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It’s Not Your Money

2010 January 12
by Ian Welsh

You also didn’t earn most of it.

It seems like every time I discuss taxation, some libertarian will waltz in and say “it’s my money and I don’t see why the government should be able to take it.”

So let’s run through why, no, it isn’t your money. We’ll start with two numbers. The income per capita for the US in 2005 was $43,740. The income per capita for Bangladesh was $470.

Now I want you to ask yourself the following question: are Bengalis genetically inferior to Americans? Since not too many FDLers think white sheets look great at a lynching, I’ll assume everyone aswered no.

Right then, being American is worth $43,270 more than being Bengali and it’s not due to Americans being superior human beings. If it isn’t because Americans are superior, then what is it?

The answer is that if it isn’t individual, it must be social. On the individual but still social level, Americans are in fact smarter than Bengalis because as children they are far less likely to suffer from malnutrition. However not suffering from malnutrition when you’re a baby, toddler or young child has nothing to do with you and everything to do with the society you live in and your family–two things you have zero influence over (perhaps you chose your mother, I didn’t.)

Bengalis won’t, on average, get as good an education. They won’t get as much education either, since every child is needed to help earn a living as soon as possible. For most Bengalis there’s no room for having the extended childhood and adolescence westerners are used to, which often stretches into the late twenties or even early thirties, amongst those seeking Ph.D’s or becoming doctors or lawyers.

When a Bengali grows up the jobs available aren’t as good. If he or she starts a business it will earn much less money than the equivalent American business. If he or she speculates in land and is very successful, they will still be much less rich than an American would be.

One could go on and on. I trust the point is obvious — the vast majority of money that an American earns is due to being born an American. Certainly the qualities that make America a good place to live and a good place to make money are things that were created by Americans, but mostly they were created by Americans long dead or they are created by all Americans working together and are not located in the individual.

Now the same is true of the really rich. Forbes keeps track of the world’s billionaires, and almost half of them are in the US. This is because US society and the US government in particular, is very set up to create billionaires. Your odds of being a billionaire take a massive jump if you’re born in the US. Your odds of being a billionaire if you’re born in Bangladesh? Essentially zero. Now one could point out that billionaires are still so rare that the odds are always essentially zero (how many billionaires in your circle of friends?) Nonetheless the US in 2005 had 371. Germany, with the second most, had 55.

Bangladesh, you won’t be surprised to hear, had zero.

If you’re a billionaire in the US, you’re a billionaire in large part because you live in the US.

So, if you’re American, a large chunk of the reason you make a lot of money (relative to the rest of the world) is that you are American. The main cause of your relative wealth is not that you work hard, or that you’re innately smarter than members of other nations (though you may be since you weren’t starved as a child). It’s because you had opportunities given to you that most people will never had, and those opportunities existed due to the pure accident of your birth or because you or your family chose to come to the US. The same is true of most first world nations.

Immigrants understand this very well. There’s a reason why Mexicans, for example, are willing to risk death to cross the border. Their average income is $7,310, compared to the US average income of $43,740. They won’t make up all the difference just by crossing the border, but they’ll make up enough that it’s more than worth it. They haven’t personally changed, they don’t work harder now that they’re across the border. They aren’t smarter and they aren’t stronger. They just changed where they lived and suddenly the opportunities open to them were so much better that their income went up.

So let’s bring this back to our typical Libertarian with his whine that he earned it, and the government shouldn’t take it away. He didn’t earn most of it. Most of it is just because in global terms, he was born on third and thinks he hit a triple. That doesn’t mean he doesn’t have to work for it, but it does mean most of the value of his work has nothing to do with him (and Ayn Rand aside, it’s almost always a him).

Now what a government is, in a democratic society, is the vehicle that the population as a whole chooses to use to organize collective action. Government is, imperfect as it is, the closest approximation to the “will of society” that we’ve got.

Since the majority of the money any American earns is a function of being American, not of their own individual virtues, the government has the moral right to tax. And since those who are rich get more from being American than those who are poor, it also has the moral right to take more money from them.

More importantly than the moral right, it has the pragmatic duty to do so. The roads and bridges that government builds and maintains; the schools that it funds, the police and courts that keep the peace; the investment in R&D that produced the internet; the sewage systems that make real estate speculation possible, and on and on, are a huge chunk of what makes being American worth so much more than being a Bengali. Failure to reinvest in both human and inanimate infrastructure is like killing the golden goose, and America, for decades now, has not been keeping its infrastructure properly maintained, let alone building it up.

And money itself is something that government provides for its people. It’s not your money, it’s America’s money and it’s a damn good thing too. If you don’t believe me, try issuing your own money and see how many people accept it. Some will, because what money is, when an individual issues, is an IOU. I’ve written a few in my life. In every case the person I gave it to was less happy to receive it than he would have been to get some nice crisp dollars. And I rested my IOU’s on dollars — I promised to repay in my country’s currency. If you don’t want to do that you’d have to issue an IOU saying “I will repay you with a bundle of rice” or gold, or a service. And then you come to the question of enforcement (one thing even libertarians admit the government should do) because what if I refuse to meet the conditions of the IOU. Even an IOU is based on the sanction of the government, if it isn’t it’s worth only as much as the good will of the person issuing it or the strong arm of the person holding it.

So no, it isn’t your money, and it’s a good thing it isn’t. And while you may have worked your butt off for it, you also didn’t earn most of it. The value you impute to yourself “I’m worth my 80K salary” is mostly a function of where you live, of where you were born and of who your parents are.

Originally published Feb 9, 2008.

26 Responses
  1. dougR permalink
    January 12, 2010

    I LOVE THIS POST.

    I loved it when you first put it up, and have a copy in my archives someplace. Thanks for reposting it. Somehow I think it ought to be in civics textbooks nationwide. (Oops, what’s “civics”?! some kind of arcane subject like “alchemy,” I think)

    I’d also like to recommend a piece that echoes your post in a slightly different way: Wallace Shawn’s extended theatrical monologue, “The Fever,” in which a person of some privilege (like Mr. Shawn, like many of us) comes to grips with the crushing poverty most of the world lives in.

    Thank you for this piece, and for everything else you’ve written.

  2. S Brennan permalink
    January 12, 2010

    Dear Ayn Rand & her band of juvenile followers…did somebody say Greenspan:

    “In healthy people, the more you activate a portion of your frontal lobes, the more accurate your view of yourself is…And the more you view yourself as desirable or better than your peers, the less you use those lobes.”

    http://www.sciencedaily.com/releases/2010/01/100109232919.htm

    Long story short, libertarian types, with their inflated sense of self worth, arrive at that conclusion because they don’t use their cognitive abilities, they rely on their reptilian brain functions.

  3. Oaktown Girl permalink
    January 12, 2010

    Like Doug R, I had your original posting of this saved, but lost in when my computer crashed in August last year, so I’m very glad you’ve re-posted it.

    And Doug – I’ll be sure to look up that Wallace Shawn bit you mentioned. It’s ironic that despite My Dinner with Andre, I know him best for his excellent acting work playing the leader of the ultra-materialistic/patriarchy- driven* planet Ferenginar on Star Trek Deep Space Nine.

    S Brennan – very interesting (but sadly, unsurprising stuff) about the brain lobe study. Will check that out too.

    *Yes, even more materialistic and patriarchy-driven than our planet.

  4. Lori permalink
    January 12, 2010

    Wow, great post. I’ve never heard it expressed so clearly and so simply. Good work.

  5. marcopolo permalink
    January 12, 2010

    I’m living in a ‘third world’ country and experience poor people’s vibrant native intelligence every day. There’s a guy who has been lumping foreign language newspapers around town for years. He’s practically hunchbacked from the effort. He started out doing this as a kid. Now he’s expanded, and has kids working for him. There are many enterprising people like him. I often wonder how they’d have fared in a more forgiving economic climate. He might well be a millionaire with a bit of education and a little start up capital. I don’t especially admire ambition, and try not to confuse success with wealth or status, but if it’s a goal, you have to admit luck plays an essential role in non-relative, quantifiable (monetary) terms. Barbara Ehrenreich touches on this in “Bright-sided: How the Relentless Promotion of Positive Thinking Has Undermined America” (and a lot of her other work).

    All by way of saying: Yes, Ian, I agree! Excellent point.

  6. January 12, 2010

    I hate these comparisons. And I’ve travelled in poor countries, though admittedly nowhere as poor as Bangladesh.

    I live in New York. If I made $470 a year, I would literally starve to death. A hotdog from a street vendor here costs $2. A bottle of water costs $1, water from the tap is free but you need a place to live for that and you won’t get that for $470 a year in New York. Since $470 a year comes out to about $1.30 per day, every third day I could afford to buy a hotdog and drink a bottled water. I probably couldn’t afford to construct a shack in a park, not that the police would let me.

    You see these annual income figures for southern countries because lots of people in the world have no income -they just don’t live in a cash or credit economy. Now there are real problems with hunger in the world, but if you translate these figures into what they could buy in the US you would get the impression that, for example, the entire population of Bangladesh, one of the world’s great breadbaskets, is starving. You have to at least adjust for purchasing power parity.

    Actually $43,000 doesn’t get you far in New York City. At least a third of it will disappear into taxes. You can get a roach infested apartment, in a slum, for maybe $12,000 a year. You presumably need to go to a job somewhere to earn the money, thats another grand for subway fares. After paying the various fees and rents, $43,000 in New York translates into at the most $15,000 a year of actual discretionary income, but remember if you eat ramen noodles for every single meal in the US you still blow a Bangladeshi budget. The police are quick to dismantle any shacks or gardens on any pubic or even unused land.

    The big difference between the US and developing countries is that in the latter, people can still squat somewhere and raise their own food. The US is more like a company store, everyone has high income but than it disappears as the system charges one non-discretionary expense after another.

    Also income per capita is the mean, not the median.

    Really this post is more similar to work by right wing hacks than anything that has a appeared on this blog. It borrows all of the rhetorical devices they use when they explain that there is no malnutrition in the US because, of course, everyone here is rich.

  7. January 12, 2010

    Terrific article, Ian. I just love it when people claim that they’re the ones responsible for their success. That’s not to say they had no part in it – certainly, everyone’s ambition and talent can be the determining factors. But there’s a whole world of stuff that other people did and made so that you could acquire that talent.

    Anyone who thinks he’s a self-made man is invited to walk into the wilderness naked with nothing in his hands. If he comes out at the end of a year, then he’s a self-made man.

  8. January 13, 2010

    Uhmmm, no. You can’t just walk into the countryside in Bangladesh, and start farming. The land is virtually all spoken for.

    And yes, many of them are starving. I did live there, and I know how far the local currency goes, and trust me, a huge chunk of the population is borderline starving. While it’s certainly true that to do it right I’d have to use PPP numbers, it is also true that even PPP adjusted Bangladesh’s income numbers are much much smaller than the US’s. Nothing in the article would need to change except some nominal numbers. Nothing.

    And despite being one of the world’s most fertile areas, the heavy population and primitive agriculture means that Bangladesh has a food deficit, not a food surplus.

  9. Mike Huben permalink
    January 13, 2010

    This is an excellent concrete version of Mark Twain’s more abstract What Is Man?

    I’ll have to add this one to Critiques Of Libertarianism as well.

  10. peon permalink
    January 13, 2010

    Ian, I have never lived in Bangladesh, but I have lived in Nairobi and you could make a similar comparison. Ed, when you are poor you don’t buy your food prepared from vendors, and you don’t buy meat and bottled water, even in the US. I work with poor people in rural USA and if any of my clients had $15,000 of discretionary income after taxes, transportation costs, and housing costs (even roach infested) they would not be my clients.
    The difference for the poor I work with and the poor in Nairobi is stark. I remember a conversation I had with a Kenyon friend of mine who was trying to understand poverty in the US. This man was affiliated with a Kenyon/US NGO whose mission was to ensure secondary education to Masaai girls. Kila Nafasi
    He understood we had poverty, as he had seen the pictures of Katrina and other American slums. He wanted me to confirm that school was free. Then he wanted confirmation that transportation was provided to school for free. Then he posited the family being too poor for books. I explained books were free. Next he posited the family being too poor for food. I explained food stamps and the school lunch and breakfast programs. He thought he had me when he said, “And what if the family is too poor to buy the girl shoes?” I had to explain the American glut of clothes, Salvation Army, Goodwill, and yard sales, all mind-boggling concepts in Kenya. At this point he threw up his hands in disbelief and frustration and said “Then how can people be poor?” I realized at that moment that by Kenya standards we don’t have poverty. Then I realized how much of our advantage comes from having a functioning federal, state, and local government, supported by taxes, that positions each successive generation of Americans for a chance at a better life.
    Masaai women, in particular, and African women in general are some of the hardest working people on earth. “African Mama” (a termed used for adult women) is synonymous with strength in Kenya. If there is something difficult to do someone will say, “get an African Mama”. They are not poor because they are not working as hard as Americans. They are poor because they don’t have the government sponsored institutions we take for granted: good roads, good schools, libraries, mail delivery systems, police, fire departments, subsidized housing, food stamps, etc. , all paid for by taxes.
    Great post Ian, thank you.

  11. January 13, 2010

    Great post. Anyone who has spent a few days in poor countries and witnessed the level of tax-avoidance of the rich and the backbreaking work done by the poor knows that Western wealth is at best primarily a function of Providence, secondarily a function of adequate public services, and finally a function of colonial interference and resource “acquisition”. (That latter may rank higher on the scale if I weren’t being charitable today.)

    The libertarian/anarcho-capitalist argument, though, is not merely that “it’s my money” because “I deserve” it in some sense (I’ve rarely ever seen one argue that Bengalis, etc are stupid), but that property is an inalienable right no matter how “I” acquired it, and that my gold is “proper” to me the way my finger is “proper” to me.

  12. January 13, 2010

    “Since the majority of the money any American earns is a function of being American, not of their own individual virtues, the government has the moral right to tax. ”

    Since I agree with the need for taxation in order to fund the creation of infrastructure and I agree with the relativistic monetary valuation assessment you’ve made via Bangladesh and the United States of America, I am left wondering why I don’t like this article.

    And the above statement is why. There is no link between the relative wealth of a nation and it’s mandate to tax it’s citizens. Should Bangladesh, for moral reasons, stop taxing it’s citizens because they are poorer than citizens of the U.S.A.?

    I could go into all kinds of rants here, for example that inheritance is a root cause of wealth and should be abolished. I could hold umbrage at your innocent but inaccurate us of the term “American” to indicate citizens of the United States of America. I don’t need to. I’m sure that will all show up shortly after I post.

  13. Ian Welsh permalink*
    January 14, 2010

    You kind of missed the point about taxation. Maybe I’ll explain at some future point, maybe not.

    As a Canadian, I have no desire to use the word American to describe anyone else but residents of the US. And as Canadian, I feel not guilt for using the word Americans.

    PC has never been my priority.

  14. Tom Robinson permalink
    January 14, 2010

    I reposted this essay as a link in my Facebook account yesterday. Seems especially relevant as more come to understand the grinding hardships of Haiti this week. Great essay, Ian.

  15. January 16, 2010

    I have a similar problem: every time I write that some sort of government regulation will be required to limit greenhouse gas emissions, the Libertopians come out of the ether to explain to me that no, the magical market will take care of it and government regulations are teh devil.

    In fact, dare to utter the words “global warming” or “climate change” or anything related and they attack, often viciously, exclaiming it’s all some sort of scam to impose one-world government. Perhaps they are so sensitive because Nicholas Stern stated the obvious: climate change is “the greatest market failure the world has ever seen.”

    I can hardly wait to see what they think of tomorrow’s post: Food Security or Free Trade: Pick One (http://www.briangordon.ca/2010/01/food-security-or-free-trade-pick-one/), in which I point out two rather obvious facts: First, free trade and food security are incompatible, and second, the first real food shortage scare we have will likely mean the instant end to most free trade agreements. Everyone will suddenly realise it makes a lot more sense to have protectionist policies for necessities like food.

    A real-life spam filter is needed for Libertarians. As far as I can tell, they are ineducable; only if time brings some maturity will they realise the folly of Libertopia.

  16. January 16, 2010

    If I may add one of my favourite John Kenneth Galbraith quotes:

    “The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.”

    Substitute Libertarian for conservative and you have it.

  17. January 16, 2010

    I don’t think that most Libertarians are against taxes. We’re against unfair application of taxes (meaning tax loopholes, etc.), and reliance on/responsibility to the government instead of the individual.

  18. January 16, 2010

    People don’t seem to realize that if the income tax were done away with suddenly, they wouldn’t benefit at all.

    Their employers would just keep paying them their net pay, and pocket the difference themselves.

    Carolyn Kay
    MakeThemAccountable.com

  19. Angela Wynne permalink
    January 18, 2010

    Ian,
    I have to say that I agree with John Lewis. The relative wealth of a country should not dictate how much the people in that country are taxed. Also, the taxation of the citizens of a certain country cannot be justified by the conditions in another country. This is a fundamentally flawed argument.

  20. Ian Welsh permalink*
    January 18, 2010

    Since I didn’t make that argument, I feel no need to defend it. At most, it could be taken from what I wrote that if a government is not spending the money it taxes in the interests of those it taxes, it loses the moral right to tax.

    Certain Americans, around 1776, seem to have held that belief.

    The point of my piece is that the value of money is societal, not individual and that most of the value of one’s labor is not located in oneself, but in the society one lives in.

  21. January 18, 2010

    Totally dippy. It is the culture, stupid ! It always has been.
    You are trying to justify all the wrong things.
    We got rid of your goofy way of thinking 400 years ago
    and have been improving life ever since. Get a clue.

  22. Angela Wynne permalink
    January 18, 2010

    Thanks for your reply to my earlier comment. I’m still fascinated by this discussion.

    first point:

    I think it would be more relevant to disucuss the current situation in America. The real question is, why does America foster more billionaires?? You correctly state that it has little to do with Americans being inherently smarter and better and harder working.

    America has more wealth because we live in a system that DOES value individual wealth. We value entrepneurship and encourage the power of the individual. America encourages wealth because the money we make IS our money.

    I think that if the government took the stance that ‘it is not your money’. America would quickly be in a similar situation to what we see in developing countries.

    Second point:

    You seem to assume that the goverment will spend the money in better ways then the wealthy individual. Of course, goverments have to tax in order to upkeep roads and schools, and general infrastructure. But there are also examples of horrendous, monumental wastes of tax dollars. The defense budget and our current occupation in certain countries, for example.

    third and final point:

    I agree that the situation of each American (impoverished, wealthy, educated, etc) is, ” a function of where you live, of where you were born and of who your parents are.” But why does this change whether or not your money belongs to you?

    A lot goes into the situations of each indivual American. It is overwhelmingly likely that the doctors and lawers had relatively wealthy parents. But this does not change that they went through years of higher education, worked hard and provide valueable services to the rest of society. Or in the case of Doctors/lawers that have private practices or business owners/entrepreneurs, these people are responsible for hiring, paying, and providing a living for countless employees, which helps society also.

    It would be deplorable to assume that the gas station attendents, minimum wage workers at walmarts, chain restaurants, and construction laborers are inherently lazier or “worth less” than wealthier Americans. But, these people still benefit from a system that encourages indivuals to make their own money, rather than depending on the government.

    So my words here are similar, but my conclusion is absolutely opposite. The money you make is largely defined by where you live, where you were born and who your parents are. But none of these conditions change the ownership of money. It doesn’t matter how much or how little money you have accumlutated over your lifetime. If you are not a criminal, then you deserve every cent.

  23. Ian Welsh permalink*
    January 18, 2010

    Oh my. America has more billionairies per capita because of specific policies like low marginal tax rates.

    2. Government often wastes money. It still generally spends it better than billionaires do. See “Crisis, Financial”. But, more to the point, my argument would be that government hasn’t been spending money as well as it should be. (For example, you get almost no value for the huge amount you spend on your military.)

    3. The vast majority of the money any American makes is not a function of their individual effort. If you want to continue to have a prosperous society (and if you do, your philosophy won’t succeed at it, I will add) then you have to take that into account.

    Two generations ago the US had the most inter-class mobility in the western world. Today it has the least. The last decade saw median Americans actually lose ground economically.

    That is specifically because you are letting rich people have and keep too much money, and specifically because you are not reinvesting properly in society. (For example, on an inflation adjusted basis university is far more expensive than it was 30 years ago. Far far more expensive.)

    The sort of philosophy you espouse is exactly the sort of philosophy which wrecks nations. If the US wasn’t the world hegemonic power, it would have crashed out Argentina style years ago.

    But even being the world hegemonic power will not save the US forever, it is just spreading out the ruin over a longer period and will end up making it worse.

    This moves far beyond the original point, and would take a book to explain properly. Maybe I’ll write it someday. In the meantime, if Americans keep thinking money belongs to them individually, and is a result only of their individual efforts, they will find that money becomes increasingly worthless.

    At this point, my long term assumption is that within 30 years the US and China will have equal median wages. And most of that won’t because of Chinese wages increasing, it will be because of US wages crashing.

    That’s not necessary, but it’s what’s going to happen, because it’s what Americans keep voting for, both at the ballot box and in their day to day decision making.

    And, frankly, it bothers me less and less. People often don’t get what they deserve, but Americans have asked for this repeatedly.

  24. Angela Wynne permalink
    January 18, 2010

    And what exactly is wrong with billionaires?

    There is a long history of ‘my philosophy’ succeeding all over the world. This philosophy being that it is valuable to reward people who participate in enterprise and business with wealth and a higher standard of living. China is actually a good example that you brought up. I think wages will increase in China over the next 30 years as a direct result of applying a more capitalist worldview. People in China will no longer have to hide their productivity to prevent their property from being stolen from them.

    It’s important to mention that these values depend on keeping a society open enough to allow opportunity for any enterprising person. No country is perfect and I think there needs to be a constant fight to prevent the balance from tipping too far in either direction.

    Your opinions here are completely focused on America, shouldn’t a coherent philosophy apply to the entire world? Which country comes closest to your ideals? If you actually plan on writing a book about the emminent destruction of the United States you should be prepared to offer causes and solutions. Please steer clear of the strange, unsubstantiated ranting about hegemonics and I think you might have some good points.

  25. Ian Welsh permalink*
    January 18, 2010

    Thanks for the advice on what to write. I’ll ignore it, thanks.

    I have predicted every major economic event for the last 12 years or so, the last 6 of them in blogs (and the others on forums and there are people who can attest to the fact), though I haven’t always gotten the timing exactly right (otoh, sometimes I have been spot on). My track record is just fine, which indicates my model is working rather well. I’ll keep refining it.

    I have frequently explained to Americans what needs to be done to fix America. I have also explained causes, frequently. This is a blog post, not a book, I can’t cover everything in one post and people who demand I do are very tiresome. If you want a book that explains a fair bit of it, read Kevin Phillips “Wealth and Democracy”.

    But you folks won’t do what needs to be done, so America’s going down. And unless, you, personally, are in the top 1% or one of their retainers, you personally are very likely to go down as well.

    Read up on what happened to Russia in the 90′s. That’s your future.

    And “your money” will be virtually worthless. Because, in large part, you thought it was your money and located its value in the work you do rather than in the value of your society as a whole.

  26. Jake Glatzy permalink
    January 20, 2010

    It’s not your money and you didn’t earn it. It’s because you were lucky enough to be born with well-functioning lungs. You probably wouldn’t be surprised to learn that those with malfunctioning lungs earn far, far less than those with good lungs. After all, those without working lungs tend not to live very long. Since those with poor lungs are not in any other way genetically inferior, we can conclude that earning more money has nothing to do with motivation, self-direction, or industriousness. It’s all due to being lucky enough to be born with working lungs. Since most of that success can be attributed to that luck, those people don’t have a moral right to their money and the government should tax it from them.

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