Links on the rich, taxes, education 11-04-26

Here are some links:

http://www.altweeklies.com/aan/9-things-the-rich-dont-want-you-to-know-about-taxes/Story?oid=3971382

Progressive taxes are unfair?

http://crookedtimber.org/2011/04/25/the-flip-side-of-noble-lie-side-economics/#more-19786

James Kroeger's comments offer an interesting argument: The rich are no richer even though they're richer. Because they're richer they drive the price of everything rich people like up, so there's no real gain in it for them. He argues therefore, that a (proper) progressive system, without loopholes, doesn't change the actual purchasing power of anybody. I don't think it is quite true, because the flip side of the argument is the poor are no poorer even though they're poorer. Because they're poorer the price of everything they need goes down, so there's no real loss to them. Mmm... Something else is going on... Still, worth the read.


This is a review of Hacker and Pierson’s book “Winner-Take-All Politics”

http://www.economist.com/blogs/democracyinamerica/2010/09/hacker_and_pierson_inequality

Here’s a fun little tax toy, but not to be taken too seriously, as nobody who makes $10 Million pays 36.3% of his income on taxes. (As we have shown elsewhere, http://anamecon.blogspot.com/2010/10/what-income-of-top-1-means-to-rest-of.html the rich pay on average about 17%.)

http://www.wheredidmytaxdollarsgo.com/

This is a piece on the financial problems besetting the nation’s public universities, particularly discussing the University of California.

http://realignmentproject.wordpress.com/2009/07/23/the-balance-wheel-of-social-machinery-universal-public-higher-education/

Part of the problem here, which I mentioned somewhere else, is the equalization of factor prices due to free trade, which eventually propagates throughout an entire economy. However, those sectors of an economy more exposed to international competition ‘equalize’ faster, most labor in particular. This implies that those sectors more insulated from international competition rise relative to the exposed sectors. (The exposed sectors are, in real terms, declining. Since this does not appear so much nominally to be the case, a great deal must be accounted for by hidden inflation. We should not be surprised then, at the steady increase in gasoline prices.) This accounts for part of the relative rise in costs of public education in particular, and government in general, as the tax base is eroded by declining wages, which are converging to the wages of developing countries, like China.

How economists can consider this a good thing entirely escapes me. Well, not entirely. This also accounts for part of the relative rise in health care costs. It also helps account for some of the housing bubble, the price collapse due to lack of demand due to decreased earnings by labor.

Who Really Pays Taxes

Steven Landsburg, at "thebigquestions.com" considers the issue of Mr. Robert Kendrick, who, though wealthy, does nothing but drive and park his four cars. Can Mr. Kendrick be taxed? Steven Landsburg says no. Many others say yes.
____________

Mr. Landsburg is drawing a distinction between the nominal and the real. They are too often confused. Nominally, Mr. Kendrick can be taxed, and nominally everyone else is better off. However, Mr. Kendrick cannot be taxed of real resources, because he basically doesn't produce any, so nobody is really any better off. Good.

More generally, (really) only production can be taxed: All taxation is a transfer of production, goods and services, to the government. Consumption cannot (really) be taxed, since it is still a transfer of what is produced away from the consumer and to the government, which then consumes. Consumption can only nominally be taxed. For example, were we to tax Mr. Kendrick to such degree as to change his behavior, on the whole, there would still be no net improvement in the economy. Any real improvement in the rest of the world would be less than Mr. Kendrick's loss.

Further, (really) only consumption, demand, can be subsidized: All subsidy is a transfer of demand, that is, consumption of goods and services, from one producer to another, through the instrumentality of the government. Due to handling expenses, the subsidy is always less than corresponding tax, that is, on the whole, an economy is always, in the present, worse off for a subsidy. This is not to say a nominal subsidy need be useless. For example, when the subsidy goes to develop infrastructure, that is future production, an economy may be better off in the future.

Above xposted to:
http://www.thebigquestions.com/2011/04/18/the-man-who-cant-be-taxed/#more-5896

To continue: An economy is a transfer of production to consumption, of producer to consumer. However, producers are also consumers, and must get back a certain percentage of their real production in order to survive and expand. The various mechanisms of an economy may prevent producers retaining this percentage, in which case, a nominal subsidy may be necessary to compensate. This combination of processes is, however, less efficient than just letting producers retain sufficient resources on their own account. For instance, labor, particularly low wage labor, is increasingly coming under subsidy, as eg earned income tax credit, and in the future, ‘universal health care.’ It is more efficient simply to arrange that they are paid more. However, this seems to be politically infeasible.

From the above, it should be clear that the real, or essential, tax base is much smaller than the nominal, or apparent, tax base. This is because most labor, and most industry are involved in activities which are essentially non-productive, in the most basic sense. The financial services sector, for instance, cannot really be taxed, because it produces nothing real. Government employees, for instance, cannot really be taxed. Neither can Calvin Klein or Brad Pitt. Or your neighborhood plumber. Unless the government directly uses their services, their production, and is not buying these services, the government is merely transferring other, more basic production, away from them and to itself. They are not part of its real tax base, however much a part of its nominal tax base they may be. The government, for instance, cannot really tax the military industrial complex. It can, and must, tax those industries whose production goes into sustaining that complex. The production of steel and coal and electricity can be taxed, but the production of a jet fighter engine cannot be. The engine is instead really paid for by the steel and coal and electricity and labor, and whatever else goes into it, that the government had collected as real tax. This is clear because what ever nominal taxes are charged to the jet engine will merely be added to the (nominal) bill the government pays for it.

So, are you really taxed, that is do you directly contribute to your government, or are you just nominally taxed, and your welfare reduced somewhat by the transfer of demand, and thus resources, away from you? Probably (mostly, if not all) the latter.

Thus your complaint is not that the government takes too much from you, since it takes nothing. It is merely that it does not allow you to keep for yourself as much of what others have produced as you would like.

--- Further consideration has led me to the conclusion that real assets can be taxed, since all real assets have previously been 'produced.' Thus, taxes on Mr. Kendrick's nominal wealth, which represents a demand on real wealth, would represent a real transfer of wealth from Mr. Kendrick to the government. However, Mr. Landsburg's point that the government spending this would leave everyone else a little worse off is still correct. But so too if Mr. Kendrick had just taken the money and spent it himself.

A point of MMT, however, if I have it correct, is that the purpose of taxes is not to raise revenue. The government can spend its currency as it wishes. (Nominal) taxes are to maintain a demand for that currency, and to destroy excess demand in that currency, that is, to maintain the value of that currency, ie fight inflation. According to MMT, then, the real cause of inflation is a lack of political will. ---

What is your citizenship worth?

What is your citizenship worth? A monetary value can be put on it. Is it still positive? Is it still worth something positive? Or has it become a burden? It is supposed to be a blessing.

Consider the negative value added to it by the national debt. At about $10Trillion or so, or about $33,000 for every man, woman and child, about $60,000 for every worker. And climbing. Taxes also take away from the value of citizenship, but with taxes, we buy things, and the value of these things adds to the value of citizenship. So add to that the benefits provided by society. Schools, highways, rule of law, etc. What should be a very significant net positive. Hard to put exact figures on them. Perhaps willingness to pay. Plus a premium. When you think about it, schools, law enforcenment, and many other public goods supported by our taxes, really are a bargain.

But in any case, citizenship is worth less than it was before, for most of us:

http://prospect.org/cs/articles?article=the_impunity_of_the_roberts_court

http://prospect.org/cs/articles?article=signing_away_our_rights

But not for some:

http://www.nakedcapitalism.com/2011/04/wachovia-paid-trivial-fine-for-nearly-400-billion-of-drug-related-money-laundering.html

Not exactly the 'shining city on a hill' mentioned by Ronald Reagan. Not exactly an example for others to follow, either. With increasing debt, budget cuts to education and so forth, loss of rights in the workplace, etc, the value of citizenship seems to be decreasing. What will happen if, or when, the value turns negative, the bribes for obedience are no longer enough, and propaganda can no longer hide the fact that citizenship in the United States has, for many, becomes an increasingly onerous burden? Will they sell their citizenship to the highest bidder, by which I mean the rights citizenship confers? Piecemeal, perhaps? Or will the people organize, and reestablish a new citizenship, under new terms?

Free Trade, Welfare and Debt

We revisit the issue of free trade, using the more traditional diagram. Compare to:

http://anamecon.blogspot.com/2010/04/effects-of-unbalanced-trade.html

See the first diagram, “Welfare Under Autarky.”
Regard the diagram first as a single good. Later we can consider it a sort of average of all goods traded by that country. Look first at the basic axes, Price and Quantity. The price of a good goes up as you go up the Price axis. The quantity of a good goes up as you go from left to right on the quantity axis. Any point X is the number of goods at that particular price. We put point X as that little bump on the S curve. Nothing happens here, because with that many of our particular good around, and at that price, nobody wants to buy that particular good. There’s more than people want, so they don’t have to pay that price, because there is someone around who will want to get rid of what they have for less.

To begin with, we have just the traditional Supply S and Demand D curves. The Supply curve goes up from left to right, because as price rises, producers are willing to produce and supply more. The Demand curve goes down, because as the price goes up, consumers are willing to buy less. Where they meet is the equilibrium point e. That is where price and quantity of goods offered for sale equals the price and quantity of goods demanded. Note that all goods are sold at the same price, P, irregardless of the cost of producing them. The cost is a point on the Supply curve. Naturally, when it costs more to produce goods than that price P, as at point X, they are not produced in the first place. Well, except when they are subsidized.

The pink triangle is what is known as the producer’s surplus. A producer at point Y along the Supply curve is willing to produce at that price. That is his break even point. But the equilibrium price is P, at which all goods like his sell, so the pink above is all gravy to him. His surplus. To a person at Y’ further up the curve, the break even price is higher, he has more expenses, but the price he gets is still the equilibrium price P, so he has a smaller surplus. He make less profit. Less gravy.
The pink triangle is the surplus of all producers along the S curve. Their profits, if you will.

The green triangle is called the consumer’s surplus. It is the difference between what the buyer at Z, say, is willing to pay, and the price P he has to pay. So that green below is his gravy. His surplus. The person at Z’ further down the D curve, is willing to pay is less, but he still only has to pay P. But his benefit is less. So the green triangle is the surplus of all consumers along the D curve.

It is just your basic supply and demand diagram. But, this diagram also describes the situation of a country isolated from other countries and without trade of any sort. That is why it is labeled “Welfare under Autarky,”. Its supply and demand are entirely contained in the country itself. It is called a Welfare diagram because the green and pink triangles describe the benefits that consumers and producers receive when buying and selling goods.

Now while the triangles are important what is really important is the box P x Q, outlined by the yellow hatching. The price of all the goods sold P, times the quantity of all those goods Q, is the total money spent by all the consumers, the total expenditures. That is the total cost to consumers. But that box P x Q, is also the total revenue received by the producers for those goods, price times the number of all the goods sold. They are equal, which is as it should be, because, in an isolated country, all the producers are the consumers, and all the consumers are the producers. They are the same people. Now some consume more and produce less, and others produce more and consume less, but on the average, everybody produces and consumes the same amount. Which is one way of looking at the situation. The other way is to say that the total consumption and the total production are equal. Everything consumed must first be produced. Everything produced must eventually be consumed. By the same people, the population of the country under discussion. This is the condition under autarky.

We will come back to those boxes later.

Now we open up the country to trade. Free trade. We start with the next diagram, “Welfare under Free Trade World Price Less than under Autarky,”
with equilibrium point where the supply and demand curve come together, at the point e. Under free trade, the country is exposed to the world supply of goods, which is much larger than the country’s supply on its own. In fact the world supply is such that, at price P’, any amount of goods can be bought. We can by 1 at price P’, we can buy 1000 at price P’, we can buy a million. On the world market. So the quantity we can buy is independent of P’, so the line, the world Supply curve big S, is horizontal at P’. This is called an infinitely elastic supply curve. So here the world price is less than the equilibrium price under autarky. Now, because consumers can buy goods cheaper, at the world price P’, they buy more, quantity Q’, so a new equilibrium point e’ is established where the world supply curve big S and the Demand curve D intersect. (The demand curve does not change. Demand does not change when the price goes down. The quantity demanded does.)

Because consumers can buy goods cheaper, at the world price, their surplus, their benefits, increase, to the larger triangle consisting of the regions A,C,D, and E. They may or may not be expending more, but they are certainly buying more goods, because they are cheaper. The producer surplus, however has shrunk to the new smaller, region B. This is because they no longer can sell goods at more than the world price, that is more than P’. Also, because of this, those producers which can no longer break even at P’ are driven out of business, so domestic producers can only produce Q” of goods, and still make money.

Now the good news is that total welfare, the total covered in color, is increased. The consumer surplus increased by C+D+E, while the producer surplus only decreased by C Total welfare has increased by the quantity D + E. This is the benefit of free trade.

Unfortunately, remember those boxes we talked about? They are now different. Total expenditures by consumers is now the new price P’ times the total quantity consumed, Q’, ( green and green and red hatched edges)while total revenue earned by the producers is only P’ times Q”, (red and green and red hatched edges)the total price times the quantity produced. But remember, producers and consumers, they are the same. Producers are consumers, on the average, and in total. That is, they are now spending more than they are earning, and the difference, (Q’-Q”) x P’, now goes to the trading partner. That is, their welfare increased, but they are buying more, and producing less. They are dis-saving. They are running a deficit.

There is a moral to this: Free trade can be used as an excuse for sloth.

Running a deficit is unsustainable. What is the remedy? Well, first, let’s look at the other situation: See the next diagram: “Welfare under Free Trade World Price Greater than under Autarky.”
Well, when the world price is greater than the price under autarky, the price is driven up for domestic consumers, too. They have to pay the world price, too, P' or domestic producers will just produce and sell to the foreign market. It also means that domestic producers produce more, so a new equilibrium price is established at e’. Once again we see that net welfare has increased over the autarky case. This time it’s the producer surplus that is increased C + D + E, while the consumer surplus is only decreased by C, for a net gain of welfare D + E.

Now lets look at the boxes: (They’re not hatched. You’ll have to follow them yourself.): The expense of consumption has gone from P x Q to P’ x Q” This may or may not be a reduction in expenditures, but certainly the quantity consumed has decreased. Meanwhile, the income, the revenue from production has gone up from P x Q to P’ x Q’. The difference, P’ x (Q’ – Q”), outlined in red, is income greater than expenditures. It is net income. And note that entire difference is what is earned from trade, from foreigners. Of course, the area below the Supply curve is basically expenses, so what is saved is only the triangle above it. Which seems to be a different, and lesser quantity, from what is dis-saved in the other figure, but this merits further analysis. Elsewhere.

Anyway, compare the two figures. One diagram describes the importer, the other the exporter, in the same trades. In both figures welfare is enhanced. In one, it is consumer surplus, in the other producer surplus. So total welfare is enhanced. But it is enhanced at the expense of one party going into debt to the other! But this is no difference than exchange between households. In fact, the diagrams can describe the exchange between two households. It doesn't have to be countries. It can be any two economic entities. But this is a bad joke, because the situation is unsustainable. The first party must pay off the other eventually, and then the diagrams reverse. Of course, that requires behavioral changes on the part of both parties. The consumer must become the producer, but the producer must also become the consumer, if he ever allows himself to be paid back. Or he can just buy up the other's capital and become rich. At the expense of his fellow man. There is more to this. There is a very real moral issue to one man working harder so as to make the other his slave. But note we have returned to the producer-consumer problem.

http://anamecon.blogspot.com/2010/05/greek-debt-and-producer-consumer.html

To be continued.

Fun and Games in Wisconsin

Ah, things are not always what they seem. Check this out:

http://www.dailykos.com/story/2011/02/21/947947/-The-Koch-Brothers-End-Game-in-Wisconsin

So much for any principals they, the Koch brothers, might promote.

Don't forget to place your vote. I voted the first alternative, but hey, if the Democrats do connect the dots...

A Letter to the President

Yesterday I sent this letter to President Obama:

The President of the United States
The White House
1600 Pennsylvania Avenue
Washington, DC 20500

Dear Mr. President,

My name is_____________.

I will not vote for you.

I voted for you in 2008. I will not vote for you. Neither will I vote for any Democrat, whom I have loyally supported in the past.

You can raise a trillion dollars for your reelection, Mr. President, and I will not vote for you.

Sincerely,

x_____________

I have sent similar letters to my Democratic Representative, and my Democratic Senator

Granted it’s a little short on explanation.

The explanation is basically here

I had hoped that Mr. Obama’s election would provide a remedy to what I see as happening to this country. I know now that it did not. I believe now that in fact there is no real opportunity, through the democratic process as it is now, to change things. I, and those like me, simply do not have the attention of our rulers.

I am not wealthy. I am not one of them.

As long as I continue vote, they will ignore me, and what I have to say. They may nod, but they will not act. As long as I continue to vote, I am playing the game by their rules. They are winning, and I am losing. And my country deteriorates, its heritage mocked and its future squandered.

Only if I, and millions of others like me, refuse to continue to participate in this charade of a democracy, will they pay attention. To us. And to the law.

The choice is yours. You can continue to vote, and have your voice ignored, or you can send them a letter, and refuse to vote for them. Any of them. And tell your friends, that you have done this. That you have sent the President a letter, and that you will refuse to vote for him, or any of them. That you refuse to consent to what has become essentially a kleptocracy, a nation governed by theft, where the poor and middle class, the worker, the people, are essentially being robbed, even of what they still have. Where you are essentially being robbed, of both rights and wealth, even of what you still have.

Even if they have not come for you yet, they will. They cannot help it. They cannot stop themselves. Even if you do not yet bear the burden of debt, you will. Only the very few, will have anything left for themselves. You already have less than you know, for the debt of your government is your debt. And who do you owe?

If you are satisfied with the occasional bone they may throw you, be satisfied. Play your part in their game, if you think thereby to prosper. Vote.

If not, then do what I am doing, and what I have done, and what I will do. Refuse to vote for any of them.

Send the President a letter. And tell your friends, your fellow citizens, who are also being robbed, of both rights and wealth, even of what they still have.

Only in this way can we recapture the government for the people. For ourselves.

Refuse to vote for any of them.

Send the President a letter.

And tell your friends, your fellow citizens.

Why No One on Wall Street Goes to Jail

If you doubt my assertions
here

Read this:

http://www.nakedcapitalism.com/2011/02/taibbi-on-why-no-one-on-wall-street-goes-to-jail.html

This should make you mad.