Sunday, January 8, 2012

A Thirty Year Old Piece of Economic Nonsense from a Founder of the Neo-Conservative Movement

Well Of Course It Is – What Else Would You Expect a Source Like That

The Wall Street Journal editorial section occasionally brings back quotes from the past in their Notable and Quotable section.  These are quotes that they think in their warped view of things actually have meaning.  Here is a recent passage from Irving Kristol, father of Bill and one of the leading intellects of the early Neo-Conservative movement.  (yes “intellects” is used facetiously, sorry you had to ask).  The full quote is not printed in deference to the sensibilities of the readers of this Forum.

One has only to recall the ingenuity and persistence with which distinguished professors of economics elaborated quite fanciful justifications for the progressive income tax—for which there is no economic, as distinct from moral or political justification, since it involves an interpersonal comparison of utilities which is beyond the scope of economics. .

The main conclusion one gets from this is that like many fellow Conservatives, Mr. Kristol’s comments reflect a complete lack of understanding of economics and probably a complete lack of any effort to even read anything about the subject matter he so pompously comments on.

One can indeed disagree with the concept of a progressive income tax, and there is no question that at the extreme everyone could disagree.  But the principles of taxation are well founded in economics.  Progressive taxation reflects several major economic principles

  1. Benefits Received – The benefits of a stable government providing services are far greater to wealthy people than they are to low income people.  National Defense is just one example, if the Russians did invade they would not do so to steal the welfare checks of low income people but to take the wealth of the wealthy.  Economic taxation theory states that the greater the benefits received the higher the tax rates should be on those receiving them.

  1. Ability to Pay – Another economic principle is that those that have the greater ability to pay higher taxes should pay higher taxes.  The marginal utility of a dollar of income declines as income reaches very high levels, econ speak for the fact that an increase of $1,000.00 of taxes on Mr. Romney has far less of a welfare loss than an increase of $1,000 in taxes on the average family whose income is about $50,000.

  1. Less Economic Impact – Taxes take money out of private sector and with no increase in government spending they reduce total demand, thus reducing growth.  But taxes taken from wealthy people are far more likely to have a lesser impact on demand and growth.  Wealthy people can fund the higher taxes by liquidating assets, and so maintain their current spending levels.  Low income and middle income people cannot.

Of course, Mr. Kristol and the Wall Street Journal editors would know this if they ever bothered to try and approach their position objectively.  But this is ideology not reality.  If you believe something is true just because you want to believe something is true, why would you ever do the research and reading to learn that it is not true.

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