Saturday, July 30, 2011

George Monsma and others on the debt ceiling

Our own George Monsma, and our neighbor economist Todd Steen have weight in on the controversy surrounding the debt ceiling. Both appear in Capital Commentary, published by the Center for Public Justice. Both provide well-reasoned arguments and good economic sense in the midst of an increasingly ugly national debate.

Here are some gems. First Todd explains the long term importance of the debate, without resorting to the end-of-world rhetoric that is too common:
As we examine the implications of public justice regarding the negotiations over the debt ceiling, we must be careful not to define justice solely with regards to the situation of our current generation. This mistake has led us to overemphasize current conditions at the expense of the future. We have come to believe that we can justify limitless borrowing to provide additional health care, defense spending, retirement provision, and lower tax rates. Running a budget deficit every year, however, whether the economy is growing or in recession, steals possibilities from those in the future, especially from the poor. Interest payments become an ever increasing part of future budgets, crowding out choices for future generations.
And here is George giving some basic principles to frame the debate:
Governments are called, where possible, to establish conditions in which other institutions in society can fulfill their God-given callings, and in which this can continue in the future. Families should be enabled to support themselves through their work and have access by other means to what is necessary to fulfill their callings in society when they cannot support themselves by work. Government should provide this now, as well as enable this to continue in the future, e.g., by giving families access to education needed for earning in the future, by preserving the environment and natural resources so that society can flourish in the future, and by not burdening those living in the future with debts in excess of what is passed down to them in assets from such a productive infrastructure.

Tuesday, July 26, 2011

Parallels between the right and the left

At the recommendation of multiple colleagues, I have been reading Craig Gay's (1991) With Liberty and Justice for Whom? The recent evangelical debate over capitalism. This book has been an excellent read. I will highlight a paragraph here that I found particularly entertaining, in which he is drawing parallels between conservative defenders of capitalism and those on the left who view capitalism as oppression (pp. 114-115):

Both left and right address essentially the same American evangelical audience. Both insist that a correct understanding of the present situation requires a certain amount of abstraction. They differ only concerning which elements of our experience it is safe to ignore - about whether what we are really seeing is the invisible hand of market coordination of that of capitalist oppression. Both left and right tend to understand the present situation as one of crisis, but they disagree as to whether capitalism or stateism precipitatetd the crisis. Both fear the concentration of power in modern society, but they differ as to whether this concentration is most acute among the business elite or the bureaucratic political elite. Both left and right insist that the true social relevance of the Christian faith is only now being rediscovered after having been lost, but the differ on whether its relevance is anticapitalist or not. Both feel that american evangelicalism is moving in the wrong direction at present, but they disagree on the matter of which is actually the wrong direction. Both argue that their opponents are either ideologically blind or evil or both. At their extremes, both left and right insist that salvation is essentially economic, but they differ on whether the kingdom will be populated by social workers or entrepreneurs. Both fear that the faithful exercise of Christianity's social relevance will elicit persecution from a powerful anti-Christian cultural elite, but they disagree about who constitutes this elite. Finally, both left and right fail to appreciate fully the character of modern capitalism. The left fails to appreciate the remarkable ability of capitalism to create wealth and hence to alleviate material poverty, and the right fails to appreciate the ability of capitalism to dissolve the traditional culture and hence to exacerbate spiritual poverty.

Monday, July 18, 2011

"Punishing the wealthy"

In a column published in yesterday's Grand Rapids Press, Cal Thomas repeated some misconceptions about taxes and tax policy that seem to be fairly commonly held. I think they deserve specific refutation.

1) Taxes are not punishment. Taxation is a constitutional means we use to decide how we are going to pay for the expenses of government, expenses that are our common obligation as a community.

2) The time-honored principles of ability to pay and reimbursement for benefits received govern most of our taxation decisions. Those with high incomes have the ability to pay, since their discretionary incomes are disproportionally higher. They also benefit greatly from the programs of the government: transportation infrastructure, international relations, criminal justice, higher education, basic scientific research, food safety, financial regulation, and so on. Furthermore, the incomes of the top 40 percent or so of the population have grown greatly over the last 30 years, while incomes of the rest of the population have stagnated.

3) There are growing doubts about whether in our society wealth is indeed "a sign of achievement." Pay for top executives and talented entertainers seems increasingly out of proportion to the amount and quality of their work, or the beneficial impact they have on society. Pay for people in the business community seems less and less related to their actual achievements, as leaders of failing businesses are rewarded handsomely. Business leaders seem to have a lot of control over their own pay, while they increasingly fight to have unilateral control over the pay of their employees. Many also have advocated repeal of the estate tax, a move which would further weaken the link between achievement and wealth.

4) While in some cases wealth is "a reward for risks taken," this sort of income has traditionally been viewed with suspicion by the Western religious and philosophical tradition, while income from work has been honored. For instance, the Bible forbids interest on loans (e.g. Lev. 25: 36-7), but requires the prompt payment of wages (e.g. Deut. 19:13). This suggests at the very least that income from investments should not be given the preferential treatment it is given under our current tax laws.

5) Nobody's motives are completely unmixed, so envy may play some role here. It is only fair to point out that on the other side, greed may be a factor as well. But impugning the motives of others is not a way to move the discussion forward.

I think it would be a great step forward in the ongoing deficit-reduction talks to agree that the Bush tax cuts should be allowed to expire, as they are scheduled to do under the current law. Remember, the law was written this way because at the time everyone recognized that the cuts would eventually contribute to the deficit problem. The tax structure of the 1990's coincided with vigorous economic growth and four years of budget surpluses. We could do a lot worse.