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Weekend reflections

November 7th, 2009

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic.

Categories: Economics - General Tags:
  1. Kevin Cox
    November 9th, 2009 at 02:24 | #1

    @SeanG
    @Monkey’s Uncle
    MU you say that people support higher taxes for the rich because of envy. That is a blinkered view if ever there was one and is not backed by research. The way it works is that we envy others if they have more than us but this is highly dependent on how much we have. The more we have the more we envy others who have more. This is the root cause of sky rocketing executive salaries.

    We tend to envy people’s wealth if we doubt that they earned it. So most people do not envy those who they think deserve their wealth.

    You both appear to have a view of economics as a finite pie and that consumption of resources equates to prosperity and wealth. The reality is that wealth is an ever expanding pie and it can be one where we increase wealth while consuming fewer resources. Your assumptions lead you to erroneous conclusions about motivations and that we should not distribute resources to the poor because they will only consume them.

    To give you an example of why you are wrong and to illustrate how we can increase wealth while consuming less take the case of the education of women.

    Enriching women through better education and more security limits human consumption while increasing wealth. The reason is simple. If a woman has more resources she is not compelled to have babies as a form of productive output as she has other sources of revenue and security. This works just as well for teenage mums as it does for third world countries.

  2. Freelander
    November 9th, 2009 at 07:09 | #2

    One way of looking at the tax question is that the rich are not being taxed any differently to anyone else. After all the tax that is collected from a person’s gross income is not their’s, otherwise they would get to keep it. It is simply part of the government’s tax revenue. The only sense in which it is a particular taxpayer’s money is the way in which you might talk about a library book as being your library book before you return it to the library. Looking at it that way, there is nothing to envy.

    Another way to look at it is as a user charge charged by the rest of society on those lucky enough to gain significant benefits from that society. As the rich are benefiting substantially what is wrong with an enterprising (and fair) society charging them hansomly for accessing those benefits.

    An easy way for the rich to avoid having to handle part of the government’s tax receipts is simply to earn no income or move to a jurisdiction that doesn’t have income tax. But before they do that we should charge them for the various benefits that they have accumulated from our society and are departing overseas with.

  3. gerard
    November 9th, 2009 at 07:24 | #3

    It is like Atlas Shrugged.

    a Randian, what a surprise. Your arguments here are a perfect follow-up to slate article posted at #2.

  4. SeanG
    November 9th, 2009 at 07:37 | #4

    @gerard

    Have you ever read Atlas Shrugged?

  5. SeanG
    November 9th, 2009 at 07:41 | #5

    @Freelander

    You assume that the rich benefit by chance rather than hard work, studiousness or risk-taking that others are not prepared to do. If it was by coincidence and not by hard work then I would agree with you, but since so many people who earn good incomes get there from hard work, dedication, long hours and putting their own money at risk – why punish those who succeed and who create the companies who provide the employment for the vast majority of people?

    You say that they owe society: what happens when they no longer bother to put in the effort?

  6. Alice
    November 9th, 2009 at 08:16 | #6

    @SeanG
    Sean – take the rose coloured glasses off. Alex Hawke is a self interested prat. As I said …they sacked the wrong person but what would you expect from the liberal party?

    http://www.parliament.nsw.gov.au/prod/PARLMENT/hansArt.nsf/V3Key/LA20061025036

  7. gerard
    November 9th, 2009 at 08:19 | #7

    Have you ever read Atlas Shrugged?

    No… I just skipped through for the hot violent sex! when I was a teenager, I borrowed it from a friend whose dad – a rabid Rightwinger – had it on his bookshelf. sorry to admit that I didn’t have the patience of an officer Barbrady, although I’ve read enough to know that it is wholly without literary merit. at the time I didn’t realize that the author was a mentally deranged speed-addict who idolized serial killers, but the solipsistic contempt for humanity that is the common denominator of her morally abject followers would have made that information unsurprising. anyway, since your Randians believe that selfishness is the highest virtue and don’t feel sorry for anyone else, don’t expect anyone to feel sorry for you when you’re riding the “taxes hurt” whaambulance! If you don’t like living in a civilized society then you’re welcome to Go Galt.

  8. SeanG
    November 9th, 2009 at 08:37 | #8

    @Alice

    That’s really good, Alice. I am not a member of the Liberal Party so why should I care?

  9. SeanG
    November 9th, 2009 at 08:39 | #9

    @gerard

    It is not well written and Rand’s sexual views come across quite explicitly.

    Read it before you criticise it because it is very interesting. Imagine a world where those who put so much effort in, who take pride in their work, are punished and forced to give to society because there are those who need it more than they do (although these people are just business owners who slid up to politicians) and whatever they do someone holds them back from achieving their goal.

    Sounds a lot like what you want to do to every high achiever.

  10. Monkey’s Uncle
    November 9th, 2009 at 09:47 | #10

    Kevin, I may have misinterpreted you slightly. I take it you are drawing a distinction between finite resources (such as land, water etc.) and infinite wealth (that is, the ability to add value through using resources productively and combining them to create more value).

    I certainly don’t believe economics is a zero-sum game. On the contrary, with the right incentives you increase the size of the pie. With the wrong incentives you reduce the size of the pie.

    The irony is that the more the size of government increases, the more it actually becomes a zero-sum game or a negative sum game. Whenever governments redistribute resources to one section of society, they must take more from someone else. The government cannot make the pie bigger, despite the wishful thinking about demand and multiplier effects from some. Indeed, by reducing incentives the government will make the pie smaller. Which means society ends up becoming a competition among different sectional interests for a share of diminishing economic output. This must erode social cohesion as well.

  11. Freelander
    November 9th, 2009 at 10:12 | #11

    @SeanG

    I make no such assumption. When they no longer put in the effort? They continue to benefit from society like others in their position do. ‘no longer put in the effort’ Sounds suspiciously like the Atlas Shrugged nonsense. The rich are not rich all by themselves. Their wealth is a product of the society in which they live. No one ever became wealthy all by themselves. Reality is not a Randian wet dream.

  12. November 9th, 2009 at 10:36 | #12

    @Salient Green

    I didn’t tell you that what the government did to you, those times, was wrong (in an engineering sense – I’m not talking ethics just now); it worked. I’m telling you that – as a matter of fact, with historical precedents – there are times and places when taxing those who can’t pay works.

    Likewise I made no comment on whether governments use taxes to govern (though you really shouldn’t think of that as “provide services and build things” – they also smash things and cause harms, as they think fit). I pointed out that they don’t, or don’t have to, use taxes to raise revenue for those things, and that they sometimes do those things without using revenue for them. In an advanced economy, taxes only appear to go to governing; actually, spending goes to that and taxing goes to keeping inflation from rising as a consequence. This is partly from how fiat currencies work, and partly from using consolidated revenue with no hypothecated taxes (meaning, there is no link from tax to particular activities). In less developed countries, including the colonial cases I mentioned, some government activities are carried out more directly still, using forced labour or collections of consumables in kind, so money isn’t involved and revenue isn’t used but only other resources. Tax revenues – by definition in money – are bypassed.

  13. Donald Oats
    November 9th, 2009 at 11:30 | #13

    One of my work mates from a few years back suggested that income tax should not only be progressive, but shouldn’t allow any work deductions – period. If no work related tax expenses can be claimed, that immediately simplifies a chunk of tax law, the tax form itself, and reduces the number of necessary tax audits to ensure compliance. I’m in basic agreement with this.

    It could be taken further though by a tax law that only allows expenses to be deducted against income derived directly from the capital and/or production that has generated the expenses. For example, if the current negative gearing of investment property was under this rule, then expenses generated directly in making the income/profit from renting out the home may be only be deducted from the rental profit/income of that property. Boy, wouldn’t that put the cat among the pigeons?

    A phased reduction of negative gearing would be sensible too.

    However, we have what we have, and I don’t object to people taking legitimate work expense deductions, or deductions related to sole owner, or other single person business activity, as that is how the tax system stands at the moment.

    Company tax should be simplified too. This is probably more important than salaried people’s taxes, as the bigger companies may reduce their taxes to ridiculously low levels, given the numerous accounting/financial strategies available for dodging tax. If the company tax could be simplified, it might be possible – I don’t have robust figures so I’m yet to form a strong opinion – to actually reduce overall company tax rates a bit, as fewer big companies would have the luxury of avoiding or “minimising” their taxes.

    As an aside, I sometimes feel like I’m the only person who didn’t receive the stimulus cash bonus: IIRC, my tax return had no income tax due to my taxable income dropping below my claimable expenses – I made a few charity donations, which are declarable as deductions, and bang! That was enough to take me over the threshold and to miss out – believe me, I checked afterwards with the ATO to see if I was able to get the bonus, but the answer was a polite and firm “No.” Them’s the breaks :-(

  14. Sea-bass
    November 9th, 2009 at 11:36 | #14

    @SeanG
    I think you’ll find that a lot of professionals already “go Galt” on a regular basis, in the form of salary sacrifice. Especially in the medical profession, you’ll find neuro surgeons performing a few operations a week and then going off to play golf. Sure, they could be doing more operations, but what’s the point when you’re paying effective tax over 50%?

    But they have no right to be well remunerated, since, according to these people, wealth is collectively owned by society regardless of what an individual does to actually increase it. Sure, I could devote 5-10 years of my life studying medicine or engineering, but why don’t I just sit back and wait for the share of the ever-shrinking pie to which I’m entitled?

    Speaking of objectivists, Wikipedia founder Jimmy Wales identified himself as one: http://www.youtube.com/watch?v=qxxddBY-Vwo

    I wonder if Gerard, Freelander and co. will continue to use Wikipedia, even though it’s affiliated with evil objectivists (oh, the horror!)

  15. Freelander
    November 9th, 2009 at 12:44 | #15

    @Sea-bass

    The real reason they “go Galt” is because they are paid so generously for doing unnecessary operations that they don’t really need to work a full week. The most powerful union that has remained untouched by reform is the medical union. Their work pratices are far worse than the warfees ever were.

  16. Freelander
    November 9th, 2009 at 12:45 | #16

    @Sea-bass

    Wealth is collectively created by society. Only delusionists think they did it all by themselves. There are no self-made men, or women.

  17. Alice
    November 9th, 2009 at 13:16 | #17

    @SeanG
    You asked Sean G.

  18. Freelander
    November 9th, 2009 at 13:37 | #18

    @Sea-bass

    I don’t think ‘Objectivists’ are necessarily evil. Even if they all are, they can come around and mow my lawn if they do a good job and I might even give them some money for it.

    As for Wikipedia, it is a most unRandian creation as it violates the virtue of selfishness.

  19. Sea-bass
    November 9th, 2009 at 13:52 | #19

    @Freelander
    Society is not some “blob”, it consists of individuals pursuing their own self-interests, it just so happens that the only way to satisfy this self-interest is by offering a good or a service for which somebody else is willing to trade their own produce. Perhaps you might still argue that wealth is collectively created but it by no means follows that it should be collectively owned.

    No one makes it on their own, true, they rely on the inputs of others, and thus others are paid for supplying these inputs at their market price, not whatever arbitrary price confirms to your moral judgements about what is worthy or not.

    And if you get out of bed each day and seriously believe that you aren’t motivated by your own self-interest, you are the one who is deluded. And irrational, like most people who preach radical egalitarianism – but when it comes to the crunch, and you have to make hard decisions, I’m willing to bet you will go with what is in your own self-interest. It’s like what they say about the Soviet system, that even though the political ideologues preached the gospel of equality, when it came to their own children they did all they could to cheat the system and give their kids a better life. Much like the PM of this country, who preaches the virtues of the public school system and ends up sending his own kids to the most exclusive private school in Canberra.

  20. Sea-bass
    November 9th, 2009 at 14:04 | #20

    Freelander :@Sea-bass
    I don’t think ‘Objectivists’ are necessarily evil. Even if they all are, they can come around and mow my lawn if they do a good job and I might even give them some money for it.
    As for Wikipedia, it is a most unRandian creation as it violates the virtue of selfishness.

    Do you even understand the difference between selfishness and greed? Rand’s idea of selfishness is rational self-interest (and many difficulties may have been avoided if she had used this choice of words). What astounds me that people who throw a tantrum about Rand preaching “selfishness” cannot muster the same self-righteous indignity at the mention of Adam Smith and the invisible hand of the market. The two concepts are very similar.

    On a moral level, “selfishness” refers to acting in such a way that is consistent with one’s moral principles, and the “evil of altruism” lies in sacrificing oneself for a cause in which one does not believe eg. fighting an unjustified war of aggression in the name of King and country. That is, one can still give to charity to educate poor African children if one holds education and the pursuit of knowledge in great esteem.

    Rand and objectivism can be (and have been) rightly criticised by serious scholars for many reasons, yet the best criticisms show a deep understanding of her philosophy (and economics). The criticisms here, by contrast, come from those who have read a few pages of her books and seem to be determined to put their utter ignorance on display.

  21. Alice
    November 9th, 2009 at 15:37 | #21

    @Sea-bass
    Sea Bass – Rational doesnt exist when it comes to human beings. It only exists in faulty economics models and it certainly doesnt exist in aggregate even if it does, or ever did exist on all occasions for some individuals, which I doubt, on a micro level. One persons rational is another persons irrational. There is no way to measure a persons rationality – so its an assumption only.

  22. Jarrah
    November 9th, 2009 at 17:16 | #22

    “Rational doesnt exist when it comes to human beings.”

    Maybe that’s the case with you, but don’t cast aspersions on the rest of the human race ;-)

  23. gerard
    November 9th, 2009 at 17:18 | #23

    Seabass, seems you’re quite sensitive to Rand being called out as the second-rate Anton LaVey that she was, and obviously mentally ill to boot. We’re all so ignorant we can’t see the shining brilliance of Randian philosophy (“and economics!”) through the haze of her poor writing skills, luckily you’re here to educate us, it’s almost altruistic of you to sacrifice your time like this.

    As for Wikipedia, I don’t mind what Jimbo believes, he seems to have done a good job of keeping his political views outside the project, and I’ll assume that as little of it has been written by him as by myself anyway! so I’ll continue using it, in fact I’ll use it right now

    http://en.wikipedia.org/wiki/Jimmy_Wales

    In late 2005, Wales edited his own biographical entry on the English Wikipedia. Writer Rogers Cadenhead drew attention to logs showing that in his edits to the page, Wales had removed references to Sanger as the co-founder of Wikipedia. Sanger commented that “having seen edits like this, it does seem that Jimmy is attempting to rewrite history. But this is a futile process because in our brave new world of transparent activity and maximum communication, the truth will out.”

    yep, certainly sounds like the type of narcissitic @sshole that would be attracted to Objectivism. although to his credit he does describe the US Libertarian party as “lunatics”

  24. Alice
    November 9th, 2009 at 17:53 | #24

    @Jarrah
    Im casting “irrational” on you and Sea Bass and Sean G …oh and Andy Reynolds….! The lot of you freedom fighters want to cling on to the “rational behaviour” assumption…like drowning men to a liferaft with a massive hole in it.

  25. Sea-bass
    November 9th, 2009 at 18:20 | #25

    @Alice
    Don’t worry Alice, I certainly don’t assume rationality of other people, especially not the sort of people I meet here. Nonetheless, it would be nice if more people aspired to act rationally on a day to day basis.

  26. Alice
    November 9th, 2009 at 18:41 | #26

    @Sea-bass
    As ever an idealist Sea Bass. Whats wrong with just taking people as you find them….. without expecting rationality? Your standards are your standards. You act rationally then. You cant control how other people act. Thats the hidden weakness ..and people just dont act rationally.

    There is nothing you can do about irrationality Sea Bass…think of all those murders that wouldnt be committed if people rationally thought about the jail sentence.

  27. Freelander
    November 9th, 2009 at 18:45 | #27

    @Sea-bass

    The only point on which I agree with you is that Rand had nothing original to say (or have I misinterpreted you). As the Slate article intimates, she was a sad product of a sad time (one of many) in Russian history. Her philosophy, constructed from a mishmash of others ideas which she had picked up in her youth, was ultimately the product of emotion rather than clarity of though. She was, somewhat deluded, somewhat nasty and somewhat pityful. When her toyboy ditched her, her cult became even more bizarre.

  28. Freelander
    November 9th, 2009 at 18:52 | #28

    @gerard

    Yes. I agree. The real attraction of the libertarianism is that it provides a ready made pseudo-philosophy for those suffering from narcissistic personality disorder because the sufferers like to think well of themselves, which is somewhat difficult to do given their behaviour. Interestingly Rand had the type of background that can result in this disorder. She and her heroic characters are simply dripping in narcissism.

  29. nanks
    November 9th, 2009 at 19:04 | #29

    re rationality, the work of Gerd Gigerenzer http://en.wikipedia.org/wiki/Gerd_Gigerenzer attracted me as an undergraduate. Should be read as well as the more popular Kahneman and Tversky.

  30. Jarrah
    November 9th, 2009 at 20:48 | #30

    @Alice
    So you say rationality doesn’t exist, then call some people irrational… do you even know what you’re saying?

    I say rationality does exist. Not perfect, permanent or ubiquitous rationality, but it exists, and it’s the best way to think about human behaviour, on average, in aggregate.

    What else would you use? Irrationality? That equals unpredictability, and thus any disbeliever in rationality (on average, in aggregate) automatically loses any ability to analyse or understand human behaviour. Do you really want to place yourself in that category?

    I bet you $100 that you behaved very rationally today. This morning, did you put your socks on before your shoes? Then did you use the most convenient and/or quickest route to work/study/shopping? Did you decide to pay for rent/bills/groceries at some point?

    And even common examples of “irrationality” prove to be otherwise when examined more closely. Hidden/intangible benefits (ie lottery tickets) and future discounting (smoking) are just two reasons why something that is rational can appear irrational.

  31. Alice
    November 9th, 2009 at 20:58 | #31

    @Jarrah
    Jarrah

    you say “So you say rationality doesn’t exist, then call some people irrational… do you even know what you’re saying?”

    I know what Im saying Jarrah. Do you know what you are saying???

    Completely irrational. Which is what I was saying about you…and as for today, I had a very bad day with Stata (and the dictates of empricism) and got grumpy with my boss who had very little to do with it.

    Whats rational about that?. Havent you heard of kicking the cat after work ?- well if I was rational I would have.

  32. Freelander
    November 9th, 2009 at 21:01 | #32

    @Jarrah

    The lottery tickets and smoking future discounting discussion is simply defining them as rational. If you have an all encompasing definition of rationality so that any behaviour, is, by definition, rational, then all you can find is rationality. But you have defined the problem away and simply moved to the realm of metaphysics. That is, you are not saying anything at all meaningful about reality.

  33. Alice
    November 9th, 2009 at 21:06 | #33

    @Jarrah
    Id like you to mail me the $100 dollars now Jarrah because I won the bet, unless you were gambling without any convinction which seems a bit irrational.

  34. Alice
    November 9th, 2009 at 21:15 | #34

    @Alice
    Im trying again – the moderator got me but for the life of me I cant see any rational reason why.

    “Id like you to mail me the 100 dollars now Jarrah because I won the bet, unless you were gambling without any conviction which seems a bit irrational.”

  35. SeanG
    November 9th, 2009 at 21:42 | #35

    @Freelander

    Of course. The rich get rich because they sleep in all day and expect society to provide without giving anything back.
    Supply and demand – having a product that people want and selling them it. Hard work – getting ahead of the pack. Risk taking – investing and starting something from scratch.

    You say that none of those matter?

  36. Freelander
    November 9th, 2009 at 22:40 | #36

    @SeanG

    You seem to want to get rich by taking everything society has to offer, and more and claiming it all as your own, and claiming you did it all by yourself. No one starts anything from scratch. How about a bit of humility?

  37. SeanG
    November 10th, 2009 at 03:31 | #37

    @Freelander

    You do realise the concept of supply and demand? I have a skill/good that I can provide and you want to purchase it. Saying that it is taking from society ignores reality because individual initiative contributes to society and determination, risk-taking, commitment provide those goods which you purchase and the services you require.

    By your logic anyone who wants to succeed is scum although it is individual drive that has spurred humanity forward for millenia.

  38. Freelander
    November 10th, 2009 at 09:20 | #38

    @SeanG

    You did it all by yourself. Good for you. Have you heard of supply and demand? The rest of society supplies you with essential protection and confers on you property rights yet you seem to think they should do this for free. The rest of society put you in a position where you could earn but you don’t think they should get anything for that. A very narcissistic perspective.

  39. Kevin Cox
    November 11th, 2009 at 02:49 | #39

    @Monkey’s Uncle
    Yes I do distinguish between activities that increase wealth and activities that decrease wealth. In other words I see a difference between investing and consumption. Our system of measurement – money – makes no difference between the two and so we get this absurd situation that the more we consume the wealthier we apparently get.

    This failure of our measuring system to distinguish between consumption and investment has lead us down the path of an unsustainable future so we have the system trying to maximize consumption as a measure of success rather than maximizing wealth (or future capacity) as the measure of success.

    It has lead us to make it more financially expensive to invest in a new asset than it is to buy an existing asset. This has lead to the bizarre situation where the cost of building a new piece of infrastructure like the new Cotter Dam for Canberra is going to be double the cost of construction because we insist on paying for investments from savings not from the new wealth the investment creates.

  40. Jarrah
    November 12th, 2009 at 15:58 | #40

    @Alice
    I don’t think you do know what you are saying. First you claim rational humans don’t exist. Then you attempt to insult certain humans by saying they aren’t rational. That doesn’t make any sense. It is, if you’ll pardon the pun, irrational.

    And so sorry, but what bet? Are you now confusing me with someone with whom you had a bet, as well as confusing rationality and irrationality?

  41. Jarrah
    November 12th, 2009 at 16:13 | #41

    @Freelander
    Of course it isn’t. The examples were to show that behaviour that appears superficially irrational can in fact be rational. The lottery ticket is irrational if you expect to win, but may be rational if you take into account the hidden benefits of, say, daydreaming about the winnings. Smoking is irrational if you only count the long-term costs – like disease and reduced lifespan – but may be rational if you also count the short-term benefits and weigh them against each other accordingly.

    I’m not trying to say all gambling and drug-taking is rational, I’m only trying to show that things aren’t cut-and-dried.

    Look at it this way. Human behaviour is either random, or non-random. If non-random, what determines it? I put it to you, and particularly to Alice, that rationality is an important driving force. And I don’t mean a Borg-like hyper-rationality that exists only in undergraduate microeconomics models, but one born of genetics and culture, and which says that humans make cost-benefit analyses.

    In other words, incentives matter. Or – people pursue their self-interest. Always bearing in mind that this is on average, in aggregate, lest you accuse me of ignoring obvious irrationalities.

    It’s up to you and Alice to substantiate the wildly ambitious claim that people aren’t rational, if you dare. But be warned – if by some miracle you can put together a coherent case, it automatically means that you must abdicate from discussing public policy. To regulate and influence behaviour, a rational population is a prerequisite!

  42. Jarrah
    November 12th, 2009 at 22:38 | #42

    Bump.

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