(On the MARC commuter train) I just spent the day in Baltimore, first with a community-based youth group (Students Sharing Coalition), and then at a public high school, City College High. Baltimore is the next city up the east coast and the major metropolis in the State of Maryland, which employs me at our flagship public university. Thus I have reason to be interested in, and to care about, Baltimore–and I do. However, the University of Maryland is deep inside the Washington, DC, metropolitan area, and my family and I are residents and citizens of the District of Columbia itself. Thus I don’t know Baltimore particularly well. I do feel moved, after a day in the city, to note that it is a complex and varied place. The Wire, while an excellent piece of realistic fiction, hardly describes all aspects of a city rich in stately architecture and full of civic institutions. It turns out that many kids who attend City College High School live in the specific neighborhood where The Wire is filmed; some have acted on the show; and Ed Burns is an alumnus. Yet The Wire depicts a community in which no one is on a path to academic success, whereas City College High School is evidently a fine and successful institution. Just an hour or so in the hallways and classrooms told me that it’s a school with high expectations, good order, and positive energy. This is not to say that The Wire is false–only that reality is complicated.

We’ll be in Upstate New York until August 24th, and I’m going offline to rest and recharge. No posts here until the 27th.

This is our cable box, outside our bedroom window. It was flattened by a large truck while I was on a conference call a few minutes ago. Our high-speed Internet access goes through there. I’m now online though my cell phone. It’s slow, so I’m getting off. Happy weekend.

I’ve written before about the lack of an academic discipline relevant to civics or citizenship. If there were such a discipline, it might adopt the following principles:

The ultimate purpose of studying politics is to decide what should be done. That requires understanding ethics, strategy, and empirical facts and their causes.

Human beings have political agency that is worth studying, despite the power of big institutions. What human beings should do is an important question, not just how institutions should be organized.

Notwithstanding the previous point, it is crucial to understand how institutions reward or discourage ethical participation. It is not helpful to exhort people to be good citizens if they face barriers or collective-action problems.

Politics is not just the interaction of people or organizations that have different interests. It is also the process by which opinions, values, interests, and identities are formed. In other words, values are not exogenous to politics; they emerge from politics.

Politics is not zero-sum. There is an important aspect of politics that is creative, that expands the store of public goods.

People begin as powerless and voiceless infants and develop into active citizens. Human beings are agents in their own development, but they also need appropriate opportunities to develop political skills and identities. The opportunities must come in an appropriate sequence.

To understand politics often requires direct experience and real-world experimentation, not just data and laboratory-type experiments.

Politics is not merely a cost; it can be an intrinsic good.

The debate about taxes for hedge fund managers is an opportunity to consider the rationale for taxing various kinds of income at different rates. The narrow issue is that hedge fund managers pay capital gains taxes instead of income taxes on their earnings, even though their livelihood comes from managing other people’s investments. The broader issue is that we tax income, capital gains, consumption, property, and various imports at different rates. I’m inclined to say:

1. The degree to which we deserve the money we make and spend varies enormously, depending on risk, effort, and especially the public impact of what we do. You can work hard producing a product that is bad for other people’s security or health (or for nature), and in that case, I hardly think you “deserve” your income–in the moral sense of desert. Or you can sit back and accrue interest on your trust fund, in which case I am unmoved by your claim to deserve what you have. However …

2. It’s problematic for the government to tax at different rates depending on the moral value of people’s work. I don’t deny that moral distinctions can be made, but can we trust the legislature to make them? Can Congress manage to make distinctions across the whole of a modern economy, without lumping behavior into crude categories? And do we want the government to collect all the information it would need to make really wise judgments?

At best, Congress would have to review all kinds of private behavior and readjust taxation constantly. In fact, that’s what it does, and the result is a tax code that hardly fits in one bookcase and that shifts every year. As Hamilton wrote in Federalist 62, “a mutable policy … poisons the blessing of liberty itself. It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed?” Hamilton understood the kind of “liberty” that Friedrich von Hayek championed–the ability to plan without having to guess what some other power will do. For Hayek, the rate of taxation was not as important as its stability and transparency–and he had a point.

3. But the government needs money. In fact, it needs more money than it collects. It’s a terrible waste to borrow almost $9 trillion, on which we must pay $400 billion in annual interest. It is immoral to pass that debt to our kids. No one really argues that we can cut federal spending deeply enough to close the annual deficit, let alone pay off the debt. And society would work better if the government actually picked up an additional expense (paid by our taxes): universal health insurance. Even if you disagree with the last point, you pretty much have to concede that the government needs somewhere in the neighborhood of $2.5 trillion per year to operate.

3. If the government needs money, it ought to take it from the people who will miss it least. Losing one dollar matters a lot more to someone who lives on the minimum wage than it does to a hedge fund manager.

Thus I’m for raising taxes on hedge fund managers. There’s an argument that we ought to “incentivize” risk-taking, but I suspect that managing a hedge-fund would be adequately rewarding even if the effective tax rate were 15 percentage points higher. As for the argument that risk-taking is virtuous, I think that’s quite beside the point. Any urban public school teacher exhibits a lot more courage than a hedge fund manager, but we don’t and can’t tax income in proportion to personal virtue.

A better system would actually tax wealth (not annual income) at one smoothly graduated rate, regardless of the source. That’s the fairest way to raise funds, given the declining marginal utility of money. But I’m not sure how we could measure accumulated wealth well enough to tax it.