Why the Government Needs the 1%

Imagine two island nations with the same population and resources. Each one has 1,000 citizens and a surplus equaling $1,000,000 per year.

 

On Island A, 1% of the population owns 90% of the surplus.  This means that 10 citizens own $900,000.  Put another way, each rich citizen makes on average $90,000 per year.  The 99,000 citizens own $100,000 of the annual surplus, meaning that each poor citizen makes on average $1.10 per year.

 

On Island B, the surplus is distributed equally.  This means that each citizen makes $1,000 per year.

On Island A, people pay taxes depending on their tax bracket.  The rich citizens pay 50% of their income in taxes.  This means that, for each rich citizen, $45,000 goes to the government and $45,000 stays in their bank account.  Each poor citizen pays just under 10%, meaning that they each give the government 10¢ and keep $1.  All together, the government of Island A makes $459,000 per year.

 

If the government of Island B is to make the same amount as Island A’s government, it would have to tax each citizen 46% of their total income.  This means that one who makes $1,000 on Island B would be taxed in the same bracket as one who makes $900,000 on Island A.

 

The government of Island B would not be able to tax 46% of its nation’s wealth without inciting a revolution, but the government of Island A taxes 46% of its nation’s wealth with no problem at all.  Island A’s government makes more money than Island B could ever make because of economic inequality.

 

If Island B’s government wants to make as much as Island A’s, it has to do one thing; raise taxes.  They must do it slowly, because you can’t take $500 away from someone with $1,000 without making that person very upset.  Right now, Island B taxes 10%, taking $100 from each citizen, leaving each with $900, making its government’s revenue $100,000.  If it raised the taxes to 15% (perhaps pointing to some public crisis as a justification) it would make $150,000, but something else would happen.  It would hurt its citizens.  Each person would only keep $850, which means each person would probably try to make that up in some way:  They might spend less, but most likely they will find a way to stretch their money.  For example, instead of going without cookies, they will find cheaper cookies.  Another way it would affect people depends on how they relate to their income.  If the citizens of Island B are mostly self-employed, the extra 5% tax will cause some to produce and sell more, some to cut corners and produce more cheaply, and some to lower their standard of living.

 

When the economy of Island B rocks slightly then stabilizes after the increased tax, it does it again, raising taxes from 15% to 20%.  What a serial (and ever so slight) increase in taxes will do is to pressure its citizens into changing their behavior and seeking alternatives to economic security (because their government is making their income less secure by the year).  Citizens will find ways to make more money for themselves at the expense of other citizens.  When its economy becomes too imbalanced, Island B will be forced to adopt a “fairer” form of taxation and, before long, its government will be as rich as government A’s, laughing all the way to the bank with its richer citizens.

 

Andy and The Emptiness of Social Justice, Part II: Soft Slavery

     After all his thought, Andy has come upon a stunning realization about ownership and the widespread lack thereof.  There are some basic points which sum up Andy's incapacity to make the difference he thought he could.

1. He is completely dependent on others for everything.

The clear and simple truth about needs is this:  No matter how much money one has, he still gets what he needs from someone else.  Money does not equate to wealth.  Production equates to wealth:  If one has the ability to produce what he needs, it does not matter whether he has money or not, and so long as he can produce what people need, people will give him money for it.  If Andy gives money to the poor and needy, their problems might subside for a little while, but because they are unable to produce anything at all, they will continue to be needy, if not for food, shelter, and clothing then for money to buy food, shelter, and clothing.  What follows from this is that the vast majority of people are needy.  They need someone to give them what they need and they have nothing to trade for it except labor.  A few lucky people might be able to make money without working (just like Andy could by investing his new fortune) but he knows very well that not everyone can do this.  Most people have to work because things need to be produced (and because workers need money), but most people do not produce anything.  "How can this be?" he wonders.  Why is it that most people work but those same people are dependent on others for everything they have, especially the things they need, like food, shelter, and clothing?

2. Others will give him what he needs only out of kindness or obligation.

Everything Andy owns has either come to him as a gift or as an exchange for something else.  He knows that people will be needy so long as they depend on the kindness of others (which usually does not go far).  If he or anyone else is to have any degree of economic security, they cannot simply be charity recipients. Yet the only other way he can get anything at all is by convincing someone that he owes him.  Andy could do this by giving someone money, which is agreed to be worth so much of whatever he wants in return.  Andy has a lot of money currently, but the money he has will be used on consumable things, which means that he will eventually run out of money.  And how does he get more money?  He gets more money by working... for someone else.  The fact about trading is that not only does he get everything he needs from someone else, he even gets his money from someone else.  Before he can trade money for things, he must trade work for money.  This means that before Andy can even think about receiving the things that he wants, he has to find someone to work for.

3. The only thing he can trade is labor.

It is quite obvious that the only thing of value which Andy has to trade is his labor, though his labor has absolutely no value on its own.  In order for his work to be valuable, someone else must decide how he should work, when he should work, and where he should work.  Andy does not really own his own labor:  Before he is hired anywhere, it is understood that whatever his work accomplishes does not belong to him at all.  He has absolutely no say in what to do with his own labor, let alone what to do with the results of his labor.  In exchange for labor, Andy will be paid in money, but he will probably have no say whatsoever in how much money his labor is worth.  If, for example, Andy gets a job making baseball bats, he will not decide what time of day to make bats; he will not decide what shape to make each bat or what color to paint it; he will not decide how much time to spend on each bat; he will not own any of the bats he makes; he will not decide how much each bat is worth; and he will not be paid based on how many bats he makes or how well he makes them, but on how much his manager thinks he should be paid.

4. He does not really own anything.

The fact that Andy does not even own his own labor makes his fifty million dollars seem like an odd puzzle.  Does he not own fifty million dollars?  Well, if by "own" we really mean "can use it however he wants," then no.  If by "own" we mean "nobody can take it away," then no.  If by "own" we mean "can hold it in his hands for a while" then yes, he owns fifty million dollars.  This is how people "own" things.  If Andy buys a beach house and a Lamborghini on credit, then the banks really own those things until he pays them off.  Andy has enough money to buy those things with cash, but even if they are bought and paid for in full, he must still pay to "own" them.  He will still have to pay taxes in proportion to the value of his property.  If he does not pay these taxes, those things will be taken away from him.  Also, depending on the state or town his lives in, there will be many restrictions on how he uses his property, from zoning laws which restrict what the property can be used for to local ordinances which could prohibit anything from cutting down trees to raising livestock.  Thus, not only must he pay to keep his property, he can only use his property in ways others allow him to.

5. It is impossible for him to own anything.

Andy would like to give the poor and needy the ability to be producers, to make what they need and keep it, to acquire basic necessities and to avoid having these things squandered or taken from them.  The hard but simple truth, however, is that not even Andy can have this.  There is no way, not even with fifty million dollars, that he can permanently set himself up with food, shelter, clothing, or any other needs or wants; not because those things get used up, but because he has no way of securing those things for himself.  If he bought a plot of land, built a house, planted a farm, and sewed himself new pants every year, he would still lack two major elements needed for a decent life; security and community.

He would lack security because his land and his house is ultimately State domain:  If he does not continue to pay money to the State for the use of his own "property," the State will reclaim his property. If he uses his property in a way not approved by the State, the state will punish him accordingly.  He would neither be assured to keep his property nor would he have free reign over it.  In short, the only thing "property" is sure to mean is that somewhere there is a piece of paper that associates his name with it.

He would lack community because he could not effectively feed or house or clothe himself without the help of others.  It would be easy to get help if others were trying to do the same thing as him (that is, to really own something) but food and housing and clothing are generally only available from people who want money.  It might be possible for Andy to grow everything he needs to eat and to maintain a house by himself, but that would leave him at a severe disadvantage in the quality of his life, which would easily be remedied if he focused on producing perhaps one or two things he needs instead of everything:  After all, being completely self-sufficient would likely be a hard and lonely life.  Even a self-sufficient man needs community.

If he became a producer of something he could enter the market as a real owner and be able to trade something valuable in place of servile labor.  But community implies a spirit of solidarity in which each member aims to protect the interests of every other member; not out of kindness or obligation, but out of mutual respect.  This community is generally lacking among the few people who actually own things.  In fact, the market is not a community at all, but an arena, a place of fierce competition where the success of one producer is precariously balanced with the potential failure of another.  Andy might be able to become a formidable competitor with a fifty million dollar business, but his goal is not to compete and to win, but to enter into a community and reduce need out of mere appreciation for men.  But because community is almost non-existent, the more people Andy makes producers the less they will be able to compete.

So Andy seems to be left with two options.  Either he tries to make himself an owner, albeit tentatively, and help the market deprive people of property, or subject himself to a soft slavery, in which he is "free" to offer his labor for an arbitrary price so that he can buy what is put in front of him and use things as he is allowed to.