Elizabeth Warren: A Harsh Mistress

By Derek Israel

Last week, Elizabeth Warren, a Democrat who is campaigning for the position of United States senator from Massachusetts, was seen in a video taken at one of her campaign stops.  In this video, Warren lays out her argument for why people who create jobs and wealth in our country are not shouldering their fair share of the tax burden.

The release of the video was intended to dispel the notion that attempts by Democrats to tax the rich are the result of class warfare.  In the video, Warren lays out her argument for taxing the rich in the form of an imaginary conversation with a fictitious "factory owner."  She concludes that the factory owner is morally bound to surrender an arbitrary portion of his earnings to the government as compensation for the good deeds of other members of society.  I find that her argument lacks merit. 

Here is what she said in the video (starting at 0:55):

There is no one in this country who got rich on his own. Nobody.

You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were, uh, safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.

Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying socialcontract is you take a chunk of that and pay forward for the next kid who comes along.

It is clear from her words that Warren is making not a practical argument for taxing the rich, but rather a moral one.  The morality of the argument can be found, according to her, in the concept of the social contract as well as in the concept of "pay it forward."  These are concepts that are important to discuss, but first let's examine the foundations she lays to justify engaging these concepts.

Warren begins with the statement that no one in this country has gotten rich on his own.  No one.  This is an important line, because, as we will see, when linked with social contract theory, it unequivocally demonstrates her understanding of the relationship between people and the government. It is, in fact, the thesis which she attempts to prove with the information that follows.

She continues by snidely telling an imaginary businessman, "You built a factory out there?  Good for you."

She follows with a list of the things that society did to facilitate this accomplishment: the factory owner moved his goods on roads the rest of us paid for, he hires workers the rest of us paid to educate, he was safe because of the police and firefighters the rest of us paid for, and he didn't have to worry about marauding bands seizing his factory because of the work that the rest of us did.

She finishes her comments by telling the factory-builder that, should his factory turn into something terrific, he should be allowed to keep a "big chunk" of it.  She then reminds him of the social contract theory and of the proposition that he should "pay it forward" to the next kid who comes along.

Let's start by taking this moment to examine the social contract theory.  Though the theory can be traced back to Plato, it really gained momentum through the writings of Thomas Hobbes, John Locke, and Jean-Jacques Rousseau.  The theory postulates that individuals unite into political societies by a process of mutual consent.  It played an important role in the Declaration of Independence because of the concept that political power must be derived from the consent of the governed.  In Warren's case, however, she is less focused on the consent of the governed and more interested in the obligations of the governed -- particularly the obligations to pay taxes.  By her reasoning, a successful factory owner owes more to society because he, apparently, derives more benefit from the contract.

However, Warren's idea of the social contract is highly suspect, in particular because she is using it to justify an obligation to pay taxes.  A contract is binding only when it is entered into voluntarily, and as political philosopher Lysander Spooner pointed out, taxation cannot be supported by the notion of the social contract because the government can take the money by force, so taxation is hardly something that can be entered into voluntarily (interestingly, Spooner is also notable for creating the American Letter Mail Company, a business that competed directly against the U.S. Post Office for customers.  Unfortunately, though his corporation was profitable, the government put him out of business by enforcing its monopoly on mail delivery.  No wonder the guy was so down on social contract theory.)

Additionally, the basis of social contract theory presupposes that, as Hobbes pointed out, the human condition without government is "solitary, poor, nasty, brutish, and short."  Hobbes liked any government better than no government and favored a monarchy.  Though the theory has evolved to embrace a democratic society, it still holds a fundamental disdain for the individual, which it considers a being that cannot function without government interference.  This is clearly what Warren meant when she said that "there is no one in this country who got rich on his own."

However, even if we were to embrace without reservation the notion of the social contract and that taxes are part of the contract, then Warren still failed to make an argument to support higher taxes for the factory owner.  In her example, the factory owner received the benefit of roads and police and stable government.  However, what she failed to note or to realize is that everyone in the society enjoys these benefits.  They were not put into place to benefit only people who build factories.  Each and every one of us enjoys the protection of the police and our military and a (crumbling) road system.

Warren also failed to point out that the factory, once built, will provide significant revenue to the community that it inhabits.  It will pay property taxes; it will pay for electricity (a big revenue-generator); it will pay the salaries of a large number of workers, from whose salaries will be deducted more taxes.  These employees will also spend the money that they earn, and this will be reflected in higher sales tax revenues and greater prosperity for the merchants of the town.  These people will also be able to purchase nicer homes, which will be reflected in higher property tax revenues.

In short, not only is the factory owner a contributor to the society, but he is actually a super-contributor -- and, if we were truly to follow the social contract theory, he would be entitled to significantly more consideration from the government.  Let's contrast the factory owner with the over 45 percent of American households who pay no federal income tax or the one of every sixAmericans who receives welfare.  Who is not fulfilling his part of the social contract?

Let's also not lose sight of the fact that the person in the society taking the greatest risk is the entrepreneur who risks everything to build a business, whether that business is a factory or a tech start-up.  In a capitalist society, which ours nominally still is, risk-takers are rewarded with the highest returns.  This is their "payment" for the risks they take.  When that reward is removed because the government thinks the "chunk" of their earnings that they get to keep is too big and decides to take more, then the entrepreneur either takes a safe, less productive job, or else he moves somewhere where risk is rewarded.  That kind of describes what's happening in the country right now.

Finally, there is the concept of "pay it forward," which Warren has redefined as a person's obligation to the government.  The term "pay it forward," though its origin goes back to the Classical Greek period, was popularized by the grand master American science fiction writer Robert A. Heinlein.  He first used the term "pay it forward" in his 1951 book Between Planets.  The term was meant to express the notion that a good deed could be repaid by the recipient doing an equally good deed for another.  In particular, I might give you money to get you through a hard time and, rather than asking you to pay it back, I ask you to "pay it forward" to another person in need.  Heinlein, a conservative libertarian at the time he wrote the book, would never have construed it as an obligation to the government, and Warren's conflating it with the social contract theory demonstrates that she fails to have even a basic understanding of either concept.  The government isn't doing you a "favor" by building roads and hiring police.  It's doing what is in the best interest of society as a whole.  In fact, it could be argued that the government does these things more for its own benefit than for the benefit of society as a whole, as building dependence on government places the government in a greater position of power over the people.

If Warren wished to steal a phrase popularized by Heinlein which would be most appropriate to our current economic situation, I would suggest she try "TANSTAAFL."  This word, popularized in Heinlein's libertarian science fiction novel The Moon Is a Harsh Mistress, stands for "There ain't no such thing as a free lunch."  The phrase was later used by free-market economist Milton Friedman as the title of his 1975 book.  I certainly can't speak for the late Mr. Heinlein, but I suspect that he would have argued that, no matter how great a society is, it is the individual who should be afforded the greatest deference, and the fruit of a person's labors are his own to do with as he pleases, and it is not the government's job to tell him to whom he should "pay it forward."