Things I've Tagged ‘Economics’

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On Tax Cuts And Revenue

Governments must raise revenues to finance vital functions; we all know this and have very little choice in the matter as those decisions were made many generations ago (i.e. social contract theory). Life’s lottery has placed me squarely in the United States; it is a Land of Opportunity™, where economics and government are oft discussed and poorly understood. Because of this lack of understanding, the average citizen supposes our government does more than it can reasonably or legally be expected to accomplish.

I’m really discussing a particular affiliation here, and that affiliation is…all of them. Made you look.

Nevertheless, people of no particular political affiliation will discuss for hours the notion that tax cuts are expenditures to be paid for rather than a decrease in revenues. It’s all on the backs of the poor, dammit! Does this honestly make any sense to folks? Politicians sure take advantage of this notion.

It is because of this framing, that when we talk about tax cuts, it becomes very easy for those opposed to these cuts to paint them as something that has to be paid for—or more sinisterly, as some kind of cash grab for a favored class. It is as if it is the government handing over money, rather than the government simply not collecting it.

We can think of taxes as a form of government revenue, or sales, in the business sense. Reducing the price of one product does not mean that business is simply handing over cash to its customers—even if they run sales claiming as much. But that move can do a couple of things for that business. If the reduced price doesn’t affect the number of units sold, then you will see a reduction in sales. However, and this is the most likely scenario, that reduction in price is most likely going to increase the demand for that product and increase sales. A tax reduction can also work this way, depending on the category of tax. It can encourage investors to move money into the economy, and increase government revenue.

This all seems rather counterintuitive, but think about this: no decision is isolated. Everything has an effect on something else, and all decisions encourage or discourage other actors from making specific decisions. What do you think?

The problem with socialism is socialism, but the problem with capitalism is capitalists.

William F. Buckley

When economic times are bad, animosity is directed at foreigners: “They’re taking our jobs!” So it’s unsurprising that the presidential campaigns feature charges and counter charges about outsourcing, the employment of foreign labor by American companies…Adam Smith observed, “The division of labor is limited by the extent of the market.” If the extent of the market is artificially constricted by politicians (no one else has such power), the division of labor and its concomitant progress are stunted—and we are poorer than we would have been.

Thus we should worry whenever politicians attempt to incite the public against global trade in goods and services.

Sheldon Richman on Outsourcing

This is partially why I hate election time–especially now that a politician’s statements are likely to be taken out of context and used as tool to bludgeon them into political submission. Also, the pandering to special interests is disgusting at best.

For economists, the puzzle is not why voting participation rates are so low in voluntary systems, but why they’re so high. The so-called paradox of voting, highlighted in a 1957 book by the political scientist Anthony Downs, occurs because the probability that any individual voter can alter the outcome of an election is effectively zero. So if voting imposes any cost, in terms of time or hassle, a perfectly rational person would conclude it’s not worth doing. The problem is that if each person were to reach such a rational conclusion no one would vote, and the system would collapse.

Mandatory voting solves that collective action problem by requiring people to vote and punishing nonvoters with a fine.

Peter Orszag

Not an advocate of compulsory voting myself, I am willing to make note of the implications in the above quote and conclude that if our goal is simply to improve voter turnout, then it is the only way to do so effectively.

What Justice Means

Outcomes often seem unjust. The poor are in a constant state of suffering, while the privileged are continually extracting wealth from them. This state of affairs has the appearance of a zero-sum game–where one takes, the other gives–and those that have continue to accumulate at an accelerating pace. The poor have no chance at success in these conditions.

I have yet to read nearly enough to justify throwing the name Bastiat around.

The upper class discovered the keys to success long ago. They learned how to manipulate the system, to extract wealth from it, and to use it to enjoy many privileges for generations. The primary tool, of course, is the control of the state and her resources. This is done at the expense of the middle and lower classes. As in all things, however, the example the upper class sets will eventually be mimicked.

They, the masses of the people, imitating the upper classes, cry in their turn for privileges. They demand their right to employment, their right to credit, their right to education, their right to pensions. But at whose expense? — Bastiat

If the poor were to obtain these privileges, who would be left to pay? There are no lower classes to extract from or to ultimately confer the responsibility of payment. Because the upper and lower classes are constantly in a battle over control of the state’s coercive powers, wealth and power are unevenly and deleteriously distributed amongst the people. The wealthy use their vast influence over the state to sate the desires of the poor–at the expense of long term outcomes–in an effort to reduce their desire to gain influence.

We could always turn the tables on the well-off; the privileges the poor seek could be easily gained from them through taxation. But, and this goes for all classes,

If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion.–F.A. Hayek

Wealth and resources are not obtained and distributed in zero-sum fashion. Value can be created, and in a level playing field, sans the coercive resources of the state, all classes of people can be free to obtain and create without issue. This is justice: freedom from coercion.

But now the great masses of the people, downtrodden, oppressed, exhausted, stage their revolution too…They become a pressure group; they [like those they oppose] insist on becoming privileged. They, the masses of the people, imitating the upper classes, cry in their turn for privileges. They demand their right to employment, their right to credit, their right to education, their right to pensions. But at whose expense?

That is a question they never stop to ask. They know only that being assured of employment, credit, education, security for their old age, would be very pleasant indeed, and no one would deny it. But is it possible? Alas, no, and at this point, I say, it is no longer detestable, but illogical to the highest degree.