Eating Your Seed Corn

I found this to be one of the most immoral statements I have read in a long time (bold added)

Saez and Diamond argue that the right marginal tax rate for North Atlantic societies to impose on their richest citizens is 70%.

It is an arresting assertion, given the tax-cut mania that has prevailed in these societies for the past 30 years, but Diamond and Saez’s logic is clear. The superrich command and control so many resources that they are effectively satiated: increasing or decreasing how much wealth they have has no effect on their happiness. So, no matter how large a weight we place on their happiness relative to the happiness of others – whether we regard them as praiseworthy captains of industry who merit their high positions, or as parasitic thieves – we simply cannot do anything to affect it by raising or lowering their tax rates.

The unavoidable implication of this argument is that when we calculate what the tax rate for the superrich will be, we should not consider the effect of changing their tax rate on their happiness, for we know that it is zero. Rather, the key question must be the effect of changing their tax rate on the well-being of the rest of us.

From this simple chain of logic follows the conclusion that we have a moral obligation to tax our superrich at the peak of the Laffer Curve: to tax them so heavily that we raise the most possible money from them – to the point beyond which their diversion of energy and enterprise into tax avoidance and sheltering would mean that any extra taxes would not raise but reduce revenue.

Another way to state the passage in bold is, "if one can convince himself he will be happier with another person's money than that other person would be, it is not only morally justified, but a moral imperative to take it."

This is the moral bankruptcy of the modern welfare state laid bare for all to see.  Not sure if this even deserves further comment.  Either you see the immorality or you bring a lot of very different assumptions about morality to the table than I.  For those of you who accept the quoted statement, how are you confident you will always be the taker, the beneficiary?  You might be if the box is drawn just around the US, but from a worldwide perspective all you folks in the American 99% may find yourselves in the world's 1%.

And from a purely practical standpoint, while I suppose one might argue that the total happiness in this particular instant could be maximized by taking most all the rich's marginal income, what happens tomorrow?  It's like eating your seed corn.  Taking capital out of the hands of the folks who have been the most productive at employing capital and helicopter dropping it on the 99% feels good right up until you need some job creation or economic growth or productivity improvement.

To this day, over 30 years after I had it explained in economics class, I am still floored by the line I read in the introductory macro textbook describing the Keynesian manipulation of Y=C+I+G+(X-M) to demonstrate a "multiplier" effect.  The part that I never could get over was at the very beginning when they said "I, or Investment, is considered exogenous" - in other words, the other variables could be freely manipulated, the government could grow and deficit spend as much as it liked, and investment would be unaffected.  Huh?

My memory was that Keynesians considered "I" a loser.  They felt anything that was not G or C actually acted as a drag, at least in the near term (in the long run we will all be dead).  This despite the fact that "I" is the only thing that grows the pie over time.

  • IGotBupkis, CRIS Diagnostic Professional

    There's a reason it's called Cranio-Rectal Insertion Syndrome.

  • me

    Yikes. Reminds me fondly of the scientists in the third reich busily rationalizing why, you know, it's actually totally ok to torture and murder under-beings. That said, we're not so far with the current "war on..." crazes.

    I am not sure if I agree or disagree on the moral bankruptcy of the modern welfare state... I see it's negative attributes more in on the management side and the attempt to redistribute wealth (instead of ensuring a certain level of care). My definition of an ideal welfare state is one in which we, as a people, ensure that anyone in our domain is safe and secure in their pursuit of productive happiness - and for me, that'd include "nobody needs to worry about starvation, basic medical care, shelter and unimpeded access to the markets for information and labor".

  • Sam L.

    By their logic, they should either tax them at 99.4%, or just confiscate all their income AND go after all their possessions as well.

  • https://sites.google.com/site/helpandcounsel/home Jamessir Bensonmum

    Excellent analysis. Remember the Occupy losers last year who were proudly waving those "Kill the Rich" signs? They are among the morally bankrupt you're talking about.

  • Shane

    The problem with Keynes and his thinking is actually not so diabolical. Keynes was a speculator, and as such did not buy or sell on principals of investment, but speculation. Speculators are risk on risk-off constantly. As a form of government, this is disaster, but for those with no sense of risk whatsoever this is a great form of thinking.

    I spend someone else's money with the ill-understood concept of "risk" and if it fails well then something exogenous happened, because risk doesn't mean that I could actually lose, and if I do, then the pain of the loss is not mine.

  • Ted Rado

    What is lost sight of is human nature. If poor performance has no downside, everyone will go fishing rather that work. If good performance is excessively penalized, they will also go fishing.

    You encourage what you subsidize. Illegitemacy, indolence, etc. are out of control. I read where an unwed woman with two kids can live like a person with a $32K income without lifting a finger. The unwed births in some demographic grous is 70%. We are paying poor girls to get pregnant.

    No one wants to see poverty, hunger, etc. The problem is that no one has figured out how to help the needy without a lot of deadbeats saying they are needy. The pols see lots of votes in this, and it just gets worse and worse. Making it less attractive to be successful and more attractive to be unproductive just makes the situation worse.

  • John VI

    When did liberals go from "Money is the root of all evil" to "Uh, actually, Money DOES buy happiness after all, guess we were wrong about that"?

    Maybe its OTHER PEOPLES money can buy thier happiness? But spending thier own money is evil?

    Hmmm, So confusing trying to translate a liberal....

  • http://theunbrokenwindow.com wintercow20

    Re: "I" ... and empirically I is the major driver of business cycle expansions and contractions.

  • Patrick

    At what tax rate does "productivity" cease to grow?

    What are the "tax rates" applied in Communist / Socialist countries?

    There are legitimate reasons for requiring certain "taxes", however, there are limits to taxes (in every system) which should not be exceeded, or the activity will either cease or be curtailed severely as it becomes a negative incentive for that activity.

  • txjim

    Often overlooked is Keynes admonition to save money in times of plenty. True opprobrium falls on his purposely disingenuous followers who have bastardized his theories to support endless debt to sustain war and welfare. Payoffs to the peeps mofo.

    This notion is actually inflammatory in the eyes of some folks:

    Inflammatory Expert Cited

    http://iowahawk.typepad.com/iowahawk/2012/03/inflammatory-expert-cited.html