Smith on markets and morality

All the members of human society stand in need of each others assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy....

Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.

Society, however, cannot subsist among those who are at all times ready to hurt and injure one another. The moment that injury begins, the moment that mutual resentment and animosity take place, all the bands of it are broke asunder, and the different members of which it consisted are, as it were, dissipated and scattered abroad by the violence and opposition of their discordant affections...

--Adam Smith, Theory of Moral Sentiments (h/t: Jennifer Roback Morse)

Love and Economics

That's the title of a Jennifer Roback Morse book, leading to something between a smile and laughter in response. The subtitle is more descriptive-- but still not fully helpful: "Why the Laissez-Faire Family Doesn't Work".

In a nutshell, the book is an effort to derive a libertarian social philosophy-- an oft-overlooked complement to a libertarian political philosophy (p. 4, 161-165, 224-225, 231-232). Morse argues that the combination is essential and that an exclusive focus on politics is reductionistic and otherwise troubling. "If a libertarian minimal state requires loving families, then a libertarian social theory must inculcate an ethos of generosity and loyalty within the family." (8)

In this, her effort parallels the work of groups like The Acton Institute which seek to connect markets and morality, recognizing that market activity and political institutions take place within a social and moral context. Ignoring this context is not helpful. Beyond that, failing to foster morality and sound social institutions will undermine markets.

The omission also serves to make libertarianism vulnerable to the critique that it doesn't care about community or family (59-61), seeming to focus on an "atomistic individualism...a position no thoughtful libertarian actually holds. I think it is well to admit, however, that our inattention to family life and community responsibility have left libertarians open to the charge..." (28)

In this book, Morse is most interested in applying this to the importance of the family: "The family performs a crucial and irreplaceable social function...helpless babies are transformed from self-centered bundles of impulses, desires, and emotions to fully socialized adults. The family teaches trust, cooperation, and self-restraint. The family is uniquely situated to teach these skills because people instill these qualities in their children as a side effect of loving them." (5) As such, the family is important to both children, to themselves, and to society.

Morse notes that "the child must have some attachment to the parent for the parent to be a credible source of this kind of moral information" (37). When I read this, it reminded of adoption, where the adoptive child connects to the adoptive parent because of the relationship, not the blood connection to birth parents. When we were moving toward meeting birthparents, a small part of us wondered/worried that our children would feel attached to them. But mostly, they're complete strangers-- and the thought of going/being with them would be roughly equivalent to going to live with random people. 

In the Economics classroom, it's common to point to the market and legal institutions that limit, restrain and even productively harness potentially problematic motives. Markets encourage producers to treat consumers well. Governments can work to limit transgressions against others. But a reduction in honesty and morality makes it more difficult for markets and governments to police potentially beneficial activity. Moreover, a reduction in morality makes it more likely that agents will use markets and particularly the force of government to enrich themselves at the expense of others.

Morse is also helpful in describing the role of mediating institutions-- from family to social institutions to government (130-135). The expanding circle is describes by Protestants (following Kuyper) as "sphere sovereignty" and by Catholics as "subsidiarity". "The rate of child abuse among married parents is lower than among other types of parents, but still not zero...The family's chief strength is also its weakness: the family is small. Two parents can know and respond to the needs of their own children. But small size becomes a weakness for the family if one of its adult members becomes incapacitated, or disappears, or is irresponsible." (131)

Morse ably defines marriage (ch. 4) and notes its practical abilities to produce results (throughout part 3; see: esp. 97-100). I have an forthcoming article in Markets and Morality (Fall 2013), connecting the classic book by Michael Harrington (The Other America) with the recent work of Charles Murray in his important book, Coming Apart.

This book is a must-read for Libertarians and anyone interested in a broader analysis of markets.

Anybody have a good contact with John Schnatter about a K-12 education project?

Anybody have a good contact with John Schnatter about a K-12 education project?

If so, drop me a line at DSchansb at IUS dot edu.

Thanks!

my letter to the C-J on USPS delivery

Here's the link....

I appreciate the USPS eliminating Saturday delivery. But it won't be nearly enough to make them financially viable.

What would it take? My best guess is free delivery once per week. (How often do you go through your mail anymore?) Individuals and businesses who want delivery more often would pay for that level of service. In addition, we should eliminate subsidies on any sort of mail-- most notably, "junk mail". That'd be good for the environment as well as taxpayers.

taxing the working poor in Kentucky

Talk of taxes and tax reform is in the air again. At the federal level, the “Fiscal Cliff” of January 1st was more about political theater and procrastination than effective solutions. Less publicized, the most recent phase of ObamaCare brought some new taxes.

In addition, the 2% “holiday” on payroll/FICA taxes ended, resulting in much higher taxes for all workers. Politicians in DC generally ignore this most burdensome aspect of income taxation—15.3% of every dollar earned (up to a cap of $110,100). This is regrettable, especially since FICA hammers the working poor and those in the middle class. For example, someone earning $20,000 loses about $3,000; someone earning $60,000 loses about $9,000.

At the state level, Kentucky is talking about tax reform and higher taxes, given continuing budget shortfalls. Governor Beshear’s task force recommended a variety of new and expanded taxes to raise $659 million. This would be combined with $100 million in tax reductions on corporations and individuals—and a new “Earned Income Tax Credit” (EITC) which would make Kentucky the 25th state to pass this reform.

If I were king, tax reform would be a high priority—and any tax reform would reduce the burden on the working poor and start an EITC.

The EITC is a “tax credit” for “earned income”—monies paid to those in lower-income families who earn wages. The idea is to subsidize those who are working, but earning an income that is too low to support a family.

Often, people embrace the minimum wage as a policy to reach this goal. But a higher minimum wage also increases the cost of hiring low-skilled workers, making it more difficult to employ them. The EITC has the merit of keeping low-skilled workers attractive to firms, allowing them to build job market skills and pick up valuable job experiences, while subsidizing their earnings to help them support their family.

The federal government has a significant EITC—which offsets some or all of the FICA tax on low-income households. About half of the states also offer an EITC. States might embrace or expand an EITC to further offset the federal income tax policy—or beyond that, to subsidize those who are working but struggling to make ends meet.

In Kentucky, the state government imposes income taxes on parents and children at and near the poverty line. After the tax reform in 2005 led by Governor Fletcher, many of the poor were taken off the tax rolls. Before this, Kentucky was arguably the worst in the nation. But there’s still room for improvement. For a two-parent household of four at the poverty line, Kentucky has the 14th highest burden in the nation at $94. Looking at 125% of the poverty level, a one-parent household of three pays $555 (4th highest). And a two-parent household of four pays $1,021—tops in the nation. I guess it’s good to see Kentucky #1 in something!

The EITC and eliminating taxes on the working poor should make sense to liberals and conservatives. Those on the Left claim to care about the poor—although this is usually more about posing than policy. Those on the Right want to encourage hard work, efficiency, and so on. How can those on either side be fond of income taxes on those trying to survive on an income near the poverty line?

taxing the working poor in Indiana

Appearing in newspapers across Indiana...

At the state level, Indiana is talking about tax cuts, given its projected budget surpluses. Gov. Mike Pence has proposed a reduction in the marginal income tax rate from 3.4 percent to 3.06 percent. If I were king, I’d reduce income taxes overall but specifically would eliminate state income taxes on the working poor and expand the state’s “Earned Income Tax Credit” (EITC).

The EITC is a “tax credit” for “earned income” — monies paid to those in lower-income families who earn wages. The idea is to subsidize those who are working but earning an income that is too low to support a family.

Often, people embrace the minimum wage as a policy to reach this goal. But a higher minimum wage also increases the cost of hiring low-skilled workers, making it more difficult to employ them. The EITC has the merit of keeping low-skilled workers attractive to firms, allowing them to build job market skills and pick up valuable job experiences, while subsidizing their earnings to help them support their family.

The federal government has a significant EITC that offsets some or all of the FICA tax on low-income households. About half of the states offer an EITC. States might embrace or expand an EITC to further offset the federal income tax policy — or beyond that, to subsidize those who are working but struggling to make ends meet. Indiana’s EITC is set at 6 percent of federal credit (and refundable if one’s tax liability is reduced below zero), but it could be expanded.

Indiana imposes income taxes on parents and children at and near the poverty line. For a two-parent household of four at the poverty line, Indiana has the 12th-highest burden in the nation at $108. Looking at 125 percent of the poverty level, a one-parent household of three pays $206 (16th highest) and a two-parent household of four pays $413 (11th highest). In this last category, our neighbor Kentucky takes $1,021 — tops in the nation. (I guess it’s good to see Kentucky No. 1 in something.)

The EITC and eliminating taxes on the working poor should make sense to liberals and conservatives. Those on the political left claim to care about the poor, although this is usually more about posing than policy. Those on the right want to encourage hard work, efficiency and so on. How can those on either side be fond of income taxes on those trying to survive on an income near the poverty line?

Yarmuth's public campaign financing proposal

-It's unconstitutional and limits free speech.

-It's impractical, since it ignores soft money.

-It's not inclusive, generally limiting the subsidies to those in major political parties.

-It restricts competition between candidates (as previous efforts to "reform" the electoral process)-- and from smaller political parties.

-It redistributes money from taxpayers to the two major political parties.

-It's unpopular, given the current participation in voluntary funding through the 1040. 

Other than that, it is a GREAT proposal!

From James Carroll in the C-J on Rep. John Yarmuth's proposal to drastically limit AND dramatically subsidize campaign contributions by individuals. 

 

Imagine a campaign for the U.S. House in which the definition of a fat-cat donor is somebody who gives the maximum — of $100. Imagine that same race, but with the federal government providing a 5-to-1 match for every dollar a candidate raises from state residents. Rep. John Yarmuth, D-3rd District, not only can imagine it, he’s sponsoring legislation that would make it law.

Under Yarmuth’s bill, candidates who voluntarily participate in a public financing system would qualify by raising $50,000 in donations of $5 to $100 each. Those contributions would have to come from at least 1,500 donors living in the candidate’s state. After qualifying, each candidate would receive a lump-sum grant, calculated as the average amount that winning candidates spent in the two previous elections. Yarmuth’s measure also would provide $5 for every $1 dollar raised in-state, up to three times a candidate’s original grant amount.

Why those arbitrary dollar and donor numbers? Because Yarmuth doesn't want competition from anyone other than the major political parties.