The Federalist #21: Hamilton and Taxation

Alexander Hamilton
Alexander Hamilton (Photo credit: Wikipedia)

Continuing with my review of The Federalist Papers, I’m going to move to a couple of short excerpts from #21 from Alexander Hamilton (did you know his political career was nearly capsized by a sex scandal?). I love this first line:

The wealth of nations depends upon an infinite variety of causes. Situation, soil, climate, the nature of the productions, the nature of the government, the genius of the citizens, the degree of information they possess, the state of commerce, of arts, of industry, these circumstances and many more, too complex, minute, or adventitious to admit of a particular specification, occasion differences hardly conceivable in the relative opulence and riches of different countries. The consequence clearly is that there can be no common measure of national wealth, and, of course, no general or stationary rule by which the ability of a state to pay taxes can be determined. . .

This is an interesting declaration that I will admit I don’t fully understand. His argument seems to be essentially that there are too many intangibles in determining the true wealth of a nation, which lesson he then turns and applies to the impracticability of imposing a just tax on states. This quick dismissal of any attempt to quantify national wealth seems suspect to me, which is why I think I don’t fully understand this. It may be possible that there are political obstacles to a state tax which Hamilton doesn’t want to address here. He then goes on to examine taxation more carefully:

Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. If inequalities should arise in some States from duties on particular objects, these will, in all probability, be counterbalanced by proportional inequalities in other States, from the duties on other objects. . .

I also found this interesting. This sounds like an awful lot like a description of the ideals of a free market–that imbalances will organically be corrected, without requiring the constricting oversight of regulation. I suppose this philosophical underpinning in capitalism is unsurprising–Hamilton did become the Secretary of the Treasury, after all. However, my understanding is that Hamilton’s running of said office resulted in more central planning than otherwise.

The Federalist #10: The Role of Faction

James Madison, Hamilton's major collaborator, ...

The first quotation in The Federalist Papers that stood out to me was Madison’s explicit acknowledgment of the reality and role of faction in a more democratic society in paper #10:

There are two methods of curing the mischiefs of faction: the one, by removing its causes; the other, by controlling its effects.

There are again two methods of removing the causes of faction: the one, by destroying the liberty which is essential to its existence; the other, by giving to every citizen the same opinions, the same passions, and the same interests.

It could never be more truly said than of the first remedy, that it was worse than the disease. Liberty is to faction what air is to fire, an aliment without which it instantly expires. But it could not be less folly to abolish liberty, which is essential to political life, because it nourishes faction, than it would be to wish the annihilation of air, which is essential to animal life, because it imparts to fire its destructive agency.

The second expedient is as impracticable as the first would be unwise. As long as the reason of man continues fallible, and he is at liberty to exercise it, different opinions will be formed. As long as the connection subsists between his reason and his self-love, his opinions and his passions will have a reciprocal influence on each other; and the former will be objects to which the latter will attach themselves. The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties.

The latent causes of faction are thus sown in the nature of man; and we see them everywhere brought into different degrees of activity, according to the different circumstances of civil society. A zeal for different opinions concerning religion, concerning government, and many other points, as well of speculation as of practice; an attachment to different leaders ambitiously contending for pre-eminence and power; or to persons of other descriptions whose fortunes have been interesting to the human passions, have, in turn, divided mankind into parties, inflamed them with mutual animosity, and rendered them much more disposed to vex and oppress each other than to co-operate for their common good. So strong is this propensity of mankind to fall into mutual animosities, that where no substantial occasion presents itself, the most frivolous and fanciful distinctions have been sufficient to kindle their unfriendly passions and excite their most violent conflicts. But the most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views. The regulation of these various and interfering interests forms the principal task of modern legislation, and involves the spirit of party and faction in the necessary and ordinary operations of the government.

So we can see evidence here of Madison’s pragmatism, as well as his political acumen. He astutely observes that to seek to avoid or suppress a diversity of interests would compromise liberty. He is also explicit in acknowledging that class plays a major role in the creation of faction, particularly with respect to the ownership of property. He therefore outlines one of the major purposes of government: to ensure that a diversity of interests are able to coexist, with their respective rights protected by regulatory oversight.

From a modern lens, it’s perhaps unavoidable to critique Madison’s presentation of governmental protection of the “various and unequal distribution of property” as biased towards moneyed, landowning interests. For example, Madison states that “those who hold and those who are without property have ever formed distinct interests in society.” What are the protections for “those who are without property?” And how will those interests be effective participants in the larger economy? By stating that “the latent causes of faction are thus sown in the nature of man,” does this excuse the unequal distribution of wealth?

Hernando de Soto, in The Mystery of Capital, makes the compelling argument that the world’s poor should be provided with land ownership in order to gain access to global markets and thus be provided with greater opportunities. Without property, he notes, they are forced into extralegal markets, rather than contributing to the greater economy.

I would also like to note a critique of Madison’s point that one of the unacceptable methods of removing faction would be “by giving to every citizen the same opinions, the same passions, and the same interests.” While this point is well-taken, as we can see what effect Soviet rule and other dictatorships have had, however, I question whether this avoids one of the principle functions of the culture formed by a healthy civil society, which will be established either with federal or state direction or without it.

What I mean is that we generally avoid any sort of governmental intervention in respect to culture: the very existence of a national public radio station or a public library system in our society, for example, is somewhat remarkable. Our national character is largely dictated, instead, by Hollywood, with questionable effects. Not to put too fine a point on it, but observers of the United States may note that our overriding culture is one of violence, distrust, superficiality, antagonism, and greed.

One of the functions of public education, then, in this sense, should be the establishment of a shared sense of civic culture. I’m not talking about Naziism, propaganda, or dogmatism, but rather that we should come to some general agreement about what historical knowledge, literature, music and folklore, and other cultural artifacts and understandings we wish to pass onto our children that would impart some sense of civic engagement, with an eye towards the idea that we wish our democracy to be functional, as opposed to constantly stymied by extremism.

Therefore, I would inquire of Madison: what is the use of liberty when the populace is uneducated and unengaged in the exercise and application of that liberty, and when, in practice, their participation in the economy is restricted to unthinking individual consumption, rather than the distributed cultivation and accumulation of national wealth?

A New Vision: The Market as Subservient to Nature

What is needed is not ever more refined analysis of a faulty vision, but a new vision. This does not mean that everything built on the old vision will necessarily have to be scrapped, but fundamental changes are likely when the preanalytic vision is altered. The necessary change in vision is to picture the macroeconomy as an open subsystem of the finite natural ecosystem (environment), and not as an isolated circular flow of abstract exchange value, unconstrained by mass balance, entropy and finitude. . . . .

The major task of environmental macroeconomics is to design an economic institution analogous to the Plimsoll mark–to keep the weight, the absolute scale, of the economy from sinking our biospheric ark.

The market, of course, functions only within the economic subsystem, where it does only one thing: it solves the allocation problem by providing the necessary information and incentive. It does that one thing very well. What it does not do is solve the problems of optimal scale and of optimal distribution. The market’s inability to solve the problem of just distribution is widely recognized, but its similar inability to solve the problem of optimal or even sustainable scale is not as widely appreciated. . . .

Economists have recognized the independence of the goals of efficient allocation and just distribution and are in general agreement that it is better to let prices serve efficiency, and to serve equity with income redistribution policies. Proper scale is a third, independent policy goal and requires a third policy instrument. . . . . The point is that the market’s criterion for distribution income is to provide an incentive for efficient allocation, not to attain justice. These two values can conflict, and the market does not automatically resolve this conflict. The point to be added is that there are not just two, but three, values in conflict: allocation (efficiency), distribution (justice), and scale (sustainability).

–Herman Daly, Beyond Economics

Why Teachers Like Me Support Unions

I meant to post this yesterday, in order to show my EDUSolidarity, but WordPress was having some issues and I couldn’t log on to finish it. Well, better late then never.

As I’ve mentioned in an earlier post, when I first entered the field of education, I was skeptical of unions, but was coming to appreciate the protection from short-sighted policy and budgetary broadsides that a union affords. One of the benefits of the events in Wisconsin is that it has served as a clarifying point to many people like me who may have been on the fence or uncertain about their support for unions. It forced me to examine whether I really supported the collective bargaining rights of a union, as well as to consider more broadly whether I felt the field of education might even be better with the power of unions subverted. As I considered these issues, I realized that the tactic which Republicans and businessmen were calling for was not surprising, given the values of management and capitalists in general, but that it brought to the forefront a major issue with untrammeled access of private interests in public education. Education in our country is based on the ideals of a working democracy, and if we can’t handle the messy debates and political process that such democracy entails via a system of checks and balances, then we will be cutting out the legs from under the efforts of education reform, even as it might momentarily appear that we would be gaining greater efficiency.

Simply because our economy is suffering due to misguided policies that benefit the wealthy few does not mean that we should begin slicing away at the very foundations of our democracy. The Economist is heralding the demise of unions, and they sound so eminently reasonable, don’t they? Problem is, they’ve forgotten that they are discussing real human lives in their equations.

Unfortunately, our society likes to pay lip service to our soldiers, our teachers, our firemen, our policemen, etc. But if the issue is ever broached that we would have to raise taxes to pay for those essential services, everybody clams up. And they hide away in their protective ideologies and behind their pacifying Fox news blather and tantalizing talk show hate radio. I don’t care what the situation with the economy is. We should NEVER cut essential services such as education or social services in our budgets. Because those services are the cornerstone of a functioning democracy, and when we cut those services, we cut into the lives of those members of our society who need them the most. We can talk about accountability, sure! I’m all for it. I’ve seen too many of those federal and state dollars go to waste sitting in a closet. We need to invest that money smarter and track the effects of contracted programs in districts. Definitely! But should we be laying off teachers, subverting the roles of unions, and eliminating some of the few incentives and protections that teachers have in a highly challenging role that produces a product (competent students and citizens) that is of utmost value?

We need unions to protect the interests not only of teachers, but of the children who are raised in poverty. When we cut services or diminish rights in the interest of efficiency or economic duress, we cut directly into those children’s lives. Unions serve to balance the power of government and private interests. That doesn’t mean unions are saints or that I agree with all their policies or organizational structure. It means that I believe unions are a necessary counterbalance to bring the interests of various stakeholders to the bargaining table.

Methods of Saving Moolah

There’s always these articles in Yahoo! and other such trite sources of information that advise us on ways to save our money. Such as utilizing coupons, driving less aggressively, paying off credit cards with the highest interest first, and other such trivial methods of scraping some extra cash back into the coffers–or, at the very least, simply stemming the flow of money out just that much less.

While those methods, and others, are all important ways to save, I would like to forward some of my own methods of saving cash which I think are more effective. Excelsior!

1) Stop using Mach 3s and dropping $20 every month on razors. Transition into wetshaving (just one upfront initial investment) and you’ll save a lot of cash over the long term. Razors for safety or straight razors are significantly cheaper, and it’s furthermore a more fulfilling shaving experience.

2) Shave your own head. I used to go to SuperCuts or whatever cheap haircut store was around. I kind of liked how sometimes it was a pretty young lass that was cutting my hair. But I also noted that all they ever did was ask me what length of guard they should use on the clippers (as if I was supposed to know). So I realized, eventually, that I could just do it myself. That’s at least $20 in savings every two to four weeks, depending how often you cut your hair. And a pair of clippers is cheap, and they will last you for years. That’s a lot of money saved over the long term.

3) Forgo the gym and go hiking/running/walking. All you need is a pair of shoes. Or invest in a bike.

4) Brew your own damn coffee. I’ve bought a lot of Dunkin’ in my day, and I can attest that it really adds up over the course of a year. It’s the little steady, daily transactions that drain your income. It tastes better at home anyway. And all you need to make your own coffee is coffee and a French press. Forget drip brew; why pay for filters?

5) Hang out at home. You’ve heard of “staycations.” Well, how about “stay ins”? Instead of going out, you stay in. Invite your buddies over. Hang out at the local park. We all need to get out sometimes. But if you make it into only an occasional expenditure, then you will save big time. It’s quite easy to drop $60 in one outing on a few drinks. Drop that $60 on a fine whiskey instead and you could sip at it slowly over the course of a month.

6) Get over yourself and drink tap water.

7) Use the library. Libraries are fucking awesome. You can get nearly any book you want if you are willing to wait for it.

8) Don’t be an organic freak. Buy organic local produce or join a CSA. It’s important to support organic, local, and sustainable use of land. But forget the damn organic cookies and organic cereal. I mean, really. Just let it go.

9) Recognize the difference between luxury and necessity, and make your choices between the two consciously. A car? Sometimes its a luxury or a necessity, depending on where you live. In NYC, it’s a luxury, and an expensive one at that. Movies at the movie theater? Do you really need to see the movie right when it comes out? Is it really better in a movie theater? I find it obnoxiously loud, with way too many trailers and advertisements. In fact, I would rather just read a book. A lot cheaper, and more fulfilling. Sorry movies.

I think that last bullet point is actually the most important one. If you are making your choices consciously, then you are choosing to invest more in certain activities or things because you find them more fulfilling. And thus, it is worth it to you. But there are many things that we throw our money at that are not more fulfilling, and that even degrade our quality of life.

The moral of the story? Spend your money wisely.

Tax, Not Cut

Why is it that whenever a recession occurs (as it inevitably must), a state or municipality suddenly begins proposing to cut the programs that are most needed by those who have the least? These are always programs of health care to the poor or elderly, education to children, and other programs of welfare or of not immediately quantifiable benefit such as arts or music. Why is it that politicians are such cowards that they can’t propose the most logical form of meeting budgetary needs: increased taxes on those who have the most? Why is this so untenable to Americans? Is it simply because they know that the people least likely to complain or raise a fuss are those who don’t have anything to begin with?

Let me repeat: those politicians unable to raise the spectre of taxation are cowards. Funding to programs that are essential to people should not be subject to economic whim. Education should never have its funding cut. Never. Health care programs and preventative care programs and family planning programs should never have funding cut. Never. Welfare programs should never have funding cut. People rely on that welfare and need it for day-to-day existence.

Tax the rich and distribute that money equitably in order to continue funding for essential services and programs. Why is that such an unrealistic objective to achieve?

New Paradigm

You may have noted that I have been relatively quiet on the political/news front as of late, mostly because I don’t have any free time anymore, but furthermore because I think that most of the events, such as Obama’s inauguration, speak for themselves and we are all somewhat inspired and hopeful for the future, finally. But there are a few things that I want to say about the pressing economic and political events of our time.

First of all, former George W. Bush’s presidency was a complete and abject failure. Please, let’s not forget that. There have been a lot of interviews and articles before the switch-over that offered a somewhat benign retrospective of Bush’s reign, and it looks like reporters have been attempting to remain “objective” by entertaining the notion that Bush may have represented integrity because he never backed down from doing whatever the fuck he wanted, or something like that.

Bush was a terrible mistake, and a giant mar on the already besotted history of US politics. He stood as a representative not of personal integrity, but rather as the exact negative of what a leader should be. He didn’t listen to his opponents nor his own constituency. He didn’t utilize diplomacy in dealing with world bodies and foreign leaders. He took more vacations than any other president in history. His administration was peppered by yes-men, neo-cons, and nepotism. This is completely ignoring the myriad scandals that marred his administration. Basically, he didn’t do anything that he was supposed to do as a LEADER. The real “leadership” in the Bush presidency were the people who actually ran things, such as his vice-president and Karl Rove. Presidents in the past have oft been puppets on strings, such as Reagan, but at least Reagan had charisma and could instill some kind of false confidence, even when his actual policies resulted in terrible outcomes that we are still paying for today.

So yes, thank god we have closed that terrible chapter in our history. But we will be continuing to pay for those 8 years of bullshit for a long time hence, Obama or not. The Republican Party, as evidenced by their cold response to bipartisanship in the passing of the stimulus plan, are awaiting an eventual rebuttal to the centrism of the Obama presidency. They will do all they can do to ensure that his policies fail, so that they can renew their onslaught of the poor and middle class. Bear that in mind in the coming years: W. Bush was not an anomaly. He was the epitome of hard-line right-wing divisiveness. And again, let me be perfectly clear about the policies of such an administration: they failed. Period. They will never be effective. The myth of free market capitalism has been—with finality—debunked.

The history that Obama has made in his ascendance to the American presidency is not simply about a black man becoming a US President, nor reductively about simple “change”: it is about the forceful backing of an American public for a government that will utilize its policies for greater control and responsibility of economic tides. A government that does what it is supposed to do, rather than absolving itself of any and all responsibility beyond that of blatant militarism.

Now I want to discuss these “tough economic times,” as they like to say everyday on the news. This is indeed a time when the failed economic policies of the past are coming home to roost. This is also a time when “the American people” are beginning to pay for their years of living wantonly off of money that they never had and never will have. This is a time when issues of sustainability are no longer simply concerns of hippies, but of academic professors and Washington policy wonks. This is a time when America has to wake up to the fact that we have been sleeping, while the rest of the world has been quietly surpassing us in their investment in business and educational competitiveness.

Even though comparisons to the Great Depression can be fruitful simply for waking up people to the fact that this recession is real and its effects on people devastating, let’s also abstain from going too far. No one is jumping out of windows on Wall St. The lines for unemployment may be exceedingly long, but there’s no extensive lines for soup kitchens, at least, not yet. Retail chains that have stretched themselves too thin on the promise of endless sales have indeed been shutting their doors. Banks are decisively slimming their ranks with a butcher’s knife. And this impact cannot be understated on the economy nor on men and women now without salaries. But for many, it also doesn’t mean much of anything other than that they won’t waste their money like they might have before. And that’s not necessarily a bad thing.

Because the fact is that transitioning into what they call a “green” economy can not be easy, nor even possible without the recognition that it is necessary. These “tough economic times” are not about a housing market bubble collapsing, nor about over-investment in bad securities and over-lending of easy credit: it is about the transition into a new economic and political and social paradigm. A paradigm in which we recognize our interdependence on each other and other nations, acknowledge the interconnectivity of mankind with that of the earth, and begin to take responsibility for the actions not only of ourselves, but of our governments and world bodies.

So as tough as these times are—and yes, these times are tough for me personally, thank you very much—they are also a necessary time for buckling down and gaining a clearer vision of what we need to achieve.