Taxes - Inconvient Truths (1 Viewer)

[Alisa]

And that made me realized one more point I didn't address in that analogy. We also are poorer because glazier found employment in making glass to replace the broken panes when he could had made brand new panes to sell to people with new building. Or perhaps if there's no demand for panes as there are no broken windows, glazier would have had spent his time farming, and thus producing a bushel of carrots, so instead of making a window to replace the one that was broken by vandal, we could been richer by having an extra bushel of carrots or an extra pane for a new house.

The point here is that it's easy to think that the vandalism may seem to simulate the economy but in reality what it meant was that we had to devote our time and resources to get back to where we were in square one (and thus lose our time and resource in process), which ultimately make us poorer

I completely agree with this point, in fact, I think that GDP should be calculated in net terms. Right now, a lot of our GDP are actually things that detract from our wealth. For instance, when a refinery or a military base contaminates an area, a cleanup often costing thousands or hundreds of thousands of dollars has to be completed. This money is counted as additional GDP - there are consultants, contracters, subs, equipment suppliers, and on and on. But all of this is actually NEGATIVE GDP, because those are resources that could have been spent on the actual mission of the company (such as expanding refining capactiy, or training more soldiers), but those resources are instead wasted on cleaning up a mess.

 

[Banana]

As I already said, yes, the baker is worse off.
What doesn't hold up is the 'we're all worse off' part.

That's because I had forgotten about what happens to glazier if Baker didn't buy a pane from him. Because glazier had to spend his time and resource (and buying other goods) just to replace the pane, we're just getting back to the square one (and spending to do so) and thus are worse off. Had glazier merely sold the same pane to a carpenter building a new house, we are collectively richer.

Yes, it may mean that glazier could be unemployed because there is no demand for making windows, but that's up to glazier to seek a new trade. Because there are always needs, it's usually a matter of time before glazier is able to find new employment, and when he does, we're collectively richer because baker got to keep his windows from yesterday, buy a new suit and thus benefitting the tailor, while the glazier get to be productive growing carrots which is preferable to unused panes.

I wasn't assuming anything. Hence the use of the word 'if'.

Now who's making assumptions?

Well, 'if' is an assumption, isn't it? Even so, I addressed the new fact, did I?

The main danger of these types of hypothetical examples always seem to be the chasm between what they describe and the real world. They apply in certain ways but it doesn't take much effort to find out where they don't. I don't necessarily disagree with the point you were making, I just felt that the eample given weakened it a bit.

I hear you. It's quite possible that my example was all bungled because I didn't address all aspects as I read it out of the book (and you can see that is for I've forgotten about glazier, which was crucial point to the question of how we are collectively worse off.)

 

[Rich]

Would you rather live in Communist Soviet Union in the late 20th century or in Rome in the 2nd century? It could be argued that Rome had a better economy (more innovation, more economic freedom, etc.) but it MIGHT also be argued that the lifestyle comparatively sucked.

Who's to say?

Spread the wealth! Obama wants my money to give to you...I think I should comply (or be beat up by his thugs in the press).

Well that's odd, those evil communists, ie the Chinese have been propping up the US under Bush for years

 

[statsman]

Spread the wealth! Obama wants my money to give to you...I think I should comply (or be beat up by his thugs in the press).

I seem to recall that when McCain and Obama were neck and neck in the polls, the press was mostly against Obama. Hence the slur stories that turned most of the American public against McCain.

NOW that Obama has a clear lead, the press are all falling into line to be nice to him.

The thing to remember is that the media are in business to turn a profit (just like Banana's glazier) and won't back a loser because its bad for business.

Perhaps you could learn somthing from them.

 

[statsman]

Banana:
I loved your story. A lot of people don't look at things this way because they are far more concerned with how much money they have in their pocket. They never seem to question the money itself.
For example:

If you are doing business with the government, who's money are they paying you with? The money you gave them in taxes last year. You are just making back your own money. Back to square one.

I would also recommend Adam Smith's "The Wealth of Nations". We have far too many people in our current economy who are fabulously rich but who produce nothing. Wealth comes from producing a product at the lowest possible cost and selling it for the highest possible price. This is called capitolism which is not a dirty word. Those who hover around the edges of the economy will be the first to go when the recession hits.

 

[Banana]

Statsman, excellent point and I should add that it's not only the money that they took from you last year but also new money they print off the press. If anyone has been reading the news about financial mess, they should notice how many article quote various central banks (Federal Reserve, Bank of England, ECB) stand ready to provide 'unlimited cash' to banks.

Just did where did the 'unlimited cash' come from?

More pressing, how is that different from counterfeiting? Not much, just that former is legal, the other isn't!

No wonder why nobody wants to go back to sound money- they couldn't promise the moon if they actually had to back the money with something tangible.



BTW, I understand it was Karl Marx whom coined the word 'Capitalism' in hope of appealing to people that only rich get richer at expense of everyone else when in fact it's everyone who gets richer collectively, and long since has been a political fodder ungirded by any serious theory.

 

[Steve R.]

No wonder why nobody wants to go back to sound money- they couldn't promise the moon if they actually had to back the money with something tangible.

I can't resist, fingers are in motion. I never believed in the gold standard, but then our currency has been debased and continues to be debased. Gas has gone from $0.30 a gallon to $3.00 a gallon. As a nation we are creating an inflationary spiral by proposing programs to artificially "foster economic growth", we have zero % down programs which allows people to buy stuff before the money is earned, we have cheap credit, we are exporting our wealth overseas to buy a standard of living, and we subsidize things such as college tuition and housing. If the dollar is to have meaning its value should be "fixed".

A particular travesty is the concept that when a home goes up in value you are making money (generating wealth). A house is an asset that has value, but it does not create wealth. A perceived increase in the value of a house is really a reflection of a loss in the value of the dollar.

Of course the analysis above is not quite that simple, you can have a house in a desirable area, so the value of the house because of market demand can increase. But in a static environment were every house is equally desirable and housing units increase in proportion to population growth, the value of the house would be expected to remain the same. Of course you can add value to a house through improvements too.

 

[Banana]

You can thank Keynes for that.

It was he whom argued that we could have a permanent boom by allowing real wage to fall but pumping just enough money so the actual wage stays the same, thus encouraging more spending. As Statsman said, most people don't concern them with the full ramification of economy theory but rather by how many money they have in the wallet. To them, five dollars in their wallet today is same as the five dollar they had and spent yesterday even though the dollar's value has fell and price rose (e.g. inflation), leaving them to complain that they couldn't buy as much, blaming it on various things, be it big & greedy business, unfavorable politics, financial crisis, war, and just about anything else under the sun, but never rightly point the finger at the weakening dollar and by corollary the central banking that backs the practice.

Nobody has bothered to ask how is that we have been able to operate on a deficit budget year after year, decade after decade and never see the chicken come to roost.

With regards to gold standard, I don't blame you for not wanting to believe in it. That said, Ron Paul did had a great idea that of course Congress wouldn't bother with- he introduced a bill that proposes to repeal the legal tender laws- the laws that demand that transaction be in US dollars and no other currency, and allow currency to compete.

See, if Federal Reserve Notes are so great, it should have no problem standing on its own against other currencies, even those fully backed by gold or iron or whatever they may care to back it, right? Why need a law to mandate transaction in FRNs then? The answer is that because if FRNs were allowed to compete against other currencies, it would become apparent whenever politicians went crazy with their spending, causing FRN's value to fall and inflation to skyrocket, which would cause people to exodus from US Dollar to other currencies.

As matter of fact, this is how this worked in late 19th century when it was customary for bank to issue their own notes. They had to first win public's trust in the notes, but once the temptation of fractional reserve banking came in the picture and bank started giving out more notes than what was actually backed, they created booms only to find them against the wall when the run came. The Federal Reserve was found to provide a 'more elastic currency' (and the question should be- why do we need a elastic currency?) and as result, it served to obfuscate the runs on the bank, which was a clear signal that the bank was insolvent and unable to clear its book.

For even more enlightening read, I encourage you to read up the history of Bank of England. I'm quite sure you see many parallels between what they did to establish the central banking in England in 19th century and today's financial crisis.

 

[ASherbuck]

I thought the general rule of a tax on a business meant the the cost of the product was going up, ergo the consumer is actually paying the tax ?

 

[statsman]

Banana:
This will never happen. Adam Smith's first law of economics is that bad money chases away good money. When banks issued their own currency, people had a choice. Bank A was a properly run institution. Bank B went from one fraud and scandal to another. People would hoard their Bank A notes and always offer to pay you in Bank B notes. Merchants finally had to offer you a discount if you paid in Bank A notes because nobody wanted Bank B notes.
In much the same way, if you could pay in foreign currencies, most people would hoard their Swiss francs and offer you US dollars first.

 

[Rich]

Is that why Scottish and Irish bank notes aren't accepted by small retailers here anymore

 

[Rabbie]

Is that why Scottish and Irish bank notes aren't accepted by small retailers here anymore

I didn't have any problem using scottish notes last week. The irish use euros now so i am not surprised if retailers don't accept those.

 

[Rich]

I didn't have any problem using scottish notes last week. The irish use euros now so i am not surprised if retailers don't accept those.

NI has it's own bank like Scotland, only the large retailers take them

 

[Banana]

Banana:
This will never happen. Adam Smith's first law of economics is that bad money chases away good money. When banks issued their own currency, people had a choice. Bank A was a properly run institution. Bank B went from one fraud and scandal to another. People would hoard their Bank A notes and always offer to pay you in Bank B notes. Merchants finally had to offer you a discount if you paid in Bank A notes because nobody wanted Bank B notes.
In much the same way, if you could pay in foreign currencies, most people would hoard their Swiss francs and offer you US dollars first.

Yes, this is known as Gresham's Law. The crucial difference is that if you had legal tender laws requiring us to accept both good money and bad money at a fixed value. In absence of such law, good money will drive out the bad money. Ron Paul is proposing to repeal legal tender laws and allow the free market to decide for themselves what money will they use to do business with. If we were not required to accept either at a fixed value, then Gresham's law doesn't apply.

Wiki Article

HTH.