Limited Government, Government Workers

I thought I would share my comments on a current debate that I am having with friends over whether limited government supporters are hypocrites for taking government handouts. Here is what I had to say:

“The issue at hand on whether or not taking government benefits is hypocritical, while criticizing government to me can be explained through public choice economics.  Gordon Tullock from George Mason (University), who should have won the Nobel Prize in Economics with James Buchanan, wrote a very interesting article that relates to this subject. It is entitled “The Paradox of Revolution.” He uses an interesting example…

“Ruritania is governed by a vicious, corrupt, oppressive, and inefficient government. A group of pure-hearted revolutionaries are currently attempting to overthrow the government, and we know with absolute certainty that if they are successful they will establish a good, clean, beneficial, and efficient government. What should an individual Ruritanian do about this matter? He has three alternatives: He can join the revolutionaries, he can join the forces of the repression, or he can remain inactive.”

He then comes to the conclusion that the benefit of revolution is public good, while an individual joining would have a near-zero chance of changing the outcome. But also, if the revolutionary forces win, he will benefit from the public good even if he does nothing. And doing nothing decreases his chance of jail, injury, or death if he joins and the government wins or puts up a good fight.

Therefore, economically, his incentive is not to join the revolution as the low probability of success combined with the large punishment for failure is much higher then the public good that he himself cannot influence but in the .00001 percentage.

A comparable example would be what if in a presidential popular vote election your chance of dying was 1 out of 10 and your chance of changing the election is 1 in a million. The individual would not vote even though he knows if his candidate wins the country will be better off.

So how does this relate?

Any individual who benefits from the government whether its a politician, a farmer who gets subsidies, or an government bureaucrat has no individual incentive to quit his job even if his believes are that his job shouldn’t exist say for example. The government bureaucrat knows that even though the public good would be better off without the existence of his job, does not mean that him quitting would change anything at all. More than likely the government would hire someone else and would spend more money doing so.

One government bureaucrat quitting their job, or in the case above one Congresswoman refusing her government health care is not going to change the outcome of government health care. All it does is impose costs on the individual and benefits to no one.

So folks, this is exactly why big government exists.

We assumed in the example above that we knew with 100% certainty that the new government would be the best government the world had ever seen. And that is a big assumption. Most revolutions that occur in the world are merely trading one dictator for another. One could argue that, in fact, the American revolution is one of the only examples in history (maybe the Roman revolution from kings to republic) is the only non-example of this.

Limited government is filled with public goods, while big government is filled with individual handouts and this is why every limited government in the history of the world has turned into big government.”

Published in: on March 17, 2011 at 8:58 pm  Comments (1)  
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Millionaires leave Maryland: Does Federalism still work?

The founding fathers set up a system of federalism, which was to create a system of competition between states. With the growth of the central government, federalism has become near obsolete. The central government can use funding in order to water-down the effectiveness of federalism. One example of this is that the federal government required states to put the drinking age at 21 and if they did not they would not recieve their transportation money. Right now federalism is working in Maryland this from The Baltimore Sun:

“Let’s break this down: In 2008, in an effort to repeal the hugely unpopular computer services tax, the General Assembly and Gov. Martin O’Malley approved a new, temporary millionaires’ tax bracket. Marginal income over $1 million would, for a three-year period, be taxed at 6.25 percent instead of 5.5 percent. We’re talking net taxable income over $1 million here, so that’s money you’re making IN EXCESS OF $1 million after all tax deductions, etc.

Let’s assume you’re making $2 million a year in net taxable income. That means you’re paying at the new tax rate on a whopping $1 million. Your increased income tax burden because of the millionaires tax is $7,500.

So, after crunching the numbers, our $2 million earner now pays $22,675 more than he or she would have if we’d kept the old, flat tax brackets. Translating back to our typical Maryland family, that’s the equivalent of $645.02 a year, or about $12.40 a week. Is that enough to make you move?”

Federalism allows those millionaires who think that they can get a better deal on their income, to move their. Obviously the costs will have to be pretty high as many will have to sell their houses and so on.

The rest is here.

~PCCapitalist

Published in: on May 19, 2009 at 1:44 pm  Comments (1)  
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“The night of the living government,” coming to a tax-increase near you! by Roger Kimball

Today’s article of the day comes from Pajama’s Media:

My PJM colleague Andrew Klavan has just delivered a brilliant performance on PJTV. (What, you’ve not subscribed? Do it now!) “Night of the Living Government” is at once the most rousing, the funniest, and the scariest reflection on big government’s depredations since Ronald Reagan took to the campaign trail. Our government, Klavan says, has become like the zombies out of a horror movie:

[Government] doesn’t start businesses, it doesn’t create wealth, it doesn’t invent anything. It just devours all the stuff that you make. You bar the door against property tax, they come in through a sales tax, you board the windows against income taxes, they reach in through an energy tax.

But surely there are important differences between creatures from the “Night of the Living Dead” and the actions of the U.S. government. Of course there are! In the movie, Klavan observes,

zombies didn’t try to tell their victims being devoured was good for them. They didn’t say: “Let me devour your flesh, it’s patriotic.” Or, “Let me devour your flesh because we all have to make sacrifices.” Or — my favorite — “Let me devour your flesh because I know how to use it better than you do.” Also, when you try to stop the government zombies, when you say “No, zombie, No! Don’t devour my flesh,” they get pissy. “Well, that’s very selfish. You’re being greedy. You’re acting out of self interest.”

This brings us to my favorite part of Klavan’s skit. I like the pallor of Nancy Pelosi and Harry Reid: they’re every bit as creepy as the Hollywood monsters with which they share the screen. And what about that malodorous atmosphere of liberal guilt? What do you do when your liberal friends decry the “greed of Wall Street,” the “selfishness of Republicans”? You’re supposed to feel guilty. Do you? Klavan can help:

Now it always makes me feel really bad when a politician tells me I’m acting out of self-interest because everyone knows that politicians act out of a radiant love for all mankind. Or wait, maybe it’s an insatiable hunger for power! . . .

And now for the denouement:

Power is what this is all about. Power and Freedom. Every dollar the government takes is one less dollar of freedom for you and one more dollar of power for them. It’s your freedom to choose what you do with the fruits of your labor, whether you buy a TV or donate to charity or build your business or pay down your mortgage. It’s their power to finance make-work jobs and incompetent projects and corrupt programs which they can distribute as they will in order to buy votes and influence. And of course every citizen who feeds on those jobs and projects and programs, who doesn’t pay the taxes but benefits from the taxes paid by others becomes a zombie just like their government masters. Part of the the army of the unproductive undead that’s coming after you.

Klavan’s performance is half dramatic oratory, half Hayekian common sense. It is one hundred percent accurate in its description of what Chief Justice John Marshall warned about when he observed that “the power to tax is the power to destroy.” The moral? There are two: 1. Be afraid, be very afraid. 2. Get mad, then stand up for yourself, and join one of those tea-parties that U.S. Rep. Jan Schakowsky described as “descpicable and shameful.”

Published in: on April 28, 2009 at 6:00 pm  Leave a Comment  
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Texas Threatens to Leave the Union

This from The Huffington Post:

“Texas Gov. Rick Perry fired up an anti-tax “tea party” Wednesday with his stance against the federal government and for states’ rights as some in his U.S. flag-waving audience shouted, “Secede!”

An animated Perry told the crowd at Austin City Hall — one of three tea parties he was attending across the state — that officials in Washington have abandoned the country’s founding principles of limited government. He said the federal government is strangling Americans with taxation, spending and debt.

Perry repeated his running theme that Texas’ economy is in relatively good shape compared with other states and with the “federal budget mess.” Many in the crowd held signs deriding President Barack Obama and the $786 billion federal economic stimulus package.”

This begs the question that if this were to really happen what would Obama do? The basic idea is that the Constitution is suppose to be a social contract. Most normal contracts have exit clauses. The Civil War showed that the Constitution did not have an exit clause. Should there be an exit clause in the Constitution?

Many people like the author of this blog, would argue that the government would stay more limited and work much better as they would have to compete to keep their tax base. Are there any good arguments against allowing secession?

The rest is here.

~PCCapitalist

A Word on Today’s Tea Parties

Today many people around the country will get together for a unified cause. This cause was voiced on the Chicago Exchange floor by Rick Santelli. He said what everybody had been thinking at the time, that we are fed up with the spending of government and it needs to stop. We all realize that Obama is going to raise taxes, print money, and/or create debt. None of these are good, especially considering it is always in the interest of the politician to do the last two.

It is true that in early Constitutional America there were a few tax revolts for taxes that were much smaller than the ones we are complaining about today. It is true that Americans have gotten used to the way their government is. But it takes more than just getting mad once to change the way our government is run. We need to win the intellectual battle, so I challenge you to read people like Adam Smith, F.A. Hayek, Ludwig von Mises, and many others. This way we as a society can further the belief in liberty to our children and so on.

Let us not forget today and continue with this on tomorrow. Let us not delude ourselves to think that any politician will save our hard-earned money. Instead let us wake from our apathy and realize that our government is set up in a way in which politicians stay in power by spreading the costs and concentrating the benefits. This is why every district hates Congress but loves their Congressman or woman.

We have to remember where we have stepped into a world where not littering and being political correct has been placed higher than liberty. The Boston Tea Party was one where white males dressed up as Indians and threw tea into the water. Today none of you will even think about doing that because of the consequences. I am not saying do those things but I just want all the supports of these tea parties to realize exactly where we are today.

Today is important but always be thinking about tomorrow!

~PCCapitalist

Book Review: War, Wine, and Taxes by John V.C. Nye

In doing some of my research on imperialism, I ordered this book authored by a Mason Economist John Nye. This book is about the political economy of Anglo-French trade from 1689 to 1900. This may seem boring to you but as you can see in the title, it definitely is not. The purpose for my research in the book is how the British empire raised their revenues . As Nye shows, they partly did this through excise taxes that are also known as indirect taxes. He mainly focuses on the taxes of wine and alcohol.

I could not better sum it up than he has here at the beginning of his book:

“Why do the British drink beer and not wine? How did commercial tariff policy designed to protect domestic interests help the British state raise revenues to the point where Britain emerged as the leading European power of the eighteenth century? These two seemly unrelated issues are at the heart of one of the most important and underexplored cases in modern economic. history.”

Obviously, this is what he explores throughout his book. Nye explains that the reason why the citizens of Britain drink beer and not wine is because of tariffs on French wine. This shows the competitive nature between both Britain and France during this time. Nye also busts the myth that Britain was all about free trade at this time. They in fact had many tariffs to protect domestic industries and were plagued by rent seeking activity. This means that the parliament would create these tariffs in exchange for stuff from the domestic industries.

There really isn’t any bad stuff to say about this book.  I just wish he went into more about imperialism, but that is my research program so I am being a purely self interested.  This book is well researched and not to hard for the layman to understand. There are some graphs and at the end of his book, Nye runs his model and his regression. Anyone who loves history and economics will love this book.

Rating 9.5/10

~PCCapitalist

Published in: on April 7, 2009 at 12:42 pm  Leave a Comment  
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New Cigar and Cigarette Tax

As person who enjoys smoking cigars and is outraged, I thought I would bring to people’s attention this new tax on Cigars and Cigarettes. This from USA Today:

“Smokers are gasping at higher cigarette and cigar prices as the largest federal tobacco tax increase in history takes effect.

“Oh my gosh,” Bernardo Torres said Tuesday when a clerk at a CVS Pharmacy in Falls Church, Va., told him the new price, which went up in anticipation of the tax increase. Torres wanted to buy his aunt two cartons of cigarette-size cigars, but he walked away empty-handed after hearing the new price: $134. The tax on little cigars went from 4 cents to $1.01 a pack.”

First, they could only do this for a “just” cause which is to pay for children’s health care, which makes you believe that it is a ploy to get more revenue for a deficit ridden federal government. At the same time they talk out of the other side of their mouths hoping that this is going to reduce consumption. They cannot have it both ways. If the tax does the second thing then how will they fund the children’s healthcare?

Second, we have to remember that most Cigarette smokers are relatively poor than others. That means that this is just a tax upon the poor. Someone could argue that these are the exact people the policy is trying to help. This is also, in its purist form, tyranny of the majority.

Thirdly, this policy assumes that children’s health care can not be taken care of in the private sector. Assuming that all of this goes to actualy kids and so on because there have been arguments that the definition of who the money goes to is loose. The system we have in place today is a heavily interventionist policy, thus creating the problems. If people could explain to me why the supposed “free market” system does not take of this problem, I am will to hear.

The rest is here.

~PCCapitalist

Published in: on April 2, 2009 at 12:07 pm  Leave a Comment  
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What taxes do to entrepreneurialship and hardwork…

It is often said that higher taxer rates and more strictly related to the progressive tax rate does not decrease the incentive to work. The common argument is “who doesn’t want to make more money?” Well ABC News reports these people do not:

President Barack Obama’s tax proposal – which promises to increase taxes for those families with incomes of $250,000 or more — has some Americans brainstorming ways to decrease their pay, even if it’s just by a dollar.

63-year-old attorney based in Lafayette, La., who asked not to be named, told ABCNews.com that she plans to cut back on her business to get her annual income under the quarter million mark.

“We have to find a way out where we can make just what we need to be just under the line so we can benefit from Obama’s tax plan,” she added. “Why kill yourself working if you’re going to give it all away to people who aren’t working as hard?”

Dr. Sharon Poczatek, who runs her own dental practice in Boulder, Colo., said that she too is trying to figure out ways to get out of paying the taxes proposed in Obama’s plan.

“I’ve put thought into how to get under $250,000,” said Poczatek. “It would mean working fewer days which means having fewer employees, seeing fewer patients and taking time off.”

“The motivation for a lot of people like me — dentists, entrepreneurs, lawyers – is that the more you work the more money you make,” said Poczatek. “But if I’m going to be working just to give it back to the government — it’s de-motivating and demoralizing.”

The idea of a progressive tax will not only decrease the incentives for people to work, but it will also increase the incentive to go around the tax codes. These are both in relations to the Laffer curve. Of course, the problem with the Laffer curve is we do not know where we are on it. Either way a flat tax would solve most of these problems.

ABC even ran a poll here are the results as of 10:08pm March 2nd:

Is it fair for people to reduce high salaries to sidestep President Obama’s tax proposal?

Yes. I also would find ways to decrease my salary to avoid taxes.

1,073

Yes. Why should ordinary folks, even those making $250K, pay when big corporations get bailed out.

764

No. The rich have had too many tax breaks. They should be ashamed for finagling the system.

399

No. I have to pay high taxes and so should that high-income bracket. They can afford it.

194

Total Vote: 2,430

The ABC News story is here and the hattip for CATO is here.

~PCCapitalist

Published in: on March 3, 2009 at 2:00 pm  Leave a Comment  
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The Keynesian-Krugman Problem of War

As most of us has heard, there is an ongoing debate about Keynesian economics and whether it is in fact a good idea for the government to run deficits pursuing fiscal stimuli. In a previous article, I wrote what the economic reasoning is behind all of this. Upon further research, I have discovered an important untold part of the Keynesian viewpoint. That is which is illustrated best by Dr. Paul Krugman in his recent article discussing “What will stop the pain?”:

“What, then, will actually end the slump?

Well, the Great Depression did eventually come to an end, but that was thanks to an enormous war, something we’d rather not emulate.”

If you ask even some normal people, you will receive the answer that World War II caused us to get out of the Great Depression. This is inherently false. In fact Cullen and Fishback at NBER made this observation, ” [They] find that in the longer term counties receiving more war spending per capita during the war experienced extensive growth due to increases in population but not intensive growth, as the war spending had very small impacts on per capita measures of economic activity.”

How could this be? Most people when they think of productivity they think of labor and employment. If this was the case then World War II would be a great success. In fact, war times in general would bring a large boost to any economy, as they are a fiscal dream. Why is this not true? The fact is that the goods that they are producing are purely military and are being sent off to be destroyed. This is called the broken window fallacy, which Krugman violated after 9/11 when he said:

“…the attack opens the door to some sensible recession-fighting measures. For the last few weeks there has been a heated debate among liberals over whether to advocate the classic Keynesian response to economic slowdown, a temporary burst of public spending. There were plausible economic arguments in favor of such a move, but it was questionable whether Congress could agree on how to spend the money in time to be of any use — and there was also the certainty that conservatives would refuse to accept any such move unless it were tied to another round of irresponsible long-term tax cuts. Now it seems that we will indeed get a quick burst of public spending, however tragic the reasons.”

It is obvious here that Krugman along with other Keynesians secretly (or not so secretly) find war and destruction to be a good thing for our economy. This begs the question, why doesn’t Dr. Krugman’s plan involve increasing production of anything and blowing it up in the desert? This would be no more productive than World War II. It would just avoid all the pain and suffering.

To simplify things a bit, imagine an economy where they go to war and the factories switch from cars and tractors to tanks. While these tanks are going off to Europe to be destroyed, the prices of cars are going through the roof as supply has stopped. Sure, the inflationary wartime spending has caused people to go to work but they cannot buy anything as prices skyrocket. We have to remember the three ways that you can raise money for this. They are higher taxes, borrowing money, or inflation. Let’s not forget FDR’s ban on gold thus setting up inflation, which Truman inherited. This just acts as a tax and causes a very unstable currency. The other possible method was borrowing, which is just future tax increases. This will not create productive growth.

Many uneducated people on the right cling to this explanation because they feel it’s the only argument they have against the liberals saying it was the New Deal. Both of these groups should wake up and smell the free-market roses. It is ridiculous to think that a centrally planned economy (war-time economy) where massive amounts of people (human capital) along with materials (physical capital) is being destroy and very little non-military goods were being produced (not to mention there was rationing), somehow “stimulated” us out of a recession.

~PCCapitalist

Published in: on February 23, 2009 at 2:32 pm  Leave a Comment  
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New York Soda Tax

This from the Financial Times:

“New York state could impose an “obesity tax” on high-calorie soft drinks such as non-diet versions of Coke and Pepsi as public concerns over obesity turn potentially fattening foods into a politically acceptable target for taxation.

A number of US states have sales taxes on soft drinks, sweets and snacks, while most other foods are tax-exempt. But New York’s proposals would be the first to distinguish between “diet” and “non-diet” products. It would also double the existing 7.5 per cent sales tax, already one of the highest in the US, potentially raising over $400m.”

This is the classic exam of bureaucrats and politicians using Science to propose legislation. I am sure that Coke or Pepsi makes people fatter than Diet versions. This would only make sense because there are zero calories in Diet and greater than zero for regular versions.

First, will it work? I would imagine that it would work and that many people would shift their consumption. This makes sense because anytime you raise taxes on something, people will economize. Now the Governor cites this tax to try and raise revenue. If your purpose is to shift consumption then that will mean the tax will not bring in more revenue. People will avoid creating revenue by shifting. This is somewhat of the Laffer curve effect.

A major problem with this is that it puts a burden on the business owner. They would have to keep a record of how many regular sodas are sold so that the avoidance of the tax isn’t done by the business owner. Another problem is that some businesses like McDonalds would either have to eliminate serve your own drink fountains or charge everyone for the tax. All of these put an extra cost on the business owner thus raising the cost of all the drinks and food.

So prices will go up for all regardless. How about if you want to lower the deficit, lower the spending?

The rest is here.

~PCCapitalist

Published in: on December 19, 2008 at 12:58 am  Leave a Comment  
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