The Great Battle of Self-interest

tom_honig_sCNBC has been showing a promo video lately featuring the late Milton Friedman, the free-market, laissez-faire economist. Friedman was hardly your Santa Cruz kind of guy as he argued bookishly against government regulation and what he saw as unreasonable intrusion into free enterprise.

In the video, circa 1980, Friedman asks a question of host Phil Donahue that resonates today, while governments at all levels face grinding debt and the likelihood of cutbacks.

His question: “Is it true that political self-interest is somehow nobler than economic self-interest?”

Political self-interest is center stage these days. Maybe it always has been, but as governments search high and low for places to cut, those interests now are working against each other.

Here’s how it looks. Public employees fight to keep their benefits and salaries. The sick fight to keep their Medicaid payments. Teachers and administrators battle over too few dollars. Local cities and counties are in a battle with the governor over redevelopment dollars. Firefighters and the police worry over their salaries.

These groups all are fighting from a viewpoint of political self-interest. And so, in fact, are a number of corporations, who spend tons of dollars on lobbying efforts, generally looking for tax breaks or a way to fight foreign competition.

Meanwhile, another video is making the rounds. Filmmaker Michael Moore whips up emotions among striking workers in Wisconsin by arguing that there’s plenty of money, but that a wealthy elite is hogging it all for themselves.

So is there a solution here somewhere?

Friedman’s point of view is attractive, largely from the standard economic argument that people tend to act in their own self-interest. That’s true of striking workers in Wisconsin, of developers who profit from redevelopment funds here in Santa Cruz, and even of the captains of industry whose annual salaries are in the millions.

Yet Moore’s comments are hard to dismiss: one look around any city in America will reveal a shocking disparity of wealth. I remember walking down a street in New York, where homeless people are begging just outside of the world’s most glamorous boutiques. I wondered: why don’t the poor just rise up and steal this wealth for themselves? That must have been the same insight that Karl Marx or Vladimir Lenin had back in the day.

So should wealth be redistributed? It sure makes sense that a homeless person trudging up Pacific Avenue could make use of just a fraction of Bill Gates’ billions of dollars.

But now it gets complicated. How would the homeless person use the money? Or should the money go instead to a poor pupil who’s trying to get ahead. In fact, maybe that pupil will achieve so much that she in turn will be in a position to donate millions back to the next generation. Who decides?

Notice, of course, that Bill Gates doesn’t turn the money over to the government to decide how it’s used. He and his wife, Melinda, operate a foundation, where they allocate funds based on the perceived value of who is in need.

Would Michael Moore have Gates end the foundation and grant the dollars back into state and national coffers? Then what happens? Would the now-swollen government dollars be used to help our poor pupil? Would it go to homeless services? Or would it go to pay for public employee pensions? Right there, you’re starting a fight between, say, a teacher and a prison guard and a welfare recipient.

This damn self-interest gets in the way of easy answers. Here’s where Moore’s argument (and mine, as I see the inequities on a New York street) goes astray: there’s no easy way to soak the rich. California, after all, has tried it.

For many years, the only tax that could pass the Legislature in California is an increased income tax on the wealthy. The result is that when the top earners do well and the economy is rolling along – the tax coffers fill up. But when times are tough, incomes fall and the budget is bathed in red ink. (There’s another aspect to it—the wealthy also leave the state and go elsewhere.)

Economists always remind us about

unintended consequences. In fact, those from the Milton Friedman school say it with

irritating regularity.

So there you have it. People from all walks of life fighting out of self-interest. Free-enterprise folks are interested in money. Those who want more government control want more for their constituents, and  sometimes for their largest donors.

But the question remains: is political self-interest nobler than economic self-interest?

I say it’s not. But I suspect that most people in Santa Cruz would argue otherwise.


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