The New Tax Collectors for the Welfare State

Reihan Salam’s got a brief post at NR, Social Injustice Between Those With and Without Children, that’s worth a little discussion.  It’s a theme pursued by Robert Stein in National Affairs (Taxes and the Family), and also on occasion by Ramesh Ponnuru too with regards to the child tax credit, for example here.

It goes a long way towards showing the depths to which modern ‘conservatism’ has plunged.  What with all this discussion about social justice and fairness regarding who ought to properly get the juicy tax credits or bear the burden of paying for the unquestionably-proper welfare system.  Talk about adopting the assumptions of the opposition and then using the progressive dictionary to whine about it.  Jesus; it’s pathetic.  Eastern European emigre commentators of a certain age, is this what ‘debates’ sounded like under Brezhnev?

But before I get into all that, a few preliminary thoughts.

A good measure of the strength or weakness of any particular culture is the degree of effort to which the government must go to incentivize classical pro-social behaviors or likewise to discourage anti-social behaviors.

Some places really are (or were) like Mayberry, and only need a single, gentle sheriff and a goofy deputy who, to keep law and order, only need to occasionally let the town drunk sober up overnight in a jail cell and let himself out in the morning.  Other places need legions of SWAT teams to barely maintain civilization.  A lot of people blame the government, which is partly correct, but they do it the wrong way.  They should point their fingers first at, “The People” themselves that require such extreme policing.  And only then might they finger the government for letting “The People” get that way, especially if they weren’t always like that, or not even recently that way.

This is especially evident in those extreme or emergency circumstances when the government is unable to respond and the people affected are left to their own devices and must, for some time, fend for themselves.  Sometimes you see despicable chaos, as with Katrina in 2005.  And sometimes you see admirable cooperation and mutual assistance, as with the Tōhoku tsunami of 2011.

Where would you rather live when disaster strikes?  Or perhaps the question is, “Amongst whom?”  Or more to the point, “What does it take to get a particular set of people to behave in the way you’d like them to?” Imagine that someone announced, “There will be no government on this block for two weeks.”  Think of the block where you live and imagine what would happen.  Now think of some other, rougher, blocks in your city, or your country, or in places to which you’ve traveled.  Your mind will fill in the gaps.

It turns out spontaneous order isn’t actually spontaneous at all and relies upon a massive amount of pre-existing social capital built up from years of constantly reinforced socialization and acculturation activity (which can be assisted through institutions of religion and education), and which is probably augmented by some biological predispositions (though don’t ever say that!)

In other words, it’s trust deriving from the long experience of reciprocal trustworthiness, and a reliable, indoctrinated desire to help out one’s compatriots.  Or at least those who one finds it easy to perceive as ‘repricolly trustworthy compatriots’.  Birds of a feather tend to flock together when it hits the fan.  A wise and rational government would thus take care to create the conditions where it requires the least active effort to build and conserve such high amounts of social capital, but ‘An nescis, mi fili, quantilla prudentia mundus regatur?

Of course the scale of a culture can be large or small.   We can draw an analogy to corporate, organizational, or institutional cultures and ask abstractly about the management and leadership of personnel.

For example, it is the lucky military officer who is assigned to command a unit where the soldiers already function as a solid, cohesive team and who require only a few and small carrots and sticks to accomplish the unit’s mission and do the right thing when no one is looking.  His job is mostly not to mess with the magic, provide clear guidance, fully resource his Joes, and resist calls from higher that might break up the band.

But it is the extraordinary commander who can take a random group of new recruits without prior relationships or any natural tendency to coalesce and turn them into this sort of team.  If you’ve ever seen it happen, you never forget what that’s like, and what is takes.  It takes a lot of effort on the part of the leadership.

But as usual, the people who do it well make it look effortless, and so a naively optimistic observer can easily be misled into thinking it’s just ‘natural’, or ‘automatic’, or due to ‘the system’.  Hardly.  It takes work and accurate understanding of human realities (some, alas, taboo) to turn a mere band into brothers.

The same applies to the government example.  What appears to be the spontaneous orderliness that Libertarians merely assume will happen for everyone, everywhere – or what Alain de Benoist might call the ‘traditional organic communities’ of Europe and Asia, is something that derives from circumstances in which perpetuation of the social-capital-maintenance functions themselves have become part of the community’s reflexive pattern.

Indeed, prior to the emergence of the capabilities of modern governments, how could civilization emerge and sustain itself otherwise except by a kind of evolution of these successful patterns?  But when reckless tinkerers mess with that self-propagating pattern and tradition, and fail to replace it with adequate consciously-directed substitutes, they are asking for trouble.

Our substitutes for socially-encouraged motivations in these multi-culturalist and post-religious days involve the government issuing petty rewards and harsh punishments to its subjects, but we are discovering them to be awfully inadequate substitutes for having an actual culture, and worse, when people get used to them, you can’t get rid of them.

Why should men love the Church? Why should they love her laws?
She tells them of Life and Death, and of all that they would forget.
She is tender where they would be hard, and hard where they like to be soft.
She tells them of Evil and Sin, and other unpleasant facts.
They constantly try to escape
From the darkness outside and within
By dreaming of systems so perfect that no one will need to be good.
But the man that is will shadow
The man that pretends to be.

—T. S. Eliot, “Choruses from ‘The Rock’”

There is also an analogy to parenting.  Some children are born good and require little attention (get down on your knees if you have even one of these.)  Some are just bad seeds and there’s little you can do besides not spare the rod (I feel for their poor parents.)  But most children are at least a little malleable in the direction of character amelioration, and, as above, the wise parent tries to mold his child so that he wants to do the things that good for him, and wants to avoid the things that are bad for him, due to his own internal motivation and without direct supervision.

One occasionally reads about new ‘market-style intervention policies’ to encourage … certain … kids to do the kind of things that successful kids do.  So, maybe the government can pay them in cash or in kind to actually go to school and do their homework.  This is a kind of typical putting the cart before the horse policy logic.  “Middle class people own houses, so if we help poor people own houses by lowering standards, they will become middle class.” or “Middle class people went to college, so if we help less talented people go to college by lowering standards, they will become middle class.”

But in addition to getting the causation direction wrong, these kinds of incentives are pernicious and corrupting of individuals in general, but most especially of the special ones – the ones you really want to identify and encourage – who would have done these things for no immediate reward.

It’s a kind of parenting failure to raise such an ordinary child such that only the most extreme rewards and punishments are capable of motivating the kinds of behavior he’ll need the discipline to be able to summon on his own in order to succeed in life.  The problem with some Tiger Mothers is that some children can indeed be coerced into elite performance, but the second the parent is out of the picture the child flounders in indolence.  The best parenting is that which achieves just as much success but also eliminates the need for more parenting.

So now we come to the subject of the article linked above.

The fundamental financial problem of ‘Blue Model’ modern progressive governments the world over is a lack of long-term fiscal solvency.  It turns out that in a Democracy it is fairly easy for politicians to win elections in the short-term by over-promising current votes (or donors) future benefits like health care and pensions.  The presumption is that the taxes to pay for those benefits will be paid by future taxpayers who either aren’t voting today, or who aren’t thinking that they’ll be the ones that will have to pay the piper tomorrow.

These promises are part of the actual liabilities of the sovereign but are very rarely accounted for formally as part of the national debt.  Occasionally the mechanism of a publicly-held ‘trust fund’ is used to formalize some of these debts, but the trusts are not designed to automatically adjust their size to perpetually finance their expected cash outflows, so they underestimate the overall liability, sometimes perversely so.

For example, the disability trust-fun’s liabilities and outflows are as large as ever, but the fund itself is shrinking rapidly and is poised to run dry in about two years or so.  The only fund I know of which is an exception and actually on track towards formalizing all of its liabilities (following Reagan’s policy) is the Military Retirement Fund, which will become ‘solvent’ under non-government (i.e. accurate) pension accounting rules in about another 15 years.

People often refer to these models as ‘Ponzi Schemes’ but that’s not exactly correct.  In fact they are ‘Madoff Schemes’.

The difference is that, in typical usage, a Ponzi scheme is a pyramid scheme designed in a way that high-return disbursements can only be paid out to early ‘investors’ by getting increasingly large amounts of new ‘investment’ to pay them with.  The model is inherently unsustainable and the pyramid will inevitably collapse as soon as the rate of new-fool recruiting falls below the promised rate of return.

A Madoff Scheme, on the other hand, only relies on a Ponzi scheme as one of several contingency fall-backs.  Madoff actually did run an investment fund for a time, and he actually did make enough capital gain to satisfy his obligations.  But then his fund started to fall short of expected gains.  To cover this up, be started to pay people out of their own savings, calling it ‘interest’ instead of ‘returned principal’ and pretended he had preserved their original investment.  And then he also used reputational social-engineering to get his clients to recommend him to new customers – a more classic Ponzi tactic.

So, in the past, what has kept the governmental insolvency Detroitapocalypse perpetually one step away was mostly reasonable health-care costs, productivity enhancements from technological progress, and a naturally expanding population.  The baby boomers were in their peak-earning years and providing for a relatively few, poor old-timers.  Whatever their original wisdom or lack therefore, it remained true that the burden of reasonable past promises could be borne, without too much difficulty, on many more young, strong, richer backs.

But today things are different.  Health care costs a fortune.  The baby boomers are retiring, and they didn’t have many children.  Productivity is stagnating.  And the promises that were made were occasionally beyond reasonable and, if you happen to be in a favored class, exceptionally generous.

Now, governments can play accounting tricks about the future all day long and it’s a game of musical chairs where, for every chair that disappears, technological progress delivers another one, and everyone can keep the dance going.  But what they can’t do is play tricks with cash flows in the present, and when there are more hands than hand-outs, somethings got to give.

Over seven years ago, Steve Sailer came up with the clever quip, “Invade the World, Invite the World, In Hock to the World”.

But when democracy-insolvency looms, sovereign governments look to the “Innovate, Inflate, Immigrate, Procreate” tetrad.

‘Innovate’ is what keeps a Madoff scheme going cleanly.  It’s like getting a high-return on your investment of your clients’ money so you don’t have to rely on playing dirty tricks.  But governments, much as they love to take credit for it, are only loosely responsible, if at all, for innovation.  Furthermore, there is very little they can do about it in the short term if productivity gains stagnate and fall short of expectations baked into the Madoff scheme.

And finally, a lot of the innovation happening these days utilizes scalable information technology and automation platforms, and is thus capital-intensive, and labor-conserving (when they are not positively attempting high-cost labor-replacement) to a historically unprecedented degree.  Some new companies can serve billions daily with a core staff only in the hundreds.

The point is that ‘Innovate’ is, even with the most generous assumptions, a result of long-term strategic policies, and is not really in the ‘fix the insolvency now!’ government toolkit.  And that the innovation we are getting, because of its very nature, is not producing enough new high-revenue taxpayers in the short term (and may even be decreasing them).  So we move on to the actionable triad, “Inflate, Immigrate, Procreate.”

The problem with ‘Inflate’ is that, while it may appear that most of the national debt is held in nominal instruments, in fact most of the social promises the government has made are defined in real terms with either obligations to adjust nominal flows upwards with the price level, or provide real goods services – like food or health care.  Real promises neutralize the ability to play nominal games, though there will likely be a period of transfer from nominal-creditors to real-creditors when the crunch arrives.

‘Immigrate’ has, of course, been the favorite ‘easy fix to keep the wreck afloat’ hope of our current elites for two generations, but 1. It’s not a socially costless strategy if the immigrants are so alien as to be borderline incompatible and non-integrable, and 2. It turns out that not all immigrants are all that great at paying lots of taxes.

Now, some immigrants do this.  It helps if you are a brain-drainer (like the US, for the moment), and not a brain-drainee (like Greece).  Though it doesn’t much help the labor market for the native-born brains.  But by numbers most immigrants these days are low skill and pay little if any taxes and are expected to consume large amounts of public services when they get old.  That would require another, even larger wave of future immigration with which to provide ’em, and so proceed ad infinitum.  Not exactly a sustainable strategy either.

So finally we come to Procreate.  But darn it, for various and complex reasons people just aren’t procreating like they used to (not enough to stave off insolvency for much longer, anyway), and combined with the massive obligations of Blue Model governments this presents a kind of unprecedented dilemma in human history.

Now, if you were to travel to the past and tell them one of the big global policy problems of your day was how to convince people to have children, especially successful wealthy ones who would have no trouble feeding them, then I’m sure they would give you a very puzzled expression.  I’m not sure what that expression would turn into if you added that the reason you wanted more children was really only for more taxes – because you had already made promises that would tax the existing children to political capacity – but it wouldn’t be prettier.

They might, however, conclude that the reasons people have children, and the corollary intensity of motivation to have them, must have undergone a profound cultural change between their age and our own.  And, of course, they would be right.

They might tell us that they wanted to have lots of children, and they were perfectly willing to bear the financial burden of raising them, and without anyone from the government having to encourage them to do so.

They might suggest that we just try and get their culture back to solve our ‘problem’.  But, alas, we can’t.  And, probably, we wouldn’t even if we could.  The Blue Model worked for a while because, in part, it got to free ride off the last remnants of a cultural inheritance it helped to obliterate.

So, now that we’ve officially abandoned the culture strategy, what else do we have left to us but the prospect of handing out little, petty bribes?  Now that we look at children as little more than private financial burdens in the present and public financial contributors in the future, why shouldn’t one complain about the fairness of having to pay to raise one’s own god-damn keedz when they’ll be paying for someone else’s hip replacement, even though they didn’t have children, and they got to enjoy the pleasure of all that extra consumption of extra income?  Don’t you see all the harmony and solidarity bred by Socialist Utopia?  Now that I’ve done my patriotic duty and had a ‘Child for Socialism’ where’s my ‘fully refundable tax credit’ as compensation?  It’s only fair social justice, after all.

Remember people, it’s the ‘conservatives’ talking like this.

And even on their own terms, they’re not even doing it right.

Because even if you look at a policy encouraging more procreation in the crudest way possible – purely in terms of your capacity to extract future taxes from the extra marginal baby – then you would notice that some children turn out to be tax-payers while others turn out to be tax-eaters.  You’d like to have more of the former, but you’d very much like to avoid the latter.

And so you would try and discover what mysterious properties characterized the children most likely to become the most productive adult taxpayers, see if they were at all heritable, and then you would utilize those criteria to be selective with regards to who was eligible to receive your little baby bribes.

You would also try to find the right set of prices that yielded the best expected benefit.  So, perhaps some people got $500 a year to raise a child.  But maybe the ultra-productive power-couple gets $30K.   Maybe households get -3% income tax reduction per child dependent.

But we can’t do that.  Because equality, or something, and anyway, bribes are not like culture.  Who, after all, is really responsive to these little bribes?  First, outside the lowest tiers of our society (low, but large, and growing) I find it difficult to believe that the prospect of a relatively small refundable tax credit enters much into people’s calculations as to whether to have children.  Even Handle, who makes NPV-given-the-latest-updates-to-the-tax-code spreadsheets for everything, did not use this technique to help him decide when and whether to have certain numbers of children.  Well … ok, it’s wasn’t the only thing.

On the other hand, Reagan introduced the term welfare queen to the political lexicon back in the 70’s, and for good reason.  Because, as incomprehensible it may seem to middle-and-upper class SWPL’s, underclass single women actually were having multiple out-of-wedlock children for the paltry welfare checks.

And since, as Steve Sailer has pointed out, a lot of low-skill, illegally undocumented immigrants from Mexico come to the US to have kids, not just because of birthright citizenship, but also because they can’t afford to have the kids they want in Mexico.  If they get amnesty, or even just access to this program, then they’ll use it.

Finally, let us remember that someone has to pay for all these tax credits.  If the typical marginal receiver is going to be a low-skill worker, then the typical marginal contributor is going to be the high-skill earner, in the form of higher taxes, that, if you assume money matters, are going to be that much more marginally discouraged from having more kids.

So, it’s pretty easy to predict exactly which kind of baby boom this strategy is going to produce, which is not the one that is going to keep the Blue Model going another generation, though it will probably keep the Blues in power even as they file for government bankruptcy.

But let’s say your answer to the traditionalists who plead, “We want our culture back!” is, “Maybe one day, but, alas, you can’t have it anytime soon”.  Do we have alternatives?

No – none that are egalitarian or mild.  You could embrace the future Downton-Abbey Diamond Age and do radical things like make every top 10% ‘Vickie’ woman (assumed to mate assortatively) a kind of modern lady-of-the-manor aristocrat and give her a publicly-paid low-skill governess for each child she has.  This would allow her to continue to pursue her career, and, don’t forget, pay taxes!

I’m sure you’ll provide some stimulating suggestions of your own in the comments thread.  But the point remains that you can’t build a new level on your house of a society which depends on the sturdiest of substructures, while simultaneously eroding the foundation upon which it stands.

That cultural foundation is what a ‘Conservative’ is supposed to be conserving.  If all he is ‘conserving’ is what’s only recently become familiar and relied-upon in the last 20 years, then he’s just conserving yesterday’s progressivism.  If, furthermore, he’s conserving that progressivism with more progressive tricks from the progressivism playbook, then perhaps its time to wake up and realize that mainstream elite ‘conservatism’ is dead and/or a parody of its former self, and it’s simply time to move on and look elsewhere for answers.

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11 Responses to The New Tax Collectors for the Welfare State

  1. peppermint says:

    The raison d’etre of conservatism collapsed after 2000. Back then, no one would have thought to advocate for a healthcare law on the grounds that it makes fornication easier, at least not out loud.

    I don’t know what to do as an individual, and I don’t know what the country can do. Meanwhile, my friends are all advocating for the rights of men who claim to be women to enter women-only spaces (transgenders), or for the rights of men to marry multiple women or women to marry multiple betas (polyamory). However, they still say that that’s not what the transgender and polyamory struggles are about.

    Meanwhile, upper class women run around topless and claim to be wanting to make toplessness not sexualized. If they succeed, only upper class women’s bodies will be sexualized, and ‘slut’ will go back to meaning any lower class woman, regardless of behavior.

  2. Why not come out and state the obvious? European Americans built this country, maintained this country, and made it the best country in the world. A country is only as good as the people that inhabit it. Baby Boomers took what their ancestors built and destroyed it, listening to the mad ranting of the ‘progressive/leftist/Marxist’ crowd. These lowly snakes convinced these self-loathing idiot Kwans that “White people are bad, ‘racism’ is bad, patriotism is bad, conservatism is bad, capitalism is bad, your parents are bad, YOU’RE bad, and the United States is bad; drugs, promiscuity, feminism, atheism, ‘multicultural socialism’, and other ‘isms’ are good.” What happens when the White taxpayers die out? Haiti. South Africa. Zimbabwe. etc.

  3. jult52 says:

    I have no answers but want to thank you for a succinct & brilliant post. This may be the Dark Enlightenment’s central post and you have written it.

  4. Pingback: Lightning Round – 2013/11/20 | Free Northerner

  5. Anthony says:

    One can limit the problem of real (not nominal) promises by lying about the inflation rate http://shadowstats.com/ (Excuse me. I meant to say “make technical adjustments to how inflation is measured.”)

    But even that isn’t enough, sometimes.

    • Handle says:

      I think you mean ‘nominal (not real)’ If you promise someone a hip replacement (a real promise, like the USG makes with Medicare), then if you don’t deliver a hip replacement, no matter how much it costs in current nominal dollars, you are in default. Inflation wont help you there, no matter how you measure it.

      I will say, however, that inflation is a tricky concept to define and measure, and because consumer preferences are highly heterogeneous when lots of people are far above the lower-rungs of Maslow’s hierarchy, it’s not something you can define without a lot of controversy and confusion.

      Everyone has their own personal consumption expenditure profile (and a bunch of unseen consumer surpluses), and unless all economic ratios and behaviors stay constant it’s not clear how to get a clean, new, universal price level out of the mess of data. Anyway, it’s impossible for the ratios to stay constant because a large asset class in long-term, fixed-interest nominal debts which cannot be adjusted for unexpected changes in inflation, so there is bound to be behavioral shifts (indeed, the Fed counts these shifts).

      Personally, I think shadowstats grossly exaggerates the inflation rate. Their cumulative price-level rise is about 60% higher than PCE-LFE-Chained over the past 10 years. As one data point, and as it happens, I purchased a nice new car about ten years ago, and when I check the price of as comparable a car as one can get today, I see it’s gone up in price less than 10%.

      A car is an ok proxy because it has many various commodity and labor inputs, quality is expected to improve slightly over time, and it’s one of those things after housing that people spend a good portion of their cash flow consuming. That kind of price rise is in the PCE-index ballpark. The Shadowstats figure means that the price of nice new cars have deflated significantly compared to everything else, especially wages – just like computing power. I just don’t see real-world evidence showing that’s true at all.

      • Anthony says:

        I was thinking more of indexed cash promises – Social Security, pensions linked to final salaries, etc. – those are more “real” than “nominal”, but are subject to manipulation.

        In the absence of an increase in the money supply, the prices of everything should slowly fall, as people (and companies) become more productive over time, and the existing stock of durable goods continues to expand. The areas where prices have risen the fastest are in big-blue-city housing, financial securities, highly-skilled labor, and medical care. Housing and securities are logical places for this to happen as the way we increase the money supply, the new money flows towards those assets first. The housing bubble has seen some incredible destruction of nominal value, but if you look at housing prices from 1997 compared to today, house prices in big cities (Case-Shiller 10-city) are twice as high now, and the DJIA 2.5x as high, while overall CPI is only up 40ish%. So by limiting the impact of housing and securities (which many people “buy” in the form of pension funds, 401ks, and IRAs) on the CPI, actual inflation is under-reported, as real (relative to services, housing, and securities) deflation of consumer goods is over-represented.

        • Handle says:

          Ah, I see what you mean with ‘indexed’ benefits. But index-manipulation can go both ways too.

          I don’t agree with this: “In the absence of an increase in the money supply, the prices of everything should slowly fall, as people (and companies) become more productive over time, and the existing stock of durable goods continues to expand.”

          It depends on the relative scarcity of inputs, both inherently and with time. Land supply is inelastic. Fossil energy (especially the cheap and easily accessible kind) is depletable. After all, I’ve noticed a pretty steep increase in the percentage of my income I devote to fossil energy over the years – production-enhancing innovations such as fracking and tar sands boiling are the result of the high prices from limited supply, not the cause of lower prices from higher supply.

          Disasters or geo-economic rivalries can cut off access to rare and essential commodities. Human intellect, a necessary component of some high-productivity functions, can become more or less scarce.

          Also, ‘depreciation’ is a fuzzy concept. An old unix server can function for decades, so it technically adds to the durable capital stock, but its obsolescence rate is extremely rapid. A good stone building can stand for decades, but if it’s located in Detroit it’s now less than worthless. Writing down scrap capital is something we often fail to account for well.

          One of my own hobbies is to try and research the trends associated with “Quality Urban Neighborhoods” with “Good Schools, Good Safety, Good Neighbors”. The preponderance of Quality Urban (or near-urban) Neighborhoods have shrunk dramatically in supply and thus increased similarly in price.

  6. Scharlach says:

    Hi, Handle. I’d like to include this post in the NR/DE journal I’m putting together. If you’d like it included, please send me a short note and, if you can, a short and anonymous bio: scharlach1 at hushmail com. Thanks!

  7. Dan says:

    Extended paid maternity leave is good. The benefit acrues particularly to the middle class and not the unproductive. The Scandinavian countries do this I think and it seems to help.

    Distance learning and shorter college programs should help women do college and kids.

  8. Pingback: Not-So-Random Thoughts (IX) | POLITICS & PROSPERITY

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