“Content-providers”: mainly losing money in their own minds.

Content-providers (and other pro-SOPA agents) frequently claim they lose X, Y amount of money to piracy.  This assumes that if people weren’t stealing the content, they’d be willing (and furthermore, would) purchase the content at current market prices.

It’s highly questionable that people would purchase the same amount of a good that they would access freely, especially when it comes to something such as information (something increasingly easy and economical to store about; something which there’s not a lot of cost to dumping and retrieving another copy of later, assuming free and easy access of information).

The amounts these companies “expect” to lose (as if these “expectations” aren’t biased by extraneous concerns) due to piracy is not the issue.  The issue is what we consider property, and the rights of certain market players over fundamental social privileges and rights.  What’s more important: freedom of information and the benefits it could (and does) bring to our species, or the potential (and imagined) profits of businessmen who wish to treat that information as a physical (non-electronically-represented) good?

Should we be concerned that PetCo is losing an estimated* 35 billion dollars a year due to stiff government regulations on infant sales?  Whenever somebody is magically free (despite the harsh rules and realities for the rest of us) to post their own appraisal of value as fact, you should always ask why.

* We could calculate an estimate, according to pro-SOPA logic, by multiplying whatever price seems favorable by the number of adoptions per year.

The lever of coercion in libertarian thought

I met with a libertarian friend of mine a few weeks ago for a drink.  During our conversation, the topic of health care came up.  “Why should we hold a gun to peoples’ heads and force them to pay for other peoples’ health care?” he asked.  Though I had seen the argument on the Internet plenty of times, hearing the argument out-loud stunned me a bit.  At first blush the rhetoric is as forceful as the picture it paints.

The Visa, capice?

But is that really right?  Upon further inspection it seems so: publicly funded health care relies on taxation**.  If you refuse to pay your taxes, you will go to jail.  If you refuse to go to jail (and attempt to resist or evade arrest, presumably), law enforcement will pull a gun on you. Therefore, taxation is always at gunpoint; if you continually refuse to comply with the chain of demands from the government, they will come for you.  Of course, this is a chilling, sobering thought.  The government has vast resources that no individual, once atomized, can effectively fight.

The emotional charge of the conclusion is taken as evidence against the morality of taxation.  After all, robbery is wrong, and since taxation is essentially robbery (at gunpoint), taxation is wrong.  The force of the conclusion is to probe one’s sense of justice, for realizing the general helplessness of the individual to the whims of the public.  Yet again the main channel of libertarian argumentation is used, argumentation at the abstract, moral level.  If something is necessarily and morally wrong, then there’s no need to even discuss or consider the various consequences scientifically.  To the libertarian, scientifically studying tax policies is logically similar to studying forensics in order to inform one’s stance on the morality of murder.

What the argument fails to point out, however, is that all laws are ultimately enforced with coercion.  If you resist or evade enforcement (and eventually) arrest, the government will eventually escalate to force.  Otherwise, you could simply opt out of the law.  This is true whether you murdered someone or if you evade your taxes.  It’s also true whether you steal something or whether you pour poison into a river (ideally, although this is no longer true in Pennsylvania).

If the law is continually broken, guns get drawn.  That’s the way it is and unfortunately the way it has to be.  It’s also something libertarians are quite happy to support when the ball lands on their side of the fence.  Many libertarians, who rely as we all do on a relatively stable system of private property, are glad to know there’s a government ready to pull guns to protect their money and holdings from would-be thieves at home and abroad.  The conclusion?  This whole “at gunpoint” device of rhetoric is ultimately empty.  Unless you are a rare breed of anarchist indeed, the “by gunpoint” label will only be applied to the things you don’t like.  And that’s what makes it useless currency in political argument.

** While this part of the argument is not strictly correct, I will not take it up here. The premise is true only if you accept the inaccurate (from a financial perspective) picture that federal taxation funds spending (rather than allowing for certain levels of spending while maintaining an inflation target).  See this link for more explanation on the role of taxation in our modern money system.

A tax puzzle for the right

I haven’t posted for a while; I just got a dissertation topic nailed down, and I’ve spent my time chugging towards a prospectus.  I also have a fairly lengthy post on Andrew Carnegie coming up, so at least my silence is partially due to real productivity (and not solely attributable to laziness).  Not that anybody reads this anyway!

A brief post though, just to get a question off of my mind.  The right has been drumming up scares of inflation for months now, despite strong evidence that recent blips in inflation were temporary spikes in commodity prices (e.g. oil).  Most of the fear, so far, seems to stem from QE1 and QE2 (despite never proposing a plausible mechanism by which that money would reach the economy at large and actually cause the inflation).

So it seems to me that the fear is simply the existence of the money, in some privately held bank account, not whether that money is in circulation or not.  Otherwise I cannot discern the reason for the QE1/2 scare.  But if you’re scared that there’s too much money in the private sector, *how do you propose to deal with that oversupply without taxation*?  This is something that’s really got me in knots (or rather, the fact that other people aren’t in knots over this has me in knots).  It seems that if you are afraid that we’re going to crash and burn due to run-away inflation, then the solution is to decrease the monetary supply.  If it’s not changing hands enough in a way that’s touched by sales taxes or by the payroll/income taxes of regular working Americans, then it has to come out of the private sector somewhere.

Why aren’t Republicans suggesting we tax the rich, then?  If the problem is inflation (too much money chasing too few goods), then we need to reduce the supply of money.  As Republicans themselves like to say: “the money has to come from somewhere”.

Profitability: a bad metric for the worth of a public entity

Profitability is often held up as a measurement of the worth of a government agency, such as the US Postal Service.  The argument is simple: the USPS (or whichever organization is under attack) is inefficient and an unjustifiable use of public funds, and the lack of profits is evidence of this.

Let’s put aside the normal branch of arguments, those in favor of public goods.  While they do a good job explaining why profitability should not be a concern for public goods, we will focus on the finances of the claim, which are puzzling to say the least.  (Note that while profitability should not be a concern when undertaking public goods, this says nothing about the prudence of budgeting wisely.)

Suppose we have a government organization, call it G.  G takes in dollars (income) from two sources: taxation and rates on its goods and services.  In other words, G gets paid by government directly or by consumers of its services. Thus we can express G’s income simply: income = public spending + revenue.

G must provide its signature service.  In doing so, it incurs production costs.  These include both human costs (the cost of labor, total wages), and non-human costs (trucks, fuel, etc).  Thus we can think of the financial obligations of G constituting both wages and other costs: obligations = wages + costs.

Profit is surplus wealth.  In other words, for G to run a profit, it must pay out less money than it receives.  This means that income must be greater than the obligations of G, that which G pays out.

What does this mean?  G profiting is synonymous with G accumulating reserves of money.  Without using the money for anything, this is equivalent to burning it.  G would be collecting a stack of dollars that would be put to no use.

Goin' postal stackin' this C.R.E.A.M.

The main question I wish to ask conservatives (and more conservative Democrats) is: “when G runs a profit, what should it do with that profit?”  Keep in mind that doing nothing at all is doing something (burning it).  G would be extracting its profit (in dollars) from the private sector and from circulation.

Running a profit and then doing nothing with it, as G, impacts our money (however little).  This seems like a strange effect for policies about G to have.  In terms of the USPS, it would be strange to think of setting the price of stamps with an eye toward controlling inflation rates.  But if enough organizations did such a thing (made and sat on profit), it would have roughly a similar effect to the federal government running a surplus: it would drain the private sector of funds.

It’s easy to think of this in terms of a board game.  Suppose we’re playing Monopoly, and halfway through the game the banker is determined to collect more money than he distributes (and follows through on this).  (This example paraphrased from a solid comment from Krugman’s NYT blog a few days ago.)  The bank, running a surplus, would be draining the private market of currency.  Play would slow down as players would see their buying power gradually disappear with their money into the bank.  Remember, if the bank is running a surplus then it’s coming from somewhere.

Therefore, burning the money (just sitting on it) is not an option.  One legitimate use of such funds could be to invest in expected future growth.  Investment outside of its own direct business activities, however, would be highly illegitimate: it would confound policymaking about G and G’s activities with the real outcomes and entrenched interests of G’s investments.  Such entanglements would be so detrimental to lawmaking and sensible governance that investment (as a private entity would invest profits) is not acceptable.

There are only a few things one could do to eliminate (distribute) this profit.  We could lower inputs to G (lower taxes or lower rates), or we could simply increase G’s bills (they could spend more, or they could increase wages). Either way, the money needs to be returned to the private sector.  The different ways of doing so benefit different people in difference ways; we should do it remembering that the government exists to aid the private sector as a whole.  As the public sector, in capitalist societies, exists to promote the health of the private sector (including labor), accumulating profits makes no sense.  It would only do that if it were meant to serve its own needs, which is clearly perverse (government for its own sake).

After all, it stands to reason: if there’s a profit in a public service, then it means somebody is being overcharged, either the tax payers, the people paying rates, or the workers (overcharged for their labor — underpaid).  While liberals and conservatives will fall on other side of that divide (thinking that the rich via taxation should disproportionately cover the financing versus the poor via rates and wages), the point remains: running a profit makes no sense, and G should work to zero any surplus wealth, allowing the funds to go back into the private economy.  Profitability is  poor measurement for the value of services in the public sector, as the public sector does not operate based on profit-motive (nor should it).

Wealth’s political roots

It’s remarkable how much existing policy frames debate.  Often the issue of “those who make $250,000 and more” is brought up in tax discussions.

Conservative-leaning people think we should take it easy on these folks.  They point to various sources of evidence showing that $250,000 “isn’t that much”, and also claim that taxing such “small earners” hurts small business.  Liberal and otherwise left-leaning people respond by trying to refute these claims, making arguments that these people make “more than enough”.

Both sides are making an error here, but only the conservative side is making an error useful to its own interests.  Let’s examine this, and through it, see an example in which the wealthiest extend their political interests down into the middle class (or how they have managed to do so).

Conservatives are right, in some sense, to distinguish small from large businesses here (leaving aside those who make high salaries just due to being in-demand workers for now).  It doesn’t make sense to tax earnings in the (currently imaginary) bracket of $250,000-$350,000 the same as, say, $10,000,000-$20,000,000.

Liberals are right to smell some cleverness here, but they’re not smelling out the right trick.  They stick to the story that everybody in the existing top-bracket should pay more, seeing this as the only way to battle damaging wealth-accumulation at the very top.  They rarely point out that the number of tax brackets can be changed, and has been changed plenty of times.  In fact, the way in which it has been changed is quite instructive.

Federal income tax brackets over time. Click to enlarge.

The arguments we’re having about whether or not those making above a magic number ($250,000) are paying enough could only happen in an environment where those arbitrary, magic numbers exist.  The content of the political discourse over federal income taxes would be quite different fifty years ago today than now, precisely because there are more brackets, and more flexibility in distributing the tax load.  Failure to see that we can simply add more brackets is a lack of imagination born from not knowing how we have, in the past, decreased the number of brackets.

While those who supported doing so claimed that doing so was a “necessary simplification of tax policy”, look at what it’s managed to do for the top marginal rates.  As more people are lumped into the same set of interests as the hyper-wealthy, the political roots of wealth-preservation creep further down into the middle class.  This means more money, more people, and overall, more power in the corner of the hyper-wealthy.  Nobody wants to be in a sinking boat, and if the rich have piled as many people into that boat as possible, everybody works to support their artificially-conjoined interest in staying afloat.

What we need to do is broaden the discussion, and discuss the number of brackets (and how to expand them), so that we can sensibly address tax burden and a sensible distribution of debt.  There’s just no way to do this when the wealthy are empowered and augmented by the political power of those with whom they would never normally share interests.  More tax brackets means driving a wedge between the majority of Americans and the hyper-wealthy; it stops the aristocracy from masquerading as the middle class when it comes time for tax season.