The Liberty Papers

The defining characteristic of socialism is that it divorces production from consumption. In other words, in socialist systems consumers are permitted to consume goods without producing anything, and producers are forced to give up the the fruits of their productive labor to consumers without regard to how they (the producers) would like these fruits to be distributed or used.

Of course, since they do not have to limit their appetites to that which their production would support, consumers naturally increase the goods and services that they demand, requiring increasing levels of forcible distribution to support. When the amount of unwanted distribution crosses some threshold, a producer will be tempted to rebel, or at least not work very hard or very carefully. When this phenomenon becomes widespread enough, socialists systems begin to breakdown. Avoiding this trap is possible, and long-running voluntary socialist systems such as Hutterite colonies seem to have perfected a set of customs that do just that.

However, coercive systems take the easy way out and inevitably resort to coercion to attempt to close the gap between consumptive demands and production, especially in the case when production levels are in a decline. Producers are threatened with kidnapping, assault, or even murder if they do not produce more, or hand over the goods they must be ‘hoarding’.

While some socialists such as Lenin or Castro are unabashedly straightforward about their willingness to attack producers who are insufficiently enthusiastic, most socialists are uncomfortable with such naked aggression. They choose to cloak their violent impulses with euphemisms such as demanding that force people to “pay their fair share” or “give back to the community”. They also try to set up confiscatory systems that are mechanistic and impersonal. Governments, being socialist organizations that claim a monopoly on the use of violence in some region of territory, all adopt a system of “property taxes” where property owners are forced to pay the government for the privilege of occupying their land. The protection money extracted from these property owners is then spent on “services” which are consumed by other people. These services can vary from popular ones such as government operated schools to unpopular extravagances such as the marble floors in our new town hall.

To make the tax mechanistic, impersonal, and thus seemingly fair, the town governments typically peg the tax to some percentage of the property’s “fair market value”. The “fair market value”, of course, is determined by appraisers in the employ of the town government, who take their guidance from the prices of recent sales of similar properties nearby. The property owner has little choice in the matter: if he holds on to the property, he is not participating in setting the market price.

In the 1950’s, government officials began to reap an unexpected windfall from this system. It was wholly unexpected, and due entirely to the monetary inflation that had taken place in the decades since FDR had last devalued the U.S. dollar. This process which accelerated dramatically in the 1970’s when the Nixon administration devalued the U.S. dollar again, worked in the following way:

The newly created money by the U.S. central bank was funneled to politically well connected people or firms, working on projects of interest to the U.S. government. In addition, this money, when deposited into the banking system was used as the reserve justifying a large number of loans, increasingly directed by political incentives towards people looking to acquire homes. The end result was a steady increase in the amount of money available for home purchases, and a concomitant increase in sale prices for real estate. Of course, the appraisers took advantage of these price signals to raise the “fair market value” or properties, with the result that taxes increased dramatically.

This of course was a double whammy. The monetary inflation had not uniformly raised prices across the board. Prices are set by sellers who try to set the maximum price that will move all their stock. Some goods and services, particularly those in demand by politically connected firms who received the newly created money first, saw massive price increases, where as firms and people that were economically distant from the money creation had no reason to raise their prices. This latter group saw their incomes grow little, or not at all, while their cost of living increased dramatically. Then they were hit with a tax bill that demanded an increasing share of their dwindling purchasing power.

In the 1980’s, there was a backlash. Here in Massachusetts, a popular referendum limiting tax increases to 2.5% per annum easily passed. But a backdoor was in place: if government officials could convince half of those showing up to a voting booth on a certain day each year to vote for an “override”, the cap could be lifted. So the government officials used an old scheme. They transferred money from popular projects to unpopular ones. They built tony “senior centers” and “modernized town halls” with funds transferred from the road maintenance budgets and school budgets. Then they called for an override explaining that without it the potholes would not get fixed and high-school football would be cancelled. In some towns, people saw though this trick. In others, the referenda were passed by the minority who bothered to vote and voted in support of the increased taxes.

So once again in Massachusetts, we see people being squeezed. Unlike any other expense, they cannot control their taxes, which increase seemingly without limit.

Property tax bills rose an average of $161 in the past year. The average bill for a single family home hit more than $3,962 — an increase of about 4.2 percent compared to last year.

In 65 communities, taxes climbed at a rate of 7 percent or more, according to the state Department of Revenue.
Since 2000, property taxes have jumped nearly 50 percent. Over the past seven years, the average annual property tax hikes for homeowners have ranged from about $150 to nearly $215, The Boston Sunday Globe reported.

The increase has homeowners grumbling that they are being asked to pay higher taxes even as local services are being trimmed.

So long as we force people to pay for others’ consumption through taxes, we will see this phenomenon continue. The consumers will inevitably be able to use the threat of state violence such as evictions and arrests for tax-delinquency to ratchet up the amount of wealth that is forcibly transferred. Their demands will continually outstrip supply, resulting in perpetual “shortages” and crises. It’s a pity that in the U.S. we permit such vital services such as roads, schooling, water and sewage to be provided by a system which discourages thrift, efficiency, and high quality, while encouraging perpetual crises that set neighbors at each others’ throats.