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Book Notes

Volume 6, Number 141
7 January 2006


by Jack Powelson

Dear Friends,

I phoned Western Union this morning to send a telegram to Argentina. "But we don’t send telegrams," I was told. "Great heavens," I thought. "Telegrams were all Western Union did the last time I sent one (decades ago). Culture certainly changes."

But culture changes slowly. Conquering armies have altered cultures only over centuries, and sometimes occupiers have adopted the culture of the occupied.

Democracy is a cultural attitude among people who are fiercely independent and who have "built into their systems ways of holding each other accountable for performance and for efficient use of resources, both public and private" (from Chapter 1 of my History of Wealth and Poverty; scroll down to see it.) The United States is long way from becoming a full democracy.

Democracy — being "more or less" — behaves cyclically. The closest the United States has come to being a "full democracy" occurred in the nineteenth century. The turnabout was marked by the Sherman Anti-Trust Law (1878) and the Interstate Commerce Act (1890), both of which foreshadowed the New Deal (1930s). All were useful in their time, but the rise of technology and trade has made them obsolete.

In the United States, the depth of the democracy cycle occurred this past year, with the Iraq war, zero net saving, the bankruptcy of company pensions (and probably Social Security), and the New York City transit strike, In each case, X (public or private) had "democratically" entrusted its future to Y (also public or private), and Y took on more obligations to X than it could pay. The Iraq war was entrusted to the government, pensions and health care to business, and saving to foreigners (through our balance of payments deficit). New York workers mortgaged their livelihood to the transit union. Each Y overspent the amounts participants were willing to pay (in taxes, labor dues, etc.) The depth of the democracy cycle tells the government it should rate schools (e.g., "No child left behind.") It also causes us to sue school boards over such matters as creationism as a science, and how to teach reading and writing.

David Brooks of the New York Times recently questioned whether democracy causes economic freedom. Unlike Brooks, I think they are related: a burst of one brings on a burst of the other (in downturns, substitute "collapse" for "burst"), and so on to the top (or bottom) of the cycle. Over centuries, however, each top in more developed countries has been higher than the previous one, so the trend has been decidedly "up" (despite cyclical collapses) — this is an argument of my History.

Loren Cobb, my successor as editor of this journal, implies (in TQE 135) that if the people vote democratically for a welfare service, they deserve to have it. Libertarians, on the other hand, argue that no one should be taxed for the subsidy of another. I tend to side with the libertarians, except that I would tax the rich and pay cash or vouchers to the poor, who, like the rich, could purchase whatever they wished within their means.

How would a libertarian government work in practice? No more successfully, I believe, than the income tax, and much more successfully than welfare. Over the centuries, people would have to become "libertarian" in thought, not just in government.

Libertarian thought would cause all schools to become private, with adequate transportation and finance for students, and let parents and students and themselves choose the best, debating among themselves whether creationism is a science, etc. They might vote with their feet (e.g., walk away if you don’t like what I offer). I agree with Nobel Laureate Milton Friedman who, when asked how the poor would be cared for, said, "Give them money" (or, I would add, vouchers, since it is your money anyway.) If you think they would otherwise spend your money unwisely, we might have education stamps like food stamps.

A return toward democracy will happen when individuals learn to care for themselves instead of trusting government or business (or any Y) to care for them. Libertarians believe that persons given anything without responsibility would not learn to take care of themselves ("give a man a fish," etc.) They would say that harm comes to people being lured into a lifestyle without effort or reason to exercise their potential.

For the most part, I believe the poor should choose their health insurance, their pharmaceuticals, their pensions, and their schools, etc., just like the rich. The government would pay cash or vouchers enough for a decent life. I believe an optimal society will eventually be found, if (and only if) power is adequately spread (in a democracy).

Here are a few questions, with no answers except your own:

  1. When is it appropriate for a government to influence a people toward its proposed culture, and when should culture develop on its own? Example: The Economist tells me that the French Parliament is recommending a tax on firms that produce "junk food," in order to persuade the French to be more slender. Is that a task for the Parliament, or should French people decide themselves how fat they want to be?
  2. Department stores say their Christmas shopping was damaged by people buying on the web. Will the time come when there will be no more department stores, and customers will buy only on the web? How will that happen, if it does (government edict, market choices, or what)?
  3. Will the current American policy toward Iraq create democracy there?
  4. Surowiecki suggests that the patent alleged in the "blackberry" case may be frivolous.  Is the patent office frivolous because they live on the revenue from granting patents and therefore are lax in judging patents?

Questions such as these are considered at greater length in my book, The Moral Economy (1998, University of Michigan Press). Its method is one I think everyone should use in any decision. Describe both sides of each argument as I (you) see them, then tell which side I (you) favor, and why. (Your bookstore will order the book for you, if you wish. The author is listed by my formal name: John P. Powelson).

Sincerely your friend,

Jack Powelson

A History of Wealth & Poverty

The Quaker Economist is the proud publisher of an online eBook entitled A History of Wealth and Poverty: Why Some Nations are Rich and Many Poor, by Jack Powelson.

Originally published in 1994 by the University of Michigan Press as Centuries of Economic Endeavor, this new electronic edition is now available to the public at no cost. Click here to see the Table of Contents.

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I like your essay. As I see it, your chief difference with libertarians is that you prefer to provide a safety net, that is, the rich will be taxed to subsidize the poor. But doesn't that bring you back to Loren's position? In a democracy, the people could vote to do that. Of course, the method of providing that sort of welfare (vouchers or detailed rules) might differ, which is maybe the chief point.

— Virginia Flagg, San Diego (CA) Friends Meeting.

Writing that "a return toward democracy will happen when individuals learn to care for themselves instead of trusting government or business" is as simplistic and wrong as the "people get the government they deserve" attitude you ascribe to Loren. We should be able to count on both government and business to be trustworthy, so we can trust them, precisely because not everyone can or should have to care solely for themselves.

The point of government historically (and the evolution of democracy in particular) has been to reduce the need for armed conflict to redistribute excess accumulation of resources taken by those most powerful. Democracy is currently failing in that regard, I agree, but libertarianism would be worse, because of its failure to account for systemic differentials in information access. If people should die or be hurt because they make bad decisions about their health care or pension system (or other complex market-basket choices), or because they are misinformed by deliberately distorted corporate or political advertising, the libertarian says too bad, they deserve it, when that may be blaming the victim of inadequate training or poor education, or demanding too much of people with limited knowledge resources, or most likely blaming the victims of aggressive corporate and political propaganda.

A just society would insure a baseline level of quality-of-life at the bottom end, provide compensatory guards against the tendency of wealth and power to accumulate at the top end, and restrict the use of market mechanisms to the middle where they won't hurt anybody. For example, instead of echoing Milton Friedman, you might consider advocating that having a good, appropriate job at a living wage should be a human right, and when the private sector fails at that, as it often does, the government should address the requirement. Or how about advocating a law that says no company convicted of engaging in illegal business practices can do business with the government for at least five years? Take that, Microsoft, and take that, Boeing! Promoting trustworthiness in business and reducing corruption in government go a long way to improving democracy.

— Dave Britton, Morningside Monthly Meeting, New York City.

Note: Just for the record, I have never espoused the theory that "people get the government they deserve." Quite the contrary! My professional career is focused on the opposite proposition, that faulty governmental design leads to corrupt and incompetent leaders, regardless of the moral and ethical qualities of either politicians or the electorate. — Loren

Jack, how much would you suggest taking from "the rich" to give to the poor? What top income tax rate, property tax rate, corporate tax rate, dividend tax rate, capital gains tax rate, estate tax rate, sales tax rate, etc. would you propose for "the rich"? Thinking back to when the top income tax rate was 90% and, also, to McGovern's death tax proposal — which would have taxed all amounts in an estate in excess of $500,000 at a 100% tax rate — would you consider any rate to be so high as to be unfair to the rich person? Who are "the rich": is it the top 20% of all income earners, which today is households with $75,000+ income?

Some economists believe that the higher the tax rate, the lower the economic growth rate: tax it less and you get more of it because of incentives. Do you have a view on this?

— John Spears, Princeton (NJ) Friends Meeting.

I am a convinced Quaker, having attended our meeting in South Bend, Indiana for the past year or so. I generally also hold libertarian economic and political views. On the other hand, I'm sensitive to the injustice inherent in a society of haves and have-nots, and am actively open to ways to remedy or ameliorate such inequities that do not involve further injustice. I'm sympathetic to the libertarian view that taxes are inherently a violation of natural rights, in that they involve taking a person's property and forcibly using it for purposes other than those of the owner, but that taxes are justifiable to the extent that they prevent greater violations of natural rights (e.g. to pay for police and reasonable military defense).

It seems to me, however, that a person does not necessarily have any natural rights to his property after he has died, and does not naturally have a right to control the disposition of his property after death, though ancient custom and common law have given him that right. It seems to me, therefore, that taxes tread least on natural rights when they are inheritance or estate taxes rather than income or sales taxes. Such taxes also seem far more preferable to the extent that we as a society are interested in a just redistribution of property that does not unduly penalize and discourage industrious work by taking away the fruits of such work (through income taxes, etc.). Such inheritance and estate taxes mitigate the unfairness respecting those from wealthy families who start life with a "silver spoon" in their mouth, so to speak, as compared to others who start life with no such advantages.

So why not dramatically increase inheritance and estate taxes, even to 50% or more on all estates, if by doing so we can dramatically decrease other less justifiable taxes? (Somewhat odd that I would say this, as I am an attorney who specializes in estate planning.) Are there any writings on economics you could point me to that have expressly addressed this idea?

— John Kindley, South Bend (IN) Friends Meeting. [November 2006]

Reply #1: In re confiscatory estate taxes, you should note that they must also be backed up by confiscatory gift taxes. If not, then people at risk of death will give assets to a trusted party in exchange for lifetime use.

— Russ Nelson, Publisher of The Quaker Economist.

Reply #2: You raise questions of both normative and positive economics. On the normative side, I am not a libertarian, but I think your libertarian ideas might reject the estate tax if a bequest motive leads to a large estate and that is the reason the decedent worked hard. On the positive side, you may know that marginal estate tax rates used to go as high as 60% and are now down to about 45%. Even with the exemption at $1 million, the base is not large, so an estate tax could not replace much of the income tax. If capital gains were taxed in full at death, the revenue might exceed that of an estate tax under the present system.

Two Brookings books have many articles by economists with varying points of view on the estate tax and the role of bequests in the U.S. They are:

  • Rethinking Estate and Gift Taxation. William Gale, James R. Hines, Jr., & Joel Slemrod, eds. Washington, DC: Brookings Institution, 2001.
  • Death and Dollars: The Role of Gifts and Bequests in America. Alicia H. Munnell & Annika Sundren, eds. Washington, DC: Brookings Institution, 2003.

Both are reasonably priced paperbacks, and easy to purchase. You will get some idea of the complexity of the issues, the widely differing points of view, and the need to make assumptions in the absence of data by reviewing these books.

— William Rhoads, Editorial Board of The Quaker Economist.

Book Notes

Readers of TQE are cordially invited to send us notes on books they have read. Please send us the book's title, the author, the publisher, and a single informative paragraph about the book. All notes will be edited for spelling, grammar, clarity, and brevity. Send to: "tqe-comment" followed by "".

The Trial of Socrates, by I. F. Stone. New York: Random House, 1989.

This book is famous for the style and eloquence with which it brings to life the conflicts and turbulence of Athenian democracy during the time of Socrates. The democracy of Athens was overthrown in favor of dictatorship and a reign of terror twice during the lifetime of Socrates, and a third attempt was imminent as Socrates was brought to trial. Socrates thrived in the Athenian no-holds-barred climate of free speech, but at the same time he held both democracy and the working class in contempt, and many of his students were implicated in the political upheavals. As an introduction to the perils and storms that inevitably surround democracy and freedom of speech, this book has few rivals. — Contributed by Loren Cobb.


Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting.

Editor: Loren Cobb, Boulder (CO) Friends Meeting.

Editorial Board

  • Chuck Fager, Director, Quaker House, Fayetteville, NC.
  • Virginia Flagg, San Diego (CA) Friends Meeting.
  • Valerie Ireland, Boulder (CO) Friends Meeting.
  • Jack Powelson, Boulder (CO) Meeting of Friends.
  • Norval Reece, Newtown (PA) Friends Meeting.
  • William G. Rhoads, Germantown (PA) Monthly Meeting.
  • J.D. von Pischke, a Friend from Reston, VA.
  • John Spears, Princeton (NJ) Friends Meeting.
  • Geoffrey Williams, Attender at New York Fifteenth Street Meeting.

Members of the Editorial Board do not necessarily endorse the contents of any issue of The Quaker Economist.

Letters to the Editor

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