‘Tax cuts have never extinguished a fire’ and other such nonsense

Sometimes anti-government rhetoric can go too far, as Katrina vanden Huevel points out at The Nation. While it may be endearing and folksy to accuse the government of getting in the way of business and job creation, Huevel thinks it is dead wrong.

And common sense seems to be on her side. Look at all the stuff the government does for us, it builds roads, bridges, keeps our food safe, regulates the banking industry, and fights fires with tax dollars. It appears that the government helps businesses by providing all these benefits.

As evidence, Huevel cites the new book The Self Made Myth, full of successful business people who say just that. They argue government regulation and benefits aided their success. In Congressman Barney Frank’s clear words “I’ve never seen a tax cut put out a fire. I’ve never seen a tax cut build a bridge.”

But is it really so obvious that government regulation and taxation is a good thing? This thinking can be broken up fairly easily. Darn near everything the government provides was at one point a private service. If there were magically no government, there would still be people out there to put out fires, build bridges, and regulate food quality.

The question is who provides services with more efficiency and social benefit, private companies or the government. Private firms are superior because they use the price system and are voluntary. Prices transmit critical information. If something costs a lot of money, it means people in society have high valued uses for it. That’s why doctors and professional athletes are paid so much: to keep them doing what people want.

It gets better: society uses prices to tell people where they are most needed without the use of violence. The government does not have to go around and tell people to be doctors: people already value their health and are willing to pay other people to take care of them. Prices tell the cost of using these resources.

Perhaps the best part of this set up is our ability to stop paying for the service. If a doctor starts treating you for a condition you don’t have, you can say ‘no thanks’ and not pay for it. Consider how the government system works. The government will take the money for the service in taxes regardless if you use the service.

True, that service may benefit many people, so you paying a small amount of taxes is no big deal. Maybe, but there is no objective way to show their benefit outweighs my cost. Even worse, this involves involuntary interaction. Let’s say I don’t want to pay for a bridge in California, so I don’t pay the $20 tax levied on everyone. Saying it’s socially beneficial to pay taxes for the bridge also means it’s socially beneficial to have someone break into my house, handcuff me, and take the $20. If anyone else treated people this way, they would be criminals. In my eyes, the use of price rationing and voluntary exchange make the market clearly superior to the government.

If you need further proof, read Huevel’s entire article. She notes some companies actually want tax increases. I’m curious why they want higher taxes, as Huevel also says “the problem isn’t big government, its big business capturing government.”

How is this not the same phenomenon? If some businesses could push tax increases, any business unable to pay them would be forced out of business, and new businesses would face increased barriers to entry. It makes sense for big businesses to push for tax increases to crowd out smaller competitors.

This is Huevel and other progressive’s fatal flaw. I generally agree that there are problems with the distribution of wealth, goods, and services. I think big business has especially hijacked the banking industry through government means. But what is the solution? If big business’s capture of government is the problem, it is naïve to think more government is the solution.

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2 Responses to ‘Tax cuts have never extinguished a fire’ and other such nonsense

  1. Tony Escobar March 11, 2012 at 12:04 am #

    Awesome commentary! I’m still trying to wrap my head around people not seeing the logic here. Perhaps one day…


  1. Is it really so obvious that government regulation is a good thing? « Economics Info - March 10, 2012

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