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Governments in most Western countries are continuing to struggle with increased deficit spending. They are paying out more than they are taking in, and the gap between income and outgo is on the rise.

So, what to do?

Here in the United States, the overwhelming political consensus seems to be that to confront rising deficits, the right solution is to reduce government income by slashing tax rates, especially for corporations and individuals who have the most money. Spending cuts are being proposed, as well, but it’s harder to find agreement on that than on the apparently self-evident virtue of cutting taxes.

That might not strike most of us as logical, but in the Tea Party climate of 2011, logic and common sense are not highly valued commodities.

A different approach, being promoted by the few remaining people on the Left in the US, is to increase government spending with the intent of stimulating growth and creating jobs. In the short run, this will make the deficit larger, of course, but in the long run, based on historical models, it is predicted that this kind of stimulus will bring up revenues to a much larger extent than it costs in spending. (Tax increases, especially on the rich, also are proposed.)

That old-fashioned idea appears, however, to have little support in Washington with either Republicans or Democrats. Why should that be?

The Irrationality of Politics

In a (public) online conversation I had recently with Stephen Aguilar-Millan, director of research at the European Futures Observatory, he said:

I believe that both the US and the UK economies are in need of a stimulus at the moment, and that the best form of stimulus is in the form of payments to the poorest members of society (who will go out and spend the money) rather than tax cuts for the rich (who will simply accumulate the money in idle balances).

It is a shame that neither of our political systems seem capable of delivering this.

I can’t help but wonder, considering how obvious that reasoning is to most of us, and how often and how well the plain principle has been stated by celebrated economists such as Joseph Stiglitz and Paul Krugman, why it should be that, as Stephen put it, "neither of our political systems [UK or US] seem capable of delivering this."

Why is it that most of the plutocrats who hold the puppet strings in both the US and the UK are so bent against Keynesian stimulus spending that should, in the long run, be good for them as well as for everyone else, if it means a stronger overall economy?

Could it be that some of them are actually banking on a further deterioration of the egalitarian social structure that Western society has worked so hard to build up over the last 100 years? Is there a long-term gain for them in what would be a crushing humanitarian loss for the rest of us? Or are they simply selfish and short-sighted?

When I put these questions to Stephen, he responded:

I'm not normally sympathetic to conspiracy theories, but I do feel that the link between the governing parties in the UK and high finance are more than coincidental. I suspect that the same could be said about US politicians.

I doubt that it is their intention to erode egalitarian structures. I reckon that this erosion is a by-product that does not prick their consciences. Their sin is not caring more than anything else. It's not even in their long term interest. In the long term, they need to enrich their customers, if only to buy their products.

However, I think that you may find that the plutocratic rejection of Keynesianism isn't total. It appears that, no matter how hard up we are said to be, money can always be found for a small war or two.

Stephen is right, of course, that no matter how strapped our national governments claim to be, there seems never to be a lack of cash for paying military contractors, buying new weapons systems, or making war against weaker countries. (Sigh...)

But I want to go further than that in this essay. I’d like to look beyond the questionable and perhaps irrational motives of the very rich, and their lapdogs in government, and talk about something more basic.

The Meaning of Money

What does money mean to us? How do we regard the amounts that we earn, and how do we respond when some of our earnings are taxed?

Do we recognize taxation as a necessary, even laudable, functioning of a properly formed civil society? Or do we harbor resentment when some of our money is withheld to serve collective purposes?

Far too many of us, I’m afraid, take the latter approach instead of the former.

Our culture promotes a childish attitude toward a proxy substance: money. What we refer to as ‘earnings’ is, in reality, just an arbitrary allocation of each individual's estimated contribution to overall economic production.

Unfortunately, though, the current system of estimating the actual value that individuals provide, and of allocating rewards in a reasonably proportional way, doesn’t work very effectively.

Some people are paid amounts of money that are not even close to the value of what they provide to society. Both on the high end and on the low end, the system often misallocates shares of production.

But still there persists this stubborn idea that whatever you have ‘earned’ is ‘yours’.

It is a demonstrably false assumption that anyone in modern society, by themselves, with no help from anyone else, earns money. It is only because a complex infrastructure is in place, because an organized system of economics is working, and because governments have been instituted that we are able to have jobs and incomes at all.

We all pay taxes in order to keep that system functioning, because without it, none of us could earn a tenth of what we are making now.

Since you did not earn it by yourself, with no help from others, whatever wealth you possess should not be seen as ‘your’ money. It should be recognized for what it truly is: an arbitrary estimated share of total production.

Sometimes, perhaps often, because the system we have is imperfect, those shares are distributed unfairly. Adjusting tax rates progressively can help to restore an appropriate balance.

Is our current method of taxation, in the US or the UK, the optimal one? Almost certainly not. Various reforms have been promoted, some more radical than others. One idea worth serious consideration is the Land Value Tax, as described here.


But whatever changes are made in how we handle taxation, the first and most fundamental proposition we should recognize and accept is that money is a vague proxy for actual value. Our ‘ownership’ of it should be less emotional, more insightful, and much more collective.