16
Oct
2012
Quotable Quote on Debt Burdens
It really clicked for me when I summarized my Freeman article this way:
If an imperialist government paid for popular spending programs by levying a tax not on its own citizens but on a conquered land, the scheme would of course be a gigantic theft working across space and through the currency markets. Deficit finance is similar, working across time and through the bond markets. It allows today’s citizens to pay for government goodies by levying a tax on unborn generations who have no say in the political decision.
Learn it, live it, love it.
Isn’t the “unborn” part of your conclusion stretching the argument one bridge too far?
http://www.themoneyillusion.com/?p=17087
I stopped reading when you described Paul “Broken WIndow Fallacy” Krugman as one extremely smart person.
However, Murphy has already shown in the other blog how successive generations are harmed. His example with the apples where an individual debt is paid for by taxing the one that is owed the debt demonstrates the claim. Eventually, the debt cannot be paid by borrowing from the younger generation, and the result is taxing of both to get it, which impoverishes the younger generation by an amount they do not get back later.
“If an imperialist government paid for popular spending programs by levying a tax not on its own citizens but on a conquered land, the scheme would of course be a gigantic theft working across space and through the currency markets. Deficit finance is similar, working across time and through the bond markets.
Only if you already assume taxation is theft – so the whole argument is circular, and nothing but begging the question.
By what moral theory by your declare taxes theft?
“It allows today’s citizens to pay for government goodies by levying a tax on unborn generations who have no say in the political decision.”
And imposing austerity now, thus impoverishing future generations by forever reducing their future real output from what it would otherwise have been, would also be imposed without their consent and against the wishes of many hypothetical people – would you accept this argument against austerity?
Anyway, in truth this argument is much like saying I “coerced” my first born son by making him be born against his wishes, because he had no say in the decision and now has to deal with all the problems and obligations of life. You might as well say no parent has the right to reproduce at all, if this absurd line of illogic is followed to its conclusion.
By definition, the future generations unborn or children now cannot have any say in a current political decision: practically any decision taken now might be resented by someone in the future.
That is no argument against doing what’s right now.
And In contrast to what you say: there are many alive now with voting rights who can influence the decision on deficit spending who will be paying taxes in the future.
“By what moral theory by your declare taxes theft?”
Theft: taking property from his rightful owner without his consent.
If we agree in the above definition, that’s exactly what taxes do. Therefore, you should be the one explaining the moral theory by which you assert taxes are not theft.
For the rest, in my ethics there is a difference between the consequences of doing something and the consequences of NOT doing something.
You can NOT be accountable for things you didn’t do. Somebody may hold you in better or worse esteem but nobody can punish you for failing to do things. In the other hand, you’re fully accountable for the things you do.
Failing to act in the way of increasing ours children future real output (assuming your weird position about the so-called government austerity and future prosperity), not your fault neither mine. Can my son blame me for not working hard enough? or for not investing wise enough? I hope his IQ is above that.
Even if I were a drunken jerk who is failing at my responsibilities, if you believe in free will you should assume that he will have the final word about his destiny.
But I can not do something that *FORCE* him to suffer the consequences. Son, here is the bill for my new car, no worries you only have to begin to pay when you’re 18. What!? How you dare complain ungrateful brat!? Don’t you know it’s for taking you to college so you can be better prepared and earn more money!!!
“Theft: taking property from his rightful owner without his consent.”
First, you assume all people regard taxes as theft. This couldn’t be more wrong. Some actual evidence:
“The IRS Oversight Board conducted an independent poll in 2005 that found 96 percent of the respondents agreed ‘it is every American’s civic duty to pay their fair share of taxes.’
The Pew Research Center in a similar study in 2006 found 79 percent of the respondents said that cheating Uncle Sam was ‘morally objectionable.’
Maxwell, S. 2000. The Price is Wrong: Understanding What Makes a Price Seem Fair and the True Cost of Unfair Pricing, John Wiley & Sons, Hoboken, N.J. p. 146.
Secondly, you are left with the question of why it is morally right to coerce the minority to pay taxes: anyone who accepts a consequentialist ethics will provide the justification that the good consequences of certain government spending programs supported by taxes more than outweigh the bad consequences of coercing a minority of people.
“You can NOT be accountable for things you didn’t do”
Yes, you can. Say, your child needs medical treatment: you refuse to provide the treatment because you don’t want to pay the money. Your child dies. Your failure to act is grossly immoral, because you have a prior moral commitment to look after your child.
If we follow the logic of the ethical theory of, say, a libertarian like Rothbard, we find him telling us insane things like this:
“But the parent should have the legal right not to feed the child, i.e., to allow it to die. The law, therefore, may not properly compel the parent to feed a child or to keep it alive. ” (Rothbard, M. N. 1998. The Ethics of Liberty, New York University Press, New York, N.Y. and London. pp.: 99–101).
See here:
http://socialdemocracy21stcentury.blogspot.com/2012/06/horror-of-rothbardian-natural-rights.html
“First, you assume all people regard taxes as theft.”
No, he defines theft as the taking of property without consent of the rightful owner. He argues, correctly, that taxes are a way of doing this. The opinions of people are irrelevant.
Although, if 96% of people regard taxes as their “fair share”, why is compulsion necessary to get them to pay? Why not just let the 4% who regard it as theft just not pay?
“Your failure to act is grossly immoral, because you have a prior moral commitment to look after your child.”
On what grounds do I have this commitment? Is it the grounds that lets me abandon a newborn child at a hospital without consequence? Or the one that lets me give my child up to another through adoption? This ‘moral commitment’ does not exist.
“anyone who accepts a consequentialist ethics will provide the justification”
Consequentialist ethics are arbitrary whim and nothing more. It presumes to know the consequences of actions, as opposed to just guessing and intention, and further presumes to be able to weight objectively the level of harm as opposed to the level of “good”. (How many social utils are gained/lost if we….) Utter nonsense.
“Some actual evidence:…”
>> Why would a poll resolve this? What do people’s opinions have to do with a definition? Similarly, there was a poll taken about a year or two ago of US citizens where over 70% of the respondents thought that Iran already had nukes (which we know there is no factual evidence to support). I’m not drawing a direct comparison between a poll disputing the lack of empirical evidence and one disputing a definition, but can we reasonably assume that public opinion can be shaped in such a way that it would be wise not to hold it as “evidence” of a definition? To think about this another way, if the same poll was taken in the US in 1900 regarding an income tax, do you honestly think the results would be the same?
Sorry, but you just set up two straw man. I have never mentioned:
1) My assumption about how people regard taxes.
2) The morality of forcing minorities to do things.
All I said was: one of the procedures by which states collect money, read taxes, matches with the common definition on theft. If you did not object to this may I assume that you agreed?
For your answer it seems to me that you do indeed agree and you are just giving us the justification. As long as the majority think it’s fine go ahead. And for those few who don’t, no problem we’ll force them, somebody will explain them the positive consequences of the whole scheme.
The “majority got it right “justification can be used for anything: theft, murder, slavery, rape, you name it.
Regarding the starving child. You should not be accountable for things you don’t do. And the reason is simple, the list of things that you could do and don’t do it’s endless. So, things that could get you punished are up to the whims of the majorities (the majorities right?). Some of these things may be out of your control, some may be as absurd as the majority(?) decide, or both.
Should somebody let her son starve? hell no, all contempt for such a monster. Should he be punished? I think NO. If I were really interested for the well being of the child I would try and close a deal with his parent, so I can take care of the child the way I see it fits. I assume in your case you would try to convince the majority of the neighborhood about the wrong doings of the parents, so the child can be raised by some social worker? and the parent can be throw in jail maybe?
“The “majority got it right “justification can be used for anything: theft, murder, slavery, rape, you name it.”
The “majority wants it so it must be right” argument is not even used in my comment above. On the contrary, I make it clear that consequentialism provides the actual moral justification for whatever coercion is involved in taxation.
By mentioning actual surveys, I am just pointing to the empirical fact that the majority of US citizens do not think taxation is theft.
So most of comment does not refute anything I have said.
But you said taxation is not theft because of some poll of what people believe, and you emphasized the 96% figure.
If 96% believed wantonly killing apostates is not murder, does that make it not murder? No. Therefore, your justification that taxation is not theft is flawed.
———————
Consequentialist ethics is praxeologically impossible. It does not provide any rules for what I ought to do and what I ought not do NOW, at this moment, since it is contingent on future outcomes.
Any valid ethic must be philosophically a priori, in order to provide us with rules concerning PRESENT action.
Secondly, you are left with the question of why it is morally right to coerce the minority to pay taxes: anyone who accepts a consequentialist ethics will provide the justification that the good consequences of certain government spending programs supported by taxes more than outweigh the bad consequences of coercing a minority of people.
Good according to who? Obviously not those who are coerced.
If it is justified for the majority to harm the minority, to benefit the majority, then this ethic justifies slavery if the majority wants to enslave the minority.
Only if you already assume taxation is theft – so the whole argument is circular, and nothing but begging the question.
Uh … Lord_Keynes, buddy, I get that a lot of people reject the whole “taxation is theft” thing. But when we’re talking about levying taxes on a conquered land, I’m *pretty* sure we get to call that theft. And with all the similarities to the unborn (i.e. them having no say in the matter and subject to near-absolute rule from the born for at least 18 years), you *really* don’t get to wave this away as being a general “taxation bad” argument.
Why do you consider *one* kind of extraction-by-might-against-subjects but not another to be bad?
Or are you totally cool with “you won the war, you get to loot them”? Bite bullets where you have to.
***
With that said, *my* theory about why this debate generates so much confusion is that there are so many ways that present generations can impoverish future ones in exchange for more leisure or consumption today. For example, failing to keep up the barn, or prematurely selling a cow to buy milk, or investing less than some baseline.
Uh … Lord_Keynes, buddy, I get that a lot of people reject the whole “taxation is theft” thing. But when we’re talking about levying taxes on a conquered land, I’m *pretty* sure we get to call that theft. And with all the similarities to the unborn (i.e. them having no say in the matter and subject to near-absolute rule from the born for at least 18 years), you *really* don’t get to wave this away as being a general “taxation bad” argument.
What Silas said.
“But when we’re talking about levying taxes on a conquered land, I’m *pretty* sure we get to call that theft.
An analogy that falls flat on its face.
A democracy where citizens have right to vote governments in and out, or vote en masse for Ron Paul, is not a conquered land, having “evil” government spending forced on it by conquest.
If enough people really accepted your logic, Ron Paul would have been president a long time ago.
“Why do you consider *one* kind of extraction-by-might-against-subjects but not another to be bad?”
See above.
Whoa, the unborn have the right to vote in a democracy???
Or did you just not read the rest of the part Bob_Murphy quoted?
I know, Lord_Keynes, it’s a lot easier to look up a cached list of responses to arguments, but when there’s an actual (dis)analogy that appears, you kinda have to change your response.
Just like how a lot of us change our responses when people use different arguments!
Lord Keynes is a robot who looks up data and presents it like a hammer for all chores.
There is a total absence of reason.
“who have no say in the political decision.”
This counts for me just as a another important reason why future generations are burdened. Present generations increase their range of choice by depriving future generations of their choice via binding them into contracts they never signed, which is definitely a burden as well!
But, but, but future generations are Americans, unlike the non-citizens in your thought experiment!
Do you really think this is a good analogy???
It’s theft in your example because there is no legitimacy in your example!
Cue the people who say that there’s no legitimacy in the case of debt either. Then cue the people that say there’s no legitimacy in contemporaneous taxation.
But don’t you see how for this passage to be meaningful at all you have to pretty much already agree with your position?
Cue the colonialist apologetics 😀
What have the Romans ever done for us?
I guess I missed the part where my potential future grandchildren are voting between Obama and Romney in the 2012 election.
Wait, so you’re saying it’s okay to conquer, enslave, and extract wealth from the unborn, as long as you set up the framework for doing so before they’re born?
“Hey! Stop! You can’t send your soldiers into our city!” –> “Oh no, it’s okay, we’re only going to rule the people here who haven’t been born yet — the rest of your are safe.”
Bob,
I just think this is a little misleading (if you take it by its literal meaning):
” It allows today’s citizens to pay for government goodies by levying a tax on unborn generations …..”
Most people would read it as follows: we pay for stuff today by having people who do not exist (yet) foot the bill, i.e., free today, pay tomorrow. I hear this all the time. But doesn’t this sound just silly to you? How can you possibly have people who have not been born yet foot the bill today (without entering a time machine, confiscating their hard earned real resources, i.e., machines, factories, and even some workers from the future if you like)?
This is why your analogy of taxing the occupied is a little shaky in my opinion. When strictly referring to official taxes, I see your point. However, there is a major difference between the two groups that I’m afraid (actually I know) that your readers will not get from that analogy, and that is that the occupied people really can foot the bill today, whereas future generations do not exist and can’t, and so, for now, we (or some of us) still foot the bill today (nothing is free today), but also burden future generations by this scheme via formal taxes.
Uh, right Dan, I used to think that too. Then I read Nick Rowe.
It seems you still have a long way to go Bob…
Dean Baker attempts a rough calculation of the “burden” in a comment to his recent post. I’m pretty sure his reasoning is wrong. Maybe Bob Murphy will write another post or three setting him straight.
“Under almost any plausible scenatio, the Rowe budren is trivial
“It’s the fraction of the spending from interest on government bonds that is spent by people without kids (i.e. not saved) and not received from taxes paid by people who also owe bonds. [The true measure is the consumption based on bond wealth, but I’m going to be sloppy and use this as proxy.] Currently, net interest is a bit over 1 percent of GDP. It also only applies when the economy is at full employment (don’t hold your breath on that one). My guess is we’re talking about a burden that is hovering around 0.1-0.2 percent of GDP — maybe one tenth of the burden of pharmaceutical patents. Sorry if I’m not too worried about that. And, it can easily be more than offset by the growth associated with stimulus.”
Personally, I’d guess that if future generations curse us it will be for building horrific weapons or ruining the environment rather than leaving them with hefty government debts. The Napoleonic Wars left 19th century Britain with a massive debt but it didn’t cramp its economic development very much.
Kevin Donoghue, you’re right, one of my “3 posts” on this (which now is turning into at least 5) was going to see whether Dean Baker was right to say that Nick Rowe’s mechanism, though technically correct, was empirically negligible. But I couldn’t even get to that, since Krugman still doesn’t even see what Nick Rowe’s mechanism is. (Or rather, since even Scott Sumner now says Krugman finally “gets it,” when no, Krugman doesn’t.)
This isn’t merely a vendetta against Krugman (though there is that element, to be sure). If so many people to this day say, “Krugman has been right all along” (like Gene Callahan and Daniel Kuehn), or now say, “Krugman just about has it” (like Landsburg and Sumner), it makes me wonder if they really understood the controversy at all.
This is not convincing Bob. Borrowing works across time and through the bond markets. So does repayment.
Right Ken. The voters today borrow, and the taxpayers in a century do the repaying. That’s the straightforward sense in which deficits allow us to live at the expense of our grandkids.
“The voters today borrow, and the taxpayers in a century do the repaying.”
The future taxpayers’ money is merely redistributed in government spending at that time: for the government’s spending is someone’s income.
You can’t send real resources or money back in time. There is no “robbery” of future generations by present people taking place.
Person A gets the spending of government now, borrowed from younger Person B. Person B is repaid partially by money taxed from himself, so his future net return is diminished or even eliminated, and he ends up worse off in the end.
“The future taxpayers’ money is merely redistributed in government spending at that time: for the government’s spending is someone’s income.”
Government spending is not productive. The future generations are poorer because their money is taken from them to pay back bonds, and cannot be used to save for capital accumulation and investment.
Also, I suppose it matters if a person is one of the “we” or the “ourselves”. I guess, LK, you don’t have to deal with the moral quandary of this compulsory redistribution, not having any real moral qualms about government force in general.
“Person A gets the spending of government now, borrowed from younger Person B. Person B is repaid partially by money taxed from himself, so his future net return is diminished or even eliminated, and he ends up worse off in the end.”
That does not follow and is sheer illogic.
“Government spending is not productive.
On the contrary, public investment is productive, and expansionary fiscal policy in general induces higher real private sector investment.
“The future generations are poorer because their money is taken from them to pay back bonds, and cannot be used to save for capital accumulation and investment.”
A mere assumption for which we have no convincing evidence. Whether there is insufficient private investment at any time in the future is an empirical matter and will only be known then and is not decidable by a priori arm chair reasoning.
Once the money is spent anyway it can be reinvested in capital accumulation.
Government spending is someone’s income, and will be spent in turn on commodities, capital goods investment or assets.
Government spending is not productive, and expansionary fiscal policy crowds out private investment, regardless of how many unemployed people or idle resources there are.
Government spending is someone’s income, but it comes at the cost of lower real incomes elsewhere.
Just a reminder for the sake of evenhandedness: when grandma decides to take out a reverse mortgage on her house rather than bequeath it to her kids, that’s also a case of living at the expense of her grandkids — although fortunately, it only shorts her immediate family members, unlike Congress!
We’ve been around this tree. On another topic Bob, will your new book, the version of Human Action, be ready for Christmas?
NB Serious inquiry. And note I don’t say Xmas.
No, it’s not supposed to be ready by Christmas. (You gave me a heart attack for a second.)
Oh. Then let me ask. Will it be ready for Thanksgiving?
🙂
“one of my “3 posts” on this (which now is turning into at least 5) was going to see whether Dean Baker was right to say that Nick Rowe’s mechanism, though technically correct, was empirically negligible”
I look forward to that post but suspect that Baker may be right and the effect will be empirically negligible.
The reason for this is that one of assumptions in the model appears to be that the older generations will always consume their entire endowment plus the proceeds from the sales of bonds. This seems unlikely to be true in the real world where the old may well rollover their debt and pass the bonds on to their descendants.
One the govt has the option of borrowing from both the old and the young the debt becomes much more sustainable.
To take the model from yesterday:
In period 6 the govt starts to tax earlier than it needs to. it could still borrow 96 from George
In period 7 it could then finance the loan repayment of 192 by borrowing 96 from both Hank and George (in effect rolling over George’s loan)
In period 8 Hank would have an expected income of 292 (100 endowment + 192 bond repayment) and Iris a 100 endowment plus 192 in bonds inherited from George. . The govt could borrow from this expected income to pay off the debt of 384. And so oi down the generations – only problem when the old do not wish to rollover the debt to the next generation will the govt have to tax or default as in the original model.
In your model with 100% IR the numbers become large very fast but with a lower interest rates the model starts to looks sustainable.