16A004 Fair's Unfair by Jim Davies, 2/9/2016    

 

- in the context of government and politics, that is. Fair is fair when it's free (when two or more make a deal, without coercion) but when one of them is forced to "agree" it's no such thing. Cynically, however, the two front-runners for the job of heading the FedGov this year are each making a big play with the word.

The Donald wants "fair trade" with China and others, while Bernie calls for a "fair share" of tax to be paid by "Wall Street." Each calls forth a strong gut-based approval from his base supporters whenever he uses the word. Seems the voter (or the ~40% that favor those two) really like things to be "fair".  Alas, their minds have been so far distorted that they do not know the meaning of the word.

We who do can take some comfort from the fact that only about 40% of the population votes, and only about 40% of those favor either Trump or Sanders; hence,  this mindless bigotry may pollute only 16% of the population, leaving five sixths of it unsullied.

Sanders' plea is the simplest to demolish, in three ways: for he wants Wall Street to pay its fair share of tax. First, 100% of tax is fundamentally unfair by definition, for it is a "forced exaction for the support of government." There is nothing negotiated about tax. Government holds a gun to your head, and demands payment; there is no benefit offered in fair exchange. That is true for all, rich and poor alike.

Second, the Marxist or "Progressive" system of income tax punishes the successful for being richer than others by taxing them at a higher rate; currently the highest US one is said to be 39.6%, compared to the lowest rate of 10%. If somehow it were granted that a forced exaction is "fair", there is no way at all validly to call such a punitive rate structure "fair." Yet Bernie Sanders wants the top rate to be higher yet.

(Parenthetically we should note however that the alleged income tax yields only 40% of all the Feds spend; other taxes make up the difference and none of their rates progress. The net effect is that the middle classes pay government a little more than half of all they earn, while the poor and rich each pay it a little less than half.)

Third reason Sanders' idea is nonsense is the literal one: Wall Street never paid anyone a dime in tax, nor ever can; it is a road, operated by New York City. Sanders is really referring to those with offices in its vicinity, and they include a wide variety of financial firms and employees from banks to investors to insurers. There is nothing "fair" whatever in targeting one sector of the economy and taxing it at higher rates.

Trump's twisted idea of fairness is almost as bad, but needs a closer look to see why. He complains that while he believes in free trade, he also wants it to be "fair", by tweaking the rules under which it is conducted. He says the government of China "uses unlawful tariff and non-tariff barriers to keep American companies out of China and to tilt the playing field in their favor." So what? Trade between American and Chinese business owners would certainly be greater, to everyone's benefit, if both governments got completely out of the way; but if the one sticks obstacles in the way, the other is by no means excused thereby for doing the same. Those actually doing the trade aren't governments but business people, and they make between themselves the best deal they can, given the prevailing constraints.

If those constraints are such as to make a deal unacceptable for one or both of them, they walk away; no deal is struck. They each trade elsewhere instead. Both lose, along with their customers and suppliers and employees. The fix is to remove the constraints - all of them - not to bellyache that the impediments should be distributed differently.

But what if one party doesn't honor an agreement, perhaps by not paying his bill, or by failing to deliver what was purchased? - then the other party loses, but never trades with him again - and further, news of it spreads; reputations are damaged. What goes around, comes around. A free market is self-correcting. Reputations matter; laws do not.

Trump also complains that the Chinese government subsidizes businesses it likes, so making it harder for American ones to compete. It's true; somehow it costs less to ship an item to a US buyer from Shanghai than from across town, for example. From where, however, does that subsidy come? - clearly, from others in China who make profits or wages, for governments never have resources of their own, just those they steal. So one part of that economy is being boosted, at the expense of other parts. It's a distortion. And in the long run, government distortions always harm prosperity. Chinese residents will lose, as well as Americans.

"Fairness" in any agreement takes place when, and only when, all parties to it are equally satisfied. Were it otherwise, one or more would be resentful, and would nurse a grievance to be expressed later - or, better, that would cause him not to enter the agreement at all. A truly fair trade is therefore, by definition, free trade, in which no participant is forced to accept terms he does not like, leaving other parties happier. Donald Trump is an expert trader, but it appears that he never learned that primary lesson. Fairness - unfettered choice between or among rational actors - is incompatible with government, for government by definition governs, imposing its opinion on the contracting parties. 

The scandal here is that both front-runners are using the word just as if it did have some place in the political arena. It does not; it belongs properly only in the market arena, which is to say a zero government society. If, like me, you favor genuine fairness, that's our only option.

 
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