[tasiler76]

I’ve had several discussions about FDR and something that always seems to come up is how FDR’s new deal programs put us on a much better footing for WWII. When I ask for some specifics I tend to get things like the work that was done on the roads and the like. However I have not been able to find anything that, at least in my mind, really helped us in prep for WWII. Am I missing something here? Where does this though process come from?
Now I am aware of what all industry did after the war started, but am looking for those things and programs that started prior to the war.
thanks.
tom

[woods]

This sounds to me like an after-the-fact rationalization. The U.S. engaged in a crash mobilization of resources with the entry into World War II. The federal government didn’t do anything, to my knowledge, of any conceivable military significance regarding roads until the interstate highway system under Eisenhower, a policy that was expressly billed as defense related (in order to pass constitutional muster — kind of quaint that as recently as the 1950s we still saw some effort to find constitutional authorization for federal activities).

But even if your critic’s claim is true, in your shoes I would note that the person is evading the question. The point of FDR’s policies was not military readiness. The point was economic recovery. This, clearly, they did not accomplish.

[miljacic]

Mr. Woods, you said that when the government tries to split a new tax between the worker and the business owner 50-50%, the burden actually falls 100% on the worker because the owner just sees it all as the aggregate expense of having the worker. But, is it really so in the long run? I mean, that tax is still the burden on the whole business enterprise, which then has to suffer in some way. For example, the now less payed worker will not care to work as much as before, or may even threaten to quit so a new (worse) worker must be hired. So, in some way, maybe not 50-50% but in some way, the owner is hurt too… maybe the split is eventually 70-30% or so.. right? The way I see it – here is this contract between the owner and the worker. A new expense (tax) enters the picture. It’s highly unlikely that one party will agree to bear the full burden while everything else remaining exactly the same. Right? Thank you.

[negligible91]

hayek_novice, I think it would be good to define some terms first to make what Dr. Woods was saying more clear.

Rothbard made a distinction between the incidence of a tax and the indirect effects of a tax.

The incidence is who the primary effects of the tax actually fall on. The indirect effects are the effects on individuals who trade with the individual whom the incidence falls on.

To clarify, Rothbard states “Thus, if an income tax is levied on Jones at 80%, this will hurt not only Jones, but also — by decreasing Jones’ incentives as well as capacities — other consumers by reducing Jones’ work and savings. It is therefore true that the effects of taxation diffuse outward from the center of the target.”

So the incidence of a payroll tax partially levied on an employer will fully shift toward the employee. That’s what Dr. Woods means. The employer will still be hurt through his interaction with the employee. If the employee was better off, then so would the employer.

[miljacic]

Thanks Bharat, I see… that’s more or less what I (not fully consciously) had in mind. In which Rothbard book can I find the quote? Thanks.

Another way, I think, one can use some logic here could go like this: assume that the tax has only the incidental part, and no indirect effects. Then there would be incentive for the business owner and the politician to invent the tax – only the worker will be hurt, and owner not at all. Then the owner and the politician could split the money they took from the worker! And so.. all the way down until the worker is exploited to the edge of his very physical existence and, lo and behold – Marxism was right!! Capitalism is unstable and exploits workers! But, no, the indirect effects immediately enter and stop this vicious cycle because workers pain diffuses onto the owner.

So it seems that these “indirect effects” are essentially important, and should not be neglected to mention. When I heard Mr. Woods (and M. Friedman in a youtube clip also) saying that the worker bears 100% the burden, a red lamp went on: wait! something’s fishy here!

Anyway, thanks for clarifying this via Rothbard.

[negligible91]

Haha, I’m sure you’ll agree that Marx would only be right in such a case that state capitalism exploits workers to subsistence.

And no problem, glad I could help. The Rothbard quote can be found in Man, Economy, and State. CH. 12.

[woods]

Bharat is correct. This is also Rothbard’s point about how businesses can’t just “pass the tax on to the consumer.” When a new tax is passed on a business, some free-market people lecture the “progressive” supporters of the tax by saying, “You know, that tax just gets passed on to the consumer in the form of higher prices anyway.” But that can’t be right. If the firm, or the industry at large, could get away with higher prices without compromising overall sales revenues, why weren’t they charging those higher prices already?

No, the way in which such taxes are “passed on” to the consumer is more indirect. Marginal firms that cannot compete with the burden of the new tax go out of business. This means less production, and this lower supply of goods means higher prices can be charged by the remaining firms.

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