The avoidance of taxes is the only intellectual pursuit that still carries any reward - John Maynard Keynes
Dr. Edgeworth Box told me yesterday he spends long hours figuring out how to reduce his tax burden. He would be happiest if he could pay no taxes at all. It's simple economics, says Edgie. We should maximize utility, let the other guy pay for the public services we consume. Edgie is nothing if not a free rider.
The same should be true of voting. From an economic perspective, voting makes no sense. The practice is irrational. The chance that my vote will make a difference in the outcome of an election is microscopic, a vanishing epsilon--about as likely as flipping a coin and having it land on its edge, balanced forever between heads and tails. But the costs of voting in terms of time and effort--reading the damned ballot initiatives, getting down to the polling place--are nontrivial. Every year millions of people prove their irrationality by going to vote. Or so it woud seem.
If it is irrational to vote, then democracies are not sustainable. If democracies are not sustainable, then the institutions necessary for voluntary exchange and well-functioning markets--institutions that establish security, protect property rights, adjudicate disputes, and so on--are unlikely to form or to be maintained. Thus, market economies in the developed world depend, in some very real sense, on irrationality. Without irrational agents the edifice of the developed world falls apart.
This is what economists, in their infinite wisdom, call a puzzle: You make absurd assumptions about human behavior, then act surprised and mystified when the predictions come out wrong.
It's a good thing normal people don't act according to the economic models. The developed world doesn't fall apart. And we aren't irrational for voting. We have found a way to enjoy participating in the electoral process--to derive utility from voting, in the jargon of the discipline. The irrational becomes rational. And vice-versa. Voting is a consumption good, like Honda Accords or Chicken McNuggets.
That's the thing about rational choice. It's all in how you look at it.
Here we return to the issue of taxes. What if people sought every legal recourse to get out of voting, to avoid participation in any aspect of civic life? What if they talked openly of this, boasted of how clever they were at disenfranchising themselves? This is what we do when we delight in avoiding taxes. When a country cannot collect taxes, bad things happen. Check out Russia in the 1990s. We have functioning societies because enough people believe that the common good is worth promoting.
Republicans, these days, claim that taxes are bad and that we can spend as much as we want and never have to pay for it. Democrats say we can spend as much as we want without paying for it by making rich people pay for it. (The rich, you see, aren't us. They're some other group whose purpose is to pay for all the things we don't want to pay for ourselves).
Taxes should have two characteristics. They should be simple, so that no one wastes time trying to figure them out when they could be ACTUALLY PRODUCING SOMETHING instead. And taxes should not change very often because adjustment costs are huge and when there are new tax laws every year no one can begin to figure out how to PLAN FOR THE FUTURE.
Moreover, any new spending program should be funded by a tax on everyone, or almost everyone, or--at the very least--by those who stand to benefit. Yes, there's room for transfers to the poor, but the poor and the middle class and the distinctly non-rich should be a part of the process by which programs are funded, even if they end up net beneficiaries.
I talked to Dr. Edgeworth Boks about this column. Edgeworth claimed that by avoiding taxes he performs a public service and helps ensure that the loopholes will eventually be closed. I asked him if murderers perform a public service by helping the police learn how to track down other murderers. Your haven't learned to think like an economist, he said.
That's a relief. I was beginning to worry.
P.S. Babcock
