Forum Replies Created
-
AuthorPosts
-
jmherbener
ParticipantPerhaps your antagonist will accept the following line of argument. Effects in the social order are the result of a multiplicity of causes. Theory is the only way to determine what effect a particular cause will have. Empirical correlation cannot do so.
For example, Paul Krugman was criticized that his advice that the government try massive fiscal and monetary stimulus to bring the economy out of the recent downturn had not worked by 2011. His response was not to concede that the correlation of massive stimulus and continuing depression demonstrate cause and effect, but to reply that the stimulus had not been big enough. But in doing so he was making a theoretical claim , not an empirical one, because he had no evidence to back him up.
If your antagonist will accept this line of argument, as Krugman implicitly does, then perhaps you can reason with him about taxes. And, as you say, the main point is that entrepreneurs in the market can make efficient production decisions using economic calculation while bureaucrats in the state cannot. So, economic progress depends on the extent to which taxing transfers command over resources out of private hands into the hands of the state. Interestingly, this has little to do with tax rates. The portion of GDP controlled by the government has stayed remarkably consistent since the early 1950s regardless of tax rates. Here are two charts: the first taxes and the second expenditures.
http://www.usgovernmentrevenue.com/revenue_history
Since the early 1950s, federal government taxes as a percent of GDP have hovered between 15 and 20 percent.
http://www.usgovernmentspending.com/us_20th_century_chart.html
Since the early 1950s, federal government spending as a percent of GDP has been between 18 and 24 percent.
The data are in Table 1.2 at the link below:
ParticipantYes, that line of thinking is reasonable. Here’s the True Money Supply as formulated by Rothbard:
ParticipantPeople often have multiple motives for an action. If banks pay interest on deposits and make them redeemable on demand at par for cash, then customers can hold deposit balances for both reasons. It’s not necessary to separate their motives in order to compute the funds devoted to saving-investing and the funds devoted to money holdings.
One can determine the extent of saving-investing in the economy by adding up all the funds spent on producers goods. The sources of saving-investing can be determined by adding up self financed funds and financed funds. Banks contribution to the later can be discovered by looking at their loan portfolios on the asset side of their balance sheets.
One can determine the money stock in the economy by adding up all money proper plus all money substitutes, i.e., all redemption claims to money payable on demand at par.
ParticipantLabor is the only category of producer good that must have an opportunity cost because of the personal use value of leisure foregone. But other resources could have personal use value to their owners and therefore, could have an opportunity cost that is more valuable to their owners than the after-tax income. For example, a landowner could own land that he uses for his personal ends instead of leasing it to a farmer when the tax lowers the lease payment.
ParticipantBut, again, shifting in the mainstream literature (and thus, in the way Rothbard uses the term), means “shifting the reduction in income from a tax levied on you to someone else.” The sales tax is levied on the entrepreneurs. The state collects the tax from them. But the entrepreneurs’s income is profit, the difference between his selling prices to consumers and his buying prices to owners of factors of production. This leaves open the possibility that entrepreneurs can restore the pre-tax price spread (and thus, their profits) by either raising their selling prices for output or lowering their buying prices for inputs. If entrepreneurs shift the tax, then their income, which is profit, remains the same even though they pay the tax while that of either consumers or owners of factors of production declines.
Shifting does not refer to the production dynamics of the market. So Rothbard’s claim about the production effects of the tax are subsequent to new pattern of prices of factors of production result from the tax. In response to your last statement, then, Rothbard would say: the reduced demand for factors of production is the method entrepreneurs use to shift the tax to producers. The resulting change in the pattern of prices for producer goods will make some previously-viable production now not viable. With reduced supply, given demand, the price for such goods will rise. The rise in price harms consumers but does not shift consumer incomes to the state.
The attempt to shift the sales tax forward to consumers is asymmetric to the case of shifting it backward to producers. In the forward shifting case, when the tax is levied on entrepreneurs, they have previously-produced stocks to sell. It only reduces their revenue to raise their prices. Therefore, they will not do so. Their revenues are maximized at the existing prices because when the state levies a tax on entrepreneurs it does not increase consumer demands for their products. According to Rothbard, then, taxes can never be shifted forward. So there is no such case to compare to the case where taxes are shifted backward to analyze whether or not firms go out of business in both cases.
ParticipantFirst, it is not obvious that government schooling has positive externalities. Government officials can pursue their own interests in providing education because tax revenue frees them from having to cater to what parents want. In a democracy, their interests are in having a population “educated” to accept the rule of the state. Furthermore, I doubt if government education is highly correlated with crime rates. Does Mankiw cite studies? Finally, I don’t see how having government schooling K-12 results in developing more technology. At best, one could say that advanced technical training in college and graduate school might provide the ground work for it. But, even here, technological advance depends on the innovative character of the person and a freedom of the institutional setting in which he works rather than on training, which must be limited to what is already known.
Second, there are two cases of positive externalities. One is where the person generating the externality would not increase his production regardless of a government subsidy. Obvious, no government subsidy can be justified in this case. Only in the other case where the person would increase production could a subsidy be potentially justified,
Third, in the case where a person would increase production it isn’t obvious that the subsidy couldn’t be provided voluntarily. Even my local NPR station has fund drives and solicits over $100,000 in donations each time. Surely, if people really value the provision of some good, they will be willing to financially support its production. Maybe the government subsidy that NPR receives results in too many public radio programs or public radio programs with little social benefit or public radio programs that are too costly to produce.
Fourth, if the government uses coercion to provide the subsidy, then it creates “forced riders.” Using coercion takes the decision of government officials outside the realm of economic calculation. Therefore, their decision cannot be economizing for society as a whole. Government officials make production decisions on the basis of their own preferences, not by objectively comparing the preferences of others and producing what others find more valuable.
Take a look at Ludwig von Mises on externalities in Human Action:
http://library.mises.org/books/Ludwig%20von%20Mises/Human%20Action.pdf
And Murray Rothbard in Power and Market:
ParticipantRothbard is responding to the mainstream literature on tax incidence. In that literature, incidence refers to who bears the burden of a tax, i.e., whose income is lowered when the tax transfers income to the state. With a general sales tax collected from the entrepreneurs, Rothbard shows that producers income is lowered not that of entrepreneurs or consumers. Entrepreneurs will not raise prices for output because, given preferences, they are already at their revenue maximizing levels. And entrepreneurs will not lower the interest rate (i.e., the spread between output prices and input prices) to the capitalist because, given time preference, its current level is necessary to clear the time market. After paying the tax, entrepreneurs have less revenue and thus, their demands for factors of production must fall and the prices of producers goods fall to maintain the interest rate.
Incidence, therefore, is only part of a larger analysis of the overall effects of taxation. The harm to consumers is not directly from the tax revenue transferred to the state but indirectly from the suppression of production that results from the tax.
ParticipantInternational trade began to flourish in the West during the 13th century. The medieval fairs brought traders together with goods acquired from around the world. There was no hegemonic power protecting this trade.
Even after the rise of the nation states, international law as formulated by Hugo Grotius gave protection to trade. There was no hegemonic power protecting this trade either. In fact, in the age of mercantilism, England was chief among the mercantilist nation states.
After the age of mercantilism, trade restrictions were relaxed in the 19th century. The reason for this was that classical liberal ideas became more widely accepted. The political winds in Western nations blew in favor of free trade. But nation states persisted in their interference with international trade. Where is the evidence that England protected free international trade in the 19th century? In fact, England moved unilaterally toward freer trade in the first half of the 19th century without regard to what other countries did. What English sea power did to open up the Chinese markets in the late 19th century is called imperialism, not free trade. Moreover, it’s a non-sequitur to argue that because the English political class desired freer trade and England had the most powerful armed forces in the world they must have enforced freer trade on all other countries of the world.
Nation states destroyed international trade and disintegrated the world economy during the First World War. Things remained the same until after the Second World War when nation states partially rolled back their interventions into international trade. The reason for this was that politicians throughout Western nations desired a return to normalcy in international relations. Freer trade was part of their vision to avoid another world war. But nation states still managed international trade instead of making it completely free. Where is the evidence that America protected free international trade in the 20th century? Again, it’s a non-sequitur to argue that because the American political class desired freer trade and America had the most powerful armed forces in the world they must have enforced freer trade on all other countries of the world. I wonder if Iranians or Syrians think that American power has generated free international trade in the 21 st century.
All the world needs for free trade is international law based on private property and contract. Nation states, however, will not allow us to have free trade. They persist in their interventions. You might take a look at some of the works of Ludwig von Mises on free trade. He discussed both the theory and the history of international trade. One example is chapter 9 of Money, Method, and the Market Process:
ParticipantYes, new stages would be added between extraction of raw materials and production of cars.
ParticipantLengthening the structure of production means adding stages so that it takes more time from the extraction of raw materials to the sale of consumer goods.
Murray Rothbard gave the example of whaling. The primitive production structure of building a canoe and making a spears and killing a whale has a certain number of stages and takes a certain amount of time. Through saving and investing, it can be supplanted with a longer production structure of mining iron, producing steel, building each component part of a whaling boat outfitted with harpoon launchers, building the production processes to produce complementary producer goods (like fuel), assembling the boat, manning the boat and then killing a whale.
The longer production structure is physically more productive. Therefore, even though a smaller portion of income is spend on consumption, standards of living rise through saving and investing.
The process of lengthening the production structure for the entire economy results in thoroughly reconstituting it. Just compare production processes of 1950 to those of 2000 or of 1850 to 1900.
ParticipantBeing merely an economist, I think it prudent to defer to philosophers on this issue.
Here is David Gordon’s monograph, “The Philosophical Origins of the Austrian School.” It has an extended discussion of method. You’ll find it nearly midway through the article.
I would also suggest you post your question under the “Introduction to Logic” forum for Liberty Classroom’s resident philosopher, Professor Casey, to answer.
ParticipantThere is no strong correlation between the endowment of natural resources in a country and the standard of living people enjoy. America, Canada, Russia, China, and Africa are all well endowed with natural resources but have widely divergent standards of living. China, with the same natural resources, had very low standards of living before 1980 and steady rising standards of living since 1980. Hong Kong and Singapore have no natural resources to speak of and yet very high standards of living.
The key to economic progress is giving legal sanction to private property and contract. Then people can enter into the international division of labor and process of capital accumulation. They can be the beneficiaries of the greater productivity of everyone else in the world by selling to them and buying from them.
Thus, in countries with low standards of living like in the Middle East, which have few natural resources, and in Africa, which have many natural resources, need market reform. With private property and contract protected, people there could enter into the international division of labor and process of capital accumulation. Five hundred million people have been lifted out of poverty in China in the last three decades.
ParticipantFor real wages to increase across the economy, there must be capital accumulation and greater productivity. But for real wages to rise in one sector of the economy, like restaurants, all that’s necessary is for demand to shift away from other areas into restaurant meals.
Yes, increased real wages of workers from rising productivity in sectors that use machinery can raise the real wages of workers in sectors that don’t use machinery but only by increasing demand for the products they produce as we have both said.
In either case, the key is increasing demand for the products produced by workers in the sector without machinery.
ParticipantA worker’s wage is the same as the Marginal Revenue Product of his labor, which is the combination of its physical productivity and the market value of what he produces. Thus, a worker’s wage will increase if the market value of what he produces increases, even if his physical productivity doesn’t rise.
The money wage also depends on the purchasing power of money. A worker’s money wage can rise even if his “real” wage, i.e., the purchasing power of his wage, doesn’t.
In 2012, the BLS estimate of the average wage for Waiters and Waitresses was $9.95 and employment was 2,332,020.
http://www.bls.gov/oes/current/oes353031.htm#%283%29
In 1999, the average wage was $6.46 and employment was 2,039,950
http://www.bls.gov/oes/1999/oes353031.htm
That’s a 54 percent increase in the average wage and a 14 percent increase in employment over 13 years.
The CPI was 229.8 in May 2012 and 166.2 in May 1999. Prices increased 38 percent over those 13 years.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
Thus, the real wage of waiters and waitresses increased from $6.46 to $7.21 or 11.6 percent over those 13 years.
Without knowing any relevant details about this labor market, including the extent and type of government intervention, I would say that demand for restaurant meals has increased, pushing up their prices and increasing the demand for waiter and waitress services. The larger demand has modestly increased employment and real wages.
ParticipantYes, as long as excess reserves pass some threshold and are widely held by commercial banks (instead of concentrated in small number of them), then the demand to borrow reserves will be small and the resulting interest rate to borrow reserves will be low.
It should be remembered, however, that interest is paid on all reserves, not just excess reserves.
http://www.federalreserve.gov/monetarypolicy/reqresbalances.htm
Currently, the Fed pays 1/4 percent on both required and excess reserves.
http://www.federalreserve.gov/monetarypolicy/0AD345FADDDD49A8878308C9D9202BA4.htm
Thus, unless the Fed increases the interest rate it pays on excess reserves, there is no penalty to commercial banks that convert their excess reserves to required reserves by issuing more fiduciary media through credit creation. That the Fed is paying interest on reserves, therefore, is not the reason banks are not lending.
-
AuthorPosts