There is a blind spot at the center of modern social-economic thinking to which we are almost universally susceptible, and yet it can be quite easily observed to be false. This is an introduction to that conundrum.
We all want to live in peace, with a certain degree of prosperity. Most of us would like this to be at least inter-generationally sustainable. Our general principles of organization are also fairly commonly established, including the rule of law and the freedom to choose our governments by popular election. That’s a pretty good start, and we all pretty much share these principles.
Within this general context, we have two primary schools of thought, the Left and the Right. The Left tends to believe that the quality of any individual’s life is dependent on the quality of the life of their fellow citizens, and that that quality is achieved through a communal effort to support the basic infrastructures of society, such as public services and social security. The Right tends to believe that everyone is primarily responsible for themselves and the consequences of their actions, and that the prosperity of a society is substantially dependent on the freedom to pursue opportunity and engage in enterprise.
On these basic points each school is right. Left and Right are not in conflict as much as they think they are, they just emphasize different priorities. However at the nexus of their disagreements is a mutually held fallacy: that the “economy” can produce sufficient wealth to “pay” for the society they wish to live in. The reality, the elephant in the room holding a giant sledgehammer and standing next to the mirror that they use to sustain their mutual illusion, is that the economy does not, and cannot, produce enough wealth to pay for the society they want.
The Right believe that a comprehensive social benefit system will result in withering tax rates that will deflate the economy, and that borrowing to pay those benefits is not a viable alternative. They’re right. The Left understand that our modern social civilization depends for its peace and prosperity on a functioning social infrastructure and that poverty undermines the foundations on which we all stand. They’re right, too.
What they are both wrong about is the math. The economy, after all, is just a system of accounting that lubricates the actions of people. The wealth that can be counted in money is the value added output of commercial enterprise, it is not a measure of the total output required to enable and service the whole society.
In developed, democratic, peaceful and prosperous societies children take a long time and a lot of effort to raise and educate into functioning citizens and economic participants. During our lifetimes we need a range of services such as healthcare, transport and access to information in order to participate fully in our society, and we live for a long time passed our age of peak performance and output. In fact, in a modern society, only about one third of the population is gainfully employed in wealth creating (i.e. tax paying) activities — the rest are either young, old or disabled. Yet every citizen at every age is a consumer of, and dependent on, the services and infrastructure of the society, without correlation to their wealth creating capacity or activity at any particular stage.
The elephant in the room is this basic economic math: that we are all greater consumers of social resources than we are contributors of monetary taxes. We do not pay our parents to raise us, nor does anyone else, and nor could any society afford to pay every parent for their services, any more than any society can afford to pay everyone who cares for an elderly person. We understand this intuitively; we know that our families, our communities and our society are dependent on the unpaid contributions of many. We know that to attempt to pay everyone who helps out is a totally impractical idea.
There’s enough expense in simply building and maintaining the infrastructure of a modern society to consume most of any reasonable tax on wealth creation. The naked truth is that every society is completely dependent on the voluntary contributions of its members, in return for rewards that are not measured in monetary terms. What we call “the economy” is not the same as our society, and it only represents and accounts for a minority of all the people’s actions. The economy can never generate enough money to compensate everyone for all of their activities. No society can function without this volunteer action, and yet it is outside the system of accounting that we call our “economy”. Our society is a larger body of action than our economy, and you cannot pay for the larger out of the smaller.
And so the mirror is broken, the elephant having deployed its sledgehammer, shatters the illusions of both Left and Right. We cannot tax our way to equality any more than we can survive as a society without education, transport and healthcare. Yes: corruption, military spending and inefficiencies are terrible wastes of money, but the reality is that even if they all stopped tomorrow we still couldn’t afford to pay for all of the facilities of a functioning, prosperous, democratic society out of taxes on the demand economy. Even if our military spending would pay for universal healthcare, or quality education, or high-speed public transport — it won’t pay for all three. Modern social civilizations require a vast public infrastructure for transport, energy, information and public services, further amplified by climate mitigation needs. And if you don’t provide these facilities you can’t have peace, freedom and security to enjoy whatever prosperity you do have.
The mirages of self-funding, social democracies are often referenced, but do not withstand scrutiny. Those nationstates today that look or claim to be pulling off the trick of tax-funded, socially secure prosperity are taxing so highly that their economies are running below the necessary long-term capacity, unsustainably exploiting finite natural resources or effectively borrowing wealth from another society – all good while they last, but not sustainable. In a sustainable global economy trade must eventually be balanced and local economies substantially self-reliant.
Once the hammer has smashed the mirror, both Left and Right find themselves looking at the same dilemma: how do you fund, account for and maintain a social civilization with a sustainable economy? There are very substantial costs involved and taxes cannot generate sufficient revenues to pay for it all.
One answer is surprisingly simple, cheap and effective. It can be implemented immediately without requiring redistribution of assets and without overly disruptive changes to the basic mechanisms of administration, monetary control or enterprise. Once we accept our volunteer social membership status, the next steps fall easily onto the path in front of us.
The first step is to dedicate all income taxes exclusively to the provision of basic life-sustaining services for all citizens: basic shelters for the homeless, public canteens for the hungry, basic education, healthcare and public transport for all. You make all of these services available to any citizen, on demand at no charge.
Next, you remove any controls on the minimum compensation that anyone can pay or earn for work. Minimum wages are unnecessary because minimum life services are provided instead.
Third, you make income taxes universal and fixed to the cost of providing the services in the first step, and not to exceed a rate of 50%. This creates a cap on the maximum costs of providing the services, and defends the incentives that support a robust enterprise economy.
When implemented in today’s advanced societies and economies, these steps create positive feedback loops that result in full social development, an expansive and resilient economy with average taxation rates on income of around one third. The other activities of government can be funded using local, sales or corporate taxes.
No one gets any cash benefits, everyone is free to take responsibility for themselves and a flourishing economy supports the social fabric of democratic civilization. Not Left, not Right, just unified people in action.
(To see how this all works in more detail go to www.StandardsofLIFE.com)