Wednesday, May 23, 2012

Legislating Morality

Who says you can't legislate morality? We not only do it but cannot, in our complex system, do anything else. The question is: what kind of morality do we legislate?

Government colors every facet of economic life. The frontiersman in us may scream, "Leave me alone," but government cannot avoid picking winners and losers. Society speaks through government. The alternative is rule of the jungle - individuals alone. When individuals try to work collectively, maybe they can occasionally rally for a boycott or riot, but mostly they speak through that collective organization we call "government." Government does something or not and either way sends a clear signal. Individuals then make choices in response. Every day we legislate to set options, which impact behavior, and which eventually tends to alter attitudes: utterly arbitrary and perhaps completely irrational, unjust, unfair, biased norms are created and eventually taken for granted as we forget their arbitrary beginnings.

Consider one of the most basic economic decisions that the U.S. government has made: a special very low capital gains tax. If you bake bread or catch criminals or teach our kids or smelt steel or manage a hospital, you pay a tax rate that is some rather substantial percent of your earned income. But if you get your money without earning it, i.e., just by sitting around and watching the value of your property or stocks or the value of your bets derived from whatever other thing you are betting on rise, then you are awarded a privileged and very low tax rate (made even lower by anti-worker Bush), which of course is called the capital gains rate on unearned income. It is called unearned because it is: you don't do anything but watch your investment's value change as the result of some independent process that luckily for you happens to be occurring. It is called "capital" gains because your gains are a function of capital--i.e., money--movements rather than physical or mental movements, which would be called "work."

Graph from Wikipedia.
One could call the government attitude back in the 1970s, when the capital gains tax rate was at 35%, "neutral"--the government more or less avoided punishing or rewarding either of the two alternative means of gaining income (working for it or gambling for it). By (infamously) the time of the U.S. invasion of Iraq, the elitist, anti-worker regime of Bush and Cheney had warped the government's attitude into a clear pro-gambling stance, heavily penalizing those still clueless enough (including this author) to be working for a living. Although the moral superiority of labor over capital had been recognized in U.S. politics at least as far back as Abraham Lincoln, who--though no economist--had a very clear sense of justice and pointed out that labor should be held in higher regard than capital since labor had to come first (with capital as the result of someone's hard work), in Washington, a pro-capital, anti-labor bias has long plagued U.S. society.

Thus, the government has made a fundamental value judgement: working to build up the nation (whatever physical or mental, blue-collar or white-collar work you care to do) is punished; gambling with money (most often not even your own money!) is rewarded. Any normally rational person (i.e., a person who chooses to maximize his own personal profit rather than sacrifice personally for the greater good of society) will thus conclude that he should become a financial manipulator. Worse, since the government rewards gambling with other people's money just as much as gambling with one's own, why would any rational person choose to risk his own money, when he can get the same reward for putting his neighbor at risk instead. So naturally, people flock to large-scale gambling with other people's money. And amazingly, even after the 2008 Recession clarified the idiocy of designing a society for the purpose of maximizing financial manipulations rather than investment in real work or actually doing real work, nothing has changed. Citizens who choose to work for a living are still punished and those who gamble with other people's money are still rewarded.

CBO via Mother Jones
All this has absolutely nothing to do with the size of government. It has to do with the choices that government makes. Financially, the U.S. today probably has the most extreme government of any major country on earth: i.e., the government that legally enforces the most pro-gambling, anti-work rules of any major government. Note that I did not say "the most pro-business." This bias in favor of financial manipulations has nothing to do with being pro-business. The business of making steal is punished just as much as the work of being a steelmaker is punished. The business of building hospitals is punished just as much as the work of being a surgeon is punished. Only businesses such as  J.P.Morgan and Bank of America and Goldman Sachs, i.e., businesses that make their money primarily from gambling with other people's money by making idiotic bets that X will change in value (the direction matters not a whit as long as you guess correctly), are rewarded. All businesses and individuals who actually do something, create something, build something are punished.

So there is no surprise that manufacturing is declining and infrastructure is decaying and schools don't teach as much as they used to. Who wants to repair bridges when the government penalizes you by confiscating an extra 15 - 25 cents out of every dollar you earn, in comparison with its treatment of financial manipulators?

There is no surprise that the JP Morgans are the richest and just about the largest companies in the land, that they are gaining the power to rule, and that politicians will take your tax dollars to provide them as much welfare as they may need. It is no surprise that their employees' salaries are the highest or that their CEO's are the richest. Well, to be correct, there is a class of business that is even richer - pure, 100% hedge funds, and that too is only logical, for they do nothing but gamble. After all, JP Morgan and Bank of America still do offer bank accounts to individuals, a distraction that may gain them further government benefits but still amounts to a distraction from their real line of business, so the real rich are not the Jamie Dimons at $25M or so per year but the several hedge fund managers at the top who each pocket a cool billion or so per year. When your annual income is $1B, that 15% tax rate makes a difference!

The decline of everything except finance is neither illogical nor "chance" nor surprising. Our system works as designed--for the benefit of financial manipulators.

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