Monday, February 19, 2007

Three Unproductive Drains of Value: Part 1

There are, in our economy, three ways in which value is drained, in which wealth is stolen, from the people who have rightfully earned it, or would rightfully earn it if the futility institutional theft introduces into people's attitudes and activities was not there. I believe these three could be reduced to one, to the benefit of all. Over the next few weeks, I'll introduce the three different value drains, starting from the most obvious and moving to the most insidious. After that, I'll talk about how two out of the three can be eliminated.


The most obvious form of theft is, well, regular old theft. Theft, in this context, is the direct siezing of wealth by guile, fraud, force, or the threat therof. It's when a pickpocket removes someone's wallet without their awareness, when a burgler does the same when someone isn't home, when a mugger knocks someone down and takes their stuff, when a gang of thugs demands money and threatens violence if it is not given, or when a confidence man offers service in exchange for payment, receives payment, and then gives nothing in return. It is when the wealth of the productive is transfered to the unproductive against the will of the productive.

The impact this has on economic activity doesn't take much thought to imagine. A person living in a neighborhood in which theft is common and largely unpunished is unlikely to engage in any more than he must in order to survive. Why work harder for additional comforts, when it is likely to get stolen anyway? Want a new TV? Get a better job, save up enough (or buy it on credit and pay it off)... and then have it stolen. Want to make your house look nice? Get some paint, spend a weekend cleaning and painting and repairing... and then have it vandalized. The only real way out of this situation, assuming there is not a revival of law in this area, is to move to another area.

Of course, lawbreakers are not the only ones stealing. Those that make the laws steal, as well. (Most) Individuals do not pay the government voluntarily for the services they claim to offer. Like an archtypical protection racket, they offer protection from theives and murderers, and it's truly an offer you cannot refuse. The government has ways of making people pay: they threaten to jail those who decline their services, and we all know what happens to someone who is determined neither to do as they're told nor to go to jail. In short, the justification for taxation is thus: the government needs money. You will give it to them. Or else. The government is a thief.

Of course, we have representatives who consent to this, so theoretically, the majority are paying willingly, under the idea that in return, the government provides protection from other sorts of criminals. However, in realty, most of the money collected goes to pay off the supporters of elected officials, so the government is, in this scenario, also a confidence man. It offers services in exchange for payment, but delivers far less than would justify the degree of payment. Even a mob boss couldn't get away with this for long. A mobster must compete with other mobsters, and any resources that do not go toward the protection of his domain potentially leave him vulnerable to his competitors. The government, however, is, almost by definition, the only game in town.

Of course systematic government theft does have the advantage that it is, for the most part, predictable... so long as you keep your tax liabilities limited to the particular part of the tax code you are familiar with. For most people, despite the amount of money taken out of their check, state and federal withholding are not a burden that keeps them from coming to work every day, and trying to increase the value of their labor. It's not like the person in a crime-ridden ghetto who could have his whole stash taken in a single day. You can plan around institutionalized theft.

However, it does keep them locked into the role of a wage earner. To step even slightly out of that role into that of an entrepreneur requires that one learn a whole new section of the tax code, and the more one deviates from forms of economic activity that can be anticipated by the writers of the tax code, the more likely it is that the tax man will descend upon one's business, quoting obscure regulations that have been broken, and ruin said business. It doesn't even matter whether the laws actually apply or not; litigation alone is prohibitively expensive. It becomes more like the crime filled ghetto. And I am sure that there are lots of folks who are intimidated out of utilizing their creativity on behalf of society by the state of things, and even more who are conditioned by the system to be unable to even imagine being an economic innovater. Jobs that would otherwise be are not, wages are lower than they could be, while others are completely jobless.

However, even if one could devise a perfectly flexible and predictable tax system that did not have that dampening effect upon innovation, there is still the issue that wealth that could be used improving people's lives is instead squandered at best, used horrifically at worst. I firmly believe that the vast majority of the government's resources are spent either on unproductive projects that enrich a few at the expense of the many, or on maintaining and extending its global hegemony in a manner that enriches a few at an extraordinary expense that can be measured not only in wealth, but in lives.

And it can be no other way, for wealth that is gained in an unproductive fashion is most likely to be utilized in an unproductive, even destructive, fashion. There is no accountability link between how the money is acquired and how it is spent. It is as if we live in the city of the heir to the mob boss that completely obliterated his rivals. Having no competition, he spends his protection money on himself and his cronies, offers little protection to the people whose lives he lays claim to. Only the mob boss is an elected legislature and executive, and in their voting patterns reveal the truth in Frederic Bastiat's statement, "The state is that great fiction by which everyone tries to live at the expense of everyone else."

Now, I do not deny that some sort of institution is required to punish those that would steal on their own accord. Remove the big thief, and all you end up with is a whole lot of little theives. But let us, for a moment, imagine that there are ways to finance such an operation, other than by doing the very thing the institution is meant to prevent. I said earlier that there is a way to reduce the number of unproductive wealth drains from three to one--not to zero. So I hope you'll keep an open mind as the weeks go by.

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