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Say "No" to Social Engineering

Captain Capitalism has gone and had an idea. In the abstract, I think ideas are good and more is better. But this particular idea is not so good.

Then it hit me. I wasn't thinking about it. I wasn't pondering anything related to it. But it just popped into my head;

I know, I was thinking "Stay-Puft Marshmallow Man" too. But that's not where he was going with this.

"Hey, why don't we make extra principal payments on debt tax deductible? That would not only serve as a sort of tax cut, but would strengthen the country's fiscal position, and help to increase many people's credit rating. It'd also serve to keep most interest rates, short and long term low, thus attracting investment."

He goes on to list the alleged benefits of this change in the tax code — complete with charts; he loves charts — then goes on to say:

It was such a good idea that I promised myself, first thing in the morning I'd tell my senator so that he'd realize the merits of this and submit a bill right away.

Hold on. Stop right there!

He resolved to go running to his senator before having analyzed the unintended effects of his plan. Bad economist, bad! No soup for you!

His commenters immediately picked apart the idea by pointing out unintended consequences, which is right good of them. But they also suggested tweaking the proposal to counteract (partially, I stress) those unintended consequences. And I recoil for a second time — hold on, stop right there!

This is exactly how our tax code became a labyrinthine mess in the first place. Economists think about the influences on economies, and when they team up with politicians they together believe that they can actuate the levers and push the buttons of the economy to make it — and let's not forget the individuals comprising it — behave how they want them to.

That's a fine attitude for a statist. But as a lover of freedom I must strongly object. Government should not (dis)incentivize behaviors based on the whimsy of politicians and the assistance of corrupt economists. Government should protect individual rights, and that's all it should do. Government should not be concerned with whether people are making "good" or "bad" decisions (as judged by who?) with their money or with their lives.

Each individual's personal savings rate, or debt load, is exactly that: personal. They have their reasons for saving or for not saving, for borrowing or for not borrowing. If you think people are making the wrong decisions, you should reach for the printing press, not for your senator's pen.

Each individual person's financial position is exactly that: personal. Don't reify a collective "national" financial position. It doesn't exist.

Interest rates should be a product of the market, not an exogenous input. Manipulating interest rates causes malinvestment.

Who will protect me from my guardians? They tell me it's for my own good, but I rather think I'm in a better position to judge my own good than they are. I wish they'd stop "helping" and leave me alone.

In happier news, Captain Capitalism got a makeover. I did that a few months ago, also largely outsourcing the decisions to someone else who knew what they were doing. (But I learned a lot and once in a while I think I'm nearing self-sufficiency.) Somehow he did his for only $300. Either I grossly overspent, or he didn't buy a lot of clothes.

UPDATE 2006-04-02 01:30:18 UTC: Captain Capitalism spared a few moments to write me a clarification before he went back to spending time with an absolutely freaking hot gorgeous blond. He wrote:

I have changed my official stance to allow for a temporary deductability in mortgage principal and ONLY on the ORIGINAL mortgage amount as to quell any unintended consequences.

That adjustment gets rid of the long-run incentive-changing effects because it amounts to making this policy a one-time surprise windfall. It would mostly benefit people with big mortgages and lots of cash flow. Yep, it's another giveaway to the upper middle class. And despite being one of the people with potentially a lot to gain from this, I must still oppose it on ethical and political grounds.

Tiny Island