or inadequate housing, but these individuals are a minority within the overall poverty population. Poverty remains an issue of serious social concern, but accurate information about that problem is essential in crafting wise public policy. Exaggeration and misinformation about poverty obscure the nature, extent, and causes of real material deprivation, thereby hampering the development of well-targeted, effective programs to reduce the problem.

To a rounding error, this is what Rawls would demand. Note that the absolute wealth of our poor is virtually unprecedented in all of human history. It’s an accomplishment shared only by those countries that have adopted a significant measure of free market economics, or, at best, by a few others who piggybacked on the free market’s creative success while adding almost nothing of value themselves.

The overwhelming majority of the poor in the United States enjoy technological wonders that didn’t even exist a few decades ago. Outside the free market/liberal democratic synthesis, essentially no other social system has ever delivered as much — because almost none of them can produce a steady stream of new technological innovations in the first place, let alone distribute them to the poor.

It takes remarkable upper-lip musculature to sneer in such circumstances. But some do manage. “Let Them Eat Cake,” says one progressive commentator about the report — hardly an outlier.

Forgetting, then, that most American poor really do eat cake. Also forgetting that the very notion of the poor eating cake was unthinkably absurd for all of human history. That’s why it became a catchphrase — because it was absurd. And yet our poor eat cake while talking on a video phone and watching their choice of movies on a flat-screen TV.

This really ought to count for something, but somehow it never does. And if giving the poor a lifestyle that would have been the merest science fiction in the 1960s doesn’t count for anything — then what on earth would? 

In one sense, the poor are entitled to as much as possible. And I mean that sincerely. Were I able, I would give every American a salary of $200,000 a year — in real terms, not inflationary funny-money. I would put everyone in today’s much-hated one percent. And why stop there? Let’s have free clothes from Prada. Free meals from Le Bernardin. And biological immortality. And a fully functional U.S.S. Enterprise. Because hey, why not?

Where we could find all that wealth, God only knows. But the problems are technological, not philosophical. Nothing in justice forbids everyone from growing arbitrarily wealthy, provided they come by it peaceably and honestly.

But what is social justice, then? It’s the kind of justice demanded by socialism. We might want to say that market institutions can provide it. We might want to say a lot of things about markets. We think markets are good; naturally, we want to promote them. But we should not lose sight of what markets actually are. Or of who our real audience is. This stuff isn’t going to convince socialists, and we’re kidding ourselves if we think that it will.

The type of justice demanded by socialism is neither the type favored by libertarians — that of continuous, undirected, uncoerced economic activity — nor the type favored by Rawlseans — too complex to set off neatly with dashes. Social justice appears to mean (1) an ever-greater equality of outcome through forced wealth transfer and/or state-run economies; (2) a prediction — surely falsifiable — that forced transfers enhance the dignity and autonomy of the poor, (3) state-subsidized status enhancement for members of aggrieved groups, and (4) never mind about the absolute holdings of the poor, already.

That’s also why I will never be a socialist, and why I will always be skeptical of social justice.

The advocates of social justice do not like it that the poor have surprisingly large holdings in absolute terms. Point it out to them, and they grow resentful or condescending. (“Well… but… it’s not really very nice cake…”) All these consumer goods dull the sense of envy, and that sense needs to be sharpened if we’re going to force the equality of outcome.

But you never make more cake by slicing it up differently. When cake goes to the hungriest, you don’t encourage baking; you encourage whining about hunger. How do you make more cake? Even the baker can’t answer that question in any detail. It’s a product, so far as we can tell, only of the market process, of specialization and gains from trade, of local knowledge and market discipline.

That discipline now yields a productivity unheard of in all of human history. That’s something we and the Rawlseans both might learn from. But it’s not a thing beloved by the advocates of social justice.

[1] On that tangent: I find Rawls incompatible with libertarianism in part because Rawlsean thinking is too quick to bless the status quo. It is, as I suggest above, too conservative for libertarianism, which ought to be a radical political movement. Libertarianism should always begin at or near the question, “Why is there some government rather than no government?” Libertarians may be anarchists or minarchists, but they should never take government as either a matter of course or as one of indifference.

Libertarians are often accused of advocating for a merit-based society. The free market, the argument goes, produces a distribution that more-or-less corresponds to how meritorious the people are. If you’re poor, you likely deserve to be poor; if you’re rich, the same. To mess with the market is to mess with that moral order.

Even worse than those who pigeon-hole libertarians into that argument, however, are those libertarians who actually make this argument. Bad arguments for libertarianism not only harm the cause of liberty over all, they divert attention from the arguments that deserve the most consideration. Moreover, because we tend to better remember the bad arguments for ideas we oppose, bad arguments get recycled by our opponents more than the good ones.

Merit should have nothing to do with why libertarians advocate for free markets. At any given time-slice in a free market some people are up and some people are down. Why they are up or down is beyond the ken of both the market and those who support markets.

The first question to ask, of course, is what merit is. This question proves quite difficult, but it seems, at a minimum, that merit refers to the characteristics that make an activity praiseworthy rather than the characteristics make it valuable. The free market “determines” value through a freely flowing price system that quickly accounts for changes in supply and demand. Merit, however, looks beyond the market value to assess the quality of the individual action.

For example, someone may become incredibly good at a video game, and they may do so despite overwhelming odds (vision or tactile impairment, perhaps). Many would consider this a meritorious accomplishment, but it is one that has little value in the marketplace. Similarly, someone may become quite wealthy despite expending little effort or cleverness. This may be meritorious or not, but the market cares little.

A properly functioning free market does not reward people based on merit; it rewards people based on output. If someone produces goods or provides services that are valued by others, then she will be rewarded for it. Perhaps this comes easily to her, or perhaps it’s difficult. There are some born with innate talents while others struggle to learn viable skills. Still others are born into propitious circumstances that make success easier, while others begin life in situations that hinder their future success.

We are all bundles of hindrances and abilities. Some of these may be the product of nature, the product of our family life, or just a learned skill. It is because of these complex backgrounds and subjectivities that the market must rely on objective criteria such as output, rather than subjective criteria such as merit. By focusing on the objective criteria of output, we avoid subjective determinations of value. We also encourage productivity, which ultimately broadens the possibilities for success and makes wealth available to more people.

If merit comes from striving, effort, or overcoming adversity, then a free market works to diminish the amount of meritorious action in order to increase productivity. Efficiency is preferred over toil. If holes need to be dug, then they should be dug in the most efficient manner possible, not in the most meritorious manner. Digging a hole is hard work, and digging a hole with only one arm is even harder work, but it would be odd if we determined the value of hole-digging based on these considerations.

Still, some libertarians, particularly of the objectivist bent, may align market success with merit. Many characters in Rand’s novels, after all, are heroes whose successes in the marketplace are indications of their virtue and merit. If you wish to admire the character traits that lead someone to become a steel tycoon, that’s fine. But it does not follow that those who failed to become tycoons are less meritorious. The singer-songwriter who makes a decent living crafting excellent songs and playing small venues can also be praised as meritorious. Most importantly, we can point to the wealth produced by the free market as the primary reason why singer-songwriters can even make a living.  

Wealth is not a sign of merit, and poverty is not a sign of failure. As I’ve argued before, we should champion the free market as a system where productivity allows people to be artists, record store clerks, or even bums. We can personally praise or chastise anyone for their life-choices and values, but we should not argue that the market is there to do it for us.

Warren Buffett thinks rich people don’t pay enough taxes. He tells us his secretary pays a higher rate than he does (though that’s probably not true), a claim President Obama brings up when pushing for the “Buffett Rule,” which would increases taxes on the very rich.

Libertarians, when we encounter this sort of thing, often respond by pointing out that, hey, the Treasury Department accepts donations. If you don’t think what you’re paying is fair, go ahead and cut them a check.

Matt Zwolinski did exactly that over at Bleeding Heart Libertarians, saying that if Buffett “really believes that he ought to be paying more taxes, then what’s stopping him?”

But is that fair? Will Wilkinson doesn’t think so. “This is a pretty lousy argument,” he writes, “and I can’t see why libertarians keep making it.” Why’s it lousy? Because of collective action problems.

Suppose I’m a utilitarian convinced that human consumption of meat causes a huge amount of animal suffering. And suppose I love meat, and giving it up would leave me worse off. I would happily comply with a no-meat-eating rule if I thought others would likewise comply. But in the absence of a mechanism (whether internal/moral or external/political) to enforce compliance, I rationally believe that my compliance with the no-meating-eating rule will have zero effect on market demand for meat. And suppose I rationally believe my heeding the rule will only make me worse off while making no animals better off. In that case it is perfectly rational to continue to eat meat even if I believe that it would be immoral to eat meat under conditions of general compliance with utility-maximizing rules. I think Matt’s voluntary taxpayer case is exactly analogous.

But it’s not, at least not within the terms of the debate as framed by Buffett and those sympathetic to the “rich people should pay their fair share” argument. That kind of argument isn’t couched in terms of effectiveness. If it were, Buffett would have an out precisely as Wilkinson describes.

Instead, Buffett and Obama and people like Elizabeth Warren argue from a principle of fairness. What’s wrong with Buffett paying a lower rate than his secretary is that it’s unfair. Rich people, the claim goes, don’t pay their fair share. The idea isn’t to raise taxes on the rich because with enough money we’ll get to some magic threshold where government will start working better. Instead, the idea is to tax the rich more because they benefited more from the government we all paid for.

So the meat-eating analogy doesn’t quite fit, because it’s not concerned with fairness. To get at that sort of moral argument, imagine a rock band.

This band, seeking to mix up the standard music business model, posts their latest album on their website as a free download. Right next to the link, they put a notice reading, “Instead of asking you to pay up front, we’d like to you download our songs, listen to them, and then send us money based on how much you enjoy them. The more you like them, the more you should pay. By downloading, you’re agreeing to this arrangement. Thanks!” Then there’s a suggested pay scale. If you don’t like the music, pay nothing. If you like it a little, but probably won’t listen to it too often, pay a dollar. Like it a lot, pay $10. If it changed your life, send the artist $20. The scale looks completely fair to you.

So you download the songs and love them. Looking at the suggested payments, you see that you ought to send the band $15. You could pay that without causing yourself any noticeable hardship–but, really, you’d rather only send a buck.

To justify your decision to send one-fifteenth what the suggested pay scale says you think, “Look, I know nobody’s sending these guys anything. I mean, how many people are really going to pay, no matter how much they like the music? So until enough of us get together and pay what we’re supposed to, none of it makes any difference to the artist. My $15 really isn’t going to help him much.” In other words, you raise Wilkinson’s collective action excuse.

Now, it may be true that your $15 in isolation won’t do a lot of good. And it may be true that the artist won’t make enough money to thrive unless we pass a law requiring everyone to pay. But those two truths don’t seem to get you out of fulfilling your obligation. Your moral obligation in this case isn’t to figure out how to earn that band a living, it’s to pay what fairness says you ought to pay. Just because everyone else is falling down in their moral duty doesn’t mean it’s okay for you to do so, too.

This is why libertarians can continue making Zwolinski’s argument. If Buffett thinks it isn’t fair that he pays less than his secretary then on his own terms he ought to pay more, regardless of whether the government makes him or how many of his peers are cheapskates.

The other stuff about collective action and efficacy of government vs. private charities is worth discussing and ought to inform the debate about tax policy, but it doesn’t get Warren Buffett off the hook.

The gratitude account of political obligations appears to suffer from a number of perhaps fatal difficulties. But the earlier discussion left unexamined one particular problem—a problem not unique to the argument from gratitude. Moreover, this issue–particularity–will trip up most of the remaining theories, as well.

Here’s a refresher on gratitude:

1. X benefited me somehow.
2. This benefit places me in X’s debt (i.e., I feel gratitude toward X).
3. I’m morally obligated to repay this debt.
4. I’m also morally obligated, while the debt is outstanding, to not harm X unless I have a really good reason for doing so.

Let’s accept for the sake of argument that the above works. In fact, in realms outside of politics we needn’t limit ourselves to this minor endorsement. Outside of the issue of politics this is precisely how gratitude works.

To move it into the political sphere (to turn those moral obligations into political obligations), we need to add a couple of points. First, we “repay” our debt of gratitude to the state by paying taxes. Second, disobeying laws counts as harming the state, so the debt of gratitude, by this argument, means we should obey the law.

So, if this all works, then the debt of gratitude created by benefits confered by the state (benefits we can either willingly accept or simply recieve, as it makes no difference here) morally obligates us to (1) pay taxes and (2) obey the law–the two chief political obligations we’ve been looking for all along.

The unanswered trouble, though, comes when we pose a single question: Why this state?

Outside of the political sphere, I can owe debts of gratitude to many people and institutions simultaneously. I have a debt to my wife for marrying me and continuing to put up with me. I have a debt to my boss for taking a chance on me and giving me a job. I have a debt to my family members, my friends, and to everyone else who’s helped me throughout my life. Institutions I feel gratitude towards might include hospitals that healed me when I was sick or the colleges that educated me. The size of each debt varies, of course, but that doesn’t impact how real each is.

What about states? I’ve probably benefited in some ways from the United States government (whether those benefits outweigh the harms remains an open question). But I’ve also arguably benefited from other governments worldwide. Chinese policies leading to greater economic growth have made goods I buy cheaper, meaning I’m better off now than I otherwise would’ve been. I’ve driven through Canada and enjoyed their roads, police protection, and so on. I’ve enjoyed art paid for by governments throughout Europe. And so on.

Yet the very nature of nation states means that I can’t owe many of them political obligations simultaneously. I don’t pay Chinese or Canadian taxes. Nor do I feel obliged to obey British laws. Further, if I told the U.S. government that I couldn’t obey a given law because it conflicted with a law of France, a law that in this case implicated a debt of gratitude to France greater than what I owe the U.S., there’s little doubt Federal agents wouldn’t accept my excuse.

In other words, the kinds of institutions (i.e., governments) we supposedly owe political obligations to uniformly claim monopolies on such debts over certain geographical areas. Yet such monopolies aren’t justified—or even discussed—by the argument from gratitude outlined above.

Further, it isn’t just that the state has a monopoly on providing political sorts of benefits within a given region. The state also forcibly maintains that monopoly by using violence and the threat of violence to keep competitors out. So what is it about the state–about this state in particular–that grants it the feature of getting obedience/noninterference of the “follow the laws” variety as payment for debts of gratitude, to the exclusion of all others? What’s to stop some other institution–some other group of my fellow citizens who engage in actions benefiting me–from declaring itself a state, too? What’s to stop it, that is, other than the (unjustified?) force of one particular organization claiming a monopoly on the title of “state?”

These questions not only cast doubt on whether political obligations can be exclusive but also on whether state benefits, given the nature of their source, even create debts of gratitude (exclusive or non-exclusive) in the first place.

Let’s say I’m drowning and you save my life. I likely now owe you some kind of debt of gratitude, though the content of that debt will depend on how much risk you undertook to save me, how much damage your act did to your person or property, and so on. But I’ll owe you something, even if just a heartfelt thanks.

But what if there were others lined up to save me, some who wanted to help more or who could’ve done so quicker or who might have caused less property damage along the way? In this benefit you provided me, for which I am now in your debt, they’re the competition.

Further, what if I discovered that when those people tried to come to my aid you used violence to stop them? Only once they’d been subdued did you turn your attention to saving me–making me potentially worse off than I would’ve been had the pool of aid-givers not fallen prey to your monopoly. In that case would I owe you the same debt of gratitude? Would I owe you any debt at all?

It seems that in order for gratitude to create political obligations only to a particular institution—one with monopoly privileges over a geographic area—it must be the case that the institution is the best possible at providing such benefits. Otherwise, no good reason exists for this institution preventing others from providing their own services in addition to (or in lieu of) its services. Does anyone seriously believe that all of the benefits the U.S. government supposedly conveys on its citizens are of this sort? We need only ask whether third parties could do a better job delivering first class mail to see the trouble in that.

The modern state forces its benefits upon its citizens and prevents others from giving similar benefits, even if the others could do so more fairly and efficiently. In this, it looks less like a beneficent provider to whom we owe thanks, and more like a common protection racket. And who feels gratitude toward that?

The problem of particularity isn’t easily overcome. It presents any theory of political obligation with an additional step: not only must the existence of political obligations be proven, but the theory must also explain why one institution exclusively gets to claim such obligations. Gratitude doesn’t succeed here because the circumstances leading to debts of gratitude and the ways in which that debt creates obligations needn’t apply only to a single, ruling government.

The argument from fairness, which I’ll turn to next time, stumbles here, as well.