Guest Post: On The Economic Calculation Of "Fair Share"
Via Dusan Petrovski of the Ludwig von Mises Institute of Canada,
When one speaks of a concept it is important that it is properly qualified so as to be correctly understood. Failure to accomplish that makes impossible for either the problem to be identified or a desired solution to be found. Perhaps this is why politicians have a tendency to speak of ill-defined and oft muddled concepts, like “social justice,” “a living wage” or “fair share.” These concepts are impossible to define in a way consistent with how they are represented, since their proponents represent them as definite, rather than abstract matters. In our time the demand for “the rich” to pay their “fair share” through higher taxes has become a standard war cry broadcast from every public and crony source of media. Yet, there is no objective means of defining either what constitutes “the rich” or “fair share.” Politicians and demagogues alike may debate these issues for as long or as short as they may desire, but whatever level they agree on is sure to be arbitrary, save for the only objective conclusion that such concepts are impossible to quantify.
Given a communistic ownership of schools, roads, streets, parks, healthcare institutions, libraries, schools and universities, how is one to be able to calculate each person’s use - “fair share” - of each? What share of a road belongs to a particular taxpayer? What usage is “fair share”? How many books in any given library belong to a specific person and which specific books? Who owns the walls and who owns the library’s carpets? Does the person paying more in taxes own more of the roads, libraries or schools than the person who pays less? What of the person who pays no tax at all? What of the person who desires to use his claim on a gymnasium, and of nothing else? Does the state university graduate owe a particular service to the taxpayer that subsidized or paid for the operation of the university? A typical example of who “fair share” proponents see the world is given to us by US Sen. Elizabeth Warren:
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.
As communistic concepts go, the idea of the “fair share” is simply a reiteration of the “from each according to his abilities, to each according to his needs” idea. The first question that poses itself is who is “the rest of us,” and how much did each of “the rest of us” contribute to the end of providing the goods and services Warren talks about? Furthermore, how are we to know that “the rest of us” get a market return on their investment in the public roads, schools, police and firefighting forces? In presenting the issue like that, we discover that we are unable to perform the critical task of economic calculation.
We will not even try to right everything that is wrong with Mrs. Warren’s statement and reasoning, just some of it. (Here we will ignore that fact that the majority of taxes in the US and Canada are paid by a very small percentage of the population.) According to Warren’s logic, a shovel making entrepreneur who never attended a university, and built up his business through his own work, acumen and sacrifice, saving and wise investment, still reaps the benefits of the university he never attended, by virtue of the fact that someone who did can now be employed by the shovel maker as an accountant. While true that the shovel maker reaps the benefits of the accountant’s services, if he is hiring the accountant, it must follow that the entrepreneur is paying for those services. Once the shovel maker puts the university graduate under his employ, the first pays the second for the services he performs for him.
Despite their outward dissimilarity in how they accumulated their abilities, the university graduate is no different from the shovel maker who learned his trade outside the educational system. The university graduate went to school for four years and accumulated knowledge. The shovel maker paid for his training either through the process of apprenticeship or through trial and error, or perhaps even attended a shovel making school. Either way, the shovel maker gave up some of his own savings or earnings in order to find more efficient ways of producing a more marketable product.
If the graduate was paid to be educated by virtue of taxpayer subsidies, and then paid to dispense his knowledge, he is investing nothing and gaining everything. Who owes what to whom here? Is the shovel maker—a taxpayer—part of “the rest of us” or is it the tax consuming university graduate? If the goods and services listed by Warren are paid for by taxes, then contributing to the tax revenues of a jurisdiction makes one a member of “the rest of us”—the body of people that paid for the goods and services in question. Yet, still we cannot calculate to what extent the shovel maker’s taxes paid for the accountant’s education, and what portion of the shovel maker’s taxes contributed to road construction.
What is the “fair share” that the university graduate owes to the shovel maker? Here we need to extend the scope, and ask “What is the ‘fair share’ that the shovel maker owes to the baker for the construction of the roads?”; “Why not have shovel maker pay the baker for the use of the road?”; “What is the ‘fair share’ that an obese alcoholic owes to a health-nut?” and so on. While it is possible to calculate the university graduate’s marginal value product in his function as an accountant employed by the shovel maker, it is not possible to calculate how much this shovel maker contributed to the training and education of this particular university graduate. The same principle can be applied to roads, libraries, police and fire departments and any other “public” good or service. It follows that the “fair share” doctrine is an indefinable political tool intended to be used as needed, when needed, by office seekers. It is not a policy to be sought in order to bring equality under the law or economic prosperity, as it is a concept that runs against the principle of private property.
- advertisements -