My name is Steve, and I'm a Liberal

If you listen to Fox News, it seems that "liberal" is a dirty word these days, something that should have a 12-step program to help you recover from it. So it's nice to see a book that places the word in a more constructive light. The book is Liberalism: The Life of an Idea by Edmund Fawcett, a long-time writer for The Economist. I confess to not having read it, or even bought it. I've only read the reviews. Still, the author's ideas, as described at some length in reviews in the Wall Street Journal and Financial Times, seem to strike a chord.

Fawcett traces the history of the use of the term "liberalism" in the U.S., U.K., Germany and France from 1830 to the present, and finds four ideas common to those who describe themselves as liberals. I would phrase them in the following terms:

• Tolerance: Acceptance of divergent viewpoints
• Freedom: Limits on power
• Progressivism: Faith in human progress and intellectualism
• Civility: Respect for others

It follows that those who are not liberals tend to believe in:

• Rightness: What is right is clear and unmistakable and everyone should agree on it
• Order: Everyone should be forced to do only what is right
• Tradition: Modern thinking is leading us dangerously away from traditional ways
• Class: "We" (those of our race, nationality, religion, etc.) are worthy but "They" (the others) are not

Representative non-liberals might include: Nazis, communists, most religions, most corporations, and especially Fox News.

But what about the Tea Party? They seem to violate this traditional alignment on the basis that they are strongly anti-establishment, yet decidedly non-liberal with respect to the other three categories. The discrepancy can be explained, though. In the Nineteenth Century and well into the Twentieth, liberals distrusted "order" because those in power tended strongly to believe in "rightness", "tradition" and "class" rather than "tolerance", "progressivism" and "civility". But in the last half of the Twentieth Century, most of those in power (in the western countries at least) switched to the liberal point of view, so it was the right who found themselves in the role of anti-establishment outsiders.

This tells me that "distrust of power" was historically a liberal idea only because the liberals were mostly out of power. Once liberals came to power, they came to believe in "order", and it was those on the right who came to distrust it. So I think it's really only the other three "liberal" ideas that truly represent the liberal point of view. Whether you trust power and believe in "order" depends only on whether those sharing your point of view happen to be in power at the time.

It's worth noting that liberals are slip-sliding on the "tolerance" ideal. On college campuses, which are mostly in the grip of liberal students and educators, an extreme level of intolerance exists for those who do not share the liberal point of view. France is another example, having outlawed the wearing of veils by Muslim women on the grounds that it offends feminist principles. This is a bad trend in my view. Agreeing to disagree is an important pillar of liberalism and should not be allowed to degenerate into intolerance.

The exegesis of liberalism spawned by Fawcett's book is a good thing. It challenges us to self-examine of what we believe and it gives me reason to wear the label proudly.

Marx vs. Ayn Rand: The Coen Brothers

The popular television series "Fargo", heavily derived from the Coen brothers' film of the same name but quite different and in many ways much better, has received critical acclaim. On the surface, it's a story of good, represented by the local Minnesota police, versus evil, in the form of an out-of-town assassin named Malvo portrayed brilliantly by Billy Bob Thornton.

Spoiler alert: good prevails. But there's a possible subtext to the series, another layer of meaning. Malvo, it seems to me, represents a libertarian hero.

The good people of Minnesota are portrayed as being as blah and uncreative as can possibly be imagined. They are television-addicted couch potatoes who live in a rigid social and political structure weighed down with suffocating bureaucracy and rules, especially the police, who enforce the rules and are paid from tax money. They are government itself. From a libertarian point of view, they epitomize the lazy, unproductive parasites sucking the life blood from Ayn Rand's precious "makers".

Malvo, on the other hand, is a libertarian hero. He is creative and energetic and the epitome of free enterprise. His "business" happens to be murder, but he only murders lesser humans who are unproductive and have no creative energy, and so have no right to live, and he does it with spirit and style. Far from being a celebration of good conquers evil, the series can be seen as a libertarian tragedy. It's the triumph of the weak over the strong, the ultimate libertarian nightmare in which the meek inherit the earth.

Of course, modern libertarians mostly stop short of approving assassination for hire as an acceptable enterprise, even if the targets are lazy and useless hangers-on that live off other people's creative energy. So the series can be seen as taking libertarianism to its logical extreme, then asking the question that Malvo asks when confronted in a Las Vegas elevator by his acolyte Lester Nygaard, "Do you want this, Lester? Do you want this?".

If you haven't seen the series, I recommend it. It has a 98% "fresh" rating on rottentomatoes.com. You can find it on Amazon Instant Video and probably other on-demand sites as well. It's extremely well done and great entertainment. Besides that, it seems to have something to say that's worth considering.

Marx vs. Ayn Rand: Lloyd Blankfein

Lloyd Blankfein, CEO of Goldman Sachs, famously said in 2009 that Goldman is doing "God's work", which prompted me to quip that God had tasked Goldman Sachs with the job of vacuuming up all the loose money flying around the world so the rest of us can stop obsessing about it and pay attention to what really matters.

Money does matter though. You don't need to be rich to be happy and too much wealth may even interfere with happiness, but as Thomas Piketty has argued persuasively, extreme concentration of wealth has contorted politics and society in the past and likely will in the future.

Give Blankfein credit for understanding the risk of rising concentration of wealth. He has been saying for some time now that unchecked free market forces will lead to destabilizing wealth inequality and dysfunctional government. Of course sabotaging the government is precisely the goal of the lunatic right wing who seek to establish their own government-free zones, be they floating islands as proposed by The Seasteading Institute or Nevada rancher Cliven Bundy's vigilante mob.

Blankfein agrees that some form of wealth redistribution is necessary. He has said that the country is good at creating wealth but not good at distributing it. He gets mealy-mouthed, though, when it comes to how to achieve this goal. Blankfein suggests that a growing economy, like a rising tide, will raise all boats, but if Thomas Piketty's "r > g" theory is correct, growth only makes wealth inequality worse over time. Piketty's theory suggests that taxes of 1% of net worth per year are needed for the growth in wealth to not exceed the growth of the economy.

Perhaps in his heart of hearts Blankfein knows that taxes are the only way to redistribute wealth but doesn't dare say it. The hatred that the wealthy harbor against paying taxes is so extreme that it approaches something like religious fervor. He might not last for five minutes as CEO of Goldman Sachs if he so much as breathed support for taxes. The company would risk becoming a leper in the eyes of their customers and he himself might not be invited to any more parties, ever.

Blankfein is right to be worried about what will happen as the concentration of wealth continues unabated. It augurs ill for the country, for his children, and for pretty much everything he cares about and believes in. But he needs to take the next step and lend his support to a sensible tax policy. He should at least get behind the "Buffet Rule", Warren Buffet's proposal for a 30% tax on income over $1 million. There's no doubt though that it would take a bit of courage. The blow-back would be fierce.

Marx vs. Ayn Rand: The French Wealth Tax

In a previous post, I suggested that any country, for example Kiribati, could impose a wealth tax on individuals even if they don't live in that country. France already has a wealth tax which it imposes on its citizens, but why couldn't it be extended to non-citizens? I've tried to do a little on-line research and I can't find anything that prevents it from being applied to persons in other countries even in its current form. I'm certainly not an expert in this field of law, though, and it would take a lot more research than I'm willing or able to do to determine if any changes in law would be needed, or if it's simply a question of the government of France mustering the will to try to apply it to non-residents.

Nothing could be more "un-American" than a country applying its tax to foreigners. The American Revolution was fought in large part over the issue of "taxation without representation" because the British Parliament had imposed taxes on the American colonies but colonists were not allowed to vote for Parliament. So one possible objection to imposing the wealth tax on foreigners could be that they do not have a voice in the government that is imposing the tax. But despite the prominence of "taxation without representation" as a pretext for the American Revolution, the United States doesn't exactly follow the principle that people who are taxed should have a voice in government. Persons with permanent resident status in the U.S. are not citizens and cannot vote but are taxed the same as citizens.

This objection to application of the French wealth tax to foreigners is easily overcome, however, if France were willing to grant citizenship to anyone who pays the tax. France has its share of xenophobes, of course, but it's difficult for me to see any good reason why a country should withhold citizenship from anyone subject to the wealth tax. It kicks in at about US$1 million of net worth so it's not like the country is in danger of being overrun by immigrants who will be a burden to society.

France is the country that produced Thomas Piketty, the economist who has become something of a superstar to those who believe that allowing unchecked wealth accumulation is dangerous and unwise. By seeking to apply its wealth tax to persons outside its borders, that country could take a bold step to ensure that there is no "Galt's Gulch" anywhere on the planet where the uber-wealthy can escape appropriate taxation.

Marx vs. Ayn Rand: A Floating Galt's Gulch?

In Ayn Rand's novel "Atlas Shrugged", Galt's Gulch is the place in the Colorado mountains where America's innovators, disgusted with government regulation, retreat from the world, resulting in apocalyptic economic collapse. But as this article reveals, it's not to the mountains that they're planning to escape, but to the sea.  It's called "seasteading", the creation of manufactured sovereign island nations in international waters to be populated by silicon valley libertarians. An organization called "The Seasteading Institute" promotes the concept.

The idea is to escape stifling government regulation. But wait, what do people like these silicon valley innovators actually do when they have the chance to create their own micro-environment, in condo developments and gated communities for example? Do they welcome non-conformists with open arms? Not exactly. What they actually do in such cases is impose increased regulation far beyond what government imposes. If you don't believe me, try starting a garage-based business in a gated community and see what happens. You'll be fined, restraining-ordered, and pretty much driven out of Dodge. It's highly ironic that some of the most famous silicon valley mega-stars started in garages in middle class neighborhoods, but once they struck gold, these same people moved to highly regulated communities that prohibit the very thing that enabled them to get started.

These so-called seasteads would inevitably suffer the same fate. Messy home-based start-ups would not be tolerated, nor any sort of real nonconformity. In fact, many creative types these days are gravitating to places that are anathema to libertarians: Boston and New York City. Supposedly suffering from stifling taxation and over-regulation, these cities are actually highly tolerant of disruptive innovators, especially immigrants. Compared to them, floating islands founded by silicon valley billionaires would be as dull and insipid as Palm Beach, hardly the sort of places to attract the brilliant nonconformists they themselves used to be. What everyone forgets is just this: the billionaire innovators, when they started, were poor. They didn't start out rich.

Floating enclaves created "of the rich, by the rich and for the rich" are unlikely to lead to anything even remotely interesting.

Marx vs. Ayn Rand: A Hyperloopy Tax Idea

In my previous post, I talked about Thomas Piketty's book "Capital in the Twenty-First Century" and the heated debate it has incited over the rapidly increasing disparity in wealth between the wealthiest 1%, who own one-third of everything, and the rest of us, and how that may end up "killing the goose that lays the golden egg" for everyone, the wealthy included. This article in today's "Bloomberg Businessweek" contains a good review of the debate and concludes with the very valid point that, in the modern world, it's a practical impossibility to tax the rich to any significant degree due to the mobility of their wealth and the political power they wield.

So I have a tax idea that is truly worthy of the title of this blog--a truly "hyperloopy" idea. You may not be aware that the United States is among the small number of countries that impose income tax on their citizens and residents even though they may no longer live or work in the U.S. Well, you can take that a step further. The United States, or any country for that matter, can impose any tax it wants on any person who resides anywhere in the world on any basis and for any reason, even though that person has never been a citizen of the taxing country, and even if that person has never resided in that country nor in fact ever had anything whatever to do with that country. The Independent and Sovereign Republic of Kiribati, an island nation in the Pacific Ocean, for example, may perfectly well pass a law imposing a tax of 1% per year on assets exceeding, say, 100 million dollars, owned by any person anywhere in the world, whether or not they have ever heard of Kiribati let alone so much as made a phone call to anyone there. There is no international law that prevents it.

Of course Kiribati wouldn't get very far trying to collect such a tax unless a wealthy person had the misfortune to land in that country unawares. If more important countries started adopting such taxes, though, things could start to happen. Tit-for-tat taxes by one country on another country's citizens would be resolved by agreeing to tax treaties, which is exactly the endgame that's needed in order to tax the uber-wealthy. In fairness, a credit should be allowed against such a tax for all other taxes paid by the individual to any jurisdiction, but it would guarantee that the wealthy would pay at least 1% per year of their assets in taxes, which, if I understand Piketty correctly, is just the amount of taxation needed to prevent catastrophic accumulations of wealth.

Marx vs. Ayn Rand

A new book by French economist Thomas Piketty, "Capital in the Twenty-First Century", has created a sensation and incited renewed debate over Ayn Rand's philosophy of radical capitalism, which is the prevailing economic philosophy in the U.S. Radical capitalism rejects any sort of social or economic engineering by government, preferring to leave such matters entirely in the hands of private corporations. In Ayn Rand's most famous work, the novel "Atlas Shrugged", the wealthy, the "job creators", are depicted as so overburdened by government that they "drop out", resulting in economic collapse.  Piketty's view, on the other hand, is essentially Marxist, which holds that unregulated capitalism leads inevitably to extreme wealth inequality, social instability and war.

Both Marxism and radical capitalism seem to be gross oversimplifications. In "The Communist Manifesto", Marx and Engels argue convincingly that unrestrained capitalism cannot but lead to universal misery, then conclude that communism is the only solution. Communism of course is not the only solution, and was in fact very nearly the worst possible solution, as the utter failure of that grand experiment in state ownership of industry has proven very convincingly. But radical capitalism seems to suffer from the inverse error--the assumption that the uber-wealthy are so important to the world economy and so over-sensitive that the only solution is to coddle and pander to them to prevent them from running away and leaving the rest of us to suffer the consequences of our supposed laziness and stupidity.

The first question that comes to mind is this: run away to where? The wealthy depend for their happiness as much as the rest of us on the efficient functioning of the world as a whole. There is simply no castle on a mountaintop anywhere on the planet that a wealthy person can escape to and live in blissful isolation from the consequences of economic apocalypse. But consider the other question: what would happen if the wealthy did stop managing their assets? In the U.S., the wealthiest 1% (some 3 million people) own about one-third of all U.S. assets. Mostly they are passive investors, leaving others to make the day-to-day management decisions. Let's say that they all got fed up, sold those assets and went to live on mountaintops. Would the economy really collapse? Of course not. It's giving the wealthy much too much credit to say that global disaster would be the inevitable consequence of losing their supposed business acumen. They don't make many business decisions themselves. They have professionals who decide what to invest in. So to accept Ayn Rand's view of radical capitalism, you have to believe that the global economy depends on the top 1% making good decisions about which investment advisers to trust. The idea that these people are in some sense "running a business" is a romantic myth. Almost none of them run businesses in the sense that most of us understand it--deciding what to do and how to do it. Who does run the business of America? The answer: most of the rest of us.

The real crime of rising wealth inequality, though, is that it's inefficient, which means that there is less total wealth than there should be. This is a double whammy for the rest of us. Not only are the wealthy taking more and more, but the pie is actually getting smaller, leaving ever smaller crumbs for everyone else. A rising tide would indeed lift all boats, but as a result of rising inequality, the tide is going out.

Wealth inequality leads to inefficient allocation of capital because the wealthy are irrationally conservative when deciding how to invest. If you have a billion dollars, rationally speaking you ought to be willing to invest some of that in risky ventures, because if things go badly and you end up with just 500 million left, you can probably still get by OK on that. In fact, the wealthy are very much more afraid of losing their money than most of us and so are extremely conservative about investing it. (The one exception I can think of is Elon Musk, but he's very much the exception.) The riskiest investments, which are also the ones that produce the greatest growth and employment, are mostly made by people with quite ordinary levels of wealth, people who are not yet wealthy but want to be. Because growing income inequality squeezes out these upper-middle-class investors, that powerful engine of growth gets stalled. Add to that the fact that, relatively speaking, the wealthy save more and spend less of their wealth than the rest of us, and the result is low rates of growth.

Don't drink the Kool-Aid. Whether you are in the top 1%, the bottom 1%, or anywhere in between, extreme wealth inequality is hazardous to your health.