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Brooks Wilson's Economics Blog: Harkin on the Relationship of Men and Government

Friday, January 8, 2010

Harkin on the Relationship of Men and Government

When I was in my early twenties and still a liberal Democrat I read "Capitalism and Freedom" by Milton Friedman and hated it.  On the first page he dissected President John Kennedy's statement, "Ask not what your country can do for you--ask what you can do for your country."  My friend and mentor Del Gardner, who had traveled with Milton Friedman as a graduate student at Chicago asked me the source of my disdain.  I said that Friedman had read too much into a plea for patriotism. 

Yesterday, I read a statement by Senator Thomas Harkin of Iowa ( Christina Crippes, "Harkin favors taxing stock transactions," The Hawk Eye, or Ryan J. Donmoyer, "Wall Street Transaction Tax Proposed by Democrats (Update4)," Bloomberg, December 3, 2009) who attempted to justify a tax on each transaction of stock, futures, options and swaps, by saying,
Let me put it bluntly, we need this revenue, which would amount to as much as $100 billion or more annually. We need it to reduce the deficit as well as to pay for new legislation to create jobs and put people back to work.  We need a shift of priorities to this: Ask not what America can do for Wall Street. Ask what Wall Street can do for America.
A flood of memories poured through my thoughts.  It has been a long while since I have been a liberal Democrat and almost as long since I began to enjoy Friedman's quote, but the accuracy of Friedman's vision again struck me.  Friedman wrote of Kennedy's statement,

Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society.  The paternalistic "what your country can do for you" implies that government is the patron, the citizen the ward, a view that is at odds with the free man's belief in his own responsibility for his own destiny.  The organismic, "what you can do for your country" implies that government is the master or the deity, the citizen, the servant or the votary.  To the free man, the country is the collection of individuals who compose it, not something over and above them.  He is proud of a common heritage and loyal to common traditions.  But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served. 

Can it be any clearer that Harkin views investors as servants or votary and the government as the master or deity?

Harkin seems to have as bad an understanding of the economics of the proposal as of the relationship between man and government stating a historical precedence for the tax rather than an economic justification.
Until 1966, the United States taxed all stock transactions and transfers. Indeed, Congress doubled the transaction tax rate during the Great Depression in order to finance economic recovery initiatives.
Someone might ask Senator Harkin why he wishes to emulate a policy enacted during the longest period of high unemployment in our nation's history.  He should know that if you want less of something you tax it.  To repeat a theme of an earlier post (The Crisis Paradox), Robert Higgs  wrote that regime uncertainty created by less secure property rights, higher taxes, and other measures is an explanation of the Depression's duration (Higgs, Robert, "Regime Uncertainty," The Independent Review, Vol. I, No. 4, Spring 1997). 

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