Russ Roberts responds to Elizabeth Warren

If you have any liberal friends on Facebook or Twitter, then you have no doubt seen them post or make reference to Elizabeth Warren’s rant about the rich and how they were fortunate enough to make their wealth because of government:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

This is textbook demagoguery. I don’t know many people that argue against basic functions of government, such as roads, schools, police, etc; which by the way are usually, or nearly exclusively, paid for through local taxes. Russ Roberts, an economist at George Mason University and one of the brains behind the Hayek/Keynes music videos, explains the problem with government isn’t the basic services it provides, it’s that the government has grown too large and is doing harm to the economy:

There’s much truth in Ms. Warren’s statement. But if government stuck to what it does fairly well—roads, police, fire and the courts; enforcing contracts that help businesses interact with their customers and other businesses—the federal government wouldn’t need to spend over $3.5 trillion a year, as it now does. And of course it’s state and local governments—and not Washington—that primarily fund police, fire and education, so it’s a bit strange to ask the rich to pay their fair share of federal income taxes because they enjoy police protection.

Much government spending supports activities that are ineffective or even harmful to the economy, often helping the politically powerful at the expense of the rest of us. Wouldn’t it be great for the federal government to stop federal export subsidies, propping up financial institutions, meddling in the education system, and trying to engineer the entire health system from the top down?

If the feds stopped all that, Ms. Warren would have a stronger point. We could all feel some gratitude for government’s role in helping us live better lives. All of us, rich and poor, would look at government differently.

Ms. Warren implies that the rich aren’t paying their fair share. I’m not sure what that is, but they’re already paying a lot of taxes. In the latest data from the Congressional Budget Office, from 2007, the top 1% of households paid 28.1% of all federal tax revenue—income taxes, payroll taxes and so on—for a total of $722 billion. That would buy plenty of roads, police and fire protection—and plenty of education, too.

But perhaps Ms. Warren shouldn’t mention education. Government does such a bad job educating workers in the public school system that businesses have to spend a lot of money training their work forces in basic skills. Does that mean entrepreneurs and factory owners can get a partial refund on their taxes?
[…]
Ms. Warren is certainly correct that some rich people aren’t carrying their weight—those who live off the rest of us by twisting the rules of the game in their direction: the sugar farmers who benefit from sugar quotas, the corn farmers who benefit from ethanol subsidies and those sugar quotas, and especially the Wall Street executives who have managed to convince both parties that the survival of their firms, even when they make disastrous loans to each other, benefits the rest of us.

But raising taxes on the rich is the wrong way to fix this problem.

When the super-rich pay such a large share of the tax burden, the interests of the political class and of the wealthiest Americans coincide in a particularly creepy way. The politicians want the rich to thrive—they’re the cash cow they milk via taxes. When the top 1% is the source of almost 30% of all your revenue, you have an incentive to take really good care of those people. That helps politicians of both parties convince themselves that coddling Wall Street is good for Main Street.

The symbiotic relationship between politicians and the super-rich is destructive of democracy and our economy. Let’s not make it worse. To close our deficit, let’s spend less rather than tax anyone more.

This may make for a rally cry for the Left, but it misses the point that may conservatives and libertarians make when it comes to class warfare and the size of government.

 


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