Sunday, April 18, 2010

High tax rates reduce trade value; we trade less

Published in The Tennessean, April 18, 2010

High tax rates reduce trade value; we trade less

by Richard J. Grant

There is a conceptual difference between having a job and doing something useful. The difference is found in the purpose and in the relative importance of one action compared to other possible actions.

If you were alone on an island, what would you do? If you wished to live, you would set about finding and making food, building shelter, and then work to provide for your next priority. If you wished to escape from the island, you might first estimate your location; then you would devise some method of communication and transportation.

In such a simple setting, it is clear that survival depends on work. Someone must do that work. If you are able to provide for your survival needs sufficiently that you can occasionally take time off to go birdwatching, then that’s fine. It is your choice. But if you approach your life as though you have a right to a full-time career in birdwatching, then you had better enjoy it while it lasts.

In a real society we are never truly alone: It is in our interactions with others that true economic relations develop. Working together, each of us can do more than could any one of us alone. We can help each other; we can specialize; we can exchange. We can even give gifts. But that does not change the fact that someone must do the work.

Not all work is equal. Alone on our island, it is perhaps easier to see that. But in a more complex society where we benefit from the division of labor and the ability to invest our savings, it is harder to see what is really happening.

If we invest our time and financial resources preparing ourselves to provide services that are not highly valued by those with whom we would like to trade, then the results of our preparations will bring us less satisfaction than we might have expected. Just as we hope that others will train themselves to be able to provide goods and services that we like, we will have an incentive to play that role in the lives of others.

This is the real reason that cooperation is so highly valued. This is how communities organize themselves. The key is that our interactions be voluntary and not restricted by those who would arbitrarily take options away from us.

It should be obvious that when we are free to live and associate peacefully with one another, unemployment would never be a matter of not being able to find work. Never in the history of mankind has there been a natural scarcity of work. Such would imply that we could have a shortage of needs and desires, a world in which everyone is satisfied with things just as they are.

Everyone that I work with seems to have more work than time to do it. We must all prioritize; we must all do the essential and most important tasks first. There will always be something left undone because there will always be something more that someone desires.

You say, "Aren't you ignoring the fact that we have a 10 percent unemployment rate in this country?" The real question is why are they unemployed when there is so much work to be done?

Higher tax rates reduce the value to us of our trades; we trade less. Arbitrary regulations prevent us from producing or offering services that others might be willing to pay for; so we produce less. These are all opportunities lost.

Most of the history we study really consists of people in government doing stupid things. They tax us; they regulate us; they send us to war. Each of those powers, although justifiable at times, gives them the power to destroy.

When the president and Congress promise us a new "jobs bill," let us remember how much they must destroy in order to offer us what little they create.


Richard J. Grant is a professor of finance and economics at Lipscomb University and a scholar at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com

Copyright © Richard J Grant 2010