Capitalism vs. Statism: Taxes; Infrastructure; Immigration
#12 in a series of Think Right or Wrong, Not Left or Right: A 21st Century Citizen Guide (2nd Expanded Edition)
Note to readers: I’m on vacation in the old country (Sweden), and in an even older civilization if not country (Italy), for a couple of weeks. I may write about my latest impressions at some point, but for now a few more capitalist virtues from the book sorely lacking in both—and unfortunately in the land of the supposedly free as well. Also, check out my discussion with Mike Williams on The Capital Idea podcast. We had a lot of fun discussing the book and a range of related topics. Enjoy, and let me know if you have any old world or other questions in the comment.
5.16 Under Capitalism, Taxes Are a Thing of the Past
We mentioned in previous sections that taxes are incompatible with a capitalist social system because they violate individual rights. This applies to all types of taxes: income, property, capital gains, sales, estate, wealth, gift, etc. This is such a foreign concept in today’s society that it can be hard to wrap your head around. After all, Benjamin Franklin said “In this world nothing can be said to be certain, except death and taxes.” Under capitalism, only death is certain—and progressively later and later as mentioned earlier when we discussed medical advances. However, Mr. Franklin may be excused, as capitalism wasn’t fully discovered in his time.
To recap what we covered in chapter 3 (The Role of Government), under capitalism the government protects your individual rights from violations by (1) foreign aggressors (the role of the military) and from (2) domestic aggressors committing fraud, theft, murder, etc. (the role of law enforcement), and it (3) prosecutes domestic aggressors and settles disputes (the role of the court system). If the government doesn’t have the power of taxation, how are its limited functions financed? They are financed by voluntary means. One proposal that has been discussed is voluntary, nominal fees on business transactions in exchange for legal standing, for example, 0.1% to 1% of the invoice amount. Private donations (without strings attached) also play a significant role. For example, a group of businesses and individuals may pay for the development, manufacturing and upkeep of a fighter jet, submarine, or aircraft carrier, for the salaries of a local police department, or for the construction, rent and maintenance of a courthouse. A third option are lotteries where the government keeps a certain percentage of ticket sales similar to today’s Powerball.
The same benevolence that strengthens the safety net for the underserved and underprivileged is extended to the proper functions of a limited government, as citizens recognize that it is in their rational self-interest to delegate the protection of their individual rights to the government. The rapid economic growth and massive wealth creation resulting from unleashing the unimagined under capitalism provides more than enough financial resources, including emergency reserves for ramping up military spending if threatened or attacked by a foreign country.
However, it is important to realize that any program of voluntary government financing is the last, not the first, step on the road to a capitalist society.11 We will cover the transition in certain areas of the economy in Part II of the book (“From Here To There”).
5.17 Statism Misallocates Infrastructure Investments, Capitalism Optimizes Them
Government infrastructure investments are taken for granted by most people. Under all forms of statism, many installations—from highways to railroads, ports and airports; from hydroelectric dams to power plants and electric grids; from water and wastewater management systems to flood control structures—are considered either a direct responsibility of government entities, or something built and maintained in partnership between government and private businesses. Infrastructure investments are seen as benefitting the “public interest” or the “common good” and therefore unsuitable to be left to “market forces.”
To fund infrastructure projects, statist governments use current tax revenues, or issue bonds or other debt to be repaid by future tax revenues. Welfare statist politicians across the political spectrum have a soft heart for infrastructure projects; U.S. senators and representatives like to score points back home by procuring funds for them. And it doesn’t hurt that such funding presents an opportunity to put their name on a bridge, building, airport or other infrastructure installation—a kind of modern day mausoleum in lieu of pyramids and terracotta soldiers.
Government infrastructure spending, whether in the name of “the public interest,” “the common good,” “benefitting the local community” or some other collectivist cliche, is fundamentally a violation of individual rights. While some individuals and businesses may benefit, it comes at the expense of current taxpayers who are forced to pay when current taxes are used, and future taxpayers who are on the hook in the case of debt financing.
But in practical terms, government involvement also results in gross misallocation of resources. When infrastructure projects are subject to political involvement, cronyism ensues as interest groups and factions lobby for the limited available resources. Resources are not primarily allocated based on a real return on investment, but according to political preference and expedience. The result is that too much is spent in certain areas and too little in others. “Too much” includes bridges to nowhere, high-speed trains and public transportation projects without sufficient ridership, freeways in sparsely populated areas, subsidized wind- and solar farms, etc. “Too little” includes the nation’s energy grid, hydro-electric dams, and nuclear power plants, which either don’t score the necessary political points or are outright opposed by both politicians and the pressure groups they’re in bed with.
Misallocation may also hurt certain areas while benefitting others. For example, the interstate system being “free” (the cost is not directly charged to the users in the form of road tolls but tax- and debt-financed) almost killed the nation’s railroads as both passenger and goods transportation migrated to the subsidized U.S. interstates and highways (railroad regulations played a significant role as well).
Finally, due to the lack of long-term thinking among politicians as discussed in the natural disaster section, infrastructure maintenance is often neglected as having less of a political draw than the new and shiny.
In a capitalist social system, the government is only involved with infrastructure related to its proper role (for example military installations). All other infrastructure installations are privately financed, owned and maintained by corporations and miscellaneous business- and homeowners associations.
You pay for using the streets in your neighborhood through your HOA or as part of your rent. As you venture out further, business associations provide “free” access around town (paid for by the association members) or you have a monthly subscription—think cable TV package—for the roads covering the areas that you are most likely to use. And as you get on the highway, you pay toll to the corporation that owns it based on vehicle type and distance just as is the case in parts of the country today (only there would be no government involvement).
Energy companies ensure the electric grid is appropriately sized for growth and continuously maintained, and they increase power generation capacity as demand increases, always looking for the most efficient mix of hydro, coal, gas, nuclear, wind and solar to drive down the price they charge customers. They don’t have to worry about lobbying politicians as the government has neither the power to regulate the industry nor the power of eminent domain to take your property for the alleged “common good” without your consent .
Water and wastewater corporations act in a similar fashion with respect to drinking water and wastewater infrastructure, as do private entities that build levees, mitigate flash floods, and take other flood control measures.
This section offers just a few examples of the dynamics in a capitalist social system. The quest for the unimagined result in a variety of progressively more efficient solutions, over time driving down the cost. And as all parties involved have a reputation to protect, giving you, the customer, more value for your money is paramount.
5.18 Under Capitalism Immigration is An Opportunity, Not A Threat
Immigration pushes a lot of hot buttons. Often, we hear that immigrants enter the country “illegally,” take advantage of our safety net without paying their way, take our jobs, vote for the “wrong” party when becoming citizens, increase the crime rate, etc.
To the extent that these are real problems, a capitalist social system almost completely eliminates them. Capitalism recognizes that individual rights extend to everyone. Rights don’t end at the Atlantic seaboard or the Pacific coastline. They apply no less south than north of the southern border. Whether you’re born in Bangalore or Beijing, Toronto or Tijuana, your individual rights are inseparable from your humanity. Your birthplace has nothing to do with it.
Therefore, immigration is almost entirely open under capitalism (a phased in transition to free immigration will be in place). The only people excluded are individuals with a criminal record (according to American law), people with a dangerous infectious disease, some or all people from a country posing an imminent threat to us, and some or all people from an area suffering a dangerous epidemic. However, as capitalism spreads around the globe as a result of the United States leading by example at home, other countries pose less of a threat over time. And with capitalism unleashing the unimagined in the field of medicine stopping epidemics in their tracks, exceptions get more rare over time.
What about the common concerns? As you probably suspect by now, most of them are non-issues in a capitalist social system.
With few laws preventing immigration, few immigrants will be classified as illegal. That almost entirely solves the “problem” of illegal immigration.
Without a tax-financed, government regulated safety net, there is nothing for immigrants to take advantage of; those in need will find plenty of support among the many voluntary safety nets that we discussed earlier. But most likely the need will be limited, because a country without a welfare statist safety net primarily attracts immigrants who want a job, not a handout. Such immigrants want their individual rights protected and to otherwise be left alone to make a life for themselves in their adopted country of choice, interacting with others to mutual benefit.
It is true that immigrants sometimes compete for the same jobs as those fortunate to be born Americans. But in a capitalist society with its almost constant and rapid growth, jobs are plentiful and labor chronically in short supply. If an immigrant gets the job you want because she is either prepared to do it for less money or is more qualified, you will find plenty of other positions waiting.
Voting for the “wrong” party when becoming a citizen is an issue of the past as well under capitalism, where government acts solely to protect people’s rights. Absent welfare statist programs there is not much to vote on as we discussed earlier, so there is no incentive in attracting immigrants of a certain kind to support your pet political cause.
Finally, with the government focusing solely on protecting us from the initiation of force by others, immigrants with a criminal bent are likely to look for greener pastures in countries where such protections are weaker.
A capitalist social system acknowledges that you are in control of deciding where to pursue your happiness and that you have the individual rights to go wherever that pursuit takes you. Statism violates those rights by restricting immigration.