Arguments

A Modest Proposal: Tax Worthlessness

How some economists are looking for ways to reduce the “material incentives” of pursuing lucrative but destructive professions.

By Stuart Whatley

Tagged LaborleisurePhilosophy

“The whole of economic life is a mixture of creative and distributive activities. Some of what we consume is created out of nothing and adds to the total available for all to enjoy; but some of it merely takes what would otherwise be available to others and therefore comes at their expense.”
– Robert Bootle

Since Alexandria Ocasio-Cortez’s Democratic primary victory in New York’s 14th Congressional District, the question of how to pay for ambitious progressive programs such as universal health care and a federal jobs guarantee has come to the fore. One answer is to tax unproductive and otherwise worthless economic activity.

Worthlessness is not to be confused with “doing nothing,” which itself offers a good baseline measurement for value. The literary critic Michael O’Loughlin reminds us that the search for “lives at ease” was the “central drama” of ancient literature, from Homer through much of the Christian tradition. It was understood that by escaping into the “timeless harbor” of one’s inner self, one could realize the depths of “human possibility.”

Such flights of fancy can, in fact, be productive. In the 1570s, when Michel de Montaigne ensconced to his library to let his mind “stay and settle itself” in idleness, he was surprised to find that it did the opposite. His imagination gave “birth to so many chimeras and fantastic monsters” that he had to start writing them down. Thus emerged the personal essay—107 of them, actually—as a distinct literary form.

If one accepts the potential value of idleness, then one must also acknowledge the opportunity costs of time on the clock. Yes, the demands of employment on free time have spared us a great many mix tapes and bad novels. But we’ll also never know what feats of human creativity and ingenuity have been lost to the rat race.

The University of Cambridge anthropologist David Graeber has brought this tradeoff into sharper relief with his concept of “bullshit jobs.” In his new book by that name, he points to polls suggesting that around 40 percent of workers in Western countries do not believe their job makes “any sort of meaningful contribution to the world.”

Having collected some 250 testimonials from what one might call the bullshitariat, Graeber argues that countless workers are spending all or most of their time performing tasks that are pointless, redundant, or geared largely toward making higher-ups feel important. Such duties include writing reports that literally no one will ever read, transferring data from one spreadsheet to another, being employed solely to fix others’ work product, tricking people into buying things they don’t actually want, and so forth. Broadly speaking, Graeber’s focus is on jobs that could disappear tomorrow without anyone really noticing or caring.

Graeber has drawn some criticism for his reliance on “anecdotal” data (as if that isn’t anthropologists’ bread and butter). Still, a new study by Robert Dur and Max van Lent for the Tinbergen Institute concludes that “approximately 8% of workers [across 47 countries] perceive their job as socially useless, while another 17% are doubtful about the usefulness of their job.” That is less than Graeber’s reading of the situation, but still rather significant. If these respondents are right that their work adds nothing to—or even harms—society, then paying them to idle could prove the better option. At a minimum, it would allow for the self-directed realization of human potential.

In 1966, Herbert Marcuse argued that as productivity improves over time, “the real social need for productive labor declines, and the vacuum must be filled with unproductive activities.” Accordingly, he predicted that the political demand for full-time employment would “require the increasing waste of resources, the creation of ever more unnecessary jobs and services, and the growth of the military or destructive sector.”

Graeber seems to be picking up where Marcuse left off. He attributes the phenomenon of bullshit jobs to the rise of managerialism and the growth of finance as a share of the economy. “Corporations are less and less about making, building, fixing, or maintaining things,” he notes, “and more about political processes of appropriating, distributing, and allocating money and resources.” At the same time, a growing managerial class has ushered in a form of corporate feudalism, whereby its members amass underlings to justify their own existence. Why bother creating new wealth when you can just extract it out of the economy, and from shareholders?

One major difference between Graeber and Marcuse is that in Graeber’s study, bullshit job-holders are, by definition, cognizant of their situation, whereas Marcuse assumed that everyone was essentially brainwashed (by the “repressive sublimation” of libidinal instincts and desires) into thinking that they were serving a productive function, whatever their occupation.

Both hypotheses could apply. “Among the top-20 occupations with the highest share of workers reporting a socially useless job,” Dur and Lent note, are distributive/zero-sum professions such as “‘sales, marketing, and public relations professionals,’ ‘finance managers,’ and ‘sales and purchasing agents and brokers.’” That is in keeping with Graeber’s theory. And yet, a far larger share of respondents in these fields believe that their job contributes to the general welfare, which suggests a Marcusian dynamic.

Of course, most professions’ social utility is open to interpretation, as are individual jobs within professions. Overseeing marketing for a charity is not the same thing as doing so for a tobacco company. But a more fundamental problem stems from how we measure value in the first place.

In The Value of Everything, Mariana Mazzucato of University College London argues that “the way the word ‘value’ is used in modern economics has made it easier for value-extracting activities to masquerade as value-creating activities.” Value-creation happens when “different types of resources (human, physical and intangible) are established and interact to produce new goods and services.” Value-extraction, or rent-seeking, refers to “activities focused on moving around existing resources and outputs, and gaining disproportionately from the ensuing trade.”

The problem, Mazzucato explains, is that, under the prevailing neoclassical economic orthodoxy, “all income” is regarded as a “reward for a productive undertaking,” and the value of any good or service is determined by its price, which itself is set by subjective consumer preferences. Thus, if you’re former Goldman Sachs CEO Lloyd Blankfein, you can claim to be doing “God’s work,” but if you’re a stay-at-home parent providing unpaid care work, you are effectively worthless.

Over time, the mythology of price-as-value has served as an alibi for all manner of malign and useless activity across the economy, owing to its inclusion in national account measures after World War II. Not surprisingly, Mazzucato, like Graeber, is primarily concerned with financialization; that is, the expansion of the financial sector as a share of the economy, plus the non-financial sector’s growing participation in financial markets.

Mazzucato argues that in the non-financial sector, corporate managers, driven by the doctrine of shareholder value maximization, have increasingly pursued short-term gains through stock buybacks instead of investing in workers, capital goods, and research and development. (This certainly appears to have been the case this year under the new Republican tax cuts.) The result, she reports, is that “business investment in the US is now around its lowest level for more than sixty years,” even though profits have been rising for over four decades. Those profits, having been extracted from the real economy, have almost all gone directly to shareholders—which is to say, the wealthiest 10 percent of households that own 84 percent of all stocks.

A new report from the Roosevelt Institute and the National Employment Law Project details the costs of such rent-seeking. “With the money currently spent on buybacks,” the authors note, “Lowes, CVS, and Home Depot could give each of their workers raises of at least $18,000 a year,” while McDonalds and Starbucks could give their workers raises of $4,000 and $7,000, respectively. And because most of these workers already live paycheck-to-paycheck, almost all of the money would quickly be funneled back into the productive economy through consumption, implying stronger and more inclusive growth.

As for the financial sector proper, Mazzucato points out that, as of 2014, only 15 percent of funds generated have gone to non-financial firms. “The rest,” she writes, “is traded between financial institutions, making money simply from money changing hands.” Thus, on net, most financial-sector activity is essentially worthless in the context of the U.S. real economy. And yet, during the decades of rapid growth in the industry, the share of graduating Harvard males (a standard proxy for “talent”) who ended up with careers in finance tripled.

Certainly not everyone in finance would agree that they’re doing “God’s work.” But it appears that many really do equate their higher-than-average incomes with “value.” Given the social and economic damage wrought by financialization in recent decades, though, society might actually be better off if a large segment of the industry was paid to do nothing instead. Or, better yet, these careerists could be coaxed out of their Marcusian delusions, and into more productive fields.

The insights in both Graeber and Mazzucato’s books point to a severe misallocation of human potential. The late William Baumol has shown that, throughout history, whether human ingenuity is put toward productive or destructive outcomes depends largely on the “relative payoffs society offers” to any given activity. If rent-seeking pays, then many of the best and the brightest in society will become rentiers.

In the 1920s, the English economist Arthur Pigou developed the concepts of private and social net product to describe how economic activity can best serve the general welfare. Simply put, when social and private product are aligned, maximum efficiency has been achieved: The individual’s gain is also society’s gain. When the opposite holds true—when economic actors are profiting at society’s expense—Pigou recommended state intervention to place “‘extraordinary encouragements’ or ‘extraordinary restraints’ upon investments in that field.”

For decades, Pigou’s approach suffered from the fact that it is not so easy to assign a dollar figure to any given externality. But over time, economists have developed methods for doing so. For example, Raj Chetty, John N. Friedman, and Jonah E. Rockoff have calculated that just one year in the classroom of an above-average teacher can boost a child’s lifelong earnings by $80,000. And Kevin M. Murphy and Robert H. Topel have estimated that medical research (insofar as it increases longevity) can boost GDP by as much as one fifth. Meanwhile, Kenneth R. French has determined that active investing (picking stocks) skims as much as 1.5 percent of GDP from the productive economy through fees and other expenses.

Over the past decade, the economists Benjamin J. Lockwood, Charles G. Nathanson, and E. Glen Weyl have used this literature to develop a framework for reducing the “material incentives” of pursuing lucrative but destructive professions. Their analysis is limited to maximizing the efficiency of the tax code, yet many of their findings also show how a tax on destructive professions and “bullshitization” might work in practice.

For example, they find that, because most “high-paying occupations” seem to have “negative externalities,” simply raising the top marginal tax rate would increase the general welfare, by driving talented individuals away from those professions. But even more to the point: They show that targeted negative income tax rates for socially valuable professions like teaching and research would “greatly raise welfare,” and that “a progressive income tax can still be optimal even in the presence of such targeting.” In other words, the government would pay those in worthwhile professions an extra salary on top of their market-determined wages. And because these fields would then become more competitive, performance would improve, thus boosting the society-wide benefits even further.

Here, we begin to see what taxing worthlessness might look like. In addition to profession-specific subsidies to reduce the relative allure of useless occupations, it might also entail more familiar measures. These include taxing financial transactions; eliminating the loopholes for carried interest, capital gains, and advertising budgets; abolishing the 1982 Securities and Exchange Commission rule that ushered in the era of stock buybacks; raising the estate tax; and reforming intellectual-property laws to cut down on patent rent-seeking.

It might also include a serious effort to address tax evasion, which would increase government revenues substantially even under the current tax regime. Gabriel Zucman estimates that U.S. wealth equal to around 8-9 percent of GDP is stashed away in tax havens. Yet as John Lanchester explained recently in the London Review of Books, shuttering these havens would not be all that difficult. “All you have to do,” he writes, “is make it illegal for banks to enact transactions with territories that don’t comply with rules on tax transparency. That closes them down instantly.” Given the hegemony of the greenback, the United States could put a serious dent in this problem tomorrow if there were the political will to do so.

For her part, one of Mazzucato’s top priorities is to get companies to create real value again. Specifically, she calls for “reinvestment of profits back into the real economy” to become a precondition for “any type of government support, whether through subsidies or government grants and loans.” Incidentally, this might also address the problem of bullshit jobs: If firms are in the business of creating real value for society, then their employees will be less likely to think their work doesn’t matter.

More importantly, though, Mazzucato would welcome an earnest reassessment of how we talk about value more generally. To her mind, policymakers and business leaders need to recognize the “collective contribution to wealth creation.” In addition to benefiting from an educated workforce and government-funded infrastructure, many of the largest and most profitable companies today have achieved monopoly status by capitalizing on the public’s data or network effects. And many others are reaping profits from technologies that were originally developed by the government.

Accordingly, Mazzucato believes that public agencies should be able “to retain equity or royalties in technologies for which they provided downstream funding.” And those proceeds, in turn, could be put toward ambitious progressive proposals such as a “citizen’s dividend” and other schemes.

Maybe then fewer workers would have to put up with bullshit when they could just as well be doing “nothing.”

*Mazzucato is a columnist at Project Syndicate.

Read more about LaborleisurePhilosophy

Stuart Whatley is Deputy Editor at Project Syndicate. You can follow him on Twitter @StuartWhatley.

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