Month: May 2014

Yes we do want to “punish success”

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You hear this a lot with anti-tax advocates.  That raising taxes “punishes success”.  It sounds bad, but in real life it’s actually a pretty sensible thing to do.  Here’s why.  Success is typically measured by profit in the very short term  —  a year or two at most.  It’s also measured in a kind of environmental isolation.  During a bull market business do well.  During a Bear market business do poorly.  It doesn’t often have a lot to do with how well the company is being managed other than the degree to which it is doing poorly or well.  That’s why financial analysts are always comparing a financial asset to the market.  Did your stock or mutual fund “outperform” the market? or is it “under performing”.  The trouble is that risk is almost always rewarded.  In the short run, high risk investments tend to be astronomically profitable.  In the long run, they crash and burn when the business cycle turns.  So another way to measure “success” is by equating relative success to relative risk.  There’s no incentive in the short run to limit risk and thus your “success”, and in the long run the government is willing to manage losses to some extent if those loses represent a systemic risk to the economy.  So we absolutely want to “punish success”, if not to limit risk, then to at least profit from it so we can have reserves enough to manage the economy when the business cycle inevitably turns.   So you want to “punish success” for two reasons: to limit  or at least capitalize on risk in the marketplace.  And to create reserves that can be tapped during an economic depression.

There’s another reason you want to “punish success”.  For profit, private utilization of socialized resources without direct compensation.  The government funds a tremendous amount of  scientific research and development and expects absolutely nothing in return.  The vast majority of our technology today got its start in a government funded laboratory.  It’s private companies that takes advantage of these technologies, develops products based on them, and sells them for mountains and mountains of money.  You might have heard of a couple of these inventions.  Inventions like the internet for one.  The government also provides the basic infrastructure or funding for things like water, power, transportation, education, retirement, and more.  It’s a pretty sweet deal for businesses.  The government gets some of that back in capital gains taxes, but not enough.  These are beyond useful things and the government should continue to do them, but nothing gets you nothing.    Collecting profit and placing the money in future technology could be considered “punishing success” since you’re limiting the amount of profit available to the stakeholders, but it could also be called something else.  Investment.  “Investing in our future” should be more than a political slogan.  It should be a reality.