Category: Economics

Since education is expensive, it is reasonable for a student to expect a return on their investment (ROI). Given that the taxpayers contribute to the education of students, it makes sense that they also receive a return on their investment.

A practical measure of the ROI for a student is often the salary of the job they get relative to the cost of their education. Roughly put, a student should be able to work out of their school debt and be able to live with the job that education is supposed to get them. In terms of the ROI for the taxpayer, the return is similar: students funded by the taxpayers are supposed to get jobs and repay the investment through the taxes they pay. The student becomes the taxpayer, thus enabling the next generation of students to also become taxpayers. One could also factor in the role of the worker as a consumer and the impact of the very few who become job creators.

Because the cost of education grew so high, some folks placed their hopes on the free market. The idea was that for-profit schools would provide a high-quality product (education that leads to a job) at a lower cost than the state and traditional private schools. As might be suspected, the ideal turned out very different from the real.

While state schools obviously receive state funds, the for-profit schools received massive federal support. Unfortunately, this money was ill-spent: 20% of the for-profit school students defaulted on student loans within three years of entering the repayment period. About half of all student loan defaulters went to such for-profit schools, although these schools made up only 13% of the student population. The estimate was that about half the loans funneled through students to the for-profit schools were lost to default, which is not a good investment for the taxpayer.

Students most often default on loans due to financial hardship. As might be imagined, not earning an adequate paycheck leads to hardship. While there are over 2,000 programs where the students had loan debt, but whose earnings put they below the poverty line, 90% of these programs were at for-profit schools. As such, these schools were a bad investment for both taxpayers and students. While public and traditional private schools did account for the other 10%, they have been a better investment for taxpayers and students. This is not to say that such schools do not need improvement—but it is to say that the for-profit model was not a solution and probably never will be. For all the obvious reasons you suspect.

There were some attempts, such as in 2011, to impose regulations against the predatory exploitation of students (and taxpayers) by institutions. Not surprisingly, these were countered by the well-paid lobbyists working at the behest of the for-profits. Under the Trump regime, the stated goal is to destroy the Department of Education, so little help for students can be expected from that department.

Interestingly, some states pushed hard for performance-based funding for public institutions. For example, my adopted state of Florida has seen the Republican dominated state legislature micro-managing of education and imposing their professed ideology. In any case, we have been operating under a performance-based model in which funding is linked to achieving goals set by the state. Naturally, for-profit schools do not fall under the same rules as public schools, which could give them an advantage.

Some might suspect the performance-based funding approach is cover for reducing funding even more. This approach also shifts funding towards schools that have more political influence—which is supported by looking at where the money goes.

It might be suspected that performance-based funding was designed to harm public schools and push students towards for-profit schools. These schools often enjoy political connections and would benefit from reduced public education opportunities. Of course, the profits of such schools come largely at the expense of students and taxpayers. They are well-subsidized by the state in a new twist on the old corporate welfare system.  Shockingly enough, there has been little conservative rage at this wasteful socialism and these academic welfare queens.

 

 

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One of my lasting lessons from political science is that every major society has a pyramid structure of wealth and power. The United States is no exception. However, the United States is also supposed to be a democratic society—which seems inconsistent with the pyramid.

While the United States has the mechanisms of democracy, such as voting, it might be wondered whether it is democratic or oligarchic (or plutocratic) in nature. While people might consider how they feel about this, feelings and anecdotes are not proof. So, for example, a leftist who thinks the rich rule the country and who feels oppressed by the plutocracy does not prove their belief by appealing to their feelings or anecdotes about the rich. Likewise, a conservative who thinks that America is a great democracy and feels good about the rich does not prove their belief by appealing to their feelings or anecdotes about the rich.

What is needed is a study to determine how the system works. One obvious way to determine the degree of democracy is to compare the expressed preferences of citizens with the political results. If the political results generally correspond to the preferences of the majority, then this is a reasonable (but not infallible) indicator the system is democratic. If the political results generally favor the rich and powerful while going against the preferences of the less wealthy majority, then this would be a reasonable (but not infallible) indicator that the system is oligarchic (or plutocratic). After all, to the degree that a system is democratic, the majority should have their preferences enacted into law and policy—even when this goes against the wishes of the rich. To the degree that the system is oligarchic, then the minority of elites should get their way—even when this goes against the preferences of the majority.

Some years ago, researchers at Princeton and Northwestern conducted just such a study: “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens”  using data gathered from 1981 to 2002. The researchers examined about 1,800 polices from that time and matched them against the preferences expressed by three classes: the average American (50th income percentile), the affluent American (the 90th percentile of income) and the large special interest groups.

The results were not surprising: “The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on US government policy, while mass-based interest groups and average citizens have little or no independent influence.”

As noted above, a democratic system should result in the preferences of the majority being expressed in policies and laws more often than not. However, “When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the US political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.” As such, this study provided evidence that the United States was already an oligarchy before Trump, rather than a democratic state.

It might be contended that this system is fine since, to use a misquote, what is the preference for General Motors is the preference for Americans. That is, it could be claimed that the elites and most Americans have the same or similar preferences.  However, the study found that the interests of the wealthy are not substantially correlated with the preferences of average citizens. The preferences of most Americans do not match the interests of the wealthy, but the wealthy generally get what they want.

One objection is that the preferences of the majority are mistaken—that is, the majority wants things that are not in their best interest and what the elites want is what is best. For example, while most Americans might prefer stronger consumer protection laws, it could be claimed that they are in error because what is good for GM is good for the country, even if the many think otherwise. What is in their best interest is less consumer protection, which is what the financial elites want.

The obvious reply is that even if the majority is mistaken and the oligarchs know best, this would be arguing that oligarchy is better than democracy, not that America is not an oligarchy.

Another objection is that the system is democratic in that people vote for elected officials who then pass laws and enact policies. As citizens can vote them out of office, they must be expressing the preferences of the citizens—even though policy and law consistently goes against the expressed preferences of the majority. This is to say that we have democratically created an oligarchy, so it is still a democracy (or at least a republic).

This objection is interesting and raises a question about why people consistently re-elect those who consistently act contrary to their expressed preferences. One possibility is that the choices are very limited—you can vote for anyone you want, but a Democrat or Republican will almost certainly be elected. As such, the voters get to vote, but do not get real choices.

Another possibility is ignorance—people might not realize that what they get does not match what they claim to want. Such ignorance would put the moral blame partially on the citizens—they should be better informed.  Then again, given the abysmal approval rating for congress and President Trump, it seems that people do realize this. This creates an odd scenario: people really dislike them yet re-elect them. 

A third possibility is the power of propaganda engines devoted to convincing people that the laws and policies are good. So, while people prefer one thing, they are persuaded to believe that what is in the interest of the oligarchy is what they should like. People might also be distracted by other matters—for example, people who have been convinced they should fear transgender people and hate DEI will support politicians who appeal to their hate and fear, even if the politician also supports policies contrary to most other things the voter wants. In this case, the moral failing is on the part of the deceivers—they are tricking citizens and corrupting democracy.

Another approach to objecting to the study is to raise questions about the methodology. One question would be whether the 1,800 policies are properly representative of the political system. After all, if the researchers picked ones that favored the wealthy and ignored others that matched public preferences, then the study would be biased. As such, a key question is whether the sample used in the study is large enough and representative enough to adequately support the conclusion. Another question would be whether the study had the preferences of the people correct. After all, to properly claim that the laws and policies do not generally match the preferences of the majority, the claimed preferences would need to be the actual preferences of the majority. These concerns can be addressed by examining the study carefully and objectively, rather than merely dismissing or accepting it based on how one feels about the matter.

Looking back on the study from the perspective of 2026, it is evident that Trump and Congress are simply openly engaging in an oligarchy that has long existed in the United States.

 

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Way back on 4/9/2014 NPR did a report on why there are fewer women than men in business. While the gap has narrowed as of 2026, it persists (especially at the senior level). The difference begins in business school and continues forward. The report presented an interesting hypothesis: men and women differ in their ethics.

While people usually claim lying is immoral, men and woman are more likely to lie to a woman when negotiating. The report also mentioned a test with an ethical issue: the seller of a house does not want it sold to someone who will turn it into a condo, but a potential buyer wants to do just that. Men were more likely than women to lie to sell the house.

It was also found that men tend towards egocentric ethical reasoning in that if the man will be harmed by something, then it is regarded as unethical. If the man benefits, he is more likely to see it as morally grey. So, in the case of the house scenario, a man representing the buyer would tend to see lying to the seller as acceptable because he would make a sale. However, a man representing the seller would be more likely to see being lied to as unethical.

In another test of ethics, people were asked about their willingness to include an inferior ingredient in a product that would hurt people but would generate more profit. Men were more willing than the women to see this as acceptable. In fact, women tended to see this as outrageous.

These results provide two reasons why women would be less likely to be in business than men. The first is that men are less troubled by unethical, but more profitable, decisions.  The idea that having “moral flexibility” provides an advantage,  as Glaucon  argued in Plato’s Republic. If a morally flexible person needs to lie to gain an advantage, he can lie. If a bribe would serve his purpose, he can bribe. If a bribe would not suffice and someone needs to have a tragic “accident”, then he can arrange an accident. A morally flexible person is like a craftsperson that has a broader range of tools, so they are more likely to have the right tool for every occasion. Just as the better equipped craftsperson has an advantage, the morally flexible person has an advantage over those more constrained by ethics. If women are, in general, more constrained by ethics, then they would probably be less likely to remain in business because they would be at a competitive disadvantage. The ethical difference might also explain why women are less likely to go into business—it is a common stereotype that unethical activity is part of doing business. If women are more ethical than men, then they would be more inclined to avoid business.

It could be countered that Glaucon is wrong and that being unethical (while getting away with it) does not provide advantages. Obviously, getting caught and punished for unethical behavior is not advantageous—but it is not the unethical behavior that causes the problem. Rather, it is getting caught and punished. Glaucon is clear that being unjust is only advantageous when one can get away with it. Socrates argues that being ethical is superior to being unethical, but he does not do so by arguing that the ethical person will have greater material success. That is conceded to Glaucon.

It must be noted that a person could be ethical and have material success while a morally flexible person could be a complete failure. The claim is that ethical flexibility provides a distinct advantage in material success in the context of capitalism.

One could, and should, point out that there are unethical women and ethical men. The obvious reply is that this claim is true—it has not been asserted that all men are unethical or that all women are ethical. Rather, women seem to be generally more ethical than men.

It might be countered that the ethical view assumed in this essay is flawed. For example, it could be countered that what matters is profit and the means to this end are thus justified. As such, using inferior ingredients to make a profit would not be unethical, but laudable. After all, as Hobbes said, profit is the measure of right. As such, women might be avoiding business because they are unethical on this view of ethics.

The second reason is that women are more likely to be lied to in negotiations. If true, this would put women at a disadvantage relative to men. This, of course, assumes that such deceit would be advantageous in negotiations. While there surely are cases in which deceit would be disadvantageous, at deceit can be a very useful technique. While President Trump is but one example, his regime does provide an excellent example of the power of moral flexibility in material success.

If it is believed that having more women in business is desirable (which would not be accepted by everyone), then there seem to be two main options. The first is for women to become more unethical so they can compete with men. The second would be to endeavor to make business more ethical. This would also help address the matter of lying to women.

 

 

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In my first political science class, I learned every large human society has had a pyramid shaped distribution of wealth. Inevitably, the small population of the top controls a disproportionally large amount of wealth while the large population at the bottom owns a disproportionally small amount. This pattern holds whether the society is a monarchy, a dictatorship, a “communist” state or a democracy.

From a moral standpoint, one question is whether an unequal distribution is just. While some might be tempted to see any disproportional distribution as unjust, this would be an error. After all, the justness of a distribution is not only matter of numbers. For example, consider the unequal distribution of running trophies. First, most people who have them are or were runners. Most people will not have even a single running trophy. Second, even among runners there is a disproportionate distribution: there is a small percentage of runners who have a large percentage of the trophies. As such, there is a concentration of running trophies. However, this does not seem unjust: the competition for such trophies is usually open and fair and a trophy is generally earned by running well. The better runners will have more trophies and will be a small percentage of the runner population. Because of the nature of the competition, I have no issue with this. There is, of course, my bias in that I have won a lot of running trophies.

Those who defend the unequal distribution of wealth often claim competition for it is analogous to that of running trophies: the competition is open, the competition is fair, and the reward is justly earned by competing well. While this is a reasonable approach to justifying the massive inequality, the obvious problem is that these claims are simply not true.

Those who start out in a wealthy family might not make their money by inheritance, but they enjoy a significant starting advantage over those born into less affluent families. While it is true that a few people rise from humble origins to great financial success, those stories are so impressive because of the difficulty of doing so and the small number of people who achieve such great success. If people could consistently become wealthy through hard work and talent, these stories would be unremarkable, and the inequality of wealth would be much lower.

There is also the fact that the wealthy use their influence to ensure the political and social system favors them. While their efforts might not be explicitly aimed at keeping other people down, the effect is that the wealthy are favored and defended against attempts to “intrude” into the top of the pyramid. Naturally, people will point to those who succeeded fantastically despite this system. But, once again, these stories are impressive because of the incredible challenges that had to be overcome and because they are incredibly rare.

There is also the doubt about whether those who possess the greatest wealth earned the wealth in a way that justifies it. In the case of running, a person must earn her gold medal in the Olympic marathon by being the best runner and there is (usually) little doubt that the achievement has been properly earned. However, the situation of great wealth is not as clear. If a person arose from humble origins and by hard work, virtue, and talent managed to earn a fortune, then it seems fair to accept the justice of that wealth. However, if someone merely inherits an unearned fortune or engages in misdeeds (like corruption or crime) to acquire the wealth, then that is unjust wealth.

So, to the degree that the competition for wealth is open and fair and to the degree that the earning of wealth is proportional to merit, then the unbalanced distribution could be regarded as just. However, this is obviously not the case.  For example, a quick review of the laws, tax codes, and so on in the United States will show how the system is intended to work.

Suppose for the sake of argument, that the distribution of wealth in the United States is warranted on grounds like the distribution of running trophies. That is, suppose that the competition is open, fair and the rewards are merit based. This still provides grounds for criticism of the radical concentration of wealth.

One obvious point is that the distribution of running trophies has no significant impact. After all, a person can have a good life without any trophies. As such, letting them be divided up by competition is morally acceptable—even if most trophies go to a few people. However, wealth is fundamentally different as it is a necessity for survival. Beyond mere survival, it also determines the material quality of life in terms of health, clothing, housing, education, entertainment, and so on. Roughly put, wealth (loosely taken) is a necessity. To have such a competition when the well-being (and perhaps the survival) of people is at stake seems morally repugnant.

One obvious counter is a version of the survival of the fittest arguments of the past. The idea is that, just like all living things, people must compete to survive. As in nature, some people will not compete as well and will have less and perhaps not survive. Others will do better and a very few will do best of all.

The obvious reply is that this competition makes some sense when resources are so scarce that all cannot survive. To use a fictional example, if people are struggling to survive in a post-apocalyptic wasteland, then the competition for basic survival might be warranted by the reality of the situation. However, when resources are plentiful it is morally repugnant for the few to hyper-concentrate wealth while the many are left with little or nothing. To use the obvious analogy, seeing a glutton stuffing herself with a vast tableful of delicacies while her guards keep starving people away and her minions sell the scraps would strike all but the most callous as horrible. However, replace the glutton with one of the 1% and some are willing to insist that the situation is fair and just.

As a final point, the 1% also need to worry about the inequality of distribution. The social order which keeps the 99% from simply slaughtering the 1% requires that enough of the 99% believe that the situation is working for them. This can be done, to a degree, by coercion (police and military force) and delusion (this is where Fox News comes in). However, coercion and delusion have their limits and society, like all things, has a breaking point. While the rich can often escape a collapse in one country by packing up and heading to another (as dictators occasionally do), until space travel is a viable option the 1% are still stuck on earth with everyone else. Which is one reason why the richest of the rich have been so interested in space ships.

A basic moral challenge is sorting out how people should be treated. This is often formulated in terms of obligations to others, and the usual question is “what, if anything, do we owe other people?” While some would like to exclude economics from ethics, the burden of proof rests on those claiming the realm of money deserves exemption from ethics. While this could be done, it will be assumed that economic matters fall under morality. But there are many approaches to morality.

While I use virtue theory as my personal ethics, I find aspects of Kant’s ethical theory appealing, so let us see what Kant’s theory might entail for economic justice. In terms of how we should treat others, Kant takes as foundational that “rational nature exists as an end in itself.”

Kant supports his view by asserting that “a man necessarily conceives his own existence as such” and this applies to all rational beings. A rational being sees itself as being an end, rather than a thing to be used as a means to an end.  In my own case, I see myself as a person who is an end and not as a thing that exists to serve the ends of others. But some other people might see me differently.

Of course, the fact that I see myself as an end would not seem to require that I extend this to other rational beings (that is, other people). After all, I could see myself as an end and regard others as means to my ends—to be used for my profit as, for example, underpaid workers.

However, Kant claims that I must regard other rational beings as ends as well. The reason is straightforward and is based on an appeal to consistency: if I am an end rather than a means because I am a rational being, then consistency requires I accept that other rational beings are ends. After all, if being a rational being makes me an end, it would do the same for others. Naturally, it could be argued that there is a relevant difference between myself and other rational beings that would warrant me treating them as means and not as ends. People have, obviously enough, long endeavored to justify treating other people as things. Slavery in America provides an example of this, as do many modern economic practices. However, there seems to be no principled way to insist on my own status as an end while denying the same to other rational beings. Which, one might suspect, is why some people wish to claim that other people are not rational beings. Or are otherwise inferior in some way that makes them suitable as means.

From his view of rational nature, Kant derives his practical imperative: “so act as to treat humanity, whether in thine own person or in that of any other, in every case as an end withal, never as means only.” This imperative does not mean that I must never treat a person as a means—that is allowed, provided I do not treat the person as a means only. So, for example, I would be morally forbidden from using people as mere means of revenue. I would, however, not be forbidden from having someone ring up my purchases at the grocery store—provided I treated the person as a person and not a mere means. One obvious challenge is sorting out what it is to treat a person as an end as opposed to just a means to an end. Some cases are obvious, such as enslaving another person. Other cases are more complex, such as hiring a person as a worker.

Many economic relationships seem to clearly violate Kant’s imperative in that they treat people as mere means and not at all as ends. To use an obvious example, if an employer treats her employees merely as means to profit and does not treat them as ends in themselves, then she is acting immorally by Kant’s standard. After all, being an employee does not rob a person of personhood.

One obvious reply is to question my starting assumption, namely that economics is not exempt from ethics. It could be argued that the relationship between employer and employee is purely economic and only economic considerations matter. That is, the workers are to be regarded as means to profit and treated in accord with this—even if doing so means treating them as things rather than people. The challenge is to show that the economic realm grants a special exemption to ethics. Of course, if it does this, then the exemption would be a general one. So, for example, people who decided to take money from the rich at gunpoint would be exempt from ethics as well. After all, if everyone is a means in economics, then the rich are just as much a means as employees and if economic coercion against people is acceptable, then so too is coercion via firearms. As always, the challenge the rich face in ethics is justifying their economic misdeeds while simultaneously condemning similar actions by the poor.

Another reply is to contend that might makes right. That is, the employer has the power and owes nothing to the employees beyond what they can force him to provide. This would make economics like the state of nature—where, as Hobbes said, “profit is the measure of right.” Of course, this leads to the same problem as the previous reply: if economics is a matter of might making right, then workers have the same right to use might against employers and the poor to use it against the rich.

Pundits and politicians on the right consistently demonize the poor. For example, Fox News seems to delight in a narrative of the wicked poor destroying America. It is worth considering why the poor are demonized.

One ironic foundation for this is religion. While Jesus regards the poor as blessed and warns of the dangers of idolatry, there is a version of Christianity that sees poverty as a sign of damnation and wealth as an indicator of salvation. As some have pointed out, this view is a perversion of Christianity. Not surprisingly, some people have been criticized by pundits for heeding what Jesus said.

Another reason is that demonizing the poor allows pundits and politicians to redirect anger so that the have-less are angry at the have-nots, rather than those who have almost everything. This is classic scapegoating: the wicked poor are blamed for many of the woes besetting America. The irony is that the poor and powerless are cast as a threat to the rich and powerful.

The approach taken towards the poor follows a classic model used throughout history that involves presenting two distinct narratives about the target of hatred The first is to create a narrative which presents them as subhuman, wicked, inferior and defective. In the case of the poor, the narrative is that they are stupid, lazy, drug-users, criminals, frauds, mockers and so on. This narrative is used to create contempt and hatred to dehumanize them. This makes it much easier to get people to think it is morally permissible (even laudable) to treat the poor poorly.

The second narrative is to cast the poor as incredibly dangerous. While they have been cast as inferior by the first narrative, the second presents them as a dire threat. The narrative is that the wicked poor are destroying America by being “takers” from the “makers.” One obvious challenge is crafting a plausible narrative in which the poor and seemingly powerless can somehow destroy the rich and powerful. One solution has been to claim that another group, such as the Democrats or the Jews as being both very powerful (thus able to destroy America) yet someone in service to the poor.

On the face of it, a little reflection should expose the absurdity of this narrative. The poor are obviously poor and lack power. After all, if they had power, they would not remain poor. As such, the idea that the poor and powerless have the power to destroy America is absurd. True, the poor could rise up in arms and engage in class warfare in the literal sense of the term—but that is not likely to happen. While the idea that the poor are being served by a wicked group, such as the Democrats, is advanced to “solved” this problem, the wicked group, must also be cast as being inferior to the “true” Americans—yet also a powerful threat. This creates another absurdity that its adherents must ignore.

At this point, one might bring up “bread and circuses”—the idea that the poor destroyed the Roman Empire by forcing the rulers to provide them with bread and circuses until the empire fell apart.

There are two obvious replies to this. The first is that even if Rome was wrecked by spending on bread and circuses, it was the leaders who decided to use that approach to appease the masses. If this narrative were true, it entails that the wealthy and powerful decided to bankrupt the state to stay in power by appeasing the many. Second, the poor who wanted bread and circuses were a symptom rather than the disease. It was not so much that the poor were destroying the empire, it was that the destruction of the empire that was increasing the number of poor people.

The same could be said about the United States: while the income gap in the United States is extreme and poverty is high, it is not the poor that that are causing the decline of America. Rather, poverty is the result of the decline of the United States. As such, demonizing the poor and blaming them for the woes is like blaming the fever for the disease.

Ironically, demonizing and blaming the poor serves to distract people away from the real causes of our woes, such as the deranged financial system, systematic inequality, a rigged market and a political system that is beholden to the 1%. It is, however, a testament to the power of rhetoric that so many seem to accept the absurd idea that the poor and powerless are somehow the victimizers rather than the victims of the rich and powerful.

One political narrative is the tale of the poor defrauding government programs. The (alleged) grifter Donald Trump, for example, claims that the poor commit a lot of fraud.  Fox News consistently claims, usually without evidence, that government programs aimed to help the poor are exploited by the poor. In most cases, the “evidence” presented in support of such claims seems to be that they feel that there must be a lot of fraud. However, there is little inclination to look for supporting evidence—if they feel strongly enough that a claim is true, that is good enough for them.

The claim that such aid is fraught  with fraud is often used to argue that it should be cut or even eliminated.  The idea is that the poor are “takers” who are fraudulently living off the “makers.” While fraud is wrong, it is important to consider some key questions.

The first question is this: what is the actual percentage of fraud that occurs in such programs? While, as noted above, some claim fraud is rampant, the statistical data tells another story.  In the case of unemployment insurance, the rate of fraud is estimated to be less than 2%. This is lower than the rate of fraud in the private sector. In the case of welfare, fraud is sometimes reported at being 20%-40% at the state level. However, the “fraud” seems to mostly errors by bureaucrats rather than fraud committed by the recipients. Naturally, an error rate so high is unacceptable—but is a different narrative than that of the wicked poor stealing from the taxpayers.

SNAP (Food stamp) fraud does occur—but it is mostly committed by businesses rather than the recipients.  While there is some fraud on the part of recipients, the best data indicates that such fraud accounts for about 1% of the payments. Given the rate of fraud in the private sector, that is exceptionally good.

Given this data, the overwhelming majority of those who receive assistance are not engaged in fraud. This is not to say that fraud should be ignored—in fact, it is the concern with fraud on the part of the recipients that has resulted in such low incidents of fraud. Interestingly, about one third of fraud involving government money involves not the poor, but defense contractors who account for about $100 billion in fraud per year. Medicare and Medicaid combined have about $100 billion in fraudulent expenditures per year. While there is also a narrative of the wicked poor in regards to Medicare and Medicaid, the fraud is usually perpetrated by the providers of health care rather than the recipients. As such, the focus on fraud should shift from the poor recipients of aid to defense contractors and to address Medicare/Medicaid issues. That is, it is not the wicked poor who are siphoning away money with fraud, it is the wicked wealthy who are stealing from the rest of us. As such the narrative of the poor defrauding the state is a flawed narrative. While it does happen, the overall level of fraud on the part of recipients seems to be less than 2%. Most of the fraud, contrary to the narrative, is committed by those who are not poor. While the existence of fraud does show a need to address that fraud, the narrative has cast the wrong people as villains.

While the idea of mass welfare cheating is unfounded, a good faith debate can be had as to whether people should receive support from the state. After all, even if most recipients are honestly following the rules and not engaged in fraud, there is still the question of whether the state should be providing welfare, food stamps, Medicare, Medicaid and similar such benefits. Of course, the narrative against helping citizens in need does lose much of its rhetorical power if you know the poor are not fraudsters. That dishonor goes to a wealthier class of people, which should be no surprise. After all, if the poor were engaged in the level of fraud attributed to them, they would no longer be poor.

While the American right favors tax cuts, the left sometimes proposes tax increases. One argument advanced by the right against increasing taxes is the demotivation argument. The gist of the argument is that if their taxes are increased, the rich will become demotivated and this will have negative consequences. Since these negative consequences should be avoided, the conclusion is that taxes should not be increased.

In assessing this reasoning, there are two major points of concern. One is whether a tax increase would destroy the motivation of the upper class. The other deals with the negative consequences, their nature, their likelihood of occurring and the extent and scope of the harm. I will begin with the alleged consequences.

The alleged consequences are many and varied. One is based on the claim that the top economic class includes the top innovators of society and if they are demotivated, then there will be less innovation. This could range from there being no new social media platforms to there being no new pharmaceuticals. While this is a point of concern, this assumes that innovation arrives primarily out of the top economic class—which can be tested. While some top earners are innovators, innovation also come from the lower economic classes—such the people doing research and engineering. The idea that the rich are the innovators does match the fiction of Ayn Rand but seems to miss the way research and development usually occurs.

Another alleged consequence rests on the claim that the upper class serves as the investors who provide the capital that enables the economy to function. Since they control the capital, this is a reasonable concern. If Americans with the most money decided to reduce or stop investing, then the investment economy would need to rely on foreign capital or what could be provided by the lower classes. Since the lower classes have far less money (by definition), they would not be able to provide the funds. There are, of course, foreign investors who would happily take the place of the wealthy Americans, so the investment economy would probably still roll along. Especially since American investors might find the idea of losing out to foreign investors sufficient motivation to overcome the demotivation of a tax increase.

There is also the claim that the upper class contains the people who do the important things, like brain surgery and creating the new bubble that will be the destroy the world economy next time around. While this has some appeal, much of the important stuff is done by people who are not in the upper class. Again, the idea that the economic elite are doing all the really important stuff while the rest of  us are takers rather than makers is yet another Randian fantasy.

Fairness does, however, require that these concerns be properly investigated. If it can be shown that the upper class is as critical as its defenders claim, then my assertions can be refuted. Of course, it worth considering that much of the alleged importance of the upper class arises from the fact that it has a disproportionate share of the wealth and that it would be far less important if the distribution were not so grotesquely imbalanced. As such, a tax increase could decrease the importance of the economic elites. I will now turn to the matter of whether a tax increase would demotivate the rich.

An easy and obvious response to the claim that a relatively small tax increase would demotivate the rich is that the rest of us work jobs, innovate, invest and do important things for vastly less money than those at the top. Even if the rich paid slightly more taxes, their incomes would still vastly exceed ours. And if we can find the motivation to keep going despite our low incomes, then the rich can also do so. When I worked at a minimum wage job, I was motivated to go to work. When I was an adjunct making $16,000 a year, I was still motivated to go to work. Now that I am a professor, I am still motivated to go to work.

It could be replied that those of us in the lower classes are motivated because we need the income to survive. We need to work to buy food, medicine, shelter and so on. Those who are so well off that they do not need to work to survive, it could be claimed, also have the luxury of being demotivated by an increase in their taxes. Whereas someone who must earn her daily bread at a crushing minimum wage (or less) job must get up and go to work, the elite can allow themselves to be broken by a slight tax increase and decide to stop investing, stop innovating, and stop doing important stuff.

One reply is that it seems unlikely that the rich would be broken by a tax increase. Naturally, a crushing increase would be a different story—but the American left does not seriously suggest imposing truly crushing tax burdens on the rich. After all, crushing burdens are for the poor. Another reply is that if the current rich become demotivated and give up, there are many who would be happy to take their place—even if it means paying slightly higher taxes on a vastly increased income. So, we would just get some new rich folks to replace the demotivated slackers. The invisible hand of the market to the rescue again.

 

The avoidance argument against increasing taxes on the rich is that doing so is pointless because they will find ways to nullify the increase. They might use established methods or develop new ones, but (the argument goes) they will manage to avoid paying more taxes. Therefore, there is no point in wasting time trying to make them pay more.

This argument has a certain appeal in that there is little sense doing ineffectual things. As such, it would seem reasonable to leave things as they are, since this change would do just that—only at the cost of enacting ineffective legislation.

Despite this appeal, there are two factual issues that need to be addressed. The first is the issue of whether the rich would try to avoid a tax increase. Some of the wealthy have at least claimed to favor higher tax rates, so they might accept the increase. However, most people (be they rich or not) generally prefer not to pay more taxes. There is also the fact that many of the rich already do all they can to minimize their tax burden. There is no reason to think that a tax increase would change this behavior. As such, it is reasonable to infer that most of the rich would try to minimize the impact of any tax increase.

The second factual issue is whether the rich would be able to nullify a tax increase and to what degree. One approach is to consider that if the rich are concerned about a tax increase, then this indicates that it would affect them. After all, people generally do not worry about things they believe will not affect them.

A reasonable counter is that while the rich will be affected by the tax increase, their concern is not that they will be paying more taxes, but that avoiding the increase will come with a cost. For example, they might have to pay lawyers or accountants more to enable them to neutralize the increase.  Or they might need to lobby or “donate” to politicians. It makes sense that the rich would be willing to expend resources to mitigate any tax increase. As if the expenditure would be lower than what paying the increase would cost them, then this approach could be rational. It could even be claimed that some might be willing to pay more to avoid the taxes than the taxes would cost them, perhaps as a matter of principle. While this sounds odd, it is not inconceivable.

Another approach is to consider how effectively the rich avoid existing taxes. Even if they are somewhat effective at doing so, the increase could still impact them and thus generate more tax revenue (which is the point of a tax increase). As such, an increase could be effective in regard to the stated goal of increasing revenue.

In addition to the factual issues, there is also the issue of whether the principle that underlies this argument is a good principle. The principle is that if people will be able to avoid a law (or policy), then the law should not be passed.

This principle does have a pragmatic appeal: it seems irrational to waste time and resources creating laws  that will simply be avoided. This sort of avoidance argument is also used against proposed bills aimed at gun control. Interestingly, most who use the avoidance argument against gun control do not accept this same argument about abortion laws or drug laws. This is as should be expected: people tend to operate based on preferences rather than on consistent application of principles.

One possible response is that if a law is worth having, then steps should be taken to ensure that people cannot just avoid it. If some people can get away with murder, then the morally right reaction would not be to give up on the law. The correct reaction would be to ensure that they could not get away with murder. Naturally, it can be argued that the tax increase would not be a law worth having—but that is a different argument from the avoidance argument.

A second possible response is to reject the consequentialist approach and argue that the fact that people will be able to avoid a law is not as important as the issue of whether the law is right. Some people take this approach to drug laws: they accept that the laws are ineffective, but contend that since drug use is immoral, it should remain illegal. As always, consistency is important in these matters: if the principle that moral concerns trump the pragmatic concerns is embraced, then that principle needs to be applied consistently in all relevantly similar cases. If the principle that the pragmatic should trump the moral is accepted, then that needs to be applied consistently as well. While the issue of whether such a tax increase is morally right or not is important, my concern here is with the avoidance argument. But, if the tax increase is not the right thing to do and the rich would just avoid it, then imposing it would be both wrong and a poor  pragmatic choice.

One way to argue against increasing taxes (or having any taxes at all) is to contend that to increase the taxes of the wealthy against their wishes would be coercion. There are more hyperbolic ways to make this sort of argument, such as asserting that taxes are robbery by the state. However, I will use a more neutral definition of “coercion.” While “coercion” has a negative connotation, those of “theft” and “robbery” are even more negative.

If coercion is always morally wrong, then coercing the wealthy into paying more taxes would be wrong. As such, a key issue is whether coercion is always wrong. On the face of it, the morality of an act of coercion would depend on many factors, such as the goal and nature of the coercive act and the parties involved. An important factor is whether the coerced consented to the system of coercion. For example, it can be argued that criminals consented to the use of coercive force against them by being citizens of the state and so they (in general) cannot claim they are being wronged when they are arrested and punished for crimes they committed.

It could be claimed that by remaining citizens of the United States and participating in a democratic political system, the rich consent to the decisions made by the legitimate authorities of the state. So, in the unlikely event that Congress increases the taxes of the rich, then the rich are obligated to go along. They might not like the decision, but that is how a democratic system (supposedly) works. The state is supposed to use its coercive power to ensure that the laws are followed—be they laws against murder, laws against infringing the patents of pharmaceutical companies or laws increasing the tax rate.

A reasonable response to this is that although the citizens of the state have agreed to be subject to the coercive power of the state, there are moral limits on the power. Returning to the example of the police, there are moral limits on what sort of coercion they should use—even when the law and common practice might allow them to exceed them. Returning to the matter of laws, there are clearly unjust laws. As such, agreeing to be part of a coercive system does not entail that all the coercive actions of that system or its laws are morally acceptable. Given this, it could be claimed that the state coercing the rich into paying more taxes might be wrong.

It could be countered that if the taxes on the rich are increased, this would be after the state and the rich have negotiated the taxes. The rich have organizations, such as corporations, that enable them to present a unified front to the state. One might even say that these are unions of the wealthy. The rich can also pay lobbyists to negotiate with the people in the government and, of course, the rich also have the usual ability of any citizen to negotiate with the government.

If the rich fare poorly in their negotiations, perhaps because those making the decisions do not place enough value on what the rich have to offer, then the rich must accept this result until they have the chance to change the law. After all, that is how the free market of democratic politics is supposed to work. If the rich do not like the results, they should have brought more to the table or been better at negotiating. They can also find another country—and some do just that. Or create or take over their own state.

It could be objected that negotiations between the state and the rich will be unfair for the rich. While the rich can have great power, the state (probably still) has greater power. After all, the United States has trillions of dollars, police, and the military. This imbalance of power makes it impossible for the rich to fairly negotiate with the state—unless there are rules and regulations governing how the rich can be treated by the greater power of the state. There could be, for example, rules about how much the state should be able to tax the rich and these rules should be based on a rational analysis of the facts. This would allow a fair maximum tax to be set that would allow the rich to be treated justly.

The relation between a state intent on maximizing tax income and the rich can be seen as analogous to the relation between employees and businesses intent on maximizing profits. If it is acceptable for the wealthy to organize corporations to negotiate with the more powerful state, then it is also be acceptable for employees to organize unions to negotiate with the more powerful corporations. While the merits of individual corporations and unions can be debated endlessly, the basic principle of organizing to negotiate with others is essentially the same for both and if one is acceptable, so is the other.  Unions are the corporations of the poor and corporations are the unions of the rich.

Continuing the analogy, if it is accepted that the state’s freedom to impose taxes should be limited, then it would also be reasonable to think that there should be limits, regulations and restrictions on the economic freedom of employers in regards to how they treat employees. After all, employees are almost always in the weaker position and thus usually negotiate at a marked disadvantage. While workers, like the rich, could try to find another job, create their own business or go to another land, the options of most workers are far more limited.

To use a specific example, if it is morally right to set a rational limit to the maximum tax for the rich, it is also morally right to set a rational limit on the minimum wage that an employee can be paid. Naturally, there can be a wide range of complexities in regard to both the taxes and the wages, but the basic principle is the same in both cases: the more powerful should be limited in their economic impositions on the less powerful. There is also the shared principle of how much a person has a right to, be it the money they keep or the money they are paid for work.

Like any argument by analogy, this can be challenged by showing the relevant similarities between the analogues are outweighed by the relevant dissimilarities. There are various ways this could be done.

One obvious difference is that when the state imposes taxes on the rich, the state is using political coercion. In the case of the employer imposing on the employee, the coercion is economic (although some employers do have the ability to get the state to use its coercive powers in their favor). It could be argued that this difference is strong enough to break the analogy and show that although the state should be limited in its imposition on the rich, employers should have great freedom to employ their economic coercion against employees. The challenge is showing how political coercion is morally different from economic coercion in a way that breaks the analogy.

Another obvious difference is that the state is imposing taxes on the rich while the employer is not taxing their employees. The employer is setting their wages, benefits, vacation time, work conditions and so on.  So, while the state can reduce the money of the rich by taxing them, it could be argued that this is relevantly different from an employer reducing the money of employees by paying low wages. As such, it could be argued that this difference is sufficient to break the analogy.

As a final point, it could be argued that the rich differ from employees in ways that break the analogy. For example, it could be argued that since the rich are of a better economic class than employees, they are entitled to better treatment, even if they happen to be unable to negotiate for that better treatment. The challenge is, of course, to show that the rich being rich entitles them to a better class of treatment.