Who (or what) is interfering with equality of opportunity?

There has been a lot of talk about inequality lately.   If we are going to discuss this subject, we need to define our terms.  Equality of result is an extremely controversial subject and is not relevant to the discussion of this post.  Equality of opportunity is.

What do we mean by “equality of opportunity?”  We mean a fair playing field where people have equal opportunities to do what they want with their lives without interference.

I think a great example is our wonderful 14th amendment to the Constitution, which calls on all states to provide citizens with “equal protection” of the law.  This same amendment points out that it is the purpose of government to protect the natural rights of “life, liberty and property.”  It is easy to see what this amendment is calling for:  people should be able to live in harmony with each other, competing as they may wish in terms of business enterprises, but left alone to pursue their own goals as long as they do not harm others and try to take away their life, liberty and property.

The story of how the 14th amendment was subverted by mostly southern judges in the closing decades of the 19th century is one of judicial activism.  The result were the Jim Crow laws, segregation and many other evils of the pre-civil rights era.  But note, like most interference with equality of opportunity, it was government that ushered in the evil and protected certain groups at the expense of others.  In fact, it is government that is the biggest obstacle to creating a truly free society where people have equal chances to pursue their chosen paths.

Let us begin by illustrating the beauty of the free market system when it is allowed to work.

I own several Ipads.  They cost about $500 each.  They are a wonderful, liberating technology.  I travel a lot, and I never used a webcam to communicate with my family on the road.  Just too complicated to take out the laptop and get the software going.  With the Ipad, I just click on the “Facetime” app, click on my wife’s information, and connect.  There is one camera facing me so the kids can see me and another on the back so they can see the things I am looking at.  Sometimes I just wander around the airport with my Ipad showing the kids the airplanes.  They are spellbound.  There is no doubt that this technology is improving my life.

You can use an Ipad to surf the web, read a book, play your Itunes music and many, many other things.  But $500 is pricey for the entry-level Ipad, and there are several others that can cost up to $900 with accessories.  That is a lot to pay.

So, Amazon came along with the Kindle Fire ($200).  And now Barnes and Noble has the Nook Color ($250).  These less expensive devices do many of the same thing as the Ipad, but they cost less than half as much.  The free market, tuned as it is to the choices of consumers, will adjust and bring better products at lower prices.

Imagine another world, where the government stepped in and prevented competition and said no Kindles or Nooks could compete against the Ipad because Apple workers might lose their jobs.  This is what government often does:  it decreases equality of opportunity by interfering with the marketplace.   Who loses an opportunity?  All of the entrepreneurs who want to create a new product to compete against the Ipad.  When the government does not intervene, these people have the freedom to  be successful.  When the government tries to “control” the economy (and protect certain jobs instead of others), equality of opportunity is lost.

Let’s say you are not the entrepreneurial type yourself.  Why should you care?  Because all companies have areas that have benefited from the free market.  And the money produced by the market pays so students can go to school and so government workers can have jobs.  If you work for a bank, somebody at some point took a chance to use his or her own money to start that bank.  Same with Starbucks, same with Novell, same with any company out there.  Whether you recognize it or not, your employment is a product of the entrepreneurial environment.  When it is allowed to thrive, there are more opportunities for everybody.

A lot of you are saying that the government doesn’t intervene that much.  Oh, that that were true.  The government intervenes in so many ways that it is easier to think of businesses with intervention than businesses that are free.  Let me give some examples.

Bailouts.  I worked for a company, Worldcom, that went through bankruptcy.  Worldcom’s executives made a lot of very poor decisions, and the company began losing money.  The stock plummeted.  What happened during bankruptcy?  A judge appointed a team of executives with the power to reorganize the business.  Money-losing units were closed — those that made money were given new capital so they could expand.  The majority of Worldcom employees (like me) kept their jobs.  Verizon ended up buying the company and keeping its most profitable assets and many of its employees.  Should Worldcom have been bailed out?  Well, you could make the argument it should have been.  It was a huge telecom company employing tens of thousands of people.  Wasn’t it “too big to fail?”

A government bailout of Worldcom would have been a disaster.  It would have maintained the bad executives who made the bad decisions while wasting taxpayer money on a company with no real future.  In short, a bailout of Worldcom would have decreased equality of opportunity by lessening the ability of entrepreneurs to create a profitable enterprise out of the assets of one that was not profitable (or well-run).  Verizon has taken these assets and created an excellent product with one of the best telecom networks in the world.  A bailout would have simply maintained the status quo of failure.

All bailouts interfere with equality of opportunity.  When the government decided to bail out GM, it prevented competing entrepreneurs from creating a better company out of the best GM products.  The same with Chrysler, AIG and the many other banks who were bailed out during the TARP process.  All of these companies should have been allowed to go into bankruptcy.  Their profitable assets would have been bought by other, better-run companies — their money-losing divisions would have been allowed to fail.

Bailouts interfere with equality of opportunity in another way:  they take money from productive people (through taxes) and give it to well-connected, unproductive people (those who are being bailed out).  This is the exact opposite of the intent of the 14th amendment, where individual property is meant to be protected by law.

Licensing requirements.  Some readers may be familiar with the difficult-to-believe case of the Utah woman who is being told she cannot braid hair without undergoing 2,000 hours of cosmetology training, none of which has anything to do with hair braiding.  The woman is an African immigrant — she has a willing client base that is willing to pay her to braid their hair.  Yet the government stepped in and told her she could not pursue her vocation without 2,000 hours of training — that has nothing to do with her discipline!!

This is an outlier, you say.  Oh, really?  Every year the government finds new vocations that must be regulated.  Alternative medicine is prevented, even when willing customers say they want to try something new.  Among the other professions where you must receive a license to practice:  cat groomers, tattoo artists, tree-trimmers, and dozens of other very simple occupations.

Such licensing requirements are simply a way for existing businesses to prevent competition.  They interfere with your equality of opportunity:  you cannot work in such fields without a costly and lengthy licensing process.  This prevents willing buyers from purchasing from willing sellers.

Some of you are saying:  doesn’t this help prevent fraud?  Licensing prevents bad actors in the economy.  No, it is the market that prevents bad actors.  The government cannot be everywhere at all times, nor do we want to live in a world where it is.   Companies that do a bad job providing services, and defraud customers, should be sued and should go out of business.  Companies that provide good services, regardless of whether some bureaucrat has decided to give them a license, should thrive.

Subsidies.  If you subsidize something, prices will go up.  This is Econ 101.  More money pursuing the same good causes inflation in the cost of the good.  So, when the government decides to subsidize ethanol production, do costs go up or not?  Well, in fact we have seen a massive increase in farm prices in the heartland.  We have already seen Rameumpton discuss how subsidies are causing the price of university education to skyrocket.

Subsidies always have a price.  Government takes money from some people (taxpayers) to give it to other people (the people being subsidized).  The government picks winners and losers based on political connections.  The is the very definition of interfering with equality of opportunity:  those without connections face the double hazard of 1)not being able to succeed without the subsidies and 2)having their money taken away by government and given to others.

In a society that truly offered equality of opportunity, such subsidies would be illegal.  Each company or person or farmer would have to survive based on their ability, not their political connections.

We are fortunate in that all but the most egregious totalitarians believe in equality of opportunity.  People see this as an issue of basic fairness: people should have the opportunity to do as well as anybody else and not be hindered by bad actors in the economy.  Unfortunately, many people don’t realize that the primary source of unfairness is the government itself.  The proper role of government is to create a level playing field and to allow people to pursue their own paths without interference.  As I have shown above, the government increasingly sees its role as picking winners and losers based on connections.  This is the opposite of equality of opportunity.

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About Geoff B.

Geoff B graduated from Stanford University (class of 1985) and worked in journalism for several years until about 1992, when he took up his second career in telecommunications sales. He has held many callings in the Church, but his favorite calling is father and husband. Geoff is active in martial arts and loves hiking and skiing. Geoff has five children and lives in Colorado.

40 thoughts on “Who (or what) is interfering with equality of opportunity?

  1. I want to respond to the inevitable response that “government is great, it solved the problem of inequality of opportunity by race through Brown v. ori, etc.” Let’s be very clear was government did. The 14th amendment resolved a problem in the original Constitution when the writers refused to provide equality of opportunity to African-Americans. Then the government refused to abide by its own amendment. It took nearly 100 years for the government to *restore* the rights promised by the civil war-era amendments. I applaud this process. We recently have seen the Supreme Court restore 2nd amendment rights that were denied to Americans for decades. This is exactly what government should do: protect the rights of the people, providing a level playing field. I look forward to future decisions restoring rights to life, liberty and property that have been denied by a freedom-squelching government in many past acts.

  2. You’ve got a lot of good points here. But I do think that the bailouts is not a good example, because it’s an exceptional situation.

    I think the primary purpose of the bailouts was to prevent a 1929 style run on the banks and an unstoppable slide into a deep depression. Would that have really happened? I believe that the consensus of most economists of all persuasions at the time, was that this was a clear possibility, and one that had to be avoided at all costs.

    The other motivation you refer to: to protect large companies (too big to fail) upon which millions owe their livelihood. Well, I can see how this is rewarding failure and inhibiting opportunities for better competitors. And in practice, perhaps you are right, this often is the case.

    Should Chrysler and GM been allowed to fail? Maybe. But if you are the President of the US, and you see the economy sliding into depression, and you’ve just witnessed Bear Sterns and Lehman Brothers explode like an economic nuclear bomb, would you have the courage to “trust the economy to work itself out?” It seems to me that would take a lot of guts, a lot of confidence in your theory.

    How far are you willing to watch the economy sink before you do something? Till unemployment reaches 15%, 20%, 25% percent? Would you sit there and watch as all the banks collapsed one by one, trusting better ones to rise? Would you let the economy sink into a 10 year depression without doing anything, because you just know that it would all work out in the end?

    Maybe nothing that dire would have happened. Maybe if it did, we’d deserve it because we were living beyond our means. But when you are Pres. Bush, or Obama, in the middle of a crisis, you have to make quick decisions, consult with the best economists, and weigh in the balance your economic philosophy with the pragmatic advice of your economists, and a desire to try to mitigate the tragedy and loss that happen when economies collapse.

    I think it’s pretty clear that since both Bush and Obama, political opposites, made the same decision, that they must have felt that the bailout path was unavoidable.

    But we live in a world where we only get one shot. So we can’t know how it would have happened if we didn’t do the bailouts. Maybe the economy would have collapsed, maybe not. Maybe we would be stronger now, maybe not. It’s good to try and talk about it, make theories, speculate, try different things in the future. But I don’t think you can be too confident when offering a different opinion than the consensus of economists.

    But your opinion is a good one for the masses. It’s a good political ploy. Even though Romney clearly would have done a bailout, he is smart to say that he wouldn’t have. That’s the prerogative of the armchair quarterback.

  3. Nate, bailouts always do more harm than good. Always. If we had not performed any bailouts, the banks, AIG, GM and Chrysler may have had their brands disappear (like Worldcom did) but their profitable assets would have continued. They would have created stronger entities better prepared to compete in a global marketplace. Yes, some people would have lost their jobs, but this is inevitable. You will note that in the case of Worldcom total employment went up over time because the entity that remained was strong enough to compete against AT&T,Sprint, etc.

    Saying Bush and Obama are opposites is hilarious. They agreed on just about everything (even the Bush tax cuts, which Obama signed.) They are both part of the big government, big bailout culture that decreases equality of opportunity.

  4. I’m not talking about bailouts solely, but I’ve heard a similar argument to this, and am not completely convinced. I think there is a middle ground here. Subsidies and bailouts can do some good when used on a limited basis. The free market only solves all problems in a simplified, ideal world.

  5. I felt like I was back in Dr Kearl’s Econ 110 Class at BYU…such sweet, sweet music to my ears. 🙂

  6. “Nate, bailouts always do more harm than good. Always. If we had not performed any bailouts, the banks, AIG, GM and Chrysler may have had their brands disappear (like Worldcom did) but their profitable assets would have continued.”

    I think you should be at least a little less confident about this when it comes to the banks. Financial panics are a strange and terrible kind of thing.

    Most of the banks that were “bailed out” weren’t really insolvent (like GM and Worldcom were), but rather were facing a liquidity crisis because of the general climate of fear. As demonstrated by the fact that almost all of them have paid back their TARP loans with interest in a short time.

    I’m not trying to defend the banks and all the stupid mistakes they made, but if the banks had been simply allowed to collapse, then lending would have contracted even much more severely than what we saw, and I believe the result would have been an even worse disaster. How can you be so sure I’m wrong?

  7. Ed, there were significantly worse liquidity crises many times during the 19th century. Banks or groups of banks representing a large percentage of the economy failed. They were allowed to fail. New banks replaced them, and overall during the 19th century the economy grew and helped create the most prosperous country in world history. The logical extension of “TARP was a success” is “we must always bail out banks because if we don’t there will be worldwide contagion and a liquidity crisis.” All that this does is create the moral hazard of banks acting in a reckless manner because they will always be bailed out. Instead, we need to create the opposite environment: banks will never be bailed out no matter what, so if bank executives want to keep their jobs they will be cautious and only after profitable, safe business.

    We could also talk about the detrimental role of the Fed and the problems with fractional reserve banking, but we may want to save that for another post.

  8. There is a big difference between banks today and those in 1929. First, we have FDIC. Each bank account is protected for a certain amount (was $100K, now $250K). That the government was already willing to protect the individuals would reduce the risk of a run on the banks.

    Instead, the bailouts protected the rich with millions in accounts, the big banks, and the CEOs from looking for a new job.

    Government tends to make decisions that usually create major secondary effects that often are worse. Medicare and Medicaid were to be pillars to eliminating poverty. Today we have more people on poverty than ever before, and these two programs are headed towards $100 Trillion in unfunded mandates (IOW, bankruptcy). A market based solution would have kept medicine much cheaper than it is now, without subsidizing it.

    To bail out big banks or GM, means we do not give equal opportunity to smaller banks or Ford. We bailed out Freddie and Fannie. Now they want more money, because they are “too big to fail”. Yet, what about the millions who are losing their homes to foreclosure to Fannie and Freddie? Are they each small enough so it is okay to allow them to fail? Where is the equal opportunity? Or are we satisfied to allow our government to support oligarchies and plutocracies?

  9. Banks are not “always bailed out.” Hundreds of banks have been failing every year. In 2008 several very large banks failed and were not bailed out (Lehman, Washington Mutual.) These banks were judged to be insolvent. TARP was an attempt to prevent a situation where essentially *all* the banks failed because of a panic, even those that were not insolvent.

    However, I will grant that I do not know quite what would have happened if there had been no TARP or similar intervention in the fall of 2008. And you don’t know either. (edited).

  10. “Instead, the bailouts protected the rich with millions in accounts, the big banks, and the CEOs from looking for a new job.”

    There is some truth to this, but it is overstated. First, the shareholders of most of these firms were essentially wiped out. Even the banks that took (and repaid) TARP loans are worth much less than before the crisis.

    Second, many many CEOs did indeed lose their jobs and lots of their wealth (GM, AIG, Citibank, Lehman, Countrywide, Bear, Bank of America, Merrill Lynch, etc. etc.) The CEOs from “bailed out” firms that didn’t lose their jobs were mostly those from banks like J.P. Morgan or Goldman, which had been relatively more prudent and were in much less trouble than others. Nevertheless they were vulnerable to the general panic, so they were forced to take TARP loans along with every other bank.

  11. ed,

    Ben Bernanke may be in a big position, but that does not make him smart, per se. He has spent trillions of Fed dollars in QE1, QE2 and in other programs lending to banks, etc., in order to stimulate the economy. Guess what? Nothing he’s done has worked. Rather, the economy has stalled even worse, because the debt is growing, and his printing dollars means inflation is occurring (whether he admits it or not). And, he, Larry Summers and Tim Geithner were all in the middle of the economic collapse. Bernanke was heavily involved with others in allowing the banks to be leveraged 40 to 1. Personally, I think the three of them should be in prison with Chris Dodd and Barney Frank.

    They are doing the same things done during the Great Depression by government. And those things delayed the recovery by years.

    I do not call such men “smart”, but rather intellectual snobs that feel it is their right to tinker with huge economies at their pleasure, regardless of the outcome, and with no one ready to take them to task for their huge failures.

    They despise history, ignoring the outcomes of previous recessions and depressions. Like modern communists who think they can make it work, even when it has always failed before, these men are trapped in their own pride.

    Geoff B is discussing things from the strength of history. When one reads the logic of Bastiat, Milton Friedman, and others, one can easily see what works and what does not. What has made America and many other nations work? Freedom. What has always ended up choking a country to death? Bureaucracy, dictatorship, and 5 year plans. Stalin’s 5 year plans “worked” in Russia, but only because he allowed millions of Ukrainians to starve to death. The kings of France controlled the distribution of bread and food, and wondered why the people sought to overthrow them – something Bastiat could plainly see was because such control actually created shortages. He also saw that freedom actually eliminated shortages.

    So, I do not see Geoff as being smug and thinking himself smarter than Bernanke. Bernanke is the smug one, while Geoff is smart in following the evidence of history.

  12. ed wrote: “Nevertheless they were vulnerable to the general panic, so they were forced to take TARP loans along with every other bank.”

    I’ve noticed there were no bailouts for small banks that followed the rules, but were not able to get more funds to lend, because the big banks sucked the air out of the room. There were other ways of dealing with this, to prevent a general panic, and allowing the banks to reorganize themselves in bankruptcy court. When government forces companies to take a loan with strings attached, we are no longer a free nation, but are on the road to full government control. As I’ve noted, the Great Recession is stalled and will remain stalled for a long time, because we have not allowed the “reset” button to be pushed. This malaise will last until we get government out of the way, and allow a short period of pain to occur. Then and only then, can the markets be reset and begin to truly move forward and upward.

  13. Rameumptom, I can see there is no sense discussing this with you since you are convinced you have all the answers. (I will say that you appear to have a very strange idea about the Fed’s actions in the great depression for someone who claims to read Milton Friedman.)

  14. I would be the first to admit I don’t have a crystal ball, so it is true I don’t know for sure what would have happened if TARP had not taken place. But I do think history shows that certain things are true no matter the size of the market involved. So, we can agree that the local five and dime should not be bailed out. We can agree Worldcom should not have been bailed out. The same principles apply to all companies at all times.

    My point is that allowing failing companies to fail opens up new opportunities for new players who will create more profitable and successful enterprises. This is a universal principle that is always true and has been proven true throughout history. Government intervention creates moral hazards and over the long haul hurts economies — government promoting a level playing field and allowing failing companies to fail promotes a functioning, opportunity-based economy.

  15. Ed, you seem pretty knowledgeable about economics. I am wondering if you ever read Murray Rothbard’s “America’s Great Depression?” Rothbard goes into very precise detail regarding Fed actions in the 1920s. He shows unequivocably that there was a doubling of the total money supply in the 1920s which caused the stock market bubble of 1928-29. He shows that Hoover worsened the situation by extensive intervention in the economy and the Smoot-Hawley tariff (the list of Hoover’s interventionist activities is truly amazing when you read what Hoover actually did. We have this image of Hoover as adopting a “laissez-faire” approach. Nothing could be farther from the truth. Hoover raised taxes and spent so much money in 1930-1932 that FDR actually ran against Hoover as big spender.) Rothbard shows that Fed activity and fiscal policy worsened and deepened the Depression. Rothbard clearly shows that if we had acted in 1929-1930 as we did in 1921, basically by allowing the markets to clear and avoiding intervention, the Depression would have been over with by 1931.

  16. ed,

    Geoff and I are using evidence for the view we promote. We are using the concepts of experts in the field.

    I haven’t seen much from you in way of evidence, just questioning with skepticism, without offering an alternative.

    As Geoff discusses above, Hoover created the Depression. Then, FDR increased taxes in 1936, when the Depression was lessening, which caused it to return in 1937. Friedman believed government should use, at most, free market capabilities to resolve the Great Depression. I do not have a problem with feeding hungry people during a Depression or Recession. The main problem lies in meddling with the macro economy. Both Hoover and FDR played with it, and it just did not work.

    Keynes was FDR’s adviser. He suggested creating a temporary bubble of economic growth to kick start the economy. It didn’t work. Keynes thought it was because FDR didn’t go far enough. Government use of Keynesian economics has created many bubbles since then, each one getting progressively worse. Now we are in a major bubble, as in 1929, because we are talking about bubbles that affect the entire nation: housing and banking. Even after the 2008 crash, the Fed and Government have tried new bubbles: TARP, QE1&2, etc. But they are not working like previous ones have. Why not? Because the whole system needs a reset, placing values for everything in the economy at its proper and real place.

    BTW, I do not have all the answers. I do know what has worked in the past, and what history has shown to not work. I have degrees in history and business, and so do have an interest in how the two work together in these things.

    For us to have a discussion, however, you have to offer an argument of why the current process is working/not working, or if you have an alternative to what Geoff is recommending. For someone to jump into a conversation and say, “this isn’t right” or “how do you know?” is not a discussion. Give your ideas on how things ought to be, so we can actually discuss. As it is, both Geoff and I are putting forth concepts with evidence to back it up. Either find flaws in our evidence and show us a better way, or at least realize that you are not really “discussing” anything.

  17. Bankruptcy is administered by the federal government, a power granted in the Constitution.

    Lawsuits seeking damages for fraud are administered by various courts sponsored by state and Federal governments.

    The problem is not government intervention per se. The problem is interventions that are unsound in theory and practice, such as bailouts. Bailouts are unsound because they create perverse incentives. They are also unsound because we cannot possibly bail out every failing enterprise; and the discretion to decide which enterprises to bail out is a huge invitation to various forms of corruption. Bankruptcy is far better becuase it is sufficiently unpleasant for those responsible for the failed enterprise that no perverse incentive is created; while, at the same time, the useful assets are preserved and some of those not responsible for the failure are spared some of the consequences.

    What happens when a bank fails? At present, ordinary deposits are insured up to some large figure that no sane person would actually deposit in an ordinary commercial bank. Why run on your bank when the Federal Government has guaranteed your deposit? There’s no need for a bailout. I think this actually goes too far: I would rather than FDIC only insured, say, 80% of each savings account. This gives depositors some incentive to pick a sound bank — rather like the copayment on a doctor’s office visit.

    There are some things government is institutionally well-prepared to handle and some things that it is not. I would not want Death Star, Inc., to operate without a fair amount of Imperial oversight. Courts and national defense are things government does well — curiously, they are also things government has been doing for centuries and they are things that are done with a very conservative approach. We may have improved conventional munitions, superior camoflauge, night vision, and so on, but we have had sergeants, lieutenants, generals, and admirals for centuries. We have lots of experience with government doing these things.

    We do not have lots of experience with government trying to pick winners and protect losers in an economy, and what experience we have has mostly been unhappy. It’s not what government does well.

  18. I just want to address the tangent of bailouts. I really can see and argue for both sides of the coin on this issue. When Vader says, “Bailouts are unsound because they create perverse incentives” he seems to be correctly addressing the big issue with the bailouts. The (unseen, but later realized) cost of the bailout ends up being worse than had we just let that institution fail. Now I’m not arguing specifics here, so don’t presume that I’m suggesting AIG should have failed or been propped up.

    But in general, what Vader and others is saying is a type of moral calculus, or consequential-ethics approach to bailouts. It’s bad because when we add up the good results and when we add up the bad results, the bad out numbers the good. The problem being of course, none of us can really quantify the good and the bad so we just end up arguing over our own confirmation biases.

    But anyway, what I want to address is, this consequentialist approach is the approach that leaves the door wide open to bailouts. In fact, this is the same logic that permitted the bailouts in the first place. So by using this rhetorical tactic, you are bolstering the interventionists position. It will almost always be easier to convince someone that if a $10billion company disappears tomorrow, that $10billion will be gone, rather than to push them through the nuance, etc. of arguing that the assets will become productive in another venue. Nevermind, the fact of the matter is, it may very well be necessary for that $10billion company to go out of existence and have its assets cease to become productive. If we have too many cars on the market, the solution is not for someone else to buy the car making materials and start making more cars, but to have less cars.

    And that is the case that I believe will always lose once you start going down the cost-benefit approach to ethics. I think the deck is almost always stacked in favor of the progressive, “we have to do something, this is something, therefore we’ll do it” approach. I’m not saying it’s correct, and I don’t suggest to have the answer, but it sure feels hopeless for me if I even attempt to argue on the merits of economic policy, etc.

    I know the economic reasons, and can make the case, but the interventionists can often make a more tangible case. It’s only when we as a society witness a few decades of stagnation do we realize the mistake because we now have something tangible in the form of misery and lost opportunity on our hands.

    In short, the only hope really seems to be to put our trust in God and to pray for the pure love of Christ, esteem our brother as ourselves and practice virtue and holiness before God.

  19. Frank, first tell me some successes.

    Next, think if those successes could have taken place through the private sector (meaning, people acting voluntarily, rather than being forced by government).

    Then, think about the opportunity costs involved, meaning the costs involved in taking a government course rather than a private sector course.

    Then, consider the moral issues involved of taking by force taxpayer money from one person and giving it to another.

    Then, consider whether people without political connections ever get bailed out or receive subsidies (they do not).

  20. There are “successes” in government. But they always come with a cost, at least in inefficiency. For example, Social Security. It was designed to be run by the government, and while it has successfully helped millions of older Americans in retirement, it has also been an exercise in inefficiency, returning only 2% at best. It is racially biased, as young black men who work tend to die by the time they are in their late 60s, while blue haired white ladies live into their 80s and beyond. IOW, young black men pay for old white women to have retirement. When a person dies, the family gets nothing, unlike a personal savings account, where the family would inherit it. And the federal government has this tendency to borrow most of the ready funds in SS to fund other things, leaving it with a huge IOU in place of real money.

    So, it has done much good, but in a very inefficient and ineffective way. So inefficient that we now must fix it again, in order to have it survive in some form for the next few decades. And yet, Congress is reticent to really fix it, as that would be unpopular, and Congress wants to be re-elected. So they tend to kick things down the road, until we hit a major crisis.

    So it is with Medicare, Medicaid, and many other programs.

    When Vader says we are very good at military – yes we are. But we again have inefficiencies to deal with. Remember the $600 hammer of the 1980s? The military (and I spent 20 years in it) is great at winning wars. However, it is terrible at nation building. When military is run by politicians, we get programs and equipment we do not need or want, but provide jobs in some Congressman’s district. And no one wants to close a base that is no longer needed. Huge inefficiencies in a very important government function.

    As for bailouts, why do it the way we did? Money going directly to the big banks helped almost no one. Our nation’s mortgages in 2008 equaled about $10 Trillion. Imagine if we would have spent $2-3 Trillion on paying a portion of failing mortgages (say up to $50-100K). The money would have trickled back up to the banks, people would have stayed in their homes, they could refinance their loans at a lower rate, home prices would have stabilized, fewer jobs would have been lost, etc. They money would have reached the real economy of the USA: homeowners and small businesses. And given the money would not all go directly to big banks, they would have still been able to fail, while most small banks would have regained their value.

    This is one of the problems with government bailing out. They pick the winners and losers. In giving the money to the big banks, GM, and unions, government picked the winners. Meanwhile, we can see the losers all over America – small businesses who cannot get a loan, people losing their homes, people losing jobs, etc.

    Would it not have been better to allow the big corporations to suffer along with everyone else, by not bailing out anyone, than to only pick a few winners and allowing the rest to suffer? This is why we have protesters on both the right (Tea Party) and the left (Occupy Everywhere), realizing the government is not giving a fair shake to most Americans. Pres Obama and Congress are not populists in their economic doings. They are plutocrats, benefiting only the rich.

  21. I do have to say that I get a little tired of taxes being referred to as “taking by force.” It’s not taking by force any more than grocery stores and farmers take your money by force when you use their products. It is part of the price of living here. You have market choice in moving to other countries. If you don’t agree with the way that tax money is spent, that is one thing. If you think taxes should work differently, or are inefficient as they currently stand, I fully agree. But there is a good reason for taxes, and going to “at-will donations” is not realistic.

    No one wants to pay taxes until they need to use the services that taxes pay for.

    But I suppose it is the height of stupidity for me to get embroiled in a tax argument on a website full of libertarians. 😉

  22. I must have forgotten where I was asking the question. Of course the government can’t have any successes, because anything they do is a bad thing in some way or another. It just seems like a pessimistic view of government.

  23. Frank P, look, the best and most logical way to consider this question is: if you believe government does something well, and the private sector can’t do it, let’s think through the questions I show above. Is there a need for some government? Yes, in my opinion the government should maintain the court system, the police, fire and the Defense department (at a much smaller size). The government should enforce contracts and make sure nobody directly harms another person. There is an argument that, for example, the government should maintain lighthouses because it is impractical to charge people for their use.

    Should the government provide Social Security by forcing people to pay into a system that is going bankrupt? Clearly no. People should have the freedom to set up their own retirement accounts as they wish. The government does literally tens of thousands of things that it should not and would be better performed by the private sector.

    SR, sorry, you will be hearing me say many times in the coming years that taxation is money taken by force. Let me make this very clear: I have no problem paying tithing, and I pay more than 10 percent of my gross happily. But I do have a problem paying taxes, and the only reason I do so is because if I don’t I will go to jail or have my house taken away or have some other bad result. This is “taking by force.” It is forcing me to do something I don’t want to do and, in my opinion, is a direct contradiction of free agency and the purpose of the Constitution. You may want to pay taxes, and if you do, that is your right. But many, many of us do not and are being forced to do so against our will. A just society would allow those of us who want to “opt out” to do so. There should be user fees for roads (instead of gasoline taxes), all entitlement and welfare programs should be voluntary (meaning you only pay into them if you want to use them — everybody else gets turned away) and the Defense Department should be much smaller. I refuse to accept a world as just where my money is used to invade other countries, torture people, abort babies and to pay for TSA agents to molest me when I go to the airport. You may see this as part of the “social contract,” and that is your right, but I refuse to accept the worldview that it is just to make me pay for such horrible things.

  24. Reading your anti-bailout theory is scary. I can’t imagine how many peoples’ lives you would destroy or how much damage you would do to the economy in pursuing it.

  25. Don,
    Of course it is scary. But no scarier than the real life destruction of lives now going on because government and big business has been in cahoots for a decade. The bailout benefited rich people and unions. Meanwhile, real Americans are losing homes, jobs, and value in their 401Ks.

    How have the bailouts really helped the economy? Banks are not loaning to anyone but big corporations and the US government. Big banks are still seeking to foreclose on everyone. Fannie and Freddie now own 90% of mortgages and playing many of the games they did before, meanwhile giving their executives million dollar bonuses. What type of bonus did you get this year? And was it for driving the business into the ground and then having the government bail it out? For me, I haven’t had a raise in 3 years (nor anyone else working for the state of Indiana), even though our state is running in the black!

    Don’t you see the travesty being dumped on the American people by the plutocracy? No bail out would have been better than the bail out done by former Fed con-man Timothy Geithner and his cohorts Larry Summers and Ben Bernanke! Of course, Nancy Pelosi turned the “stimulus” into a benefits package for Democratic supporters, such as unions.

    So think about the scary times we are going through right now. We were promised a maximum 8% unemployment, which is over 9% (and in reality is closer to 17%), rising prices due to inflation, and the only area where workers are getting richer are the very rich in their CEO positions.

    I think this bail out mentality has helped enough rich people. It is time for them to leave the American people alone, and let us keep our own money rather than squander trillions of it away to pay off the wealthy for their criminal behavior.

  26. Your statement goes for paying just about everything.

    “But I have a problem paying my [mortgage/tuition/electric bill], and the only reason I do so is because if I don’t I will go to jail or have my house taken away or have some other bad result.”

    Taxes pay for things that you use and consume. Even if you’re not currently using or consuming specific items, you have or probably will at some point, and there are some that you will use that other taxpayers will not. I would find this argument more believable if you could show me that you have never personally benefited in any way from taxation.

    There are MANY things that taxes pay for which I don’t think are efficient, and many that I don’t morally agree with. But making some moral compromises is inherent in community living. Claiming that taxation should be abolished entirely just because you don’t specifically use or agree with some of the benefits is pretty egocentric.

    Where I think that libertarian ideas have some merit when applied in moderation, I think that it is extreme idealism to claim that taxes could effectively be completely abolished without unacceptable negative consequences.

    So you’re right. I CHOOSE to concentrate on the good that taxes do, and to therefore CHOOSE to pay freely and willingly, just like my electrical and sewer bill.

    If what you say is true, that people would donate willingly the same amount of money that is currently taken “by force,” then what is the problem? At that point, you are simply saying that taxation offends your personal sense of pride because you don’t like feeling forced to do something. Which, quite frankly, is a privileged point of view.

    The only way that you could be right that spontaneous giving would be an improvement on automatic tax payment is if you are wrong, and people would NOT pay as much as they currently are paying. In other words, the root reason I can see to lobby for complete tax abolishment is internal selfishness, which undermines the reasoning that is used to lobby for it.

    A plan of action that I can agree with is to examine individual uses of tax money, and adjust according to common sense, sound financial acumen, and a willingness to accept certain realities of life. Or possibly even reduce Federal taxation in favor of local taxation, and shift certain responsibilities from Federal to State and County government, so that individuals have more power to control where their tax money goes. But I can’t see how abolishing taxes altogether would really be a good idea.

    Tithing only works the way it does because it is unified by a common belief system. That would not translate to a group as diverse as Americans on a national level.

  27. Things that are scary:

    –Inflation is the single biggest problem for the poor and middle class but has virtually no effect on the rich.
    –For the first 130 years of the United States, prices went DOWN, meaning a loaf of bread cost less in 1910 than it did in 1780 in real money. Meanwhile, people made 10 times as much money.
    –Since the establishment of the income tax and the federal reserve and the implementation of massive bailouts, prices have increased 99 times, meaning a loaf of bread is 99 times more expensive in real money than it was in 1910. Wages have stagnated since the early 1970s.
    –This inflation has no effect on the rich but is killing the poor and middle class.

    Our bailout culture has taken away the purchasing power of you and me and nearly everybody else reading this who is not super-rich.

    It is scary people do not realize this.

  28. As with Silver Rain, I do not think taxes are inherently evil. That said, I think government is best that governs least, and is best when done at the lowest level possible. When we get the huge monstrosity that we have in the Fed government today, we get evil people doing evil things with our money. Bailing out the rich is an evil thing. Health Care, Education, Energy, Commerce, and many other federal organizations can cease to exist on the fed level, and done on the local. Instead, we have huge bureaucracies who feel it is their duty to create regulations and reasons for more taxes to be placed on the populace. It is criminal.

    I agree with Geoff. The mess we are in is due to massive Federal Government and the rich. Why shouldn’t we be scared? They are creating shortages, which are affecting us just as much as the artificial shortages in France that led to the French Revolution. No wonder we have good people on both the right (Tea Party) and the left (Occupy Wall Street) protesting the inequalities.

    Federal Government? Be afraid. Be very afraid….

  29. SR, you are making the same logical fallacy that Bruce did in his post on libertarianism. You are saying that because libertarians want almost no government and almost no taxes that we must throw out the entire philosophy. This is exactly like saying that because God wants us all to be perfect we should stop trying to improve ourselves at all because it is hopeless. I address this in my post:


    In short: the vast majority of libertarians would agree with you 100 percent if we got to a world where we agreed to your plan of action: “A plan of action that I can agree with is to examine individual uses of tax money, and adjust according to common sense, sound financial acumen, and a willingness to accept certain realities of life. Or possibly even reduce Federal taxation in favor of local taxation, and shift certain responsibilities from Federal to State and County government, so that individuals have more power to control where their tax money goes.”

    We are so far away from this plan of action, and are actually heading in the opposite direction, that we libertarians will continue to despair and call for action with all of our strength. But to be clear if we took that course of action and really followed through on it I would be shouting with joy from the rooftops (or at least my Facebook page). Unfortunately, I don’t expect it anytime in my lifetime.

  30. A plan of action that I can agree with is to examine individual uses of tax money, and adjust according to common sense, sound financial acumen, and a willingness to accept certain realities of life.

    This sounds eminently reasonable.

    Tithing only works the way it does because it is unified by a common belief system.

    And even then, an awful lot of members are opting out.

  31. Peter, perhaps instead of hometeachers, we were to send henchmen to ensure families paid their tithes, we could get more paying into the system? Oh, and also attending church and doing their callings, as well. It works with the IRS, doesn’t it?

  32. Geoff, I’M not saying that, that is what you imply when you treat taxation as categorically wrong. “Almost” no government, as little as possible, I can get behind. But calling taxation as a whole “payment by force” is a bit extreme. It places a moral judgment on a tool that, when used wisely, is a useful and necessary part of living in a diverse community.

    It’s fine to categorize that use of language as, essentially, a frustrated reaction to the perception of moving in the wrong direction, but don’t be surprised when others dismiss the good part of your ideas because of the ring of fanaticism.

  33. SR, I guess we’re going to continue to disagree on the “payment by force” issue. Here is my point, and I think it is 100 percent consistent with the views of most of the founders of this country. All taxation is theft. But some taxation is needed to run government. If we start with the premise that taxation is theft, then we maintain a huge amount of humility when taking money from others. This was the explicit policy of the United States until 1913 (with the exception of the Civil War years). We had no income tax. All federal money was raised through excise taxes and tariffs on foreigners. State income taxes, property taxes, local sales taxes and on and on were virtually nonexistent. The government, as a percentage of the economy, was literally 1/20th its current size. But this point is crucial: there was a widespread agreement that taxation WAS theft but was a necessary theft to run a very small, efficient national government.

    Today, the idea of somebody saying “taxation is theft” is dismissed as “fanaticism.” You get people moving from the opposite direction, and their argument is that government should have the right to all your money, but they will allow you to keep, say, 30 percent of it if you are truly rich (talk to many people on the left today, and they will say exactly this — a 70 percent tax for the truly rich is “fair.”) This ideology is totalitarian. We need to reject this ideology entirely and move back to the position that the money is yours but a small percent of it is needed to run government.

    So, you say you can get behind a government “as little as possible.” Good, we agree. But “little” for the totalitarian mentioned above is bigger than our government now. My idea of little is more like what we had in 1910.

  34. Oh, I agree that the government has a great deal that they need to cut back on. I don’t think we disagree much that the current tax situation is horrendous. I maintain that taxes are payment to participate in a community, and you believe that someone should be allowed to participate in the community, even if they don’t pay taxes. It also seems that any consequences attached to a person’s refusal to pay should be communally shared, rather than personally targeted.

    Is that right?

  35. Right now, the “taxes” we are paying for the TARP bailout for the auto industry includes losing an estimated $23.6 Billion bailing out GM and Chrysler. For the 90,000 employees in the two US companies, the loss in the bailout equals $262,000 per employee. And that doesn’t include if GM or Chrysler stock drops any further, causing us to lose more on these two ticking time bombs.

    The Feds forcibly took $700 Billion from me and my grandchildren, in order to bail out their buddies. And we’re now seeing that much of the money will not be recovered, as we once were promised. We just have to eat it.

    This is what concerns Geoff and me. The huge and violent excesses of government that we now see.

  36. I would put it slightly differently. We should try to have taxation based on user fees as much as possible, and we should allow people to “opt out” of things they don’t agree with.

    In I were president, starting in the next few years I would push a 10 percent flat tax option for those who want to “opt out” of Social Security, Medicare, Medicaid, etc. 10 percent is enough to pay for defense, police, fire, some national roads, etc.

    On a local level, I would institute vouchers for those who want to opt out of govt schools. I would institute tolls on as many roads as practical so that only the people who use the roads pay for them. I would institute user fees for parks so that people who use the parks pay for them (we actually do that in my county in Colorado — most of the park funds come from the people who use the parks. There is no reason to tax a house-bound person so that some yuppie can ride his mountain bike in a park).

    So, my general philosophy is: allow people to make their own choices and pay for the things they want to, rather than using force. Allow people to opt out as much as possible. You could still run the society (note that a 10 percent tax will stay raise a lot of money), but you would give people more choices.

  37. Geoff, thanks for the explanation. I’m glad you pointed out necessary government functions (fire, police). I agree we need government for these good services, and could do with much less government trying to direct the world.

  38. Another example of federal bailouts gone extremely awry? How about another Green company, Bright Source, who received its start up capital from multimillionaire Robert Kennedy Jr’s investment firm. One of Bright Source’s employees moved over to the Dept of Energy, which then worked to provide a $1.4 Billion loan (on which they may end up defaulting). At its height, they believe it may create 1400 jobs, at the cost of $1 million per job. RFK Junior gets much richer, and the American people end up deeper in debt.

    Bright Source bailout

  39. Rameumpton,there are actually countries in which the established churches avail themselves of the government tax collection infrastructure to recover tithes from their membership, but it goes without saying that I am not advocating this. Rather, I am making the (trivial) point that even voluntary associations are not immune to the free rider problem, with the implication that we should not expect non-voluntary ones to be any better off.

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