Tuesday, September 13, 2005

Taxes and Hard Work

I was reading a very interesting essay by Frederic Bastiat (1801-1850) on political economy a few days ago. (Thanks to Amit Varma, for the link). It is an excellent treatise on the visible and invisible effects of a law in the economic sphere. Bastiat says that when a law is made or a decree pronounced, very often people see only the immediate effect – the visible one. Those that emerge later following on from this initial effect are invisible, and often more important, and the ability to foresee these are what distinguishes a good economist from a bad one.

I will take two points to elaborate on here, that came to my mind after reading the essay. One, how do we know where our tax money is going? This tax issue is something I am picking, because ever since I started paying taxes I have realized certain things. One, that you have no choice in the matter unless you want to be arrested or fined. If you are an honest person, you just have to pay taxes and pray your money is being put to some good use. Because somehow or the other, I believe whether the police is effective or not with respect to guarding the law, they are extremely efficient with regard to finding people who do not pay taxes. And no – evading the law is not something I have tried :-) But, given that I pay tax and I genuinely pray the money is being put to good use, I also have no way of verifying what is being done with my money. And believe me, there are plenty of ways I can put the money to better use if it is not. And I am not talking about shopping, for heaven’s sake! Therefore, I have started thinking, quite over-optimistically, that what the government should do is give tax-paying members of the public an exact break-up of where their hard-earned money is being used. Yeah, I know – HOPES!!

The other point relates to hard work. The essay mentions two people who inherit an equal sum of money, but whereas one uses it all in living a luxurious life, soon finding himself without anything to fall back on, the other is a wise investor who lives a decent life and also has some left over for a rainy day. I mention this example because while I am an ardent believer in savings as much as I am in the good life (as long as it harms no one), in this day and age I also see numerous cases where people a) do not save and yet b) have an excellent lifestyle. The reason is that the inheritance they have is enough to fuel their every whim till their dying day and for their kids as well. Inferring from this, a) Their dads did a darn good job of making money, so b) they do not need to even learn how to save, forget saving itself.

My question is, is this right or wrong? The previous generation works hard so that the next can live comfortably. But the ‘next’ do not recognize this hard work and think it is their right to use all the money to do all they want. The morals and ethics by which the previous generation got where they are today have no say in the lives of the next because they are already way above where their peers are, without even trying.

I think the fault lies in the previous generation. If you do not teach the value of hard work, then there will be no recognition of it. The other possibility is that all the money is black money anyway, so it will obviously be spent on luxuries. Either way, the point is almost the same: if you do no hard work yourself, then your kids will have no desire to do any either.

The conclusion of the 33-page essay, where Bastiat quotes what Chateaubriand says of history, is something that almost answers my question:

“There are two consequences in history: one immediate and instantaneously recognized; the other distant and unperceived at first. These consequences often contradict each other; the former come from our short-run wisdom, the latter from long-run wisdom. The providential event appears after the human event. Behind men rises God. Deny as much as you wish the Supreme Wisdom, do not believe in its action, dispute over words, call what the common man calls Providence “the force of circumstances” or “reason”; but look at the end of an accomplished fact, and you will see that it has always produced the opposite of what was expected when it has not been founded from the first on morality and justice.”

(Chateaubriand, Memoirs from Beyond the Tomb)

1 comment:

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