On Taxes and the Nature of the Government of a Society of Morons — Part 1

Death and Taxes

In 1789 Benjamin Franklin wrote that “in this world nothing can be said to be certain, except death and taxes.”

I beg to differ. Unlike the certainty of death which is imposed by nature, taxes are entirely man-made and therefore avoidable. But most people accept taxes with the same resignation as they do the inevitability of death, and by this uncritical passive acceptance of taxes they acquiesce in the persistence of a system that is positively harmful to personal well-being and social welfare. What’s worse, they consider taxes to be a social good.

The existence and persistence of bad institutions and norms can only be attributed to wrong ways of thinking and acting. An inverted view of reality that considers what’s harmful as beneficial causes untold avoidable harm.

Consider this astonishing claim I came across on twitter today. One Mr Jain is quoted as saying “GST is good as nation is getting money.” Unpacking the errors of that short sentence is instructive.

Mr Bhatera’s statement is also revealing. Implicit in it is the accusation that businessmen, unlike virtuous citizens, are somehow mean-minded, dishonest and uninterested in the public good. A K Patra signals his patriotism in his  enthusiastic support of Mr Jain’s supposed personal sacrifice.

There are a number of problems with the attitudes of the four people in the twitter exchange above. First, the notion that taxes are a good thing, and that the more taxes the government collects, the better it is for the collective. The truth is that the majority of taxes are bad for nearly everybody concerned, except for those who do the taxing and spending. The details of how, by how much and for what purposes tax revenues are raised matter enormously. For certain purposes some amount of taxes have to be raised but that does not mean that all taxes raised in whatever arbitrary ways for random purposes lead to welfare improvements of the nation as a whole.

It also does not mean that every tax raised by the government leads to benefits that exceed the costs. In fact, it is both analytically demonstrable  and empirically verifiable that most taxes lead to social welfare losses, and that all taxes end up in distorting incentives, and differentially benefit some groups at the expense of other groups.

Taxes and Partitionable Goods

It is important to pause here and consider briefly why taxes are necessary in the first place. There are collective goods the provisioning of which requires public financing. For example, a city has to have public streets that are open-access to all users. It is technically infeasible to impose user-fees for financing public streets. Therefore some form of general taxation of residents for public streets is justified.

(This is not the case for limited access highways, in which case tolls can raise the revenues required for their provisioning.)

The case for general taxes can also be made for what are called “public goods” — goods that are not partitionable in consumption. Private goods, such as food or clothing, are partitionable in the sense that people choose to consume different quantities of them, and therefore pay for them accordingly. Prices of private goods provide the necessary information to consumers about how costly something is to produce and their relative scarcity, and therefore guide their consumption decisions.

National defense against foreign threats, by contrast, is non-partitionable in consumption. Once produced, everyone “consumes” the same quantity of national defense, whether they pay for it or not. Thus national defense has to be funded through some form of general taxation. So also a police force for maintaining domestic order and punishing criminals, and courts for dispute resolution have to be tax funded. They have public-good characteristics.

Taxes Justified

Thus there are technical reasons why, for some limited purposes, taxes are justified. Those limited purposes, to repeat, are national defense, police, courts, and an administrative and legislative agency — generally called “the government” — that collects the taxes and apportions them for those specific purposes. Thus the government is an agency that is in charge of figuring out how to raise taxes, how much taxes are to be raised, and for what purposes.

Now let’s note one fact that is based on an arithmetic identity. The amount you have at any specific time is fixed. The more others take away from what you have, the less you have to do with as you please. It is entirely possible that you are a moron and are incapable of making the right choices about how to spend what you have — in which case it is quite possible that the less you have control over what you spend the better, and that someone wiser than you confiscates your money and spends it. You need a government that not only takes part of what you have to fund those essential public purposes but also makes choices on your behalf about how you should the rest of your money.

A competent person, for example, can decide for himself how much to give to what charity. An incompetent moron cannot be trusted to do that, and therefore someone else — the government — takes the moron’s money, and decides how much the moron should contribute to charity.

Society of Morons and Big Government

The main point is this: the more moronic the general population, the greater the role the government has in determining how much it takes from the population and for what purposes. That is, the government has to confiscate a larger portion of public wealth from a collective of morons than from a collective of non-moronic people. The fun thing is that a moronic population gives rise to a confiscatory government — and for which the moronic population is actually grateful (and praises the government in public forums) for being relieved of the burden of making decisions for itself. The morons elevate rapacious governments as paragons of wisdom and rectitude.

In the next bit, we shall consider in some detail the nature of governments of a society of morons. Spoiler alert: moronic societies get rapacious governments that increase taxes that the morons voluntarily pay even though they impoverishe the morons. The moron responds by “changing lifestyles and adjusting” like Mr Jain admits to doing.

{Do read this 2012 blog post — A Nation of Sheep will beget a Government of Wolves.}

8 thoughts on “On Taxes and the Nature of the Government of a Society of Morons — Part 1

  1. Respected sir, the idea that taxes are the source of generating revenue for the government which enables them to spend is fundamentally flawed and outdated.
    This gives me a chance to introduce you to 63 pages book by Warren Mosler called “Seven Deadly Innocent Frauds Of Economic Policy.”
    It is available as a free pdf and can be found by clicking on this link.
    https://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    This book amazingly demolishes the outdated thinking mentioned in the blog and I would very much like to know your views on this book by Mosler.

    I read this book after watching the debate between Mosler and Austrian economist Robert Murphy in which Robert Murphy is left with no rebuttals to Warren’s assertions and therefore resort to deviant rhetorics throughout.
    The debate can be found here.

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    1. Mosler appears not to understand any economics at all. I read the first few pages of the book and realized that Mosler is a crank with less than zero understanding. Zero is when one simply does not know. Less than zero is when someone believes the opposite of what’s true. I leave it that sometime later you will understand why he’s wrong–and when you can explain his error, consider it that you have understood the basics of economics.

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      1. Sir,
        I insist you to read him entirely or watch the debate with Robert Murphy in full and to not get dissuaded merely by his assertions but see the arguments he presents in their favor.

        In initial reading, one does get the impression that he is a crank and what he is talking is not economics but book-keeping or accounting, but he has a very plausible argument backing him for the claims that he makes, namely, the abandoning of gold exchange system and giving up of fixed exchange rate system marks some of the important changes in economic theory. At the time when Mises and Hayek were writing, the world had fixed exchange rates and the Gold Standard and so they talked on matters economic within that context.But now the things are no longer the same.

        P.S.-I began watching the debate in the hope to see Mosler getting thrashed and schooled in the basics of economics.But it instead steered me into reading his book.

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  2. NOT ONE Bhakt (Merriam Webster’s Dictionary defines Bhakt as a staunch and uncompromising partisan who is fanatically uncritical of a politically popular personality.) ever questioned Narendra Modi on rapacious taxes. NOT ONE.

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  3. I am listing some causes for which taxes are/may-be needed. I would love to have Atanu’s/other-reader’s comments on the same.

    Need taxes:
    – Military.
    – Police.
    – Roads and bridges.
    – Community medicine: Where an individual opting out of a treatment can endanger other’s lives as well.

    Do these need taxes?
    – Judiciary? Is it possible to pay the system through fees paid by contenders? But can that compromise justice?
    – Primary education? Or is it parent’s responsibility? What about irresponsible parents who procreate irresponsibly? Parents can be punished but what about the children?
    – Disaster relief? Can it be funded by private insurance agencies?

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  4. Now that there’s no Gold Standard or a system of fixed exchange rate, the government DOESN’T need to tax to get money for spending.Money is now simply a piece of paper(or other material) with no backing or convertibility.
    True, that excess spending on non-productive activities will lead to inflation and it’s doubtful whether to have a monopoly over note issue is an efficient system or not, BUT under the present system, taxes are no longer the ‘source of revenue’ for the government.

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