Living/minimum wage: what we know

Version 1.0 (April 24, 2019)

A couple of weeks ago, I got ensnarled in one of these debates on Facebook that do not go anywhere; it was triggered by the Australian Labor Party’s recent Living Wage policy proposal and the related discussion about the merits of minimum wages, and there specifically whether increases in minimum wages have negative employment effects and even more specifically whether such detrimental employment effects hit those at the low end of the wage distribution. These debates tie into other current debates like the one about lacking wages growth about which even the RBA is now concerned; see also Fig 17.17 here, or the one about wage theft which even the current government — not known for its charitable inclinations — says it wants to address, or the one about growing inequality which, as it affects aggregate demand, has to be a growing concern for any economist worth her or his money.

The debate on Facebook I referred to at the outset did not go anywhere because it turned out that the conceptual and empirical issues of the effects of minimum wages on employment are quite different from what most people have learned in basic Econ 101. And, unfortunately, about 99 percent of those currently engaging in the debate about the effects of minimum wages have not gone beyond that level of understanding, even if they claim economics expertise. So, I bowed out of that debate at some point and read up on it. Here is what I understand the current state of the science to be. I am open to suggestions on where I might get it wrong. Feel free to comment away.

The traditional understanding results from what is (still) being taught in most principles courses: that the demand curve for any good, or factor of production, is downward sloping, i.e.. the higher the price (e.g., of labor) the less of it will be demanded. That given, a simple graph establishes that equilibrium price and quantity are determined by the interaction of demand and supply. If a binding floor is established (i.e., if a price is set by some law or ordinance above the equilibrium price), quantity demanded will be constrained and less of it will be employed. Ignoring for now the important question whether labour should be considered just another factor of production or whether there is more to it – a point for another overdue debate -, the fact that less labor might be employed is not necessarily a bad thing, a point that many people do not seem to grasp. It all depends on the “elasticity of demand” which is a measure that relates the responsiveness of the quantity demanded to price changes. If the price increases (brought about by a law or ordinance that sets a price above the equilibrium price) are large but negative employment effects not quite as much, a case can possibly be made for some such law or ordinance.

So far so good and probably uncontroversial even among most economists and journalists who write on economic issues. It is also fairly uncontroversial that long-run measures of responsiveness of employment to price changes (“elasticities”) tend to be larger than short-term measures and that these elasticities might be different for different locations on the demand curve and for that matter different demand curves. What exactly the appropriate elasticity estimate is for various contexts is arguably more controversial. On balance, economists are sceptical about market interventions of this kind, and often for good reasons (e.g., the well documented consequences of rent-controls although even here a more critical attitude is emerging).

In come Card & Krueger (1994) with a study published in one of the top journals of economics, and a provocatively titled book a year later with one of the top presses, in which they seem to be able to show, relying on an intriguing natural experiment that inspired hundreds of studies and contributed to the credibility revolution in economics, that raising the minimum wage has no adverse effect on employment. Wow.

Not surprisingly, this study was heavily contested.

The debate continues to the day and I will below discuss some key contributions to the debate and also some of the kerfuffle surrounding the recent Seattle minimum wage experiment which is ongoing.

As you will see there are many moving parts, conceptually and empirically, confounding these debates. My list of things to keep in mind follows; below I will refer to them as “caveats”.

Caveat 1: The simple Econ 101 model of the effects of a minimum wage (or price floor) is flawed because it does not take into account dynamic effects. For example, in a growing economy (such as the Seattle market has been for a while), it is important to study a minimum wage effect against the counterfactual which is not easy to establish. Among the ways labor market researchers have approached the topic is the “synthetic approach” of identifying districts outside of an urban center that are, however, in their sum well matched in observable characteristics. Another strategy has been natural experiments across state borders when one state changed the minimum wage and the other did not.

Caveat 2: Any minimum wage increase (especially when drastic) will not only have, possibly, employment effects for those whose wages go up but for those that have wages above the price floor. It is unclear conceptually how some such “ripple effect” could pan out: Will those workers that earn more (as apparently a considerable number of workers in the restaurant industry do), suddenly put in less effort, and/or will those that have their wages increased provide more? What are the results of the long-term adjustments processes of what is the relative efficiency wage between those with lesser skills and those with more?

Caveat 3: An important issue is temporary job-seekers (e.g., students on their holidays or teenage workers to earn some change, or other part-time workers, etc.) and to what extent adverse employment efects will disproportionately fall on them. In his simulation exercise, MaCurdy makes the important point that, even if one accepts that there are no adverse employment effects, those benefitting from an increase in minimum wages are not necessarily low-income families. In fact according to his data “low-wage families are typically not low-income families.” (p. 534) And, “The increased earnings received by the poorest families are only marginally higher than those of the wealthiest. One in four families in the top fifth of the income distribution has low-wage worker which is the same share as in the bottom fifth.” (pp. 534-5) The problem is that while “fewer than one in four low-income families benefit from a minimum wage increase of the sort adopted in 1996, all low-income families pay for this increase through higher prices, rendering three in four low-income families as net losers.” (p. 535) Clearly the incidence of price increases is an important consideration, and needs to be controlled for.

Caveat 4: Relatedly, there is the issue of the gig-economy which tends to put pressure on wages in the low-skill sector and allows price floors for labor to be circumvented by making participants into “entrepreneurs” of sorts. This seems currently a completely understudied area.

Caveat 5: Another important issue is whether wage increases are implemented locally, regionally, or on the national level. Minimum wages on the national and even the regional level are presumably less easily circumvented than those on the local level, although it is probably a mistake to underestimate the attractiveness of big urban centers.

Caveat 6: An important issue is anticipation effects which can pollute supposed quasi RCTs. This explicitly motivated the study by Bell & Machin (2018).

Caveat 7: If the simple Econ 101 model of the effects of a minimum wage (or price floor) is flawed because it does not take into account dynamic effects, then the question has to be asked which alternative model could explain the results. Prominent competing labour market theories are those of monopsonistic, or oligopolistic, competition with search costs, or efficiency wages. Belman & Wolfson (2014) have a useful discussion of such models in graphical form. See also this or this.

Caveat 8: As for the abatement of carbon emissions there are typical several other policy options and therefore it is important to keep in mind that there may be other policy tools such as earned income tax credits that would address the policy goal of a minimum, or living, wage more effective- and efficiently. In this context the important question arises who ultimately pays for minimum wages. Assuming no adverse employment effects, the question is whether employers manage to push increased labor costs through to consumers, or whether they have to take some hit to their profits. This seems to be another poorly understudied area. The available evidence (see MaCurdy 2015 and Draca et al. 2011), Bell & Machin 2018, and this very interesting paper by Harasztosi & Lindner 2017) is inconclusive. More about these papers below.

Caveat 9: Debates about minimum or living wages should not be backward looking. They ought to happen in the context of an ever increasing automatization and inequality (in Australia surely in terms of wealth and quite possibly also in terms of income).

Caveat 10: Many of the empirical findings that we have are from The United States. Naturally, we should not take for granted that the findings (to the extent that we might agree on them) translate to the Australian context. There is, fortunately, an interesting literature documenting the effects of the (1999) introduction of minimum wages in England (including at least one meta-study), and an emerging literature documenting the effects of the (2015) introduction of a living wage in England (Bell & Machin (2018). There will soon be yet another emerging literature that draws on the minimum wage experiment that Germany launched in 2015. And importantly, there is the very interesting paper by Harasztosi & Lindner (2017) on the Hungarian experience with a dramatic increase of 60 percent in the minimum wage in 2001.

Back now to the debate and some key contributions and also some of the recent kerfuffle about the Seattle experiment which are ongoing.

Card & Krueger (1994, 1995a, 1995b, 2000, 2016, chapter 1, 2017) studied the fast-food industry in New Jersey and Pennsylvania. The former increased the minimum wage in April 1992. The original Card & Krueger 1994 findings suggested – to many economists’ surprise — that there was no employment effect of that increase in the minimum wage. This finding was contested by Neumark & Wascher (2000) who argued that the Card & Krueger data – because they were collected through telephone surveys – were unreliable. Drawing on payroll administrative data, they argued furthermore that the New Jersey minimum-wage increase led to a decline in fast-food employment. Neumark has emerged as arguably the most influential critic of Card & Krueger and maintains, for example in this recent IZA primer, that ”A great deal of evidence indicates that the wage gains from minimum wage increases are offset, for some workers, by fewer jobs. Furthermore the evidence on distributional effects, though limited, does not point to favourable outcomes from minimum wage hikes, although some groups may benefit.” In their response to Neumark & Wascher, Card & Krueger questioned the representativeness of the Neumark & Wascher data and instead used two different kinds of longitudinal and repeated cross-sectional administrative data reported to the BLS. They conclude that “the increase in the New Jersey minimum wage in April 1992 had little or no systematic effect on total fast-food employment in the state, although there may have been individual restaurants where employment rose or fell in response to the higher minimum wage.” (p. 1398) In chapter 1 of the 2016 version of their book Card & Krueger re-iterate this finding and argue “This book presents a new body of evidence showing that recent minimum-wage increases have not had the negative employment effects predicted by the textbook model. Some of the new evidence points toward a positive effect of the minimum wage on employment; most shows no effect at all. Moreover, a reanalysis of previous minimum wage studies finds little support for the prediction that minimum wages reduce employment.” (Chapter 1, page 1)

Building on a meta-analysis that Card & Krueger did in the same year they published their book, Doucouliagos & Stanley (2009) provided a meta-regression analysis of minimum wage research drawing on 64 (!) minimum wage studies. Importantly, they controlled for publication selection bias and they find that, when selection effects are filtered out, “no evidence of a meaningful adverse selection effect” (p. 422) (thus confirming the earlier results of Card & Krueger). Specifically, “In the minimum-wage literature, the magnitude of the publication selection is large or larger, on average, then the underlying reported estimate. … Even under generous assumptions about what might constitute ‘best practice’ in this area of research, little or no evidence of an adverse effect remains in the empirical research record, one the effects of publication selection are removed.” (p. 423) In passing, Doucouliagos & Stanley, who have no recognizable dog in this fight (as much of their work involves meta-analyses of various areas), suggest that the “subjective narrative review” provided by Neumark & Wascher (2007) that covers the same literature (but comes to a very different conclusion) is wanting because it does not control for publication bias. A more recent meta-analysis by Belman & Wolfson (2014) of minimum wage studies published between 2000 and 2013 also confirms the Card & Krueger results, finding a median elasticity of employment or hours with respect to the minimum wage of between -0.05 and -0.03, not controlling, however, for publication bias.

Dube and his colleagues (including Michael Reich, one of the protagonists of the Seattle minimum wage study controversy) provided yet more evidence in support of the results claimed by Card & Krueger. Inspired by their identification strategy, they compare restaurant and retail employment in contiguous countries across state borders, and there in particular segments with minimum wage differences over a 17-year period. The border discontinuity design has attractive features spelled out in Dube (2017) where one can also find a succinct summary of his later work, a good discussion of related work, and of alternative approaches. Acknowledging that “the topic of employment effect of minimum wages remains controversial, with sometimes conflicting evidence” (p. 820), in his own work he finds employment elasticity close to zero (also for teens), and “even when we considered the longer-terms effects (e.g., four or five years out), we found employment estimates to be fairly small.” (p. 820) Reflecting on his recent work with Lester and Reich (2016), he notes “We found a striking pattern … This trifecta of results – strong positive wage effect, small employment effect, and strong negative turnover effect – is a signature of a model with search frictions … “ (p. 821) None of these papers, however, controls for the effects of minimum wages on prices (recall MaCurdy’s results) and/or profits, something which seems necessary if one wants to understand the net effect of a minimum wage increase.

Additional empirical evidence in favour from the UK, where a national minimum wage was introduced in 1999, and a national “living wage” in 2015 (by a conservative government, no less), is reviewed in Lemieux (2017) and Card & Krueger (2017); summarizes Lemieux, “By moving from a situation of no minimum wage to one with a large and differentiated (by age) minimum wage, the United Kingdom was an ideal laboratory … . A clear consensus in the British literature supports that the new minimum wage had, and continues to have, no effects on employment. … On balance, it appears that the evidence accumulated since 1995 has, if anything, reinforced Card and Krieger’s conclusion of no (or modest) employment effects of the minimum wage.” (p. 824) While Lemieux mentions the results by Machin, Manning, & Rahman (2003) … he does not mention Leonard, Doucouliagis, & Stanley (2013) which is puzzling.

Card & Krueger point out that these new data allow also inferences about how the wage distribution is affected. “Relative to the literature on the employment effects of minimum wages, there are fewer recent studies of the distributional impacts. …Exploiting the remarkable history of minimum wage legislation in the United Kingdom, Dickens et al. (2012) concluded that the introduction of the national minimum wage had a strong effect on the lower tail of British wages, pushing up the wages of workers as high as the 35th percentile in the overall wage distribution.” (p. 829) That is a remarkable result that, if true, speaks to Caveat 2 that I formulated above and it suggests that restricting attention to those directly affected by wage increases is a problematic strategy.

As stated by Dube, “the topic of employment effect of minimum wages remains controversial, with sometimes conflicting evidence”. (p. 820) Another prominent contrarian, apart from Neumark, is Jonathan Meer. Meer & West (2016), who estimate a large negative effect of minimum wages on aggregate employment, is discussed in Dube (2017) who suggests – based on his empirical work – that these putative job losses happen higher in the wage distribution, “raising questions about the causal import of their estimates”. (p. 820) Meer (2018) summarizes his take on the literature, including his own work and that of the Jardim et al. (2017) study of the Seattle minimum wage experiment. Says he, riffing on an even more partisan earlier assessment of the literature (Meer 2017): “Following the minimum wage increase [to $13 per hour in 2016 [January] from $11 in 2015 [April] and $9.32 in 2014], total payroll for low-wage workers actually fell by an average of $125 per month: those workers for whom the increase was supposed to help were actually receiving fewer dollars on average after the minimum wage increase than before. Unsurprisingly, the study came in for immediate criticism from minimum wage advocates, but its methodological approach is sound and most of the critiques are groundless.” (p. 6) These are strong claims and they would be more credible if his literature review would be less partisan (e.g., no word about the meta-studies by Doucouliagos & Stanley 2009 and Belman & Wolfson 2014, also no word really about the English experiment which is of interest for the simple reason that minimum wage is differentiated by age, thus having the potential to address one of Meer’s concerns).

The Seattle experiment, and some of the ugly politics around it (also academically) has been widely reported on (here and here and here and here and here and here).

Since the Jardim et al. (2017) paper, the same group of researchers has published a follow-up study (Jardim et al. [October] 2018) that assesses the impact of the first and second min wage increases in 2015 and 2016, using again longitudinal workforce data (“employment trajectories of thousands of individual employees engaged in low-wage work immediately before each increase”, p. 4) collected by the state of Washington’s Employment Security Department. The new analysis follows the same identification strategy as the earlier study (of trying to compare Seattle low-wage workers with matched controls from outlying Washington State) but comes to a different conclusion: “While these workers experienced a modest reduction in hours worked, on net their pretax earnings increased an average of around $10 a week” (p. 4, see also p. 25) However, the bulk of these gains went to more experienced workers, with less experienced workers being about as well of as before. As Jardim et al. (2018) admit, “The findings contrast with our earlier work, which showed that the total amount paid to workers in low-wage jobs in Seattle declined after the second minimum wage increase in 2016.” (p. 25) I am tempted at this point to paraphrase Meer (2017), If your immediate reaction to this study is to dismiss it, “it is time to admit your views cannot be swayed by science. They might as well be religion.” (p.7) Say it as it is, Jonathan.

But, seriously, it is important to understand that any one single case (study) is only so telling and often a work in progress. The case of Seattle is so unique (see also this excellent recent story about Amazon) that the caveat in Jardim et al. (2018) not to generalize this finding to state and federal policy changes seems warranted.

Looking at all the evidence that is currently out there (and that I paraded above), I conclude that the balance of the evidence seems to provide considerable support in favour of policy recommendations that contradict the standard Econ 101 narrative, even if we accept that labor should be considered just any old factor of production.

Local circumstances have, of course, to be part of any attempt to implement minimum wages and/or living wages. It is also worthwhile remembering Alan Krueger’s admonition from 2015 that “$15 an hour is beyond international experience, and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States.” (Krueger 2015) Krueger, however, issued that caveat before the results in Harasztosi & Lindner (2017) started to circulate which are remarkable indeed. These authors analyse a very large (~60% in real terms) minimum wage increase in Hungary in 2001. Among the remarkable results are that this very large increase displaced four years out only 1 out of 10 minimum wage workers while those that held on to their job experienced a 50% wage increase. Importantly, while firms predictably responded to the increase by trying to substitute away from labor to capital, they showed that “around 80% of the wage increase paid by consumers of goods produced by minimum wage workers and only 20% was paid by firm owners.” (abstract) Not surprisingly, there is considerable heterogeneity to be found in firms’ ability to pass through the increased minimum wage. Interestingly the result that forced increases in labor cost can be for the most part pushed through to consumers contradicts the results reported for the English minimum and living wages experiences. Draca et al (2011), based on the 1999 minimum wage increases, find that they find their way directly into profit reductions. Bell & Machin (2018), based on the 2015 minimum wage increase, find that it finds its way directly into lower firm value, a story consistent with Draca et al.’s but not with MaCurdy or the story Harasztosi & Lindner (2017) tell. Hmmmh.

The implications of the currently available evidence for Australia are worth thinking through carefully. Taking into account purchasing power parity which probably means that a wage of around 15 Aussie dollars seems a safe proposition in particular if age – adjusted following the English model. Importantly, there may be better policy interventions out there such as earned income credit and other active labor market programs. Card et al. (2018) have recently reviewed the available options.

It seems very desirable to think through these issues in non-partisan matter (i.e., have what we know assessed through forms of adversarial collaborations by knowledgeable people representing key stakeholders in the debate) and with a longer-term perspective that takes into account the nature of work in the future. Not being a labor market researcher, one of the frustrations I experienced when reading up on this literature is the often very partisan assessment of the findings out there. For example, if you are an opponent of minimum wages and selectively point at evidence to support your stand, you lose credibility right away when not mentioning the meta-studies out there that do exist (and that so far support the Card & Krueger findings).

I appreciate, without implicating, Stepan Jurajda’s and Jonathan Meer’s pointers towards relevant literature and Stepan’s and my colleague Gigi Foster’s feedback on an earlier draft. Needless to say, they are not to blame for errors in fact or opinion.


Consider following me on Twitter at @aortmannphd

Kalle and me. Schumpeter, too.

[One of my intellectual heroes, Karl Marx, had his 200th birthday (May 5) this weekend. So I decided to reflect on his influence.]

My first encounter with Kalle was when I was still in (the equivalent of) high school. Things were heating up in (West) Germany around that time: students started marching against a “system” that had allowed atrocities abroad (Remember Vietnam, that last and long-lasting proxy battle of the Cold War?) and also at home where the old Nazis (Remember “Silver Tongue” Kiesinger?) were still very much in power and, it seemed, had adopted the Social Democrats (being themselves quite an old-boys network, although of another kind) via a Grand Coalition with him and his.

The suffocating stuffiness that still hung over Germany in the early sixties soon fell by the wayside, culturally as much as politically, and by the late sixties Kiesinger was gone and in the fall of 1969 that “traitor”, Willy Brandt, was German chancellor. People like Udo Lindenberg, and a number of the Krautrock and Schneeball groups, started to sing in German and it was not embarrassing. Alles klar auf der Andrea Doria! Keine Macht fuer Niemand! (Of course, all of these German bands had to fight the onslaught of bands from Great Britain and the United States … .) There were charismatic figures such as the informal leader of the extraparliamentary opposition, Rudi Dutschke, the Kommune 1 with its fun guerilla faction, and the no-fun guerilla of the Red Army Faction (Baader, Ensslin, Mahler, Meinhof, et al.) which soon after went from agitating to murder and brought about, in 1977, The German Autumn. There was also an emerging environmental movement in the seventies that did its fair share, and then some, to change the policy discourse in Germany for decades to come. All of this happened against the backdrop of a divided Germany, in a key theatre of the Cold War, where one part called itself the German Democratic Republic but was hardly that.

Around the same time (ca 1967 – 1970) my parents fought hard a battle of the roses that saw my (younger, by three years) brother’s life derailed (and him dead of an overdose a decade later) and me dropping out of school, leaving “home” prematurely, moving to the big city (well for me, that was what Bielefeld was then), and becoming part of the proletariat at age 18, working for about a year as warehouse worker and delivery driver for Thyssen-Schulte, before — after a few months of hitch-hiking through Europe -, I joined the army. I spent much of the next two years deep in the heart of conservative and catholic Bavaria (1972 – 1974), much of it in an alpine communication unit. Quite an experience it was.

After the years in the military, I entered an experimental college back in Bielefeld, studying political economy, math, Russian, and Portuguese during 1974 – 1978. I also spent a couple of weeks in Oberhof, Thuringia (then part of the German Democratic Republic), on an all-expenses paid trip where I was taught the Socialist way of thinking in the morning and got to ski in the afternoon, with enough space left for plenty of drinking and carousing in the evenings. Paid by the Konsumgenossenschaft, the trip was the East-German Communist Party’s attempt to pry away from the West promising young things. I was not quite persuaded and did not take it up on the invitation.

It was during that first year in Bielefeld, and way before my trip to Oberhof, when I started reading Marx. In reading groups we slugged our way through The Communist Manifesto (quickly) and then (way more slowly) through Das Kapital, volume one. Never quite finished it from what I vaguely recall. Not even close. And, frankly, we all got quite bored reading it and had trouble buying into the promises of the discussion leaders that, in the end, it all would make sense. It did get me interested enough though that — when I entered that experimental college in Bielefeld — political economy was my choice of major, together with math. And it was there that I studied Marx’s work more carefully. And I was not the only one … several fellow students and teachers were into it … (a couple of the teachers being true armchair Marxists who thought that interpreting the world on a decent salary was good enough after all.)

I read a lot those years, often sitting in my small rented basement room in the Von-Ossietzky-Strasse until deep in the wee hours, sipping cheap Moroccan red wine, popping Adumbran to be able to sleep, with good old Brecht looking over my shoulder from a huge poster. Among the things I read – I can tell because I still have the marked-up copy — was Wygodski’s book, published in East Berlin in 1976, on how Das Kapital emerged from Marx’s early writings. Wygodski’s books were remarkable in that they showed how early some of Marx’s (and Engels’s) theories about society, economics, politics, and culture were fixed. There are interesting parallels here to how the ideas underlying Adam Smith’s Wealth of Nations emerged over decades of thinking about them. I also read Theorien über den Mehrwert, often called the fourth volume of Das Kapital which demonstrates that Marx knew his stuff and was indeed a first-rate historian of thought to start with. But of course, he was much more: Philosopher, sociologist, economist, political scientist, activist, agitator, …

As I progressed in my career, I lost sight of the insights to be found in Marx’s writings. With the fall of socialism, in the USSR and its satellite states in Central Europe, the evidence seemed to suggest that certain realizations of Marxian ideas (or what some people considered them) had overstayed their welcome. Of course, Marx’s ideas do live on these days in China where Xi Jinping just recently made clear the importance of The Communist Manifesto. Marx’s ideas havea also lived on in some academic branches such as sociology. The authors of the Wikipedia entry on Kalle seem to assert correctly that he is typically cited as one of the principal architects of modern social science. Even that curmudgeon of a historian, Schumpeter, who thought little of Adam Smith but can hardly be accused of having communist sympathies, was surprisingly positive about Marx, calling him a “first-rank economist” (History of Economics Analysis p. 224), among other laudatory names. It was no coincidence that Schumpeter featured Marx prominently in Ten Great Economists. In contrast, Smith did not make the cut. Go figure.

Here are some selected excerpts from Schumpeter’s History of Economic Analysis (Perlman edition), for your easy perusal:

p. 370 Any economist who wishes to study Marx at all must resign himself to reading carefully the whole of the three volumes of Das Kapital and of the three volumes of Theorien über den Mehrwert.Fn

Further, there is no point whatever in tackling Marx without preparation. Not only is he a difficult author but, owing to the nature of his scientific apparatus, he cannot be understood without a working knowledge of the economics of his epoch, Ricardo in particular, and of economic theory in general. This is all the more important because the necessity for it does not show on the surface. Again, the reader must be on his guard against being misled by traces of Hegelian terminology. It will be argued below that Marx did not allow his analysis to be influenced by Hegelian philosophy. But he sometimes uses terms in their specifically Hegelian sense, and a reader who takes them in their usual sense misses Marx’s meaning.

Fn. The Communist Manifesto is also indispensable, of course. But for any purpose short of becoming a Marxologist, I think that nothing need be added except the Class Struggles in France, articles written in 1848–50, published as a book, with an introduction by Engels in 1895. Only the Marxologist need go into Marx’s correspondence.

p. 366 … nobody will ever understand Marx and his work who does not attach appropriate weight to the erudition that went into it—the fruit of incessant labor that, starting from primarily- philosophical and sociological interests in his early years, was concentrated increasingly on economics as time went on, until his working hours were all but monopolized by it. Nor was his the kind of mind in which scholarly coal puts out the fire: with every fact, with every argument that impinged upon him in his reading, he wrestled with such passionate zest as to be incessantly diverted from his main line of advance. On this I cannot insist too strongly. This fact would be my central theme were I to write a Marxology. Perusal of his Theorien über den Mehrwert suffices to convince one of it. And, once proved, it serves to establish in turn another fact and to solve a much discussed riddle: it serves to establish that he was a born analyst, a man who felt impelled to do analytic work, whether he wanted to or not and no matter what his intentions were; … our information warrants the statements that he was very much a philosopher dabbling in sociology and politics (as do so many philosophers) until he went to Paris; that there he quickly made headway and found his feet as an economist; and that by the time he and Engels wrote the Communist Manifesto (1847; published 1848); that is to say, at the age of 29,7 he was in possession of all the essentials that make up the Marxist Social Science, the only important lacunae being in the field of technical economics. For the rest, the main line of his intellectual life may be described as a series of efforts to work out that Social Science and to fill those lacunae—tasks which, I believe, Marx did not expect would involve any insurmountable difficulties, though he did expect that a great deal of further work would be required to straighten out and co-ordinate everything that was to find a place within the vast structure.

p. 33 Half a century before the full importance of this phenomenon [ideological bias, AO] was professionally recognized and put to use, Marx and Engels discovered it and used their discovery in their criticisms of the ‘bourgeois’ economics of their time. Marx realized that men’s ideas or systems of ideas are not, as historiography is still prone to assume uncritically, theprime movers of the historical process, but form a ‘superstructure’ on more fundamental factors, as will be explained at the proper place in our narrative. Marx realized further that the ideas or systems of ideas that prevail at any given time in any given social group are, so far as they contain propositions about facts and inferences from facts, likely to bevitiated for exactly the same reasons that also vitiate a man’s theories about his own individual behavior. That is to say, people’s ideas are likely to glorify the interests and actions of the classes that are in a position to assert themselves and therefore are likely to draw or to imply pictures of them that may be seriously at variance with the truth. … Such systems of ideas Marx called ideologies.4 And his contention was that a large part of the economics of his time was nothing but the ideology of the industrial and commercial bourgeoisie. The value of this great contribution to our insight into the processes of history and into the meaning of social science is impaired but not destroyed by three blemishes, …

p. 20 … an economics that includes an adequate analysis of government action and of the mechanisms and prevailing philosophies of political life is likely to be much more satisfactory to the beginner than an array of different sciences which he does not know how to co-ordinate—whereas, to his delight, he finds precisely what he seeks ready-made in Karl Marx. An economics of this type is sometimes presented under the title Political Economy. …

p. 363 The difficulty is that in Marx’s case we lose something that is essential to understanding him when we cut up his system into component propositions and assign separate niches to each, as our mode of procedure requires. To some extent this is so with every author: the whole is always more than the sum of the parts. But it is only in Marx’s case that the loss we suffer by neglecting this2 is of vital importance, because the totality of his vision, as a totality, asserts its right in every detail and is precisely the source of the intellectual fascination experienced by everyone, friend as well as foe, who makes a study of him. Marx figures in this book only as a sociologist and an economist. Of course, that creed-creating prophet was much more than this. And his creed-creating activity, on the one hand, and his policy-shaping and agitatorial activity, on the other hand, are inextricably interwoven with his analytic activity. So much is this the case that the question arises whether he can be called an analytic worker at all. This question may be answered in the negative from two very different standpoints. …

p. 364 My answer to our question is, however, in the affirmative. The warrant for this affirmative answer is in the proposition that the bulk of Marx’s work is analytic by virtue of its logical nature, for it consists in statements of relations between social facts. For instance, the proposition that a government is essentially an executive committee of the bourgeois class may be entirely wrong; but it embodies a piece of analysis in our sense, acceptance or refutation of which is subject to the ordinary rules of scientific procedure. It would be absurd indeed to describe the Communist Manifesto, in which this proposition occurs, as a publication of scientific character or to accept it as a statement of scientific truth. It is not less absurd to deny that, even in Marx’s most scientific work, his analysis was distorted not only by the influence of practical purposes, not only by the influence of passionate value judgments, but also by ideological delusion. Finally, it would be absurd to deny the difficulty that in some cases rises to impossibility of disentangling his analysis from its ideological element. But ideologically distorted analysis is still analysis. It may even yield elements of truth. …

To sum up: … we simply recognize him as a sociological and economic analyst whose propositions (theories) have the same methodological meaning and standing and have to be interpreted according to the same criteria as have the propositions of every other sociological and economic analyst; we do not recognize any mystic halo.

p.367 The ‘pieces’ divide up into two groups, one sociological and the other economic. The sociological pieces include contributions of the first order of importance such as the Economic Interpretation of History, which, as I shall argue, may be considered as Marx’s own, quite as much as Darwin’s descent of man is Darwin’s own. But the rest of Marx’s sociology—the sociological framework that, like every economist, he needed for his economic theory—is neither objectively novel nor subjectively original. His preconceptions about the nature of the relations between capital and labor, in particular, he simply took from an ideology that was already dominant in the radical literature of his time. If, however, we wish to trace them further back, we can do so without difficulty. A very likely source is the Wealth of Nations. A.Smith’s ideas on the relative position of capital and labor were bound to appeal to him, especially as they linked up with a definition of rent and profits—as ‘deductions from the produce of labour’ (Book I, ch. 8, ‘Of the Wages of Labour’)—that is strongly suggestive of an exploitation theory. But these ideas were quite common during the enlightenment and their real home was France. French economists, ever since Boisguillebert, had explained property in land by violence, and Rousseau and many philosophers had expanded on the subject. There is, however, one writer, Linguet, who, more explicitly than others, drew exactly the picture that Marx made his own: the picture not only of landlords who subject and exploit rural serfs, but also of industrial and commercial employers who do exactly the same thing to laborers who are nominally free, yet actually slaves.This sociological framework offered most of the pegs that Marx needed in order to have something upon which to hang his glowing phrases. And since historians are primarily interested in these, no matter whether they admire them or are shocked by them, it is difficult to gain assent to what is the obvious truth about the nature of thepurely economic pieces of the Marxist system. This obvious truth is that, as far as pure theory is concerned, Marx must be considered a ‘classic’ economist and more specifically a member of the Ricardian group. Ricardo is the only economist whom Marx treated as a master. I suspect that he learned his theory from Ricardo. But much more important is the objective fact that Marx used the Ricardian apparatus: he adopted Ricardo’s conceptual layout and his problems presented themselves to him in the forms that Ricardo had given to them. No doubt, he transformed these forms and he arrived in the end at widely different conclusions. But he always did so by way of starting from, and criticizing, Ricardo—criticism of Ricardo was his method in his purely theoretical work.

p.369 … admit that Marx could ever grow out of date in any respect. However, in order to drive home a point that seems important, I have strictly confined myself in the preceding paragraph to Marx’s theoretical technique. But there are two features of Marxist theory that transcend technique. And these were not period-bound. The one is his tableau économique. In his analysis of the structure of capital, Marx developed Ricardo once more. But there is an element in it that does not hail from Ricardo but may hail from Quesnay: Marx was one of the first to try to work out an explicit model of the capitalist process. The other is still more important. Marx’s theory is evolutionary in a sense in which no other economic theory was: it tries to uncover the mechanism that, by its mere working and without the aid of external factors, turns anygiven state of society into another.

p.408 … the period’s great performance in the field of political sociology stands in the name of Karl Marx. … I wish merely to say by way of anticipation that Marx’s theories of history, of social classes, and of the state (government) constitute, on the one hand, the first serious attempts to bring the state down from the clouds and, on the other hand, the best criticism, by implication, of the Benthamite construct. Unfortunately, this scientific theory of the state, like so much else in Marxist thought, is all but spoiled by the particularly narrow ideology of its author. What a pity, but at the same time, what a lesson and what a challenge!

p.413 [Marxist Evolutionism] I have just adverted to the possible implications for sociology that a despiritualized Hegelian philosophy might harbor. This suggests that here we have after all more than a phraseological influence of Hegel upon Marx. If, nevertheless, we maintain substantive autonomy of Marx’s so-called Materialistic Interpretation of History as against Hegelism, and if we list it as a separate type of evolutionism, we allow ourselves to be guided by two considerations. First, Marx’s theory of history developed independently of Marx’s Hegelian affiliation. We know that his analysis started from a criticism of the current (and apparently immortal) error that the behavior that produces history is determined by ideas (or the ‘progress of the human mind’), and that these in turn are infused into actors by purely intellectual processes. To start with this criticism is a perfectly sound and very positive method but has nothing to do with Hegelian speculation. Second, Marx’s theory of history is a working hypothesis by nature. It is compatible with any philosophy or creed and should therefore not be linked up with any particular one—neither Hegelianism nor materialism is necessary or sufficient for it. What remains is, again, Marx’s preference for Hegelian phrasing—and his own and most, though not all, Marxists’ preference for anything that sounds anti-religious.

p.414 Both the achievement embodied in that hypothesis and the limitations of this achievement may be best conveyed by means of a brief and bald statement of the essential points. (1) All the cultural manifestations of ‘civil society’—to use the eighteenth-century term—are ultimately functions of its class structure.8 (2) A society’s class structure is, ultimately and chiefly, governed by the structure of production (Produktionsverhältnisse), that is, a man’s or a group’s position in the social class structure is determined chiefly by his or its position in the productive process. (3) The social process of production displays an immanent evolution (tendency to change its own economic, hence also social, data). To this we add the essential points of Marx’s theory of social classes, which is logically separable from points (1) to (3) that define the economic interpretations of history but forms part of it within the Marxian scheme. (1′) The class structure of capitalist society may be reduced to two classes: the bourgeois class that owns, and the proletarian class that does not own, the physical means of production, which are ‘capital’ if owned by employers but would not be ‘capital’ if owned by the workers who use them. (2′) By virtue of the position of these classes in the productive process, their interests are necessarily antagonistic. (3′) The resulting class struggle or class war (Klassenkampf) provides the mechanisms—economic and political—that implement the economic evolution’s tendency to change (revolutionize) every social organization and all the forms of a society’s civilization that exist at any time. All this we may sum up in three slogans: politics, policies, art, science, religious and other beliefs or creations, are all superstructures (Überbau) of the economic structure of society; historical evolution is propelled by economic evolution; history is the history of class struggles.

This is as fair a presentation of Marx’s social evolutionism as I am able to provide in a nutshell. The achievement is of first-rank importance although the elements that enter into it are of very unequal value or, rather, unequally impaired by obvious ideological bias. … … the economic interpretation of history … . If we reduce it to therole of a working hypothesis and if we carefully formulate it, discarding all philosophical ambitions that are suggested by the phrases Historical Materialism or Historical Determinism, we behold a powerful analytic achievement. Points (1) and (3) may then be defended against objections, most of which turn out to rest upon misunderstandings. We have reached a point of vital importance for a proper understanding of Marx’s work. … we can now visualize his unitary Social Science, the only significant all-comprehensive system that dates from this side of utilitarianism: we see the manner and the sense in which he welded into a single homogeneous whole all branches of sociology and economics—a venture that might well dazzle the modern disciple even more than it dazzled Engels, who stood too near the workshop. .. Here I wish only to insist on the greatness of the conception and on the fact that Marxist analysis is the only genuinely evolutionary economic theory that the period produced.14 Neither its assumptions nor its techniques are above serious objections—though, partly, because it has been left unfinished. But the grand vision of an immanent evolution of the economic process— that, working somehow through accumulation, somehow destroys the economy as well as the society of competitive capitalism and somehow produces an untenable social situation that will somehow give birth to another type of social organization—remains after the most vigorous criticism has done its worst. It is this fact, and this fact alone, that constitutes Marx’s claim to greatness as an economic analyst.

Some of Marx’s insights have stayed with me,. Here is a list of ten great insights and phrases, straight from the horse’s mouth. Memorable, and still rather pertinent.

10. “The philosophers have only interpreted the world, in various ways. The point, however, is to change it.” [These words are also inscribed upon his grave]” (Eleven Theses on Feuerbach)

9. “There is no royal road to science, and only those who do not dread the fatiguing climb of its steep paths have a chance of gaining its luminous summits.” (Capital, Vol 1: A Critical Analysis of Capitalist Production)

8. “The tradition of all dead generations weighs like a nightmare on the brains of the living.” (The Eighteenth Brumaire of Louis Bonaparte)

7. “In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness. At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.” (A Contribution to the Critique of Political Economy)

6. “It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.” (A Contribution to the Critique of Political Economy)

5. “The ideas of the ruling class are in every epoch the ruling ideas, i.e. the class which is the ruling material force of society, is at the same time its ruling intellectual force. The class which has the means of material production at its disposal, has control at the same time over the means of mental production, so that thereby, generally speaking, the ideas of those who lack the means of mental production are subject to it. The ruling ideas are nothing more than the ideal expression of the dominant material relationships, the dominant material relationships grasped as ideas.” (The German Ideology)

4. “The history of all hitherto existing society is the history of class struggles.

Freeman and slave, patrician and plebeian, lord and serf, guildmaster and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight, that each time ended, either in the revolutionary reconstitution of society at large, or in the common ruin of the contending classes.” (The Communist Manifesto)

3. “Modern bourgeois society with its relations of production, of exchange, and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer, who is no longer able to control the powers of the nether world whom he has called up by his spells.” (The Communist Manifesto)

2. “Let the ruling classes tremble at a Communistic revolution. The proletarians have nothing to lose but their chains. They have a world to win. Workingmen of all countries unite!” (The Communist Manifesto)

1. “Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people.” (A Contribution to the Critique of Hegel’s Philosophy … )

Adverse Action Lawyer wanted in Frijters versus UQ case

I am seeking a lawyer to run an Adverse Action case connected to the recent Fair Work Commission verdict that found systematic breaches of procedures and procedural fairness in the University of Queensland’s actions against me following my research on racial attitudes in Brisbane. I first raised these breaches late 2013, but they were never addressed, with lots of new ones added to them as the case dragged on. The VC of the university was also personally informed of these breaches in April 2014, publicly denying there was anything wrong about UQ’s action in February 2015. He was again informed in March 2015, consistently failing to rectify breaches of procedure brought to his attention. I wish to bring an Adverse Action case to claim back my considerable costs.

I expect the case to be worth at least a few hundred thousand dollars in terms of damages (legal cost, value of my time, etc.), and for it to be potentially one of many others because the FW case uncovered widespread breaches of procedures in UQ’s handling of misconduct cases. So there might well be many others who are now looking to bring Adverse Action cases against UQ.

I offer a pay-for-success contract wherein the first part of any awarded damages would go to the lawyer, but after a threshold payment I want 50% to go to the successful lawyer and 50% towards Vanavil, which is a school for orphaned victims of the 2004 Tsunami flood in India. I feel that helping the poorest Indians will go some way to nullify the damage that the managers of UQ did when they suppressed evidence of adverse treatments of Indians (and Indigenous peoples) in Brisbane and made it harder to research these things in general. And I want to feel that I haven’t wasted my time these last three years on fighting mindless bureaucracies, but that my efforts ended up helping people in need.

Negotiations on the offered contract are possible. Please contact me on email if you are interested or have a good suggestion for a good adverse action lawyer ( p dot frijters AT uq dot edu dot au).

[Ps. The VC of UQ was still making inappropriate claims last week on the UQ media about his lack of involvement and has refused to retract his claims this last week when I pointed his errors out to him.]

Scottish independence: a good idea or a bad idea?

Today the people residing in Scotland can decide whether they want to see an independent Scotland or to have Scotland remain in the UK. The betting markets concur with the opinion polls and favour the status quo: the markets give roughly 20% chance that the ‘yes’ vote will win and that Scotland will become independent.

The majority of economists talking about the referendum have focused on whether or not the Scots would be financially better off with their own country, debating things like North Sea oil revenues and currency unions. I think that is a distraction: looking at small and large countries in Europe, you would have to say there is no noticeable advantage or disadvantage to being a small country and that the Scots are hence unlikely to be materially affected in the long run by independence.
Independence is more about self-image and identity than it is about money. Even though the push for independence might well come from politicians and bureaucracies that gain prestige and income if they ruled an independent country, the population deciding on the vote will probably vote on emotional grounds, not economic. Young male Scots appear overwhelmingly in favour of independence; females and old people prefer to keep things the way they are. The latter groups are bigger and are expected to sway the day.

Personally, I have two related reasons to oppose the breaking up of larger countries in Europe into smaller ethnically defined states, not just Scotland, but also Catalonia, the Basque region, the Frisian province, Bavaria, and all the other regions of Europe:

  1. These independence movements are ethnic and hence by definition exclusionary. This is a big concern: large nation states have slowly moved away from the story that they exist for people of the ‘right’ bloodlines and with ancestors who lived in the ‘right’ place. The UK, the US, France, Australia, and even Germany and Spain have moved towards an identity based on stories about what it means to be British, American, French, Australian, etc., rather than a ‘blood and earth’ ethnic nation state story. Speaking tongue-in-cheek, the Brits have an upper lip story, the Americans have an exceptionalism story, the French have been convinced they like reading Proust, the new Australians are told in their citizenship exams that they believe in a fair go, etc. These stories contain treasured national stereotypes, complete with imagined histories. The key thing is that are inclusive, ie any newcomer from another place can participate in such stories. The Australian national anthem is a beautiful example of this super-inclusive attitude as it, almost uniquely, mentions neither ethnicity nor religion as a basis for being Australian. The ethnic stories of the independence movements are, in contrast, exclusionary and hence harmful to the self-image of any migrant. It is a move to a past that we have little reason to be proud of, as it marginalises current and future migrants. The story surrounding Scottish independence is thus not that the Scots are people who like to wear kilts and enjoy haggis, but that they make up the people who have suffered 700 years of oppression by the English. What is a recent newcomer from, say, Poland to do with such a self-image but conclude that they do not really belong there?
  2. The mixing of populations inside the UK due to factors like work, marriage, and retirement, now means that large parts of the ‘Scots’ live elsewhere and large parts of the population living in Scotland come from elsewhere. So there are reportedly close to a million Scottish-born people living elsewhere in the UK, and half a million people living in Scotland who were in fact born in England. Becoming independent from those ‘evil English that oppressed us for 700 years’ means marginalising both the 10% of the resident Scottish population actually born in England and putting a traitorous label on the million that decided the supposed oppressors were people you could marry and work with. If we consider the fractional heritage that nearly every UK citizen has, with some ancestors from Scotland and some from elsewhere, nearly every UK citizen will then almost arbitrarily be ‘forced to choose’ whether their fractional Scottishness counts as 1 or as 0. This is a problem: the roughly 5% of my ancestry that is probably Scottish does not want to be alienated from the 45% that comes from other parts of the British Isles!

These two reasons amplify each other: the damage that an ethnic-story based independence movement does gets amplified if the mixing is very large and is somewhat less of a factor when there is very little mixing.

What goes for Scotland goes doubly for many other regions in Europe: for instance, I believe some 40% of the people living in Catalonia are born outside of Catalonia and in other Spanish regions. The population mixing between regions of France and Germany is similarly large. The reality of a joint national economy is that the populations have internally mixed and artificially going ‘back’ to supposedly ethnically pure groups that define themselves in terms of adversity to the others is a regression.

It is of course these mixed populations that provide a counter-weight to any break-away movement, and they provide clear policy prescriptions for those who want to keep their countries intact: mix the population around to emasculate those who want to pull any geographic ethnicity card.

So I will be hoping that the betting markets are right, that mixing populations over the last few decades has done its integrative job, and that the ‘No’ vote wins.


‘Out of the Box’ thinking on inequality

Whatever you might think about it, good or bad, there is ample evidence that, in countries all around the world, the rich are getting richer. Best-selling economist, Thomas Piketty, has confirmed it using a wealth of data, alongside an admittedly more controversial opinion that it will continue. But ultimately, whatever the concerns about wealth disparities are, those concerned have a starting place for action: they want the rich to pay more in taxes.

To be sure, there have been ample periods in history where such calls to tax the rich have been successful. This is why I am sure that many rich, who would prefer not to hand over their income or wealth to the government, are themselves concerned. Either they will end up paying more or start to exist in a broader society where many people think they are gaming the system to their own ends.

I’m here to propose a fresh perspective at this issue. It is one that asks people to give a little in their attitude but otherwise not take any actions other than ones that are purely voluntary. To do this, the government should take a leaf out of the private sector’s book and learn better ways to extracting money from wealthy people.

Whatever you might think about how markets lead to situations where the wealthy have benefits, it is also the case that they have been very imaginative at convincing the rich to part with that wealth. Let’s begin with the airlines.

As David Owen recently investigated, airlines spend up to a half a million dollars to install first class seats to attract rich patrons. The tickets for those seats can run up to $20,000 for perhaps 14 hours of use. Better still, they are rated highly by their users even though, in effect, stripped of glamour, it is not much more than a dorm room shared with 10 or so other people. That you can ask people to shell out that much for so little should give us pause.

This type of phenomenon occurs everywhere. Airlines have continued it by awarding ‘status’ associated with frequent flyer use as have credit card companies. Luxury products in jewellery, fashion, cars and other things sell for well above their cost of manufacturer or their functional value. And, as so many have noted, it is often the conspicuous nature of such expenditures — especially what they tell the rich about each other — that drives demand. After all, in first class, the rich check out who else is with them. I don’t see that happening in coach.

A new approach

Which brings me back to taxes. The issue with taxes is that they are an inherently private activity. We have set ourselves up to ensure no one outside of the IRS, and potentially not even they, know about our income and wealth. While a rich person may lament being under-appreciated for the tax contributions they do make, the system drives a lack of transparency. This is not a choice the private sector would make. After all, charities who target the wealthy rarely do so with a plea that all remains private. A gala ball and big awards remain standard fare.

Put this way, there is no reason why the government could not to the same. It knows precisely how many dollars each individual has paid. And it could use that knowledge to set up their own status and recognition system. Imagine, for instance, a ‘US Platinum’ status which is conferred on individuals who have made one billion dollars in actual tax payments over the last decade. Each year those who had reached this threshold would receive their recognition at the White House or Capitol. Of course, if one wanted to keep such things private, they could opt out of the program. Hence, it is purely voluntary.

The new status could come with other benefits beyond public recognition. Taking a leaf from the airlines, recipients would receive a Platinum card entitling them to various perks, from an easy time at airports and wherever government lines are (such as the DMV) but also to favoured treatment in dealing with government agencies. To be sure, they might receive those things already but this would allow it all to be transparent.

More importantly, the government could be imaginative about how status may be used so that recipients could receive their due recognition. As I already mentioned, it is by playing on the conspicuous nature of consumption amongst other rich people that private businesses extract more from the rich. The government could do the same thing by ensuring that wherever the rich congregate, it is clear who has status and who does not. The British have a system that, while not tied to taxes as I have proposed here, does that by awarding knights and dames. Australia has recently decided to re-adopt the same system (that’s the benefit of outsourcing your head of state to a millennium old dynasty). In the tax-based system, the same recognition would arise with the, I’ll admit, consciously manipulative: “you say your rich but I don’t see you with your Platinum pin, what gives?” I suspect opting out will be rare.

At the margin, one could imagine that this would change the attitudes of the rich towards spending money on activities designed to reduce the amount of tax they had to pay. Of course, once you have got your one billion dollar threshold, you might tax avoid with abandon thereafter but let’s face it, extracting more from those at that level is hardly worth the effort. There is a sense in which a fair share has been paid.

Potential Objections

There would, of course, be things to object to with all of this. First, there is the notion that the government would be celebrating the pure rich. That is, of course, a feature here so seeing it as so requires an attitude change. It is not unprecedented for the government to confer status: it does so for veterans and could do more there. Would it be so bad if those who paid for the tanks also received some recognition too? Remember, the award only goes to those who have signed checks to the US government.

Second, what about charities? Shouldn’t contributions to charities or non-profits also count toward the US Platinum status? It is true that they give but they receive separate recognition for that already. What I am arguing for here is for balance in that recognition with whatever consequence that means for the balance of contributions.

Third, what about those who aren’t rich? Don’t they contribute? Of course they do, but one issue at a time. There can be other awards for other contributions. What I am suggesting here is that there is a new awarded tied objectively and unapologetically to pure money given to the US government. It is a missing element in public recognition.

Fourth, won’t this just entrench rich dynasties with more benefits? This is a concern but I would ensure the status is only conferred to individuals. That means that if you should pass away, the status would not be given to your children. The private sector doesn’t do that and neither should the government. They would have to earn it the same way as everyone else although they could get a head start by paying their share of any inherited estate to the government with an estate tax.

Fifth, even one billion dollars seems a tad high a threshold, shouldn’t there be others? Yes, that number was pulled out of the air but my goal was to start at the long tail of the income distribution. One can imagine that different levels may occur for different tax payments. The precise details would require study but the model the airlines use is a pretty good place to start.

Finally, if this works, won’t it mean that the rich will end up paying more taxes in total? Sometimes the rich travel more just to improve their airline status. Might some just pay more than they have to in order to do the same? Won’t that reduce incentives as much as higher tax rates would?

To which I say, if that occurs, bravo! Our job is done. Self-redistribution is the ultimate voluntary act and because it is something people choose to do rather than are forced to do, it must be something they prefer. In other words, how great would it be for incentives if the rich tried to get richer so they could pay more taxes and earn the benefits that accrue from it? That sounds like a win-win for the political and economic ages.

An edited version of this article first appeared at The Conversation.

Inspiration for this idea came from Scott Adams who made a convincing but sadly ignored (until now) call to start thinking in more innovative ways about taxing the rich.