Chapter 2 Pragmatic Hypotheticals

There is a war between the ones who say there is a war and the ones who say there isn’t.

— Leonard Cohen: New Skin for the Old Ceremony (1974)

If they can get you asking the wrong questions, they don’t have to worry about the answers.

— Thomas R. Pynchon (*1937)

To proceed by the method of elimination is always to conceive of such hypothetical outcomes, and then, to falsify them. Still, hypotheticals4 are rarely invoked in social scientific explanations: ever hear of an empirical sociologist or political scientist comparing the continental welfare state (Esping-Andersen 1990) or Westminster democracy (Lijphart 1999) to a non-existent alternative? We can see why few empirical social scientists would ask such a question: to say that taxation could be more efficient and equitable, and to suspect that someone (for example, the rich) or something (for example, capitalism) is preventing it from being so reeks off conspiracy theory.

Forensics, in some ways, has it easier: if a coroner diagnoses heart failure from old age as the cause of death, there is no murder.

Just which social ills are unavoidable and thereby the social scientific equivalents to a natural death is, unfortunately, more contentious. Plausibly, without the bullet, an otherwise healthy person might have lived to see another day, but writ on a societal level, such hypothesizing about alternative, preferable outcomes is hard. Would democracy not always fall short of its ancient ideal, because we can no longer all meet and debate in person? Would taxation not always be wasteful, because it suppresses otherwise pareto-improving exchanges? Would welfare not always be a drag on growth, because it dampens incentives?


\[itm:empiricism\] “We cannot know”, might reply the empiricist (Bacon 1620; Locke 1689a; Hume 1739) because such hypotheticals can, by definition, not be experienced with our senses and nothing can be induced from them.

Whatever democracy, taxation and welfare could be, we cannot know.

Similarly, positivists might find these hypotheticals unknowable, either because absent, they have been falsified (Comte 1842; Durkheim 1895), or, because absent, they cannot be falsified (Popper 1934).


\[itm:idealism\] “We know only through ideas”, might respond the idealists (broadly Kant 1781; Hegel 1807), including the ideas invoked in these questions.

Whatever democracy, taxation and welfare could be, is beside the point, because our knowledge of them exists independent from their factual or hypothetical reality.

Specifically, interpretive sociologists (Weber 1897) might argue that the above questions may contain in them already one of several, cultural perspectives, ideas or terminologies in which all answers, too, would be have to be phrased. “Waste”, “growth” and ‘incentives’’ rather than objective things, already are cultural reality (compare Béland and Cox 2010).


\[itm:constructivism\] “Asks who?”, might retort the constructivist (Berger and Luckmann 1966; Paul 1984), because these are not questions about an objectively knowable world, but rather, the act of asking these questions and of invoking these concepts makes that social world.

Whatever democracy, taxation and welfare could be, is beside the point, too, because legitimacy, efficiency, equity — or any other criteria — become real, as we think, demand and reject them.


\[itm:rationalism\] “We can know”, might announce the rationalists (Descartes 1637; Spinoza 1662; Leibniz 1704)“but hypothetical or actuality do not matter, either way”.

Whatever democracy, taxation and welfare could be, we can know by deductive reasoning, without relying on our experience — or absence thereof.

Clearly, none of these epistemologies taken to the extreme, can help investigate those desirable, and doable hypotheticals upon which I have stumbled. Welfare, taxation and democracy certainly are ideas, but they are also bound by empirics. They are accessible to deductive reasoning, but such reasoning can make a social world, as much as it seeks to explain it. What I need, is a (p. ).

Equally clearly, such a cartoonish overview of epistemological traditions does not suffice to ground this dissertation. Fortunately, this is — as promised — a pedestrian thesis and I will not abscond into any philosophy of science. Unfortunately, I am also largely ignorant of these theories of knowledge, and can only provide a provisional epistemology that seems to work for democracy, taxation and welfare.

I take no pride in my epistemological ignorance, but I am weary of the obliviousness of these, and other meta-(meta?)-concerns. In a slightly different context, Noam Chomsky (1997) has observed that “ontological questions are generally beside the point, hardly more than a form of harassment” (1997, 132). As harassments go, I have found that such epistemological and ontological debates often arouse what would appear to be deeply-felt passions in even the drowsiest of graduate seminars. This fervor always struck me as eerily performative (compare Goffman 1959; Butler 1997), as if, in addition to — or as part of5doing gender (West and Zimmerman 1987), we were also doing social science.

If only to stick to my limited last, I prefer a social science that serves people other than its researchers, and accordingly sympathize with pragmatist epistemologies, where human problems are primary and reified “philosophical fallacies” (Dewey 1929) take a back seat to the problems they were invented to solve. In Wikipedia (2013)’s apt description of an (ecologically) pragmatist epistemology: "inquiry is how organisms can get a grip on their environment" (retrieved in March 2013).

Even though, because hypotheticals are hardly invoked in the social sciences, are hard to specify, and are harder to know about I must devote this chapter to explicating the (p. ), (p. ) and (p. ) of my research.

2.1 The Epistemology of Hypotheticals


Detective shows often confine the forensic medicine to some expository dialogue between coroner and inspector at the morgue. I need a little more exposition here, stretching over several chapters of welfare economics, normative political theory and public choice, before the empirical action even begins. Again, I merely proceed by the method of elimination. To open an investigation, I must first know if there are alternative welfare states, taxes, and democracies out there, and if so, what they are.

Surely, to suggest that we might learn something about the world by asking what is not appears to be an odd epistemology. Natural scientists probably do not spend much time thinking up, say, a counterfactual universe without gravity, and explaining why it is not (or maybe that is what they do at the Large Hadron Collider?!). Positive social science, at least, needs to pose these why-not-questions, because, unlike physics, it is concerned with who or what made the world the way it is.7

Positive sociology, political science, and this dissertation, all ask such second-order questions. Even to pose them, we need all the possible first-order answers of how the world could be, but is not. The hypotheticals I establish in the following chapters are these first-order non-answers.

2.1.1 First-Order Questions {#1st-questions}

Hypotheticals must be (p. ), and — if you allow some humanist bias — they must also be at least somewhat (p. ). Those criteria both raise inquiries of the first order, asking what is normatively good and what is positively possible, respectively.

Normative (or prescriptive) social science asks such first-order questions as how to emancipate people (critical theory, maybe from Gramsci (1971) to Adorno (1974), Horkheimer and Habermas (1984)), what makes rule legitimate (political theory from Aristotle (n.d.) to Dahl (1989)) or what allocation might be fair (distributive justice including Friedman (1962) and Rawls (1986)) and even what makes an economy rich (economics from Smith (1776) to Hicks (1939)). Even these apparently normative and first-order questions turn into positive and second-order questions when their underlying assumptions on human nature are tested or problematized, respectively (more on that twist on p. ).

Positive social science asks few, if any, first-order questions, because as it asks about the social world (for example, health insurance), it seeks to explain the social conflict of answering a first-order question (for example, how to spread risk). To the extent that nominally social sciences have carved out positive research agendas of the first order (for example, cognitive psychology, behavioral economics), they cease to be social science but revert to a natural science of some ideally physically rooted phenomenon (for example, neuroscience). Tautologically, if the social sciences are to be concerned with explaining social choice, they know no positive first-order questions, because first-order status negates choice.8

The aspects of the social world under study here are welfare, taxation and democracy. To the extent that these social choices hinge on last reasons, they raise normative first-order questions. These first-order questions of efficiency and equity, fairness and legitimacy have been widely discussed, and I will reference them only briefly in this dissertation.

But welfare, taxation and democracy also raise two kinds of positive questions:9

A Priori Knowledge

\[itm:a-priori\] There may only be finite or even unique ways to organize these institutions that abide by formal logic, per reasoned, a priori knowledge.

For example, a welfare state financed solely by printing money may be an economically illogical institution (possibly resulting hyperinflation resembles a pyramid scheme). Similarly, taxing judicial persons, such as corporations, may be economically nonsensical because such organizations are no moral subjects and the incidence would be arbitrary (). As a last example, a democratic aggregation mechanism may not be able to maximize both majority rule and proportional representation, simply because the two criteria conflict.

Knowledge about what is logically possible or impossible flows from a epistemology (p. ).

A Posteriori Knowledge

\[itm:a-posteriori\] These formally logical designs may be further limited by empirical, first-order findings on human nature or other material conditions, per experiential, a posteriori knowledge.

For example, a welfare state financed by extracting and burning fossil fuels may soon run into physical constraints if we observe limited resources and related global warming. Similarly, a fully-planned economy (instead of taxation) may, amongst other things, dramatically overestimate the cognitive ability of human planners to centrally aggregate and process dispersed information. Lastly, a democracy modeled on ancient Athens, but with universal suffrage and in globally integrated economies may fail simply because human beings interact too slowly to listen to every fellow human on the planet, let alone to get anything done.10

Knowledge about what is empirically possible or impossible flows from an epistemology (p. ).

These are, admittedly, uncontroversial constraints and ludicrous suggestions — I want to keep the more interesting problems for later — but they illustrate an important point: there probably are some first-order, positive limits the social world faces, even though we may know little and disagree a lot about them.

Crucially, we may disagree on whether a given question is of the first or second order. The social sciences, in particular, have a habit of reassigning first-order questions to second-order status: that is the project of constructivism (for example, Berger and Luckmann 1966) and (p. ) to see social phenomena not as “things in the world, but perspectives on the world” (Brubaker 2002, 174 on ethnicity, emphasis in the original) or as contested and consequential second-order answers. Still, even a die-hard idealist or constructivist may concede some irreducibly positive, first-order questions, and to those, the social sciences offer no answers.

So it is with welfare, taxation and democracy. Their design probably faces some — albeit uncertain and contested — positive limits of the first order. To ask about these limits is, emphatically, not a question for the social sciences. Instead, nominally social scientific, but formally mathematical-logical disciplines such as equilibrium economics11 and public choice ask about the internal consistency of such societal institutions, based on assumptions on (p. ), which are in turn hypothesized and falsified by such natural sciences as evolutionary psychology (a.k.a. sociobiology), social psychology (initially Kahneman and Tversky 1979), cognitive science, or even physics. I suggest two examples of such first-order, positive substrates relevant to my subject matter:

  1. The first theorem of welfare economics is often invoked as a first-order constraint on welfare state interventions or taxation (the dwl), and it also shines through in some radical defenses of pluralist democracy (for example, Caplan 2007). The theorem states that over any given distribution, free competition equilibrates at pareto optimality12 and that therefore, no allocative intervention can make anyone better off without making someone else worse off. It is a mathematically formulated argument about some internal consistency of the market mechanism: given certain (p. ), market equilibria cannot be pareto-improved.

    As such, the theorem is just that, an exercise in formal logic, not more: not empirical claim (no “proof” that actual markets pareto-optimize) and not normative statement (no justification for pareto-optimization over existing distributions as desirable). But the first theorem is also not less: properly understood, it is a first-order constraint and invites no second-order critique.

  2. Similarly, homo economicus is often invoked in the field of welfare (“knaves” as in LeGrand (2003)), taxation (“people react to incentives” as in Mankiw (2004, 24)) and democracy (“rationally irrational” as in Caplan (2007)). The concept implies that human beings make rational, self-interested and utility-maximizing decisions (maybe first Mill (1848), Smith (1776), recently including Robbins (1976) on rational choice, all summarized in Persky (1995)). The ideological campaign (and backlash) wrought by homo economicus and its offspring notwithstanding, it is, properly understood, merely a falsifiable13 assumption about human nature that welfare, taxation and democracy might have to heed if it were, in fact, correct. But even if it were true, homo economicus would be just that, an empirically verified model: no more (no normative claim of how we should be), but also no less (no socially contingent phenomenon in need of deconstruction).

2.1.2 Second-Order Questions {#2nd-questions}

As forensics informs a criminal investigation, the first-order answers provide the reference for the second order inquiries. These ask who or what decides first-order answers, or, metaphorically, who or what brought about the observed forensic outcome (see , p. ). Second-order inquiries seek to criticize, explain or test the social conflict over first-order questions.

Social science asks plenty of those questions on welfare, taxation and democracy.

It asks, for example, why and how welfare states — a first-order answer — evolve(d): because modernization replaced inherited, familial status with citizenship and the market (Titmuss 1974; Marshall 1950), because industrialization required an appeased, reliable and healthy workforce (Flora and Alber 1981; Wilensky 1975), because workers gained power (Korpi 1983; Jessop 2002), because institutions prevail (for example, Rothstein 1998), because ideas matter (for example, Stiller 2009) because initial class cleavages lead to different degrees of commodification (Esping-Andersen 1990) or because capitalism comes in variants (Hall and Soskice 2001).14

So it is with the second-order theories of taxation: it arose as proto-states extracted the resources enabled by, and necessary for greater economies of scale in their state-making and war-making (Tilly 1985), it (sometimes) erodes to lower levels as internationally mobile factors of production and consumption arbitrage over different national rates (recently reviewed in Genschel and Schwarz (2010)), it persists at similar levels as domestic politics prevents roll-back (Swank and Steinmo 2002), or it changes bases and schedule in response to these pressures (Kemmerling 2009).

And so, too, it is with the second-order theory of pluralist democracy: states introduced popular rule, because the costs of otherwise considered illegitimate extraction became prohibitive (Tilly 2006), democracy belongs to a broader syndrome of emancipating modernization, including a market economy and corresponding rational and self-expression values (Inglehart and Welzel 2005) or the sequential development of citizenship (instead of other, pre-modern statuses) entailed democratic rights (Marshall 1950).

These are variations on the questions of sociology: what binds us together (social integration), and what keeps us apart (social inequality).15 These are also the questions of political science: how do power, norms, ideas and institutions rule human interactions? These second-order questions are open to all epistemologies, including the the anti-positivist traditions of and . They can also be — as seems to be currently en vogue16 —, but need not be, entirely or, inquiries.

And important questions, they are, asking us, that lone “hypercultural” species (Henrich 2003), how we make our own history. In our rich time and in our unequal place, welfare, taxation and democracy may just be the historical battlegrounds, on which these sociological and political forces operate.

This dissertation develops a second-order theory of social change to explain the defeats these institutions have suffered in late capitalism, and tests it empirically.17



The distinction between first-, second-order, normative and positive questions summarized in (p. ) matters for at least two reasons:

  1. Clearly addressing one of these questions at a time, and striving to keep them separate makes for better social science. With these categorically different questions come different goals, languages and methods. With blurring or negating these categories come “politics-based evidence making” (The Economist 2012), apolitical ignorance or both.

  2. Because positive social science — including this dissertation — is out to explain the second-order decision on first-order questions, it must consider some first-order theory first.

2.1.3 First Order Theory First {#1st-questions-first}

I am ultimately interested in the second-order questions of welfare, taxation and democracy, but proceeding by the method of elimination, I must first ask and answer the first-order questions: what should and could welfare, taxation and democracy look like.

Consider the two alternatives, that I must rule out before any second-order questions can be raised:

No Desirable Hypothetical.

If I could find only the presently observed design of welfare, tax and democracy to be at least somewhat desirable, there would be no social conflict to be explained, much like there is no need for a political science of wearing sunscreen. (I partly take this , p. ).

In the crime story metaphor, if the corpse in question had previously run amok shooting innocents, rupturing that persons coronary artery with a bullet might be have been self-defense or the last resort, and the only desirable course of action. No further criminal investigation may be necessary.

No Doable Hypothetical.

If I could find only the presently observed design of tax and democracy to be materially doable, there would be no social conflict to be explained, much like there is no need for a sociological theory of gravity.

In the crime story metaphor, if said deceased suffered from an irreparable birth defect that caused the heart failure, no outcome but death is materially possible. In that case, too, no criminal investigation will be necessary.

Conceiving such to-be-ruled-out hypotheticals raises normative (desirability) and positive (doability) questions of the first-order. These first-order questions cannot, as I explained above, be answered by social sciences (alone), but I must instead reference other disciplines, much like a detective hears forensic evidence.

If these ancillary disciplines reveal one, or several such desirable and doable hypotheticals that I cannot rule out, the non-occurrence of such hypothetical welfare, taxation and democracy beg a second-order explanation just as the observed arrangement requires explanation. In fact, the two are the same thing: to explain the presence of the present arrangement is to explain the absence of all absent arrangements.

For illustration, consider the inverse scenario, in which I find no desirable and doable hypotheticals in welfare, taxation and democracy. If that were the case, there would be no second-order decision to be explained, because without such hypotheticals, there is no human choice.

If however, there are desirable and doable hypotheticals, any second-order question always invokes these hypotheticals.

2.1.4 Fallacies and Risks

To be sure, this reasoning is not logically watertight and might turn into an argument from ignorance: even if I find no reason why hypotheticals should, or could not be, they might still be undesirable or impossible for some other reason. Absence of evidence, here, too, does not constitute evidence of absence.

The same problem must plague medical forensics: no evidence of natural death does not prove a violent death and any conclusion to the contrary might cause an unnecessary murder investigation. In practice, this possible fallacy simply raises the question of where you place the burden of proof, because you can err either way: if you take absence of evidence of violent death as evidence of natural death, you might foreclose a necessary investigation and let someone get away with murder. Tellingly, when it comes to human corpses we place the burden of proof on the status quo: if the cause of death cannot be established — if there is no evidence of natural death — the prosecution customarily opens an investigation.

The positive social science of welfare, tax and democracy seems to have adopted a somewhat laxer standard. Here, much empirical work implicitly places the burden of proof on the hypothetical: without evidence that the hypothetical is normatively desirable and materially possible, the fundamental status quo of welfare and tax needs no social explanation. Conveniently, as hypotheticals go, they rarely produce conclusive evidence of their desirability and doability. Maybe, this is just the skepticism that positivism calls for — or maybe, , and such social science invariable turns latently affirmative (, p. ).

Either way, I here place the burden of proof on the status quo. If I find no reasons to the contrary, I assume that there are several doable and desirable designs of tax and democracy, and require social science to explain the absence of all but the presently observed design. If we apply the standard of forensics, any second-order theory of social change must be able to explain how the social conflict under study resulted in the non-occurrence of these alternative designs, especially the attractive ones.

I still want to shoulder part of the burden of proof. In tax, I can only plausibilize the hypotheticals by reviewing reputable work by others, and deduce my case from reasonable assumptions about human nature, and the economy. I must rely mostly on a epistemology (p. ). Natural experiments — the gold standard — are unavailable, and all others suffer from limited external validity: a modern economy does not fit in the laboratory and equilibrium simulations poorly model such inframarginal institutional changes. In democracy, I similarly plausibilize the hypotheticals, but I can also point to and undertake some preliminary experimental tests.

To suggest, as I do, that there are desirable and doable hypotheticals in tax and democracy, must remain a preliminary proposition open to falsification. To the (???) scientist, there is always some absence of evidence, and therefore, no evidence of absence. If these particular hypotheticals turn out to be undesirable or impossible, so collapses any second-order hypothesis I might wager later, but, I hope, we will still have learned something.

Not only the advancement of science depends on such falsification, the history of progressive causes is also littered with what might charitably be called “false positives”. My chosen hypotheticals — deliberative democracy and progressive taxation of (unimproved) land value and (postpaid) consumption, too, may inspire such false hopes. They, too, should be approached with great care, especially, when they necessitate constitutional or otherwise reform of liberal democracy, as deliberative democracy may one day do. Tax reform, at least, should be open to falsification and is not an end in itself, especially because it thoroughly hinges on economic contexts and human motivation.

Then again, by any historical standard — once-hypotheticals failed (for example, socialism) and successful (for example, universal suffrage) alike — here are some fairly incremental reforms as carefully liberal in their (p. ) as they are conservative about (p. ).

2.2 Axioms for Desirable Hypotheticals

“I believe in clear-cut positions. I think that the most arrogant position is this apparent, multidisciplinary modesty of ‘what I am saying now is not unconditional, it is just a hypothesis,’ and so on. \[...\] I think that the only way to be honest and expose yourself to criticism is to state clearly and dogmatically where you are. You must take the risk and have a position.”
— Slavov Zizek and Glyn (2003, 45)

Normatively desirable hypotheticals are preferable to others if we assume a basic humanist, or critical intention of positive social science and policy analysis to improve human lives.

From a strictly positivist point of view, this is the flimsiest of epistemological decisions I take: we might learn just as much about the social world from the nonoccurrence of bad outcomes, as from the nonoccurence of good outcomes.18

My bias for desirable hypotheticals might be epistemologically arbitrary, but it is — again — pragmatic: there may just be so many undesirable, but doable counterfactuals (why not return to workhouses rather than welfare, tariffs rather than taxation and mob rule rather than liberal democracy?) that it becomes plainly easier to pick amongst the supposedly fewer, attractive hypotheticals. Moreover — if mostly implicitly — modernization theory, (structural) functionalism and related traditions might have convincingly explained away some of those graver regresses of civilization. Lastly — only slightly tongue-in-cheek —, on a second look at the factual horror chamber of welfare, tax and democracy, there might not be that many even less desirable, doable hypotheticals left.

What then, makes for desirable hypotheticals?

Emphatically, hypothetical tax, welfare and democracy, and with them, this research, hinge on last reasons. Desirable tax and welfare are rational, efficient and fair. Democracy, too, must be these things and more: emancipatory, equal and deliberative.

Unfortunately, these last reasons sometimes conflict, and they do not even flow from any single ethic. What makes my hypothetical tax, welfare and democracy desirable is, instead, a hodgepodge of mongrels from quite distinct normative theories. I here list five of them and show how they apply to taxation, welfare and democracy:

Virtue Ethics \[itm:virtue\]

Tax, welfare and democracy are not desirably merely to the extent that they constitute, or foster virtue inherent to human action and character (from Aristotle (n.d.), Plato (n.d.), St. Thomas Acquinas (1274) to Schwartz and Sharpe (2006)). At least under neoclassical dictum, tax and welfare are desirable to the extent that they do not depend on, nor improve human virtue, but efficiently orchestrate our selfish demons (compare Smith 1776). Liberal democracy, similarly, is desirable to the extent that it sidesteps questions of personal virtue and guarantees an agnostic process for all people, no matter the quality of their character (compare Dahl 1989).

And yet, I rely on virtue ethics when I praise markets and states for letting us reap (p. ), that supposed destiny of our nature (for example, Wright 2000). The case for deliberative democracy, too — as all virtue ethics — implies a telos of human life, to the extent that it posits intersubjective understanding or communicative action as a last reason (Habermas 1984).

Consequentialism \[itm:consequentialism\]

Tax, welfare and democracy are also not desirable merely by the outcomes they produce, be they utility (Bentham 1789; Mill 1863) or even self-interest (Rand 1957). Attractive consequences, especially different aggregate functions of utility19 go a long way to justifying taxation and welfare, but I would not bet the farm on them. Even if, say, relative inequality were empirically unrelated to “subjective happiness” (as Kalmijn and Veenhoven (2005) seem to imply), and progressive taxation therefore not a maximizer of aggregate happiness, at least two other reasons would remain:

  1. Straightforwardly, we might wish to maximize consequences other than some measure of hedonistic gain, including equality, growth, knowledge or liberty.

    Utilitarianism — as other consequentialisms — side-step entirely the question of how the desired consequences would be measured, and who would do the observing.20 Utilitarianism merely posits an ideal observer (Rawls 1988) — such as Veenhoven (2000)’s subjective happiness — and does not allow us to problematize the conditions under which consequences are enumerated, or measured.21

  2. More fundamentally, progressive taxation — or some other policy — may remain attractive not because of any distribution or measurement of consequence, but because equality might be inherently virtuous, or the goods it can buy (including universal health care) may be a matter of deontological rights.

The consequentialist case for democracy is even thinner: as Dahl (1989, 176) reminds us, equal intrinsic worth of humans alone might be achieved by a benevolent dictator. Only in conjunction with (deontological? virtuous?) personal autonomy does it require democratic rule.

And yet, hypotheticals about taxation and welfare, and even democracy cannot ignore consequences, especially (p. ) and its (p. ).

Deontological Ethics

\[itm:deontological\] Tax, welfare and democracy are also not merely desirable to the extend that they abide by some set of absolute rights and duties.

On the one hand, most such deontological ethics are not specific enough to inform choices of tax, welfare and democracy. For instance, the Golden Rule — do unto others as you would have done to yourself — may not tell us much about what we should tax, when we should intervene in the market or how we should count votes. Kant (1781)’s similar categorical imperative is equally mum on these matters, maybe because his is a philosophy and deals with man in the singular, not men in the plural as Arendt (1958) demanded of political theory.22 Natural rights theories (from Grotius (1625)), be they liberal (from Locke (1689b) to maybe Rawls (1993)), spinoff (right-)libertarian (diverse, prominently Hayek (1944), Nozick (1974)) concerned with negative freedoms from (for example, false imprisonment), or positive freedoms to (for example, human dignity, both Berlin (1969)) provide more guidelines, but they, too, are limited. Natural rights theories, and especially liberalism, set outer limits on what a government or person must not do to, or must not fail to do for the bearers of these rights, but they are too digital for a normative ethic of welfare, taxation and democracy. For example, market interventions may be either permissible (freedom-to) or illegitimate (right-libertarianism), but natural rights do not offer much qualifications in-between. It is of course the great appeal of natural rights that they are unconditional (as in “Human dignity shall be inviolable”, German Basic Law 1948) and pre-social (as in “…that all men are created equal”, US Declaration of Independence 1776), but that makes them a little too lofty for inherently social, and contingent institutions as welfare and taxation. There may, for example, be many (or no) taxes that allow for life, liberty and the pursuit of happiness (ibid.), but it would be a stretch to argue that these natural rights are best respected or least harmed by any particular tax on consumption, income or wealth. Crucially, too, many collective decisions in late capitalism must balance one persons liberty, against another persons pursuit of happiness, or similar rival natural rights.

Contract theories (from Hobbes (1651), Rousseau (1762) to Rawls (1971)) are more specific still, by prescribing a decision-making process or condition to balance and protect rival rights. While this may suffice to specify a desirable democracy (authoritatively Dahl (1989) on liberal, pluralist poliarchy), contract theories still recede into procedural norms on taxation and welfare. Dahl (1989) — but not Rawls (1971), as we shall see! — may inform us about how we should decide between, say, an income or a consumption tax, but abstains from substantive judgement. When, however, the very quality of the (second-order) decision process over these tax choices is in question — as it is in this dissertation — evaluating first-order hypotheticals by a procedural standard risks infinite regress: a tax is good if the process was good, and the process is good if the tax is good, which is good if …and so on.

On the other hand, tax and welfare especially, are institutions that negotiate and trade off competing rights and duties, rather than strictly abide by them. Natural rights to, say, property and health care, offer no all-or-nothing propositions in taxation. Instead, one tax may encroach less on property than another, or at a greater (utilitarian) gain in health care than another.

In sum, deontological ethics, and especially its popular, liberal, contractual and procedural representatives are both not specific enough, and too demanding for desirable hypotheticals in welfare, taxation and democracy.

And yet, I cannot do without deontological ethics, especially not without liberalism. Even if governments could expropriate some owners at supposedly minimal welfare losses — as the Eurogroup has allowed (encouraged?) the Cypriot government to proceed in 2013 with big savers — it should not do so (nor be allowed to), because protection of confidence is a deontological right. Similarly, even if democratic rule found executive pay excessive, and anticipated no dwl fallout, it should not — as Switzerland did in 2013 — regulate uncoerced exchanges (Nozick 1974) even between CEOs and shareholders, when a less intrusive policy (tax!) is available, simply because liberal states do not do that.

Ethics of Care

\[itm:ethics-of-care\] Lastly, tax, welfare and democracy are, for the most part, not desirable because they establish caring relationships, as some (difference?) feminists have demanded (Noddings 1984; Gilligan 1982). Whether we like it or not — in fact, we should like it — our world is ruled by abstractions, too, and to these must respond our institutions of tax, welfare and democracy. Absent a regress to lower, poorer levels of functional differentiation — or some yet unforeseen explosion in human capacity — we depend on wide-ranging abstractions such as a price system to orchestrate at least some of our relationships by mutual self-interest.23 Ethics of care govern individual, concrete and personal relationships, and not those anonymously expressed in price signals, or some other abstraction. Taxation, welfare and democracy, however, have to ontologically respond to such abstractions, and to that extent, cannot be informed by a normative ethic that insists otherwise.

And yet, I cannot abandon an ethic of care entirely. For once, caring reminds me that we may have other, more intimately personal capacities (or duties?) for goodness and desirable taxation, welfare and democracy may consequently have to leave room for caring to flourish. For example, I imply an ethic of care when I later suggest that taxation should respect the promises of (mutual) care in marriage and family and not discourage, nor commodify such unions. More broadly, a good welfare system might have to carve out realms where such necessarily priceless care can be extended — not exchanged! — and might have to reallocate resources to those, especially women, who spend much of their energy caring for others, without compensation. Something akin to ethics of care are also implied by some proponents of deliberative democracy, maybe including those who stress the importance of story-telling in democratic participation (Poletta 2006). Deliberative formats may also raise ethical questions of care simply because they make people engage with other people. Intersubjective understanding certainly requires the kind of personal relationships to which ethics of care supposedly apply.

I know then, that I know nothing — at least nothing consistent — about what makes tax, welfare and democracy desirable. That might be a socratic moment, but not a happy one for me or this dissertation. It frustrates me that I can summarize these ethics only in the crudest of terms, and that I fail to synthesize them. Such ignorance is troubling, too, for research as this, based on a social science education as devoid of normative theory as mine: clearly, these theories matter for tax, welfare and democracy as for any scholarship about them. Tracking down the choices and controversies in tax, welfare and democracy to different ethics is important work that I have to do without, resting this work on quite murky foundations.

All I can offer is a modicum of argumentative transparency, by labeling any downstream axioms in tax, welfare and democracy with the roughly appropriate normative ethics from which they flow.

Because none of the above ethics are sufficient, but each of them necessary to formulate desirable tax, welfare and democracy, I subscribe neither to virtue, nor consequentialist, nor deontological, nor care ethics but pick and choose amongst them. I guess that makes me an ethical pragmatist of sorts, if a confused one.

Pragmatic Ethics

: \[itm:pragmatic-ethics\] — not identical with pragmatism, and never to be confused with realism or Realpolitik — may best enumerate what makes tax, welfare and democracy desirable, for at least two reasons:

1.  In pragmatic ethics, morality can progress over time [@Dewey1932], much as science advances through iterative inquiry.
    Such tentative morality implies neither relativism, nor inaction:
    there may still be absolute values out there, we just cannot be sure that we have distilled them yet, but should act on whichever approximation we have tentatively arrived at.

    Tax, welfare and democracy, too, are such inherently tentative and contingent enterprises.
    For example, when comprehensive income taxes were introduced to more neatly bifurcated class societies, the ethical quandaries of taxing labor and capital incomes might not have been foreseeable:
    labor income generally accrued to poor workers, capital incomes to rich capitalists, end of story.
    Similarly, as universal suffrage was wrung from the *ancien regimes* and liberal democracy enshrined to fend off mob rule around the same time, the limits of a merely electoral and pluralist democracy in a complex world might not have been conceivable.
    So too, no doubt, will the reforms of tax, welfare and democracy I suggest here reveal their blind spots, come progress.

    Acknowledging that our moral understanding may be imperfect, or even somewhat historically contingent, also in no way restricts us to the status quo under which this understanding was reached.
    Pragmatic ethics can be quite radical, maybe *because* it accepts its own tentativeness and contingence:
    we can "transform the character of our relation to social and cultural worlds we inhabit rather than just to change, little by little, the content of the arrangements and beliefs that comprise them." [@Unger2007 6-7].
    I am inspired by such *anti-necessitarianism* [@Unger1987], even if --- or because? --- tax, welfare and democracy are not the stuff of revolution, but rather the "indispensable if insufficient \[...\] piecemeal and cumulative change in the organization of society" [@Unger1987 xix].
    I am keenly aware that especially reformed tax and welfare, but even deliberative democracy will, at best, progress us a little further to a point where we --- probably our progeny --- can better conceive morality, and undertake further tentative transformations we cannot even dream of.

2.  Pragmatic ethics are also, as the name implies, intensely practical.
    Pragmatic ethics cannot be conceived of in other than practical terms:

    > *"Consider what effects, that might conceivably have practical bearings, we conceive the object of our conception to have.
    > Then, our conception of these effects is the whole of our conception of the object."*\
    <!-- %add first name, correct? -->
    > --- William @Peirce1878 [293]

    This *pragmatic maxim*, as it became later known, works well, especially for tax and welfare.
    The proverbial proof of their ethical pudding, too, lies in the eating.
    For example, a tax on income or consumption becomes good or bad greatly by how it works in practice:
    what it curtails, what it wastes or what it hurts --- very little of which can be read in the Platonic idea of either of those alone.

Admittedly, such pragmatic ethics are fairly amorphous, and they do not constitute any of the clear-cut positions that Zizek and Glyn (2003) demand in the above. They merely provide the normative theory under which I can organize, and justify the following hodgepodge of axioms for desirable hypotheticals in tax, welfare and democracy. Here then, are my positions.

2.2.1 Liberal Limits and Procedure

Desirable hypotheticals in tax, welfare and democracy are liberal. They do not infringe on the most extensive basic liberties compatible with similar liberty for others (Rawls 1971), a liberal formulation of the Golden Rule of reciprocity. These include the political and civil liberties enshrined in various liberal constitutions, but, following Rawls (1971) do not extend to unencumbered private property of the means of production or unlimited freedom of contract, as libertarians would have it.

Desirable hypotheticals in tax, welfare and democracy must be liberal both in the substance of, as well as in the process by which they bring about social chance.

Substantively, these regimes must not constrain the lifestyles of people, except if and to the extent that such choices conflict with — as Rawls (1971) posited — the choices others. This is, for example, a very real concern in making consumption taxes progressive, or in taxing savings, both without dictating consumption baskets or prescribing a financial biography. Similarly, democratic fora should encourage “alternative conceptions of the common good” (Cohen 1989, 18, emphasis added) rather than promote a specific social change, even if such a coherent scientific agenda could be found. This insistence on a plurality of lifestyles and ideas of the good distinguish a desirable hypothetical from totalitarian zeal and hermetic ideology.

Procedurally, desirable hypotheticals rely on democratic advocacy, not armchair guardianship to become real. No matter, say, the (p. ) value of a pct, its introduction must respect, as Dahl (1989) has highlighted, both (!) intrinsic equality (1989, 84) and (liberal!) personal autonomy (1989, 97ff). In his influential formulation (Dahl 1989, 109ff.), it can only be realized by a democratic process marked by at least:

  1. effective participation,

  2. voting equality at the decisive state,

  3. enlightened understanding and,

  4. control of the agenda and

  5. inclusiveness

These criteria imply a fairly conventional catalogue of negative rights, or freedoms from and a standard formulation of democratic process (but not substance). Together, these liberal norms take precedence over any of the other, below axioms for desirable hypotheticals: in Rawls (1971)’s formulation for his Theory of Justice, violations of any of these rights “cannot be justified or remedied by other \[...\] advantages” (1971, 81). They cannot be traded off other benefits, but can only be limited when they come in conflict with one another, as for example, freedom of speech and defamation legislation may.

I posit these rights (), but I also think (p. ) that for the foreseeable future, these norms may be our best, if tentative and minimal bet of what people and government should never do to people. Maybe, liberal and other deontological norms can also serve under some kind of precautionary principle in ethics: given at least some uncertainty over, or contradiction within other normative ethics — especially consequentialism — we should accept liberal limits to policy because they might help reduce some assymetric downside risks.

2.2.2 Rational Preferences

Desirable hypotheticals in tax, welfare and democracy are based on and help people express rationally coherent preferences.

(von Neumann and Morgenstern 1944) have axiomatized rational coherence thus:


\[itm:completeness\] For any two alternatives, \(A\) and \(B\), we either ordinally prefer \(A\) to \(B\), or \(B\) to \(A\) or are indifferent between \(A\) and \(B\).


\[itm:transitivity\] For every three alternatives \(A\), \(B\) and \(C\), where we prefer \(A\) over \(B\) and \(B\) over \(C\), we must prefer \(A\) over \(C\).


\[itm:continuity\] For every three alternatives \(A\), \(B\) and \(C\), where we prefer \(A\) over \(B\) over \(C\), there is a lottery comprised of a known number of \(A\)-lots and \(C\)-lots between which and \(B\) we are indifferent.

And, most controversially,


\[itm:independence\] If between two alternatives \(A\) and \(B\), we prefer \(A\), given a third option, \(X\), we still prefer \(A\) over \(B\).

Such vnm-rational actors can be said to have well-formed, ordinal preferences over given alternatives, and can, by von Neumann and Morgenstern (1944)’s work, express equivalent, unique and cardinal preferences over these alternatives. That is, if an actor can rank alternatives vnm-rationally, she can also assign them a set of equivalent real numbers, such as willingness to pay. von Neumann and Morgenstern (1944)’s transformation of ordinal preferences into cardinal utility can be roughly imagined thus:24 An agent is offered many lotteries with known probabilities of the alternative outcomes in question. If the agent is vnm-rational, her ordinal preferences dictate her choice between any such known probabilities revealing her expected utility function, including those probabilities where she is indifferent between alternatives. Probabilities being cardinal, the agent’s choices between them reveal her cardinal utility from the alternatives. A vnm-rational agent’s ordinal preferences can thereby always be expressed in some cardinal utility function, and vice versa: if an agent has a cardinal utility function over ordinally preferred alternatives, she must be vnm-rational.

Crucially, cardinal utility thus revealed need not be a linear function of some cardinal value: agents expected utility may differ from the expected value of some outcome, where its value is merely multiplied by its probability. Agents, can, for example be risk averse and display a correspondingly concave utility function.25

In the social sciences, expected utility theory — as its brethren the first theorem of welfare economics — often arouses great passions: it is either considered elegant and self-evident, or vulgar and misleading. Here too, I must briefly explicate its status:

  1. Expected utility theory is knowledge (p. ) of the first-order flowing from a epistemology (p. ). It implies no (first-order, empirical) observations of actual human decision making. 26 As other exercises in formal logic, it is not up to social scientific debate.

  2. Expected utility theory invites no intersubjective comparisons (such as those on which the first theorem of welfare economics rest). Any talk of aggregate expected utility is meaningless, absent additional assumptions. That said, expected utility theory can provide no justification for any particular aggregation or comparison of individual utility, but once such aggregation has been accomplished on other grounds (for example, by democratic rule), it can posit rationality for and guide decisions based on such aggregated preferences.

Why now, readers may ask, does any of this matter?

Expected utility theory matters a great deal for desirable hypotheticals in tax, welfare and democracy. In tax and welfare it suggests the very necessary and sufficient (!) conditions under which it even makes sense to speak of utility, or its manifold incarnations in (cardinal!) economics. Markets can work their hypothesized magic of pareto-optimization under the first theorem of welfare economics if, and only if people can express their preferences vnm-rationally. If people displayed, say, preferences between good \(A\) and \(B\) depended on a luxury good \(C\) becoming available in a market (Frank 2010), the whole intellectual artifice of “utility” and any pursuant neoliberal imperatives with it, may crumble. Tax and welfare may have to step in, to rectify the original irrationality. Conversely, to justify any of my desired welfare interventions into the market economy is to argue for enhanced expected utility: assuming (reasonably, I think), that people prefer an \(A\) of no insurance premium, livelong health, to a \(B\) of some insurance premium, cared-for sickness, to a \(C\) of some insurance premium, livelong health, to a \(D\) of no insurance premium, uncared-for sickness, but suggesting that, when they give the probabilities and their risk aversion some thought, people (should) find \(B\) to be of maximal expected utility, is to invoke von Neumann and Morgenstern (1944).

The case is even clearer in democracy. On the one hand, vnm-rationality specifies what can be accepted as ordinal preference inputs (votes), if their bearers (citizens) are to have some consistent expected utility in the face of risky choice (strategic voting!). On the other hand, these vnm axioms must also be accepted by any democratic aggregation mechanism — even if, absent meaningful intersubjective comparisons, von Neumann and Morgenstern (1944) cannot justify any particular mode of aggregation. As I hypothesize later, popular tax choice under pluralism may well be plagued by irrational, inconsistent preferences of voters, and suboptimal choice in tax may, in part, be attributed to an aggregation mode that exploits these flawed preferences. Conversely, it appears that even assuming vnm-rational voters, aggregative democracy alone may not be able to produce minimally attractive decisions.

Expected utility theory not only serves me to elucidate such a priori consequences, my normative conviction goes further and deeper. To speak of rationally maximizing utility, as I wish to do, is to imply von Neumann and Morgenstern (1944), at least for now. Without their axioms for rationality, we do not know what we are talking about when we say “utility”, and conversely, without their formulation of utility, we do not know what we are talking about when we say “rationality”. If the two are to mean anything, I suspect, they must be related in the terms that von Neumann and Morgenstern (1944) have worked out.

2.2.3 Pragmatic Utilitarianism

Desirable hypotheticals in tax, welfare and democracy maximize outcomes that are valuable to people.

Unfortunately, such a utilitarian axiom raises more questions than it answers, including:

  1. \[itm:aggregation\] How do we aggregate value over different people?

  2. \[itm:utility\] How can we know what people value?

I cannot explore these questions in full, let alone answer them. Yet, to suggest desirable tax, welfare and democracy without raising these questions would be charlatanry. Without at least a tentative and pragmatic response to these questions, there can be no meaningful talk about their (p. ).

Question \[itm:aggregation\] is easier to dismiss (if not answer), so I will deal with it first. The Problem of Aggregation

Utilitarianism runs into an empirical, or even ontological problem when it comes to aggregating value over different people: it posits an ideal observer capable of comparing value between people.27 Sadly (or not?) such an ideal observer is not readily available (Rawls 1988), and we do not even know whether such intersubjective comparison is ontologically possible.

This is not to say that absent an ideal observer, we are off the hook. We should care about other people with whatever roundabout empathy we can muster, but, strictly speaking, we should not do it for utilitarian reasons. The last reasons for which we should care about the consequences of others are precisely not consequentialist, but may be, for instance, deontological (equality!), virtuous (charity!) or caring (empathy!).

Utilitarianism cannot, as (Bentham 1789) might have hoped, reduce distributive justice to an empirical question, it can merely provide the cardinal language in which we can ask about taxation and welfare.

Still, as I have argued above (), only (cardinal) utilitarianism can speak to the kind of aggregation that especially taxation and welfare require. What we must do then, is to problematize — not presume — ideal observation, as Rawls (1988) has demanded. In his Theory of Justice, Rawls (1971), too, has suggested the mode for such observation that I choose here, and discuss further (p. ). The Problem of Utility

Question \[itm:utility\] on utility is even thornier. Behavioral economics, decision science and related disciplines present empirical findings that question whether humans have any consistent sense of utility, let alone a cardinal one. This poses much harder questions for institutional design than the cognitive heuristics and biases, because from a utilitarian perspective there can be no such a thing as “flawed emotions”. Whatever people feel — no matter how inconsistent — are the last, and only consequences about which a utilitarian cares. Certainly to a utilitarian, flawed cognition can and should be mitigated to improve its consequences, but there are no last reasons to correct human emotion, precisely because these are the last reason.28

I cannot here discuss at length the empirical findings on human emotion, but illustrate the questions it raises drawing only on some of Kahneman (2011)’s findings in prospect theory. I suspect that related approaches will pose similar questions. In his recent summary, (Kahneman 2011) poses at least two empirical critiques of vnm-like human utility:

  1. \[itm:inconsistence\] Humans express their utility in inconsistent, non-vnm-preferences. For example, people are not just risk averse — as a convex utility function might explain —, they are also loss averse (Kahneman and Tversky 1979). From any given reference point, they seem to reap more hedonic gain from avoided losses, than from equally-sized missed gains. As people make choices, their reference points can shift, and with that, their preference over the original choice can even reverse: (Kahneman and Tversky 1979) find that when people have acquired mugs, they often accept only selling prices higher than their buying prices.

    All of this spells trouble for vnm-consistent preferences, and especially cardinal utility — or willingness to pay — on which orthodox economics relies: prospect theory “is in many ways the least satisfactory of those considered since it allows individual choice to depend upon the context in which the choices were made” (Grether and Plott 1979, 634).

    Such deviations from consistent utility may also affect judgments of fairness in real life labor markets, as Kahneman (2011 L5248) notes. If confirmed, these findings may become relevant to macroeconomic policy and hypotheticals in welfare and taxation, too. If, for example, a wage cut by any given amount causes more hedonic loss than a raise by the same, or even a higher amount creates hedonic gain, creative destruction (Schumpeter and Swedberg 1942) may not be a utility optimum, even if it nominally were a positive-sum gain.29 Instead, from a utilitarian perspective, a general bias to conservatism may be warranted. Similarly, taxation might have to be revamped to account for loss aversion. Speculatively, if people suffered inordinate hedonic losses when parting with market earnings, taxation might have to be less progressive than otherwise desirable. We might also have to time taxation so that it minimizes the apparent if not the real sense of loss. For instance, withholding taxes at the source rather than a comprehensive pit, or generally indirect rather than direct taxes may be loss-aversively utilitarian, even if they were conventionally inefficient.

    Interestingly, then, the equity implications of loss aversion are unclear. Clearly, however, the abstractions of orthodox economics, and with it, conventional desiderata for hypothetical tax and welfare, are incapable of adequately capturing prospect theory, or other non-vnm-utility.

  2. \[itm:undefined\] More generally — or equivalently? — people may not only be unable to express consistent preferences, but there may be no such thing as well-defined utility, or subjective well-being.

    Kahneman (2011, 7056), for one, describes three different operationalizations of subjective well-being:30

    1. \[itm:experienced\] Experienced well-being, reported as hedonic states occur.

    2. \[itm:remembered\] Remembered well-being, reported after some interval of hedonic states.

    3. Hypothetical well-being, reported as the hedonic gain or loss ascribed to some non-outcome.31

    If there were one such thing as subjective well-being, these three operationalizations — and especially \[itm:experienced\] and \[itm:remembered\], falsifiable within-subjects — should yield the same hedonometer. Trivially, remembered well-being should simply be the time-integral of experienced well-being. Alas, it is not, as people seem to ignore duration and instead remember some (peak-end) average (Kahneman 2011 K7056). What then, do we — and happiness researchers — mean, when we talk about subjective well-being? Clearly, none of the operationalizations alone can be satisfactory (pun intended) (see Kahneman 2011 K7056), but together, they do not add up to any one concept: they are just inconsistent. Utilitarianism, and with it, orthodox economics and consequentialist hypotheticals in welfare, tax and democracy face another empirical dead-end. The Emptiness of Utilitarianism

These twofold empirical dead-ends of utilitarianism pose not merely academic conundrums, they raise very fundamental problems in welfare and taxation. Orthodox economics — especially the welfare kind — and many of the concepts I take for granted here all revert back to an empirically untenable assumption of vnm-consistent, subjective consequences. To say that an economy grows is to say that the net subjective consequences of people are improving along their vnm-preferences. To say that an economy has a positive savings rate is to say people are foregoing part of their vnm-preferences now, and store them in some material (a house) or immaterial (a patent) form that will be vnm-preferable in the future. To a utilitarian economist — almost a pleonasm! — there is no objective value, other than vnm-ranked subjective preferences, handily reported as utility, or willingness to pay. 3233

There may then be no no uncontested, objectifiable basis to value human choices and activity, as orthodox economics and much of the following desiderata in welfare and taxation. Even if we subscribe to utilitarianism, we may not be able to reduce desirability to an unambigous empirical question.34 Rather, it appears, asking about preferences, or other subjective consequences, always begs more questions (confer Kahneman 2011), including about the kind of preference consistency, or the kind of subjective satisfaction — about all of which we must find some kind of agreement.

Empirically, then, desirability cannot be reduced to a measurement of pre-social preferences, because these preferences, along with all that we may deduce from them, are only socially defined. Willy-nilly, first-order inquiries into the utility of some choice have a habit of turning into second-order questions on the social conditions under which said utility was defined, measured and expressed.

What then, are we to make of this emptiness of utilitarianism?

Should we just abandon it and go for other ethics, instead? Surely, some caution is warranted, and we should back up normative claims with other ethics, because if nothing else, utilitarianism runs into these empirical dead-ends.35

I maintain that no matter these contradictions, we should stick to (some) form of utilitarianism, because normatively as ontologically, the world demands of us risky choices, that to choose one alternative is to negate another, and that as individuals and as societies, we must be willing and able to meaningfully trade-off desired outcomes. The only way to do this at a scale, and under risk is to compute, as best we can, expected utilities. Welfare and taxation, especially, ontologically presume, as much as they seek to improve comparable and consistent self-reported consequences. If we are to make meaningful normative choices between factual and hypothetical welfare and tax, we must have a notion of utility.

But — is that not cheating? After all, I am justifying hypothetical taxation, welfare and democracy with last reasons that I know to be unconvincing, but posit them anyway because without them, I cannot justify hypothetical (or any!) taxation, welfare and democracy. Admittedly, I am cheating, but I like to call it ethical pragmatism, instead. I accept that in utilitarianism, as elsewhere, our moral judgements may be imperfect and tentative, but, to progress to greater clarity, must rely on them anyway, for three reasons:

  1. Pragmatically, we must rely — in part — on utilitarian ethics because, for now, we are ontologically as empirically faced with a world that — in part — works according to it. If you want to get something (deontologically?) good done today, you will probably have to appeal to popular notions of utility, no matter how ill-conceived they might be as last reasons.

  2. Pragmatically, it is a safe bet that whatever we will deem good in the future, will, among other things, probably require not only negative entropy, but more specifically, stuff that people prefer, including shelter, food and clothing. Of course, we may be less certain about many other things that people ostensibly now prefer — luxury cars, computers carved out of solid aluminum, espresso machines — and end up producing (future) “utility”, that does not hold up on (future) ethical reflection. Still, we should better be safe with some attractive subjective consequences, rather than sorry without any such utility.

  3. Lastly, and also pragmatically, we can further — but not perfect — our ethical understanding of subjective consequences by problematizing, then improving those very social conditions under which we empirically seem to be forming our preferences. If utility is, in fact, not pre-socially given, we can meaningfully talk about it.

    Of course, that is cheating, too. By problematizing the social conditions of forming preferences, I have just reassigned a first-order question (utility) to second-order status, a move I otherwise despise. To do this in a normative ethic, is really just to rephrase the question: after all, to what, if not a utilitarian standard, do you hold the social condition of preference-formation?

    I allow myself this trick not because it resolves the confusion, but simply to organize my discussion of welfare, tax and democracy.

    Welfare and taxation, are — by definition — the realms in which the social conditions of preference formation are not problematized. Here, I ontologically assume, and normatively require preferences to be (largely) pre-social.

    Democracy, in turn, is the social condition under which we form preferences in intersubjective deliberation.36 Here, I ontologically assume, and normatively require preferences to be (largely) social.

2.2.4 Justice as Fairness

Desirable hypotheticals in welfare, tax and democracy are just if they treat people fairly.

Justice — especially distributive justice — deals with men in the plural as Arendt (1958) demanded of political theory, and regulates competing claims between people. As we have seen, some of the previous ethics tell us little about how to resolve conflicts between different bearers of rights, virtue, consequences or care, respectively. Deontological liberalism provides some digital rules, but these tend to be either minimal, or overly restrictive. Consequentialist utilitarianism promised to make aggregation an empirical matter, but cannot do so convincingly. Crucially, neither of these ethics suggests how conflicts over the meaning of, or conflicts between competing claims can be resolved.

Here again, I turn to John Rawls (1971) to provide a meta-standard for finding desirable hypotheticals.

In his influential “Theory of Justice”, he provides that standard: justice as fairness. Ever the liberal (and similar to above-mentioned Cohen 1989), he suggests no definite desiderata, but instead proposes a thought experiment under which moral claims have to qualify to be admissible for consideration. In his thought experiment, Rawls (1971) imagines an original position, where deliberators know nothing about their endowments, status and power in the real world. Only moral claims that can be defended under such a veil of ignorance, suggests Rawls (1971), may — but need not be — just.

Oddly, this imagined original position is almost a liberal procedure for justice, or a normative claim of the second order — but not quite. The veil of ignorance, is, of course, materially impossible and operates only metaphorically. Justice as fairness, is, instead, an end-state theory of (distributive) justice (Fried 1999, 1007). Genially, Rawls has thereby crafted a standard of substantive justice, avoiding both the contingency of immediate imperatives (“\[shellfish\] shall be an abomination to you”, Leviticus 11: 8, KJV), the nihilism37 under procedural prescriptions (“Law to Rectify the Destitution of the People and the Empire”, Berlin 1933) and the vagueness of substantive universalisms (“life, liberty and the pursuit of happiness”, US Declaration of Independence 1776). If ever there can be a synthesis between natural and positive law, it must be similar to Rawls.

Rawls (1971)‘Theory of Justice suits me, because as a liberal proposal, it lets me “economize on moral disagreement” (Gutmann and Thompson 2004 K226). Moreover, both Rawls’ original position and the distributive justice he deduces from it, align neatly with deliberative democracy and progressive taxation of (postpaid) consumption, as I argue in (p. ).

2.2.5 Meta trade-offs

These are the axioms for desirable hypotheticals in tax, welfare and democracy. I hope they will garner wide-spread support.

Admittedly, the aforementioned axioms are woefully unspecific to design the institutions of tax, welfare and democracy. For the time being, they must remain so. I develop them into domain-specific desiderata in later chapters.

The aforementioned axioms have also not resolved all conflicts between initial, tentative desiderata nor have they resolved the contradictions between different ethics.

I suggest two modes of resolving such conflicts.

  1. In part, I resolve these conflicts by hierarchy. Following Rawls (1971), desirable hypotheticals must be liberal and must maintain the most extensive basic liberties compatible with similar liberty for others. Such norms — as is typical for deontological ethics — are categorical: these liberties are either given, or not. Such categorical values may also conflict, as for example, freedom of speech and human dignity may, in cases of alleged defamation. In these cases, desirable hypotheticals are those arrangements that satisfy both freedom of speech and human dignity until and unless they conflict. Crucially, neither norm is superior and they cannot be continuously traded off one another: there is no amount of cardinally “more” free speech that would justify a cardinal loss in human dignity. Categorical values defy trade-offs. What we must look for, instead, are intersecting sets in a figurative Euler diagram, as in (p. ).

    Euler Diagram of Three Values

    Euler Diagram of Three Values

    All remaining values must be reconciled within this intersect of categorical values of liberalism. Here too, even supposedly outsized cardinal gains in any of the remaining values cannot be traded off nominal violations of categorical values.

  2. In part, I resolve these conflicts by offering trade-offs. This works only for values that are continuous in their realization, as may be the case for the tired conflict between equity and efficiency in taxation. I suggest that the trade-offs offered by such conflicting, continuous values depend crucially on the institutional context under which these trade-offs have to be engaged. Calling trade-offs, and designing the conditions thereof can be illustrated well in a diagram of ppfs, frequently used in economics to illustrate different possible baskets of goods that can be produced by an economy. Because paper as this is two-dimensional, ppf diagrams frequently only show two goods, but the abstraction carries to any number of \(n\) goods in a basket. I adapt the traditional ppf in (p. ).

Production-Possibility Frontiers of Two Competing Values

Production-Possibility Frontiers of Two Competing Values

What are competing goods in a ppf diagram are here competing values \(I\) and \(II\). Let us assume for the sake of simplicity that these values can be easily measured and are ratio scaled. More of each value is better. The four ppfs are comprised of those possible combinations of values \(I\) and \(II\) which are furthest from the origin, and thereby strictly preferable over all possible policies under the ppf. As in a static model of the economy, the ppfs are exogenously determined by a priori, and posteriori limits of the first order. In addition, I argue, these exogenous limits are modified by institutions \(1\) through \(4\). Policies \(A\) through \(J\) are defined by specific combinations of continuous value \(1\) and \(2\), along the respective institutions which modify what is logically and empirically possible in this world.

illustrates different policy choices. The simplest kind of trade-off is that between two policies along a linear ppf, as between \(A\) and \(B\) on \(1\). A straight ppf implies that the values are substituted at a constant rate: any increase in \(I\) will requires a decrease in \(II\) by the same amount. The choice between \(A\) and \(B\), as all other points on \(1\) is a zero-sum proposition. As we shall see, trade-offs in welfare, taxation and democracy are frequently, if implicitly, presented as such zero-sum choices. Alternatives of this sort are inevitable, but they are also normatively less interesting. Once values \(I\) and \(II\) are reduced to the same scale, the choice along the resultant ppf becomes trivial or even arbitrary.38

ppf \(4\) is curvilinear, and more interesting. Here, the rate of substitution varies over different levels of \(I\) or \(II\). For example, around \(G\), you have to give up relatively little in \(I\) to gain relatively much in \(II\). The reverse is true around \(H\), and substitution is roughly constant around \(J\). The trade-offs between \(I\) and \(II\) are non-zero-sum: you can gain more than you loose. Assuming a reasonable aggregate indifference curve (linear or convex), optimal policy will probably lie around \(J\). As we shall see, concave or other curvilinear ppfs abound in welfare, tax and democracy. Recognizing the convexity of trade-offs offered by any given institution, or, if possible, moving from lower, linear ppf \(1\) to a higher, convex ppf \(4\) will be important to identify desirable hypotheticals.

ppfs \(1\) and \(3\) are both linear, but they have different slopes. At any level of \(I\), compared to ppf \(1\) you have to sacrifice more in \(I\) to increase \(II\). The moves along curve \(3\) are otherwise as normatively uninteresting as those along ppf \(1\) — the two are just scaled differently — but the choice between these two institutions will be very consequential. Compared to institution \(1\), institution \(3\) will always make it costlier to increase value \(II\). There are many such consequential choices of institutions in tax, welfare and democracy.

ppfs \(1\) and \(2\) both have the same slope, but \(2\) is further from the origin. By definition, all policies along this higher curve are preferable to all policies on the lower curve — to everyone.39 This is the most important of institutional choices to be made.

2.3 The Ontology of the Doable Hypothetical

But what is government itself, but the greatest of all reflections on human nature?

— James Madison (1788, 143)

Doable hypotheticals are preferable to others because, in Dahl (1989)’s words, “we must avoid comparing ideal oranges with actual apples” (1989, 84).

Deciding just what can, and cannot be done is hard. If asked as a positive first-order question, the answer is sometimes empirically unclear. If turned into a second-order question — as the social sciences are prone to do — the answer becomes politically contested. Both extremes do not serve us well:

  1. When all inquiries into the social world are reduced to positive, first-order questions the social sciences effectively abolish themselves and make the status quo epistemologically endogenous, as in: social inequality is inevitable human nature, because if it were not, it would not be observed, or “the Laws of commerce are the laws of Nature, and therefore the laws of God.” (Burke (1790) as cited in Marx (1867, 1:834)).

  2. Conversely, when such inquiries assign all positive questions to second-order status, the social sciences hermetically seal themselves off from other disciplines and turn critique into futile, infinite regress, as in: “social being \[...\] determines \[...\] consciousness” (Marx 1859 Preface), including, one might add, Marxist consciousness.

Instead, the social sciences — and especially policy analysis — should find a middle ground, taking on one second-order question at a time, while provisionally leaving all other questions to first-order status.

I here ask second-order questions about the welfare state, taxation and democracy and I therefore assume these institutions to be malleable. Not under study here are (p. ) or the (p. ), especially of developed states and late capitalist economic production. I assume these to be constant in the medium run and reasonably approximated in the following sections.

2.3.1 Human Nature

Any second-order prescription for how to organize production, distribution and decision making rests on assumptions about human nature. For evolutionary anthropology, psychology, behavioral economics and other offspring of now disreputable (Wright 1994) sociobiology (Wilson 1975) this is a positive first-order question about our prehistoric baggage: what behavioral, cognitive and emotional dispositions might have been adaptive in the environment of our evolution, and what do we observe today? Evolution and Morality

Maybe, evolution deserves to be the master ontology of life, and therefore, of human life, too. Because I sometimes refer to such Neo-Darwinian arguments (Wright 1994) and hear them often misunderstood I must reiterate the ontological status of the theory of evolution:

  1. Evolution may dispose us to think, feel and act in certain ways, but does not determine us to do so (deterministic fallacy).

  2. Evolution yields more (“gradual” according to Neo-Darwinism) or less (“punctuated” according Elrdredge and Gould (1972)) stable equilibria between environmental conditions and (more or less) adaptive traits of organisms. It does not necessarily yield optimal configurations, just survival of the relatively fitter. Conversely, not all biological features that are observed are necessarily adaptive, but may simply be side consequences of other, adaptive features or developmental vestiges (Gould and Lewontin 1979).

    Or, in Bryson (2003)’s succinct formulation, “life wants to be, but it doesn’t want to be much” (Bryson 2003).

  3. \[itm:nonmoral\] Evolution is a “nonmoral” process (Gould 1982). It may tend towards greater complexity and cooperation, including human-like intelligence (Wright 2000), or it may just pursue a random walk, departing from a “left wall” (Gould 1994, 4) of “simple beginnings” (Gould 1977, 7), and inevitably bring some complexity, including homo sapiens as a freak outlier (Gould 1996). Either way, even if evolution were directional, it would not be along any moral dimension intelligible to humans. This cuts both ways:

    1. to praise evolutionary results is to fall for a “naturalistic fallacy” (Moore (1903), as cited in Wright (2000 K5987))

    2. to criticize them on any moral basis is to commit a “moralistic fallacy” (Davis 1978).

Within these ontological limits, evolution serves me well in this dissertation, because as a materialist, positive and first-order perspective it allows me to limit my second-order inquiries on taxation and democracy.

Unfortunately, evolutionary logic has a way of straying beyond the positive, of encroaching on and negating normative questions, precisely because it purports to explain all life, including human life. For example, if exclusive fitness were operative in human evolution, does that not, as Social Darwinism suggested, imply that humans are unequal, end of story? More fundamentally — and less obviously ideological — if all our flesh, including our brain tissue, evolved in an aimless process, does that not, as overzealous neuroscientists like to test, imply that whichever subjective experiences of consciousness and free will that flesh reports must be wholly illusory, and all questions of morality therefore beside the point? If we were merely organic, delusional robots, as Wright (2000 Chapter 23) provocatively asks, what would be wrong with unplugging a few?

This pedestrian thesis is not the place for another mind-body debate, and I am equally awed and outmatched by these and other “hard problem(s) of consciousness” (Chalmers 1995). Still, I must ask the reader to allow me a crude bit of lay metaphysics.

For starters, positive questions on consciousness — including the downstream issue of free will — easily run into seemingly obvious logical problems. If consciousness were positively illusory, who would be left to do the observing? Conversely, if consciousness were some positive emergent neuronal phenomenon, would not precisely that physical genesis negate subjective experience? Either way, infinite regress ensues. Perhaps, as James Trefil (1997) muses, consciousness “is the only major question in the sciences that we don’t even know how to ask” (1997, 15) and maybe, therefore, we need not be bothered, for now.

More fundamentally, whatever we may learn about the (aptly named) “neural correlates of consciousness” (for example, Koch (2004), emphasis added) none of this positive research can, or ever should negate, or infringe on normative questions. The first-order positive questions of natural science, and the first-order normative questions of the social sciences should be kept neatly apart, because they are noma (Gould 1997). Akin to science and religion, first-order positive and normative questions, too are distinct “domain(s) where one form of teaching holds the appropriate tools for meaningful discourse and resolution” (Gould 1999, 3):

The magisterium of science covers the empirical realm: what the Universe is made of (fact) and why does it work in this way (theory). The magisterium of religion extends over questions of ultimate meaning and moral value. These two magisteria do not overlap, nor do they encompass all inquiry (consider, for example, the magisterium of art and the meaning of beauty).

— Steven Jay Gould (1999, 6)

No matter then, how hard-nosed a question we may ask about our evolved nature, these positive inquires must never be mistaken for, or negate normative questions, because these fall into categorically different realms:

Our failure to discern a universal good does not record any lack of insight or ingenuity, but merely demonstrates that nature contains no moral messages framed in human terms. Morality is a subject for philosophers, theologians, students of the humanities, indeed for all thinking people. The answers will not be read passively from nature: they do not, and cannot, arise from the data of science. The factual state of the world does not teach us how we, with our powers for good and evil, should alter or preserve it in the most ethical manner. — Stephen Jay Gould (1982, 43)

Ought may imply can (Kant 1794, 65), but they are still not the same thing. However much constricted positive science may find us to be, these limits of what we can do must never drown out the imperative ought. Perhaps, tautologically, to be human and not another animal, is to arrogantly insist that, in spite of the limited and banal flesh we are made off, we ought to be conscious, we ought to have free will and we ought to say “ought”.

Maybe, this is the this-wordly obedience to Jesus Christ that Dietrich Bonhoeffer meant — and died for — when, faced with fascism he chose “costly discipleship” (Bonhoeffer 1937): “Only he who shouts for the jews is permitted to sing Gregorian chants” (Bonhoeffer 1933 as cited and translated in de Gruchy (1999, 35)). Fascism, after all, was the modern ideology to radically negate any “ought” for whichever group (“race”!) was supposedly biologically superior, and de-facto militarily stronger. Perhaps, such rejection of “ought”, too, makes the “banality of evil” that Hannah (Arendt 1963) recognized in an Adolf Eichmann on the stand in Jerusalem. Eichmann, after all, might “excuse\[...\] himself on the ground that he acted not as a man but as a mere functionary \[...\] since after all, someone had to do it” (Arendt 1963 K286f.). Such acts of state defy ought, because, to an “unthinking” Eichmann (Arendt 1963 K187f.), history — as evolution — just is.

Such lay metaphysics might be crude, but they are not entirely beside the point of welfare, taxation and democracy. As I argue later, a milder, but similar conflation of can and ought, of second-order positive, and first- and second-order normative questions plagues some social science, especially when it (, p. ). In the social sciences, too, the line between an emerged, evolved, “grown order” and a “made order” is sometimes blurred, negating political oughts — and not always as elegantly and explicitly as by (???). Evolution and Institutions

We need not confine evolutionary explanations to our biology alone, or, conversely, reduce all behavior, cognition and emotion to some strictly physical (genetic) reason. Instead, we can apply evolutionary explanations to culture and institutions, too.

In fact, the tired — and often unproductive — nature vs. nurture controversy is moot: we are neither blank slate40 for behaviorism to condition or society to write on, nor a physically determined animal, but essentially both nature and nurture. Our bodies and culture-ready brains genetically co-evolved with co-adaptive memes (Dawkins 1976) to make us the “hypercultural species” that we are (Henrich and Henrich 2007 K175). Relatively ill-equipped in instincts, we need to learn (or imitate) what to eat and hunt — and how to build a blast furnace. Perplexingly, it is in our nature to rely on culture: as our brain allowed us to learn easily, our culture developed cooking, and our digestive tract adapted to broken-down proteins, as illustrated in (p. , Henrich and Henrich (2007)).

The coevolution of nature and culture, with some examples

The coevolution of nature and culture, with some examples


This is the evolutionary blockbuster of humans: we moved the locus of our evolutionary adaptation from genes to memes (Dawkins 1976). Instead of “hard-coding” all adaptive traits, we learn (or imitate) the more complex and more malleable software of culture (Boyd and Richerson (1985), Henrich and Henrich (2007 K196ff)), written not in dna, but coagulated into institutions.

Paradoxically, as the naturally hypercultural species, we might gain some leeway from our biology, but simultaneously loose it to culture, because evolved culture too, must be (co-)adaptive to our biology, environment and, crucially, our past, path dependent culture (evolutionary anthropology, for example, Wright (2000)). As sociologists like to say about institutions — the coagulates of culture — culture, too, may enable us as it constrains us (for example, Hodgson 2006, 3).

Here lurks another positive first-order dead end: if present culture is, by definition, sufficiently (co-)adaptive to persist, does that not imply that any new, improved culture could and would emerge by said evolutionary process if, and only if, it were (co-)adaptive to our nature and environment and sufficiently incremental from past culture? If, therefore, culture and institutions, too, were strictly positive phenomena unamenable to human will, would the social sciences and political critique not be completely beside the point?

Hardly so. Here, as in all evolutionary arguments, the can need not, and must not eclipse the ought. We may not be able to make arbitrary institutions, but, axiomatically, we can build progressive institutions: they help us achieve normative ends, by first responding to our evolved cultural and natural dispositions, then transcending them. At least since Enlightenment dawned, we get to make our own history (a little), and build or break (some) institutions as an act of will — that is (p. ).

To build institutions is to emancipate ourselves from the meaningless process that bore us as expendable containers of “selfish genes” (Dawkins 1976) and to heed that call for morality, that we among the earth’s animals may hear clearest, because through institutions, we can turn reflexive on our innate behavior, cognition and emotions.

2.3.2 The Modern Condition

Maybe this is as good a definition of modernity as any: the project by which we reflect on what might be innate to our existence and inevitable about our physical world, and deliberately build institutions accordingly. Thus advises a machiavellian (1532) Mandeville (1714) to turn “private vices by dextrous management of a skillful politician (…) into public benefits” (1714, 213), thus threatens a somber (Hobbes 1651) our inner wolves with an even more powerful metaphorical beast, and thus asks us a moralizing (Smith 1776) to receive from others “from their regard to their own interest” — or any number of other “idea\[s\] of the world as open to transformation, by human intervention” (Giddens 1998, 94).

Modernity, as evolution, is often misused or misunderstood, and so again, I must briefly clarify its ontological status for my purposes:

  1. The modern project need not be confined to a specific location or era, nor need it be one-directional or linear, but it might arise in different places at different times, it might wax and wane, explode and collapse. While Europe and North America in the early 21st century may constitute high points in this project, the modern project is not wedded to any specific historical context or even the institutions which it bore, but rather, modernity is a cultural and cognitive phenomenon (Jones 2003, 26, emphasis added).

  2. The modern project need not be inherently good nor necessarily lead to desirable outcomes: modernity may well bear alienation (Adorno 1966), or even lead to catastrophe (Bauman 1989) and not all of its (ongoing) advances may yield progress.

    However, the inverse is true: to think progress implies a modern mindset, and to get it done requires modern institutions.

  3. It should be redundant to say that my dissertation ontologically assumes a modern condition, because tautologically, sociology is about finding answers to the questions modernity raises (Harriss 2000, 325), and “postmodern sociology \[therefore\] an impossibility” (Miles 2001, 169).

    And yet, “modernity” seems to be a concept fallen out of fashion, superseded by (occasionally loose) talk of various post-isms (for example, Lyotard (1984), Baudrillard) or second and reflexive modernities (for example, Beck, Bonss, and Lau 2003).

    Whatever the value of these and other contributions, in welfare, taxation and democracy I find no contradictions that would require such categorical labels or the nascent theories they stand for. In fact, I suspect that a thoroughly modern analysis of welfare, taxation and democracy may resolve many of those contradictions which reflexive modernity prematurely identifies, and clarify some of the uncertainties in which postmodernity revels. For instance, maybe, equipped with a rational and deep understanding of the mixed economy and externalities, we find that “de-nationalization” (Beck and Grande 2007) and “risk society” (Beck 1992) are neither inevitable, nor particularly descriptive but simply avoidable and unsurprising cooperation problems, instead.

    I here reflect on many dysfunctions of the presently observed, undoubtedly modern institutions of welfare, taxation and democracy, but I need not get “all meta” about modernity, because precisely such “reflexivity is a modern, not postmodern set of attitudes and practices and that ritualized postmodern caviling against modernity is ahistorical and inaccurate, not to mention dispiriting” (Sica 1997, 1119).

    Also, as I promised earlier, this is a pedestrian thesis.

What then, are these indispensable modern institutions that I here assume as ontological entities, that which defines the “doable”? States and Markets

For the production and distribution of goods, they are state plan (but not nation state) and market exchange (but not any particular x-capitalism). For collective decision making, they are a state equipped with an effective monopoly on the use of force and devoted to some popular participation (compare Giddens 1998, 96).

These two, states and markets, both brought and constitute the modern condition: they hyper-charged functional differentiation (Smith 1776) to reach near-planetary breadth (for example, international trade, citizenship) and near-universal depth (for example, commodification, family law), they altered or replaced much of the evolved culture (for example, kin) and institutions (for example, tribe) adaptively fit only at smaller scale (Diamond 1997), replaced such mechanical by organic solidarity (Durkheim 1893) and bore a social world that is complexly interacting (for example, Merton 1968, 1936).

These two are also the meta-institutions that both define and allow welfare, taxation and democracy. Welfare and taxation exist only, as I explain later, in mixed economies of both market exchange and state plan. Taxation and democracy alike, to become real, must be enforced by a state with an effective monopoly on the use of force.

As all modern institutions, state and market are based on a particular model of human nature, in this case, a

  1. rational and

  2. individual

  3. utility-maximizing

homo economicus (maybe first in Mill 1848). The state gets an amoral, but opportunistic homini lupus to behave by threatening monopolistic force (as in Hobbes 1651). The market, in turn, lures a self-seeking, but rational “butcher, \[...\] brewer, or \[...\] baker” into providing “our dinner” — and all else — “from their regard to their own interest” (Smith 1776). Non-Zero-Sumness

But, as other modern institutions, state and market not only assume this human nature, they also allow homo economicus to transcend her own limits. As individual utility-maximizers, she runs into problems whenever her supposed selfishness prevents otherwise mutually advantageous interactions. This rough typology specifies the class of games which homo economicus is ill-equipped to solve:

  1. Zero-sum games display constant sums of payoffs over all cells, or possible interactions. One player’s gains equal another player’s losses: the cake does not grow, but is only sliced up differently. By definition, a zero-sum game is pareto optimal: no one can be made better off, without making someone else worse off.41

    Terms of trade, the ratio of units of goods that a country has to export for any unit of imports, is an oft-cited (rare) example of zero-sumness in advanced economies.

    A trivial example of zero-sumness, theft, (without spillovers) is illustrated in : all cells yield the same \(\sum{\text{payoffs}}=2\).

  2. Non-zero-sum games have different sums of payoffs, or possible interactions. One players gains are not equal to another players losses: the cake can grow or shrink. Positive-sum games are equivalent to negative-sum games, because the absence of a loss (a negative-sum outcome) is a gain (a positive-sum outcome). For the sake of simplicity, I often refer to only gains or positive-sum outcomes, but mean all non-zero-sum games. Crucially, non-zero-sumness does not imply that gains are shared equally, or at all. Non-zero-sum games need not even imply (weak) pareto-improvements, if one players looses less than another gains in a Kaldor-Hicks-improvement (Kaldor 1939; Hicks 1939).

    Non-zero-sum games further break down into:

    1. Games of total harmony are situations in which self-interested players will (???) at an interaction that reaps all non-zero-sumness.42 By definition, a game of total harmony offers pareto improvements: at least one player can be made better off, (at least) without making someone else worse off.

      Under some assumptions, opening up to free trade famously is such a game of total harmony (Ricardo 1817). It is roughly illustrated in : at \(\sum{\text{payoffs}}=6\), the north-western cell yields the highest, social optimum and it is also the only (!) set of mutually best responses, and thereby, the unique Nash equilibrium. In short: trade and other games of perfect harmony should take care of themselves.

    2. Cooperation problems plague non-zero-sum situations where the social welfare optimum is not also (at least) a Nash equilibrium. Here, at least one player may gain more than all others stand to loose. Such games cannot be Pareto-, but only Kaldor-Hicks improved.

      The canonical example of a cooperation problem, a pd, is given in : here the socially optimal (smallest) payoff \(\sum{\text{payoffs}}=2\) prison years its in the north-western cell, but it does not constitute a mutually best response. In fact, no matter what the other player does, one is always better off betraying: the south-eastern cell is not only a mutually best response and thereby the Nash equilibrium, but even a mutually dominant strategy at a dismal aggregate prison sentence of \(\sum{\text{payoffs}}=6\) years.

      The pd and related cooperation problems can model many of the economic and political challenges facing us today, including global warming (for example, Stern 2006) and herding in financial markets (from Keynes (1936) to Banerjee (1992)). I also identify pd-style problems in welfare, taxation and democracy.

Theft as a Zero-Sum Game
Does not steal Steals
n{1}{c}{ ltirow{4}{* }{}} n{1}{|r|}{1 } n{1}{r|}{2}
n{1}{c}{} n{1}{c}{} n{1}{|l|}{1 } n{1}{l|}{0}
n{1}{c}{} n{1}{|r|}{0 } n{1}{r|}{1}
n{1}{c}{} n{1}{c}{} n{1}{|l|}{2 } n{1}{l|}{1}
Ricardian Trade as a Game of Perfect Harmony
Trade Autarky
n{1}{c}{ ltirow{4}{* }{}} n{1}{|r|}{2 } n{1}{r|}{1}
n{1}{c}{} n{1}{c}{} n{1}{|l|}{4 } n{1}{l|}{3}
n{1}{c}{} n{1}{|r|}{1 } n{1}{r|}{1}
n{1}{c}{} n{1}{c}{} n{1}{|l|}{1 } n{1}{l|}{1}
The Prisoners’ Dilemma as a Cooperation Problem
Stays Silent Betrays
n{1}{c}{ ltirow{4}{* }{}} n{1}{|r|}{1 } n{1}{r|}{0}
n{1}{c}{} n{1}{c}{} n{1}{|l|}{1 } n{1}{l|}{2}
n{1}{c}{} n{1}{|r|}{2 } n{1}{r|}{3}
n{1}{c}{} n{1}{c}{} n{1}{|l|}{0 } n{1}{l|}{3}

If we are to reap the (great) benefits of non-zero-sumness, homo economicus must be able to successfully play these classes of games. She should do well in games of perfect harmony that cater to her selfish utility maximization, but might flounder cooperation problems. As a maximizer of individual utility, she cannot see the bigger picture of aggregate welfare.

Such is, for example, the logic of a (???) war of everyone against everyone: all would be better off if they ceased fighting, but in a world where everyone is armed and angry, any individual homo economicus better not be a pacifist. In fact, security may be modeled as a pd, as in .

Security as a Prisoners’ Dilemma
…ovis …lupus
n{1}{c}{ ltirow{4}{* }{}} n{1}{|r|}{2 } n{1}{r|}{3}
n{1}{c}{} n{1}{c}{} n{1}{|l|}{2 } n{1}{l|}{0}
n{1}{c}{} n{1}{|r|}{0 } n{1}{r|}{1}
n{1}{c}{} n{1}{c}{} n{1}{|l|}{3 } n{1}{l|}{1}

In a more realistic model with many players instead of just two, the cooperation problem may only exacerbate. If you were the only wolf amongst many sheep, violence may be especially cheap, because your potential victims are plenty and helpless. Conversely, being a lone sheep amongst many wolves will be especially risky for the sheep, and costly for the wolves who need to be competitively violent. At such a larger scale, the pd of security evolves into an arms race with ever costlier, but fruitless violence: the original tragedy of the commons (Hardin 1968).

Naturally “stuck in-between” (Lehrer 2012) the selfishness of homo economicus and our capacity for altruism,43 as ever the “hypercultural species” (Henrich and Henrich 2007 K175), cooperative exploitation of non-zero-sumness, as much else, does not come to us robotically, or by instinct as it does to the eusocial insects (Wilson 2012). In humans, such cooperation is contingent on culture or institutions. The Genesis of Cooperation

Luckily for us, history listened to Hobbes (1651) and brought such an institution for large-scale cooperation, when it bore those powerful Leviathans, whom we have since successfully trained into rule-of-law, and even democratic states.

Two theories of the genesis of states are instructive here:

  1. Maybe, states are simply the largest remaining of pre-historic, atomistic racketeers who threatened with well as protected from violence (Tilly 1985, 182). These initially small-scale racketeers morphed into proto-states and then states as new technology, and — equivalently — economies of scale allowed them to produce and distribute violence at a larger scale, for lower cost (Tilly 1985).

  2. Or maybe, (nation!) states grew out of kinship ties and our capacity for genetic nepotism (Hamilton 1964; Axelrod and Hamilton 1981), as the initially real blood lines became ever thinner and eventually illusory and fake, yet effective (van Den Berghe 1981; Gellner 1983).

The two stories need not be mutually exclusive, but may instead complement one another. After all, Tilly (1985)’s materialist account of state genesis does not so much explain away the cooperation problem, but reverts it to the level of individual thugs who make up the racketeering mafia. As Coppola’s “Godfather” trilogy illustrates (1972, 1974, 1990), even in the 20th century, successful organized crime is difficult, and hinges on trust. Anecdotally, in the case of the Corleone organization, cooperation is built on family ties, alluding to theories of inclusive fitness as nepotism. Maybe, economies of scale and first genetic, later imagined nepotism both drove state making, only at different levels.

Against this backdrop, the development of governance in the modern era, including sequentially security, the rule of law, democracy and welfare (compare Marshall 1950) is a project of both consolidating, and steering a powerful but dangerous monopoly on violence or illusion of kinship, respectively. Absent such training, states are quite scary beasts, as Hobbes (1651)’s frontispiece of The Leviathan illustrates. Both theories of their genesis imply a slippery slope. Supercharged by economies of scale in the production of violence, those monopoly producers of violence may tend towards parasitic government. “Imagined communities” (Anderson 1983), in turn, enabling cooperation by increasingly fabricated nepotistic sentiment, may always risk turning exclusive, or even fascist if the quasi-biological notions run loose.

Here again, the modern age has borne deliberate (meta?-)meta-institutions to govern an evolved structure, including constitutions, rule of law and democracy. However, all these modern additions to statehood should not distract from its defining innovation: an effective monopoly on the use of force, without which we are back to a very, very dismal square one. “You cannot get to Jefferson and Madison without going through Thomas Hobbes” — in Iraq (Diamond 2004), or elsewhere.

Modern markets, and the intricate games of perfect harmony they provide for homo economicus to solve and thrive, too, depend on this monopoly of force. From property rights, to contract law and fiat money, commerce always rests on effective enforcement: to enter any such deals in the first place, you must believe that really, pacta sunt servanda, that promises will be kept — or made to be kept, anyway.

It is, in fact, this shadow of violence that enables markets in the first place, that allows us to transform cooperation problems into games of perfect harmony, and thereby, to solve them.

States and markets are, the atomistic reading of Hobbes (1651) and Smith (1776) aside, a feat of great cooperation. Almost magically, they freed us off that (???) curse, by which our geometric population growth must always outstrip our arithmetric economic growth, and starve us.44

The modern escape from that iron law of population (or resources, or carbon, and so on) was, is and will be to make economic growth above-linear, too: to reap non-zero-sumness, to functionally differentiate and to harvest economies of scale. If at different altitudes of abstraction, these all imply the same prescription: cooperation is our one ticket out of hardship and subsistence (a notion to which I return in the in , p. ).

2.3.3 Contingent Homo Economicus

To think about welfare, taxation and democracy, then, homo economicus is both inescapable and inadequate. Inescapable Homo Economicus

As an ontological model, homo economicus is inescapable, because it comes part and parcel with the meta-institutions of state and markets. To think of coercive power or supply and demand is to invoke an individual utility-maximizer. By extension, to ponder welfare, taxation and democracy, too, implies this view of human nature, for if we were neither individual nor utility maximizers, altruism, allocation and decision making would come to us automatically. Alas, it does not. Materially Possible.

Moreover, market and state, along with their view of human nature are good ontologies for a second-order inquiry into welfare, tax and democracy because market and state, if nothing else, are materially possible under first-order theory.

Market and the state may not be the only materially possible means to organize cooperation, but they are the only (meta-)institutions that have demonstrably orchestrated large-scale production and distribution of many kinds of goods. They, and the (p. ) they tap into are the only known way to prosperity.

For now, only states can solve commons problems (Hardin 1968 for example,), and only markets efficiently and credibly gather, process and signal dispersed information (Hayek 1931). Other institutions to facilitate cooperation, such as kinship (van Den Berghe 1981; Axelrod and Hammond 2006) or even the nuclear family (on which the conservative/continental welfare state still relies heavily, according to Esping-Andersen (1990)) and community (Ostrom 1990) are often narrow in scope and reach. Self-organizing scientists (for example, The Human Genome Project), programmers (for example, Linux OS) and web-users (for example, Wikipedia) have lately accomplished impressive achievements, but their mode of production seems to complement state and market, rather than replace it: scientists are often paid state salaries, free software runs on commercial hardware, and wikipedians need day jobs. These goods, incidentally, are also all common or public goods, the non-state production of which we are only just beginning to understand (Ostrom 1990).

Eventually, great hopes set in volunteerism, a communal “governing the commons” (Ostrom 1990) or some other alternative mode of production, distribution and decision-making may come to fruition. In the meantime, we must stick to at least a bit of state and market, the two meta-institutions which, empirically, have civilized whichever aspects of homo economicus we might positively harbor into the intricately complex interdependency of the modern world.

This interdependency is, as I have explained, the very condition of our prosperity. Modernity and its riches, we can only hope, are here to stay (Diamond 2005) and any first-order ontology, must — as states and markets do — abide by its conditions. The modern economy is, and needs to be so functionally differentiated that no subset of people can ever organize, let alone meet all their material needs in isolation. Only elegant abstractions, such as global price systems, can enable this feat of cooperation. Likewise, modern society is so complex that no large share of society can ever comprehend, let alone decide on all matters of the polity. Only some people, some of the time, can comprehend in some detail and decide on some matters. In modernity, autarky is always regress.45

Small-scale, intimate interactions, such as of the ancient polis or the prehistoric tribe will not, and should not return. Any ontology or policy that purports a return to such simpler times does not, as it might claim, provide an alternative to state or market, but instead merely defines away the question which these meta-institutions have answered and threatens to roll back modernity. Logically Consistent.

Homo economicus and the meta-institutions it inspired also make for a good ontology for hypotheticals, because whatever its shortcomings, at least, we have a logically consistent understanding of states and markets, and know something about how they work, and how they fail. If you assume some homo economicus in us, an appeasing Leviathan, and the pareto-improving qualities of free markets, are, in fact, logically consistent.

These abstractions ride on a lot of (heroic) assumptions, but at least, they clarify our thinking and generate falsifiable hypothesis. That is more than can be said about suggested remedial institutions such as “governance”, “Big Society” (Cameron 2011) or a philanthropic “Third Sector” (Anheier 2002). These, as many other recent contenders of states and markets, are shrouded in impenetrable (“problem solving”, “community” and “giving back”, respectively) (p. ), they lack a coherent (any?) model of human nature, and give no account of their successes and failures.

Civil society, in particular, is yet only negatively defined (it is not the state, not the market and not the family), its mode of production (volunteerism?) is underspecified and its vaguely optimistic ignorance of structure and material interest border on (hegemonial?) ideology. Here, too, defining away the contradictions of modernity will not solve them, it will merely render the advocated institutions inaccessible to critique and improvement. Inadequate Homo Economicus

Yet, homo economicus is the kind of quasi-evolutionary concept that blurs theory and data, and easily eclipses ought with is. Less metaphysically, it is also plainly inadequate to investigate welfare, taxation and democracy because these projects, as states and markets, more generally, are, and always have been plagued by precisely these selfish demons of our nature. Logically Incomplete.

Homo economicus is logically incomplete as a first-order ontology, because it cannot explain the initial nucleus of cooperation from which states and markets must have sprung.

The infinite regress of an ontology inhabited only by homo economicus is evident in the competing (or complementing) theories of state genesis referenced earlier. Tilly (1985)’s (and similar) stories of state-making-as-organized-crime do not so much explain Leviathan-level cooperation, as they merely relegate it to the level of nascent racketeers: just how these thugs initially ganged up, we do not know. van Den Berghe (1981)’s (and related) stories of polities-as-extended-kinship, likewise, do not so much explain Imagined Communities, as they simply relegate it to a sociobiological explanation of reciprocal altruism: just how reciprocal altruism emerged at a group level, in an evolution of individual-borne genes and memes, we do not know, and even sociobiology is unsure.46

Whatever their genesis, states, markets and modernity may well need such nuclei of cooperation to sustain themselves, even today. In fact, much of their current crises might be described as the inevitable wreckage of pure homo economicus.

This dissertation, too, chronicles the limits of homo economicus as much as it ontologically rests on this view of human nature. Empirically Incomplete.

Luckily for us, this rational, individual utility-maximizing model of human nature may also be incomplete — but not entirely incorrect — on all counts: humans may be hard-wired altruists (for example, Zak, Kurzban, and Matzner 2004), are only boundedly rational (Simon 1999; Kahneman 2011), poor planners of utility (summarized in Gilbert 2006), think in relative, not absolute terms (Frank 2005a) and display diminishing marginal utility (Ng 1997; Veenhoven 2000; Nickell, Layard, and Mayraz 2008).

Homo economicus provides, in other words, at least an incomplete description of human nature. Domain-Specific Homo Economicus.

Nevertheless, and because homo economicus is both inescapable and inadequate to investigate welfare, taxation and democracy, we should make this model of human nature and its related (meta-)institutions domain specific.

Even if, as I suspect, there are no alternatives to state or market in some realms of modern society, we need not “economicize”, commodify or regulate all aspects of life. Instead, different tasks call for different modes of production, distribution, decision making and associated views of human nature, as summarized in .


At the economy or industry level, markets may be our best bet, but perhaps not at the firm or team level, where we can tap into other human motivations. Similarly, a state may need to impose health and safety standards, but not a teacher’s lesson plan (as Schwartz and Sharpe (2010) alarmingly report). Market and state, along with their impoverished view of human nature, can be applied selectively, to some domains. As alternatives become available,47 market and state can recede.48 For the time being, I suspect, the domains exclusive to market and state will remain considerable.

In this dissertation, I constrain homo economicus to the realm of the market, and summarize welfare and taxation policies to remedy, as well as make do with its shortcomings. In democracy, by contrast, I find a realm in which homo economicus can no longer be accommodated, but where we must instead find new (deliberative) institutions to tap into other, better angels of our nature. No New Man

Neither policy nor social scientific ontologies can ask for a new man. For better (see above) or for worse (for example, Schwartz and Sharpe 2010)49 state and market made their own humans: as we live under hierarchy and competition, we adapt to it. In the oecd-world and in our time, many people (including me) will expect and respond to incentives and regulation. Consequently, political institutions have to reckon with homo economicus, even if — and because — it is partly of their own making.

Good policy and good social scientific ontology does not ask for a new man, but makes do with the women and men we have now, but at the same time, recognizes that for our “hypercultural” species (Henrich 2003), homo economicus, as other views on our indeterminate nature will always be highly contingent on institutions.

None of this is to preclude a study or reform of human nature, modern society, states or markets. Rather, such a contingent ontology is, to me, the only way to study these meta-institutions and their incarnations in welfare, taxation and democracy. Some, ontologically contingent homo economicus can clear our hazy eyes, but too much, ontologically endogenous homo economicus will blind our “sociological imagination” (Mills 1959). Contingency and domain-specificity lead the middle way between the hermetic ideology of utopias, and the apolitical mindlessness of TINAs.

Also, none of this is to proclaim state and market as the “end of history” or to blazon homo economicus as “the last man” (Fukuyama 1992). Rather, state and market along with their homo economicus are the only place to start from, if we want to write, or make history in welfare, taxation and democracy today. Precisely because our nature is contingent on institutions, that is where we must start: institutions are all we got, “just because institutions are the kinds of things that can can be changed directly, whereas cultures and psychological dispositions are less subject to collective intervention and experimentation” (Warren and Pearse 2008 K182). States and markets are those prime meta-institutions through which we can make, and remake the institutions of welfare, taxation and democracy. Through them, we respond to the homo economicus in all of us, and unfold our greater capacities.

And transcend the limits of homo economicus, we must. Clearly, we face grave problems in (, p. ). Clearly, too, disintegration is not an option: that way lies regress and hardship. And clearly, further rational-functional or identity-embellished integration is not an option: that way lie democratic deficits, and exclusionary identity politics.

These are the challenges cut out for us. To fail them, to fail these cooperation problems of non-zero-sumness, is to fail specifically as a human being, the one “conspicuously exceptional” species (Frank 2011, 85) that is socially capable of great cooperation, but not biologically determined to give up individualism (Wright 2000), and is therefore reliant on institutions. Welfare, and especially taxation and democracy are those modern institutions, to square the circles of individuality, inequality and cooperation.

And these are the institutions I here assume to be malleable, to make up the desirable and doable hypotheticals, whose absence begs explanation. These, too, are the institutions that moderate the very contingency of homo economicus, and our other natures. As such, they are precisely the place to look at, taking on one second-order question at a time, leaving all else to first-order status.

For sociology, “the science of institutions, their genesis and their functioning” (Durkheim 1895, 45), this, I would hope, is a good approach as any to learn — as we must — whether, and under which (institutional!) circumstances humans are “knights, knaves, pawns or queens” (LeGrand 2003), what our capacity for altruism is (Henrich and Henrich 2007) and how it can be fostered (Axelrod and Hamilton 1981), all to imagine, and then fulfill our human capacity of non-zero-sumness (Wright 2000).


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  1. For this insight, I am indebted to Franziska Deutsch who first noted in 2011 that tax was an interesting case because it affected everyone, but most people knew little about it.

  2. Ideational perspectives surely are important, and rationalist epistemologies not the only way to knowledge, but, as I explain in more detail in (p. ), first-order alternatives must be clarified first.

  3. For this comparison, I am indebted to Maike Schulz, who — citing Eco — reminded me in 2013 that an ever elongating reading list need not be a bad thing.

  4. For some social science that seems to physically placing “markets” in quotation marks, see, for example Beckert and Streeck (2012). In lieu of an economic, or social scientific explanation of failing or corrupted markets for sovereign debt, this rhetorical device works to distance the social scientist from these market messengers, as if their price signals were merely social constructs. There is, however, such a thing as objectively given, materially tangible, unsustainable debt that higher interest rates might merely communicate (Wihlborg, Willett, and Zhang 2010, 55). “Punctuation”, in any event, does not replace an explanation.

  5. The eu commission is quite explicit about this:

    “The Single Market Review put (sic!) citizens, consumers and smes at the centre of policy-making.”
    European Commission (2008, 3)

    One wonders, at least, why, in addition to citizens, consumers and some (though not other) firms are also mentioned, when, in a functioning market, the latter two should be served only as proxies of the ultimate beneficiary, the citizen.

  6. To mention just a few red flags, it is unclear what costs Postwar prosperity extracted from others (dependence or world systems theory), we do know whether or how Western affluence can be repeated without the same gigantuan carbon footprint and we worry whether broad-based growth in value-add is but a historical episode (cost disease).

  7. For example, László Kovács (2004), then Commissioner for Taxation and Customs asked that tax rates must be allowed to differ 6-8% simply to make up for the remote location of some markets.

  8. Capital inflows will be particularly effective in relatively poor economies. As these economies, supposedly, still lie far below the golden rule of saving (Solow 1956), returns on capital will be much higher than in richer economies where further (near-Solowian) capital deepening faces diminishing returns (for example, Barro and Sala-i-Martin (1995) or ibid. 1992 as cited in (Beckfield 2009, 3).

  9. To remind readers that this is not, in fact, what the acquis currently stipulates: The overall structural and cohesion funds for 2007–2013 amount to no more than € 347 billion, less than 3 times the budget of the city of Berlin (€ 21 billion in 2009), or about 0.005 % of the budget of Germany (€ 1,164,000 billion in 2011). In addition, eu budget negotiations are still marred by juste retoure attitudes, with ms wanting to get paid out what they have received — the very opposite of a redistributive regime (for example, Begg et al. 2008).

  10. It too, is neither new nor revolutionary: internally heterogenous mixed economies have always, with varying results, dealt with this question. In the US, much of the controversy about the role of the federal government boils down to the question of how much rich Texans should dole out to poor Louisianans. In Italy, the rift is between North and South (for example, Putnam, Leonardi, and Nanetti 1993)) and in Germany, initially between industrial and rural states, since 1990 between old and new Laender.

  11. …the reach of which was only recently discussed in the 2012 US Supreme Court ruling on the Affordable Care Act.

  12. …the reach of which was only recently discussed in the 2012 US Supreme Court ruling on the Affordable Care Act.

  13. In fact, the run on Greece is already underway, with the country having lost almost a third of its domestic bank deposits by May 2012, according to (The Economist 2012).

  14. For the german original, see footnote \[fn:Offe-regress\]. –>

  15. Who knows? — Had they known about , and had they foreseen the coming wonders of electronic retail banking, they might have saved us all a lot of trouble.

  16. For starters, desiderata are not (yet) comprehensively exhaustive and mutually exclusive (MECE). They are also not weighted.

  17. A fully-fledged CBA would require ordinal, if not cardinal quantification of equity and efficiency. Quantifying the gains of the suggested superior tax choice, if possible at all, will be key to the further development of this project. For this, and other see further .

  18. Whether this saving is implemented as a PAYGO, capital-based or entirely private scheme is of no relevance to the question of intergenerational incidence.

  19. Note that this is the only reason under the PCT for the taxman to check the bookkeeping of incorporated firms.

  20. When the progressive rates of donor and donee are very different, incentives will not be strictly symmetrically opposed. A big-spender donor has a greater incentive to inflate, than a small-spender donee has an incentive to deflate. Slightly false reporting of prices of gifts and some tax evasion may ensue. Where gifts and bequests are substantial and differences in progressive rates great, government may have to intervene and correct evaluations.

  21. The residence principle in taxation is problematic when people frequently and for longer periods of time change their primary residence. If you live, spend and work “abroad”, you depend on public goods (fire service), risk pools (disaster relief) and redistribution (social peace) in that country. In effect, you become part of that polity, no matter the citizenship regime or your legal status as resident alien. The residence principle in taxation is fundamentally at odds with a cosmopolitan lifestyle.

    Input and output congruency demand that whoever partakes in a polity pays, and votes in it, too (Zürn 2000). Progressive, of consumption demands that people pay for what they spend, irrespective of where they spend it. Even without international tax competition and evasion, these two norms can be reconciled only when all developed countries adopt the same progressive schedule, and the same base for taxation.

    The cosmopolitan contradictions to the residence principle are not germane to taxation. They are the principle condition a denationalized world, with no greater functional polity filling the void of the modern nation state.

    Taxation, like other policy areas, cannot respond to this change in itself. Without a greater polity, there will be no resolution to the contradictions of residence taxation.

  22. For a different suggestion to transition to the PCT without corporate income taxation of foreign-owned firms, see .

  23. With the addition of imputed income, all people consume something. The allowable deduction for children could, for example (partly) offset the costs of child care, whether done by a parent at home, or in daycare.

  24. Again, the monetary dynamics of taxation cannot be addressed here. In income taxation, cold progression serves to dampen second-round effects of inflation.

  25. Denominating taxable consumption relative to annual GDP would make the PCT procyclical. Short-term deviations from the long-term growth path should not matter.

  26. The lowest, entry bracket of the PCT is the functional equivalent to the VAT.

  27. This example makes obvious a seeming possibility for tax evasion: the big spender could give some cash to the small spender and have the small spender buy the apple on behalf of the big spender, at a much lower rate.

    The PCT should be relatively immune to this kind of tax evasion. Once the big spender has given her cash to the small spender, the small spender has no incentive, let alone legal obligation to buy the apple. The small spender can just keep the cash.

    The only way for the big spender to avoid consumption taxation on the price of the apple was to misreport her transaction to the small spender as a gift. It is then officially documented that the transaction was a gift, which, by legal definition carries no strings attached. The only option for the big spender to force the small spender to actually buy the apple is to report herself to the authorities for tax fraud and to declare the transaction as a taxable service (“buy me that apple”), not a gift.

    Given these incentives, the tax evasion deal is unlikely to ever occur.

  28. For an extensive review of the history of progressive taxation of consumption, and the USA Tax in particular see Seidman (1997, 11ff)

  29. The gift and estate tax were necessary under the disfigured USA tax because it had ignored dissavings. When consumption out of dissaving goes untaxed, tax evasion 101 (“buy, borrow, die”) is operative. To get at least at some of the inherited and gifted wealth, the ugly backstops of income taxation (estate and gift tax) were kept.

  30. (Shaviro 2004) delivers a particularly revealing example of conspicuous misrepresentation of the abstractions of tax and equity. At various points in his advocacy (desecration, really) of the “progressive consumption tax” (the Bradford X-Tax), he describes power, social standing or security through money as an instance of money illusion (2004, 106), argues that capital income is a meaningless category on the merits of a thought experiment in which a talented cook buys a restaurant and makes a fortune (2004, 100) and insists that infra-marginal returns are much like labor incomes because “one has only so much time and so many good ideas” (2004, 103).

  31. In the technical terms of introductory economics, individual preferences are expressed in indifference curves, that is, the lines along those combinations of \(I\) and \(II\) between which a person is indifferent. The intersection between the aggregate of these indifference curves would be the optimal policy point(s). If the aggregate indifference curve is curvilinear and reasonably simple, there will be one or few such points. If, however, the aggregate indifference curve is linear and scaled as the ppf, all policies along the ppf intersect with an identical indifference curve, and there are an infinite number of ideal policy points.

  32. Technically, again, no matter the indifference curve, the higher, but equally-sloped ppf will always be preferable.

  33. aka. tabula rasa or homo sociologicus, as (Dahrendorf 1965) quipped.

  34. Critics of economic growth (but not gdp!) should carefully ponder the implications of such a scenario: a world with no economic growth is a world where all human interactions are zero-sum. Empirical literature on, for example, rentier economies, have chronicled the corrupting influence that zero-sumness may have on a political process, when all decisions create nothing but winners and losers (Beblawi 1990).

  35. Strategies, or players’ moves, form a Nash equilibrium if they are mutually best responses. Best responses, in turn, are the utility-maximizing move for a player, given the other player’s choice. Dominant strategies are those best responses that maximize payoffs over all choices of the other player(s). The social welfare optimum is realized under those combinations of strategies that maximize the aggregate payoffs of all players. (Kleinberg and Easley 2009) provide a great introduction into game theory and its basic concepts.

  36. Altruistic behavior, according to (Wilson 2012) and before him (Darwin 1859), is an emergent property of the group, following group selection. According to mainstream sociobiology (and initially Wilson 1975), altruism emerges at the individual level by a strategy of inclusive fitness or genetic nepotism, helping others as they are related.

  37. (Malthus 1798) might have been correct only about some periods of human history, and anyway, was anachronistic in his time, when functional differentiation was already well under way.

  38. Such regressive states of disorganization can still be observed in much of the developing world (confer Clark 2007; Easterly 2006), war zones (on the Iraq example, Baker III and Hamilton 2006) or wherever else human culture has regressed back to or stalled in innate (kin-, clan-, sectarian) modes of cooperation (on the southern italian example, Putnam, Leonardi, and Nanetti 1993)

  39. Altruistic behavior, according to (Wilson 2012) and before him (Darwin 1859), is an emergent property of the group, following group selection. According to mainstream sociobiology (and initially Wilson (1975)), altruism emerges at the individual level by a strategy of inclusive fitness or genetic nepotism, helping others as they are related.

  40. For example, the big is a courageous suggestion to, among other things, decommodify and, because it is no longer means-tested, “de-regulate” the livelihood (for example, Offe 2009) and allow volunteerism.

  41. (Schwartz and Sharpe 2010) show how excessive regulation (the mode of states) and incentives (the mode of markets) can crowd out intrinsic motivation, “Practical Wisdom” and other, better angels of our nature. Unfortunately, this ship has probably sailed. Still, their insistence on a broader, human capacity to “do well by doing good” and crusade against dehumanizing choice is important.