Wednesday, January 12, 2011

More on Just Desserts

Matt Yglesias has a very good point:

And this is for good reason. It’s pretty clear if you read the paper that Mankiw doesn’t intend to be arguing for any really radical changes in the structure of American society. He wants to defend modern industrial capitalism, while bolstering the case for lower taxation of the rich and less generous spending on the non-rich. But think about his examples here. How is it that you can get rich writing books, making movies, designing MP3 players, or making TV shows? Well it’s thanks to statutory definitions of intellectual property. If the copyright on a book only lasted two years, JK Rowling wouldn’t be nearly as rich. If the inventor of the Xerox Alto owned some kind of perpetual right to the concept of a graphical user interface, Steve Jobs’ whole career would be unimaginable. And the firms involved in these industries are constantly “manipulating the system” of intellectual property to try to maximize their own advantage.

I think that this is a very astute point; the structure of modern intellectual property laws have made the creation of these goods very lucrative. But linking success to morality is a very tough proposition because most people who are very successful are going to benefit from favorable regulation (because in places where regulation is unfavorable, it ia harder to be a success).

Consider this small businessman in California (who has discovered that there is a tax for have retail hand scanners):

Then yesterday the bill arrived. Sure enough, the people of California had enacted a new tax on small business. $205 in my case, including $100 for existing and $105 for having a POS system with one barcode scanner. It's like a tax on progress, only applicable to forward thinking businesses that have migrated away from the inefficiency of the cash register. Want to raise state revenue? Require retail businesses to have a point-of-sale machine or pay a $205/year fine. At least then you'll have capital investments in equipment and services that lead to jobs and more tax revenue.

The bottom line is that politics in this state preclude tax increases and our state is tens of billions of dollars over budget. Conservatives decry tax increases while liberals won't budge on public services. This naturally results in the nickel and diming of small businesses. We don't have a union or trade group to defend us, so watch as our business fees silently rise 20%.

The merits of one specific tax may or may not be justified. But people can work hard at a socially productive activity and still end up with a marginal income due to the choices we make on how to tax and regulate business activity. We may have chosen the optimal levels of these things (anything is possible) but ascribing moral superiority to classes of people who manage to obtain favorable regulatory treatment does not appear to be ideal.

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