Common Sense and the Common Good

As it appears that the Bush Tax Cuts are not going to be repealed, one is left to ponder the apparently prevailing argument: by allowing the wealthy to keep more of their income, they will drive economic growth.  The general "common sense" assumption behind this is that, as the most productive members of society, they will do the best job allocating resources.  A popular refrain on the right is that "I can spend my money better than the government". 

I don't know about you, but I don't know what common sense is. And honestly, often times when I hear someone say "common sense" it is followed by an opinion I find nonsensical.

So anyway, the assumption is that the wealthy are necessarily the most productive member of the economy. Kind of an insulting notion, right? First off, where did these people get their income? To take a crude example, are wall street bankers the most productive members of society - how much productivity does a billion dollar bonus equal? That's a lot of coal miners.

But maybe that sounds too much like over-heated class warfare. So again, does income represent a measure of productivity? In what sense? It seems that to be a driver of productivity, you are creating efficiencies in the market. Are all millionaires creating efficiencies in the market? It seems to me that in many cases they are simply capitalizing on a leveraged position.

For instance, if I own an apartment complex, and get income from it, my income isn't necessarily based on efficiency at all. Sure, I could be a better manager, and increase efficiency, which would hopefully result in increased profitability. But that is a separate economic argument. Plenty of money is made not by increasing efficiency but simply by taking advantage of an ownership of goods. What is more, what role do the renters play in this equation? Isn't the fact that they are all working countless hours in order to pay me rent a necessary component of my supposed efficiency?

OK, so anyway, that's my common sense on that. But next there's the question of whether upper income people will allocate their income "better".

First, the notion of "better" seems weird because most of what the government does is not to make money. In fact, we tend to like it to do the things that private business doesn't do specifically because there isn't money to be made in it. Things like public libraries, parks, roads, health care, public schools, safety inspections, etc. are terrible ways to make money. But they are invaluable to the common good, whether in total contribution to all or as safety nets to the most needy and vulnerable. (Amusingly, I always forget to add in military spending to these lists of common good expenditures - even if at 2/3 of a trillion dollars a year they should certainly qualify!)

But then there's just the question of whether they will even allocate that money at all. As far as I know, the wealthy tend to save more. And in terms of simple demand-side stimulus, less consumption - whether on groceries or diamond earrings, isn't a good thing.