Liberals Criminalize Bad Conduct. Conservatives Ignore It. Pragmatists Make It Expensive

The best way to discourage abusive activities is to make them cost people more than they’re worth

Image by mohamed Hassan from Pixabay

By David Grace (Amazon PageDavid Grace Website)

I include Liberals, Progressives, Socialists, Communists, Conservatives, Libertarians and Anarchists as the principal political religions.

The response of the members of political religions to societal issues is usually fundamentally wrong because it’s always based on their pet moral theories instead of on practical realities.

The Liberals’ Strategy

The liberals’ approach to any problem is make some conduct illegal, which I liken to deciding to perform surgery with a chain saw — choosing to use a massive, crude, blunt tool that will often cause almost as much damage as it repairs.

The Conservatives’ Strategy

The conservatives’ approach to problems is just as bad, if not worse, but in a different way — Do nothing. Leave the injured patient alone to live or die on their own with the idea that their dying is a good thing because it thins the herd.

The alternative to both liberals and conservatives is a pragmatic approach.

Speeding & Pedestrian Deaths

There’s a lot of chatter now about a surge in pedestrian deaths, supposedly caused by speeding.

Liberals’ Response To Speeding

The liberals’ solution is more and bigger sticks — more cops, more cameras, more tickets. More tickets means more clerks to process the tickets; more traffic court judges to hear the appeals. Then you have to have an infrastructure to collect the fines, process the fines, add the unpaid tickets to a database, etc.

What an inefficient mess.

The Conservatives’ Response to Speeding

The libertarians’ answer to more speeding is just as bad, but in a different way. Their idea is to do nothing and let people drive as fast as they want.

If they crash and kill themselves, they say, problem solved. Fast drivers will make pedestrians more careful. Careless pedestrians will get themselves killed, natural selection, and everyone else will be more careful. Good drivers will be more watchful to avoid the bad drivers, so that’s a good thing too, they say.

If I have to explain to you why that is a really flawed, dumb, strategy then you’re so deficient in common sense and any idea of how humans act in the real world that it would be a total waste of my time to try to explain anything to you.

In contrast to the true believers in their various flavors of political religions, a pragmatist looks for a strategy that will give the people whose conduct you want to change a financial incentive to act in the way you want.

A Financial Incentive To Drive Slower

If it’s true that some motorists are driving carelessly because of excessive speed then the pragmatist wants to find a way that gives drivers a financial incentive to drive more slowly.

Let’s do a thought experiment.

The Faster You Drive, The More It Costs You

Suppose we repealed all gasoline taxes and we replaced the gas tax with a per-mile-driven tax that was variable depending on the speed that you drove:

Miles-Traveled TIMES Miles-per-hour = Driving Units. 100 miles driven X 60 mph = 600 driving units. 100 miles driven X 30 mph = 300 driving units (DUs). If the driving tax were 1 cent/DU then the same trip would cost the “fast” driver $6 and the slow driver $3.

Of course, you would probably want to tie the DUs to the speed limit, e.g. miles traveled at or below 2 mph over the speed limit would be so much per DU. Miles traveled between 2 mph and 7 mph over the limit would maybe be a 2X per DU. Miles traveled between 7 mph and 12 mph over the speed limit would be a 4X per DU and so on.

If the speed limit were 30 mph then 10 miles driven at or below 32 mph might be 10 cents. 10 miles driven between 32 mph and 37 would be 20 cents. The same 10 miles at between 37 mph and 42 mph would be 40 cents. The same 10 miles at between 42 and 47 mph would be 80 cents and so on.

Now that would really give people an incentive to obey the speed limit.

How Would You Implement It?

All new cars are highly computerized. It would be relatively simple for new vehicles to be required to determine the speed limit at any given location based on the car’s GPS location and the Google maps database and match that speed limit with the car’s speed, calculate the DUs and send the data to the DMV on a daily or weekly basis.

The registered owner of the car would be liable for the tax.

The dashboard could constantly display the current DUs and the current charge for the trip beginning from when the car was started. As the driver increased his/her speed the price per DU would increase and the total charge for the trip would increase.

For older cars you could also create an app that would add that same functionality to your phone or other purpose-built device and registered owners would be required to run the app as they drove.

Each year, to renew your registration you would need to disclose the mileage as of a set date. Year-to-year, this would allow the DMV to determine how many total miles you had driven in that year. If that total was materially higher than the number of miles the cell phone app reported then you would be charged a high per-mile rate for the missing miles.

If you got caught with a speedometer reading that was materially different from what you reported, you would get a big fine based on the difference in miles.

And, yes, you would still need some cops giving tickets to reckless people with more money than brains but 80% or more of the population would slow down.

Forget the liberals’ fascination with complicated bureaucracies designed to penalize conduct and the conservatives’ infatuation with the philosophy of do-whatever-you-can-get-away-with, might-makes-right.

If you make speeding cost people more money and obeying the speed limit cost them less money then most people will slow down.

Monopolies, Cartels & Market Concentration

Market concentration and market control are threats to capitalism, to the market, to the efficient allocation of economic resources and to consumers. Remember, every person and every business is a consumer of something.

The liberals’ answer to market concentration is anti-trust laws, but implementing and enforcing anti-trust laws is expensive, difficult, slow and inefficient.

Sure, leave them on the books, but think about how much more efficient it would be to penalize market concentration with a variable corporate tax structure collected each year via the corporate tax return.

Suppose the corporate tax for companies whose revenue exceeded $1 Billion/year and that also controlled less than 10% of the market for their product within the geographical area where 90% of their product was sold paid the base corporate tax rate.

If the billion-dollar-plus company increased its market share to between 10% and 15% then it’s tax rate would increase by 15% over the base rate. If its market share was between 15% and 20% its tax rate would be 130% of the base rate. If its market share was between 20% and 25%, its corporate tax rate would be 145% of the amount it would have paid if its market share had been less than 10%. And so forth.

Such a tax policy would discourage mergers and acquisitions by large, market-dominating companies.

Yes, there would be lots of moving parts required to deal with benchmarks and the tactics that people would use to skirt the rules, but a system that gives people an economic incentive to avoid the conduct you want to discourage is far more efficient, effective, and timely than enacting rules and regulations that seek to discover, gather evidence, prosecute, litigate, and collect penalties for the disliked conduct.

And yes, there would be thorny issues about products that benefited from the efficiencies of scale even above a billion a year in sales. Again, a thought experiment, not a rough draft of the legislation.

Inflation

There’s a lot of concern today about inflation. The principle inflation-control tool the government uses is its control of interest rates. The notion is that if the government makes borrowing more expensive then people will save more and spend less. It is believed that this decrease in spending will reduce demand. If demand is reduced then it is believed that sellers will reduce prices in order to increase their sales in the face of that reduced demand.

Also, an increase in interest rates reduces borrowing which contracts the money supply and with fewer dollars to go around each dollar is worth more, thus countering inflation.

But raising interest rates is also inflationary because is raises mortgage rates which increases the cost of housing. It also raises the cost of other products and services that depend upon borrowing, such as purchasing an automobile, large home appliances, home remodeling, home repair, uninsured medical care, etc.

So while raising interest rates may cause a decrease in some prices and a contraction of the money supply it will lead to lower levels of employment, the increased use of government services, lower tax revenues and increased costs for any product or service which requires consumer or seller borrowing

How could you reduce consumer spending without increasing consumer costs? One way to do that would be by increasing the minimum monthly credit-card payment.

Instead of a minimum monthly payment of between 1% and 2% of the outstanding balance, you require the banks to raise the minimum payment to 4% of the outstanding balance.

If you owe $10,000 that means that your minimum payment would go from $100/month to $400/month.

Also, require the banks to show your new monthly minimum payment on your phone or in a text or an email or on the payment terminal whenever you charge something so that on a transaction-buy-transaction basis the consumer would be told, “If you buy this (or because you bought this), your minimum monthly payment will be $XXX.”

That increase in the minimum monthly payment would deter a tremendous amount of discretionary spending. “Gee, I’d love to have those $200 shoes/$200 Xbox, but I already can’t afford the minimum payment so I better not buy it.”

Cooling spending in this way would allow consumers to continue to buy the things they actually need while discouraging them from buying things they don’t need AND it would keep the cost of rent, car payments and the like from going up.

Low Wages, High Executive Compensation, Increased Prices

Liberals are always complaining, and rightfully so, about bad corporate conduct — wages are too low; executive compensation is too high; prices are too high — but the liberals’ response is always to enact more laws, all of which need to be bolstered with regulations, investigations, citations, litigation, etc. Slow, cumbersome, inefficient, ineffective. Again, surgery with a chainsaw.

Increase Low Wages, Reduce Executive Compensation

Businesses are all about more money.

A better way is to give businesses an incentive to increase wages, not to pay excessive executive compensation, and not to raise prices, is an automatic mechanism that will financially motivate them to do what you want or not do what you don’t want.

If you want lower executive compensation, deny the corporation a tax deduction for compensation that is greater than XX times the average annual wage (based on 2080 times the average hourly wage) for the bottom 10% of the company’s employees.

If the average hourly compensation for bottom 10% of a company’s employees is $19/hour, $39,520/year, and if XX is 30 then any total compensation in excess of $1,185,600 would not be tax deductible.

Or, you might require that any compensation above that $1.185 M figure cannot be paid unless it has been approved by a vote of 51% of all of the company’s issued and outstanding shares. Not 51% of the shares voting, but 51% of all the company’s outstanding shares, which would be an almost impossible approval for any public company to obtain.

Essentially this would put a cap on executive compensation for almost all public companies.

Of course, if the executives really wanted more money and they couldn’t get the approval of a majority of all issued shares, their only option would be for the company to raise the average pay for the bottom 10% of its employees.

Increasing that average pay for their lowest paid workers from $39,530 to $50,000/year would increase the cap on executive salaries to $1.5M.

Lower Prices

As consumers we all want to pay a lower price. Liberals’ first instinct to keep prices low is to enact some kind of price controls. Again, a hugely inefficient, ineffective and damaging strategy.

The conservatives’ answer to outrageous prices is to do nothing. Let the makers of the Epipen raise the price for their life-saving product from $100 to $600 because they can. Might makes right. Someday, they’re sure, the market will straighten everything out, and in the meantime let everybody take it in the shorts. Tough.

Do whatever you can get away with and maybe someday somebody else might do something to counter your abuse.

Discourage High Prices With An Excess Profits Tax

A better strategy is to charge an excess profits tax on taxable profits that exceed some percentage of deductible costs. If deductible costs are $1B and the percentage is 20% then taxable profits in excess of $200M will be taxed at 99%.

By way of reference, after the Epipen price hit about $600, the ratio of profits to costs for Mylan, the Epipen manufacturer, was about 82%.

If there were an excess profits tax there would have been no motivation to increase prices because all that extra profit would just be taken away by the IRS anyway.

If an excess profits tax had existed, the Epipen company wouldn’t have raised the price by 600%. In fact, the only way it then could have made more money would have been to sell more pens, perhaps by lowering the price, instead of what it did, namely making more money by selling fewer pens at a higher price.

The General Principle Of Using Financial Costs/Rewards To Motivate Conduct

When someone is using a huge imbalance in power to gain a great advantage over others, don’t do nothing (what the conservative religion demands) and don’t try to criminalize their making use of their massive power (the liberal religion’s go-to solution).

Instead, find a way to make the target’s use of their excessive power more expensive — give them an economic benefit for not using that power and/or an economic detriment for using it.

Stated differently, act to counter large imbalances in power primarily by financially encouraging or deterring the targeted conduct and only secondarily by criminally deterring the targeted conduct, and never simply ignore the conduct under the theory that that somehow, someday, somebody else will do something about it.

— David Grace (Amazon PageDavid Grace Website)

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David Grace

David Grace

Graduate of Stanford University & U.C. Berkeley Law School. Author of 16 novels and over 400 Medium columns on Economics, Politics, Law, Humor & Satire.