Libertarian Girl

Would the poor prosper better in a libertarian society than they do now? I believe so. Here’s why:

• The current system often benefits the rich and special interests, not the poor.
• The “War on Drugs” disproportionately places poor people in prison for non-violent crimes, separating families and ruining lives.
• The inflation tax is a tax no politician will ever speak of, a hidden tax that affects the poor and middle class and benefits the rich. It’s the tax normal people feel every day when they wonder why things are costing more.
• Our monetary system caused the Great Depression and causes boom-and-bust cycles which hurt the economy.
• Private organizations have welfare systems that are more generous, more efficient, and better than government welfare– but private organizations can’t compete with a tax-based system. If there was no government welfare, private groups would step up and help people who need it.
• Subsidies to certain foods cause food prices to rise, which hurts poor people, and especially those surviving on foods stamps, hard. As a result of this policy, junk food goes down in price and more sustaining foods go up in price. This is why many poor people are obese. Private groups with welfare systems provide healthy, nutritious food as part of their program.
• Deregulation would allow more businesses to be started by and for poor people.
• Occupational licensing laws prevent poor people from opening businesses.
• Health care costs would be lower.
• No form of socialism has ever gotten rid of poverty (yes, even in Sweden!)

“There has never been a tax system beneficial for the poor.” — Economics professor Ken Schoolland

The current system benefits the rich and special interests; the poor do not benefit as much as they would in a libertarian society.

First of all, we have to look at the system. We currently have a system where we supposedly act as Robin Hood and tax everyone to give money to poor people. That’s not the way it works out, though. Poor people get taxed too, often very aggressively– income tax, sales taxes, business taxes if they want to open up a shop, licenses they have to get, gas taxes, tolls, fees, property taxes if they want to own even a small house, and the inflation tax, which I’ll discuss in a bit. All of these taxes affect poor people more than the rich, so they are regressive, with the possible exception of income tax.

In a non-libertarian system, rich people often make a net gain from the government, because the money the government gives them can be more than they pay in taxes. That’s what the system is supposed to do for poor people, but it’s what it actually does for rich people. Many people take welfare without needing it, figuring that they pay taxes, so why not take the benefits?

Income tax can also be regressive, because rich people can afford accountants who fiddle with the numbers until the person doesn’t owe anything, they pay their spouse and kids a salary, they take tax credits and deductions, they donate to charity, they put money in accounts which they don’t owe taxes on, and in some cases, they even send their money overseas to a tax haven. Poor people can’t do that. Rich people have the money to form corporations which can pay for lobbyists to get corporate welfare from the government, which unlike individual welfare, can run to billions of dollars. It’s not poor people getting these billions.

“The net effect of our policies, the evidence for which is overwhelming, is that we are redistributing income up.” — Daniel Cay Johnston, Free Lunch: How the Wealthiest Americans Enrich Themselves At Government Expense (And Stick You With The Bill)

Sometimes you’ll hear that a CEO is taking a salary of $1. This is not just a publicity gimmick, it’s a classic way to get out of paying taxes. Salaries are taxed at 35%, and dividends that will be given to the CEO instead of a salary are taxed at only 15%.Rich people actually don’t even have to go to the trouble of hiring lobbyists. They’re usually the ones elected to public office themselves, with access to jobs and patronage for their friends. They often went to the same universities or consulted for the same companies as each other. They pat each other on the back and do what they can for each other, often at taxpayer expense. Politicians are often rich in the first place, take a salary from taxpayers, and then raise taxes on those taxpayers saying that they’ll help them. A classic case of this is John Edwards. He proclaimed that there were “Two Americas,” and he really wanted to end that. However, in his own life, he exploited what some consider to be a loophole to get out of paying $738,000 in Medicare taxes one year and at least $591,000 another year on the $26 million annual profits from his law firm. To add insult to injury, during his most recent presidential campaign Edwards proudly said he would take public matching financing, which would be paid for from the income taxes of Americans who make a lot less than $26 million a year. People who make $26 million a year get out of paying their taxes, then look to see what else they can take from the government.

“One America that pays the taxes, another America that gets the tax breaks.” — John Edwards

Sure, I don’t fault Edwards for using the kind of tax system he did to get certain liability waivers. However, if he really believed in “Two Americas,” he could have written out a $738,000 check to the US Treasury and said to use it for Medicare. He did not.

Robert Higgs writes:

“In fact, the overwhelming portion—more than 85 percent—of all government transfer payments is not ‘means-tested,’ that is, not reserved for low-income recipients. The biggest share goes to the elderly as pensions and Medicare benefits, and anyone over 65 years old, rich and poor alike, can receive these benefits. Today people over 65 have the highest income per person and the highest wealth per person of any age group in the United States. Federal transfer payments to farmers present an even more extreme case of giving to those who are already relatively well off. In 1989, for example, the federal government paid about $15 billion to farmers in direct crop subsidies, and 67 percent of the money went to the owners of the largest 17 percent of the farms—in many cases payments to farmers are literally welfare for millionaires. It is simply a hoax that, as a rule, government is taking from the rich for the benefit of the poor. Even people who believe in the rectitude of redistribution à la Robin Hood ought to be troubled by the true character of the redistribution being effected by governments in America today.”

Finally, you can’t really fault politicians for acting this way. We elect them, and we keep electing them despite their behavior. We seem to like it when a politician says one thing and does another. We seem to accept it when a politician, proclaiming a love for poor people, takes advantage of tax loopholes to get out of the taxes they’re trying to increase. Since we reward them for it, a politician has no reason to actually do something for the common person and not reward his or her rich cronies.

You can see why there is a real incentive on politicians’ part to convince you that you’re better off under the current system than you would be if it didn’t exist and get you to actually extend that system. The idea that we receive more back from taxes than we put in really makes no sense (when you keep in mind all the foreign aid and nation-building dollars we spend overseas, we’d be in a much bigger debt than we are now if we all got back more than we put in), but it’s deeply entrenched. Everyone wants to desperately feel good about themselves when they are forced to pay all these taxes, so they like to imagine there’s a reward of fabulous roads and schools at the end of the rainbow.

There are still poor people in Europe.

If socialism can end the problems of the poor, I ask you this: why are there still poor people in Europe, which has both high taxation rates and very high social welfare transfers? I used to live in Europe, and I’d see more poor people as I walked down the street in London than I ever have in New York City. Their high taxes, the NHS, and other social systems have not prevented people from being poor– in fact, the neighborhood in which my university was located was a very poor immigrant neighborhood in the East End filled with “council housing” (housing projects) which was pretty similar to many immigrant neighborhoods in, for instance, New York City. Ask the Algerian immigrants in the banlieues in France if France’s “social net” has helped them, or if it in fact has made it harder for them to find jobs. Do US states with higher taxation rates and higher rates of welfare see an end to poverty? No, but taxation goes higher and higher, hurting the middle-class and small business owners the most.

The “War on Drugs.”

The United States has the largest prison population in the world, with a higher percentage of people in prison than in any other industrialized nation– and our prison population isn’t made up of rich people. A large percentage of our prisoners are there for non-violent drug crimes, stemming from the federal “War on (ed. note: Some) Drugs.” This campaign has meant that poor people are more likely to be convicted and spend time in prison for non-violent drug crimes than rich people. A person caught with the same amount of crack cocaine– the drug of choice for poor people– is sentenced to a much longer sentence than someone with that same amount of powder cocaine, a drug only rich people can afford.

The Tax You Never Heard of– the Inflation Tax.

A huge aspect of what can hurt poor people has been called “the inflation tax.” I used to have no real problem with inflation; sure, the prices of everything would go up year-to-year, but I figured that everyone would be paid more, so it would be a system of “nothing gained, nothing lost” for everyone involved. I was surprised when I discovered this was not the case. In fact, when the government “lowers interest rates” (while claiming, with the media’s help, that this is a good thing for the nation), the only people who benefit are on Wall Street. They buy the government’s bonds at lower rates, they see the extra printed money first, they enjoy the rising stock prices. Meanwhile, inflation of the cost of goods hits poor people before their wages catch up; they’re paying higher prices for goods while making less money. The government also hands over this newly-printed and not-yet-circulated money to the military industrial complex and other large government contractors, who enjoy the money while before it has caused inflation and later pass it on to middle-class workers who then get only the real, inflation-adjusted value of those dollars. It’s a travesty on our federal government’s part. Hardworking seniors and others who don’t play the stock market and instead have savings accounts are also penalized by the lowering of interest rates– they make less money back on their accounts. Those pensioners who are on Social Security are supposed to have their income adjusted for inflation, but the government only calculates that to be about 3% a year– far less than the approximately 12% real inflation that other groups have found that the American economy has. That means that we all are losing 9% a year in real income, even if it is adjusted for 3% inflation first. This all results in a transfer of wealth from the poor and middle classes to the people trading billions at hedge funds.

The inflation tax is perhaps the most interesting tax because, while they feel it every day, most people don’t realize it exists and politicians are able to ignore it. Let’s see if Barack Obama ever mentions the inflation tax; I bet you a billion in just-off-the-press Federal Reserve notes that he most certainly will not. That would require admitting that government spending often benefits big business rather than little people.

Inflation goes on to hurt poor and working-class families in another way: because dollars are worth less, they get paid more in dollar amounts (although not in real dollars, once the amount is adjusted for inflation– they’re probably actually making less than they were pre-inflation). The hardworking family then gets pushed into a higher tax bracket and have to pay higher income taxes– all on money that has gone down in value! Income tax brackets do not allow for inflation in their calculations, just dollar amounts. As a response, the family might call for increased government spending– which may provide temporary relief, but of course begins the inflation tax cycle all over again and causes the family to again suffer more in the end.

Our monetary system causes boom-and-bust cycles and depressions, which are hard on the poor.

Our welfare society sprang up during the Great Depression. It may not have come into being if it weren’t for the massive loss of jobs during that era– a loss which was caused not by capitalism, but by monetary policy of the Federal Reserve itself, as Milton Friedman first explained and Ben Bernanke later agreed. So, the Great Depression was not a natural consequence of capitalism, but was caused by a central bank trying to regulate capitalism, and the welfare state– also the government trying to rein in capitalism– was the response.

Private organizations don’t do as much as they would in a libertarian world.

What did poor people do before the Depression? How did things even exist? First of all, many of our most successful hospitals were started not through government money as they would be today, but through private donations and by churches. Many of our most beautiful libraries were created not through government money, but by donations from Andrew Carnegie.

Rather than the poor getting government handouts (or the rich scamming for government handouts), churches and private organizations were in charge of helping the poor. Why is that a better system? Churches aren’t going to give money to rich people or to drug addicts who will just use it for their next fix– but the government certainly hasn’t been vetting for any of that, and that type of waste takes away from poor people who truly need help with their basic needs. Private charity is based on relationships and is self-vetting. This works out well in regards to the missions of many Christian churches, along with most major religions, because the God they base their theology on said, “Do unto others as you would have done unto you,” and specifically said to help the poor.

“And remember in all things the poor and the needy, the sick and the afflicted, for he that doeth not these things, the same is not my disciple.” — Joseph Smith

As one example of what a private welfare system might look like, the Church of Latter-Day Saints has an extensive, efficient, and successful welfare system for its members and for others in society, including international victims of tsunamis and other natural disasters. People in those countries don’t have public welfare systems to rely on, so private organizations take up the balance. The Mormon welfare system employs its recipients in its warehouses and stores, helping them help others and giving them job skills in the meantime. It is all done on an absolutely voluntary basis by the Mormon church, with better results than the state and federal welfare systems run by countries: 30% of the recipients are able to leave the Welfare Plan each year, and the average time on welfare is only four months. Food, clothing, household needs, home repairs, skills training, help with job searches and resumes, addiction recovery, adoption assistance and, if needed, shelter, are provided free. Many companies donate to the 751 warehouses, which serve 13 million people in America. Anyone who wants help can get it from the Mormon system, and donations to it by LDS members are totally voluntary. However, the LDS or any other private welfare system has no incentive to expand more than it is today when government options exist as well.

Are the Mormons the only group that does this sort of private charity? Margaret Thatcher noted in her memoirs, “My old constituency of Finchley has a large Jewish population. In the thirty three years I represented it I had never had a Jew come in poverty and desperation to any one of my constituency surgeries. They had always been looked after by their own community.” Private groups do provide welfare while the government does, and they would provide more if the government no longer did.

A clear advantage to the nature of private giving over a system of taxation is that those who give to private charities derive pleasure from helping the poor, and the poor are not taxed to benefit themselves down the line. Private giving wouldn’t have to be done by churches; there could be specific anti-poverty groups that want to help the poor and do a better job than the government can, just like the Mormons. Since more than one of these organizations would spring up to correspond to the demand once the government got out of the business of welfare, poor people would even have a (gasp!) choice in who they got welfare from.

Healthier forms of welfare and no subsidies on certain unhealthy foods.

One particular note that is interesting to me is that the Mormon storehouses feature healthy foods, fruits and vegetables and canned goods, not packaged foods. However, if you have food stamps and are looking for the cheapest form of the most calories, you’ll most likely be led to the junk food aisle. Healthy foods are more expensive than unhealthy foods, and if you want to make your welfare check go as far as it can you’ll probably buy junk food. Michael Pollan has noted that this is because of our farm bill, granting subsidies to certain (very wealthy) industries at the expense of others, which makes our food more expensive than it otherwise would be.

Some people say to me, What about starving people? People wouldn’t starve in a libertarian society, and in America today, “the most reliable predictor of obesity in America today is a person’s wealth… So how is it that today the people with the least amount of money to spend on food are the ones most likely to be overweight?”

“If anything, the greatest health problem faced by ‘the poor’ in Western countries is morbid obesity rather than starvation.” — Ben O’Neill

Deregulation would increase competition and bring prices down.

In a libertarian society, we would have deregulation. What does that mean? Let’s start by giving an example from today. Let’s say that I have an idea for a car– it’s safe, it’s environmentally friendly, it’s less expensive than a typical $25,000 sedan of today. What could I do? I can’t start a car company; the car industry is so highly regulated, with expensive and labarythine restrictions on every little aspect, that it has huge barriers to newcomers. If Olds or Ford wanted to start their companies today, they wouldn’t be able to with all the restrictions they’d be able to meet. You’d need billions of dollars to start a car company today. As a result, we don’t have a car that runs just on electric, we get old and stale car designs, and we get car companies struggling to meet their health care costs, let alone worrying about creating new and innovative automobiles.

A person once semi-joked that the thing an established company wants most is to have their industry regulated. When it’s regulated, the companies will basically write those laws (in their favor, of course) and will prevent any newcomers from ever coming up to challenge them.

Many people might say, “Those restrictions are there for the public’s own good. It keeps them safe.” However, I beg to differ. Due to these restrictions, the public has fewer choices in car companies, fewer choices in cars, and almost all cars look and feel the same. It’s not a free market, and it’s not as good as it could be in a true market catering to the consumer. In a free market, there would be options that would spring up for safety tests, safety of design, and other car rankings just as there is today with JD Edmonds and Consumer Reports. These could be non-profit, third-party sources like CR or they could be for-profit like Edmonds. There is no need for all these government restrictions on car companies and the building and making of cars. Did Japan start out with these sorts of regulations? No, and Toyota and Honda are recognized to be a higher, more reliable quality than our own domestic car companies can produce.

So, in a system of deregulation, there would be more competition and goods and services would be cheaper. Health care would be less expensive, it would take less money for schools to create a better product in a libertarian world, gasoline would be less expensive as would alternative energies, and housing would also be less expensive.

Occupational licensing laws would be abolished.

Have you ever wanted to start a business and then realized it would be too difficult or too expensive? Well, that’s the effect of today’s society. A friend of mine started a business in New Jersey and never made a dime with it, yet had to pay thousands of dollars in fees and taxes to the state of New Jersey anyway. This is a consequence of our tax-and-keep-taxing-more society and a real detriment to private enterprise and entrepreneurship.

As mentioned above, deregulation would allow a lower bar of entry into regulated industries, which would increase competition, choice, and — for those interested in consumer safety in particular– safety in those industries.

Let’s say Frank wants to open a barber shop on his back porch and charge his friends to cut their hair. First, he would have to incorporate as a business (possibly $1,000 in expense), get a local business license (~$200), find out whether his neighborhood is zoned for it and then try to get the zoning laws changed (into the thousands), then he has to pay federal and state taxes on every nickel he earns. It’s no wonder Frank never tries to get his business off the ground and instead decides to remain on welfare. It’s much easier.

Frank would be able to achieve his dream of a barber shop on his porch in a libertarian society. His customers would be happy they could get a decent rate on a cut, and if they thought the place wasn’t clean or was unhealthy in some way, they would have a number of options: they could either deal directly with Frank on this, they could simply go to another barber, they could report Frank to a third party such as a local Consumer Reports-style organization or a Ralph Nader-type local consumer advocate, warning other customers that Frank’s barber shop was dirty, or they could decide that they didn’t care and keep going to Frank’s barber shop anyway.

If enough of Frank’s customers decided that they didn’t like his hygiene practices, Frank would be out of business and out of luck, so if he cares about staying open he’d clean everything to a level probably exceeding many of today’s health codes. Independent ranking/reporting/monitoring agencies would spring up in a libertarian society, perhaps even going undercover as clients of Frank’s themselves. They’d have low startup costs due to all the reasons outlined above, especially low taxation.

Health Care.

In a libertarian society, health care would be less expensive. HMOs are currently required by the federal government. Before mandated HMOs and “managed care,” poor people were treated at church-run or private hospitals for free and by doctors for free (an example of this is Congressman Ron Paul, an MD who gave free medical care to those who needed it.) Costs for an entire doctor’s visit then would be less than a Medicare or Medicaid co-pay of today. We do not have a free market in health care today. Many people think the rising cost of health care is directly related to the amount of healthcare the government provides and the less competition that can spring up to meet demand.

In a libertarian world, people might have health insurance for surgeries or in case of a health crisis down the road, but they wouldn’t necessarily have the type of insurance people have today, where companies spend 40% of their budget on advertising and routinely deny claims. There would be more insurance companies and more choice on the part of consumers. Routine medical care would be given by individual doctors and cost less then the ever-increasing Medicare co-pay we have now. More pharmaceutical companies would be creating more and more innovative drugs, and some of them would compete on price as well, so you would have less expensive alternatives to many types of prescription drugs.

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This entry was posted on Monday, March 3rd, 2008 at 7:27 pm and is filed under Free market economics, Government, Other People's Money, Privatization, libertarianism. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.