FRONT PAGE CONTRIBUTOR
What Kind of Fool is Matt Yglesias?
Confiscatory Taxation For Fun And Profit!
a) The kind of fool who has never held a real job?
b) The kind of fool who thinks there’s nothing un-American about using punitive taxation to drive the best baseball players in the world out of the United States?
c) The kind of fool who has been drinking too much bong water?
Judging by this post, probably all three?
Some people, as I understand it, just don’t think inequality is a problem. But for the egalitarians among us, I’ve never really understood the view that obscene executive compensation is an issue that absolutely positively certainly must only be addressed through the indirect Rube Goldberg-esque method of changing corporate governance rules. What if we had a 95 percent marginal tax rate on income over $10 million? What dire consequences would flow from this? Perhaps a certain outflow of top-flight baseball talent to Japan. But I don’t see this leading to any kind of economic calamity. Producers of certain classes of supply-constrained luxury goods would lose out as their prices go down. But my strong suspicion is that at the end of the day most of the super-rich would ultimately find it a relief to get off the treadmill of status-competition and the not-quite-so-rich would be thrilled to see their betters cut down to size.
Pejman and Michael Moynihan have a good deal of sport with this insanity and the greed, envy and lust for power that drive it (he’s not suggesting burning the money, after all, but giving it to powerful politicians to spend, presumably – these days – politicians he’s hoping will listen to the advice of Matt Yglesias) as well as the complete failure to comprehend that we do not live, as liberal economics so often assumes, in a closed and statis universe, but rather in a world of competitiveness and response to incentives. Only a fool of colossal proportions would believe that one could enact such a draconian tax policy with no consequences, but so often we hear these arguments (we hear them as well from the president regarding limiting charitable deductions) from liberals who simply assume that the economy is a money machine that can be loaded down with an unlimited number of burdens with no consequences. High marginal tax rates? Rent control? Generous welfare policies? Nah, it’s inconceivable that human beings, being the self-interested creatures humans are, would alter their behavior even the slightest in response.
Let’s consider Yglesias’ example: baseball, specificallly the New York Yankees, whose payroll last season included 13 players making more than the wholly arbitrary $10 million figure. Presumably, even Yglesias isn’t so dense as to believe that the Yankees would continue awarding salaries over $10 million under such a tax regime – he refers to his confiscatory tax proposal as “a de facto cap on compensation” – so the money would….stay with the team? Which raises the question of whether he would apply the same tax to the owners of the team, or the large shareholders of other enterprises. If he doesn’t, then he’s basically just redistributing wealth from the employees of an enterprise to its owners; if he does, then what he’s proposing is more radical still, the destruction of enterprises that provide more than a certain amount of value (as measured by the revenues they raise from the choice of consumers to spend money on their product) – and that does seem to be his intention, as he says that “[t]he lack of ceiling on executive compensation creates bad incentives for firms to grow into unduly large conglomerates rather than be content to exist as highly profitable medium-sized enterprises,” without considering the fact that given economies of scale and, in the case of a business like the Yankees, the fact that it simply can’t create the same amount of value if you break it into little pieces with the coercive power of the state, you are simply destroying the value large enterprises deliver to consumers.
Finally, an irony: if the enemy is bigness, and if it’s no problem at all to replace large enterprises of vast scale with many smaller ones that cater to smaller, perhaps regional markets, then shouldn’t Yglesias be championing federalism? After all, the federal government is nothing if not the ultimate embodiment of conglomeration of many previously local functions into one colossal enterprise of continental scale. If that’s a bad thing, however, it has wholly eluded Yglesias’ notice.