Here’s a letter that I sent a few days ago to the Wall Street Journal:
To the Editor:
Alan Greenspan now blames deregulation for today’s financial turmoil (“Greenspan Admits Error to Hostile House Panel,” October 24). Whatever deregulation there was, and whatever its merits or demerits, there is one crucial financial instrument – dollars – that throughout was supplied by an utterly unjustifiable state monopoly – the Fed. Unfortunately, this decidedly unfree-market arrangement draws little attention.
Skepticism is advisable when the former head of a government-created and protected monopoly blames the market for using that monopoly’s output unwisely. Would the demand for mortgage-backed securities have been as frothy as it was if Mr. Greenspan’s Fed had not created so much new money? Would the demand for owner-occupied housing itself have been so intense? Because money plays a common and vital role in all of these transactions – and because Mr. Greenspan’s Fed kept pumping dollars into the economy with no way to know what the ‘correct’ supply is – you’ll pardon my inability to give credence to Mr. Greenspan’s latest pronouncements.
Sincerely,
Donald J. Boudreaux
This 2006 essay by Auburn University’s Roger Garrison is prescient.
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Walter Williams post has reached the comment limit, or it appears so. Is 50 the magic number?
In addtion.
I know I incurred the wrath of the Cafe owners but I just tried to comment on the topic by Munger and was given the "Comments are closed" post and there were no comments at all, I would have been first.
Goodness, I posted and it was wiped immediately. Have I been banned?
"In addtion.
I know I incurred the wrath of the Cafe owners but I just tried to comment on the topic by Munger and was given the "Comments are closed" post and there were no comments at all, I would have been first."
Don't feel to bad. Only about one in five of my comments on Paul Krugman's blog ever actually show up. What really pisses me off is that I was unable to respond to another poster that misconstrued the meaning of my post and then proceeded to mock me. I spent quite a bit of time typing it up too. Of course, they didn't fail to post dozens of one liners that added nothing to the discussion.
Murray Rothbard on Greenspan. These are articles from late 80s and early 90s.
Read the whole thing here
Naw, nothing sinister about my failure to post on the Munger thread, just me not paying attention to the instructions.
My wonderment has been squelched.
Greenspan's musings of "irrational" run ups, etc. indicate that he thinks he is the the modern day equalivalent of the Oracle of Delphi. It may be his wife's fault; she has no doubt been deprogramming all the Randianism out of him and replacing it with leftist tripe for years.
Vidyohs, I tried to post on the 'Neither the Collective' thread, but it appears to be kaput so I'll post as much as I remember here.
You and I had a lengthy discussion on the citizenship question, so I take slight issue with the assertion that no one tried to answer
The discussion was interrupted by a really busy cycle in my work and then things have been just goofy enough since to keep me from being able to get back into it. My loss!
Our discussions here and in email regarding income taxation were also very enlightening and illuminating. I work for a non-profit, so I can't push the envelope without causing them problems, so I won't. I did take your advice regarding "all rights reserved", though.
I urge all patrons of the Cafe (that Vidyohs has the patience for) to take him up on these discussions. I'll warn you, that like most good teachers, he won't "give" you answers. He will answer to the best of his ability exactly what you ask him.
"Ordinary Americans growing wealthier" post has reached the magic number 50 comments. It is not taking any more comments.
I'm guessing that our hosts have upgraded software recently or something.
Bill K.,
I can dream, can't I?
Consumption is great. I have nothing against consumption. The question is: What may forcible propriety organize us to produce?
If a million people each may organize the labors of a hundred people to produce for the consumption of the million, then a hundred million people produce nothing for one another. This arrangement of resources is not natural. I observe nothing like it in nature outside of human social organization. It is an artificial, forcible organization. It is the State. It was the State when the Communist Party of the Soviet Union organized resources this way in the name of "equality" too.
It's not about encouraging investment. It's about limiting the entitlement of lords of capital. It's about organizing common people to produce things for one another. That's what lords are supposed to do. It's their duty. We've forgotten this. Our Congressional representatives have a similar duty in principle.
Consumption is not a bad thing. Entitling a few people to organize the labors of many people to benefit the few is a bad thing.
Property is not freedom. If it were, then the phrase "life, liberty and property" would be redundant. This phrase formulates a classically liberal minarchy, not an anarchy.
Proprietors are not free to do whatever they like with the possessions they govern. They're free to act within the bounds of propriety. It's "life and liberty within the bounds of propriety", "life, liberty and behaving properly". To have the life and liberty, we must bind authorities.
Property in a means of production, like a parcel of land, entitles the proprietor to govern the yield of the means of production. The income belongs to the proprietor in a different sense and for a different purpose than the yield of your labor belongs to you.
I'm saying that wealthy people are entitled to organize the labors of many other people. This entitlement is an instrumentality of the state. It is not freedom. It is the antithesis of freedom. I want decentralized authority, but decentralized authority is still authority, not freedom.
I don't want to discourage consumption. I want to discourage the organization of production for the consumption of a few lords of capital, like the lords of feudal estates. This goal makes me a classical liberal.
A progressive consumption tax does not limit consumption generally. It limits the entitlement of a few lords to direct many people to produce for the lords' consumption rather than producing for one another. Producing for one another is the natural inclination of the many people subject to these lords. These common people produce much for the lords only because they follow statutory orders, not because they act freely.
I learned in private email that some people misconstrued and were offended by an earlier post in which I say something like, "Most of us would kick puppies for a lot less." I've lost of track of this thread, and I suppose it's not accepting posts anymore.
I didn't intend to imply that libertarians or people posting here are more inlined than other people to kick puppies. I only meant that people generally will rationalize their own misbehavior if the temptation is great enough. People will even believe that kicking puppies benefits the puppies somehow, or benefits others more than harming the puppies, even tough the kicker is really the beneficiary. That's just human nature. Humans naturally deny their own selfish exploitation of others.
That's why we can't trust statesmen to enact "selflessness". They'll only enact their own selfish exploitation of others and call it "selflessness".
Because Bill K. gives a rat's ass about "fairness", and I'm willing to accept his usage when speaking with him.
Kevin:
Again, because deferring and multiplying consumption are not the only motives for investing, any more than consumption is the only motive for competing in the Olympics. Consumption hardly motivates Olympic athletes at all. They don't compete to consume. They labor to consume and compete recreationally, for the joy of winning. Capitalists will do the same. Maybe everyone won't, but that's irrelevant. Everyone isn't an Olympic athlete either.
That's not your alternative. You're never obliged to pay the 100%. I would never pay it. I'd reinvest for the joy of reinvesting. When you're very wealthy, investing is fun. All you do is tell other people to make things bearing your name. Why would I choose to pay a 100% consumption tax to avoid that?
That's fine. Ideally, collectors of the consumption tax would burn all revenue from it anyway, beyond the cost of administration. Or the tax collectors might be private entrepreneurs also subject to the tax, like lawyers filing tax evasion complaints. I should add this proviso to the proposal. That'll interest the statesmen. They're mostly lawyers, you know.
Far from being obvious, the point is manifestly false. Again, I'd offer my children employment long before I'd buy myself a private castle. I'd even offer their mother employment first (we're divorced), though she's a state employee nearing retirement and will have my money (and yours) soon enough regardless. I'd employ my sisters and their children. I'd employ my fiancee and her children. I'd even employ some friends before buying myself a castle.
Even if the law forbade me to employ these people to produce for my personal consumption, I'd employ them anyway. Even if I expected the ventures to fail, I'd employ these people, if they needed employment, long before buying myself a private castle. I really would. I'd feel like shit if I bought a castle instead.
I'd just give these people the money before buying myself a castle if they really needed it, and I'm not extraordinarily selfless. I would try to employ these people profitably first only because we'd run out of money otherwise.
Please tell me that you already know this.
Of course, the Chinese have a one child policy, so they've outlawed brothers and sisters and nieces and nephews and cousins, and we owe them lots of tax money. Ponder that.
Kevin,
Since Brotio brought the subject forward I feel okay about this. I tried to post this four times on the "collective" thread and it wouldn't, so here it is:
"The only answers there can be are volunteerism or force. I don't remember ever having volunteered.
Posted by: Kevin | Oct 27, 2008 1:27:33 PM"
You don't remember volunteering? How strange. You don't remember not volunteering either? Stranger still.
Brotio,
Yes sir I remember quite well that we danced around the subject of income taxes and jurisdiction, and I remember giving you some clues to follow to see if you would see what it took me so long to figure out for myself. There it dropped.
That was about six months ago, so that is why I say no one has had the intellectual curiosity to even persue the answer just for knowledge sake, if not for a spur to action.
I am not dumping on you, just pointing out what is. At least you did show some interest in exploring where your freedom went and how you lost it.
To Kevin, yourself, and others who might have some interest, I quote, "It ain't what we don't know that gets us in trouble, it is what we know for certain that just ain't so."
The problem with people is that so very few even know the word enculturation much less understand what it is and how powerful it is in determining how we go about our daily lives and even what our "thoughts" about particular subjects are. All in all my very best guestimate is that the vast majority in the world (98% at least) operate strictly under reaction to their own enculturation and all the while believing that they are thinking their way through.
We are all very carefully enculturated to believe and accept that each of us must have an authority above us, God/State, to rule our lives, give our lives meaning, and to which we must give all of our allegiance and devotion.
Only the rare few can grasp the real significance of the fact that government is simply an agreement between men. It is an agreement that we can either accept voluntarily or that we will acquiesce to. Which of the two, volunteer or acquiesce, depends upon the enculuration of the individual. Either way, only that rare few actually question the legitimacy of the government being in their lives at all.
Kevin will claim that there is a third way, force. But, it shows that he really hasn't thought that through. The USA for all its faults is a government of laws. But, for that to work for us as individuals requires us to know the law(s). To subjugate individuals through the use of force violates the law. (13th Amendment and 14th amendment) That being the case, then force is not the answer. "It ain't what we don't know that gets us in trouble, it is what we know for certain that just simply ain't so."
I explained it to my neighbor on the Sunday after Hurricane Ike and while he was at my house enjoying my fresh coffee; and, I explained using this analogy:
Imagine all of humanity on an immense train of flat cars, going from the past to the future, but always in the present for the ones on the train. The individuals on the train are free to move from side to side on the flat cars, and even to move from one flat car to another.
Here is the significance. As long as one is on the flat car, that is all he will know of existence. Just the flat cars. All else is just a passing blur of no real interest or meaning to him. All of those people, no matter how wise in the ways of the collective on the flat cars or in theoretical musings on the flat cars and what can be seen from them, will still have only the train and the flat cars as their frame of reference to anything, anything at all.
Those people on the train actually only have one perspective and that is the train and the flat cars. They are incapable of thinking from any other frame of reference.
Furthermore, it is obvious that all those on the train are even to lazy to learn who is operating the train, who laid and maintains the tracks and train, and who is deciding how far and how fast the train runs.
Now, suppose, as happens, you are accidentally bumped off the side and you land on the right of way and tumble off into the grass, unharmed.
Your world just exploded in frame of reference. You can now see all of humanity as it passes by, not just those who immediately surround you, it is not just theoretical musings to you now. Now you can see humanity doing things that make no sense when seen from a separate view, but that you remember doing yourself while you were on the train.
Your perspective changes dramatically when you get bumped off the flat cars.
How much of your life on the train is meaningless enculturated reaction to your time and place and how much is done from intellectual investigation and rational thought? If you are still on the train, and only the rare few have been bumped off and stay off, then odds are great that you know nothing but the train and can conceive of nothing but the train.
Your thoughts run like this, "Why would I want to get off the train, why would any one think being off the train is better than being on the train………and so on to an endless run of excuses for ignoring that you could just jump off the train."
The attitudes and enculturation of those on the train even cause them to negatively react when once in a very rare while they look out from the train and see individuals who are not on the train yet seem to be living perfectly normal, productive, and free lives in total self direction. If those on the train have any reaction to that observation at all it will typically be an emotional one of hate, envy, and resentment that causes them to say things like, "Look at that guy! How can we get him and force him back on the train?" (I hear versions of this repeatedly)
Back to the agreement among men. After the victory in our revolutionary war the united States of America was formed under an agreement called the Articles of Confederation (which specifically mentions the "free individuals"). That government did not exist prior to the agreement.
That agreement was abandoned by state representatives at the convention in Philadelphia and a new agreement was created. This new agreement was called THE UNITED STATES OF AMERICA, Inc., and had as its corporate charter a document called the Constitution. A new government in the form of a corporation was formed by agreement.
They never told you in school about the Inc., did they? Actually they did, but just in such a way you never made the connection because you were still too young to understand the sginificance of what you were being told. Sadly enough so few of us enter and go through life ever realizing what a corporation is and why it is what it is.
As a consequence of that style of government the Uniform Commercial Code (UCC) has more affect on your daily life than does the United States Code. Yep, commercial law, rules, and regulations rule your life in ways you have never imagined.
This nation is the first in history, that I know of, that places the agreement or contract above all and as being the foundation of all our relationships.
Is there a contract or agreement? Were the terms fully disclosed? Did the parties enter the contract knowingly, willingly, intentionally, and voluntarily?
If the answer is no to all or any one of those three questions there is no contract, it is null, void, and unenforcable.
"It isn't what we don't know that causes us trouble, it is what we know for certain that simply ain't so."
What is the defense against being held accountable to a contract forged in fraud or forgery? Duress. Were you presented with all the terms of the contract? No? Then it is a fraud, null, void, and unenforcable; and, your defense is duress as you would never have signed a contract which had unrevealed terms and conditions.
Even if you received benefit from that contract it is still legally null, void, and unenforcable if you bring the case and make the charge.
The Supreme Court (created by the Constitution) has ruled that the government is under no obligation to actively protect and defend your rights. That is your job.
The court will work in the reactive mode, but not the active.
They have also ruled that no law enforcement agency is under any obligation to actively protect and defend your rights. That is your job.
Jurisdiction is every thing. Until we all learn that, we are on the train and have no way of knowing what life could be off the train.
Could a new agreement be made? Good question. It took the socialist/communist only a mere forty years of concentrated effort to totally transform the USA. If we all got off the train could we transform the USA back in another forty years? Good question.
First you have to recognize you're on the train and then have the guts to get off.
The start is learning the truth about how the Consitution and the corporate govenment gain jurisdiction over you. What is the actual mechanism?
I left clues all over this little essay.
Crusader:
Again, "bloody revolution" is your term, not mine; however, the American colonists weren't on the brink of starvation before the Revolution. It was basically a tax revolt against tax rates that are unimaginably low by modern standards.
If we raise rents (including but not limited to taxes) much on men with income between say the 30th and the 70th percentile, given that income in this category has risen little in three decades, will they march to D.C. with pitchforks and impale their Congressmen? I doubt it. Other radical change is imaginable though.
Randy:
It's just what "risk averse" means. You're the one asserting that people will not risk their retirement security to invest.
Our disagreement concerns the motivation to invest. You say there is only one motivation to invest, to defer and/or multiply entitlement to consume. I say there are many other motivations to invest and that for the most wealthy, marginal consumption is near the bottom of the list. That's not just a speculative judgment, because I observe that Bill Gates makes no effort to consume most of his wealth. Neither does Warren Buffet. Neither did Ford. Neither did Carnegie.
Where are the very wealthy men behaving as you suggest? Donald Trump? He's just a celebrity. He inherited great wealth and then practically bankrupted himself.
Duh.
I've never posted anything like it. The state is never entitled to the money you earn by investing. There is no "heads you lose to the state if your investment succeeds". This "loss" exists only if your assumptions about investor motivation are true, but they aren't true.
Yes. The gains are also yours to consume, subject to the consumption tax, and to reinvest without restriction. If you choose to consume like a monk, you might never pay any tax, regardless of how much money you make.
Some monks actually do organize vast resources. Some monasteries are quite wealthy, but the monks aren't, technically. The Pope lives in the Vatican and wanders around the Sistene Chapel. Men compete for this privilege, even at the cost of a vow of poverty, not to mention celibacy! Men actually compete for these positions. I certainly wouldn't, but some men do.
Giving Joe a job is how they profit. They want to profit so they won't run out of money. It's not simply about earning their own consumption.
Right. Same thing. They don't make money for themselves only to consume. I know this, because Bill Gates has this foundation, and there's the Ford Foundation and the Carnegie Mellon Foundation and the Heritage Foundation and the Reason Foundation as well. You can simply label these expenditures "consumption" if you want, but that's like labeling the investments we're discussing "consumption". You can do that too, and we'll have no more disagreement.
Obviously, they do. Like I said, if people never invest beyond a level of wealth permitting a comfortable retirement, then Bill Gates and Warren Buffet don't exist. If your theory is true, both men sold their businesses and bought gold or Treasury notes decades ago.
But you then argue that the incentive for marginal consumption impels them to continue investing. You assert that these men who wouldn't risk their secure retirement to employ Joe would happily risk poverty in their old age to gamble on the chance to retire in a private Chateau on the Riviera rather than a comfortable condo in Miami.
I just don't think that makes any sense at all. Why would they gamble only for the latter? Suppose Joe is their son or their niece or their lover or their lover's son or neice? I just don't at all believe what you're telling me about the motivations of rich people. You're telling me they're all a lot of awful, Hollywood stereotypes.
Some of us would. What color is your parachute?
More to the point, the "others" aren't just abstractions in your theory of extreme individual selfishness. I'd happily sacrifice myself for my children. I do it routinely in fact. That's my nature. I'm designed to feel this way about them. I'd also chop you into hamburger and feed you to them, if it came to that. That's my nature too.
The dilemma they face now is a choice between being extremely risk averse to protect their retirement security versus investing. You claim that they'll risk their retirement security to increase their consumption and only to increase their consumption. They won't take the risk to employ their friends and family. They'll only do it to increase their consumption. I just don't believe that. Everything I observe daily and understand theoretically about human nature contradicts this assumption.
So? I doesn't make them unable to invest, and people invest for countless reasons other than their own consumption.
The natural genesis of investment is child rearing, and that's the most selfless thing human beings do. Evolutionary forces have not designed us to be exclusively selfish individuals.
Wealthy people now face the dilemma you pose between retirement security and the risks of investment. They invest anyway for all sorts of reasons, many of which have nothing to do with their own marginal consumption.
No one knew what would happen after southern slaves were freed either. The radical Republicans guessed.
Maybe so, but why isn't that true now?
I'll argue that your theory of investor motivation has the effect you describe only if you compel it. I might behave as you suggest if you compelled me only to consume fruits of my investment. If I could only invest to increase my own consumption, then I might behave as you suggest. If I could employ my children instead, I wouldn't behave as you suggest. I'd happily risk my retirement security to invest in them. I'd even sacrifice the security altogether if they really needed this sacrifice. I'm doing it now in fact. My father did the same for me. I'm not speculating here.
I also appreciate your civility. Let's not be like most people.
Kevin will claim that there is a third way, force. But, it shows that he really hasn't thought that through. The USA for all its faults is a government of laws.
And here I thought the police and federal officers were carrying guns. You write of a defense against compulsion that doesn't work because the guys with guns come and put you in the train's brig (do trains have brigs?), and that's force. Maybe there is a good way off the train. Any ideas?
Also, what's the difference between volunteering for a thing and acquiescing to it (other than what it feels like to do it – seems like you'd have to voluntarily acquiesce if there was no force involved)? And how could I remember not volunteering? Do you remember not doing everything you didn't do? Should I remember not living in Equatorial Guinea? I don't remember living there… are you telling me I did? Is my not having lived there something I know that just ain't so? Redneck proverbs are way over my head today.
Martin, I am getting post fatigue but,
It's just what "risk averse" means.
That was my quote not Randy's. And you used the word "very," which is a value judgment and not "just" what anything means.
Our disagreement concerns the motivation to invest.
No. You and I have agreed that some people exhibit the behavior the other describes. The question is how many. You have speculated that sufficient of the type you describe actually exist to make the progressive consumption tax's negative incentive effects acceptable to you. I have speculated that they don't.
Where are the very wealthy men behaving as you suggest?
They are retiring as their wealth rises or dropping out of the pool of investors as their wealth falls. They are unseen. And those on the way down are less "very wealthy" than they used to be. Your examples are survivors who have not yet met gambler's ruin and dropped out of the game. I already agreed that such people would let the house money ride – is there a reason you keep beating this drum or are you just trying to exhaust me (it's working, btw)?
I've never posted anything like it.
Ugh. Another reason I'm getting fatigued. The first time, in response to my concern that losses in the account were mine to bear, you told me I could accumulate unlimited wealth in my account. Unrelated and not helpful. The second time, you told me the loss was only mine if I value consumption. Also unrelated and not helpful. Now you tell me again about what the state can't do with my winnings. Thanks I got that, the point was that I lose the right to consume on the downside but don't gain it on the upside. Separately, and frustratingly, you seem to grasp this elsewhere with the entirely unhelpful:
Duh.
Yeah, not helpful.
Giving Joe a job is how they profit.
Only until it's not. If they could fire Joe and sustain the profits, they would, or if they have responsible agents, the agents would eliminate Joe's job if was profitable.
You're telling me they're all a lot of awful, Hollywood stereotypes.
Again with the value judgments, and no I'm not telling you that. I wrote a long paragraph listing premises I agreed with, some of which are not compatible with all rich people being awful Hollywood stereotypes. I am suggesting that a sufficient percentage of humans behave in a way that would produce undesirable and noticeable effects under your system. Your rhetoric is colorful but exhausting to engage.
You claim that they'll risk their retirement security to increase their consumption and only to increase their consumption. They won't take the risk to employ their friends and family.
I don't claim that. We're not on the same page terminologically here. I consider giving money to my friends and family not to be investment. Sounds like you consider it such, or at least propose a system that would treat it as such for tax purposes. But all that does is push out the threshold.
So?
So you asked how it was different. I answered, and then you changed the subject.
Wealthy people now face the dilemma you pose between retirement security and the risks of investment.
To borrow stylistically from you, that's not my dilemma it's yours. I don't know how people today deal with your dilemma but there's probably lots of research on the topic that wouldn't be useful under different circumstances.
No one knew what would happen after southern slaves were freed either.
Another not helpful emotional appeal to an example of something people did once that was good.
Martin your whole post (other than the direct responses to quotes) reads like a prospectus for a charity. Maybe an endowment. I have no problem with that and believe that many people who have saved in excess of their desire to consume spend their time and money on such things. We haven't discussed this (and I really don't have the energy to discuss it), but I it seems your system would favor entrepreneurship over investment in securities, in that should I choose to risk my entitlement to consume and invest in order to grow my entitlement to invest I would have much easier access to all the benefits you describe by running an enterprise than by owning equity in enterprises controlled by agents, or by owning debt securities. Again, I don't have the energy to discuss, but I would be interested sometime to know if that is intentional and if so, why.
And if anyone else is reading this (why are you doing that??), we set aside quite a while back the question of whether the state should be able to dictate an acceptable level of consumption. Martin is playing monarch here, and we're discussing the most efficient way to run his kingdom.
Kevin, Regrets for confusing you with Randy.
If the tax persuades particular holders of capital to divest themselves of this capital, to avoid the loss of retirement security, then other people would come into possession of this capital. That's acceptable to me. It's my goal in fact.
You're right.
My problem is still that you don't effectively distinguish between the unseen disinvestors under the tax and similarly risk averse investors now. People must already disinvest for similar reasons now. This divestment occurs to an unusual extent currently, for demographic reasons. Your argument is non-unique.
I've always understood this point, and I have addressed it. If you value only consumption, you won't be a very wealthy capitalist under the tax. I obviously don't have a problem with that.
Granted.
I also think an unlikely, very wealthy capitalist without the tax, because without the tax, you still face this dilemma when your wealth reaches a level permitting a comfortable retirement. You still then must either cash out or continuing playing the game at this point, regardless of the tax.
The only people affected by the tax, in the sense you describe, are the people who will risk retirement security only to marginal entitlement to consume. These people are only a fraction of investors at best. We don't know the fraction.
I concede this point.
So let them cash out. Less power to them. I and mine will accept less marginal consumption. Obviously, I don't have a problem with that. I don't seen any utility or moral virtue in private castles, vacations on Mir and the like.
I freely concede this point. You're right.
If they can fire Joe and sustain the profits, they may. The tax doesn't prevent that. What they can't do is consume the profits beyond a certain level.
If Joe is a profitable factor, they don't fire him to consume the profits anyway. They sell the profitable organization to someone. Lots of people still want to own it. Profitable organization is unusually dear at the moment … or it was before the recent correction.
Of course, some profitable organization would disappear as the tax is phased in.
I concede this point.
Other organization would replace it. This reorganization occurs continuously regardless. We stop making wooden wagon wheels and start making rubber tires. Let's stop building Trump's lush casinos and start building something else. The casinos aren't profitable anyway.
Some humans presumably behave as you suggest now. You suggest that more humans behave this way under the tax. That's not obvious to me, but I concede that it could be true; however, these people don't pose a problem that I can see. So they cash out? So what? The game doesn't stop when someone cashes out.
Lots of people are cashing out now. If we create a lot more cash equivalents for them to cash into, that's a big problem, and I'm certainly concerned about that. Suppose we had the tax now. People would be driving the price of gold even higher? They'd drive the yield on long Treasuries even lower? To protect their retirement security?
No. Giving them a job is investment. I give them a job rather than giving them money so that I (and they) don't run out of money.
Again, their employment is my motivation to invest unrelated to my own consumption. It's just one such motivation. There are many. I emphasize this one because it seems so obvious to me. My only point here is that other motivations exist. A world without Trump investing is hardly a world without investors.
No. It doesn't matter whether I propose a system or not. People do invest for these other reasons as a matter of fact. Many businesses are family businesses. Do parents fire their children and dismantle the family business for firewood when they retire? Marginal consumption obsessed investors are not the only investors. That's my only point here.
I haven't changed the subject. I repeat a point, because you don't effectively address it.
So what if the consumption obsessed divest? What harm does that do? I suppose it's a benefit of the tax rather than a harm. That's the whole point of it.
Are you saying that only the consumption obsessed make profitable investment decisions? I just don't think that's true.
On the contrary, I think the consumption obsessed decide to organize vast resources to produce for their own consumption, as when Donald Trump builds elaborate casinos and loses his investors' money.
These people destroy profitable organization or never organize it in the first place, like a farmer eating his seed corn rather than planting it, regardless of a profitable corn market.
No. You describe a dilemma that people face with or without the tax, whether to cash out at the retirement security threshold or to stay in the game longer.
You say that more people will cash out if they can't accumulate more entitlement to consume. I'm not sure that's true at all, but if it is, plenty of people will happily join the game as they leave.
I'll join. I'll join understanding that the market for posh casinos and vacations on Mir is depressed, so I'll organize factors to produce other things. That's all. Let Trump cash out. That's fine.
No. It doesn't. You apparently think that employing people to produce something other than vacations on Mir is charitable. I'm only telling you why some people stay in the game rather than cashing out. The enticement of additional consumption certainly isn't the only reason.
How people invest depends on their available options. I'd also rid the world of entitlement to tax revenue and similar rents if I could. I'd junk Treasury securities, the FDIC and the Office of Financial Stability for example. That's a separate issue.
Hopefully, juries hearing tax evasion cases would understand that these rents aren't really productive investments at all, but this problem exists with or without the consumption tax.
I don't know. I only know that you'd have less access to a market for goods consumed by people with a very high level of marginal consumption, so you wouldn't choose to produce for this market, and you wouldn't choose to buy the securities of enterprises producing for this market.
You wouldn't build a vacation resort on the moon, for example, unless and until you could expect to sell tickets for $10,000 rather than tickets for $1,000,000. Technology and more common consumer desire to vacation on the moon might allow you to cross this threshold at some point, but you'd cross it later.
Why is that a problem? You'll probably never buy the $1,000,000 ticket anyway. You might find a job selling the tickets to others, but you'll more likely find what you can buy if these $1,000,000 tickets don't exist at all.
I won't entitle the lords to arrange your options this way, so hand me the crown.
We're discussing differences between my kingdom and yours. You're defending the king we have now. That's all.
Kevin,
There is a great difference between volunteering and acquiesence. Any military noncom can tell you that.
Volunteers go because they want to go and step forward on their own with no other motivation that their own desire.
Those who acquiesce never step forward and are chosen and then compelled to go under strict acknowledgement of an existing contract or agreement.
One still fills ones roster, but only those who volunteer can be counted on to perform when not being watched.
Qoute from a letter that was signed by Secretary of State, Madeline Albright, "We see no evidence that Mr. XYZ ever requested to be removed from the Citizenship Rolls."
Now, Kevin, you are an intelligent guy (no sarcasm here), what does the quote tell you? What factual information can you actually see and what can you deduce from that quote?
As for the comments and questions about volunteering or not volunteering, I did that deliberately.
Kevin, if you can't remember volunteering and you don't remember not volunteering then that must mean that the occasion never came up, you were never offered an opportunity to examine the facts and make a decision. Were you? Of course not, none of us are.
Yet my statement still stands, that to use force on you to compel you to perform is against the Constitution and therefore all acts that are carried out under the blanket authority of the Constitution must meet the test of constitutionality. That means that you are not forced and never have been. you just don't know that, nor do you know the alternatives. Which is what I am trying to get you to explore and understand.
Sure there are cops with guns but your interaction with them is almost exclusively civil. What if you carried an authentic document from the U.S. Secretary of State that declares you off limits to the cops on civil matters? A document that they can verify with a quick radio call. That would mean that the Corporate cops could only touch you if you committed an actual crime. Which, even I, admit is appropriate, because I would, as a free man, want a quid pro quo arrangement with the corporation.
There is an answer to my question about the mechanism and it is sickeningly simple once you figure it out and understand it. And, yes it can be challenged. Jurisdiction can always be challenged and it is the first thing that must be established in a pleading, or charge, in order for a judge to move forward.
You can get frustrated or just ignore reality, or you can think about it, your choice.
Kevin, if you didn't volunteer and you never made non-volunteering clear, because the occasion was never presented, then clearly something else is in play because you consider yourself in their jurisdiction and they consider you in their jurisdiction. Why?
Once the mechanism is determined then we can talk about what you do about it, if you choose.
You may not choose. I did.
We've boiled the disagreement down and I'm done. It is entirely a question of the materiality of the population of folks who, in a world that doesn't exist would behave one way versus another. It's a speculative point and that's why the discussion runs out of gas there. You think we disagree about a couple other things but those too are speculative points you keep bringing up and I've intentionally avoided because those discussions also have nowhere to go.
To address a few points I think are salient:
No. Giving them a job is investment.
Ok. I'm pretty sure you said earlier that you'd give them the money, but maybe you weren't intentionally identifying that as a qualified investment. At any rate, most of the family business I've observed with the characteristics you describe are essentially gifts anyway, as are employment relationships with family/friends. If you mean that giving them jobs is investment while giving them money isn't, we've just found our first tax avoidance strategy.
Second salient point:
You apparently think that employing people to produce something other than vacations on Mir is charitable.
I don't. You apparently think that the work of charities is charitable. Charities are all about getting your name on things, making the world the way you'd like it to be, employing your cronies, all the good stuff you advertise in your post. And also about getting more donors, but that's not really in the prospectus.
Last salient point:
You're defending the king we have now.
I'm really not. I already told you I have added no alternatives, and I really haven't. I have not advocated for the status quo as an alternative to your system. I'm writing entirely as a critic here.
You keep trying to engage me in a conversation about whether it is reasonable to believe that a material number of people will behave in the way I say they have an incentive to behave, and I decline because it's speculative and neither you, nor I, nor even the would be investors/divestors can know. Your desire to have that conversation is really causing you not to read my posts and it is annoying. Examples:
If they can fire Joe and sustain the profits, they may. The tax doesn't prevent that.
I didn't say it did. I was highlighting the transience in the following statement of yours, made in response to my statement that Joe's job is incidental to wealthy people's success, not the definition of it:
Giving Joe a job is how they profit.
See, I thought we were talking about why people employ Joe. Next thing I know you're telling me what the tax doesn't do. My head is spinning here.
I haven't changed the subject. I repeat a point, because you don't effectively address it.
You asked how a system in which entitlement to consume and invest is risked to gain entitlement only to invest is different from a system in which entitlement to consume and invest is risked to gain entitlement to consume and invest. I told you the answer. Your response was to ask "So?" and change the subject, as I said you did, to bring up again the speculative question of how people would behave under your system. Then you told me you didn't change the subject and brought up the point yet again. Excuse me while I bang my head on my desk a few times.
No. You describe a dilemma that people face with or without the tax
Oi. I don't. Again, the dilemma I have identified is whether, at the retirement security threshold, to invest in a world where gains cannot be consumed. People do not face it without the tax. I'm pretty sure I'm not going to write that again. The dilemma you put forth is not mine… you can disown it if you want but it's really not mine. Not that I care, just pointing out that we keep going over points I think because you're not reading this stuff.
Anyway, it seems clear to me that if you were the king you'd be willing to take the risk that you're right about how people would behave and test the reform. What you would do if you were king is of exactly no consequence, and that's why I have no interest in giving you a foil in a discussion of what people would or wouldn't do. I'm surprised you even want to have it, given that you're the guy who tells people who say they're all for opting out of the state that they don't know what they'd do when the chips are down. Then again, maybe you're actually interested in speculating about their behavior too and simply disagree with their own speculation. At any rate, when we do have an actual king, if he asks me what I think about what people would do I'll tell him whatever he wants to hear so I don't get sent to the dungeon, but I doubt I will ever have with anyone the discussion you are tyring to force.
I am actually interested in what would happen if a state taxed only consumption, and you have developed the concept as far as I have seen anyone. I hope our little discussion here has added some value to the concept because I'd like to see it more fleshed out. Far more likely, this has been just so much pollution of Don and Russ' otherwise lovely blog. Sorry about that Don. Sorry Russ.
Sorry to double post again but Vidyohs showed up while I was editing the other response. I should write less, and will.
Those who acquiesce never step forward and are chosen and then compelled…
You may draw a distinction between this and force. I don't.
Yet my statement still stands, that to use force on you to compel you to perform is against the Constitution and therefore all acts that are carried out under the blanket authority of the Constitution must meet the test of constitutionality.
I think you're begging the question here (in the original sense, not the BMW commercial sense). You presume that the state is subject to the rule of law the and then argue in various fashions that the state is subject to the rule of law.
…you consider yourself in their jurisdiction and they consider you in their jurisdiction. Why?
Because I am afraid of their guns and they want my money. And because neither I nor they expect them to respect the rule of law.
That all adds up to force from my perspective, and I think that really is the mechanism. If you have any other insights I'd be interested.
I said that I would give my own children money if they needed it even if I couldn't expect a positive yield. I also said that I'd try to earn a positive yield to avoid running out of money to give them. Family businesses can and do operate this way.
I doubt that most family businesses operate primarily on the gift principle. I've seen too many Chinese restaurants. Regardless, the point is that increased personal consumption is not the only reason that people invest.
The money is income to the employee, so it doesn't avoid the tax; however, it's taxed at a lower marginal rate, because it's the employee's consumption and not the employer's consumption.
Since the statement is tautological, I do think so.
A profitable business can get my name on things, make the world the way I'd like it to be, employ my friends and family and all the good stuff in my post. What's the problem? Of course, I want my profitable business to have these effects. My consumption isn't my only goal, far from it.
A profitable business has customers rather than donors.
No. You assert that people invest only for their own consumption or that a sufficient number invest only for consumption to pose a problem. I assert on the contrary that people invest for many other reasons. I know that people invest for other reasons as a matter of fact, because I observe it. The family business is only one example.
It's not speculative. I know that people already invest for reasons other than their own consumption even without the consumption tax. I know it, because I do it myself. People who are free to invest only for their own consumption don't. That's an empirical observation, not a theoretical speculation. Family businesses aren't the only example. They're only a common example. Family businesses aren't charities. Common family businesses can't afford to be charities. They must be profitable to persist.
It's consequential in this discussion, because it enables me to ponder the reform. If I were discussing some Rothbardian utopia, with a gold standard and 100% reserve banking, I'd also be playing monarch.
I've discussed what people do in fact without the reform. You have in fact discussed what people would or wouldn't do under the reform. You assert that people would stop investing when they can no longer defer or multiply entitlement to consume or when investing would risk their retirement security. You're entitled to your speculation, but you speculate that people would not do under the reform what they already do without the reform.
No. I say that they're not really for opting out of the state at all, regardless of where the chips fall. If you expect property, you aren't for opting out of the state, and I don't find anyone here who doesn't expect property.
Playing monarch has nothing do with having an actual King. Someone must play monarch to discuss a specific reform of the law; otherwise, we don't know what specific reform we're discussing.
I wouldn't be here otherwise. Thanks again.
I think if a lot of people understood investment properly, they would be quite interested in investing in the future.
Some people invest in museums so they can have museums for their friends and family to go to.
People may invest in space travel so that they may eventually visit a space habitat rather than astronaut quarters.
If you set your mind to it, I'm sure that there are a lot of things you'd like to invest in.
Like I said, Kevin, your choice and you've clearly made yours.
You are right, there is always the chance a superior force will attack you and maybe kill you. That condition has existed since man picked up that first stone or club.
It doesn't even have to be government that does it to you, you might just be having a meal in your local Luby's cafeteria when a nut job with a gun decides to kill.
You either live your life on your knees in fear of force or you meet it to the best of your ability.
What is the legal mechanism that puts you in the jurisdiction of the Constitution. How do they do it to you…..well we know how they do it to you personally, you've told us that; but, how do they do it to the rest of the populace?
Freedom isn't worth thinking about or fighting for, why bother.
Kevin:
This objection is obviously sound, but it applies to every liberal reform imaginable, of course. Liberal reformers can only hope that central authorities so undermine themselves that their institutions ultimately cave in, creating space for new institutions based on more liberal principles. I don't pretend to be very optimistic about that.
To summarize, a progressive consumption tax with marginal rates approaching 100% could lead very wealthy people focused exclusively on their personal consumption to divest, to cease seeking profitable reorganization essentially by becoming excessively charitable. These people would rather become personally poorer than seek greater profit if they can't increase their marginal consumption, even if their only other option is simply to give their money away.
I concede this objection, but I don't consider it a fatal flaw in the reform for three reasons.
First, many investors are not focused exclusively on consumption and will seek profit simply to be richer than the next guy, like athletes playing a competitive game.
Second, insofar as consumption-obsessed investors divest, they transfer means to the others who are less wealthy and are not subject to the highest marginal rates. These others then seek profits.
Third, consumption-obsessed investors seek "profit" by organizing means to satisfy other consumption-obsessed investors, so without limits on their authority, we end up producing relatively few, very costly goods available only to the wealthiest, most consumption-obsessed investors, rather than more diverse goods available to more common consumers. The latter organization of resources is preferable as an end in itself.
We only need capitalists seeking profit. We don't need capitalists always consuming every yield, and we don't the same people remaining capitalists in perpetuity.
When I say "we don't need", I'm referring to the well-established benefits of capital organized in markets by profit-seeking proprietors. Neither capitalists consuming every yield nor a perpetual class of capitalists is necessary for these benefits, but lords of capital with unlimited authority to consume do impose costs.
Very few, if any, wealthy people are able to consume even a portion of their wealth.
consumption obsession may be the wrong designation, perhaps security obsession is more accurate.
People will continue to invest to enhance their security, even if they get returns greater than their ability to consume, it's always good to have buffer.
I agree, but sheer one-ups-manship, the desire to be top dog, to be the alpha male, presumably drives the profit seeking of the wealthiest investors as much as anything, as it drives Olympic athletes with little prospect of riches in some professional sport.
As long as everyone knows the score, people will play the game to win. We'll still read about Bill Gates in the Wall Street Journal even if his castle is half as large, and he'll still have (or could have) the largest castle even if it's smaller than it would be without a progressive consumption tax.
Above maybe a million bucks a year, high marginal tax rates on consumption, even approaching 100%, don't discourage investment much at all, I'll wager.
True, there is an innate status seeking component of the human psyche. No doubt it conferred/confers a reproductive advantage.