When we lived in Guatemala many years ago I used to see a car with a bumper sticker that read, "Taxation Is Theft". Apparently the owner was a person whose belief in property rights trumped everything.
Hypothesis I: There is a God and it cares about property rights. If this is the case then one needs only to seek revelation, either one's own or someone else's. I leave the search for such revelation to the reader who accepts this hypothesis.
Hypothesis II: Either there is no caring God or if there is, it doesn't care about property rights. This is a far more interesting hypothesis as it allows for thought and discussion of the topic. By income redistribution I mean government policies and acts that redistribute between citizen groups. Any given policy would occupy a point along a continuum running from unfettered private individual ownership of everything to collective ownership of everything. It is not my intention to identify any such point, but merely to justify government actions intended to move a society along the spectrum in the direction of collectivism.
First the other side, There are strong arguments for private individualized ownership of stuff. They have to do with incentives. If you get to keep the fruits of your labor or innovation there is much more incentive to work hard and or innovate, than if what you generate is shared equally among all. The same applies to the husbanding of resources. There is little reason to not shoot the last pair of mating buffalo if, because they are commonly owned, someone else will. The absence of defined and enforceable property rights in the air, the oceans, etc. can be seen as a major factor in the abuse of these resources.
And finally we arrive at my point. What right has society collectively to take any disproportionate share of Bill Gates wealth from him and pass it on go someone else? If it was legally earned by creating big social benefits, how do we slackers who created less and earned less get off taking away some of his? And my answer is, because he did not gain this wealth individually. He was able to gain it because he was embedded in a society of people. If her were not, if he lived and worked alone, though he might have physical control over all of North America, he could not live at much more than a subsistence level. He may have contributed enormously to the group, but he also gained enormously from being in the group. That is the ethical reason why he may be taxed more heavily than others.
P.S.
I see that, measured in paragraphs, the introduction is four times longer than the sole point.
Thursday, February 21, 2013
Monday, February 18, 2013
Counter Cyclical Fiscal Policy, National Debt, and the Role of Government
This is a pretty long and pedantic post. Nobody should undertake to read it unless he or she happens to want the thoughts of an out of date student of economics.
The discussion of the deficit and national debt that has been going on in Washington DC has conflated the title elements of this post to the detriment of the discourse. Hopefully the important players know very well all that lies below, but they make precious little effort to display such understanding or to try to educate their constituents. So here's a shot at getting some things straight.
The government is not like an individual. If you hear someone say it is, watch out. The speakereither is trying to deceive you or just doesn't know what he or she is talking about. The most important difference for this discussion is that whereas an individual's earning stream is limited to something like 50 years at most, the future income stream for a government is essentially unlimited. 100 years from now the government will probably still be here and it will still be collecting taxes. That is a real difference from individuals and what it means is that while an individual has to balance his spending and earning over a term of about 50 years a government does not. In this way a government is much closer to a corporation than to an individual. It is fairly difficult for a person of 65 to find a bank that is willing to make a 30 year loan since the borrower's income stream, and indeed his life, is unlikely to go on for 30 more years. A more or less immortal government or corporation has no such constraint. Furthermore for a corporation to be continuously in debt for 100 years is not necessarily a sign of weakness. It could be a sign of strength; a sign that lenders have continuously viewed it as a safe bet.
There is no right answer to the question "Is debt bad?" Much depends upon what is to be done with the borrowed funds. Here a government is more like an individual. Borrowing to invest in something that will increase productivity may be extremely wise. For a government it might be a highway, or a vaccine. For an individual borrowing to finance higher education or the tools of a trade can pay off well. Borrowing to go on vacation on the other hand clearly lacks the same justification. A government equivalent might be Amtrak subsidies or food stamps or health care for retired people. I think most government expenditures go to things the sponsors can argue will benefit future generations. Those who are troubled by our national debt bemoan the burdens we are placing on our progeny. But think about this. If we borrow some money from China and use the funds to provide a better education, or highway system or renewable fuel source for our children to live with and use, have we done them wrong? I don't think it is obvious. Though they may have to pay back the debt they may well have a higher level of production out of which to make the payment. Borrowing to finance a war that preserves a nation may not be so bad for those who come later. The basic point is that the virtue or vice of debt depends to large degree on how the borrowed money is used.
Perhaps the most powerful truth in economics is that specialization in production beats generalization. No individual, no matter how talented or how endowed with resources can, working alone, provide for himself the necessities and comforts of life that the humblest workers enjoy in even a modestly specialized economy. But specialization in work requires trade which in turns implies interdependence. The more specialization and trade that takes place, the more bounty and the more interdependence there is. At some point a couple of hundred years ago specialized, interdependent economies reached the place where they became subject to periodic breakdowns; dislocations that left resources, especially labor unemployed. If resources are left unemployed total output is less than it might have been. There are less goods available to satisfy the people's wants. This shortage is disproportionately borne by the unemployed.
Counter cyclical fiscal policy refers to governmental taxing and spending activities designed to dampen the variation in economic activity. One reason for a modern economy to go into a slump is a lack of demand for the stuff that workers produce, and falling demand has a self reinforcing aspect. Stuff builds up on retail shelves. Orders go down. Workers get laid off. Having lost their income they buy less and more stuff builds up on the shelves. Government spending adds to general demand for the output of the economy. Taxing is thought to reduce demand by drawing purchasing power from the hands of consumers. Therefore deficit budgets, those with expenditures greater than taxes, are considered to be stimulating. Conversely surplus budgets are thought to dampen economic activity. In other words in periods of high unemployment counter cyclical fiscal policy consists of running deficits, i.e. increasing the national debt. If fiscal policy is in fact efficacious then an economic downturn is no time to reduce the national debt. Debt reduction should be done when the economy is piping along and perhaps needing some cooling down.
It must be said that not all economists believe that fiscal policy works as described above. But what ought to be understood is that the efficacy of fiscal policy is a question of fact not of choice. The answer should be the same for a big government lefty or a small government loving righty. It doesn't have to do with the desirable size and role of government. It has to do with how market economies work. It is really a shame that the study of the workings of a market economy is so difficult that this fundamental question is not well resolved. There is one big historical example that makes it look like fiscal policy does work. By 1938 there had been some recovery from the depression of the previous nine years. The Congress and FDR agreed to some tax increases and spending cuts to get the federal budget nearer to balance. It seemed prudent. What followed was a downturn in the pace of economic activity. That's half the example. The other half is that starting three years later a really big war was financed with really big deficits and simultaneously the economy became robust. Does fiscal policy work? It certainly seemed to in that instance.
It is also notable that what was produced in this greatest of all deficit periods was not productive assets for future generations. We built a ton of stuff that was then destroyed. Except for the fact that a political system we are fond of was saved, the exercise was really an example of over consumption done at the expense of future generations. We were not creating a lot of infrastructure or manufacturing capacity that would enhance the lives of those who came later.
The capacity to borrow means that there is not a one to one link between raising money and spending money. That makes counter cyclical fiscal policy possible, and to the extent counter cyclical fiscal policy is efficacious, it is a good thing. However the loose link between taxing and spending has other results that may not be so good. In particular unhooking spending and taxing allows government to hide the cost of its activities. If you have a government activity that you don't want people to feel the cost of providing be it a war or a subsidy for the arts, then pay for it with debt.
There is an independent, hard headed, self interested indicator of whether or not the nation's debt is too large. It is one that should be particularly appealing to those who revere private markets. It is the interest that lenders demand in order to hold the debt issued by the government in question. If the U.S. were borrowing too much and using its borrowing capacity frivolously rather than prudentially, then the cost of borrowing should go up. It should go up proportionately to the ill advised behavior. I'm not aware of any such paucity of would-be lenders to the U.S. Government. In fact U.S. government debt is regarded as one of the safest investments to be found. When the U.S. credit rating was reduced a while back it was due to Congressional threat to default on the debt by not raising our totally arbitrary debt ceiling. We were basically threatening lenders that we might not pay our bills. Not that we couldn't, but that we wouldn't. The financial markets don't seem to be all that worried about the debt at the present time.
What is a matter of choice and judgment is the size and role of government. I don't believe there is anything wrong or stupid about thinking that government is inefficient, corruptible, or potentially despotic. I personally believe there are lots of important ways that markets fail including imperfectly defined property rights, unenforceable property rights, corruption and perverse income distributions. It is through the government that we might solve such problems collectively. People who believe otherwise are not prima fascia stupid, or evil. Whatever amount of government we choose to have, we should pay for. However we should probably not work on balancing the budget during periods when the economy is weak.
The discussion of the deficit and national debt that has been going on in Washington DC has conflated the title elements of this post to the detriment of the discourse. Hopefully the important players know very well all that lies below, but they make precious little effort to display such understanding or to try to educate their constituents. So here's a shot at getting some things straight.
The government is not like an individual. If you hear someone say it is, watch out. The speakereither is trying to deceive you or just doesn't know what he or she is talking about. The most important difference for this discussion is that whereas an individual's earning stream is limited to something like 50 years at most, the future income stream for a government is essentially unlimited. 100 years from now the government will probably still be here and it will still be collecting taxes. That is a real difference from individuals and what it means is that while an individual has to balance his spending and earning over a term of about 50 years a government does not. In this way a government is much closer to a corporation than to an individual. It is fairly difficult for a person of 65 to find a bank that is willing to make a 30 year loan since the borrower's income stream, and indeed his life, is unlikely to go on for 30 more years. A more or less immortal government or corporation has no such constraint. Furthermore for a corporation to be continuously in debt for 100 years is not necessarily a sign of weakness. It could be a sign of strength; a sign that lenders have continuously viewed it as a safe bet.
There is no right answer to the question "Is debt bad?" Much depends upon what is to be done with the borrowed funds. Here a government is more like an individual. Borrowing to invest in something that will increase productivity may be extremely wise. For a government it might be a highway, or a vaccine. For an individual borrowing to finance higher education or the tools of a trade can pay off well. Borrowing to go on vacation on the other hand clearly lacks the same justification. A government equivalent might be Amtrak subsidies or food stamps or health care for retired people. I think most government expenditures go to things the sponsors can argue will benefit future generations. Those who are troubled by our national debt bemoan the burdens we are placing on our progeny. But think about this. If we borrow some money from China and use the funds to provide a better education, or highway system or renewable fuel source for our children to live with and use, have we done them wrong? I don't think it is obvious. Though they may have to pay back the debt they may well have a higher level of production out of which to make the payment. Borrowing to finance a war that preserves a nation may not be so bad for those who come later. The basic point is that the virtue or vice of debt depends to large degree on how the borrowed money is used.
Perhaps the most powerful truth in economics is that specialization in production beats generalization. No individual, no matter how talented or how endowed with resources can, working alone, provide for himself the necessities and comforts of life that the humblest workers enjoy in even a modestly specialized economy. But specialization in work requires trade which in turns implies interdependence. The more specialization and trade that takes place, the more bounty and the more interdependence there is. At some point a couple of hundred years ago specialized, interdependent economies reached the place where they became subject to periodic breakdowns; dislocations that left resources, especially labor unemployed. If resources are left unemployed total output is less than it might have been. There are less goods available to satisfy the people's wants. This shortage is disproportionately borne by the unemployed.
Counter cyclical fiscal policy refers to governmental taxing and spending activities designed to dampen the variation in economic activity. One reason for a modern economy to go into a slump is a lack of demand for the stuff that workers produce, and falling demand has a self reinforcing aspect. Stuff builds up on retail shelves. Orders go down. Workers get laid off. Having lost their income they buy less and more stuff builds up on the shelves. Government spending adds to general demand for the output of the economy. Taxing is thought to reduce demand by drawing purchasing power from the hands of consumers. Therefore deficit budgets, those with expenditures greater than taxes, are considered to be stimulating. Conversely surplus budgets are thought to dampen economic activity. In other words in periods of high unemployment counter cyclical fiscal policy consists of running deficits, i.e. increasing the national debt. If fiscal policy is in fact efficacious then an economic downturn is no time to reduce the national debt. Debt reduction should be done when the economy is piping along and perhaps needing some cooling down.
It must be said that not all economists believe that fiscal policy works as described above. But what ought to be understood is that the efficacy of fiscal policy is a question of fact not of choice. The answer should be the same for a big government lefty or a small government loving righty. It doesn't have to do with the desirable size and role of government. It has to do with how market economies work. It is really a shame that the study of the workings of a market economy is so difficult that this fundamental question is not well resolved. There is one big historical example that makes it look like fiscal policy does work. By 1938 there had been some recovery from the depression of the previous nine years. The Congress and FDR agreed to some tax increases and spending cuts to get the federal budget nearer to balance. It seemed prudent. What followed was a downturn in the pace of economic activity. That's half the example. The other half is that starting three years later a really big war was financed with really big deficits and simultaneously the economy became robust. Does fiscal policy work? It certainly seemed to in that instance.
It is also notable that what was produced in this greatest of all deficit periods was not productive assets for future generations. We built a ton of stuff that was then destroyed. Except for the fact that a political system we are fond of was saved, the exercise was really an example of over consumption done at the expense of future generations. We were not creating a lot of infrastructure or manufacturing capacity that would enhance the lives of those who came later.
The capacity to borrow means that there is not a one to one link between raising money and spending money. That makes counter cyclical fiscal policy possible, and to the extent counter cyclical fiscal policy is efficacious, it is a good thing. However the loose link between taxing and spending has other results that may not be so good. In particular unhooking spending and taxing allows government to hide the cost of its activities. If you have a government activity that you don't want people to feel the cost of providing be it a war or a subsidy for the arts, then pay for it with debt.
There is an independent, hard headed, self interested indicator of whether or not the nation's debt is too large. It is one that should be particularly appealing to those who revere private markets. It is the interest that lenders demand in order to hold the debt issued by the government in question. If the U.S. were borrowing too much and using its borrowing capacity frivolously rather than prudentially, then the cost of borrowing should go up. It should go up proportionately to the ill advised behavior. I'm not aware of any such paucity of would-be lenders to the U.S. Government. In fact U.S. government debt is regarded as one of the safest investments to be found. When the U.S. credit rating was reduced a while back it was due to Congressional threat to default on the debt by not raising our totally arbitrary debt ceiling. We were basically threatening lenders that we might not pay our bills. Not that we couldn't, but that we wouldn't. The financial markets don't seem to be all that worried about the debt at the present time.
What is a matter of choice and judgment is the size and role of government. I don't believe there is anything wrong or stupid about thinking that government is inefficient, corruptible, or potentially despotic. I personally believe there are lots of important ways that markets fail including imperfectly defined property rights, unenforceable property rights, corruption and perverse income distributions. It is through the government that we might solve such problems collectively. People who believe otherwise are not prima fascia stupid, or evil. Whatever amount of government we choose to have, we should pay for. However we should probably not work on balancing the budget during periods when the economy is weak.
Friday, February 15, 2013
The Premier
Robby-o and Jenuliette
Prologue
The director comes onto the apron and says something like:Welcome. Thank you for coming. Romeo and Juliette, Shakespeare's tragic drama of young love has been transformed many times in time, place and form including ballet, opera, and Broadway musical. Tonight you will see it as no one before you ever has. Sit back now and enjoy both a classic story and a brand new art form; yogic drama.
Act I Scene 1: Yoga class on a sandy beach where in the background the iconic Santa Monica pier runs out into the ocean. The instructor is dressed in blue and red. There are 20 students 10 men and 10 women, half in red and half in blue with the reds stage R and the blues stage L. Robby-o wears a shade of blue with a bit more red in it and Jenuliette is in red, but a shade with a bit more blue than her friends'. Led by the teacher, the class is doing Sun Salutations. They count together "105, 106…." When they reach l08 all except the teacher are exhausted. Now that they are well warmed up the teacher leads the group into the warrior poses flowing from Warrior I to Warrior II, to Warrior III. The red and the blue groups face one another. They are vigorous and menacing as they go through the poses. It is clear they are not simply doing yoga poses. They are addressing one another. Their mutual hate is palpable. After the warrior series the teacher tells them in a soothing voice to move into diamond pose. The tension fades as the students start to ooooooom. All the students are facing the teacher but R and J are slyly stealing glances at one another. The class ends and the students depart except for R and J. R asks the teacher for help with his downward dog. As the teacher coaches R, J stands around doing some stretches and coyly watching. R actually does a great downward dog and is really just showing off. Explaining that she must leave, the teacher asks J if she could give R a hand with his pose. The teacher leaves and J begins to look boldly and approvingly at R. After just a moment a male in red enters, takes J roughly by the wrist and pulls her off the stage.
Curtain.
Scene 2: In the dim light of dawn J is holding a beautiful Half Moon Pose atop a bulkhead in a large park-like space. After a moment R comes on stage and walks to a spot beneath her. He stands still, looking at J and then turning his back he raises his arms straight over his head while his right foot is raised and pressed against his left inner thigh. After a moment, just as the moon is setting, J breaks her pose and moving slowly to the edge of the bulkhead above R she stoops, places her hands on R's head and stretches one foot down to his up raised thigh. Shifting her hands to his shoulders she passes her weight onto him and, as if descending from a tree, slides down his back to the ground. He turns to face her, stands perfectly still and then executes Triangle Pose. J follows suit. They hold the pose for a few moments and then J eases into Extended Angle Pose. The actors continue assuming a variety of poses, taking turns in choosing. At the beginning of the scene the thermostat controlling the temperature in the auditorium is turned to 105 degrees. As the actors continue with their poses everyone in the house begins to sweat. The actors begin with standing poses, then progress to sitting poses, very near to one another, and finally they find themselves lying on the floor doing Cobra, Boat Pose, etc. They work silently until, as J arches into Bridge Pose she breathes, "Oh Robby-o, I'm hot as Bikram Hatha. "Me too" says Robby-o, and the stage goes dark.
T: Namaste
R: Namaste. Ma'am, I have a problem, but I think perhaps you can help. I don't know who else to ask.
T: What is your problem?
R: Ma'am, I am in love with Jenuliette.
T: Ah. And she does not return your feelings?
R: Oh no. She does return my love.
T: Then what is the problem? She is a fine girl.
R: I think perhaps you do not know my full name – or hers.
T: So what is your name?
R: My name is Robby-o Montague-McCoy.
T: Oh, you mean your father, a Montague, married a girl from the McCoy clan.
R: Yes
T: And I suppose Jenuliette is Jenuliette Hatfield-Capulet.
R: Exactly!
T: Oh yes. I see the problem. Well what can I do?
R: Ma'am, we would like to get married. We think that if we were married our fathers could no longer maintain the feud that has plagued our families for so long. But we can find no one to perform the ceremony. Of course we must be discreet in our search. If either of our fathers were to learn what we have in mind one of us would surely be sent away. I thought perhaps you would be sympathetic and be able to help us find an officiant.
T: Well Robby-o, you are in luck. Just last week I received my ordination, on line. You know you don't make that much teaching yoga. I needed something to fill out my revenue stream. When shall we do this?
R: Can we come here tonight. The McCoy-Capulets are giving a grand mascaraed ball. I will attend, in disguise of course, and we will slip away together.
T: That sounds fine. I'll be waiting.
Robby-o struggles a bit getting to his feet and gingerly straightens his legs, as the curtain falls.
Robby-o: Oh teacher, we are in trouble. Our plan did not work out so well. Our fathers still hate each other and they are also mad at us. And they're not so happy with you as a matter of fact. Jenuilette's father is planning to put her in a Scientology convent. She'll never get out of there. I'll never see her again.
The Teacher: Well how can I help?
Robby-o: Tell me Teacher, is there a proper pose for suicide?
The Teacher: WHAT????
Robby-o: We have decided that we would rather die together than live apart, so I am wondering if there is a proper pose for suicide.
The Teacher: Yoga is life affirming and healthful. There is no such pose. Have I taught you nothing?
After a long silence the teacher speaks. I have an idea that may help you, however it is dangerous and I would not suggest it if you were not so desperate. This is what you must do.
Curtain
Act III Scene 2
One week after the wedding. The teacher is in her studio. She is in Head Stand. Angry shouts are heard at the door and then two men burst in. Their costumes are respectively bright red and blue. The teacher does not break her pose or her silence. The men are frantic. One keeps referring to "that slut" and the other is equally vociferous about "that raping bastard". The men continue to rant and run around angrily bumping into one another and making threatening gestures. The teacher is also an object of their wrath. When several minutes have passed the teacher lowers her feet and serenely moves to Lotus Pose. Finally she speaks. "Gentlemen, your children are in mortal danger. If you want to help them you must calm down, and you must do so soon. There is not much time."
Montague: (shouting) What are you saying? What do you know?
The teacher sits perfectly still, the picture of serenity. Finally the men begin to calm themselves. When they ultimately fall silent she motions them to be seated on a pair of yoga mats. Herself moving to Diamond Pose, she instructs them to do the same. They understand that she knows something and that she will only reveal it on her own terms. They are also alarmed by her earlier statement.
The Teacher: Your children want your feud to end and for you to accept their love which I must say is as pure and beautiful as any I've ever known. Faced with your cruel attitudes they have taken a very risky step. Please look at my new 90 inch high definition TV which I just bought with some money I earned doing a wedding.
The screen comes on and they see a lumber mill with a conveyer belt that moves logs into the teeth of an 8 foot wide circular saw. The saw is turning at a high rate, but instead of an old growth cedar log on the conveyor the horrified fathers see their children. They are sidewise to the spinning blade in a modified Child's Pose. They kneel side by side with Jenuliette's right leg, hip and shoulder pressed against the left leg, hip and shoulder of Robby-o. They bend at the waist with heads lowered to the conveyor belt and arms stretched ahead. Robby-o's left arm is slid inside Jenuliette's right arm and the fingers of those hands are interlocked. Shackles at their wrists and ankles hold them to the conveyor belt which is creeping very slowly forward. Their costumes are now the identical shade of purple.
The Teacher: Gentlemen you are about to be tested. Robby-o and Jenuliette have chosen to put themselves in their current place in order to get you two to cooperate and work in harmony. If you do so they can be saved. If you do not, they will perish. Here is your task.
The young man drew his hands back from the keyboard, sat up straight on his fitness ball and stretched his arms up over his head. He stretched hard for about a minute before relaxing. Then he sat still, thinking. He was feeling pretty good, pretty darn good. It may not be high art, but he thought it was at least mildly amusing. And so what? He had created Performance Yoga, a whole new art form. He was feeling pretty good indeed. But at the same time he was deeply perplexed.
How, he wondered, should the play end? To emphasize the newness of the form it would be better to stick with the story as it had always been told. He had already left out the two killings in Act II and, he thought, the more novelty in the plot, the less noticeable would be the originality of the form. To change the ending might be going too far. On the other hand, he did love yoga and he thought it would be pretty cool to have the power of that discipline change tragedy to joy. Maybe the lovers should survive.
Once again his hands stretched out to the keyboard.
Stand still there in your place facing the table, with your arms at your side, feet together. Take a deep breath. Now separate your feet. The other father who has practiced yoga for many years has an idea where his partner/rival is going. He follows the instructions. Now raise your arms to shoulder height, palms down. Now bend your knee nearest to me till your thigh is flat, but keep the other leg straight. As he talks he also takes the actions described. They are now facing each other at right angles in Warrior II. Again the father speaks.
If we are to save our children, those whom we cradled in our arms on their first day of life, they who need us now as never before, we must get out of Warrior Pose. Please, lower your arms. As they drop their hands to their sides they turn the palms forward in a gesture of supplication. The speaker says, Let this new pose be known as Warrior Not. As they hold the pose the filters on their respective spot lights change so that their costume colors change to purple. After a moment the speaker says, "Now let us save our children."
They grasp the handles and begin to manipulate the table. They immediately begin to do better. On the first try they get past three holes before the ball drops through. They keep at it. Four holes. Six holes. Eight holes. There are setbacks, but they are getting better. Finally they get past hole nine and slowly, with excruciating care they roll the ball towards the last remaining hole before the slot of salvation at the end of the path. An alarm sounds from the TV and the audience sees that Robby-o is but 20 inches from the spinning blade when the ball falls through hole number ten. Without looking at the screen the fathers replace the ball at the start and carefully manipulate it along the path past hole one, past hole two, past holes three, four, five, six, seven, eight, nine and just as they get to hole ten Robby-o's hip reaches the giant blade. I love you Jenuilette, he says as he bites down on the capsule of fast acting poison that he has been holding in his teeth. He dies in an instant, just as the ball drops in the slot at the end of the path. The saw blade freezes and the shackles fly open. Jenuliette, seeing Robby-o's lifeless body, with an anguished scream, bites down hard.
The End
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