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I didn't read it all, mostly because I'm disappointed in how you started off.
You start off criticizing the fact that American economics don't account for monopolies, but they obviously do. At the very basic levels in economics you even create graphs to account for the overall welfare society benefits from a market without a monopoly and a market with a monopoly, and the market without the monopoly is much better. Oligopolies fall in the middle.
The economic setback we are in - although yes caused by a market without regulation - were not caused at all do to competition. The financial crises was caused by the housing bubble, derivatives, and shitty insurance ratings on said derivatives.
There is no way to stop America from turning away from having a large manufacturing sector. If you have a viable solution, enlighten me. The only one I can think of would be to heighten tariffs, which only results in other countries responding the same.
Your gamestop analysis is GOD AWFUL. First of all - capitalism (the way you're portraying it especially) has one of the chief aims at minimizing taxation. Yet you're saying taxation is a result of taxation? Gimme a system that has LESS taxation than a capitalist society. Second, why are you out $8? You are fully aware that you are going to receive $42, not $53, so don't go and buy something for $53?! What's your point? That the government is taxing retail items/wages? Ok, given that point, now you're complaining that the full amount of money goes back to the industries/corporations? Either way - you're analysis hardly makes any sense and sounds like little more than jibber/jabber to me.
It's the companies own decision whether or not it wants to pay the CEO $X, and if you don't want to work at the company for the $42, I suggest you look elsewhere.
Personally I'm against hte minimum wage and feel that there is a no reason a company should be obligated to pay a person $8 an hour when they have people perfectly willing to work for $6, or less. It's nothing less than forced charity in my eyes, and factor that leads to a much higher unemployment rate and people without jobs (and companies generating less profits).
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+ Show Spoiler +
First, one of the central tenets of modern capitalism is this concept that the "free" market leads to benefit for everyone. They think that things naturally move to an equilibrium in demand/supply/price if left alone. The rationale for this is that people, with enough info, are perfectly rational beings that make the best choices.
no, econ shows scarce factor gets screwed...but overall everyone is happier.
The problem with this theory is it doesn't account for the destructiveness of monopolies. In business, anytime a group has either grown or merged into a large enough economic body, they can start to implement destructive strategies like dumping a ton of their products at a very cheap price onto a foreign market and wrecking the local competition. This is validated by capitalism and the free market because this is merely a strategy to increase market share, and if they have the resources to engage in such an act, then they have every right to.
Over the span of a few years, this group demolishes the local competition and creates a monopoly. Then they jack up the prices a ton and win back all the profits they gave up with this strategy. Except once they've recouped their investment, they continue to do it perpetually. This is a win-lose scenario. Yet, it's an example of what happens on the "free" market. This doesn't lead to constant competition and cheaper prices/higher quality for everyone. This leads to a stagnant market where one giant is in control and sells at exorbitant prices because they are the controllers of all supply.
yes, monopolies are bad. econ shows that they are bad since they don't produce at the optimal price/quantity. so, in this sense, capitalism needs some fixing from the government. generally, monopolies occur just because barriers of entry and some other stuff. nothing wrong with that though.
The problems with this are obvious. This is why countries have effected protectionist policies to defend against these sorts of aggressive economic strategies. Then you no longer have a free market. It becomes mixed. Our world is full of mixed economies.
The last 30 years of economics in the USA and the world, is a constant attempt to try to bring down these protectionist strategies on the belief that free market was more efficient and beneficial for all. Peep the giant economic collapse we just had. It's pretty obvious to everyone now that this free market liberalization was a horrible idea. It destroyed local industries, it gutted nations, it destroyed whole swathes of industry in nations, and all it really did was lower the retail prices of goods.
no, they want to prevent their scarce factor (labor) from getting screwed. because laborers are voters. those people are producing things inefficiently. propping up inefficient industries is a bad idea. => destroying local industries is a good, but unpopular thing.
What use are lower prices when you don't have a job?
they are good for the people that have jobs.
That's the problem with the concept of free market. It's too focused on price of goods as a barometer for efficiency. It fails to address the issues of labor and wages. Now if you try to approach the labor market using capitalist and free market principles, you end up with sweatshops in China and India.
no, productive capacity of the country is the most important thing not jobs and wages.
Does anyone honestly think it is a good thing to compete with sweatshop workers in terms of pay/productivity?
what?
There is only one real way to improve labor's market value, which is training that improves their productivity. Yet, the sad truth of the matter is that even with a great education, a large proportion of the population is not that clever. They can't really be trained that far past the level of a sweatshop worker. This is what's traditionally known as "retail sector" or "blue collar."
education makes them clever.
This makes up a pretty large percentage of the world population. Yet, the blue collar workers in America don't want to work in sweat shop conditions. Capitalism and the free market tells us that the smart thing to do is just tell those blue collar workers to fuck off and move the factories to China.
if you want to get paid 2x more than someone else, make sure you're 2x as productive.
This is why you see an increasing wealth disparity between the rich and poor in America. The poor have lost their jobs to the increasingly "free" labor market, whereas the rich and intelligent Americans have increased their value because they have some of the world's best education, coupled with some of the world's best tools of production.
AKA, the American factory worker must compete with the Chinese sweat shop worker.
yes, he got screwed.
The American Harvard graduate competes with the Chinese Beijing University graduate. Except the Harvard graduate gets to enter an organization like Goldman Sachs, with some of the world's best financial algorithms and the best financing and the best connections.
Therefore, while the free market has allowed the Harvard graduate to reach greater and greater heights by reaching the pinnacle of the financial world and reaping the benefits of competing vs the world due to massive, built-in advantages, the American factory worker has been laid off and can't find another job because he/she is now competing versus the 5 billion people of the developing world.
yup, go to school.
Do you guys see now why the free market is not helping the vast majority of America?
majority is helped. minority gets screwed.
And if you look at the labor markets, the greatest shift has been away from manufacturing and
towards retail. Yet it's a nonsensical shift. How does it make any sense when the retail industry is driven by consumption, and the consumption is paid for by wages from the retail industry?
This is like saying, I get a job at Gamestop. Then I buy a ton of games from Gamestop. Eventually, Gamestop will expand because I'm buying so many games with my wages from them, that Gamestop's sales will be enough to expand.
It makes no sense. Money is constantly being pulled OUT of the economy this way. Every time you put $50 through the system, you end up with less. First, I get the job at Gamestop. They pay me $50. Yet, I pay income tax on that $50. It then becomes $42.
This $42 is then spent to buy a game. Yet I need to supplement it with another $8 from somewhere. So, already I'm at -$8. Okay, $50 + tax = $53. Now I'm at -$11.
Then Gamestop gets their $50 and has to pay corporate tax on it. So they're down to what? $40? A net of $-21 for a single transaction between retail to employee and back to retail.
So, in every transaction of $50 of wages going out of the system, we end up with only $29 of it going back in. It's rather obvious that the US labor/wage market can not be sustained by this type of relationship.
there are other industries.
The middle and lower classes cannot live much longer with these types of conditions. This is why there is a constant drain of money OUT of the middle and lower classes and INTO the upper classes.
value judgment
The reason is because the tax dollars are being siphoned off. That $21 that was taken out is given to the government. Yet, the government we have today is increasingly controlled by corporations. According to current moral and economic philosophy, like that espoused by Jibba and others on TL, it's perfectly okay and constitutional for a corporation to get involved with government. On top of that, morals have no place in economic decisions. Therefore, it is completely okay for a corporation to try to pay to get laws passed that benefit the corporation.
irrelevant
What this means is that those $21 instead of going back into an industry that benefits the lower classes could be funneled into an industry that doesn't support hardly any of the middle-lower classes. Such as the banking industry! So, not only is the middle class losing jobs, competing with a vast number of foreign competitors, but they lose nearly half of every dollar to that mfing Harvard graduate. Because he/she is busy wheeling and dealing, screwed a bunch of people over with greedy "capitalist" ploys, and then needed a bailout.
This is how Main Street gets shafted.
irrelevant
On top of that, to the people who claim that of course the solution to all this is just get rid of taxes, I ask the question, ok, then where is the growth?
Sure, without taxes the $50 between me and Gamestop is cycled back and forth. Yet, that $50 will never grow. It remains $50. Therefore, even in the most ideal of circumstances, the money is not lost, it only remains the SAME. ZERO growth.
growth measured in good and services produced. not money supply.
cliffs:
1. basic rule: scarce factor gets screwed. but overall benefit is higher.
2. above is a value judgement that economists dont care about. ie: y people lose their jobs vs x more goods can be produced. economists say that producing more goods is always better, but that's a value judgment and politicians/you can disagree.
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well, not more goods being produced but x more people are happier because they can afford more things.
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On January 28 2010 09:06 Creationism wrote:Show nested quote +On January 28 2010 08:51 StorkHwaiting wrote:On January 28 2010 08:41 Creationism wrote:
I wish Sarkozy would jus stop... like... living... Everytime I see him it makes a little more bitter inside.
Part of key concept of globalization is not simply the "free trade" aspect of it that everyone thinks of when they think capitalism, but also the factor movement. It's not the idea that the Harvard student will compete directly with the Beijing University student, but rather they will pick up their comparable advantageous position and trade in this manner. The trade balance is an issue, but much of the ACTUAL problems with globalization is with factor movement (this concern many issues like developing countries, outsourcing, and wage balances)
When developing countries catch up in terms of technological advancement, certain parts of the labor process are directed there because of the comparative advantage and thus better profits. The natural order is that the developing country will catch up eventually and therefore gain more wealth by taking up more skilled ends of the labor spectrum. That is how a country DEVELOPS.
Take South Korea after the Korean War. Massive exports and specialization, with full government support of not only monopolies, but also streamline firms so that they can gain economies of scale easier and develop the infrastrure/technology they need. That is why South Korea got broadband when everyone was on Fisher Price modems.
In the US, what has happened is not a complete breakdown of the system, but rather the savings rate has been so low. The deficit is not simply from the government spending money like guys use water at a wet-shirt contest in the playboy mansion, but also the amount of borrowing and spending that the people has done to bloat the money supply. The money supply is what all these businesses grow on. When it becomes bloated, you have a plethora of businesses and could run fine during the bloated years, but once there is a contraction or a liquidity shock, they have no choice other than merge or consolidate.
I agree that the system needs to be regulated, but not in terms of trade and free market, but rather on the passage of information. The biggest challenge to capitalism, if you have taken ANY economics courses at all, is the lack of truthful information. (about the future, about the client, about the borrower, about the company)
I mean not to totally antagonize the OP here, but the explanation in the post lacks some serious ground work. My problem with asymmetrical information is that a lot of people even with the info will not make a smart decision. You ever tried to walk into a Walmart and start telling people why the products in their cart are bad for them, are not worth the money, etc? How do you think that would turn out? I've insisted this repeatedly. The majority of humanity is not that clever. Giving them perfect info won't mean much when their intellect can't even compute the information. Asymmetrical info as a problem is one of those theories bandied about by academics, yet has very little application in the real world. The academics forget that the average person can be rather stupid. What is a serious problem for the middle-lower classes is not their access to information. Rather, it's the simple fact that they need jobs they are capable of working and need wages that can support a decent quality of life. And they need regulation by the government to guide them into doing things that are beneficial for themselves. Because, sorry, people are NOT perfectly rational beings. And while they are selfish, they do not always do what is in their best interests. Even if they have the information needed to make a correct decision in front of them. There are plenty of people who know getting a college degree is pretty important. They've got the info in their faces 24/7. They still drop out. I think most people know heroin and cocaine are bad drugs. People still shoot and snort. Leaving the druggies out of it (not general population), I agree that the general population is stupid (read my sig, i think we see eye to eye here). But I think we disagree to what is actually real economic information. It's not something like telling people in WalMart why a OreO would kill them (which actually.... class action lawsuit i believe?), but rather that they will live 10 years less if they buy this crap. Or the full economic impact of going to college. If you told an average person that he will make (whats the average salary in the US, dont wanna google it) after 4 years of college instead of his shitty $10/hr job, you really dont think hed do it? (minus the tuition n what not of course) The rational being we're talking about here is a person who value what gives him more pleasure, as simple as getting laid once a day or twice a day. He spends more energy, but he gets a lot of pleasure out of it. Eventually you will meet a guy whos so lazy that he would forgo the pleasure to save that energy, but even he is rational utility wise. From a God's Eye view, yes, people will not do whats best for them even given ENOUGH information to pick the best choice, simply because they cannot process the information. But that rationality is different from the "rational consumer" we speak of in economics. The "real world" rationality is the ability to make logical steps to arrive at a conclusion, some people can't do that. But I mean if he REALLY had all the information, he would make the rational choice. The job situation now I believe is a result of the factor movement to basically all overseas over these last couple years. This not completely the fault of capitalism, but the lack of regulation on the factors section of the market, which it really seems no one cares about. Regulations such as the transfer of labor to overseas while still maintaining a ratio of workers here in the US might have come up a few years ago, not quite sure on that now... saw it a while ago. But taxing corporations that have effectly moved sectors overseas as a foreign unit would fix the problem instantly. But I guess you're right about how you'd have to be Moses to pass that bill.
I not only think that a person would still not go to college, but I've seen people who are given these very clear statistics about college degree versus non-college degree, and they STILL drop out of college to go become waiters and think their life is fine because they live in an apartment with two friends and get to go on vacation to Aruba or Cancun once a year or so and think they are living it up.
I agree with your point about the jobs situation though. That's a good point. And I agree that it is lack of regulation that is destroying the labor market. I'm not opposed to capitalism itself, rather I'm opposed to the current iteration of it that has been espoused for the last 30 years, namely a capitalism involving as much deregulation as possible.
And yeah, I'm definitely in agreement with you. Actual government action or regulation at this point to regulate the labor market has no chance of passing. Especially with the latest supreme court decision about corporate involvement in gov't. It's the mentality that deregulation is good that is just killing it over here.
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To Zero:
Thanks for the lengthy response and your time and effort are much appreciated 
1. By taxes I mean things like tax write-offs by corporations through giving to charities/NPOs that end up looping right back to the corporations, the evasion of corporate taxes by giving out huge bonuses to their executives so they can post them as operating expenses, the constant tax cuts on capital gains, and the increasingly labrynthine ways that the top tax bracket finds to evade paying their actual taxes. There are of course a great deal more, but in essence I think the problem stems from corporations and the highest income brackets consistently avoiding taxes through tax lawyers and armies of accountants, while the middle and lower class can't afford these kinds of resources to avoid paying their taxes.
On regulation, I think the most important aspect is the lack of regulation on capital AND labor flows.
2. You're right that serious economists do not posit this theory. The problem is the political rhetoric in America for the last 30 years HAS been positing this theory. If you look at the political activity, it's been repeal after repeal of regulations, while using this theory of perfect equilibrium and efficiency as their rationale.
3. I should have been more clear. I am talking about the political rhetoric in America and the movement toward globalization and deregulation that has been implemented in the political arena of America. OFC economists have accounted for everything under the sun. There are tons of economists out there postulating pretty much every possible permutation I could think of. I don't mean to say the entire field of economics and capitalism is wrong or stupid. What I mean is the political will of America has been trending towards deregulation, free markets, and the flow of capital and labor out of America (labor more than capital).
4. On dumping, what I'm talking about is the first situation, but also a third situation that wasn't mentioned. The third situation is that a government subsidized industry, like agriculture, is able to grow products at a loss, remain profitable due to subsidies, AND dump their excess product on a foreign market, thereby glutting it and ruining the livelihood of local producers. Take for instance what American dumping of goods has done to Haiti's native farmers.
Also, with the first situation, there is a window of time between monopoly and reentry in the market by a competitor. It's a rare situation in which the competitor reenters and immediately takes an aggressive percentage of market share. There is some significant lag time involved and that's why a lot of times a monopolizing entity can play this juggling game of hiking up prices and then dropping them again to squeeze out any legitimate threat, while skimming hefty profits in the back and forth adjustments. Also, over time, many competitors would see this as an industry with significant barriers to entry and high risk knowing that this monopolizing entity will just drop prices when they try to enter the market. It deters competition from ever entering.
5. On the giants issue, I was thinking more in terms of banking. Whereby the bank with more deposits has a significant advantage over a smaller bank, solely because they have more capital and thereby a great advantage in competing. Sort of like holding the most chips at a poker table. It doesn't guarantee a victory but it is definitely an advantage.
You are right in that this is probably a bad example to use for every industry as it does not apply to all of them and in many cases, the more efficient one would force the other one to scale back.
6. I blame the economic collapse more on a combination of factors including deregulation, but I should have been more specific here. And in retrospect, you are right, this was a poorly constructed OP. What I should have said was that deregulation as a political rhetoric and disposition was one of the leading factors of this economic crisis. This is why I think so:
The monetary policy engineered by Greenspan was extremely loose. The political rhetoric of the time was that deregulation of banking was a good thing. This led to a very low cost of borrowing, AKA money is cheap. This environment of cheap money combined with the repeal of laws banning ARMs and loans of that nature led to the bubble in the housing market and ridiculous overexposure in the banking industry.
So yes, in the end, I blame banking regulation, but inherent in that argument is the belief that less regulation is a good thing.
7. Again, I should have been more clear on this point. What I mean is that this a net loss in jobs for the American labor market. And yes, I'd say this is a protectionist sentiment. The corporations say that this is a good thing because the price of goods is cheaper. Yet, if Americans lose jobs and get cheaper goods, what do we end up with? A guy who makes $0 a day is not going to care if sneakers are $20 instead of $45.
My worry when it comes to manufacturing is that, yes there are people needed to maintain the robots, machines, etc but over time I think that number has decreased. Also, these jobs require more and more skilled labor. I'm wondering if these jobs will someday reach a threshold in which only the top 30% of the population are able to even perform them. What would the other 70% of America do then? But maybe this is an irrational fear. Technology is supposed to make things easier.
8. Good point. I would agree that the income gap is materializing because of the accelerated growth among the rich, rather than a drastic decrease in the growth of the poor.
9. I agree that this is exactly the same parallel. In the past agriculture was replaced by manufacture. And now manufacture has been replaced by the service sector. But I wonder if the service sector is truly an adequate replacement for manufacture. Perhaps I am too ignorant of what the service sector entails or how it perpetuates its own growth, but as of now, I have sincere worries about the sustainability of America becoming a predominantely service-sector based economy. I would love to hear your thoughts on this.
10. About money disappearing. When the US uses that money to launch a missile at Afghanistan, I see that money as disappeared. When the US gives that money to some contractor who installs a toilet for $1,000 I see that as disappeared. When the US takes that tax money and shoves it into Fannie Mae to buy up toxic loans, I see that money as disappeared. While spending on infrastructure would be fantastic, I don't see a lot of the tax money being spent that way. Instead, I see corporate interests directing government spending into channels that don't return to the consumer.
11. Your numbers are correct. But the wealthy used to pay even MORE than this. And I think they should pay more.
Anyhow, hope the numbering I did wasn't too confusing. I'm not good with quotes so I didn't want to go in and try to respond to each quoted block of text. Thanks again for responding and I will admit that you proved me wrong or showed that I needed to more greatly clarify on a number of points.
Still, I hold serious doubts about the virtues of shifting to a service based economy and whether that is truly beneficial for the people.
Also, I hold serious doubts about the fiscal policy of the US government.
I also hold serious doubts about the way taxation of corporations are handled.
But most of all I have serious doubts about capital and labor flows. While it is easy to say that everyone will move into the service sector and be happy, I've yet to see the service sector actually provide enough jobs to replace all the ones lost in agriculture and manufacture.
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While it is easy to say that everyone will move into the service sector and be happy, I've yet to see the service sector actually provide enough jobs to replace all the ones lost in agriculture and manufacture.
hardly anyone works in agriculture or manufacturing anymore (this is geographically dependent, of course) in most major cities you go to 99% of the population probably works in the service industry.
https://www.cia.gov/library/publications/the-world-factbook/fields/2048.html?countryName=United States&countryCode=us®ionCode=na&#us
farming, forestry, and fishing 0.6%, manufacturing, extraction, transportation, and crafts 22.6%, managerial, professional, and technical 35.5%, sales and office 24.8%, other services 16.5%
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I've found that finance relates to cell processes a lot, active transport requires excess energy (the initial input of effort) from the cell (the consumer), to produce a good (energy) for the buyer (cell's ribosome)
Diffusion, however, requires no energy (free trade w/ no capped restrictions), and tends to have lax requirements (capitalistic view of trade-markets) regarding concentration of mass from higher ---> lower (tax increase).
Osmosis is the same, but with the French being involved. Touche, le francais
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On January 28 2010 08:07 StorkHwaiting wrote:Show nested quote +On January 28 2010 07:58 InsideTheBox wrote:
I have so many problems with the OP that I want to cry. My advice is simple; if you "100% agree" with the OP then take some economics courses, go read Globalization and Its Discontents by Stiglitz (if you're interested in globalization, deregulation, historical contexts, etc), and let this thread die.
And to preempt those people that want a "spirited debate" on this topic, I assure you that there is little substance in these posts, and those in disagreement with the OP somehow have mustered the energy to teach you economics 101 (instead of letting you go on with your lives in ignorance). Um, sorry to inform you, but Stiglitz is in agreement with my position. He's probably one of the biggest proponents of government intervention in capitalism. Sorry, but you kind of came out here, name dropped, then made yourself look bad by not even understanding what it is Stiglitz advocates. Just because Stiglitz takes it from the angle of asymmetrical information and inefficiencies in the "invisible hand," while I take it from the angle of damage to domestic economies caused by said globalization, does not make me wrong. I'm choosing to focus on the effects, while he is focusing on the causes. Way to not understand anything, yet act like a pompous ass. Still, it was a pretty brilliant example of self-ownage.
Question, where in my post did I say that I am opposed to government intervention in the global economy? Is it that I have to 100% agree or 0% agree; are those my only two options? Simply because we happen to have that singular idea in common does not mean I can't point out how asinine your premises and examples are.
With that being said, I recommended the book because it was relevant to the topic and actually contains good information and application of ACTUAL ECONOMIC THEORY. Your supposed "angle of domestic economies" is ridiculously flawed and this has been partially covered by a few posters in this thread.
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didnt the US just reintroduce tarriffs on chinese steel pipes?
a more effective argument would be : the capitalist system works on the principle of never ending growth in population , GDP and resource usage yet there is only so many resources on earth.
therefore the current model is doomed to failure.
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i study accounting and have dabbled in economics, id have to say that some of these points although convincingly phrased aren't entirely accurate.
1st off there are ALWAYS monitoring bodies so the whole argument about the US labour market being in DIRECT competition with say chinas sweat shops is very much flawed.
2nd If i understood your maths right, you were saying that you pay income tax, buying a game includes tax and the company you work for has to pay corporate tax when you buy something, and all these lead to a net loss in terms of money staying circulated in the system. Tax is one of the sure ways of keeping money IN the system and according to economics the goverment should be charged with ensuring the positive multiplier effect.
very nicely phrased and well written article but prehaps without TOO much economic truth or truths put out of proportion
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i love how storkhwaiting says he wants to debate then he stops responding to caller once he can't come up with anything (~page 4)
also i have a feeling you took 1 or 2 undergraduate economics classes and feel like you're the shit.
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On January 28 2010 20:01 bluegoo wrote:
i love how storkhwaiting says he wants to debate then he stops responding to caller once he can't come up with anything (~page 4)
also i have a feeling you took 1 or 2 undergraduate economics classes and feel like you're the shit.
Caller was the one who bowed out on the previous page, while stork continued to respond. Not trying to say either one of them is in the right there, but you're most certainly talking bollocks.
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My response to your response:
1. By taxes I mean things like tax write-offs by corporations through giving to charities/NPOs that end up looping right back to the corporations, the evasion of corporate taxes by giving out huge bonuses to their executives so they can post them as operating expenses, the constant tax cuts on capital gains, and the increasingly labrynthine ways that the top tax bracket finds to evade paying their actual taxes. There are of course a great deal more, but in essence I think the problem stems from corporations and the highest income brackets consistently avoiding taxes through tax lawyers and armies of accountants, while the middle and lower class can't afford these kinds of resources to avoid paying their taxes.
While statements like these abound in popular media, I really don’t have any idea regarding the extent to which such activities occur. I suspect not even the IRS has that information, as evaded taxes are, by definition, evaded. As noted in my first response though, the wealthy, no matter how much evasion is occurring, bear more than a proportionate share of the income tax burden.
Your worry about decreases in taxation on capital gains is misplaced. One of the few (if not the only) factor in macroeconomic models that is ALWAYS correlated with growth is saving. Capital gains taxes are a tax on savings, and thus inhibit growth. Perhaps the easiest way to see this effect is to consider the effect of an increase in the capital gains tax rate for government bonds. If the tax rate on bonds is higher, the effective real rate of return is lower. As a result, fewer people will purchase bonds. And, because fewer people buy bonds, roads go unbuilt and schools go unfunded. I have yet to meet a single macroeconomist (I haven’t met a lot, but I have met several) who argues for increasing the capital gains rate.
Another thing to consider about the capital gains tax rate is that both the long-term and short-term US rates have traditionally been much higher than the rest of the world (search international comparison tax rates). While the long-term rate is currently lower than usual(as a result of the Bush tax cuts, which, despite a lot of negative press, weren’t a terrible idea), it is scheduled to return to the same levels as the income tax rate in 2011 (the short-term rate has been at that level for a while now). It should be noted that those tax brackets are progressive (higher percentage for wealthier people).
The classic counter-argument to this is the belief that only the wealthy actually use stocks and bonds as a vehicle for saving, and thus higher taxes on capital gains would be extremely progressive (which many people see as a good thing). This opinion is certainly valid, but I believe the correlation to growth trumps this argument, as growth raises the standard of living across all income brackets.
On regulation, I think the most important aspect is the lack of regulation on capital AND labor flows.
While capital, in general, flows freely, labor does not. At all. Think of how difficult it is for immigrants to enter the US. The US does not even let all of applicants for H1B Visas (highly skilled workers) into the country.
2. You're right that serious economists do not posit this theory. The problem is the political rhetoric in America for the last 30 years HAS been positing this theory. If you look at the political activity, it's been repeal after repeal of regulations, while using this theory of perfect equilibrium and efficiency as their rationale.
4. On dumping, what I'm talking about is the first situation, but also a third situation that wasn't mentioned. The third situation is that a government subsidized industry, like agriculture, is able to grow products at a loss, remain profitable due to subsidies, AND dump their excess product on a foreign market, thereby glutting it and ruining the livelihood of local producers. Take for instance what American dumping of goods has done to Haiti's native farmers.
I don’t think “repeal after repeal” has occurred. I think, in fact, that most trade economists are frustrated with the lack of progress being made. Has the Doha Round accomplished anything major since 2001? Your issue in point four seems to strongly agree with me. Government intervention (subsidies are very much a protectionist measure) has created this problem. Fewer “regulations”, and by that I mean interventionist measures, would see many US farms unable to compete with farms in other countries.
This, again, is the central idea of free trade. Countries will do what they are best at. The US should not be farming, because, even with our technological advantage, farmers are unable to remain competitive with farmers in other countries. Who loses? Farmers in the US. Who gains? Everyone in the US benefits from cheaper food, even the ex-farmers. Farmers in the foreign country gain, and spur growth in that country as well (if you have farms, you need whole related industries such as efficient transportation to support them).
Now, consider what is happening in today’s world, where the US farm market is highly protected and highly subsidized. Prices are still low, because the goods are sold at a loss (often even in the US) but consumer don’t see that gain as a real increase in purchasing power because their taxes are paying for the subsidy. Who gains? Farmers keep their jobs. Who loses? All of the farmers in other countries who now can’t farm.
3. I should have been more clear. I am talking about the political rhetoric in America and the movement toward globalization and deregulation that has been implemented in the political arena of America. OFC economists have accounted for everything under the sun. There are tons of economists out there postulating pretty much every possible permutation I could think of. I don't mean to say the entire field of economics and capitalism is wrong or stupid. What I mean is the political will of America has been trending towards deregulation, free markets, and the flow of capital and labor out of America (labor more than capital).
What are OFC economists? I’m not familiar with that acronym, and google doesn’t want to tell me. I think is difficult to say with any certainty what the political will toward free markets in America is. Surveys I (just) found on the internet (a great source, i know) show that, on average, only one in three Americans believe opening up to trade is a bad idea. So, based on such surveys, you would be right.
I believe, though, that those surveys are likely misleading. I think free trade is something most people support when it is discussed abstractly, but not when it is close to becoming reality. Why? For the same reasons stated in my first post: The losers from trade are a lot more visible than the winners. Furthermore, even if the political will of the people is moving towards more openness, it is still almost certainly to be slowed by the presence of that vocal minority. That minority harmed by trade will lobby their congressional delegation aggressively. Their voice is amplified by the fact that many domestic industries who stand to lose the most from openness, such as the agriculture or automotive industries, have some of the largest lobbying groups.
Also, with the first situation, there is a window of time between monopoly and reentry in the market by a competitor. It's a rare situation in which the competitor reenters and immediately takes an aggressive percentage of market share. There is some significant lag time involved and that's why a lot of times a monopolizing entity can play this juggling game of hiking up prices and then dropping them again to squeeze out any legitimate threat, while skimming hefty profits in the back and forth adjustments. Also, over time, many competitors would see this as an industry with significant barriers to entry and high risk knowing that this monopolizing entity will just drop prices when they try to enter the market. It deters competition from ever entering .
This is a good response. One might suggest that, although domestic firms (in the foreign country) will be unable to enter the market due to the price warfare, other firms in other countries (maybe even a different US firm) will be able to enter.
5. On the giants issue, I was thinking more in terms of banking. Whereby the bank with more deposits has a significant advantage over a smaller bank, solely because they have more capital and thereby a great advantage in competing. Sort of like holding the most chips at a poker table. It doesn't guarantee a victory but it is definitely an advantage.
You are right in that this is probably a bad example to use for every industry as it does not apply to all of them and in many cases, the more efficient one would force the other one to scale back.
I can see where you were coming from with the market-share idea now. A more efficient bank, though, should still be able to offer higher returns and lower interest rates, thus drawing people away from the larger banks.
6. I blame the economic collapse more on a combination of factors including deregulation, but I should have been more specific here. And in retrospect, you are right, this was a poorly constructed OP. What I should have said was that deregulation as a political rhetoric and disposition was one of the leading factors of this economic crisis. This is why I think so:
The monetary policy engineered by Greenspan was extremely loose. The political rhetoric of the time was that deregulation of banking was a good thing. This led to a very low cost of borrowing, AKA money is cheap. This environment of cheap money combined with the repeal of laws banning ARMs and loans of that nature led to the bubble in the housing market and ridiculous overexposure in the banking industry.
So yes, in the end, I blame banking regulation, but inherent in that argument is the belief that less regulation is a good thing.
Just to note for fun: during the Clinton-Bush elections conservatives lambasted Greenspan for being far too tight with US monetary policy during the 1987 stock market crash and the 1991 recession. Greenspan’s loose monetary policy leading up to the dot-com bubble is often seen as a necessary response to the Asian Financial crisis of 1997-98.
Just so you know, the low cost of borrowing follows directly in economic models from expansionary monetary policy, with or without the political rhetoric.
Where to place the blame is a fun game to play, as its often very easy to pick targets. Personally, I like to blame the bankers themselves, for lending to people who really didn’t have the money to service the loan, rather than the political or economic climate.
7. Again, I should have been more clear on this point. What I mean is that this a net loss in jobs for the American labor market. And yes, I'd say this is a protectionist sentiment. The corporations say that this is a good thing because the price of goods is cheaper. Yet, if Americans lose jobs and get cheaper goods, what do we end up with? A guy who makes $0 a day is not going to care if sneakers are $20 instead of $45.
My worry when it comes to manufacturing is that, yes there are people needed to maintain the robots, machines, etc but over time I think that number has decreased. Also, these jobs require more and more skilled labor. I'm wondering if these jobs will someday reach a threshold in which only the top 30% of the population are able to even perform them. What would the other 70% of America do then? But maybe this is an irrational fear. Technology is supposed to make things easier.
These fears are ungrounded (but perhaps fueled by the current economic situation). Look at the historic unemployment rate in the US. Look at the historic unemployment rates in other developed countries. They don’t tend to change much. Also look to the average level of educational attainment in developed countries. In the span of the last fifty years, high school graduation rates have increased from 50% to 90%. Bachelor’s degree attainment has risen from 5% to 30% (source US Census). It is also worth noting that many industries arising from technological innovation can’t even be fathomed. Fifty years ago no one could have known how large and important the computer industry would become. A hundred years ago most people had never seen a car.
8. Good point. I would agree that the income gap is materializing because of the accelerated growth among the rich, rather than a drastic decrease in the growth of the poor.
9. I agree that this is exactly the same parallel. In the past agriculture was replaced by manufacture. And now manufacture has been replaced by the service sector. But I wonder if the service sector is truly an adequate replacement for manufacture. Perhaps I am too ignorant of what the service sector entails or how it perpetuates its own growth, but as of now, I have sincere worries about the sustainability of America becoming a predominately service-sector based economy. I would love to hear your thoughts on this.
A thought experiment: say that 20 years in the future, every single person in the country is in the service sector. How could we have any goods, when we don’t create any tangible goods ourselves? Because our services will be used by the rest of the world. Other countries would pay for American architects, American managers and American interior decorators. Then, of course, we would have money, and a need for places to spend that money. So other countries would build stores and production plants in the US for us to buy from (which, since I can’t get away from at least some manufacturing even in a thought experiment, suggests it isn’t something to worry about).
Second, although manufacturing is declining, it is important to recognize that the focus of manufacturing is also shifting. Developed countries may be losing their blue collar manufacturing jobs in industries such as steel, but they are also gaining manufacturing jobs in high-tech equipment. Examples of such things might be scientific or medical instruments or fabrication of goods using nanotechnology. Less developed countries simply don’t have the infrastructure or technology to create such things.
10. About money disappearing. When the US uses that money to launch a missile at Afghanistan, I see that money as disappeared. When the US gives that money to some contractor who installs a toilet for $1,000 I see that as disappeared. When the US takes that tax money and shoves it into Fannie Mae to buy up toxic loans, I see that money as disappeared. While spending on infrastructure would be fantastic, I don't see a lot of the tax money being spent that way. Instead, I see corporate interests directing government spending into channels that don't return to the consumer.
First, a rebuttal. Money spent on a missile launched at Afghanistan may be a “waste” in terms of “not spending money on a valuable cause”, but the money doesn’t leave the system. The government is paying someone to build the missile, someone to launch the missile, and sustaining jobs for newscasters by giving them something to talk about on television.
That being said, this is one of my own biggest complaints about our current system. I see a very definite, very real lack of fiscal responsibility in our government today. But I don’t see it as the fault of corporations or free trade. Rather, I think this outcome results from the combination of our political system and human nature.
I think one way to help fix would be to institute term limits on congressional members. Limiting members’ turns could reduce the incentive to pander to voting blocks or lobbyists in one’s district or state.
As for human nature, I think much of the excess waste comes from the lack of human ability to properly value things we do not own. By that I mean I think that because the vast majority of money allocated by politicians is not their own, they pay less attention to how it is spent, and worry less about it being wasted.
A second aspect of human nature that I see as problematic here is the tendency to apply too high of a discount rate to future events. If you aren’t familiar with that term, it relates to the idea that a dollar tomorrow is worth less than a dollar today. Overly large deficits are problematic, social security is problematic, climate change is problematic. Yet no one will take a stand on any of them. This is because the negative effects of these problems will be felt in the future, and people place less emphasis or value on events that will take place in the future.
11. Your numbers are correct. But the wealthy used to pay even MORE than this. And I think they should pay more.
They did indeed. Up to and in excess of 90% of income. But as for needing to pay more? That’s a matter of personal opinion. I am typically against taxation and regulation (go figure...), but I wouldn’t be against higher levels of income tax on the wealthy PROVIDED: more brackets are created for higher levels. Currently, all incomes in excess of around $370,000 are taxed at the same rate. However, there are huge differences in the ability to pay that rate among high-income earners. While high incomes were taxed higher a century ago, the tax brackets were also set higher. The highest tax brackets were typically reserved for incomes in excess of $1,000,000 adjusted for inflation (source IRS)
Anyhow, hope the numbering I did wasn't too confusing. I'm not good with quotes so I didn't want to go in and try to respond to each quoted block of text. Thanks again for responding and I will admit that you proved me wrong or showed that I needed to more greatly clarify on a number of points.
Still, I hold serious doubts about the virtues of shifting to a service based economy and whether that is truly beneficial for the people.
Also, I hold serious doubts about the fiscal policy of the US government.
I also hold serious doubts about the way taxation of corporations are handled.
But most of all I have serious doubts about capital and labor flows. While it is easy to say that everyone will move into the service sector and be happy, I've yet to see the service sector actually provide enough jobs to replace all the ones lost in agriculture and manufacture.
What are your doubts about the taxation of corporations? And capital and labor flows? As for providing enough jobs, look at historical unemployment figures (bearing in mind that we are in a deep recession right now). Even though the population in the US has increased dramatically, and the composition of our economy has changed, unemployment has remained remarkably constant.
One final thing I need to note, in case you check these facts: If you look at a graph of historical unemployment in the US, there is a good chance it will look anything but constant (see BLS) for just such an example. When I say the rate is near constant, I am referring to the structural unemployment rate, and not including frictional unemployment. Frictional unemployment will vary with the business cycle (booms and busts), and is what is causing the movement in such charts. The US structural unemployment rate has remained around 3%. (in contrast to many other countries, where it either varies a great deal, or is much higher).
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I have been following the community for a long, long time. Mostly reading, and very seldomly commenting on anything. Seeing that the community is nowadays mature enough for this issue to be talked about in somewhat civil terms, I absolutely must make a contribution regarding it.
If any of you is actually interested about the subject, and wishes to devote a few weeks reading and doing the neccessary fact checking, I wholeheartedly suggest you to read "The Web Of Debt" by Ellen Hodginson Brown. (revised and expanded with 2008 update).
Reading that book will deliver the neccessary information for you to shake away any doubts regarding the issue. It is a long, long book, but it has been written in a manner captivating enough to interest even the people who do not major in economics. It might be the most important book you will read in your life.
It is hard to push anyone to read a book, often even real life acquintances balk at suggestions regarding books, if it doesn't fall in the genre they're used to read. Many people don't have the urge to know too much, and it's their choice. However, if you wish to seek the truth through so many layers of disinformation, you will do yourself great help by allocating the time needed to read this book. The word 'eye opener' is reserved for books like this. There are more, but I don't want to spam this thread with too many names. This is the most important of them all, and at some point I hope that She will get the praise she deserves for compiling this piece and having the guts to present it to everyone.
This is important enough to mandate its own thread, but I don't want to be too pushy.
-j
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On January 28 2010 05:55 Klockan3 wrote:
And no matter how much money a company is giving to the parties if it turns out that the party will help empowering this company to disproportional degrees the people wont tolerate it and will shoot them down the next election. And it isn't even plausible for it to happen, since the parties know that if they go too far out of line in terms of this they will for sure lose the next election, so they don't since it wouldn't be helping their self interest to do so.
And no, money is not winning the elections. What wins elections is support from the people, the more support the party have the more money they will get. Or, in this case correlation do most likely not mean causation since we have a very strong rational argument why popular support and financial support should correlate.
And about the current "crisis", is anyone starving in any of the western countries? Do anyone lack the money to buy clothes? No, not really, what gets put on hold is something like a new plasma TV, mostly just forcing people to consume a bit less luxury wares than they usually do.
One of the most lol post I've ever read on TL.
I actually lol'd so hard irl that I woke my gf up, how's the kool-aid up in Sweden, Klockan?
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On January 28 2010 08:59 Alethios wrote:Show nested quote +On January 28 2010 08:56 Virtue wrote:
The only issue with the current system to me is that the division of wealth has not been really at all balanced by the irs in the past 30 years taxing the rich has become less and less of an ability and a stronger reliance in getting the money when people die at least in the US. So we get the filthy rich and really poor in the US with a getting by middle class. That's my only complaint. You're only complaint is that the current system causes massive inequality and unemployment then. Fair enough.
Capitalism doesn't promise equality, but it does give you the opportunity to make the most of yourself according to your ability.
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this recession isn't the first one that ever happened. anti trust regulation exists for a reason, and should be enforced. People in Flint are bad off compared to people in other cities in this country, not compared to the world as a whole. And picking out one of the worst off places in the country and using it to show the whole thing has failed? meh
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On January 28 2010 14:02 StorkHwaiting wrote:To Zero: Thanks for the lengthy response and your time and effort are much appreciated 1. By taxes I mean things like tax write-offs by corporations through giving to charities/NPOs that end up looping right back to the corporations, the evasion of corporate taxes by giving out huge bonuses to their executives so they can post them as operating expenses, the constant tax cuts on capital gains, and the increasingly labrynthine ways that the top tax bracket finds to evade paying their actual taxes. There are of course a great deal more, but in essence I think the problem stems from corporations and the highest income brackets consistently avoiding taxes through tax lawyers and armies of accountants, while the middle and lower class can't afford these kinds of resources to avoid paying their taxes. On regulation, I think the most important aspect is the lack of regulation on capital AND labor flows. 2. You're right that serious economists do not posit this theory. The problem is the political rhetoric in America for the last 30 years HAS been positing this theory. If you look at the political activity, it's been repeal after repeal of regulations, while using this theory of perfect equilibrium and efficiency as their rationale. 3. I should have been more clear. I am talking about the political rhetoric in America and the movement toward globalization and deregulation that has been implemented in the political arena of America. OFC economists have accounted for everything under the sun. There are tons of economists out there postulating pretty much every possible permutation I could think of. I don't mean to say the entire field of economics and capitalism is wrong or stupid. What I mean is the political will of America has been trending towards deregulation, free markets, and the flow of capital and labor out of America (labor more than capital). 4. On dumping, what I'm talking about is the first situation, but also a third situation that wasn't mentioned. The third situation is that a government subsidized industry, like agriculture, is able to grow products at a loss, remain profitable due to subsidies, AND dump their excess product on a foreign market, thereby glutting it and ruining the livelihood of local producers. Take for instance what American dumping of goods has done to Haiti's native farmers. Also, with the first situation, there is a window of time between monopoly and reentry in the market by a competitor. It's a rare situation in which the competitor reenters and immediately takes an aggressive percentage of market share. There is some significant lag time involved and that's why a lot of times a monopolizing entity can play this juggling game of hiking up prices and then dropping them again to squeeze out any legitimate threat, while skimming hefty profits in the back and forth adjustments. Also, over time, many competitors would see this as an industry with significant barriers to entry and high risk knowing that this monopolizing entity will just drop prices when they try to enter the market. It deters competition from ever entering. 5. On the giants issue, I was thinking more in terms of banking. Whereby the bank with more deposits has a significant advantage over a smaller bank, solely because they have more capital and thereby a great advantage in competing. Sort of like holding the most chips at a poker table. It doesn't guarantee a victory but it is definitely an advantage. You are right in that this is probably a bad example to use for every industry as it does not apply to all of them and in many cases, the more efficient one would force the other one to scale back. 6. I blame the economic collapse more on a combination of factors including deregulation, but I should have been more specific here. And in retrospect, you are right, this was a poorly constructed OP. What I should have said was that deregulation as a political rhetoric and disposition was one of the leading factors of this economic crisis. This is why I think so: The monetary policy engineered by Greenspan was extremely loose. The political rhetoric of the time was that deregulation of banking was a good thing. This led to a very low cost of borrowing, AKA money is cheap. This environment of cheap money combined with the repeal of laws banning ARMs and loans of that nature led to the bubble in the housing market and ridiculous overexposure in the banking industry. So yes, in the end, I blame banking regulation, but inherent in that argument is the belief that less regulation is a good thing. 7. Again, I should have been more clear on this point. What I mean is that this a net loss in jobs for the American labor market. And yes, I'd say this is a protectionist sentiment. The corporations say that this is a good thing because the price of goods is cheaper. Yet, if Americans lose jobs and get cheaper goods, what do we end up with? A guy who makes $0 a day is not going to care if sneakers are $20 instead of $45. My worry when it comes to manufacturing is that, yes there are people needed to maintain the robots, machines, etc but over time I think that number has decreased. Also, these jobs require more and more skilled labor. I'm wondering if these jobs will someday reach a threshold in which only the top 30% of the population are able to even perform them. What would the other 70% of America do then? But maybe this is an irrational fear. Technology is supposed to make things easier. 8. Good point. I would agree that the income gap is materializing because of the accelerated growth among the rich, rather than a drastic decrease in the growth of the poor. 9. I agree that this is exactly the same parallel. In the past agriculture was replaced by manufacture. And now manufacture has been replaced by the service sector. But I wonder if the service sector is truly an adequate replacement for manufacture. Perhaps I am too ignorant of what the service sector entails or how it perpetuates its own growth, but as of now, I have sincere worries about the sustainability of America becoming a predominantely service-sector based economy. I would love to hear your thoughts on this. 10. About money disappearing. When the US uses that money to launch a missile at Afghanistan, I see that money as disappeared. When the US gives that money to some contractor who installs a toilet for $1,000 I see that as disappeared. When the US takes that tax money and shoves it into Fannie Mae to buy up toxic loans, I see that money as disappeared. While spending on infrastructure would be fantastic, I don't see a lot of the tax money being spent that way. Instead, I see corporate interests directing government spending into channels that don't return to the consumer. 11. Your numbers are correct. But the wealthy used to pay even MORE than this. And I think they should pay more. Anyhow, hope the numbering I did wasn't too confusing. I'm not good with quotes so I didn't want to go in and try to respond to each quoted block of text. Thanks again for responding and I will admit that you proved me wrong or showed that I needed to more greatly clarify on a number of points. Still, I hold serious doubts about the virtues of shifting to a service based economy and whether that is truly beneficial for the people. Also, I hold serious doubts about the fiscal policy of the US government. I also hold serious doubts about the way taxation of corporations are handled. But most of all I have serious doubts about capital and labor flows. While it is easy to say that everyone will move into the service sector and be happy, I've yet to see the service sector actually provide enough jobs to replace all the ones lost in agriculture and manufacture.
Let us take this from the Austrian approach, or the only Free-Market School of Economic Thought left in the world. (To wit; our only member in the whole Government is Ron Paul)
First off, you cannot have a Free-Market Economic System without a Sound-Commodity Currency. Any other currency is inherently fraudulent and inflationary. Moreover, any other currency is inherently and necessarily an intervention in the markets -- hence, not a Free-Market. Since Monetary Policy is the bedrock of any Economic Foundation one must first look here.
So, with this we come to Central Banking and the Federal Reserve. What is the purpose of the Federal Reserve? Well, it's chartered mandate was to facilitate stable prices and to enable near as can be full employment. Well, certainly, over its 97 year period it has reigned through long, deep, Depressions from 1929 to 1946, from 1971 to 1981, from 2008 and onward. Moreover, this is only looking at the extenuated busts. The preceeding periods were the Booms and in worse cases, very small recessions in which corrections were not allowed to happen. In essence the system goes -- Boom - tiny correction straight into - Boom -- into Depression. In essence, our very Monetary System is built on getting a drunk man, drunker. Obviously when you wake up the next morning you aren't going to feel too well.
I'm not sure if you are aware of the Austrian Theory of the Business Cycle, but interest rates are used to coordinate resources. Low interest rates are supposed to represent an increased savings freeing up capital to be used in the lower orders of production (Those areas which are far away from the consumer -- Mining, Steel Production, etc.), which are long-term investments. Higher interest rates are supposed to represent less savings and a consumer demand for higher order of production goods (Those which are closest to the consumer -- End products in Wal-Mart, Target, Gamestop, on the Car-lots, etc.). The market coordinates this allocation of capital via Interest rates as we have seen. What happens with the Federal Reserve and any Central Bank however, is that they artificially lower or raise interest rates. Justification for these lowering and raising of rates in most cases has to deal with the political ramifications. There is honestly no central authority capable of knowing the homogenous interest rate of an entire Naton, nor is it even intellectually reasonable because for instance, you may have higher rates of saving in Florida, than in New York, or vice versa. Not only that, the natural interest rate can only be achieved through a fully free-banking system with sound-commodity currency which cannot be inflated at the Politicians whim. What happens when you have artificially low interest rates is that both the lower and higher orders of production are reaching for the same scarce resources. Since we know we do not have unlimited resources, what always and must always happen is that the resources are expended, and all the projects under-taken are left incomplete, not-profitable, and bankrupt. This is the bust that must always come. As you can see, at the very onset we do not have a Free-Market Economy, nor do the Orthodoxy in any single Nation in the world even bring this up.
Let's now look at the ramifications for the busts. The longer the booms last, the larger the misallocation of scarce resources. What happens is that these scarce resources are used up, for no profitable purpose. This makes everyone poorer. Let's take a quick analogy. Let's say you take out a 30 year loan to build a new manufacturing plant. Obviously you are going to invest in long-term projects when interest rates are at 1% because over a 30 year period that 1% interest rate will save you enormous costs even compared to a 2% interest rate. So, you undertake this long-term project expecting to see some returns at the end because you believe due to the amount of freely loanable funds that people have money to spend on the future. Fast forward seven years down the road and your project is completed, while at the same time the country writ large has been undertaking these similar lower order of production projects. If you can even complete your project with the initial loan due to price increases in capital goods from a rush of demand (Boom), you are left with an exhausted population which does not have the required funds to purchase your goods (No savings, left with over-burdening Credit). Why is there no savings? At 1% interest rates, no one in there mind would save. Time preference dictates that just by holding on to money now, you lose purchasing power tomorrow (the next day). This is also why huge speculative bubbles arise in the stock market, because to even recoup your loss of purchasing power from the inherent inflationary Fed policies (You have to print money to keep interest rates at 1%), you must speculate. So, now the bust happens. The Economy has misallocated scarce resources and now must reallocate them into the profitable companies, projects, entreprenuers, etc. With an increase of interest rates this capital is now freed up to be saved. Yes, the bust hurts, but it is the necessary correction to the Boom. The only way to prevent the Boom-Bust cycle which destroys wealth (capital), is with 100% Reserve Banking, Free-Banking, and a Sound-Currency (Preferrably a Gold/Silver float). Even then, you cannot totally prevent a Boom-Bust, because misallocation of resources will always happen because of subjective valuations. The entreprenuer will not always be right, however, these hiccups will be local and fleeting at the worse.
Not only that, the most insidioux tax is the Inflation Tax. Since prices do not immediately respond to the first infusion of new money, those at the very forefront of receiving this newly printed (or in today's case, newly added zero on a computer), have increased purchasing power without producing one single good or service. It is fraud. It is debasement. It is theft. You become poorer. When that money finally trickles down to you, prices of goods and services will have exploded. Your purchasing power will have been eroded. This is the silent transfer of wealth from the middle class, poor, and upper class to the affluent and to those who have political connections. This is why those who call for inflationary policies are themselves demanding to be robbed![/u][/i]
So, with this cursory expose of how at the very onset we do not have a Market-Economy, but a Centrally Planned, Statist ran Economy, we can move on to answer some of your specific objections (By the way this has been the case since the turn of the 20th Century).
1. Taxation --
All taxation is inherently and necessarily theft. It is the violent appropriation of income from one individual to another at the expense of the first individual. From a wholly moral position, we must be against theft -- taxation. Taxation in every case is a distorting factor in the market.
As for the Austrian Perspective on anaylsis I will defer to Rothbard in Man, Economy, State - Power & Market (p. 910):
"There has been a great deal of controversy among economists on how to approach the analysis of taxation. Old-fashioned Marshallians insist on the “partial equilibrium” approach of looking only at a particular type of tax, in isolation, and then analyzing its effects; Walrasians, more fashionable today (and exemplified by the late Italian public finance expert, Antonio De Viti De Marco), insist that taxes cannot be considered at all in isolation, that they may be analyzed only in conjunction with what the government does with the proceeds. In all this, what would be the “Austrian” approach, had it been developed, is being neglected. This holds that both procedures are legitimate and necessary to analyze the taxing process fully. In short: the level of taxes-and-expenditures may be analyzed and its inevitable redistributive and distortive effects discussed; and, within this aggregate of taxes, individual types of taxes may then be analyzed in isolation. Neither the partial nor the general approaches should be overlooked."
Now, with that said, not only do we have to look at Taxation as the actually specific tax on an individual, or business, but in the aggregate terms, we must also have to look at Government Spending. Merely, lowering the tax rate, while increasing spending, or failure to reduce spending is in actuality a large tax increase and tax burden. We also know, that every tax levied, is a resulting increase of cost in that sector. If you tax ALCOA 25%, ALCOA will similarly raise their prices to a level which nets them a profit. In many cases this taxation puts undue burden on businesses and in the convening period puts them into bankruptcy, or more generally (which is to say, what most often happens), a reduction of the amount of consumer or manufacturing goods produced. This leads to a decrease in your standard of living, and a resulting higher unemployment rate. Let us this analogy from Rothbard MES, PM (p. 911):
"Thus, suppose the government taxes the betel-nut industry one million dollars in order to buy paper for government bureaus. One million dollars’ worth of resources are shifted from betel nuts to paper. This is done in two stages, a sort of one-two punch at the free market: first, the betel-nut industry is made poorer by taking away its money; then, the government uses this money to take paper out of the market for its own use, thus extracting resources in the second stage. Both sides of the process are a burden. In a sense, the betel-nut industry is compelled to pay for
the extraction of paper from society; at least, it bears the immediate brunt of payment. However, even without yet considering the “partial equilibrium” problem of how or whether such taxes
are “shifted” by the betel-nut industry onto other shoulders, we should also note that it is not the only one to pay; the consumers of paper certainly pay by finding paper prices raised to them."
As you can see the violent interference in the market has more consequences than originally seen (and all of these are bad for you, the consumer, investor, individual).
Now, let's answer your question about taxing capital. I have found the only people who advocate a tax on capital are the people who do not understand what capital is, and what is accomplishes. Capital is savings. Not only do you advocate a tax on the very first turn (Actually receiving your wages), now you also want to tax savings (investment) with those all ready taxed wages. This is a double whammy. Let's further look at what capital achieves. As Rothbard explains (And I might add here Irwin Schiff's How an Economy Grows, and Why it Doesn't is a great simple piece of work that is quite simple to the laymen) in MES PM (p. 47):
"With the nature-given elements limited by his environment, and his labor restricted both by its available supply and its disutility, there is only one way by which man can increase his production of consumers’ goods per unit of time—by increasing the quantity of capital goods.
Further he goes on to state:
"Beginning with unaided labor and nature, he must, to increase his productivity, mix his labor
energy with the elements of nature to form capital goods. These goods are not immediately serviceable in satisfying his wants, but must be transformed by further labor into lower-order capital goods, and finally into the desired consumers’ goods.
So, what you are proposing as a tax on capital, is a tax on productivity. In essence, you are punishing people who are directly responsible for your standard of living. Without a resulting increase in capital goods (Productivity), we would all be much worse off. Think of it has a small village of twenty people. These twenty people to sustain themselves go out and catch fish with their hands (no capital goods). In doing so, they can only sustain themselves day by day. They have a low standard of living. Now, two of the villagers gets the idea to build a net. Building a net takes time and labor. Those two people will not feed themselves for two days in order to invest in the future and an increase in productivity (increase in standard of living). So, they get to work, and in two days time they have completed their nets. The rest of the villagers look at them puzzled. "What is this contraption", they exclaim. The two capital good producers, look at themselves and look back at the village and proudly put forth "You will see in time." So, they head out in the river and lo- and behold- they catch three fish each. Now, this has freed up time in the future for, future investments and capital production. Now they have two free days. The other villagers look at them in excitement! I need not go further, but it clearly illustrates the direct enhancements of all of society (Eventually, this freed up time, allows for them to produce nets for everyone, which increases everyones productivity, and ad infinitum)! Capital accruement and investment is the sole reason for our increases in standard of living. To want to tax that, is ludicrous!
2. As you can see the Orthodoxy in America and indeed the world, is not one of Free-Markets, but one of Centrally-Planned Socialist/Fascist Economies. Our world today is not a failure of Free-Markets, but of a failure of Statism. Not only that, regulation has increased tri-fold in the last 10 years. Look at the IRS, EPA, FDA, State regulatory agencies, SEC (Yes, they had more regulations in 2004 than they had in 1992 for example), FDIC, etc.
3. Again I refer to #2. Rhetoric means nothing. Action, consequences, policies, etc. mean everything. We do not have a Free-Market Economy, not even close!!! Globalization is also a part of the Centrally-Planned Economy. Look at NAFTA, GATT, CAFTA, WTO, etc. This is not Free-Trade. This is Neo-Mercantilism regulated, managed, etc. trade. Free-Trade requires a one page agreement between Nation-States, not 2,000+ pages of regulations. Moreover, if we have been pushing for more Globalization how come the US still has an inordinate amount of embargoes, sanctions, and other hostile trade policies to many many countries?
As Jeffrey Tucker so eloquently put in Free Market Vol. 14 No. 10:
"One peculiar aspect of the 1993-95 trade debate was the contradictory purposes--or so it seemed--of Nafta and Gatt. They embrace different theories of how the U.S. should conduct trade policy. The "bilateralistists" think that the U.S. should negotiate trade with one country at a time. The "multilateralists" say that leads to protectionist alliances; what we really need is one big agreement with the world.
Nafta was a species of bilateralism: a deal first negotiated between the U.S. and Canada and then extended southward. To be more specific, Nafta was an instance of regional mercantilism. The U.S. would be master of the North American continent, granting preferential trade status ("regional content" laws) to any goods produced in the signing countries, while penalizing goods from outside.
The treaty was as much about protection as trade. In the imaginations of Nafta's Washington theorists, this would give "us" (the U.S., Canada, and Mexico) a boost of market power over "them" (Asia and Europe), which would allow "us" to compete and win in the global competition for resources and markets. The point of Nafta was to allow "us" (which really means the government and its most closely connected banks and corporations) to throw "our" weight around the rest of the world.
The Clinton administration and its Republican allies adopted this rhetoric in the closing days of the debate. Even while denouncing protectionists, they made an openly protectionist appeal that presented the international trading arena as a battlefield, not a setting for mutual economic advantage.
Indeed, the spirit and the letter of Nafta represented an egregious violation of free trade. In real free trade, the government does not establish "regional content" rules or browbeat foreign governments into deals with approved U.S. corporations, for example. The government's only role is to allow business and consumers to trade with whom they choose."
I'm sorry I am out of time for right now. I will continue on the rest of your points when I get a chance.
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storkhwaiting makes another obnoxious post and again responds to any debate with an overload of pedantic and condescending replies =( makes me sad
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Bluegoo and Duckett, you're welcome to contribute. Hurling unfounded insults just makes it look like you two dived into a pool of haterade.
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EPT
