Friday, October 19, 2007

I'm a Masonomist

Great column by Arnold Kling on the type of economics taught at George Mason University. If I were looking for a place to get an economics education today, I would attend George Mason.

Thursday, October 11, 2007

Government is Good?

Government is Good is a web project by Douglas J. Amy, a Professor of Politics at Mount Holyoke College. The site describes itself as providing "An Unapologetic Defense of a Vital Institution". However it's more unthinking than unapologetic. A perfect example is provided by the author's writing on "A Day in Your Life".

The article starts with the claim that "Though we usually fail to notice it, government programs and policies improve our daily lives in innumerable ways." and then proceeds to document all the nice things that government does for us. The problem with this tome is that the author presents things as if only the government could provide the services he mentions. For example, he mentions getting weather information from the National Weather Service, completely ignoring the fact that there are numerous private companies in existence which provide weather information, some of it more accurate than the NWS. He talks about how wonderful and cheap our postal service is, as if private companies would somehow not fill the gap should the postal service not exist. Item after item are things which could (or have been in the past) provided by private firms. TJIC provides a better, point by point dissection.

In addition to overlooking the fact that private companies can and do provide the same sort of services, he makes a big omission by failing to address costs. It's easy to say that government is providing all these great services, but a what cost? When free people want to make use of a service, they evaluate the cost and benefit of the service. They look for a good value. Are the services government provides a good value? Nowhere does he talk about this. Not surprising, since he is a professor of politics and not economics.

It's not that I'm anti-government (although David D. Friedman's book The Machinery of Freedom makes a compelling case for why government isn't really necessary) but I believe that government's only legitimate purpose is to protect individual freedom. As George Washington stated so eloquently:

Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.

Supporters of big government who ignore this simple fact ignore history. They think that past governments have done bad things because bad people were in a position of power. The feel that government will work if we put good people in charge. History has not shown this to be the case, however. What has been shown time and time again is that government in only good at one thing, and that's to kill people.

Another take here

Interesting Federal Tax Reform Proposal

I just read about a new tax reform proposal offered up by a couple of House Republicans that sounds interesting. It's called the "Simplified Tax" system and it comes close to being a flat tax. It has two rates, 10 and 25 percent, with a large standard deduction of $25,000 for married filers and $12,500 for singles. It supposedly would eliminate all other deductions and credits. Dividend and capital gains would be set to 15%.

Overall this is a drastic improvement over what we have now. Simplification would reduce costs of compliance. Less need for tax accounts and lawyers, for example. Reducing taxes on dividends and capital gains would also free investment capital to move to better uses, helping the economy as a whole. Of course tax accountants and lawyers would stand to lose, as well as other groups who benefit from tax favoritism which is why I wouldn't expect this bill to pass, at least not without adding back some key deductions. Still, it's nice to see something positive coming out of Republicans for a change.

Wednesday, October 10, 2007

Best quote from the Michigan Republican Presidential debate

In response to Mitt Romney's comment that he would have to consult attorneys before going to war, presidential candidate Ron Paul quipped:
Why don't we just open up the Constitution and read it?

Buying Votes

I see that Hillary Clinton is once again attempting to buy votes. On Wednesday, Clinton proposed tax cuts up to $1,000 per year to encourage millions of working-age families to open 401(k) accounts. If she had stopped right there I wouldn't have much of a problem. I'm always in favor of ways for people to keep more of their own money and to give the government less. However, as always, there is a catch. To 'pay' for the cuts, Clinton advocates higher estate taxes. Simply a case of taking money from some people and giving it to someone else. Perhaps Clinton should just come clean and announce a program to take everyone's money and give it back to people in the portion she feels is fair. It would be more honest.

(h/t Cato@Liberty)

Friday, October 05, 2007

Helpful Lawmakers

In today's Detroit Free Press there is an article with the headline Tax Deal Blasted as mere quick fix - Closer look shows trouble on the way. No kidding. One of the things the article points out is the fact that most of the new revenue from this tax will come from taxing business services. Guess who is a heavy user of business services? Automakers. Now, one reason Michigan is in such trouble is because of the ailing U.S. auto industry. I'm sure increased costs are just what the doctor ordered. Another way to make automakers less competitive, another reason for companies to avoid locating in Michigan. Kudos all around.

Thursday, October 04, 2007

More on the new Michigan Services Tax

It's a well established fact that when you tax something, you get less of it. It's one of the main reasons why people say we should raise gas taxes, or raise the cigarette tax. Raising the tax will supposedly reduce demand and help people stop smoking or driving too much. For some reason, however, people (politicians in particular) seem to forget or ignore this little fact of life. Granted, the amount of reduction is based on the price elasticity of demand, but in general you will see a reduction in the amount of something purchased if you raise its price. Adding a services tax will raise the price of most services and therefore less of it will be purchased

Pro tax editorials and commentary seem to be focusing on services purchased by individuals and they remark that the cost to an average household may only go up a couple hundred dollars. What they ignore is the cost the new services tax imposes on businesses which purchase services. For example, many companies have started outsourcing janitorial services. This allows the business to focus on its core competency, which probably isn't in providing janitorial services, and it allows janitorial service companies to form and benefit from economics of scale. The net effect is that businesses save money on services, and the services company is able to provide employment. Now, when the services tax kicks in, some companies may find ways to cut back on the janitorial services they use. When they do, janitorial service companies will have to cut back on their employment. Who suffers the most, the worker for the janitorial company.

You may argue that the company purchasing the service can just pass their extra costs on to their customers. Quite possible. However, it puts this business at a competitive disadvantage over companies in other states which aren't subject to these additional costs. One of the arguments put forth by our politicians to support this tax is that it will strengthen Michigan and make it more attractive. However, by increasing business costs, they are making Michigan companies less competitive. In addition, companies which may be thinking about relocating to Michigan will have to take these increased costs into account in deciding whether to come here or not. Companies already here have reasons to consider moving elsewhere. Anyway you look at it, the new tax will be harmful to the Michigan economy.

More details here

Wednesday, October 03, 2007

Economic Stupidity

Recently the State of Michigan Legislature passed a new budget which called not only for an increase in the state income tax, but also an expansion of the state's 6% sales tax to include services. All of this to fix a $1.75 billion dollar shortfall in the current budget. This $1.75 billion amounts to about 5% of the annual budget. There were some cuts and other changes which will supposedly save some money, but the bulk of the $1.75 billion will supposedly come from the new taxes.

Now, if you don't know this, Michigan is currently undergoing it's own private recession. It's unemployment rate, at 7.4%, makes it the worst of any state in the Union. The next worse is Alaska at 6.3%. Michigan is also losing residents to other states as our economy continues to falter. So what do our leaders think will solve our economic woes? More taxes. They seem to think that we can tax our way to prosperity. What is more likely to happen is that it will further retard the economy and lengthen the period of any recovery.

The biggest mistake made by the legislature is the new tax on services. Of course, the tax is only going to be applied to 'discretionary' services, where 'discretionary' is simply defined as businesses which didn't have lobbying clout. For example, landscaping is taxed whereas golf isn't. Golf, of course, is a necessity of life so we couldn't tax that. Landscaping, however is obviously something that only wealthy people can afford. Possibly true, but the people who work for landscapers typically aren't

What our elected officials don't seem to grasp is that when you tax something, you get less of it. If landscaping costs more because of the tax, people won't do as much. The people who will feel this the most will be the people who work for landscape companies. This is all very similar to what happened a few years ago when Congress passed a luxury tax on yachts. It was supposed to hit the wealthy. Unfortunately the wealthy decided they didn't need to spend the extra money on a new yacht if they were going to have to pay a big tax. So, fewer yachts were purchased. Of course, this had bad effects on companies that made yachts, ultimately resulting in layoffs of workers. A similar thing is likely to happen in Michigan.

One of the services which is to be taxed is skiing. Michigan may not be a skiers nirvana, but we do get some people to travel here to go skiing. Also, people who live in the state will often times visit resorts here. Now, with an additional services tax, people may think twice. I know that I will go fewer times. In addition, ski instruction will be taxed and again people will likely not purchase as many lessons as before. This will result in less revenue for ski areas, thereby reducing other tax collections. Fewer tourists also results in less money coming to the state. Ski instructors may decide to leave for greener pastures. All things which hurt, not help, the state economy.

Our state already has a reputation as being a poor place to do business, we don't need to make things worse. Supporters of the tax increase say that we will be better off because we can use the money to provide needed state services. Roads and education, for example. Of course, roads have a funding source called the gas tax. It's close to a use tax and is paid by the people who use the roads. If roads need additional funding, it should come from places like that. With education, much of the state budget is spent on teacher retirements, not on improving the classrooms. If we really wanted to improve education, we should simply privatize the entire thing.

5 years ago when Jennifer Granholm was running for Governor, she promised people that in 5 years we would be "blown away" by the Michigan economy. I guess we now know what she meant.

Way to go Ron!

I just read the news that Ron Paul has collected $5,080,000 in campaign contributions in the third quarter of fundraising. He managed to raise $1,200,000 of that in just 11 days. Pretty impressive for a lesser known candidate.

Monday, October 01, 2007

Great Quote

I love this quote from this post at Coyote Blog
A government that adjusts itself to the citizens is a Democracy. A government that demands citizens adjust themselves to the government is fascism.
I think that sums things up nicely.