Thursday, March 8, 2012

Preaching to the choir is not challenging

Do you ever ask yourself what would you be doing if it weren't for the internet? Something useful maybe eh?

If you use Facebook, then you know its another way that the whole internet thing steals time. But you will also know, and I'm not exaggerating, that Facebook and the other social networking tools, are changing the world in ways we can't yet imagine.

What would be the state of the libertarian movement were it not for these tools? Would there be such a movement? I doubt it, at least not to the same extent. With Facebook I can interact with libertarians around the world, sharing thoughts, ideas, stories, pictures, you name it, and do it in real or delayed time, it's absolutely remarkable. That's the good news about these tools, and the bad. Bad, yes bad? Most of my "Facebook friends" are libertarians or liberty-minded, we form little groups and cliques where we share common likes and dislikes among ourselves, just like in the real world. By and large we have common views on many issues, and any discussions while lively, are frequently philosophical in nature and minor in the bigger picture. We are preaching to each other much of the time, and that's fine. We humans crave re-enforcement of our ideas and we do that a lot on the social networks.

I use the internet mostly to peddle ideas. But to be most effective its best to get into a group which is not homogeneous and not necessarily in line with my thinking even though that can be uncomfortable.

Below I have taken a comment from a Facebook thread that dealt with the cartoon you see above. Most libertarians with some knowledge of Austrian economics, like me, look at that cartoon and will agree that shifting the burden of taxes from individuals to corporations doesn't really lift the burden of taxation, it just shifts it. It may not be exactly as indicated in the cartoon, but corporations  don't pay tax to their own detriment, they just add the tax to their cost of doing business, and we all end up paying more. Government spending requires tax revenue, everyone agrees with that. So the discussion on my non-homogeneous Facebook group revolved around this issue, and one person, let's call him James, who wrote the following:          
"Alright. Where does the money come from? The consumer wants their social benefits. The consumer wants their pension plan. The consumer wants green jobs which only can come with government subsidization. The consumer wants unlimited free healthcare with a low wait time. The consumer wants state day care programs.

Well guess what, all those programs cost a lot of money. It's either cut those programs or raise business taxes. I've been in small business literally all my life, and I am pro small business. At the same time, the same politicians who advocate on a stronger economy don't have the balls to cut social programs relentlessly so that business' can actually work efficiently. Large corporations will not be hurt by tax increases, there's always ways around it - I work in that industry. Will it be passed on to the consumer? Not really. Prices will stay marginally the same as business' find new ways to stay competitive. This means firing a few people and keeping the innovative ones to find ways of keeping the bottom line strong. So, like minimum wage, more taxation will probably mean a few people could potentially be cut.

I'm not for raising corporate taxes as corporations provide jobs. What I am all for is raising taxes on the bracket of tax payers who make 1m or more, at least in the US (where the rate is at its lowest in 50 years). Basically the government raising taxes on business' is a spineless move. Politicians don't want to lose votes of a majority of society who will complain when they make social programs more efficient through cost benefit analysis, so they raise taxes instead.

At the same time, the massive government programs we have provide a great deal of work to the private sector, so cutting those programs will have a backlash to.

As I said, more complicated than this. This comic is actually more incorrect than correct. Why? Because the alternative is to cut social programs which will see a lot of government workers without a pay cheque which will lower their purchasing power affecting all small business. No matter what the government does to cut the debt, it will affect the consumer most likely negatively. Why? The last 40 years we mortgaged the future, and now our interest and principal are due."
Its difficult to respond to comments like that from a free market viewpoint with short pithy retorts. This person has practical knowledge of business economics, the implications of tax cuts, and the popularity of entitlement programs. So where to start?

In the first paragraph James outlines "consumer wants." The fact is consumers want many things, fortunately not all of them are provided by government, unfortunately many are. So my first issue is why is government involved in, pensions, green jobs, healthcare and daycare? Can government do a better job providing these services than the free market? If that were true than why doesn't government provide ALL of our needs? One of the reasons that doesn't happen is that consumers also prefer choices. Government rarely offers choice and almost always creates monopoly situations. In fact government does nothing better than the free market in my experience. But James is correct, money for these services must come from somewhere or the services must be cut. Politicians are reluctant (James says: "spineless") to make the cuts so they either raise taxes or worse, borrow the money. In either case, the economic freedom of citizens is affected. 

But where I disagree most with James is his contention that: "the massive government programs we have, provide a great deal of work to the private sector." Is that true? It is, if only one side of the story is examined. Look at the government monopoly in healthcare. Government together with various professional organizations agree on a compensation packages. The government takes on the responsibility of payment. The private professional organizations regard the government treasury as a bottomless pit. The government arrangement eliminates free market competition between the various healthcare providers, and as a result costs always go up in healthcare. 

The bottomless pit characterization holds true in many areas. Whenever government puts out tenders for construction or any sort of purchase, they may accept the lowest bid, but the bidders know who they are dealing with. Not to mention that virtually every government worker is ensconced in a labour union, and their demands depend on the bottomless pit idea too. It's no wonder that government workers have some of the most generous compensation packages around. No one asks why should the unions be the sole providers for government services?

So yes its true, lots of work for the private sector, but are we getting the best value for the money spent? This avoids the moral question, is it reasonable to make everyone pay for services that they may not even use? Governments create uncompetitive, overpriced, over regulated services that everyone pays for whether they use the service or not. The entire process depends on coercion administered by government and mostly unchallenged by citizens. At some point, the citizens will wise up. I hope it happens soon. There will be short term pain, yes, but all successful surgeries require healing.  








1 comment:

  1. There is one more economic concept, "James", doesn't understand.

    Elasticity, Supply & Demand, and the impact taxation has on who "bears" the true cost when all externalities and consumer/producer surpluses are accounted for.

    http://highered.mcgraw-hill.com/sites/dl/free/0073375691/627557/Chapter06.pdf

    http://people.stfx.ca/tleo/Taxation.pdf

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