It is a theme of fiction: when someone dies, people line up to steal from him or her—estranged relatives and strangers alike. The deceased cannot protect himself. This is a reason that we should expect that death may be a time for the state to work some injustice too.
Thus, we should begin with a healthy suspicion of a tax levied at death. Hillary Clinton’s recent call for a 65 percent federal tax on large estates signals to Bernie Sanders supporters her Leftwing bona fides, but it should signal to the rest of us her lack of a sense of justice. When one adds in taxation from states like New York, the government could then confiscate more than four-fifths of a decedent’s property.
To be sure, our basic intuitions about justice are often hard to justify, but there seems to be a large difference between taxing people’s income at a reasonable rate and taking a large portion of their assets. We think of income as a flow, into which the government may dip, whereas assets constitute a fixed bedrock that is wholly our own.
Our difference in intuition about assets and income might suggest that all estate taxes are unjust. But one plausible justification for sound estate taxes is that they can be a proxy for other uncollected income taxes.
In these days when capitalism is under renewed attack and appears particularly unpopular among many of the young, defenders of classical liberalism need to tell stories as well as recite statistics. One of the great fables of capitalism in general and free trade in particular is I, Pencil. This short essay shows how markets create a delusively simple implement only by facilitating complex cooperation among far flung peoples. It is also important to dramatize the wonder of consumer surplus, showing how goods give more value to most consumers than the amount they pay. Economists rightly stress that consumer surplus tends to…
Tesla provides an autopilot that allows its cars to drive themselves in certain circumstances. Recently, while on autopilot, a Tesla car crashed and killed the driver. The autopilot apparently did not distinguish between a white tractor-trailer and a brightly lit sky in the background of the trailer. The driver is rumored to have been looking at a movie, against the express mandate that a driver using the autopilot keep his hands on the steering wheel.
The National Highway Traffic Safety Administration (NHTSA) is investigating the crash, and the government is now considering how to regulate autopilots. I fear that if regulators aren’t careful, they may kill more people than they save. The basic problem is that first recognized by the great French economist Frederic Bastiat. People too often consider effects that can be seen, but not those that are invisible. Here the focus is likely to be on lives lost by the autopilot, often in fiery crashes that get attention. But lives may be saved as well by its introduction and these lives will receive almost no attention. Statically, the current autopilot itself may save some lives. Dynamically, permitting autopilots may lead to faster improvement in self-driving cars that may save more lives in the future. There are a lot of such lives to be saved. More than 30,000 people die each year in car crashes in the United States, and most such crashes are caused by driver error.
This problem is compounded by the prism though which government bureaucrats view regulation.
If judicial nominations are the best reasons to support Donald Trump, one of the best reasons to oppose him is his trade policy. In a speech this week he made clear that he will block the Transpacific Partnership, unravel NAFTA, and try to raise tariffs generally, which he implied were a good substitute for other kinds of taxes. He would be the President most opposed to foreign trade at least since President Hoover signed the disastrous Smoot-Hawley Tariff Act.
There is a reason that freer trade has always been at the heart of the classical liberal vision—from the Manchester School in the nineteenth century to Reagan’s America. It is not only that trade creates wealth through exchange. It is that trade is part of the engine that sustains civilization through human cooperation when we get rid of mind forged manacles, like mercantilism and distaste for foreigners. It is the enlargement of the sphere of cooperation domestically and globally that offers a long-run boost to security as well as prosperity.
Beyond the details of his policies, Trump’s position on trade shows him the opposite of a classical liberal—someone who thinks that political and economic life is zero-sum where the point of a nation is win over other nations and the point of an individual is to win over others. That is the recipe for endless political conflict and division—a medieval Game of Thrones played out in the twenty-first century.
The rule of law is a great boon to liberty, enabling us to plan our lives. Making law more transparent and less expensive to use also increases liberty because then more people can take advantage of that stability at lower cost. It is a particular boon to the poor and middle-class who cannot afford high-priced lawyers to help them see through a fog of law.
Fortunately, the ever increasing power of computation is creating new mechanisms to improve access to law. As I described in my presentation this week at the Organization of Economic Cooperation and Development, machine intelligence is transforming legal practice. It is making discovery of facts easier through predictive coding, permitting search by semantic concepts rather than just legal terms, generating simple but personally tailored legal documents, like wills and trusts, and helping predict the outcome of legal cases. Discovery, search, document generation, and legal prediction constitute a large part of legal practice.
The single most important structural change to accelerate such innovation is to permit non-lawyers and corporations to earn income from the practice of law—something that is forbidden by ethical rules in all our states.
In the coming weeks Washington faces another budget showdown between Democrats and Republicans in Congress and then between Congress and the President. Sadly, whoever wins or whatever compromise is struck, the federal budget will remain not only bloated but grotesquely misshapen.
The reason is that the debate concerns only cutting discretionary spending, not reforming entitlements. Yet entitlements are the primary drivers of ever increasing spending. In contrast, discretionary spending can generate public goods that aid long-term prosperity. An economist would define the essence of a public good as one from which individuals cannot be excluded and where the use of the good by one individual does not prevent use by another.
National defense is the paradigm case of a public good. Scientific knowledge is another. Given that such goods provide benefits which for which the provider cannot receive remuneration, they will be undersupplied. And some kinds of infrastructure goods with lots of positive spillovers also are likely to be undersupplied, even if they do not quite meet the definition of a public good. The primary fiscal focus of the classical liberal state should be on the creation of such goods, because neither the family nor the market will do so in sufficient quantity.
Not all federal discretionary spending supports these kinds of goods, but a good deal does. For instance, spending for the NIH is declining, despite very substantial evidence that it pays off in longer and better life for citizens.
2016 is shaping up as an election in which one of our parties will emphasize the need for growth and the other will call for greater economic equality. These concepts are often seen in substantial tension with one another. In my view, however, if the government encourages innovation we can have both growth and greater equality in the relatively short run.
As I wrote in yesterday’s Washington Times for the celebration of Liberty Month:
In this age of accelerating technology, there is no more important policy than to encourage innovation. Innovation is the primary source of economic growth. New innovative businesses, like Google and Uber, transform our lives for the better. And innovation builds on innovation, compounding growth from generation to generation. As the Nobel Prize winning economist Bob Lucas once said: “Once one thinks about exponential growth, it is hard to think about anything else.”
Innovation in the modern era also tends to make us more equal. Innovation creates a stream of new ideas that are rapidly enjoyed by the great mass of people. Material goods are scarce, because individuals can by and large not enjoy the same material simultaneously. But ideas can be enjoyed by all. To be sure, some innovations are patented, but these patents expire. And, as better innovations come along, the old patents rapidly become less valuable. That is one reason that smart phones have so rapidly become available to people of modest means. Thus, the greater the supply of innovations, the great the common pool from which almost everyone can benefit quite rapidly.
We thus need to ask all Presidential candidates what they will do to promote innovation.
It is hard to believe that a book about the Gross Domestic Product could be interesting, important and occasionally amusing, but Diane Coyle has succeeded in all of this with GDP: A Brief but Affectionate History. It has two very salient takeaways for politics, one practical and one philosophical. First, GDP has become less and less good at capturing positive changes in human welfare. As a result, the lower growth in GDP in the last few decades is less troubling than it is often made out to be. Second, GDP is a measurement of the government that has inherent biases that one might expect from a metric devised by the government. Classical liberals should thus be careful to separate their respect for market freedom from any worship at the altar of GDP.
Coyle shows that GDP was designed for a time when most of the economy consisted of the production of materials, not intellectual property or services. Indeed, because it was formulated at the time that government came to seen as responsible for the economy, its underlying image is that of a machine. Put so much capital and labor into the economy and get out such much output of goods.
But of course today much of the economy does not lie in the production of material goods.