Thursday, November 18, 2010

159. We want "big" where it helps us

How the argument is framed can sometimes cloud an idea, and it is unfortunate that so much time needs to be spent backtracking to explain what should be obvious. While there might be exceptions that I am not aware of, I do not think anyone really favors "big" government. It is all relative, and while it sounds good to campaign on a "small government," the truth is that everyone picks and chooses where they think government should be involved.

Some people support social services, others, infrastructure and national defense. Most favor socialist programs like Social Security and Medicare. Agribusiness and consumers enjoy the many subsidies that keeps food cost low, and most people support education. People want a free market version of capitalism, but then complain when it does not interfere enough to create jobs. Legislatures denounce government stimulus, but then take credit for it when it supports their district. Nearly everyone supports funding safety. Businesses hate regulations, unless those regulations protect their interests. Consumers hate the cost of regulations, unless it protects them from business. Finally, government is constitutionally bound to stay out of the realm of religion, to the dismay of many.

It gets to the point that these arguments become circular--a measure of grandstanding-that really does not offer any solutions to our biggest problems. It is purely political and nearly everyone questioned in this regard ends up conceding that point.

How big do I think government should be? I think it should be as small as it needs to be.

Americans spend 15 percent of their monthly budget on food-compared to Europe at 30 percent and Indonesia at 60 percent. Without government water subsidies, beef would cost about $35 per pound. Would small government people be willing to pay that for beef? (I love the idea . . . fewer animals would suffer, and people would be much healthier).

In 2009, Stockholm International Peace Research Institute estimated the United States military budget at $663 billion. The next closest nation is China at about 100 billion; in fact, we spend more on our military than nearly the rest of the world--combined. By analogy, in a language some of us speak, we are worse than the New York Yankees. Yet, most small government people do not want to decrease our national defense, somehow convinced that it is necessary to protect our freedoms.

Most of us that favored healthcare reform did so for one reason--private insurance had become a failure. The public outrage should not be directed at the government for wanting to get involved on healthcare; they should be outraged at the insurance companies and employers that necessitated government involvement. Had they cared for people as much as they cared about profits, and not abused their power and let people die or go bankrupt, the idea for government healthcare would never have surfaced. Government steps in, or only should step in, upon market failure.

The argument is the same for environmental regulations. Every business that complains about the cost of government interference (such as the creation of the environmental protection agency) only has other businesses, those that abused the environment for profit, to blame. At some point, the government has an obligation to protect its citizens from wrongdoers.

Ditto for the financial industry, employment laws and consumer protection. And so on and so on.

Finally, in some instances, it just makes sense that everyone contribute for the betterment of society. When it comes to safety, such as police departments and fire protection, it is more efficient to be government controlled. Most were disgusted to learn about the house that burned down in Tennessee because the homeowners had not paid their subscription fee to the private fire department.

At the end of the day, the sad fact is that expansion of government beyond what it "should" be, such as some safety net social services, national defense and infrastructure, is a product of the failure of the American people. It is ridiculous that we need libraries full of laws and regulations to protect us from ourselves. If Americans could be counted on to live honest, fair and reasonable lives, we would not need so many rules. These rules exist to control the greedy and unethical, to set minimum levels of acceptable behavior and close loopholes. They exist because people lie, cheat, steal and exploit everyone and everything that is available for exploitation.

If we really want a small government, the answer is not a "feel good" blanket protest of taxes-for which people pick and choose taxpayer expenditures according to their own interests--the answer is the installation of basic human principles, such as kindness, consideration, hard work and humility, back into the American public. If people would simply act responsibly and occasionally put the interest of others ahead of their own, then maybe, finally, we could stop having this discussion.

Thursday, November 4, 2010

158. Inheritance welfare for the rich

Billionaire Warren Buffett said, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing."

Not many of our wealthiest share this same attitude, usually opting to leave their fortunes to their families. For example, in the Forbes Magazine 2008 list of the 400 richest Americans, four of the top ten were heirs of Sam Walton and three of the top twenty were those of Forrest Mars. Buffett, however, does not think that this is in the best interest of society, "I'm not an enthusiast for dynastic wealth, particularly when 6 billion others have much poorer hands than we do in life."

What I think it comes to is this: People, particularly wealthy people, want a meritocracy-- right up to that very instant when it becomes their competitive advantage at risk. In other words, people are quick to note that those on welfare are getting "something for nothing," yet viciously fight to keep the fruits of their own genetic good fortune. The truth is that it is hypocritical for those who wish to defend capitalism as a meritocracy, as a system that rewards those that work the hardest, to accept anything that they have not earned-and that includes an inheritance.

Buffett himself noticed a similar hypocrisy, "I love it when I'm around the country club, and I hear people talking about the debilitating effects of a welfare society. At the same time, they leave their kids a lifetime and beyond of food stamps. Instead of having a welfare officer, they have a trust officer. And instead of food stamps, they have stocks and bonds," he said.

The truth, which takes us beyond our capitalistic teachings, is that nobody earns a billion dollars. Many people work hard and make a good living, but great fortune is made ambiguously and exponentially-- often the result of opportunity and chance.

"My luck was accentuated by my living in a market system that sometimes produces distorted results. . . I've worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate's distribution of long straws is wildly capricious," Buffett said.

Jesse Dukemiller, Robert Sitkoff and James Lindgren in a Wills and Trust casebook succinctly note, "The most powerful argument against permitting the transmission of wealth is that it perpetuates wide disparities in the distribution of wealth, concentrates inherited economic powers in the hands of a few and denies equality of opportunity for the poor."

A true meritocracy depends on equal opportunity, and it is here that the argument is best made against excessive inheritance. Those born into the privilege already attend the best schools, have the best social and professional connections, and probably work in the family business-what more opportunity do they need? Can the privileged not survive on an inheritance limited to, perhaps, a quarter of a million dollars?

I've noted on many occasions the increasing amount of wealth being accumulated in the richest of American families. There was a sharp rise in wealth that began in the 1980s and as noted in "Them That's Got Shall Get: Inheritance and Achievement in Wealth Accumulation," by Melvin Oliver, Thomas Shapiro, and Julie Press, the amount being passed through generations is staggering, "Between 1987 and 2011, the baby boom generation stands to inherit an estimated 6.8 trillion dollars." Among the richest one percent, the average inheritance is about $6 million.

While inheritance has been described as the "ultimate something for nothing," it is important to note the societal concern is that of great wealth; I am not arguing that hard-working families should not be permitted to leave their modest estates to their children. It is not a negligible right that people should be able to do what they want with their money. The concern is the creation of a class of people whose wealth and influence stifle democracy in their own interest-the creation of a class who can politically influence those who were otherwise elected to do what is in the best interest of society as a whole.

De Tocqueville warned that, "What is the most important for democracy is not that great fortunes should not exist, but that great fortunes should not remain in the same hands. In that way there are rich men, but do not form a class."

It is a warning that should not be easily dismissed, lest we trade any hope of a meritocracy for a plutocracy.