Wealth and Society

Fundamental disagreements about taxation and government spending rest on different assumptions about the nature of wealth and of society.  Where one stands on these issues determines ones’ perspective, and while some people may believe they have the most moral or rational point of view, such claims defy objective proof.   People can only look at the arguments and go with what they believe correct.

Arguments that say taxation should be minimal, even on the wealthy, have an assumption that market outcomes are proper, and that markets work in practice as they are supposed to in theory.  I believe these two assumptions to be flawed.

Unpacking the first assumption, one has to ask what determines a “proper” outcome?    To say that any market outcome is proper one requires a materialist and economistic view of reality.    Everything else — concern about human suffering, poverty, exploitation and equal opportunity — gets dismissed as secondary, or at best left up to the individual.   Society in such a view is not a unit connected by shared cultural values, norms, and interdependent relationships, rather it is simply the outcome of a bunch of purely individual choices.    Individuals are seen as rational and self-interested, simply interacting with others.

While all of those assumptions are possible to hold, they are by no means self-evidently true or even persuasive.  Human history has primarily been that of people connected by tradition and custom in social organizations that value spiritual and community bonds higher than material goods or individual self-interest.   Individual identity, purpose and interests came from tradition, culture and social norms.   Moreover, no individual chooses his or her interests, goals and ideals purely on their own.   Humans are in part cultural products; if the same person were born in Cairo instead of Boston he or she would be a different person, with different beliefs, tastes, values and interests.   Finally, no individual is fully responsible for his or her outcomes, including wealth.   Depending on how society is structured, wealth accrues to people in different ways, based on different actions.    Simply, wealth is a by product of social structures as much as it is of individual choices.

Since Freud we’ve known that humans are not guided primarily by reason and rational thought, but other impulses and drives below the surface in our subconscious.   Personality goes a long way to explain different political opinions and points of view, just as it explains ones’ philosophical perspective.   Personality is both innate (we’re born a certain way) and shaped by personal experience in both families and the larger culture.

Thus I reject the first assumption.  I do not think market outcomes are driven by purely individual choices and interactions, but have a cultural component that plays a huge role in whether or not one becomes wealthy.   Moreover, the import of culture also trumps a focus merely on the material and economic.    Values matter, as does social stability. Therefore, market outcomes are not inherently just or proper, nor do they accurately reflect the quality of an individual’s choices.    There is nothing inherently moral about a market outcome.

I also reject the other assumption, namely that markets work well on their own.   Left to their own devices markets break down, and are replaced by pseudo-markets which appear to be capitalist, but instead reflect the interests of the powerful and wealthy — those able to stack the deck in their favor.   The stacking is not a malevolent effort by the moneyed elite to control the country, but rather the result of numerous small rational choices that protect profits.

These small choices can hinder the market because of power differentials.   People who benefit from one market outcome are in a position to have greater opportunities the next time the game is played.  Over time this creates structural benefits to many, and constructs structural barriers to others.   Markets thus do not lead to the optimal outcomes implied in theory, but class divisions where a small group is able to get rich and stay rich across generations.  This inherently limits the opportunities of those who are not well off.   Some can overcome those constraints, most cannot.

Because those core assumptions are flawed, so is the argument that progressive taxation is wrong, or that taxing the wealthy harms the economy.   In reality taxing the wealthy: a) recognizes the role of society in creating that wealth — it is not merely the result of individual choices; b) allows resources to be used to help remove constraints by others to succeed, enhancing true opportunity and fixing market anomalies; and c) allows people to focus on other values a society has, rather than seeing materialist processes as the ethical core of a society.

Moreover, the flaws of those core assumptions also explain why regulation is needed.   Power differentials create incentives for “winners” to avoid the limits a true market would create.   Regulation is needed for the market to operate effectively, create transparency to limit the benefits insiders get thanks to the information and resources at their disposal, and protect market mechanisms.

Note that this argument is supportive of market capitalism.   It is not an argument for socialism or against markets, it is merely a claim that markets are not magic.   The goal of government is in part to compensate for ways in which the nature of society and the distribution of power disrupts how a market would operate “in theory.”   Yes, there are also other values a society might have that trump market processes.   These can be conservative (e.g., protect religious institutions, support cultural values such as marriage, etc.) or liberal (assure everyone has quality education and health care).   But since there is no “answer key” telling the right values to use to govern, such questions of value are inherently political and contestable — and so far democratic institutions are the best way to deal with such issues.

This still doesn’t answer what the proper tax level should be, what kind of government programs are best, or anything like that.   Those questions cannot be answered in the abstract as they are questions reflecting different opinions — there is no right or wrong answer.    That’s why democracy is best when it functions correctly — we can debate, persuade, learn from different perspectives, and over time test policies and change what doesn’t work and embrace what does.