Against Turton & Navarro

"As Vicente Navarro pointed out in CounterPunch a few weeks ago, one reason that the southern tier of Europe — Italy, Spain, Greece and Portugal — are in a debt crisis is that the price of the right’s acquiesce to democratization was that its wealth would not be fairly taxed."

That was penned by Michael Turton in a letter published in the Taipei Times on Tuesday last week (the 17th). I missed this initially and only found it late on the Friday night after trawling through the archives to collect the various editorial responses to the DPP's election failure.

This argument that Turton refers to (Navarro's) is useful to the Left in as much as it will allow them to try to deflect attempts to attach some measure of blame to them for the current sovereign debt crises. The two key points of Navarro's argument are that tax revenues are comparatively low in the mediteranean countries with tax avoidance and tax evasion apparently endemic, and that the welfare state in those countries is "underdeveloped" relative to their northern European cousins (i.e. it consumes a comparatively smaller percentage of GNP). What Turton does in his letter is to point out that Navarro's argument is similarly applicable in the case of Taiwan.

So what's wrong with Navarro's argument? Three things.

First, as I said it deflects attention away from the culpability of the Left in advocating greater levels of public spending way beyond tax revenues. Whatever the score with respect to why tax revenue was relatively low, it nonetheless remains the case that it was insufficient because the public spending commitments of the Left (and I would suspect sometimes of the Right too) exceeded it to no small degree; the politicians and various journalists and commenters on the Left surely knew this at the time and yet did little to nothing to argue for fiscal restraint. The intellectual leadership of the Left was irresponsible in this respect, and they should quit squirming and think again about Thatcher's famous quip:

"The problem with socialism is that sooner or later, you run out of other people's money."

Second, the argument does not take sufficient account of the monetary and banking aspects to the formation of the problem; it was partly due to the artificially cheap credit which the ECB flushed throughout the banking systems of the Euro member states (with the Bank Of England acting in a similar fashion in the UK) that the governments of the mediterranean countries were able to borrow so much in the first place*. It must be stressed that a monetary system run on the model of a central bank adjusting interest rate policy every financial quarter owes nothing to free market theory and everything to the Statist impulse to coercive government. A free market monetary system would run on competition between private issuers of commodity-based currencies, as Hayek outlined in his paper "The Denationalization Of Money" and which Ron Paul apparently has said he would support. There may also be of course, the future possibility of digitally distributed, inelastic currencies removed from Statist interference.

Third, the claim that certain wealthy people supposedly on the Right did not consent to have their wealth "fairly" taxed rests upon the Left's standard modus fermenti of "social justice". Now before I put my case as to why this slogan ought to be rejected, I should note that it is undoubtedly true that certain people in the mediterranean countries unfairly acquired financial assets from the State prior to the several transitions to democracy and from having had Right-wing political connections both before and after these transitions. Progressive taxation however does not only subtract cash unfairly acquired by these people; it also subtracts cash from all other wealthy people including those who became wealthy from the application of their own iniative and hard work. To call that "fair" presupposes a notion of "fairness" that goes some way beyond taxing wealth acquired on political connections alone.

When the Left speak of "social justice", what do they mean? Obviously it must be something distinct from mere "justice" qua punishing people who have committed natural crimes (murder, rape, arson, theft, fraud and the like). Well there are at least several other ways to answer this question, but here are just two: reducing income inequality and advancing "equality of opportunity". There are several lines of argument for reducing income inequality, but the mantra itself is useful to the Left because it conflates two seperable objectives: helping (or allowing) those in need to improve their circumstances, and inflicting the envious urge for a "redistributive revenge" upon those with greater wealth. Likewise with "equality of opportunity" there is a similar conflation of objectives going on: helping (or allowing) those less well off to improve their lot, and inflicting some gravitational pull downward upon those already lucky enough to have opportunities. In each case (whether reducing income inequality or advancing equality of opportunity) it is the first objective of allowing those less well off to help themselves that is worth holding onto, whereas the second objective is not for several reasons: first it necessitates the application of institutionalized aggression against a general class of people identified not by anything they have done wrong, but merely on account of their possession of wealth; second, it generates negative externalities in that for every dollar taxed away from the wealthy, there is a dollar less now available for capital or labour investment, or indeed, for consumption**; third, the use of taxation for the funding of public goods often has other unseen negative externalities in that it often makes it difficult for the market either to produce the public goods themselves, or to produce alternatives to them. For insance it is now possible to produce water filters at a nanoscale so as to filter out all known bacteria and viruses, yet every modern city in the world persists with gigantic, large-scale (and now antiquated) water treatment and wastewater management systems; the financial incentive to develop water filters on a larger scale is retarded by the continuing existence of large scale public utilities.

***

In making his point that Navarro's argument about relatively low tax yields applies also to Taiwan, Turton goes on to prescribe the following:

"For anyone who wants to reform Taiwan’s economy, obvious moves might include raising capital gains taxes, implementing a stock transaction tax, more closely regulating the sale of land and housing, and, most urgently, raising the government’s assessed value for fixed assets, as well as reducing development funding that goes to Taipei."

The prescriptions follow naturally from his analysis. I share the sense of injustice many southern Taiwanese feel about being taxed to pay for people in Taipei - it is outrageous, but I don't think that outrage should be expressed in the terms of the Left for they will only make things worse. He is talking about a future government raising taxes in a scenario that may very well include monetary collapse.

I think a better answer would be to initiate an assiduous program of rational depoliticization in which the responsibilities of the State in providing public goods through fiscal policy are radically curtailed if not abolished outright in favour of complete privatization. Such a program of depoliticization would make it possible to abolish the corresponding taxes and other negative externalities that often fall disproportionately upon the poor, and it would thereby make it possible to abolish the current monetary system by allowing the private introduction of at least one (preferably several) competing commodity-based currencies.

That's all for now - I may add to this later, when I'm less busy.

*It must also be pointed out that the people living in the mediterranean countries were at no time directly asked to consent to their governments borrowing so much money; so whilst the "PIIGS" pejorative is understandable, I think it is unfair to a lot of people.

**Of course this argument could be played out to much greater detail with reference to Art Laffer's famous work on tax yields for instance, but I'm not so much interested in making government more efficient as I am in replacing government functions with free markets.