(Click title above.)
(Continued from "Time To Tax Consumption" and "Free Trade that is Fair," below.)
Managing Volatility with Sales Taxes and Tariffs:
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FLAT TRANSACTION TAXES: Allowing the effectuation of differential rates for taxes on sales and imports of different products could be a tool for encouraging or discouraging the production or distribution of socially desirable versus undesirable products.
PROGRESSIVE CONSUMPTION TAX: Allowing the effectuation of progressively increasing rates for taxing individuals on gross yearly consumption could be a tool for reducing gulfs in economic power between “haves” and “have nots.”
PROGRESSIVE CONSUMPTION TAX: Allowing the effectuation of progressively increasing rates for taxing individuals on gross yearly consumption could be a tool for reducing gulfs in economic power between “haves” and “have nots.”
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POWER TO TAX IS POWER TO DESTROY:
PROBLEMS for deciding and implementing tariff policies would be similar to problems for deciding and implementing sales tax policies, subject to added complexity, respecting relations among affected nations and governments.
In many cases, unless an individual taxpayer may be represented by a party, union, monopolist, or foreign government, the taxing government will have decidedly uneven power to impose its will.
Assuming social and political volatility could be managed with enlightened governmental policies for sales taxes and tariffs (whether by positive collections or by refunding disbursements), challenges may be considered in three respects:
First: For each product, figure out the “best” policy in respect of taxes on sales and imports.
Second: Devise political means for legitimizing the governmental effectuation of such policy.
Third: Coordinate effectuation with feedback so as to enhance, rather than diminish, the policy objectives.
Grading the “best” policy for sales taxes and tariffs entails considerable subjectivity and volatility in weighing various factors, some less legitimate than others.
Thus, one who makes decisions on behalf of government may wish:
1) To access available sources of tax revenue;
2) To respect the virtue of private property and initiative by encouraging free markets;
3) To encourage innovation for virtuous products and consumption;
4) To discourage harmful products and consumption;
5) To grow the economy;
6) To protect local, national, or allied industries and jobs;
7) To punish unfair competitors and nations;
8) To reward politicians’ personal favorites;
9) To fish for campaign contributions for politicians who are members of the ruling political party;
10) To opportune one’s nation or friends with playable volatility;
11) To err on the side of ensuring good will;
12) To remain within bounds of human decency; and
13) To inspire respect for national independence and integrity.
Because of inherent aspects of subjectivity and volatility entailed in reconciling all such wishes, there may be no objective way to calculate, predict, or promise the “best” policy or tax rate.
Rather, much scheming and subjective adjusting may be needed, notwithstanding public ideals, or expectations of at least pretenses, of “transparency” and objectivity.
Thus, production, consumption, and trade are inherently volatile. And no electorate is very well equipped to demand or prescribe precisely, in advance, what should be the tax policy or rate for any particular product or trading partner.
Government is inherently vulnerable to incompetence, temptation of overreaching, and bribery of decision makers. Government is not inherently reliable for respecting overarching “best” needs and ideals for a civilization.
Nevertheless, may some sort of relatively independent, apolitical, cabinet level department be instituted or advisable, for recommending, determining, or effecting policies and rates for various taxes on sales and imports?
Would such a department more likely lead us to more enlightened protection of American industry and independence?
If so, what system of checks and balances may help protect citizenry against such a department’s temptations and abuses?
Assuming social and political volatility could be managed with enlightened governmental policies for sales taxes and tariffs (whether by positive collections or by refunding disbursements), challenges may be considered in three respects:
First: For each product, figure out the “best” policy in respect of taxes on sales and imports.
Second: Devise political means for legitimizing the governmental effectuation of such policy.
Third: Coordinate effectuation with feedback so as to enhance, rather than diminish, the policy objectives.
Grading the “best” policy for sales taxes and tariffs entails considerable subjectivity and volatility in weighing various factors, some less legitimate than others.
Thus, one who makes decisions on behalf of government may wish:
1) To access available sources of tax revenue;
2) To respect the virtue of private property and initiative by encouraging free markets;
3) To encourage innovation for virtuous products and consumption;
4) To discourage harmful products and consumption;
5) To grow the economy;
6) To protect local, national, or allied industries and jobs;
7) To punish unfair competitors and nations;
8) To reward politicians’ personal favorites;
9) To fish for campaign contributions for politicians who are members of the ruling political party;
10) To opportune one’s nation or friends with playable volatility;
11) To err on the side of ensuring good will;
12) To remain within bounds of human decency; and
13) To inspire respect for national independence and integrity.
Because of inherent aspects of subjectivity and volatility entailed in reconciling all such wishes, there may be no objective way to calculate, predict, or promise the “best” policy or tax rate.
Rather, much scheming and subjective adjusting may be needed, notwithstanding public ideals, or expectations of at least pretenses, of “transparency” and objectivity.
Thus, production, consumption, and trade are inherently volatile. And no electorate is very well equipped to demand or prescribe precisely, in advance, what should be the tax policy or rate for any particular product or trading partner.
Government is inherently vulnerable to incompetence, temptation of overreaching, and bribery of decision makers. Government is not inherently reliable for respecting overarching “best” needs and ideals for a civilization.
Nevertheless, may some sort of relatively independent, apolitical, cabinet level department be instituted or advisable, for recommending, determining, or effecting policies and rates for various taxes on sales and imports?
Would such a department more likely lead us to more enlightened protection of American industry and independence?
If so, what system of checks and balances may help protect citizenry against such a department’s temptations and abuses?
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COMMENT:
There is already an agency, the Economic Development Administration (EDA) in the United States Department of Commerce, which provides grants to economically-distressed communities to generate new employment, help retain existing jobs and stimulate industrial and commercial growth.
See http://en.wikipedia.org/wiki/Economic_Development_Administration and http://en.wikipedia.org/wiki/United_States_Secretary_of_Commerce. However, it lacks a range of unilateral discretion or authority to adjust, raise, or lower rates for taxes on sales or imports of specific categories of products based on judgments about overall economic needs.
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COMMENTS: Problems in conceptualizing “givens” which cannot be given (Insuperable Cognitive Limits):
FROM http://en.wikipedia.org/wiki/Sin_taxes :
Perhaps the biggest problem with the Pigovian tax is the "knowledge problem" suggested on page 6 of Pigou's essay "Some Aspects of the Welfare State" (1954) where he writes, "It must be confessed, however, that we seldom know enough to decide in what fields and to what extent the State, on account of [the gaps between private and public costs] could interfere with individual choice." In other words, the economist's blackboard "model" assumes knowledge we don't possess — it's a model with assumed "givens" which are in fact not given to anyone. Indeed, this is knowledge which could not be provided as a "given" by any "method" yet discovered, due to insuperable cognitive limits theorized by economists like Friedrich Hayek and researchers in the various fields of nonlinear dynamics.
FEDERAL CIGARETTE TAX: http://www.foxnews.com/story/0,2933,298663,00.html.
FUEL TAXES: http://en.wikipedia.org/wiki/Fuel_tax.
OIL PRICE INCREASES: http://en.wikipedia.org/wiki/Oil_price_increases_since_2003#Fuel_taxes.
SEE ALSO: Genuine Progress Indicator (http://en.wikipedia.org/wiki/Genuine_Progress_Indicator); Gross National Happiness (http://en.wikipedia.org/wiki/Gross_national_happiness); Ecological Taxation (http://en.wikipedia.org/wiki/Ecotax); Carbon Tax (http://en.wikipedia.org/wiki/Carbon_tax); Carbon cap and trade systems (http://en.wikipedia.org/wiki/Emissions_trading).
FROM http://en.wikipedia.org/wiki/Sin_taxes :
Perhaps the biggest problem with the Pigovian tax is the "knowledge problem" suggested on page 6 of Pigou's essay "Some Aspects of the Welfare State" (1954) where he writes, "It must be confessed, however, that we seldom know enough to decide in what fields and to what extent the State, on account of [the gaps between private and public costs] could interfere with individual choice." In other words, the economist's blackboard "model" assumes knowledge we don't possess — it's a model with assumed "givens" which are in fact not given to anyone. Indeed, this is knowledge which could not be provided as a "given" by any "method" yet discovered, due to insuperable cognitive limits theorized by economists like Friedrich Hayek and researchers in the various fields of nonlinear dynamics.
FEDERAL CIGARETTE TAX: http://www.foxnews.com/story/0,2933,298663,00.html.
FUEL TAXES: http://en.wikipedia.org/wiki/Fuel_tax.
OIL PRICE INCREASES: http://en.wikipedia.org/wiki/Oil_price_increases_since_2003#Fuel_taxes.
SEE ALSO: Genuine Progress Indicator (http://en.wikipedia.org/wiki/Genuine_Progress_Indicator); Gross National Happiness (http://en.wikipedia.org/wiki/Gross_national_happiness); Ecological Taxation (http://en.wikipedia.org/wiki/Ecotax); Carbon Tax (http://en.wikipedia.org/wiki/Carbon_tax); Carbon cap and trade systems (http://en.wikipedia.org/wiki/Emissions_trading).
2 comments:
GNH -- See http://www.youtube.com/watch?v=CXJwNSkdTH0.
SIMULATING, UNDERSTANDING, AND PLAYING OFF VOLATILITY:
http://www.nytimes.com/2008/10/01/opinion/01buchanan.html?th&emc=th:
Certainly, markets have internal dynamics. They’re self-propelling systems driven in large part by what investors believe other investors believe; participants trade on rumors and gossip, on fears and expectations, and traders speak for good reason of the market’s optimism or pessimism. It’s these internal dynamics that make it possible for billions to evaporate from portfolios in a few short months just because people suddenly begin remembering that housing values do not always go up.
Really understanding what’s going on means going beyond equilibrium thinking and getting some insight into the underlying ecology of beliefs and expectations, perceptions and misperceptions, that drive market swings.
The idea is to populate virtual markets with artificially intelligent agents who trade and interact and compete with one another much like real people. These “agent based” models do not simply proclaim the truth of market equilibrium, as the standard theory complacently does, but let market behavior emerge naturally from the actions of the interacting participants, which may include individuals, banks, hedge funds and other players, even regulators. What comes out may be a quiet equilibrium, or it may be something else.
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In the model, market participants, especially hedge funds, do what they do in real life — seeking profits by aiming for ever higher leverage, borrowing money to amplify the potential gains from their investments. More leverage tends to tie market actors into tight chains of financial interdependence, and the simulations show how this effect can push the market toward instability by making it more likely that trouble in one place — the failure of one investor to cover a position — will spread more easily elsewhere.
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That’s not really surprising, of course. But the model also shows something that is not at all obvious. The instability doesn’t grow in the market gradually, but arrives suddenly. Beyond a certain threshold the virtual market abruptly loses its stability in a “phase transition” akin to the way ice abruptly melts into liquid water. Beyond this point, collective financial meltdown becomes effectively certain. This is the kind of possibility that equilibrium thinking cannot even entertain.
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Financial crises may emerge naturally from the very makeup of markets, as competition between investment enterprises sets up a race for higher leverage, driving markets toward a precipice that we cannot recognize even as we approach it. The model offers a potential explanation of why we have another crisis narrative every few years, with only the names and details changed. And why we’re not likely to avoid future crises with a little fiddling of the regulations, but only by exerting broader control over the leverage that we allow to develop.
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Another example is a model explored by the German economist Frank Westerhoff. A contentious idea in economics is that levying very small taxes on transactions in foreign exchange markets, might help to reduce market volatility. (Such volatility has proved disastrous to countries dependent on foreign investment, as huge volumes of outside investment can flow out almost overnight.) A tax of 0.1 percent of the transaction volume, for example, would deter rapid-fire speculation, while preserving currency exchange linked more directly to productive economic purposes.
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With simulations, we can discover relationships that the unaided human mind, or even the human mind aided with the best mathematical analysis, would never grasp.
Better market models alone will not prevent crises, but they may give regulators better ways for assessing market dynamics, and more important, techniques for detecting early signs of trouble.
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