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Scipio · 02-17-2004, 02:31 PM

The topic hasn't really gone where I hoped it might, but such is the TFP.

The point I'm making is twofold: one, it's possible to work your ass off in this country and get nowhere. Lots of honest, hardworking people who try to play by the rules get screwed. Secondly, as good as our economy is, it has proven to be rather bad at distributing its products in a way that benefits everyone.

That's one of its greatest failures, among others. Don't pretend that capitalism is perfect. It's a good system, but it has problems. Economics has made a great deal of progress since Smith published in 1776.

Just to give one example, it might seem to make sense for the market to determine wage values (and to just do away with the minimum wage), but the worker has a great disadvantage in competing for a higher wage. The labor market has strong downward pressures on wages. Workers can't opt out as individuals. It's what we might call perfectly competitive; each "seller" of labor is unable to change the price. So, workers are forced to settle for lower wages than they would otherwise need or insist on, or that companies could otherwise afford.

In short, government or union intervention is necessary in the labor market to provide wages that are fair, and that aren't pushed to subsistence levels (subsistence in the sense that Ricardo talks about; clearly in the US this includes a cheap color tv and probably a cheap car). By fair I mean a fair share of the economic output of the nation. Most of the CEOs, such as Bill Gates, got their wealth because they owned large amounts of stock in the corporation from the beginning. They reap the rewards of their economic risk. However, over the last 50 years people in the highest levels of corporate management, many of whom aren't entrepreneurs who took economic risk, have been getting increasingly high wages that grow at increasingly high rates. Something in the market is causing the salary of executives to be bid higher. A cynic might say this is because they control the production, and choose to pay themselves higher wages. The current situation where CEOs tend not only to run the business but also tend to be on the board of directors reinforces this view.

I bring this up only to illustrate that the determination of wage is driven more by market forces that affect workers of different levels differently, and not so much by individuals, and that individuals, particularly those who are low payed, have very little power to insist on the wages they deserve.

====

The dialogue here seems to be on why we shouldn't have a libertarian style system. By libertarian, I mean a system with minimal government (roads, national defense, tax collection, law enforcement, other public works, and probably schools), a flat tax, and privatized social programs (supported by tax credits, if at all). Advocates of this view make the curious move of accusing supporters of anything else of being socialists. Further, they assert that socialist values have failed everywhere they have been tried. Here I wish to make a distinction between socialism and communism. Communism is based on the following principle, which I'm sure you've heard before: "from each according to his ability, to each according to his need." It sounds good in theory, but it produced spectacularly bad economic results in Russia. Socialism, on the other hand, is a system with relatively high tax rates, public ownership of many services, and a limited free market. Norway, Sweden, Denmark, and to a lesser extent other continental European countries use this system, with satisfactory results. I'm not going to argue with anyone who says that communism doesn't work. It doesn't, though it makes some sense on paper (and without hindsight; throughout most of the Cold War we had no idea that communism was that bad economically.)

So, where does that get us as far as this argument goes? I hope I have showed that socialism isn't an insult, though I don't think we ought to have a socialistic system. It's not an either or decision. It's better to think of it as a continuum:

Libertarian ============================== Socialist

Right now, we're left of center, but we might benefit from a slight shift to the right. It would be little more than a realignment of sorts to correct some of the problems that a total free market has.

Finally, I want to take a moment to defend the progressive tax, and to point out that the tax system in America really isn't progressive at all. The only major progressive tax we have is the graduated income tax (and the per child tax credit, though it affects the income tax). Most other taxes are regressive. The sales tax, car registration, most "sin" taxes (tobacco, alcohol), and payroll taxes hit middle and lower class Americans more heavily than the progressive taxes do.

The end result of the combined state, local, and federal taxes is a tax system that takes relatively equal aggregate percentages from everyone.

Why is a progressive tax desireable? One, it provides an economic buffer that stabilizes the economy. During a recession, if wages decline, tax rates decline faster than the wages do, thus reducing the impact and the relative suffering as a result. Second, it preserves an incentive to make more money. Even though people whose wages grow have to play increasing percentages to the government, they still make more money. No well paid person (making say $250k a year) would turn down a pay raise just because he had to pay a 45% marginal tax rate on it. Third, it reinforces social mobility. It becomes easier to enter the middle class. The money raised can fund good schools, good early health care, and job training programs. Fourth, it counteracts the tendency in the free market for the rich to get richer and the poor to stay poor. Wealth can be redistributed in a more fair way.

Sure, taxation is theft, but just as there are justifications for murder, there are times when taxation is justified. Capitalism is unable to distribute GDP fairly. It is quite good at making the GDP number large, and at making it grow quickly. That's why we use capitalism. It's better to be capitalist, and use the government to rearrange the GDP in a way that benefits everyone than it is to have the government run everything. We're not talking about taxing the rich and writing checks to the poor. In a sense, the progressive tax does this indirectly. What we are doing is using a progressive tax to help out poor and middle class Americans. They get government services worth more than they pay out in taxes. The higher levels of income that rich people earn are taxed at higher marginal rates, but they reap the benefits of a well educated and healthy work force. They reap the benefits of a strong rule of law that protects their property, wealth, and business.

All for now. It's long, and I don't have time to edit thoroughly. I apologize in advance for fragmentary sentences, misspelled words, and perhaps some cloudy points.

02-17-2004, 02:31 PM	#30 (permalink)
Scipio Mencken Location: College	The topic hasn't really gone where I hoped it might, but such is the TFP. The point I'm making is twofold: one, it's possible to work your ass off in this country and get nowhere. Lots of honest, hardworking people who try to play by the rules get screwed. Secondly, as good as our economy is, it has proven to be rather bad at distributing its products in a way that benefits everyone. That's one of its greatest failures, among others. Don't pretend that capitalism is perfect. It's a good system, but it has problems. Economics has made a great deal of progress since Smith published in 1776. Just to give one example, it might seem to make sense for the market to determine wage values (and to just do away with the minimum wage), but the worker has a great disadvantage in competing for a higher wage. The labor market has strong downward pressures on wages. Workers can't opt out as individuals. It's what we might call perfectly competitive; each "seller" of labor is unable to change the price. So, workers are forced to settle for lower wages than they would otherwise need or insist on, or that companies could otherwise afford. In short, government or union intervention is necessary in the labor market to provide wages that are fair, and that aren't pushed to subsistence levels (subsistence in the sense that Ricardo talks about; clearly in the US this includes a cheap color tv and probably a cheap car). By fair I mean a fair share of the economic output of the nation. Most of the CEOs, such as Bill Gates, got their wealth because they owned large amounts of stock in the corporation from the beginning. They reap the rewards of their economic risk. However, over the last 50 years people in the highest levels of corporate management, many of whom aren't entrepreneurs who took economic risk, have been getting increasingly high wages that grow at increasingly high rates. Something in the market is causing the salary of executives to be bid higher. A cynic might say this is because they control the production, and choose to pay themselves higher wages. The current situation where CEOs tend not only to run the business but also tend to be on the board of directors reinforces this view. I bring this up only to illustrate that the determination of wage is driven more by market forces that affect workers of different levels differently, and not so much by individuals, and that individuals, particularly those who are low payed, have very little power to insist on the wages they deserve. ==== The dialogue here seems to be on why we shouldn't have a libertarian style system. By libertarian, I mean a system with minimal government (roads, national defense, tax collection, law enforcement, other public works, and probably schools), a flat tax, and privatized social programs (supported by tax credits, if at all). Advocates of this view make the curious move of accusing supporters of anything else of being socialists. Further, they assert that socialist values have failed everywhere they have been tried. Here I wish to make a distinction between socialism and communism. Communism is based on the following principle, which I'm sure you've heard before: "from each according to his ability, to each according to his need." It sounds good in theory, but it produced spectacularly bad economic results in Russia. Socialism, on the other hand, is a system with relatively high tax rates, public ownership of many services, and a limited free market. Norway, Sweden, Denmark, and to a lesser extent other continental European countries use this system, with satisfactory results. I'm not going to argue with anyone who says that communism doesn't work. It doesn't, though it makes some sense on paper (and without hindsight; throughout most of the Cold War we had no idea that communism was that bad economically.) So, where does that get us as far as this argument goes? I hope I have showed that socialism isn't an insult, though I don't think we ought to have a socialistic system. It's not an either or decision. It's better to think of it as a continuum: Libertarian ============================== Socialist Right now, we're left of center, but we might benefit from a slight shift to the right. It would be little more than a realignment of sorts to correct some of the problems that a total free market has. Finally, I want to take a moment to defend the progressive tax, and to point out that the tax system in America really isn't progressive at all. The only major progressive tax we have is the graduated income tax (and the per child tax credit, though it affects the income tax). Most other taxes are regressive. The sales tax, car registration, most "sin" taxes (tobacco, alcohol), and payroll taxes hit middle and lower class Americans more heavily than the progressive taxes do. The end result of the combined state, local, and federal taxes is a tax system that takes relatively equal aggregate percentages from everyone. Why is a progressive tax desireable? One, it provides an economic buffer that stabilizes the economy. During a recession, if wages decline, tax rates decline faster than the wages do, thus reducing the impact and the relative suffering as a result. Second, it preserves an incentive to make more money. Even though people whose wages grow have to play increasing percentages to the government, they still make more money. No well paid person (making say $250k a year) would turn down a pay raise just because he had to pay a 45% marginal tax rate on it. Third, it reinforces social mobility. It becomes easier to enter the middle class. The money raised can fund good schools, good early health care, and job training programs. Fourth, it counteracts the tendency in the free market for the rich to get richer and the poor to stay poor. Wealth can be redistributed in a more fair way. Sure, taxation is theft, but just as there are justifications for murder, there are times when taxation is justified. Capitalism is unable to distribute GDP fairly. It is quite good at making the GDP number large, and at making it grow quickly. That's why we use capitalism. It's better to be capitalist, and use the government to rearrange the GDP in a way that benefits everyone than it is to have the government run everything. We're not talking about taxing the rich and writing checks to the poor. In a sense, the progressive tax does this indirectly. What we are doing is using a progressive tax to help out poor and middle class Americans. They get government services worth more than they pay out in taxes. The higher levels of income that rich people earn are taxed at higher marginal rates, but they reap the benefits of a well educated and healthy work force. They reap the benefits of a strong rule of law that protects their property, wealth, and business. All for now. It's long, and I don't have time to edit thoroughly. I apologize in advance for fragmentary sentences, misspelled words, and perhaps some cloudy points. __________________ "Erections lasting more than 4 hours, though rare, require immediate medical attention."