A Defense of Government

This is a summarization of an essay by my girlfriend.

According to the market model of society the efficient distribution of products and services is attained through the direct exchange between and response of self-interest driven individuals. Since individuals seek to maximize returns and minimize costs, exchanges occur only when mutually beneficial; therefore, the market inherently optimizes the societal good. For this to work, several conditions must be met: individuals must act independently and only try to maximize their own utility; there must be perfect information about, competition for, and free movement of goods; and all the costs and benefits must be known and contained to the exchange. There are situations where not all of these conditions are met, which prevents the market from working efficiently.

One such example is that of public goods, which breaks the condition of perfect competition. Public goods are things that no one can be excluded from, such as water quality or national defense. Since no one can be excluded from using it, there is no way for providers to get a return on its production, even if there is a demand for it so the demand will not be met. The government can correct this inefficiency by using taxes to provide the good.

Another example is when an exchange produces externalities, which are when costs or benefits affect other uninvolved parties. An example of a positive externality is vaccination, where even the unvaccinated are protected from disease by herd immunity. An example of a negative externality is pollution, where poor water and air quality affect everyone, not just the ones who make the pollution. Since the decision makers involved do not bear all the costs and benefits, they are not taken into account, and the market either produces too much of something (in the case of negative externalities) or too little (in the case of positive externalities). The government can create regulations which can impose a cost or benefit to internalize the externalities. For example, a tax can be imposed on polluters, or vaccinations can be subsidized.

Another case where there is not adequate competition is for natural monopolies, when goods are produced most efficiently by a single supplier. This gives an advantage to the first or largest supplier and with insufficient competition, the monopoly can charge more than the good is worth. The government can step in by running the monopoly as a public utility or by regulating the price, quality and quantity of the good.

An efficient market requires everyone have perfect knowledge of their potential options. There are many situations where the participants involved do not have accurate or equal amounts of information. There is usually some cost in obtaining information, and information can be deliberately withheld. The government can reduce the cost of information by funding research, and can reduce information asymmetries by making information public.

Even in a perfectly efficient economy, some people will be unable to compete for resources, such as the young, the old and the disabled. There is no economic incentive to provide care for those who can offer little or nothing in return. The government can provide welfare to establish a baseline minimum quality of life.

Taxes are not Theft

In fact, without taxes, theft doesn't really have a meaning.

The thing is, property is not an objective reality. There is no empirical test you can perform that will determine if an object belongs to someone, and to who. Property is a social convention.

You only own something to the extent that you control it. You have it, and someone else doesn't. But someone bigger and stronger than you can take your stuff, and there's nothing you can do about it. Even if you're the biggest strongest person there is, a group of people can overpower you.

One of government's functions is to protect property rights. If you own something, someone bigger than you isn't allowed to just take it from you. And if they try, well, government is the biggest one around. And government needs taxes to operate. You need funds to pay for the police who will stop people from stealing.

Without taxes, the enforcement of property rights collapses, and property ceases to exist. And you can't have theft without property.

Beyond even that, taxes pay for roads and other infrastructure, which you're in debt to, even if you don't use it directly. Even if you don't own a car, you still get a benefit out of roads, because grocery stores you shop at are supplied via roads. Even if you have never needed medical care in your life, public medical care benefits you by herd immunity. The list goes on.

Wanting to get these benefits without paying for them is closer to stealing than taxes are.

UnFairTax

So, apparently, some people at Purdue think the school newspaper, the Exponent, is just too damned liberal. So, they have their own paper, the Purdue Review. I happened to see some lying around, so I picked one up for a lark. Here's what was on the cover to give an idea of how "fair and balanced" they are.

Amidst the hilarity is an article about the "FairTax" and how wonderful it is. The idea of the FairTax is that it replaces federal income tax with federal sales tax. Apparently, this will fill the world with sunshine and roses, because sales taxes are perfect and wonderful and income taxes are mean and evil. ... Or something. According to the article, the FairTax will make taxes more simple, more transparent, be economically stimulating, and even be more progressive.

I'll admit that the FairTax as proposed is much simpler than the current tax code. But I see no reason it would stay that way. If it were to be accepted into law, it wouldn't be long before changes were made to it. Things would be added, exemptions would be included, etc. And I would say, rightly so. There's a reason the tax code is so complicated. The world is complicated, and there are a lot of ways that money can be spent, paid and otherwise exchanged. I would hope our tax code would consider those things instead of simply ignoring them.

They don't really justify how the FairTax will be more transparent, besides implying that people know how much they spend better than the size of their paycheck before taxes are taken out. That's true, but the FairTax plan obfuscates how much of what you're paying is going to the government. They deliberately use an inclusive tax system. An exclusive tax system is transparent; when you buy a $1.00 dollar candy bar, you know how much tax there is, because you pay $1.30. But with an inclusive tax system, it's not so obvious. You pay $1.00, but 23 cents go to the government, and the store gets 77.

It'll be economically stimulating, because it will take in the same amount of tax revenue as the current system, but leave citizens with more money left. Yes, you read that right. It will manage this amazing feat by taxing foreign visitors, illegal immigrants and drug lords. Um, yeah. I'm sure those people are spending just that much money.

And this is the best part. A sales tax will be more progressive. Sales taxes are regressive, practically by definition. People with less money have to spend a greater percentage of their money on necessities. There's really no way around that. Now, it does talk about a monthly rebate, that everyone would get money equal to the tax rate times the monthly poverty rate. Which makes it less regressive, sure, but it's still a sales tax, and there's really no way around that. Oh wait, no, "for reasons too technical to explain here, sales taxes are neither progressive nor regressive". Oh, now it all makes sense.