Free Thoughts Blog

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.

In this video from a 1994 Atlas Economic Research Foundation event, economist and columnist Walter E. Williams talks about the coercive power of government and it’s role in undermining social moral priorities. Williams says that this happens when government lumps trivial offenses (he uses an example of Virginia residents being fined for not recycling) with barbaric ones.

Walter E. Williams is the John M. Olin Distinguished Professor of Economics at George Mason University and an adjunct scholar at the Cato Institute. He is a well-known columnist and the author of South Africa’s War Against Capitalism (1989), The State Against Blacks (1982), Do the Right Thing: The People’s Economist Speaks (1995), and More Liberty Means Less Government (1999).

John Rawls bases much of A Theory of Justice on claims about how rationally self-interested agents might design a society if they knew that they would soon inhabit it, but if they did not know their eventual place within it. Such agents would know basic facts about human life, but not their specific place in the world. He termed this constraint the veil of ignorance.

Agents would first find a decisionmaking criterion by which to judge institutional systems. Next they would judge these systems in turn. After that, they would be placed into the winning system. Rawls argues that they would settle on a set of equal and relatively extensive noneconomic liberties very early on. He then tackles justice in property holdings, and here is where he tends to set libertarians’ hair on fire.

It seems to me there are four bases for judging societies’ distribution of material goods that might be advanced in the initial position. Remember, we’re not talking about specific institutions here, but only the methods we should use to judge them. We’re also not talking about noneconomic liberties, which again, Rawls holds are not to be infringed.

At that level of abstraction, I find that the method of judging we pick turns mostly on what we’re supposedly ignorant about.

1. First consider our old friend, utilitarianism. In the original position, we consider the bundles of goods that we attach to various social stations. It would be natural to ask about these stations’ frequencies. We could then play the odds and try to maximize our expected payoff, because that’s what a rationally self-interested actor would do.

Indeed, if we knew both the different shares of goods to be enjoyed and also their frequencies in various types of society, and if we are only ignorant about our eventual place in the distribution, then this strategy seems the only sensible approach. In this month’s Cato Unbound, David Friedman asks whether it is better “to have a world where everyone is at a utility level of a hundred [or] a world with one person at ninety-nine and everyone else at a thousand.” Clearly, the latter gives a larger expected payoff and should be compelling to anyone playing the odds.

If this strategy is not compelling, then you’re probably avoiding it for a reason not given in the original assumptions. If you’re worried, for example, that the folks with 1,000 would use their holdings to turn the one guy with 99 into a slave, then you are worried about basic liberties, not the distribution of material goods. This is a legitimate concern, but it’s also one we have already answered. It may help to consider a different set of distributions: In (a), all people in the world have 100; in (b), all people in the world have 101, save for one individual who has 99. The danger of slavery is minimized, and one system clearly offers a greater expected payoff than the other.

Only the staunchest egalitarian would pick (a); the rest of us would pick (b). I know I would. All of which is to say that utilitarian reasoning can sometimes appeal to almost anyone.

Rawls, however, doesn’t let us have this option. His version of the veil of ignorance does not permit knowledge about the relative frequencies of different sets of holdings. This makes utilitarianism an impossibility, though it’s never clear to me why this should be so.

2. Consider next that we might be ignorant about what makes people happy. If so, then we may want to discover this information. Some have claimed that the free market discovers it; the result looks like Herbert Spencer or Ludwig von Mises. Both were influenced by utilitarianism, but neither was strictly speaking a utilitarian. Neither thought we had the information to pull it off.

Mises in particular argued that economic activity is a process of discovering what our needs are and how best to satisfy them. The answers are always provisional and subjective; it is hubris to expect agents in the original position — agents who are not economic actors at all — to be good at distributing resources. Instead, they should agree to free enterprise and free exchange, then enter society and start learning. Even when we consider essential goods like healthcare and food, our interests still diverge. That a good is essential doesn’t mean that there is one best way of supplying it; even the existence of a one best way does not mean that we know what it is.

3. Next consider that we don’t know the relative frequencies of the different positions in society. Under (3), we may or may not know what makes people happy. Weirdly, it doesn’t seem to matter. Given (3), we know only that some position (possibly with a whole lot of people in it) is the least well-off. If we don’t know its frequency, then suddenly the chance that we might end up within it will command more of our attention.

This purportedly yields the maximin strategy advocated by Rawls, in which differences in material holdings are tolerated only insofar as they increase the absolute welfare of the least well-off. If we don’t know the odds, we should play it safe.

But I don’t think this inference holds up. I say this because agents in the initial position must also consider the number of different economic stations that they would ordain. (3) says that the relative frequencies are totally unknown for all of them. But if it holds, then the smart thing to do would be to ordain a larger number of stations, each of which is still of an unknown frequency. Nothing forbids us from doing so, and if there are one billion different stations in our society, and if only one of them is the least well-off, then it’s not clear why we are to be especially concerned with it.

Any attempt to deny this line of reasoning rests ultimately on a determination that some of these ordained social stations are ad hoc, crafted only for the purpose of artificially altering the odds. But that implies that someone knows something about the initial odds, in order to be able to dismiss my attempt. Oddsmaking seeps in despite our best efforts to keep it out, and (3) collapses into either (1) or (2).

4. Imagine that your worst enemy is to choose your place for you. In an original position governed by (4), we may be very knowledgeable about nearly everything. But none of it matters, because the guy making the choices just happens to hate us.

Of all the choices, (4) most clearly yields Rawls’ justice as fairness: Self-interested people will care about nothing except the lot of the least well-off, because that lot will surely be their own. But it’s not at all clear that we should call this setup a position of ignorance. It seems if anything that the agents know a bit too much.

It’s also not clear why the real world should be governed by the fear of a purely speculative grudge. In real societies, we are usually at pains to prevent an arbitrary personal enmity from affecting anyone’s lot in life. And why not? Because that would be morally atrocious.

Rather than being chosen by one’s worst enemies, one’s economic holdings seem to be chosen — if that’s the right word — by a committee consisting of oneself, plus one’s parents, teachers, co-workers, neighbors, some random strangers, and a roll of the dice. Agents in the initial position should be aware of this fact, which has typically obtained in all societies to date, even very unfree ones. To my mind it seems a basic fact about how humans have always lived. Given this fact, we might still want to constrain that committee’s menu of possible choices. And that’s perfectly allowed. Doing so, however, might look a lot more like (1) or (2), and not at all like (4).

Today George H. Smith presents us with the second part of his look at social Darwinism. This week he explores the thinking of Herbert Spencer and William Graham Sumner, and shows how each explicitly repudiated the ideas so many today blame them for.

To associate market competition with biological competition is to misunderstand how Spencer and Sumner (and other classical liberals) viewed the market. Biological competition, in which one individual survives at the expense of other individuals, is a zero-sum game, whereas market competition is a positive-sum game in which all participants gain from voluntary cooperation. Therefore, it is precisely in a free society that social Darwinism does not apply. In a society with an advanced division of labor and where we must give others what they want in order to get what we want, the “fit” are those who can enlist the voluntary cooperation of others. When success depends upon persuasion rather than coercion, social fitness is measured by one’s ability to influence others by offering them something of value, i.e., by benefiting them.

Read it here.

In this 1997 lecture from a Center for Market Processes conference at George Mason University, Mario Rizzo talks about the nature of the common law system: a set of laws that aren’t codified but instead spontaneously arise thorough precedent. The common law, Rizzo says, is “a process of generating emergent properties;” of growing and evolving law in response to societal changes over time.

Rizzo is currently an associate professor of economics at New York University and the director of the Program on the Foundations of the Market Economy. He is co-author (with Gerald O’Driscoll) of The Economics of Time and Ignorance (1985).