Continuing our slog through the minefield of the tax the rich meme – let us ask publicly: “dear class warriors, do you believe that the creation of jobs is a public good?”
I suspect many will answer yes. Note that I ask this in the economic sense – meaning that when an employer hires a previously unemployed worker (or currently employed worker for that matter – the impact is the same), does that act not confer benefits to parties outside the transaction? And what does standard economic theory suggest we do to promote actions that produce net social benefits? Hint: the answer is not, “tax them more.”
Which leaves us in quite a little pickle doesn’t it. Isn’t it the case that our evil class of exploiting rich people are themselves the ones responsible for some (or perhaps lots) new hiring? If their actions produce public benefits, then shouldn’t we be arguing that these guys be subsidized? The particularly absurd part of that argument is that if we are to subsidize them, then from whom should the funds originate? Well, the government itself does not produce much for sale. And the major beneficiaries of the new jobs would seem to be everyone else who are not rich. Seriously, if the rich end up hiring people, you are likely to see less crime, better incentives to attend and complete school, and so forth. But I often encounter the argument that taxing the rich is good economics.
Before we turn to the empirical literature on the previous effects of doing precisely that, can we at least see a theory that would predict it? It would have to include the following items:
I don’t think it’s easy to make either claim. Finally, consider the argument that “the rich produce public goods” more carefully. As has been written on before by people much worthier of being listened to than me – the fact is that even the most spectacularly wealthy people in American history only captured a miniscule fraction of the value that they generated for America. The value created is undoubtedly larger than any possible enjoyment of public goods they might have received – and by orders of magnitude. See an illustration here. Even if the rich consume a massive share of the roads, schools, etc. it is undoubtedly true that they contributed far more to their creation than is commonly thought. And to make the point clearer – think about Gutenberg. How much wealth did he capture from the printing press? And how much social good has come out of it? Which way should ethical and economically appropriate transfers go?
You are welcome to disagree – that is fun, but I remain puzzled why simply arguing, “the rich should pay more” is an open and shut case, especially since they do pay more, lots more (we’ll get to that, I promise, so by the end you’ll have a large handful of specific responses to the claim).
Here are the previous entries in the series.