Economics

Let’s Celebrate Loopholes

Warren Gibson Economics, Politics , , ,

I’ve just finished my income tax return. (Have you finished yours?) Silly me, I do it myself using TurboTax – all 59 pages of my federal return plus 80 for California. I’ve got investment income, including partnerships and foreign stock dividends, two small businesses, social security and a pittance of wage income from San Jose State University. And a bunch of deductions and credits.

The whole process puts me in a foul mood, and my wife and even the cats know to steer clear till it’s done. One reason is obvious: the mind-numbing complexity, even with TurboTax. Even more galling is the humiliation and gross indecency of dropping my pants financially. This is the land of the free?

The New York Times had an interesting article in last Sunday’s Magazine, “What’s the Easiest Way to Cheat on Your Taxes?.” The article led off with the assertion: “If economists ran the tax system, there would be virtually no exemptions or loopholes.” To which I say, just a cotton-pickin’ minute! If I ran the tax system, and assuming I couldn’t set the rate at zero, exemptions and loopholes would stay and maybe even multiply.

How can I say this after belly-aching about the complexity of my return? Simple – the complexities provide me enough tax-cutting opportunities to outweigh the damage to myself, my wife and the cats. I’ll leave the details out just in case the gentle folk at the IRS read this humble blog.

Why do I do it myself? Partly because I don’t want to spend hundreds or maybe thousands on a professional preparer, but also because his interests would not align exactly with mine. His primary goal would be to cover his rear, especially with the IRS cracking down on professional preparers. My goal is to achieve the right mix of boldness and caution in claiming deductions and credits.

A good bit of ink has been spilled (and electrons) about “fair taxes” lately. It’s unfair, says the Community Organizer in the White House, that Warren Buffett’s average tax rate (or was it his marginal rate?) is lower than his secretary’s. Conveniently overlooked is the fact that his dividend income has already been taxed at the corporate level. As Gene Epstein showed recently in Barron’s, when you add in that corporate tax you get a much different story. The rich pay a substantially higher percentage of their income than most of us on this basis.

So what is a fair tax anyway? The same percentage for everyone? No exemptions, no deductions? Why is that any fairer than a head tax – a levy of so much per person? How about a regressive head tax, since poor people tend to use more government services than rich people?

What of two people earning the exact same income? Surely fairness demands that they pay the same tax – equality before the law and all that. But suppose Mr. A is a struggling young man with lots of debt, trying to start a family while Mr. B has inherited millions. Both earn the same income but is it fair that they pay the same tax? I leave it to you.

When you get right down to it, there just isn’t any such thing as a fair tax, simply because taxes are coercive exactions – theft, if you will.

Still why wouldn’t a flat tax with no deductions be at least a small improvement, as Steve Forbes and other conservatives advocate? The late Murray Rothbard demolished that idea in The Case Against the Flat Tax. Here’s his comment:

“The closing of ‘loopholes’ under a flat tax will mean a merciless and continuing search-and-destroy mission by which the government will root out and obliterate every little hideyhole in which many of us have been able to squirrel away a bit of our own earnings and are own property, and keep them safe from the ever-expanding maw of the federal government.”

I concur. Let’s celebrate all the loopholes, not just those that protect some of our own income, but any break for anybody at all.

A Few Good Debates

Brandon Christensen Comments, Current Events, Economics, Links , , , , , , , ,

I have often thought that debating other people is just as good (if not better) for learning about other how other people think (and imagine things) as reading a book on a subject.  In this spirit, I thought it’d be cool to point out some of the great debates I’ve had a pleasure of being a part of either though participation or simply as an observer.

Cato Unbound is by far the best place to go if you want to get a good, scholarly, but still colloquial, debate on a topic.  This month’s lead essay is on ‘Bleeding Heart Libertarianism’ and features responses from a number of prominent academics.  I highly recommend taking some time to read through the whole symposium.

Over at the blog Coordination Problem, economist Steve Horwitz takes a grad student (Daniel Kuehn) out for a beating in the proverbial woodshed in the ‘comments’ section.

Again in the ‘comments’ section, I take Jacques Delacroix to school on matters of foreign policy and the law.

And at MarginalRevolution, co-bloggers Tyler Cowen and Alex Tabarrok go at it on banking institutions.  Here is Part 1 (by TC), Part 2 (AT), Part 3 (TC), and Part 4 (AT).

All of these are tough reads with lots of top scholars debating big ideas (save for me, though Jacques is a world-renowned scholar on international trade and development), so you might want to come back to this post and click around a little bit at a time.  All of the debates are highly, highly recommended.

Oh, and the Mises Institute has their new blog up and running (it’s very good): The Circle Bastiat

Emotion Trumps Reason in Santa Monica

Warren Gibson Current Events, Economics , , , , , ,

Santa Monica Community College caused a stir recently when it proposed offering “self-funded classes.” These would be extra sessions offered at $180 per unit, or $540 for a three-unit class, versus the normal $43 per unit.

Like most California Community Colleges, SMCC has drastically cut class sections. Students are frustrated and angry. The new proposal was met with widespread criticism. There were student demonstrations and even a whiff of pepper spray. Why?

If you asked any of the student demonstrators why, their answer would surely be, “it’s not fair!” It’s not fair that rich kids get in while others are left out.

Sad to say, gut reactions based on crude emotions are the best many college students can muster these days. No wonder, when so many of their professors bar nuanced analysis from their classrooms in favor of rants about “activism” or “social justice.”

So let’s apply a little analysis here. How would the proposed new offering affect lower-income students? Assuming the new classes do not divert resources away from the low-priced offerings – instructors, classrooms and such – these students should notice only one difference: less competition for scarce low-priced seats. The very problem they complain about most – lack of access to the classes they need to finish up their degree – would be lessened.

It’s the same old story – jealousy trumps reason. Studies have shown that people would prefer to earn $50,000 in a situation where their peers earn $25,000 over earning $75,000 when most people earn $100,000. (But it could be that the subjects of these studies are smart enough to realize that the premise of equal living costs in both situations is unrealistic because with more income, prices will be bid up.)

Critical thinking. Analytical thinking. These are the skills that a good economics department emphasizes – skills that are so valuable and so sadly lacking these days.

Two More Days!

Brandon Christensen Economics, Liberty, Links , , ,

Two more days to sign up for the Independent Institute’s summer seminar scholarship offer.

I first became interested in libertarianism during the 2008 presidential campaign, when Ron Paul gained national prominence for his tangle with Rudy Giuliani on foreign policy.  In the summer of 2009, just after the presidential primaries wrapped up, I embarked on a nationwide journey to learn more about the concept of liberty.

My first stop was the Independent Institute’s summer seminar, an from that experience I not only learned a lot about how markets work (I just spent the afternoon going over my notes from the seminar), but I was also able to make some great connections as well.  Indeed, the co-editor of this blog, Fred Foldvary, was a lecturer at the seminar, and Brian Gothberg, who is incredibly good at teaching basic economic subjects, are just some of the fantastic people that I have been able to count over the past three years for intellectual support.

If you want to spend a week in one of the San Francisco Bay Area’s most beautiful locales, learning about liberty, history, civil society, and the market process, then I highly suggest checking out their seminar.  It is absolutely fantastic.

Some Great Links From Around the Web

Brandon Christensen Economics, Links , , , , , , , , , , , , , , , ,

A fascinating blog post on Indian domestic politics and foreign policy by a Ph.D. student living in New Delhi and studying at Jawaharlal Nehru University.

Alex Warren, a journalist with extensive experience in the Middle East, writes about Libya’s decentralization.

“The Current Models Have Nothing to Say.” That is economist Robert Higgs’s analysis of modern, orthodox economics.

Might regionalism help solve Central America’s woes?  Be sure to check out the rest of the blog, by Seth Kaplan, too.

Conor Friedersdorf of the Atlantic has a penetrating look at the logic of a drug warrior (h/t Brian Aitken)

Co-editor Fred Foldvary, writing in the Progress Report, explains that value is subjective.  This is an important concept when it comes to understanding economics.

Thanks A Lot America!

Jacques Delacroix Economics ,

My wife and I sit on the living room couch watching television while eating a simple lunch. She is an immigrant like me, born and reared in India. She is a woman of tremendous intelligence and of impressively bad taste. We are watching “Real Housewives of Atlanta.”

One white, white-trash woman is having a mean argument with her friend, a black white-trash woman. Both are spilling out of the top of their blouses. The air appears to me to be filled with the smell of acrid estrogen. (I can’t be sure; this is taking place on-screen.) The topic of the argument is who of the two is the greatest ho. It seems to me it’s a matter of fine gradations but I am not expert. It’s all quite wonderful.

The thought strikes me: If I had stayed in France instead of emigrating, I would now be watching a replay of a visit of an obscure part of the the Louvre, about some obscure aspect of obscure Etruscan culture. The visit would be commented for French television by a retired lady professor at the Sorbonne, with very short hair plastered to her skull.

Another reason to love America!

And don’t go all supercilious on me, silly woman. I watch the History Channel too. I could give you a list of its mistakes that would make your hair stand on end. I have read all the books you have read and many you haven’t. I have read books the titles of which you can’t even pronounce. I have even published a couple of books and a number of articles myself. That’s not even counting my short stories. I make established scholars at prestigious universities tear up. You can’t even begin to diss me. American television is great!

Thank you America!

Somalia and Anarchy: Links Edition

Brandon Christensen Current Events, Economics, Links , , , , , , , , , , , , , , , ,
  1. I am too lazy to write much more on Somalia right now (you can always check out my latest piece again if you are really itching for something satisfying), so I have compiled a list of great pieces I have read over the past couple days on Somalia, Anarchy, and the idea that post-colonial states ought to fail more often than not.
  2. Jeffrey Herbst and Greg Mills argue over in Foreign Policy that the Congolese state needs to fail if the region is to ever know peace again.
  3. Over in the New York Times, Alex de Waal argues along the same lines that I have: that Somalia as it stands is a bad idea, and that much more decentralization is needed for it to effectively flourish.
  4. The Mises Institute has two wonderful articles (one by an anthropologist and one by a lawyer) on why anarchy has been great for Somalia, despite the government interventions imposed upon the Somalis by the West over the past two decades (and, really, much longer than that, but I digress).
  5. Political Economist Chris Blattman raises the flag of caution, though.  How do we really know that more states will be better for the people living in these regions?
  6. Co-editor Fred Foldvary defends anarchism’s good name after the (government-initiated) looting in Iraq.
  7. And last but not least, Cato Unbound, one of my favorite places to visit, had an excellent symposium on anarchism awhile back (like, 5 years ago).  Here is Pete Leeson’s lead essay, in which Somalia is specifically used to illustrate his points.  Be sure to read the responses of the other members in the exchange, too.

Have a great weekend, and have fun with all the reading!  One of the things that really bothers me is the example of Somalia that is thrown out in favor of government over liberty.  I really hate having to take the time to explain to people that the problems in Somalia are created by the government!  It’s like screaming at a brick wall…

My article in THE AMERICAN

Jeffrey Rogers Hummel Economics, History, Liberty , ,

“The Upside of Government Default,” where I discuss the state defaults of the 1840s.

From the Comments

Brandon Christensen Comments, Current Events, Economics, Liberty , , , , , ,

Co-editor and Economics professor (who happened to predict the economic crisis of 2008 in a book a year before it happened) Fred Foldvary makes a very important point regarding some of the common fallacies associated with trade deficits and tariffs:

The reason the US has a big trade deficit is that US taxes make exports more expensive. Most other countries have big value added taxes, which get subtracted from export prices. WTO rules allow for the deduction of VAT but not of income taxes from exports. If the US shifted from income taxes to either VAT or LVT (land value taxation), the trade deficit would largely disappear.

But given current taxes and WTO rules and the trade deficit, high tariffs on imports would destroy US comparative advantages, artificially boosting high-cost industries. The US would have to abandon the WTO, and other countries would retaliate with tariffs against the US.

If California has a big trade deficit with New York, would a tariff against imports from NY help? If not, then a tariff against China is likewise counterproductive. The law of comparative advantage works regardless of borders. I have a big trade deficit with my local grocery store; I import their food and they get no products from me, only a money asset. Would a tariff on the food store’s exports help me? Sure I would buy less of their food, but I want their food, and I want it cheap!

Two things I would like to draw attention to in this great piece of insight: 1) income taxes are horrendous and 2) the avowed internationalism of the freedom message.  I would like to repeat a basic insight that Dr. Foldvary provides to readers: “If California has a big trade deficit with New York, would a tariff against imports from NY help? If not, then a tariff against China is likewise counterproductive. The law of comparative advantage works regardless of borders.”

One of the best ways to tell a “real” libertarian from a “fake” libertarian is the defense of internationalism that is given for any argument.  Nationalism is a vulgar and often extremely harmful way of thinking and has destroyed countless lives and restricted countless others from attaining affluence and dignity.  It feeds the growth of the State at the expense of the individual and contributes to malice in foreign affairs.  The concept of international trade as it is spelled out by Dr. Foldvary is especially important.  Also remember, if you have any questions regarding subjects, don’t hesitate to ask.  This is a blog run (mostly) by intellectuals, and one of the goals of this consortium is to help educate the intelligent layman on sophisticated subjects.

My prompt regarding democracy also produced a number of great insights, and so far I have found subconch‘s input to be the most thought-provoking:

“The individual is core in a democracy, and the process should not be beyond his reach, or overwhelm him so, that he may not select his representative by reason, or further recognize intrusion on his or his neighbor’s liberty. The people are the ultimate check and balance on the system, but if they be separated from it, the scales will continually tip toward tyranny.”

I highly recommend reading the whole ‘comments’ section.

Greece: What’s Going On?

Jacques Delacroix Current Events, Economics, Liberty , , , , , , , ,

The Greeks are rioting in the extreme cold. They have been rioting now for weeks to protest austerity measures their coalition government is attempting to impose on them. It’s an emergency government trying like hell to borrow money from richer countries, especially Germany so Greece, the state can pay its bills. The creditors and would-be creditor countries headed by Germany are saying such things as (I am paraphrasing):

You have many more public servants per 10,000 citizens than we (Germans etc, ) have. You will have to reduce the number by so many thousands by such and such a year as a condition of our lending.

Your government’s tax receipt as a percentage of GDP is much smaller than ours. There is also abundant evidence of massive tax cheating that is unheard of in our countries. You are going to have to improve the collection of taxes by such and such. (Note that this say nothing about tax increases.)

The creditor countries are all democracies whose tax-payers have the ability to express what they think about the bailouts of other countries. It’s their money. Their national politicians are lending to a nation-state that my local banker in his best days would not have given a second look to. The long and the short of it is that Greece, the country, is a bad credit risk. That’s why its government would have to pay something like fifteen percent interest if it could borrow money on the open market. For a comparison, I have US Government bonds purchased six years ago that pay 4,6 %. That was considered very good then. It’s even better now.

Note that there is no info about what private Greek concerns have to pay to borrow on the open market. I would not be surprised if they were able to borrow at normal rates. I wonder why this information is lacking. Massive privatization surely looks good with respect to a country where government finances are such a debacle. Big innovations work out best when it’s impossible to say: Situation normal; everything working just fine.

Ordinary Greeks are rioting against the prospect of cinching their belts a lot tighter. They are even thinking Communism again because this all comes as a surprise. For thirty years, they were allowed to believe that Greece was economically more or less a kind of southern version of Germany, not quite as prosperous and productive but pretty damn close and on its way there. Continue reading →

Adam Smith, Or: The More Things Change…

Brandon Christensen Economics, History , ,

…the more they stay the same.

I have moved on from Montesquieu’s The Spirit of the Laws to Adam Smith’s The Wealth of Nations in my Honors course on Western thought (it is being taught by a professor who is part of this blogging consortium, in case you are curious; it is part of my daily reading).

Many, many things have stood out to me so far, but I would like to share two of them here. The first thing has to do with the back of the book (I am reading the cheap paperback published by Bantam and edited by Edwin Cannan). The back of the book plainly states:

He argues passionately in favor of free trade, yet stood up for the little guy [emphasis mine – BC].

This mischaracterization of classical liberalism (libertarianism) is not limited to the publishers of Adam Smith’s most popular work, and it frustrates me to no end that free trade and classical liberalism are somehow treated as arguments in favor of a privileged class.  The entire idea that drives classical liberalism is one that is rooted in the dignity of the individual and of the common man.  This is one fight that the libertarian should easily be winning, yet he is not.

The second passage that I would like to share is one that most of us are extremely familiar with, and can perhaps provide a chuckle rather than frustration (I know I laughed):

The annual produce of the land and labour of England […] is certainly much greater than it was, a little more than a century ago […] Though, at present, few people, I believe, doubt of this, yet during this period, five years have seldom passed away in which some book or pamphlet has not been published, written too with such abilities as to gain some authority with the public, and pretending to demonstrate that the wealth of the nation was fast declining, that the country was depopulated, agriculture neglected, manufactures decaying, and trade undone.  Nor have these publications all been party pamphlets, the wretched offspring of falsehood and venality.  Many of them have been written by very candid and very intelligent people; who wrote nothing but what they believed, and for no other reason but because they believed it.

Does this not sound awfully familiar? I could produce a number of links to a number of books and pamphlets on just this topic, but I am sure that readers had their own memories jarred when reading Smith’s keen observation. It looks as if we still have a lot of work to do.

Great News!

Brandon Christensen Current Events, Economics, Links , , ,

Co-Editor Fred Foldvary has been invited to be a contributor to a blogging symposium about “Libertarianism and Land” put on by the Bleeding Heart Libertarians consortium.  Here are the details:

I’m very pleased to announce that from April 23-27 of 2012, the Bleeding Heart Libertarian blog will be hosting a virtual symposium on the topic of “Libertarianism and Land!”

The five day event will explore different libertarian perspectives on questions pertaining to the moral justification of and limits on property rights in land. Each day will feature a keynote post from one of our main participants. The other main participants will have the opportunity to respond with posts of their own, and the general public is welcome to participate in the comments thread.

We’ve lined up some terrific people for this event. Our main participants will be:

  • Eric Mack – Professor of Philosophy at Tulane University
  • Hillel Steiner – Professor of Political Philosophy at the University of Manchster
  • Fred Foldvary – Lecturer in Economics at Santa Clara University
  • Kevin Carson – Blogger and author
  • David Schmidtz – Professor of Philosophy and Economics at the University of Arizona

More information to follow as the date draws nearer. I hope you’ll join us for what I think will be a fascinating discussion!

Do be sure to tune in to Bleeding Heart Libertarians all that week.  I am sure that many good things will come of this, especially since Fred Foldvary was one of the few people in the world to accurately predict the housing bubble collapse based upon his knowledge and understand of land and its connection to the economy.

Links From Around the Consortium

Brandon Christensen Current Events, Economics, History, Links , , , , , , , , , ,

Brian Gothberg’s piece on whaling and property rights deserves another look, as he channels Nobel laureate Ronald Coase:

According to a simple version of the Coase (1960) theorem, if the costs of transacting were very low, it would not much matter for the allocation of resources how stock rights were initially assigned. Trading ensures that rights would be put to their highest-valued uses, whatever they might be. If particular whales have more value as a source of pizza toppings than as the subject of a tourist?s photo session, whale-watching companies would be encouraged to sell any rights that they might have to whalers. If, on the other hand, particular whales have great value simply as magnificent creatures whose existence is to be nurtured and cherished, conservation groups would tend to end up with the rights to those whales.

Reality is not always simple, however. Transaction costs are sometimes high. In particular, there is a free-rider problem […]

Co-editor Fred Foldvary opines on how deregulation hurts the economy.  This is perhaps the best piece I have found on regulation and its effects on the economy at large.

I found this piece by Jeffrey Rogers Hummel on President Martin van Buren, whom he calls the ‘American Gladstone’.  If you’re itching for some historical information on one of the American republic’s little known presidents, I recommend you grab a cup of coffee and enjoy.

And, not to be outdone, Jacques Delacroix asks if the French have it better.  He is specifically referring to the debt-to-GDP ratios of France and the U.S.  The whole thing is good throughout, more so because Delacroix professes to hate the French.

Some Possible Consequences of a U.S. Government Default

Jeffrey Rogers Hummel Economics, History, Politics , ,

My Econ Journal Watch article on Treasury default is now available online. It appears in a special issue that is devoted to various articles with differing perspectives on the probability and consequences of a U.S. government default.

Releasing Income Taxes

foldvary Economics, Politics

Disgusting!  is my reaction to calls to candidates to release their income tax returns.

First of all, income tax records are supposed to be able to be kept private.

I can understand wanting to know candidates’ special-interest connections, but these usually do not show up in tax records.

Also, criticism of the low tax rates paid by some candidates is unwarranted. It is not a crime to seek to minimize one’s taxes. Moreover, given an income tax, there are good reasons why dividends and capital gains have lower tax rates. Dividends are already taxed by the corporate income tax. Long-term capital gains have already been taxed by inflation.

Ron Paul said regarding his taxes that his income was low compared to other candidates. What he should have said is, “my taxes are none of your business!” Moreover, the income tax should be abolished. Calls to reveal income tax forms imply approval of income taxation.

Disgusting!