Egalitarian?

by Russ Roberts on June 19, 2008

in Inequality

Dew-Becker and Gordon write (HT: Arnold Kling):

Only the top 10% of US earners have seen their incomes grow faster
than productivity since 1966. Part of the top-earner income growth is
driven by market forces (superstar economics); the only feasible
pro-equality policy here is more progressive taxation.

Two questions:

1. What does "the" top 10% mean over a forty year period when there are huge changes in family structure and immigration? I will try and read the paper but "the" top 10% is an awfully slippery concept. The statement certainly doesn’t mean what it sounds like.

2. Why would more progressive taxation lead to more equality? Increasing the progressivity of the tax code would increase pre-tax measured inequality. Does anyone have a model or an estimate of the impact on post-tax and post-transfer inequality. My guess is that it would be modest at best.

The only decent (and I mean that in more than one sense) policy to reduce inequality is a policy that improves the school experience of the least-skilled children. 

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RVTurnage June 19, 2008 at 3:52 pm

I'm just a layman, and maybe I'm missing something, but it appears that this study runs contrary to a findings from the Heritage Foundation:
http://www.heritage.org/Research/Labor/wm1943.cfm

It looks like this study runs into the trap that Heritage study talks about, that simply comparing productivity and income is unreliable…Again, I'm a layman so maybe I'm missing where this study takes non-wage benefits and differences in inflation calculations for production and income into account.

From the Heritage study:
"There is no gap between productivity and compensation. Simple comparisons of productivity and wage growth are misleading because the two data sets are not directly comparable. The government uses different measures of inflation to adjust wages and productivity for inflation and wage measurements do not include benefits. Looking at total compensation, not just cash wages, and using the same measure of inflation shows that both compensation and productivity have doubled over the past 40 years. The share of national income that goes to workers' compensation has also stayed constant."

Further counter to this studies assertion that proprietors are keeping up while labor isn't (complete with a chart showing income/production without proprietors income included http://www.heritage.org/Research/Labor/images/wm1943_chart3.gif): "Over the past 40 years the compensation that companies pay their employees has held constant at slightly over 70 percent of national income, never deviating more than a few percentage points from that number. In the first quarter of 1968 employee compensation was 69.9 percent of national income. In the last quarter of 2007 it was 70.6 percent. Business owners are not denying workers the fruits of their labor."

Plus, according to the Heritage Foundation, using the full income and production picture, labor income as percent of national income has remained steady, even without including proprietors income:
http://www.heritage.org/Research/Labor/images/wm1943_chart3.gif

Or am I missing something?

Ryan June 19, 2008 at 4:00 pm

I wouldn't just say "a policy that improves the school experience of the least-skilled children."

I'd emphasize improving education for those that currently are born to low income families in poorly run inner city districts. Many talented and capable young people are not getting a quality education and this is probably a very significant factor that contributes to inequality. Mark Perry had a post about the fact that it's not the rich getting richer but the educated getting richer. Education should be our top priority to reducing inequality, not some haphazard redistributive policy that can only harm overall productivity and misalign incentives.

Mark June 19, 2008 at 4:20 pm

It seems like it is always just assumed that income equality is desirable. I would *hope* that those who desire income equality really want to raise the income levels of the lowest income earners rather than to have greater income equality for its own sake. My guess is that they have a zero sum mentality — i.e. that we would essentially be re-distributing a piece of a fixed pie from people with high income to those with low income. I am very skeptical that this is an accurate description of reality. I don't think we can force greater income equality without a simultaneous decrease in the standard of living for those at the lowest levels (and all the other levels too).

tiger June 19, 2008 at 4:34 pm

And, I might add, why is it the government's responsibility to make things equal? They just need to protect the right of each citizen to purse liberty and happiness (and whatever else is in the Constitution, Bill of Rights, etc.). There is no provision for forcing equality through taxation policies-that's Karl Marx.

Renato Drumond June 19, 2008 at 4:38 pm

"Many talented and capable young people are not getting a quality education and this is probably a very significant factor that contributes to inequality."

Ryan, probably a better education of talented and capable people will increase, not reduce, inequality.

spencer June 19, 2008 at 4:40 pm

RVTurnage– you are missing the point that compensation data includes the wages and other benefits of CEOs and that is the primary factor driving the increase at the top of the income distribution. In effect, you are saying that if you include Bill Gates income in the average the average has done great.

Martin Brock June 19, 2008 at 5:06 pm

Or am I missing something?

I haven't followed your links, but nothing you say contradicts Dew-Becker and Gordon. They don't say that total compensation hasn't kept up with productivity. That's practically tautological. They say that the distribution of compensation is increasingly skewed.

Cato reports that the average income of Federal employees has grown much faster than the average income of others in recent decades. This trend seems consistent with Dew-Becker and Gordon's finding, but I don't expect higher taxes to improve the situation.

So I favor a progressive consumption tax, i.e. the progressive income tax with an unlimited entitlement to defer the tax on investment and much more steeply progressive rates. This reform would dramatically reduce taxes collected from people with the highest incomes, but it would also lower their relative consumption while simultaneously increasing opportunities to employ resources in the market sector.

Martin Brock June 19, 2008 at 5:15 pm

And, I might add, why is it the government's responsibility to make things equal?

It's not, and government's typically don't make things equal. Governments make things unequal.

Randy June 19, 2008 at 5:22 pm

In an environment of scarcity, there is no such thing as equality, and no such thing as liberty. The political class, while presenting a posture favorable to one or the other for political expediency, will never actually allow either, because to allow either would cut into their profits. The game is revenue maximization – always has been and always will be. So, is there a disconnect between productivity and compensation? If so, it is because that is the situation that produces the maximum amount of revenue for the political class.

Martin Brock June 19, 2008 at 5:37 pm

In an environment of scarcity, there is no such thing as equality, and no such thing as liberty.

The state of nature is essentially (or definitively) an anarchy, essentially the opposite of artificial states, and nature is highly egalitarian in a meaningful sense, but it's also full of "scarcity" in the common sense of this word.

Maintaining the sort of equality you possibly imagine requires a far more powerful artificial state than a lesser degree of equality. Imagine the force required to flatten the surface of the Earth into a perfectly smooth sphere.

That said, states are responsible for practically everything we commonly call "inequality", and there is no contradiction in these statements.

Ryan June 19, 2008 at 5:56 pm

"That said, states are responsible for practically everything we commonly call 'inequality'."

It is my impression that inequality is one of the most obvious facts of life. Look around you, everyone you meet has certain personality traits and physical characteristics that distinguish them from each other person. Each person has different talents and ability levels. I don't understand why we're not saying that everyone should be paid their marginal product, that is, that each person should gain what they contribute. The fact that this is not always the case (MPL not equal to Wage) does not necessary excoriate the system. No other scheme for social cooperation utilizing the division of labor is more productive and remunerative for both the individual and society than that of the free market. If one believes that there is some sort of systemic failure explaining why CEOs and other executives typically make more than what they contribute (ie. the findings Dr. Roberts cites above), I can only refer you to Dr. Klings explanation as it appears, at first hand, to be a plausible reason why this market situation exists. http://econlog.econlib.org/archives/2008/06/trends_in_relat.html

Martin Brock June 19, 2008 at 7:39 pm

Look around you, everyone you meet has certain personality traits and physical characteristics that distinguish them from each other person.

True. But that's not what people commonly mean by "inequality". This word typically describes unequal authority to command resources and similarly political attributes, not physical ability and the like. We all know that Tiger Woods plays golf better than I ever will, but that's just not what people typically mean by "inequality".

I don't understand why we're not saying that everyone should be paid their marginal product, that is, that each person should gain what they contribute.

I don't know what he contributes, but a mugger's marginal product is mostly the value of his gun. Marginalism is not about productivity. It's not about labor inputs. It's not about what you imagine as contribution.

Gil June 19, 2008 at 8:57 pm

Actually government interventions have to make people more equal. A person who is bare-bones productive in a free-trading rich country should be just as poor as his counterpart in a similar poor country. If people say "I can't believe you can find dirt-poor people in the richest parts of the world!" The answer would have to be "Well DUHHH! If people are non-productive they're going to be poor regardless of where they are". If redistribution creates a drag effect and essentially brings the rich down whilst enriching the poor then, on the upside, people are becoming more equal. A free society with no redistribution and lots of wealth creation on the other hand must be the most unequal society by definition – a poor person living in sense of stasis (doing the same lowly productive work year-in year-out) and a has net-worth of $100 is going to get more and more unequal each year with entrepreneurial guy who building his humble business into a multi-billion dollar empire. I don't know whether some think about the 'what of the children' – does it seem unfair the son of the poor guy doesn't get as good as chance to succeed as the son of the rich guy? But isn't that one of the great rewards of succeeding – that you get a better start for your offspring, that the son of the poor guy shouldn't get any free rides but has to start from nothing the way the rich guy started off?

Martin Brock June 19, 2008 at 9:16 pm

Actually government interventions have to make people more equal. A person who is bare-bones productive in a free-trading rich country should be just as poor as his counterpart in a similar poor country.

No. Poor countries often are poor, because their state orders their poverty. To say that a freeman should be as poor is absurd.

Esox Lucius June 20, 2008 at 12:26 am

Why is it important that we all be equal? I am sure not everyone works equally hard, thinks equally hard, studys, practices, or risks equally. Why should the outcomes be equal? And, as is said above, and much better than I can, where is it written that the purpose of the government to make sure we are all equal?

Gil June 20, 2008 at 2:08 am

What a wacky assertion to make M.B. – 'people are ordered to be poor'! Such as? I'd venture that certain cultures, certain family values and certain religions can create poverty situations. Alternatively why can't people be dirt-poor in the West (assuming it was totally Capitalist and there was no Welfare State)? If someone's marginal productivity was below that which it takes for no more than a bare-bones subsistence then how would such a Westerner be any richer than an African who is barely subsisting?

Martin Brock June 20, 2008 at 4:17 am

What a wacky assertion to make M.B. – 'people are ordered to be poor'! Such as?

I refer to stagnant, feudalistic states like the former Warsaw Pact states, Cuba, North Korea, much of latin America, Africa and many Arab states.

Alternatively why can't people be dirt-poor in the West (assuming it was totally Capitalist and there was no Welfare State)?

People can be dirt-poor in the West, and some are, but few people choose this lifestyle. "Totally Capitalist" certainly doesn't exclude a "Welfare State". Private property itself is forcibly established for people's welfare.

If someone's marginal productivity was below that which it takes for no more than a bare-bones subsistence then how would such a Westerner be any richer than an African who is barely subsisting?

People don't have a "marginal productivity" that's an independent attribute of their individual personality, like their height or something. This idea completely misconstrues marginalism. Your marginal productivity is a function of the forces constraining you and the other factors surrounding you.

Gil June 20, 2008 at 6:34 am

Perhaps then M.B. a better statement might a poor person has less excuses to be poor in the West (as it now or as a theoretical fully-free Capitalist economy) than in poor parts of the world – if you're struggling then you're crap at producing – at least a North Korean could blame the Government, a Middle-Eastern woman could blame the Muslim Patriarchy, an African could blame tribal custom and/or warlords, etc., but a Westerner doesn't have these issues or at least nowhere near the way other nations do.

Gil June 20, 2008 at 7:06 am

BTW M.B. – I didn't say you're going just find as many poor in the U.S. as you would in the poorest part of the world. Who knows maybe you're right – no one in the West (esp. if it was a true free market with no welfare) would be poor unless they choose to – either they have a taken some sort of vow, chose to commit acts which alienated them from those who would have helped them or chose to succumb to an allergy to hard work. Oh by using the Global Rich List (at http://www.globalrichlist.com) it turns out having an annual income of U.S. $25,000 put you in the richest 10% of the world's population. Hence the average American schmoe is in fact part of the Nobility. Proof there's literally NO absolute poverty in the U.S.A. only relative poor whiners and wankers?

Per Kurowski June 20, 2008 at 8:44 am

Russell Roberts writes “The only decent (and I mean that in more than one sense) policy to reduce inequality is a policy that improves the school experience of the least-skilled children.”

And I would agree, absolutely…if only there was not a lot of other rent capturing going on. As long as monopoly rights can be created to extract value from what frequently is nothing more than heritage of common knowledge, and forcing the society to pay the full costs of defending the rights to extract those monopoly rents…and other similar, then I am sorry to say that the better school experience will not suffice

Justin Ross June 20, 2008 at 9:40 am

From Martin Feldstein's April 2008 NBER working paper, demonstrates the reason for the myth of productivity and wages not keeping pace (http://www.nber.org/papers/w13953). From the abstract:

The level of productivity doubled in the U.S. nonfarm business sector between 1970 and 2006. Wages, or more accurately total compensation per hour, increased at approximately the same annual rate during that period if nominal compensation is adjusted for inflation in the same way as the nominal output measure that is used to calculate productivity.

Total employee compensation as a share of national income was 66 percent of national income in 1970 and 64 percent in 2006. This measure of the labor compensation share has been remarkably stable since the 1970s. It rose from an average of 62 percent in the decade of the 1960s to 66 percent in the decades of the 1970s and 1980s and then declined to 65 percent in the decade of the 1990s where it has again been from 2000 until the most recent quarter.

jorod June 20, 2008 at 9:43 am

Progressive taxes punish success.

Martin Brock June 20, 2008 at 9:43 am

Perhaps then M.B. a better statement might a poor person has less excuses to be poor in the West (as it now or as a theoretical fully-free Capitalist economy) than in poor parts of the world – if you're struggling then you're crap at producing …

I don't live in a theoretical, fully-free, Capitalist economy and don't even know what one is, so I suppose I could make this statement. I could also say, "A person has no excuse to be poor in the Land of Oz," since this statement is also meaningless.

- at least a North Korean could blame the Government, a Middle-Eastern woman could blame the Muslim Patriarchy, an African could blame tribal custom and/or warlords, etc., but a Westerner doesn't have these issues or at least nowhere near the way other nations do.

No, a Westerner may find fault with his government, and Westerners routinely do. We're richer on the average in the U.S. than in most (but not all) other countries, but whether any particular person has a grievance with the impoverishing habits of our state is always an open questions.

John Dewey June 20, 2008 at 9:50 am

Per Kurowski: "I am sorry to say that the better school experience will not suffice"

I agree, Per. As long as the inefficient and mostly non-productive government sector continues to consume a third of our output – the cost of which is ultimately passed on to all citizens – few in the U.S. will be able to attain their true potential standard of living.

Martin Brock June 20, 2008 at 10:22 am

Progressive taxes punish success.

A progressive consumption tax, described above, limits authority. It doesn't punish anyone's success.

Martin Brock June 20, 2008 at 10:26 am

Proof there's literally NO absolute poverty in the U.S.A. only relative poor whiners and wankers?

I don't need this absurd generalization, and I don't know why you do. I don't worship the U.S.A. I was only born here.

Martin Brock June 20, 2008 at 10:33 am

Total employee compensation as a share of national income was 66 percent of national income in 1970 and 64 percent in 2006.

Again, this assertion is tangential to Dew-Becker and Gordon's point. This assertion and the DB/G assertion can easily be true at the same time. You aren't clashing at all. You aren't addressing the point. You're avoiding it.

John Dewey June 20, 2008 at 10:51 am

Martin Brock: "We're richer on the average in the U.S. than in most (but not all) other countries"

Is there a richer nation on earth which has absorbed proportionately as many immigrants from third world nations as has the U.S. over the past 30 years? I'm not sure how we could determine that. I don't think Luxembourg, Iceland, Sweden, and Switzerland receive many poor immigrants.

Of course, Qatar and Brunei have somehow intelligently managed their nation's productive capacity to drive up per capita incomes. Not sure if their borders are as open as those here in America.

rvturnage June 20, 2008 at 11:04 am

Dew-Becker/Gordon says that only INCLUDING proprietors income does the share of national income remain constant. Which is their basis for asserting that the median income hasn't kept up with production, which is the argument saying the top 10% are hording profits comes from.

Whereas, the Heritage study shows that, when using a common inflation calculation and total comensation (not just wages), labors share of national income remains constant WITHOUT including proprietors income.

So, how can both be true?

http://www.heritage.org/Research/Labor/images/wm1943_chart3.gif

rvturnage June 20, 2008 at 11:04 am

Dew-Becker/Gordon says that only INCLUDING proprietors income does the share of national income remain constant. Which is their basis for asserting that the median income hasn't kept up with production, which is the argument saying the top 10% are hording profits comes from.

Whereas, the Heritage study shows that, when using a common inflation calculation and total comensation (not just wages), labors share of national income remains constant WITHOUT including proprietors income.

http://www.heritage.org/Research/Labor/images/wm1943_chart3.gif

So, how can both be true?

RVTurnage June 20, 2008 at 11:27 am

Sorry for the double post…

Anyway, while I'm not sure how both studies can show different results of the same data and both be accurate representations, the ultimate problem with the Dew-Becker/Gordon study is that, while it makes exceptions for movie stars and athletes compensation increases as having been due to "Skill-Biased Technical Change", it refuses to acknowledge that CEOs/managers rise in compensation can be accounted for due to changes in their job requiring more specialized skill sets, which would increased compensation. Rather it seems to arbitrarily attribute those changes to non-market forces, ignoring the growth in size and global market reach of modern large companies.

I mean, I'm sure the kid that invented facebook is in that top 10% as CEO, but the skill set he brought to the table was highly specialized, considering no one else had already created facebook.

Floccina June 20, 2008 at 11:46 am

The only decent (and I mean that in more than one sense) policy to reduce inequality is a policy that improves the school experience of the least-skilled children.

We have been trying this for a long time. It appears to not work.

RVTurnage June 20, 2008 at 12:02 pm

Does anyone have a model or an estimate of the impact on post-tax and post-transfer inequality.

The census provides their "experimental measures of CPS", using the Gini coefficient to measure income equality. Using their definition 14, which includes wealth transfers from government as well as other sources of compensation, the ratio has stayed pretty constant between '79 and '03:
http://www.census.gov/hhes/www/income/histinc/rdi5.html

John Dewey June 20, 2008 at 1:21 pm

Floccina: "We have been trying this for a long time. It appears to not work."

I agree that what we have tried has not worked. But haven't several experiments with vouchers shown that these lead to improved school experiences for at least some of the children living in low-performing areas? Further, the results from Florida showed that vouchers not only improved results for children who escaped from low performing schools, but also for those who didn't. The threat of losing students – and funding – motivated low performing schools to provide better education.

Florida voucher program yielded quick results

Of course the NEA fought the Florida vouchers, and got the courts to rule them unconstitutional.

Martin Brock June 20, 2008 at 2:26 pm

Is there a richer nation on earth which has absorbed proportionately as many immigrants from third world nations as has the U.S. over the past 30 years?

Not that I know of. There's not a richer nation of comparable size either. I'm neither a cheerleader for nor a detractor of the United States. I was born here, and I choose to continue living here. As nation-states go, the U.S. has many things to recommend it. Our 20th century flirtation with global imperialism isn't one of them, and our economy is increasingly corporatist and not nearly as free as our national mythology suggests. It's still freer than many European competitors, but that's not saying much.

I have no idea while nominal "libertarians" deny the impact of corporatism on distribution so zealously while the income of Federal employees rises so much faster than private sector income.

rvturnage June 20, 2008 at 2:53 pm

Federal employees are basically members of a giant union aren't they…where individuals wages are based on their position/tenure vs. in the private sector where individuals income is based on the individuals output and skill set? Plus, isn't it more difficult to fire someone from a federal job?

Based on that, of course Federal Employees will rise faster…they're insulated from competition and market forces.

Martin Brock June 20, 2008 at 3:01 pm

Federal employees are basically members of a giant union aren't they …

They're members of a large corporation.

Plus, isn't it more difficult to fire someone from a federal job?

You wouldn't believe how hard it is to get fired from a Federal job …

RVTurnage June 20, 2008 at 3:07 pm

They're members of a large corporation.More like a monopoly. A corporation has to run efficiently to make profit. The federal government, on the other hand, doesn't. They just take by force from the private sector.

It was the pay structure I was comparing to a union jobs, where wage is based not on performance but on the position itself.

Martin Brock June 20, 2008 at 3:28 pm

"If real compensation growth is roughly equal to productivity growth, then labour’s share of national income will be constant. Figure 1 shows that in fact, over the full period 1950–2006 labour’s share has risen, not fallen. The dotted line adds in the labour portion of proprietors’ income, and shows that labour’s share has been almost exactly flat for more than 50 years. This implies that the growth of mean labour income has been roughly equal to the growth in productivity."

O.K. I'm finally reading the linked article. The quote (my emphasis) is from the third paragraph, not from the Heritage Foundation.

"But our finding that the bottom 90 percent did not enjoy real income gains equal to productivity growth implies that the growth rate of median income has lagged significantly behind growth in the mean."

That's the next sentence.

Dew-Becker/Gordon says that only INCLUDING proprietors income does the share of national income remain constant.

Right. Without proprietors, according to Dew-Becker and Gordon, "labour’s share has risen, not fallen."

Which is their basis for asserting that the median income hasn't kept up with production, which is the argument saying the top 10% are hording profits comes from.

No. They don't say that at all. Excluding proprietors, labor's share is not flat, because it rises. Their analysis is based on changes in the distribution within the "labor" category. It's not about "labor" vs. "proprietors". Proprietors are laborers, but the income reporting for proprietors is trickier because of accounting for inventories and other capital costs. These data suggest that proprietors (self-employed people) are doing worse than other laborers, not better.

Whereas, the Heritage study shows that, when using a common inflation calculation and total comensation (not just wages), labors share of national income remains constant WITHOUT including proprietors income.

The Heritage Foundation chart starts in 1970. The Dew-Becker/Gordon chart starts in 1950. The D-B/G chart is roughly flat between 1970 and 2005, so it doesn't vary substantially from the Heritage Foundation chart. The two charts don't seem to present exactly the same statistic, but both are roughly flat in the overlapping region.

Martin Brock June 20, 2008 at 3:35 pm

More like a monopoly.

The state is precisely a monopoly of forcible propriety and the source of all other monopoly.

A corporation has to run efficiently to make profit.

Ideally …

If the state does some business exclusively with some "private corporation" and if this corporation does no other business, this corporation is indistinguishable from a state agency. Corporations come in many shapes and sizes, some nominally not for profit at all, and the extent to which they're truly organizations competing for profitable market exchange varies widely.

vidyohs June 20, 2008 at 4:29 pm

http://www.youtube.com/watch?v=ZPch2k63uj4

joe.america. Worth watching.

Floccina June 20, 2008 at 6:26 pm

John Dewey those results just show that the students do better on tests.

From your link:

Yet thousands of families took advantage of them. One result, according to Rouse's report: The schools that were losing students quickly changed their ways and generally improved on test scores – even though they had lost many of their top students to other schools.

The gains from schooling are mostly relative and short lived. We do not teach enough practical knowledge in schools. Our schools after the 2nd of 3rd grade are just a long test. They do not even pretend to teach much useful practical knowledge, they pretend to teach subjects that raise aptitude (it does not work), in the theory that they prepare the student to be better able to learn what they need to after they leave school.

Studies like discussed here:

http://econlog.econlib.org/archives/2008/06/how_family_envi.html

If the only result from this study had been the "IQ is heritable," it would have been just another study. But its special methodology – studying adoptee's development from birth to adulthood – confirmed a shocking finding: As children grow up, the heritability of IQ rises, and the influence of family environment on IQ literally vanishes. Here are the custodial parent-child IQ correlations, by age, for adoptees and the biological control group:

We naturally think about the effects of family as cumulative: The longer you're in a family, the deeper the impression. At least for IQ, though, this "natural" thought turns out to be wrong. Family affects the very young, then fades out.

In hindsight, should this pattern really have been so surprising? Yes and no. Consider the parallel case of church attendance.

For a young child, family has near-absolute control over church attendance (unless you're Damien in The Omen, of course!): If your parents go, so do you; if they don't, you don't. As you get older, though, you gain some independence – and with it, a chance to show your true colors. By the time you're an adult, you only go to church if you want to. So it's not surprising that family matters less over time.

Even so, though, you would expect attending church to be at least somewhat habit-forming. Adults only go to church if they want to, but what they want has something to do with what they've experienced. The surprising thing about family influence on IQ is that the effect actually goes to zero. As you grow up, you find your own cognitive level, and the cognitive level you're looking for has nothing to do with the cognitive level you grew up with.

and others that study “head start” ect. show that the gains to schooling/early education are fleeting.

I suggest that if we cannot get children to learn more, perhaps we should try to get them to learn more practical and useful stuff.

Martin Brock June 21, 2008 at 1:00 pm

I suggest that if we cannot get children to learn more, perhaps we should try to get them to learn more practical and useful stuff.

I agree. I also identify the market with utility, i.e. "useful" knowledge definitively contributes to my satisfaction of your needs, not my own satisfaction but my satisfaction of your needs. Knowledge useful to you also contributes to your satisfaction of my needs. If we're concerned exclusively with our own needs, we obviously need no market, since markets are places of exchange.

Here's an alternative to state owned and operated schools and taxpayer financed vouchers.

As a child, you must attend a school. You and your parents select the school, and the school also meets statutory standards. The school must teach you standard knowledge and skills, established by statute. To be free of this obligation, you must demonstrate competency on standard tests or reach the age of liberation, say twenty-one.

Upon demonstrating this competency, your obligation to be educated is met, and you then owe the school a percentage of your income, say ten percent, for a period of time, say thirty years, beginning at the age of liberation. This right to your income is property of the school, and the school may sell it. The percentage is limited by statutory and common law.

If your income falls, the school may educate you further, to raise its revenue from you, or sell its right to another school better equipped to educate you. Although your obligation to be educated ends when you meet the standards or reach liberation, your potential value to educators ends much later and may never end. When your obligation to pay the education tax expires, you may extend it.

To be clear, you aren't obliged to work or earn income at all. You pay the tax only insofar as you do. I propose only compulsion that already exists.

Educational institutions in this system educate you to earn as much as you can and may even finance your further education. Both students and schools may be selective, but schools must accept certain students assigned by lot, so all students are accepted somewhere. Schools must accept otherwise unaccepted students in proportion to their size.

This requirement to educate all children and the minimal curricular standards are the price of enforcement of the property right, as well as some tax financing the armed men enforcing property rights of course. Let's be clear about that. The standard is minimal and excludes nothing. As long as schools teach the miminal standards, they may also teach you anything else.

In reality, our current system may tax the least educated most heavily by keeping them out of the workforce longer than is really useful to them. Some kids don't become highly skilled professionals, and they spend years in compulsory education that doesn't serve them well when they could be earning income. Furthermore, the most valuable skills often are learned only on the job, so formal education impedes this learning.

Martin Brock June 22, 2008 at 9:38 am

The U.S. government now grants copyrights for 120 years. Earlier in the republic, the duration was much shorter, though the cost of distributing the works then copyrighted was then much greater. In fact, the cost of this distribution (for authors) in electronic form has fallen practically to nothing.

Politicians gave all sorts of justification for extending the duration as it grew over the centuries. The former entertainer turned politician, Sonny Bono, championed the last extension, arguing (circularly) it right and proper that proprietors of intellect property should bequeath the right to their heirs.

Instead of a duration of time, suppose the U.S. granted authors a limited sum of money for a work, so Rowling's copyright for a Harry Potter book expires when she has earned a million dollars in royalties say, or her entitlement to any royalty ceases when her total royalties reach a million dollars. Thereafter, she may continue selling her work however she pleases, but the state threatens to harm no one copying it. This standard denies Rowling nothing but statutory threats of harm to others, but it presumably decreases income inequality.

I don't understand why this reform would be "indecent". I don't know why threatening to harm children who copy books for friends without money, to arrange the delivery of more money to an adult who has already earned millions, is the standard of decency. I know this arrangement is now right, just, proper and noble. Must we now add "decent" to the list?

Martin Brock June 22, 2008 at 11:30 am

Also, Rowling would pay a tax out of her million dollars in royalty earnings to cover the cost of threatening to harm people who copy her work.

John Dewey June 23, 2008 at 9:05 am

Martin Brock: "If the state does some business exclusively with some "private corporation" and if this corporation does no other business, this corporation is indistinguishable from a state agency."

I suppose if:

1. the corporation has a permanent monopoly on that business with the state; and

2. the state guarantees the corporation will survive regardless of its efficiency;

then perhaps such corporations would be indistinguishable from state agencies. But how often is either condition met in relationships between government and private enterprise?

Government contracts I've bid on, on behalf of my employers, were extremely competitive. Private enterprise often incurs significant costs just in preparing bids, and takes risks in devoting their resources to such preparation. Not sure how many such risks the typical government agency faces, but I think not too many.

Have you prepared a bid for a government contract, Martin? Would you mind sharing that experience with us?

Martin Brock June 23, 2008 at 9:30 am

the corporation has a permanent monopoly on that business with the state …

States may have redundant agencies and often do, so this monopoly is not necessary for a private corporation to be like a state agency.

the state guarantees the corporation will survive regardless of its efficiency

A contractor survives for the duration of its contracts just as any other state agency survives for the duration of its appropriations.

Government contracts I've bid on, on behalf of my employers, were extremely competitive.

That's a good thing, I suppose, but government agencies nominally compete for appropriations as well, so this competition doesn't much distinguish a contractor from a government agency.

Have you prepared a bid for a government contract, Martin? Would you mind sharing that experience with us?

I've worked for a Federal agency and witnessed the competition for appropriations. Soviet agencies also competed for state funding, so I'm not sure what point you're making here.

Martin Brock June 23, 2008 at 9:34 am

To be clear, the benefits of free enterprise flow from the satisfaction of consumers and laborers freely choosing their organization for exchange, not simply from some nominallly risky competition. Nothing was so risky as doing business with the Soviet nomenclatura.

John Dewey June 23, 2008 at 11:30 am

Martin Brock: "States may have redundant agencies and often do"

"Often do" is not the same as "generally". Most state agencies I've been involved with definitely had monopolies on the services they provided. Private corporations which compete for government contracts will almost always have more competitors than do state agencies – which generally have none.

Martin Brock: "A contractor survives for the duration of its contracts just as any other state agency survives for the duration of its appropriations."

Sorry, but I do not believe that state agencies have near the survival risk as do government contractors. Furthermore, I do not believe that a contractor always "survives for the duration of its contracts". Most probably do, but the risk of failure is always present.

Martin Brock June 23, 2008 at 12:39 pm

"Often do" is not the same as "generally".

Who said "generally"? I said, "If the state does some business exclusively with some 'private corporation' and if this corporation does no other business, this corporation is indistinguishable from a state agency."

Most state agencies I've been involved with definitely had monopolies on the services they provided.

Which is precisely why your business with them is part and parcel of their monopoly.

Private corporations which compete for government contracts will almost always have more competitors than do state agencies – which generally have none.

Your competition for these contracts is inconsequential. It's not true that a state agency has no competitors. States may have multiple agencies performing similar tasks and often do. You could just as easily work for some state agency competing for statutory appropriations, as I did.

Your dealings with the state are "private sector" in name only. These dealings are corporatist (fascist), while a state agency performing the same tasks is essentially socialist. You're a fascist. I was a socialist. I don't prefer one over the other. It's a distinction without a difference.

It's not incorporation that makes an organization corporatist. It's the commercial dealings with the state. Your customer is the state and by extension the taxpayer, but the taxpayer doesn't choose to do business with you, unless these biannual plebicites are supposed to be the "choice". I categorically reject this nomenclature.

Sorry, but I do not believe that state agencies have near the survival risk as do government contractors.

Any number of government contractors have been around for the better part of a century. States may prefer state employees in nominal state agencies to these quasi-state-agency contractors, and I don't know why they shouldn't really. Blackwater for example is a frighteningly fascistic organization.

Furthermore, I do not believe that a contractor always "survives for the duration of its contracts".

Of course, it does, unless the contract is voided for some reason, in which case it isn't a contract anymore. State agencies can also be dissolved at any time, theoretically. There's not a dime's worth of difference between a state "contracting out" and simply assigning the task to some state agency. Maybe there's a penny's worth.

The problem usually is that the state is doing the business at all. Contracting out doesn't solve this problem.

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