Greedy Goblin

Tuesday, September 25, 2012

The right definition of the leech

My ideas are centered around the productive vs leech frontline. "Makers and takers" is a commonly used term. However, just as the 47% scandal shown, there isn't a proper definition of the leech. If one doesn't pay federal tax but pays payroll tax, is he productive or leech? The 10K DPS guy in a WoW instance below the tank is a leech? If so, why the Rifter pilot is useful in EVE?

There are no good definitions. The "worse or better than average" is intuitive but its total uselessness is revealed in the WoW dungeon vs EVE fleet problem, as the Rifter pilot is way below average and still useful, the below-tank guy in WoW is a pain in the ass. The "does he pays tax" question breaks on government workers (whose whole payment come from tax of others). We need an objective and valid definition of the leech.

At first I clarify the scope of the definition: the group where the questioned person belongs. The leech always leeches on a group, you can't be a leech in an island alone. The same person can be qualified differently in a different group. Let's start with: "Leech is someone whose complete disappearance with all his assets would make the group better off." Let me give some game examples:
  • WoW random dungeon: if someone drops group or kicked, a random player takes his place. So anyone who performs worse than the average player could be replaced for better in most cases by random selection. He is a leech.
  • Wow pre-formed dungeon group: the alternative of him being there is 4-manning. That case the dungeon becomes slower but neither he rolls on loot. Is he leech or not depends on which case provides higher loot/hour for the others.
  • EVE Rifter flyer in fleet: his contribution is very small but he takes away nothing from the other fleet members. He is not a leech.
In real life, the question is complicated, even if we quantify the non-work performance of the person (like raising 3 children could be "taxed" if we book portion of the tax paid by the children to their parents). We can also quantify how much value the person received from government services like the protection of the army. While no one likes to be leeched on, there is a strong support of socialism among people who are not leeches. I believe that it is because of using bad definition, therefore labeling useful people leeches, allowing the socialists rightfully fight for them.

Now, the bad definition is what Romney used: if you give less contribution to your country than your share of the budget, you are a leech. People with no federal tax are such. It's intuitive, if there are 10000 people in town and the town budget is $10M than the average member must pay $1000. If you pay less, you received services that you don't contribute to upkeep, if everyone would be like you, the city couldn't operate.

This is wrong. The big problem is that governmental services has fixed and variable costs in different portions. For example welfare is almost 100% variable: if you have twice as many recipients, it costs 2x more. However the defense budget has mostly fixed costs: the army defends the country, having 2x more population doesn't make defending the same land harder or easier for the same army. Most services has both fixed and variable costs, like a road has costs even if no one walks on it, but a busy road needs more maintenance.

The $10M budget of our example city has a $5M fixed cost. You had to pay this money to upkeep the city even if no one lives in it. The loans got to build the roads must be repaid. Some firefighters must be paid to deal with lightning fires and broken trees. The water supply lines need maintenance even if no water is consumed. The roads lights need electricity. The other $5M is variable cost, had the population double, it would double too. As there are 10K population, it's clear that the cost of supporting one more citizen is $500. Now it's still true that the average citizen must pay $1000 for the city to keep operating. If half of the population pays only $700, the other half must pay $1300. It's not fair and it feels right to consider the first half leeches. But if we'd evict them from the city, the budget would be $5M fixed costs + $2.5M variable costs after the remaining 5000 people. They would have to pay $1500, $200 more than before kicking the "leeches".

The correct definition of a leech is "someone who pays less than his share of the variable costs of the government". This is what the pro-capitalism activist get wrong. The low-income blue collar workers typically pay less than their share from the total budget but more than their share from the variable costs. When right-wing politicians try to tax them more, their jobs becomes too expensive and they lose it, causing recession or debt, while making them vote for the left. Had the proper definition be used, these people would be left alone with little or no tax at all and not considered leeches. They could then be won to vote for an anti-leech government that would weed out those who are really leeches for the betterment of all.

This can be further elaborated by separating the variable costs of the budget into targeted and non-targeted groups. Targeted variable costs has a certain recipient: the welfare check of John goes to John, the Medicare of Ann goes to Ann, the scholarship of Jane goes to Jane. Non-targeted variable costs are spent for every people in the zone nearly equally: the more citizens you have, the more police officers you need, but the protection they provide affects everyone. So the absolutely accurate definition of leech is someone whose personal targeted budget costs + non-targeted variable per capita is smaller than his contribution to upkeeping the budget.

Of course it's easy to recognize that the above definition is unfair. Someone must pay the fixed costs of the government too, if everyone pays only his share of the variables (therefore not a leech), the country goes bankrupt. Only the flat tax and equal contribution is fair. Let me give an example that may help you get rid of this kind of thinking: imagine that a group wants to carry cargo from A to B in backpacks. Beside the items people must have water, food and other stuff to support themselves on the road.
  • The leeches don't even carry their own stuff and beg for food and water from others
  • The weak guys carry little or no cargo, but carry their own weight, asking nothing from the strong guys
  • The strong guys carry their own stuff and the cargo
Not accepting this is the reason why pro-business governments tend to collect deficit. The "fair" distribution is not optimal. They would demand the weak guys to carry equal amount of cargo that they can't. When they collapse, they need to be carried or left to die, either way less cargo is carried without them than with them. The optimal distribution is to unfairly demand higher contributions from those who has a lot and demanding unfairly less from those who has little. This is exactly the socialist mantra, and it works. The point where socialists become wrong is that they support the leeches too, demanding the strong guys not only to carry their part of cargo, but to carry their food, water and ultimately their lazy selves (at the expense of carrying cargo).

Finally the best part. If we accept the above definition we can be Keynesian and pro-free-market: the government should increase spending on projects that has high fixed costs and cut spendings that has high variable costs, especially if they have targeted costs. This way both jobs and money can be created from thin air as one can always find another project to work on which will benefit the society. Please note that the WWII forced exactly this in the US economy, by creating a huge fixed-cost project of defeating Hitler, revitalizing the whole economy. The main reason such policies are not implemented is that the high-income voters are personally interested in tax cuts (overall cut of all projects without debt) while low-income voters are personally interested in welfare. The solution is in the hand of the middle class who can carry their own weight and neither needs welfare, nor wish to be a leech, and would have a high cost-benefit ratio from fixed-cost projects.

Mist of Pandaria is out and I'm playing but not sure if there is anything to blog about it.
The minmatar FW militia cashed out on Sunday and EVE-Kill net is up. Enjoy the unquestionable evidences that one can play EVE Online without a functional brain.
For EVE trade and industrial discussions join Goblinworks channel.
If you want to get into nullsec but don't know how, go to the official forum recruitment thread and type the name of the alliance you seek into the search and start reading. I'm in TEST by the way.

Tuesday morning report: 160.3B, God Bless the FW exploiters! (5.5 spent on main accounts, 4.8 spent on Logi/Carrier, 3.2 on Ragnarok, 2.6 on Rorqual, 2.4 on Nyx, 2.8 on Dread, 17.4 sent as gift)


Anonymous said...

Money collected via Federal income tax is paid into the general treasury and can be used to pay for the expenditures of the government, so defense, entitlements, infrastructure, worker's pensions, etc. Once collected, the money can be spent mostly without restriction.

Payroll taxes (or FICA withholdings to be more specific) are not paid into the general treasury. They are paid into a separate pool of money that can't be spent on anything except paying Social Security. As or now, and continuing for some short period of time, SS payments are less than the collections from payroll taxes.

Any surplus collections are used to purchase T-bills. That is, they turn into additional debt that must be paid from future collections from Federal income taxes.

So yes, people who pay payroll taxes are still leeching. The money collected from them is due them back (via SS payments) and any funds used to pay anything else must be repaid (principal plus interest) from general treasury funds, i.e. must be collected from the group that pays income tax.

So to loop back to your analogy, you need to have the government contractually obligated to pay all the citizens an annuity, where the annuity payment is larger than the amount paid by the group that doesn't pay income tax.

Bobbins said...

'by creating a huge fixed-cost project of defeating Hitler'
Getting paid by the Brits for equipment and goods probably helped. By the way what year did the US enter the war? It has taken Britain 60years to pay of the war loan to American.
'Britain had spent a great deal of money at the beginning of the war, under the US cash-and-carry scheme, which saw straight payments for material. There was also trading of territory for equipment on terms that have attracted much criticism in the years since. By 1941, Britain was in a parlous financial state and Lend-Lease was eventually introduced.'

Kelindia said...

So what you're advocating is for fixed costs to be payed by the strong and for variable costs to be paid on a "what they can carry" type model?

Then what you're advocating for is for the government to increased fixed costed spending, ie tax the rich, to create jobs in the middle class who will pay into non targeted variable expenses, that will benefit everyone, while being able to pay their own targeted variable expenses?

Essentially the leeches won't have to pay fixed costs but will receive their benefits and will only be expected to pay their targeted variable costs while receiving the benefit of non targeted variable costs supported by the middle class and rich?

Is this how your post is suppose to be read?

Gevlon said...

@Kelindia: no, variable costs must be paid by everyone, so the strong do not carry the weak. Those who don't, are leeches and their group isn't liked too much.

Anonymous said...

How can you call FW still an exploit, while you're profiting from it yourself?

Anonymous said...

Do you realize that by your definition the 10k sub-tank dps guy is NOT leeching?

Anonymous said...

For the first time in a long time, I think I actually agree with you on something on Fixed Costs spending.

I'm not actually a fan of Flat Tax idealogy. You are right, not fair, but honestly I don't want to make up the difference lost by the Feds not getting a full 35% from the rich. I'm upset that I pay 25% as it is. To make a flat tax you would essentially take the 15% which is the vast majority of the population and increase their rate extremely high. Though technically fair, I don't see this happening.

I think the problem overall with Fixed Cost Spending for the government is the only real budget they get to perform that in, is the Defense budget. Which at $700B is only 20% of the spending. And that's only reducing.

You have over $1T and over 40% of our spending going into Mandatory and Discretionary spending. Which is practically unregulated or restricted in spending. The true drain on the spending budget.

With fixed costs spending, as you say, you can directly see immediate effects of job increase, infastructure, and economy. But that part of our spending is only a small part of the costs going out.

Unknown said...

You neglect the diminishing marginal utility of money again. If the utility of sufficiently large amounts of money is logarithmic in the quantity of money (logarithm is one function with a negative second derivative, there are others), then taxing people according to a constant fraction of their utility leads to a progressive tax curve. Using a logarithm leads to a STEEPLY progressive tax curve.

Currently, the united states has a regressive tax curve in practice. The wealthiest individuals pay less per dollar of income, due to their assiduous pursuing of tax loopholes. For example, Romney recently payed 13% of his income - almost everybody else paid more (in percentage) than that:

The point is, there are different way to say "flat" - a per-capita tax ($5000 per head), would be "a dollar is a dollar flat". A constant percentage tax, which would be "a percent is a percent flat". A constant fraction of utility which would be "a util is a util flat".

Alex Cresswell said...

The problem with government projects that you are overlooking is that they do not award those projects the same way a private company would bid them out on the market. Government will award those contracts to the whoever gave them the most campaign funds, or whoever spends the most on lobbying. Government lacks the necessary oversight that a board of directors provides for a private company. Voters are supposed to perform this role for government, but this ceased to be possible a long time ago, because of the size and complexity of governments today. The only solution is to privatize those parts of government that can be privatized, and maintain the smallest government possible that can still manage defense, and an efficient legal system.