You Didn’t Build that Pencil

By On August 8, 2012 · 72 Comments · In Current Events

A few more thoughts on You-Didn’t-Build-That-Gate. (See my earlier posts here  and here.)

Leonard Read explained that literally no one on earth can make a pencil from scratch. This guy tried to make a toaster from scratch and failed. (Note that he didn’t really start from scratch, either.) In A Brief History of Liberty, Schmidtz and I say,

…if you want pizza today, you can acquire a slice of it in exchange for a few minutes of work. But if you tried to make a pizza all by yourself, eschewing all reliance upon the division of labor, you would not live long enough. On your own, you would not even be able to smelt the iron to make the oven and other basic tools that you would need to get started. (139)

Many on the Left argue that the Randian ideal of the self-made superhero entrepreneur is illusory. No matter how tall we stand, we always stand on the shoulders not just of giants, but of everyone else. We rely upon and make use of background institutions, other people’s knowledge, public goods and utilities, and so on.

This isn’t an especially left-wing point of view, though. In fact, as Read (channeling Hayek, Smith, and others) shows, classical liberals proffer an even more radical version of that thesis. When I talk to friend’s on the Left about “I, Pencil,” they tend to assume Read is kidding or exaggerating, at least until they think about it and realize Read is right.

Now suppose a pencil-maker claims she is entitled to or deserves the wealth she obtains through business. (To simplify things, imagine she is a lone artisan pencil-maker, rather than a factory owner.) Read’s “I, Pencil” does not refute her. Sure, that businessperson cannot build the pencil from scratch. But the market does not reward her for building the pencil from scratch. It’s not as if the market mistakenly behaves as if she created the pencil ex nihilo. Rather, the market will tend to pay her her marginal contribution or marginal product. We can still debate whether she deserves or is entitled to her marginal product. Yet, it’s not as though the market just pays her everything and fails to pay all of the other people she relied upon to make the pencil. Rather, the market tends to pays everyone their marginal product.

Now, if she relied upon certain public goods to make the pencil, perhaps she should help pay for those public goods as well. (There are some interesting arguments against this claim, but I’ll be nice to other side and ignore them here.) Still, it’s hard to see why Obama would use this to argue for higher federal income taxes for the rich. At most–if I estimate far higher than I really should–about 3% of the federal budget goes to these kinds of public goods. Most of the budget goes to welfare entitlements, debt interest, and murdering people in the third world.

 
  • http://www.facebook.com/people/Kevin-Currie-Knight/100000158541035 Kevin Currie-Knight

    Good distinction to make in the second to last paragraph. This, and that presumably, everyone who is in that human chain that ‘made the pencil’ presumably got paid based on a contract they agreed to. In other words, they get paid for making their part of the pencil, and the people, who, say, own the company the pencil is ‘made’ by get their cut too.

    Another interesting question I’d have for Obama using this argument to raise taxes on the rich is that the rich are the LEAST likely to use the public goods Obama talks about. Sure, they use roads and bridges, but they are the LEAST likely to use public schools or any ‘public’ good that is also offered privately, right? I suppose you could make a really tortured case that even if they don’t use the public schools, they benefit from hiring workers who were educated in public schools and therefore, ‘owe’ something to public schools. But that is an indirect chain, and it is still patently obvious to me that the workers who were educated in public schools were the primary beneficiaries of the education, not the rich.

    • http://www.facebook.com/people/Philip-Damra/1601148243 Philip Damra

      I don’t believe that it is patently obvious that the workers from public schools benefit more from their education than the “rich” who employ them. Individually, yes, a person benefits more from their public education than their employer, but as a group, their education is worth more to the employer. As an example, take cashiers at walmart. If walmart had to include basic arithmetic as part of their new employee training program, their labor costs would be much higher.

      • http://www.facebook.com/people/Kevin-Currie-Knight/100000158541035 Kevin Currie-Knight

        “I don’t believe that it is patently obvious that the workers from public schools benefit more from their education than the “rich” who employ them. Individually, yes, a person benefits more from their public education than their employer…”

        So, you don’t believe it, but then you do believe it? Groups don’t benefit from anything. Only people (who are in groups, yes) benefit from things, so I think my point stands.

      • TracyW

        But if Walmart and every other retailer had higher labour costs (relative to productivity) then they wouldn’t sell their goods as cheaply, so everyone who shops at Walmart or other retailers would lose out as consumers by having to pay more for their goods. (If just Walmart had to pay more, it would come from Walmart’s return on capital, or Walmart would go bust).

        Since workers from public schools are also consumers, they benefit overall from lower shop prices and thus benefit from public schools as a group.

  • good_in_theory

    “the market will tend to pay her her marginal contribution or marginal product.”

    Will it?

    • mechris3

      Yes.

      • good_in_theory

        In rarefied models, perhaps, and maybe in some portions of the labor market. But generally? That would require some evidence.

        • mechris3

          It works well enough in real life and certainly better than some planner trying to decide what different workers ought to be paid. The evidence is history, looking at just about every time planners decide they can decide these things better than the aggregate decisions of millions of people.

          • good_in_theory

            You mean when governments use taxes and transfer payments? Seems to work just fine in most of the developed world.

          • mechris3

            No I don’t mean that. If had meant that, I would have said that. I meant and said that planners should not determine what different workers are paid.

          • BallsAndStrikes

            Is anyone suggesting that planners should determine this? Sounds like a strawman to me. Obama’s point is not as complicated as these posts have made it seem: no one can claim they are the exclusive cause of their place in society or that their property or wealth is the result exclusively of their merit. The point is obvious.
            Maybe we can imagine a world where those claims could be true, but it is not this one.

          • http://www.facebook.com/les.nearhood Les Kyle Nearhood

            And the obvious question is So what?

          • mechris3

            No, the strawman is Obama’s point as no one claimed that they are the exclusive cause of their place in society. You are right though that Obama’s point is not in the slightest bit complicated. It is just irrelevant.

          • good_in_theory

            Ah yes, the “planners” out there determining what different workers are paid. Is that corporate HR departments?

          • SimpleMachine88

            If you don’t like what the HR department says, you can go get a different job, because of THE MARKET!

          • good_in_theory

            Whereas when the government HR department, the OPM, sets a wage schedule, it’s magically ignoring the market, right?

            Do you two even know what you’re talking about at this point? Please, let’s return to this widespread problem of “planners” setting people’s wages through their overweening tyrannical faerie powers.

          • mechris3

            No, its the market. Corporate HR departments may well decide they want to pay minimum wage, but if the market rate for a given job is 3 times the miniumum wage, then that is the rate that they will have to pay. HR departments do not determine rates of pay.

          • good_in_theory

            Orly, I didn’t know that!

            Still waiting for an example of these mysterious planners out there fixing wage levels without respect to the market.

          • mechris3

            Well now you do know that, so well done you are that bit more knowledgeable today than you were yesterday.

            I am not sure what mysterious planners you are referring to. I simply said wages are better left to the market than to planners.

          • good_in_theory

            Actually, I did know that. If anything, your words are probably making me stupider.

            The initial question is who is saying that wages should be planned in a way divorced from markets?

            The answer appears to be no one.

            So the real question is why even bring up the point?

          • mechris3

            You seem to be confused with what you do know and don’t know. To blame me for you getting stupider seems a bit unlikely.

            You said “In rarefied models, perhaps, and maybe in some portions of the labor market. But generally? That would require some evidence.”

            Granted you don’t explicitly call for wages to be centrally planned, but that is certainly the implication. Still, if you want to clarify what it is that you have in mind to replace wages being determined by the market, do please enlighten us all. I’m sure it will be amazing.

          • good_in_theory

            No, it’s not the implication at all. We are not dealing with a binary “centrally planned” vs “market determined.”

            The only thing “implied” by my comment is that I don’t know why I should believe wages tend to equal marginal product – or, more specifically, why models in which wages equal marginal product are thought to be models of reality.

            “Central planning of wages” in no way follows from that. If it follows from that (which it doesn’t, but let’s pretend), that I think *incomes* (not wages) should be modified politically, it in no way follows that *wages* will be centrally planned.

            Personally, I would like you to clarify whether or not you’ve stopped beating your wife.

            But if we want to dispense with the leading questions and assumptions of the consequent…

          • mechris3

            Whether I have stopped beating my wife or not is not pertinent to this discussion whereas what you failed to answer (still) is.

            ”
            If thinking that *incomes* (not wages) should be modified politically follows from questioning whether Wages = MP (which it doesn’t, but let’s pretend), it in no way follows that *wages* will be centrally planned. ”

            Sorry, but that sentence should be taken out and shot.

            So, again, I wait with baited breath, what mechanism is it you propose be used instead of the market to determine wages?

          • good_in_theory

            I don’t propose any mechanism to replace market determination of wages. Changing tax rates changes the incentives people face in markets, it doesn’t get rid of markets.

          • TracyW

            Why you should believe that wages tend to equal marginal product is that:
            – If wages generally pay more than marginal product then the employer will tend to go broke as they are paying out more in wages than the people they hire are earning.
            – If wages generally pay less than marginal product, then the employer has an incentive to keep hiring people as it can make more money, until wages pay marginal product.

            Note that this allows for some people to be paid less than and some more than their marginal product, it’s only a general statement. It also doesn’t apply to government-paid wages, as governments can raise taxes (and an awful lot of governments around the world are going broke, though social and corporate welfare have a lot to do with that, not just wages).

            You won’t believe this, of course, you laid out your grounds for believing the statement about marginal productivity above. This explanation is merely why you *should* believe it.

          • TracyW

            I had better add that as part of the Cambridge controversy it was shown that under some production functions, fewer workers could lead to a higher output (or something like that, I forget the details). Giving the diversity of production functions across the economy though, this seems unlikely to be generally true.

          • good_in_theory

            1. This tells me that average wage should not exceed average product (actually, I realize it probably makes more sense to talk about revenue product. Apples and apples, right?). This is irrelevant.

            2. Again, this is about average wage and ARP. If ARP exceeds average wages (or really, average variable costs), the company may be able to expand (or not, if it has to cover fixed costs. And if it can expand, it need not expand its labor force).

            As you note, this tells me nothing about whether a worker’s wage is equal to their marginal (revenue) product. So this tells me nothing about desert and entitlement. W=MRP is both an attempt at a descriptive theory, and a normative theory – specifically, it’s an attempt to show that the market roughly conforms to a labor theory of property.

            What you have demonstrated is that average wages will tend to not exceed ARP (that total wages will not exceed total revenue product).

            Notably, this means that average wage can easily be less than ARP. (In fact, I’m sure it almost always is. ARP > AVC). We can be a bit specific here and say that average wages should tend to be no more than the average revenue from labor (ARP-L). But of course it need not if , for example, other factors of production are earning excess profits. In that case returns from savings on non-labor inputs can be redistributed throughout the firm so as to compensate labor over its ARP.

            You’ve really only demonstrated that the shutdown point for a firm is where average revenue is less than average variable cost.

            But I wanted to know if workers are compensated for their marginal contribution to a firm’s product.

            You’ve shown me a property of the aggregate (AR=MR=P=ATC), not of one of its constituent factors (ARL=MRL=ACL), let alone of the individual elements making up that factor of production (MRL1=ACL1, … MRLn=ACLn).

            In order for that to hold, we would need perfect information and perfect competition across sectors, across firms, across inputs, and across individuals.

            Why should I believe those conditions obtain, especially in the case of individuals, given that a break down in any higher level probably makes it more likely to see a break down at a lower level.

            I have no problem believing that the market does a passable job of paying people enough money to support themselves and ordering wage compensation such that more productive people and people with more human capital are generally ranked above those who are less productive and have less human capital.

            I do have a problem believing that that rough ordinal ranking is (1) not commonly out of whack and (2) that the scalar ranking which corresponds to that “correct in general” but “incorrect in many individual instances” ordinal ranking is tightly bound to an inviolable principle of moral desert, such as a marginal product theory of property.

            In fact, according to the latest paper you posted, high MR workers are systematically overcompensated and low MR workers are systematically undercompensated, because of the hierarchical structure of the firm as an institution, as left so called “class warfare” rhetoric would suggest.

            Allocative efficiency and distributive justice can’t just be collapsed into each other.

          • TracyW

            You make a convincing argument.

          • TracyW

            Elected politicians pay is an example.

            I can’t, together with a bunch of friends, decide that Jane Smith would make a great prime minister, and offer her 3x the current prime ministers’ wages to lure her into the job. (Please adjust for your corner of the world).
            And anywhere there are public sector unions that can go on strike, and politicians face high legal barriers to firing them. The salaries of London Underground workers are not being set by the market. The market sets a floor to what can be paid them, but they’re well above it.

        • TracyW

          How are you defining rarefied models? In other words, what would you regard as an non-rarefied model?

          And what sort of evidence could convince you of this point?

          • good_in_theory

            Any evidence at all would be a good start.

          • TracyW

            And what would you regard as evidence?

          • good_in_theory

            A demonstration of marginal product equaling compensation that isn’t question begging.

          • TracyW

            And what would you regard as a demonstration?

          • good_in_theory

            Develop a measurement/proxy for marginal product that is not derived from a worker’s wages. Compellingly justify why this measurement is an unbiased estimate of marginal product. Compare that measurement to wages. Show that wage reliably predicts this indicator without bias across types of labor.

          • TracyW

            You are probably going to remain unconvinced, because of the difficulty in constructing this index of marginal productivity.
            But when marginal productivity has been estimated by means other than wages, the result was (warning pdf) that the theory is right.

          • good_in_theory

            Or the result was that the theory is wrong:

            http://www.jstor.org/stable/1805123

          • TracyW

            Actually interestingly I came across this paper,
            http://ftp.iza.org/dp5951.pdf, which does imply that the predictions aren’t that good.
            Though it still remains that if a firm generally pays more than marginal product, it will go bankrupt.

  • alexismadrigal

    “There are some interesting arguments against this claim, but I’ll be nice to other side and ignore them here.” — What are they? (Genuine question as someone most likely on the other side.)

    • http://www.facebook.com/mghertner Micha Ghertner

      That all of those public goods could be better provided by the market. And if so, enjoying the benefits of a good that one did not ask for and does not want does not create an obligation to pay for that good. If I squeegee your window without first asking you if you want it squeegeed, I am not entitled to payment from you if I go ahead and squeegee it anyway.

  • John

    @facebook-100000158541035:disqus

    How can you claim that the argument is tortured? How successful would any business be without:
    An educated workforce
    A transportation system to ship their goods
    A regulated airway system to travel
    A regulated communication system to communicate with others
    A legal system to settle their disputes
    A health system to keep their workers healthy
    Public power grids and other utilities to serve their facilities

    and so on and so on.

    If a person can’t create a single pencil from scratch how in the world can a business create all these elaborate systems from scratch or even procure them individually?

    All of the systems above are fully or partially provided by taxpayer dollars and businesses take full advantage of them in orders of magnitudes why higher than any average citizen. It makes perfect sense they should pay for their fair share for these services.

    • mechris3

      But businesses DO pay taxes on not only these services, but also services that they do not use.
      In any event, workers are the primary beneficiaries of their own education and healthcare.

      Power grids are public? Water? Gas? Not in the UK they are not.
      Its by no means certain that communication systems need to be regulated by government.
      When a company transports their goods to customers, the company is not the only beneficiary, the customer is too.

    • http://www.facebook.com/people/Kevin-Currie-Knight/100000158541035 Kevin Currie-Knight

      I can claim that it is tortured in the following ways:

      First, it is very indirect. Yes, businesses benefit from having their workers educated and in living in a world where people are educated, but presumably, those who receive the education benefit WAY more than those who benefit indirectly. So, why use indirect benefit as a reason for those who INDIRECTLY (rather than directly) benefit to pay for the service?

      Second, if we are going to argue that indirect benefits incur an obligation on me to pay, then shouldn’t this work both ways? Don’t employees, workers, and consumers benefit from having entrepreneurs, employers, etc, who were educated at elite private schools? So, shouldn’t they, then, have to pay their ‘fair share’ to the private schools they indirectly benefit from…at least under our current reasoning? Obviously not, but why does the ‘indirect benefit incurs obligation to pay for it’ logic work in the one case but not the other?

      • BallsAndStrikes

        “So, shouldn’t they, then, have to pay their ‘fair share’ to the private schools they indirectly benefit from…at least under our current reasoning?”
        I am not aware of any private school that does not benefit from some direct or indirect government financial assistance. So they are getting their fair share.

    • http://www.facebook.com/les.nearhood Les Kyle Nearhood

      I cannot live without food but my obligation to the farmer ends when I pay him. Unfortunately the farmer leaves me on the hook for billions of dollars in agriculture subsidies created in his benefit by the government. SO my question is, how many of the things on your list are good, how many are necessary, and how many are simply waste? At any rate, since corporate profits are taxed twice and sometimes three times, I don’t think businesses have any further obligations either.

    • TracyW

      Firstly, businesses don’t pay taxes as businesses don’t exist, they’re just a convenient legal fiction. The shareholders of businesses pay taxes (their dividends are reduced by whatever tax the business sends to the government), the employees of businesses pay taxes, the customers of businesses pay taxes. Businesses can’t pay taxes. I presume what you meant to say is that the rich benefit more from these services.

      Secondly, businesses provide goods and services to customers. If none of those things you listed existed (leaving aside the point that many of them can be supplied without taxpayer dollars), then businesses would have to sell their goods and services at much higher prices, or wouldn’t sell them at all, and average citizens would be much worse off. We see this in reality. If you look at the Forbe’s list of billionaires, there’s people in there from India, Russia, Brazil, Mexico, where the provision of all the services on your list is far worse than in the USA or France or Sweden. It’s perfectly possible for someone to get really really rich in a poor country with bad infrastructure. But still many people in these countries live in poverty and median incomes are very low.

      • good_in_theory

        “Firstly, businesses don’t pay taxes as businesses don’t exist”

        Another incidence of methodological individualism trying to pass off stupidity as profundity, I see. “Socially constructed” does not mean “unreal.”

        • TracyW

          Good_in_theory: Thank you for your insightful comment. John: Please do me the kindness of reading the first line in my earlier statement as:
          “Firstly, businesses don’t pay taxes, as they are a convenient legal fiction.”

          • good_in_theory

            Fictional entities still act. And pay taxes. Fictions are causes, and they are not reducible to the creator of, or believer in, the fiction.

          • TracyW

            Good_in_theory: No, fictional entities do not act, nor do they pay taxes. That’s because they’re fictional.

            I am glad that at least you are aware that fictions are not reducible to the creator of, or believer, in the fiction. Now, take the next step: fictions don’t act. Star Trek is neither reducible to its author (nor is a single piece of verbal fiction – Homer was more complex than the Odyssey because he could both write The Odyssey and do other things like write The Iliad and breath oxygen) nor is it capable of doing anything, it’s just a story. People can act because of a fiction, such as attending Star Trek fictions, so a fiction can be a cause, as you point out, but it’s people who do the actions, not the fiction itself.

            It’s often convenient to attribute actions to a business, as a verbal shorthand (like referring to WWII), but it doesn’t help when analysing questions like who should pay taxes. The burden of any tax on business gets passed on to some combination of shareholders, employees, or consumers, and who bears said tax is often important both from the perspective of economic efficiency and that of fairness. For example, payroll taxes may be legally levied on the business, but they are actually paid by a mix of employees and shareholders, the proportion depending on the elasticity of labour supply and capital. If they are borne mostly by workers, this will result in lower take-home pay and if there are other labour market rigidities (like a minimum wage), higher unemployment, which is very bad. Sometimes more complexity is necessary.

          • good_in_theory

            You’re conflating willing with acting (and willfulness is also a legal (and phenomenological) fiction). Sometimes more comp[lexity is necessary, sometimes it isn’t.

            Stories act all the time. You’re working with an impoverished conception of action.

            One could also calculate the tax incidence a worker passes on to his employer and to those he purchases goods from. That doesn’t mean he doesn’t pay taxes, only employers and merchants do. Both personality and corporate personality are fictions, they both exist, and they both are rightfully attributed with performing actions when certain conventional criteria by which we decide to attribute responsibility are met.

          • TracyW

            If I’m working with an impoverished conception, as you assert, I would like to enrich it. How do you think that stories act? Can you cite some examples of this?

            Your analogies about the worker and personalities are inapplicable, whether or not they are right has no bearing on the fact that businesses don’t pay taxes.
            Note, in the case of a worker, where the incidence of a tax falls depends on the relative elasticity of the employer, or consumers of what the worker makes. Some of the incidence of a tax can fall on the worker themself in that their consumption can work out to be lower than without the tax. But if a business is taxed the incidence of the tax has to fall on some combination of shareholders, consumers and workers.

            And I laid out above why I think that the case of taxes is a case where it is wrong and misleading to attribute actions to businesses. You have stated no argument to the contrary.

  • SimpleMachine88

    To put it another way, I think the Administration is just conflating revenues with profits.

  • ThaomasH

    And this nicely stated summary,
    “… that the Randian ideal of the self-made superhero entrepreneur is illusory. No matter how tall we stand, we always stand on the shoulders not just of giants, but of everyone else. We rely upon and make use of background institutions, other people’s knowledge, public goods and utilities, and so on”
    is all that “you didn’t build that” means.
    Perhaps it should not be necessary to state such a truism, but there is more than a bit of Randian nonsense going around. The uproar over this phrase, as if it were the opening salvo of the Class War of 2010, shows just how much.

    • TracyW

      Except that “You didn’t build that” was in the context of an argument as to why the rich in the USA should pay more taxes than they do now.

      • ThaomasH

        You are correct about the broader context. Some of the Randian nonsense has been generated by the idea of returning taxes on higher income people to the levels of 2000. I don’t see “you did not build that” as an argument for higher taxes on high income people, but as a counter to one argument for no higher taxes.

        • TracyW

          Call me stupid, but the distinction between arguing for higher taxes on high income people, and countering one argument for no higher taxes, is beyond me.

          • ThaomasH

            The fact that an argument – I built my business entirely alone
            – is being used as an argument against taxes, does not logically make a
            refutation of that argument an argument for taxes.

            But I think this is getting off the point. Or perhaps we have different points. Mine is that I think the antecedent of “that”
            in the Obama statement “You did not build that” is the environment that a
            businessman depends on however good his ideas, however hard he works, etc. In other words. that Obama was arguing against
            Randian nonsense, not that the businessmen do not build their own business as
            some politicians have wanted to make it appear.

          • TracyW

            Good point logically.
            But in this case Obama was arguing for higher taxes. So the argument that “You didn’t build that [single-handedly]” was being used as an argument for higher taxes.

          • ThaomasH

            Was he? I never saw a transcript of the whole speech, just the segment about “you did not build that.” True, reading Brennan’s comment in more detail, I see he refers to the statement as an argument for higher taxes, so you are not the only one to interpret it in that way.

          • TracyW

            See
            http://www.whitehouse.gov/the-press-office/2012/07/13/remarks-president-campaign-event-roanoke-virginia

            A bit before the infamous line, he says “what we then do is ask for the wealthy to pay a little bit more”.

          • ThaomasH

            But how would knowing that there had been an earlier reference to paying “a little bit more” taxes lead pundits and commentators (who, being charitable to them, had read the full transcript) to misinterpret the antecedent of “that” to mean the businessman’s business as opposed to the system of laws and infrastructure, etc. that he did not “build?”
            What principles ought to underlie taxation (in general or in the specific circumstances of mid 2012) would be an interesting topic for BHL, but “you did not build that” does not strike me as a good starting point for that topic. Thomas L Hutcheson

          • TracyW

            I imagine that pundits and commentators interpreted the antecedent of “that” to be the businessman’s business because the full sentence reads:
            “If you’ve got a business — you didn’t build that. ” (Source: Whitehouse transcript).

            As for a good starting point, I suppose that’s in the eye of the beholder. I’m enjoying the discussion, and Brennan has made 3 posts on it, so apparently he finds something rewarding about it too. Your mileage may indeed vary.

          • ThaomasH

            If a pundit read

            ”Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges,”
            and still thinks Mr. Obama’s “that” referred to the business, then our mileages do indeed vary.
            My approach is to interpret remarks in the more benign or uncontroversial sense. For example, Ann Romney said that two years of tax returns ought to be enough for “you people.” My immediate visceral reaction was that she was being dismissing of “us people,” but reflecting on the circumstances (a kind of press conference) I think she was just showing annoyance toward the reporters, so if I were punditing, I would not draw conclusions about Ann Romney’s attitudes toward the public. Thomas L Hutcheson

  • http://www.facebook.com/profile.php?id=570820151 Dan Bier

    My brother wrote a bit about this at the Skeptical Libertarian last month:

    http://blog.skepticallibertarian.com/2012/07/16/cooperation-is-what-markets-are-for-not-governments/

    • mechris3

      Good article and indeed blog.

  • greg byshenk

    “Now, if she relied upon certain public goods to make the pencil, perhaps she should help pay for those public goods as well.[...] Still, it’s hard to see why Obama would use this to argue for higher federal income taxes for the rich. At most–if I estimate far higher than I really should–about 3% of the federal budget goes to these kinds of public goods. Most of the budget goes to welfare entitlements, debt interest, and murdering people in the third world.”
    But that same argument applies to -every- taxpayer, which means that it fails as an argument against taxes for some specific group.

  • Jeff Moriarty

    This picks up on a comment made below, but I think it’s unlikely that people get paid their marginal revenue products. Here’s an old article from Robert Frank arguing that people don’t get paid their marginal revenue products.
    http://www.jstor.org/discover/10.2307/1805123?uid=3739808&uid=2129&uid=2&uid=70&uid=4&uid=3739256&sid=21101126170831
    If there is a newer discussion of this idea I’d love to know what it is. I think the basic idea is that wages are a lot more compressed than you would think given people’s mrps (or at least what we think are their mrps.)

  • jeffmoriarty

    It’s quite possible my comment will appear twice, since I can’t figure out how to use this darn interweb thingy. Anyway, picking up on a comment below, I think it’s unlikely that people get paid their marginal revenue products. Here’s an old article from Robert Frank arguing for this:
    http://www.jstor.org/discover/10.2307/1805123?uid=3739808&uid=2129&uid=2&uid=70&uid=4&uid=3739256&sid=21101126170831

    I think the idea is that wages are a lot more compressed than you would think given what would seem – based on an independent measure – to be people’s mrps. If there is a newer discussion of this idea I’d love to know about it.

  • https://plus.google.com/u/0/114865618166480775623/posts Russ Abbott

    You are making a big jump from acknowledging that you can’t make a pencil from scratch to claiming that Obama is using that to argue for higher taxes for the rich. Obama’s argument is that the pencil maker cannot succeed unless society succeeds. Therefore she should contribute to paying for its success. How much should she pay? That’s not necessarily a matter of infrastructure use.

  • Gray Mahr

    In ¶5: friend’s → friends.

  • Old OddJobs

    The original Obama quote makes no sense. Who actually claims that they themselves, all by themselves with no input from another soul, have created a business, a gate or a pencil? Has anyone ever claimed this? What would it even mean to say that?

    What about the millions of people who have had the same education and the same opportunities but never started a successful business?

    There is an extreme enviromentalist/organicist implication to Obama’s remarks. Makes you wonder if anyone is responsible for anything! See that guy you just murdered? You didn’t do that, IT WOZ SOCIETY WOT DONE IT, MATE.