Economists have a handy term called “revealed preferences”. In colloquial English it means “look at what people do, not what they say, and certainly never take notice of what they say others should do”.
Now, you can’t help but notice that there is a disparity between those who say that taxes should be higher and those who act as if they should be. Clearly, an individual who really believes that the Government is more effective at spending his money would voluntarily offer up more than the legal minimum of taxation. That we have fewer people acting in this manner than are to be found writing columns and making speeches calling for higher taxation shows a certain gap, does it not, between public utterances and private actions? Why, we could make such donations a litmus test for those believers in higher taxation and state spending who want to compel all of us to pay more. Only those who show their commitment by sending a cheque to the Treasury should be treated seriously.
Cheques, by the way, should be made out to “The Accountant, HM Treasury”, and sent to 1 Horse Guards Road, London SW1A 2HQ. A 2nd-class stamp is sufficient and you are encouraged to add a covering note so that your donation is spent in the way you like.
Tim Worstall, “Show us your cheques”, Times of London, quoted in Continental Telegraph, 2020-05-07.
August 9, 2020
QotD: The economic concept of “revealed preferences”
July 28, 2020
QotD: Incentives and opportunity costs
No, really, there was one of those natural experiments, when inheritance tax laws changed at the end of the year. There was a definite blip downwards in the death rate of people rich enough to pay inheritance tax at the end of the year, a corresponding one upwards again as the new, lower, rates came into effect in January. Incentives really, really, matter.
Tim Worstall, “What’s The Over And Under On Tesla’s 200,000th Car Being Delivered On July 1?”, Continental Telegraph, 2019-05-03.
July 22, 2020
QotD: Urban decline
Intelligent mayors could prevent, halt and perhaps reverse their city decline by paying more attention to efficiency than equity. That might be politically difficult. Regardless of any other goal, mayors must recognize that their first order of business is to retain what economists call net positive fiscal residue. That’s a fancy term for keeping those people in the city who put more into the city’s coffers, in the form of taxes, than they take out in services. To do that might require discrimination in the provision of city services — e.g., providing better street lighting, greater safety, nicer libraries, better schools and other amenities in more affluent neighborhoods.
As one example, many middle-class families leave cities because of poor school quality. Mayors and others who care about the viability of a city should support school vouchers. That way, parents who stay — and put a high premium on the education of their children — wouldn’t be faced with paying twice in order for their kids to get a good education, through property taxes and private school tuition. Some might protest that city service discrimination is unfair. I might agree, but it’s even more unfair for cities, once the magnets of opportunities for low-income people, to become economic wastelands.
Walter E. Williams, “A Mayor’s Most Important Job”, Townhall, 2018-04-18.
July 15, 2020
Donald Shoup, the “Sir Isaac Newton of parking” or an “‘academic bottom-feeder’ who found a wonderful, rich ecological niche down there in the depths”
Colby Cosh, after taunting Ontarians yet again over our just-barely-past-Prohibition views on alcohol in public places, goes on to praise the work of UCLA economist Donald Shoup and his insights into the economics of parking:
“Parking meter FAIL” by kingdesmond1337 is licensed under CC BY-NC-SA 2.0
Parking — boring topic, ain’t it? Shoup latched onto it as a young-ish man because he was a follower of Henry George (1839-1897), the intriguing “single tax” economic theorist of the 19th century. George favoured a tax on the unimproved value of land parcels as a way of socializing pure rent (the value earned from occupying a mere location) and encouraging development. It is a concept that many economists still like, although it is potentially difficult to apply at scale. The widely used concept of tax increment financing is one example of Georgism in practice.
Shoup started out trying to fit parking spaces into the Georgist picture, but the boring topic was so underexamined that he found himself having to build a general theory of parking. He quantified the relationship between parking and traffic, finding that people “cruising” for parking spots were more destructive than anyone had imagined, and he inspired waves of research into the hidden market values of parking spots, which are rarely bought or sold in their own right. He happily describes himself as an “academic bottom-feeder” who found a wonderful, rich ecological niche down there in the depths.
Shoup has spent decades travelling the world and preaching against the concept of free parking, often meeting with bad-tempered resistance. Nevertheless, he has made a lot of headway in the world of urban planning. Any economist can see immediately how bundling a “free” parking space with an apartment or a job might be inefficient. The renter or homeowner has to pay a hidden extra cost for an amenity he might not choose to use, and the commuter is being given an incentive to drive to work — an incentive whose cash value he might prefer to keep. Shoup soon found, on empirical investigation, that most urban parking lots show signs of less-than-optimum use.
[…]
Of course, too little parking is as much of an efficiency problem as too much, which is why Shoup and his followers want parking to be priced wherever possible: if more is really needed, let a market create it. (To my eyes he has at least as much Hayek in him as Henry George.) In the era of Uber and smartphones, it is a lot easier to imagine a fully Shoupista world in which prices for parking spots update in real time and drivers look up prices at or near their destination before setting out.
June 30, 2020
In the final analysis, there is only one taxpayer – you
Ted Campbell comes out in favour of some form of negative income tax for Canada:
Cartoon that appeared with Michael K. Spencer’s article “Is Universal Basic Income really a solution?” at https://medium.com/@Michael_Spencer/is-universal-basic-income-really-a-solution-c0d6d95f100e
My first and, I believe, the most important thing to understand about taxes is: there is only one taxpayer; it is you and me and individuals like us. Corporations do not pay taxes ~ they pass every single penny of the taxes assessed to them on to us, their customers. You and I and your and my family and friends pay 100% of all corporate taxes.
A tax on income is a tax on savings which is, in turn, a tax on investment which means it is a tax on jobs.
Flate rate taxes are unfair to the poor, but progressive income taxes, while fairer, take money away from investment in jobs.
Consumption taxes (sales taxes and the HST/GST) are, to some extent, voluntary: consume less and you pay less in taxes. Where consumption is not discretionary ~ say on food ~ the tax system may be used to make consumption taxes at least somewhat progressive.
Corporate taxes ~ ALL corporate taxes ~ are just consumption taxes that are collected in an inefficient and expensive manner. It would be much, much better tax policy to raise the federal GST by 1 or 2 points and cancel ALL corporate taxes. Having a zero federal corporate tax rate would make Canada a much, much more attractive place in which to do business; companies would want to open plants and offices here ~ meaning more, new, good jobs for Canadians.
Income taxes have far too many exceptions and exemptions and deductions and so on. Federal income taxes should be clear and simple and the Canada Revenue Agency should be able to automatically provide a tax bill to about 98% of Canadians. That may mean a thorough (and time-consuming and politically unpopular) overhaul of the complete tax system.
June 24, 2020
Trudeau government wants to introduce an Internet “link tax”
Michael Geist on the Trudeau government’s latest indications of support for a tax grab to benefit certain favoured groups and organizations:
Canadian Heritage Minister Steven Guilbeault, 3 February 2020.
Screencapure from CPAC video.
Last week, Canadian Heritage Minister Steven Guilbeault called into question his own government’s policies on supporting news media, suggesting that those programs should be replaced by copyright rules that would open the door to payments from internet companies such as Google and Facebook. Mr. Guilbeault indicated that a legislative package was being prepared for the fall that would include new powers for Canada’s communications regulator and what are commonly referred to as Netflix taxes and internet linking taxes.
My Globe and Mail op-ed notes the government’s support for new internet taxes should not come as a surprise. There were strong signals that the spring budget – postponed indefinitely due to the current public health crisis – was going to include expanding sales taxes to capture digital sales such as Netflix or Spotify subscriptions.
[…]
It is Mr. Guilbeault’s plans for a link tax that should spark the most concern, however. The government has long promoted its policies designed to support the Canadian media sector, including direct funding for local journalism as well as labour and subscription tax credits. The taxpayer cost runs into the hundreds of millions of dollars, but is justified on the grounds that journalism is an essential service that requires public support.
Yet Mr. Guilbeault now says that government should not be funding media, characterizing the policies as short term measures aimed at mitigating a media emergency. Instead, Mr. Guilbeault supports a controversial copyright reform measure that would establish a news publisher’s right to demand payment for services that link to their content.
This payment – effectively a tax on linking – raises a host of concerns, not the least of which is that the proposal was not recommended by the government’s own copyright review last year. Copyright reform in Canada is always complicated, particularly given that responsibility for it is shared with Innovation, Science and Economic Development Minister Navdeep Bains, but delving into reforms that sparked protests in Europe could be politically risky for a minority government.
News organizations already benefit from large platforms linking to their content since the links generate visitors that increase advertising revenues and paying subscribers. Organizations that do not want the links can easily opt-out of appearing in services such as Google News or Facebook. In fact, after Google shut down its Google News service in Spain, studies found publisher website traffic dropped by 10 per cent.
May 22, 2020
When raising tax rates reduces total tax revenue
In the Continental Telegraph, Tim Worstall explains that the US tax system is already drawing too much in tax and any hope of increasing the total revenue will hinge on reducing the tax rate:
“washdc040208-02” by carencey is licensed under CC BY-NC-SA 2.0
It is often stated that the rate [the Laffer Curve peak rate] discovered here is 75 to 80%. This is not so – that could be the rate if only we entirely and wholly changed the taxation system in a mass of highly undesirable ways. If we remain with roughly what we’ve got in structure and intent then the peak of the Laffer Curve is 54%. That is not income tax, that is taxes upon income. That means we add together all Federal and State taxes upon income, including “employer paid” portions of Social Security, Medicaid, special amounts for this and that and so on and on. Anyone even vaguely familiar with the US taxation system will note that top earners are, already in many states, paying this or more.
There is something else though. The Laffer Curve is not about taxes upon high earners. It is about taxes upon income. It’s true that there will be slight differences in what the peak rate on lower incomes should be, or what the peak of the curve is there. The income effect will be higher than the substitution at lower incomes than it is at higher. We don’t know how much so let’s just stick with what we’ve got – 54%.
At which point:
The U.S. has a plethora of federal and state tax and benefit programs, each with its own work incentives and disincentives. This paper uses the Fiscal Analyzer (TFA) to assess how these policies, in unison, impact work incentives. TFA is a life-cycle, consumption-smoothing program that incorporates household borrowing constraints and all major federal and state fiscal policies. We use TFA in conjunction with the 2016 Federal Reserve Survey of Consumer Finances to calculate Americans’ remaining lifetime marginal net tax rates. Our findings are striking. One in four low-wage workers face marginal net tax rates above 70 percent, effectively locking them into poverty.
This includes the withdrawal of welfare benefits as income rises – as it should – and so is compatible with the Universal Credit idea that the peak tax and withdrawal rate should be 60%. Or is it 66%?
As we can see that rate is hugely above the Laffer Curve peak. It should, therefore, be lower.
It’s possible to extend the taper. Withdraw benefits at slower rates as income rises. This is, however, hugely, vastlylily, expensive. So it’s not going to happen to any significant degree and if it does then it will be financed by reducing the overall amount of benefit being paid. Which would mean taking money off the truly low income in order to soften the blow to the marginally low income – not the way we want to be doing things.
The only other way to do this is to reduce the taxation of the income of those low income folks. This has been done, a bit, by the Trump tax reforms and the much larger personal deduction. A further bite could be taken by FICA taxation only applying to the income above the personal deduction, not from dollar $1 of income as now. In fact that would be the simplest manner of at least beginning to get to grips with this problem. FICA only starts at $12,000 a year or so. Or even, if all are to be sensible, starting income tax and FICA only at the poverty line, currently $14,000 or so a year for a single adult.
April 27, 2020
The Economy of Ancient Rome
Economics Explained
Published 26 Apr 2020Ancient Rome was perhaps the most significant ancient civilisation to have existed throughout history, the empire lived for over 1000 years and in that time, it gave us the foundations for our modern society. Democracy, a court based legal system, Latin languages and alphabet, three course meals, and perhaps it was one of the first modern economies to move beyond a simple agrarian empire and develop things like modern banking, lending, taxation and yes even financial crisis as we know them today.
In the same way that scholars study a dead language like Latin to discerned the foundation of meaning in our modern dialects economists can study the histories of ancient civilisations like Rome to determine basic economic functions in a time before modern financial systems could skew results and Rome was perhaps the most developed case study we could look at.
#rome #economics #recession
Patreon – https://www.patreon.com/EconomicsExpl…
Discord – https://discord.gg/7kM7Tw9
Enquiries – loungejita@gmail.com
References –
Morley, N., 2002. Metropolis and hinterland: the city of Rome and the Italian economy, 200 BC-AD 200. Cambridge University Press.
Temin, P., 2006. “The economy of the early Roman Empire”. Journal of Economic Perspectives
Temin, P., 2017. The Roman market economy. Princeton University Press.
Garnsey, P., Hopkins, K. and Whittaker, C.R. eds., 1983. Trade in the ancient economy
Brown, P., 2012. Through the Eye of a Needle: Wealth, the Fall of Rome, and the Making of Christianity in the West, 350-550 AD. Princeton University Press.
Braund, D.C., 1983. Gabinius, Caesar, and the publicani of Judaea. Klio
Articles
http://penelope.uchicago.edu/Thayer/E…
April 14, 2020
QotD: The Edict of Diocletian, 301 AD
There was a massive increase in the armed forces and military spending; a huge building project was started in the form of a planned new capital for the Roman Empire in Asia Minor (present-day Turkey) at the city of Nicomedia; he greatly expanded the Roman bureaucracy; and he instituted forced labor for completion of his public works projects.
[…]
Diocletian also instituted a tax-in-kind; that is, the Roman government would not accept its own worthless, debased money as payment for taxes owed. Since the Roman taxpayers had to meet their tax bills in actual goods, this immobilized the entire population. Many were now bound to the land or a given occupation, so as to assure that they had produced the products that the government demanded as due it at tax collection time. An increasingly rigid economic structure, therefore, was imposed on the whole Roman economy.
But the worst was still to come. In A.D. 301, the famous Edict of Diocletian was passed. The Emperor fixed the prices of grain, beef, eggs, clothing, and other articles sold on the market. He also fixed the wages of those employed in the production of these goods. The penalty imposed for violation of these price and wage controls, that is, for any one caught selling any of these goods at higher than prescribed prices and wages, was death.
Realizing that once these controls were announced, many farmers and manufacturers would lose all incentive to bring their commodities to market at prices set far below what the traders would consider fair market values, Diocletian also prescribed in the Edict that all those who were found to be “hoarding” goods off the market would be severely punished; their goods would be confiscated and they would be put to death.
In the Greek parts of the Roman Empire, archeologists have found the price tables listing the government-mandated prices. They list over 1,000 individual prices and wages set by the law and what the permitted price and wage was to be for each of the commodities, goods, and labor services.
A Roman of this period named Lactanius wrote during this time that Diocletian “… then set himself to regulate the prices of all vendible things. There was much blood shed upon very slight and trifling accounts; and the people brought no more provisions to market, since they could not get a reasonable price for them and this increased the dearth [the scarcity] so much, that at last after many had died by it, the law was set aside.”
Richard M. Ebeling, “How Roman Central Planners Destroyed Their Economy”, Foundation for Economic Education, 2016-10-05.
March 27, 2020
March 4, 2020
QotD: Tax cuts “for the rich”
This is why populism and nationalism, taken to their natural conclusions, always lead to statism. The state is the only expression of the national or popular will that encompasses everybody. So, the more you talk about how the fundamental unit of society is a mythologized collective called “The People” or the nation, the more you are rhetorically empowering the state.
Sure, the Constitution begins with the words “We the People,” but that is not a populist sentiment — it’s a statement of precedence in terms of authority: The people come before the government (not the European notion of the state). The spirit of the Constitution is entirely about the fact that The People are not all one thing. It places the rights of a single person above those of the entire federal government! It assumes not only that the people will disagree among themselves, but that the country will be better off if there is such disagreement. No populist frets about the tyranny of the majority. American patriots do.
But if you recognize that humans create wealth with their brains and their industry and that it therefore belongs to them, you’ll be a little more humble about the state’s “right” to take as much as it wants to spend how it wants. Human ingenuity is the engine of wealth creation, and there is no other.
But that doesn’t mean government doesn’t play a role. Because, as I said, there will be no wealth creation if there is no rule of law. There will be no investment or ingenuity if there is no guarantee that you will be able to collect on that investment or reap the benefits of your innovation. Without such an environment, the biggest mob wins. And when the mob wins, children starve to death in what should be one of the richest countries in the world.
Jonah Goldberg, “America and the ‘Original Position'”, National Review, 2017-12-22.
February 12, 2020
“… perhaps the biggest Internet cash grab in the OECD with mandated payments and levies on thousands of Internet services with Canadian users”
Michael Geist refutes the claim that the recent Broadcast and Telecommunications Legislative Review Panel report does not recommend a “Netflix tax”:
The reference to a Netflix tax in the overview is the only such reference in the 235 page report. It was likely included in the overview in the hope that media coverage would jump on the claim and seek to re-assure Canadians that there was no Netflix tax or higher prices likely for consumers as a result of the report’s recommendations.
Yet the reality for anyone that reads beyond the overview is that the panel’s report not only recommends what would widely be considered a Netflix tax but proposes perhaps the biggest Internet cash grab in the OECD with mandated payments and levies on thousands of Internet services with Canadian users. This includes online streaming services, social media companies, news aggregators, and online communications services such as Skype, WhatApp, and Viber. In the view of the panel, any service or site with Canadian users is part of the “Canadian system” and should be expected to contribute to the development of Canadian content, Canadian news organizations, or building broadband connectivity. Note that all of this is above and beyond sales taxes, which the panel also recommends should be implemented with respect to foreign services.
Some of the panel’s plans are admittedly somewhat confusing. For example, the panel states:
Media curation undertakings brought under the regime – including Netflix and other online streaming services – would be required to devote a portion of their program budgets to Canadian programs.
That statement, along with chair Janet Yale’s comment at the opening press conference that there was no need for Netflix to spend additional money on Cancon but rather merely divert existing on foreign location and service production spending in Canada, has been interpreted by some to mean that Netflix would not have to increase its Canadian programming budget. But that is apparently not what the panel means. I spoke with Yale who confirmed that the panel expects the CRTC to establish a minimum Cancon spend requirement on Netflix based on its Canadian revenues. In other words, the requirement has nothing to do with its existing spending on production in Canada. For Netflix, that could certainly represent an increase in spending costs in Canada with those costs likely passed along to consumers.
Yet the panel’s plan extends far beyond just online streaming services such as Netflix. It also envisions mandatory levies against social media services and news aggregators that would be used to fund Canadian news services. It similarly targets a myriad of communications services that would pay into funds to support broadband development.
February 11, 2020
QotD: Agriculture and the rise of the state
The key to the nexus between grains and states lies, I believe, in the fact that only the cereal grains can serve as a basis for taxation: visible, divisible, assessable, storable, transportable, and “rationable.” Other crops — legumes, tubers, and starch plants — have some of these desirable state-adapted qualities, but none has all of these advantages. To appreciate the unique advantages of the cereal grains, it helps to place yourself in the sandals of an ancient tax-collection official interested, above all, in the ease and efficiency of appropriation.
The fact that cereal grains grow above ground and ripen at roughly the same time makes the job of any would-be taxman that much easier. If the army or the tax officials arrive at the right time, they can cut, thresh, and confiscate the entire harvest in one operation. For a hostile army, cereal grains make a scorched-earth policy that much simpler; they can burn the harvest-ready grain fields and reduce the cultivators to flight or starvation. Better yet, a tax collector or enemy can simply wait until the crop has been threshed and stored and confiscate the entire contents of the granary.
Compare this situation with, say, that of farmers whose staple crops are tubers such as potatoes or cassava/manioc. Such crops ripen in a year but may be safely left in the ground for an additional year or two. They can be dug up as needed and the reaminder stored where they grew, underground. If an army or tax collectors want your tubers, they will have to dig them up tuber by tuber, as the farmer does, and then they will have a cartload of potatoes which is far less valuable (either calorically or at the market) than a cartload of wheat, and is also more likely to spoil quickly. Frederick the Great of Prussia, when he ordered his subjects to plant potatoes, understood that, as planters of tubers, they could not be so easily dispersed by invading armies.
The “aboveground” simultaneous ripening of cereal grains has the inestimable advantage of being legible and assessable by the state tax collectors. These characteristics are what make wheat, barley, rice, millet, and maize the premier political crops. A tax assessor typically classifies fields in terms of soil quality and, knowing the average yield of a particular grain from such soil, is able to estimate a tax. If a year-to-year adjustment is required, fields can be surveyed and crop cuttings taken from a representative patch just before harvest to arrive at an estimated yield for that particular crop year. As we shall see, state officials tried to raise crop yields and taxes in kind by mandating techniques of cultivation; in Mesopotamia this included insisting on repeated ploughing to break up the large clods of earth and repeated harrowing for better rooting and nutrient delivery. The point is that with cereal grains and soil preparation, the planting, the condition of the crop, and the ultimate yield were more visible and assessable.
James Scott, Against The Grain: A deep history of the earliest states, 2017.
January 11, 2020
The bubbly 1720s
In the latest Age of Invention newsletter, Anton Howes looks at Britain’s volatile financial scene in the 1720s:
William Hogarth – The South Sea Scheme, 1721. In the bottom left corner are Protestant, Catholic, and Jewish figures gambling, while in the middle there is a huge machine, like a merry-go-round, which people are boarding. At the top is a goat, written below which is “Who’l Ride”. The people are scattered around the picture with a sense of disorder, while the progress of the well-dressed people towards the ride in the middle represents the foolishness of the crowd in buying stock in the South Sea Company, which spent more time issuing stock than anything else.
Scanned from The genius of William Hogarth or Hogarth’s Graphical Works via Wikimedia Commons.
Over in France, a Scottish banker named John Law had in the late 1710s overseen an ambitious scheme to reorganise the government’s finances. He ran the Mississippi Company, one of the many companies with monopolies on France’s international trade. His scheme was for the company to acquire all of the other similar monopolies, so that it could have a monopoly on all of the country’s intercontinental trade routes. By 1719, the Mississippi Company had swelled into a Company of the Indies, which in turn had purchased the right to collect French taxes, from which it took took its own cut. In exchange for acquiring these monopolies, Law’s new super-monopoly would buy up the French government’s accumulated war debts, allowing repayment on more generous terms. By allowing the state to borrow more cheaply, the scheme was to be a key plank in improving French military might.
Meanwhile, in Britain, a very similar project was afoot. Following the War of the Spanish Succession, one of the things Britain won from France was the asiento – the monopoly on supplying African slaves to Spain’s colonies in America. The asiento was given to the South Sea Company, which had the monopoly on British trade with South America, and which in 1720 began to follow a scheme similar to Law’s. Given developments in France, it would not do for the British state to be left behind in terms of its capacity to take on more debt for war. Thus, with political support, the South Sea Company began to buy up the government’s debt, persuading its creditors to exchange that debt for increasingly valuable company shares.
In 1720, both schemes came crashing down. In the case of Law’s scheme, he had printed paper currency with which people could buy his company’s shares, but in 1720 discovered he had printed too much. When he prudently tried to devalue the company’s shares to match the quantity of paper notes, the devaluation spun out of control. In the case of the South Sea Company, the causes of the crash were a little more mysterious, perhaps even verging on the mundane. One explanation is that too many wealthy investors simply tried to sell their shares so that they would have ready cash to spend on holidaying in Europe, precipitating a minor fall in the share price which then led to a more widespread panic. Regardless, it did not end well. The company itself continued for many years thereafter — it even got involved with whaling off the coast of Greenland — but the collapse of its share price ended its chance to restructure the government’s debts.
December 27, 2019
QotD: The perils of tax reform
This is why deductions rarely go away, no matter how stupid and detrimental to the fiscal and economic health of the republic. For example, virtually every wonk in Washington, from radical libertarian to fervent socialist, can agree upon at least one thing: the tax deductibility of employer-sponsored health insurance is a terrible idea. On the one hand, it costs the government a packet of money every year, money that has to be raised by higher taxes on someone else. On the other hand, it encourages employers to load as much compensation as possible into the health benefit package, which distorts our economy and contributes to ballooning costs. There is nothing nice to be said about this particular tax deduction, except that it undoubtedly seemed like a good idea during World War II.
And yet, when it comes time to, say, pass a major health-care reform, or reform the tax code, do our nation’s legislators start with the obvious, and get rid of this egregiously stupid deduction? I regret that there is no way to convey my hollow, despairing laugh in pixel form. Of course they don’t touch it. The very egregiousness of its immense costs, the massive distortions it has induced in American consumption patterns, mean that getting rid of it would be far too disruptive.
Megan McArdle, “Republicans Turned the Tax Code Into a Weapon”, Bloomberg View, 2017-11-03.
