Claremont McKenna vs Pomona

santino
Mon, 24 Mar 2008 03:39:57 +0000

ErlindaP, Thank you for this wonderful discussion. I’m really enjoying it and we’re creating some excellent view rates!

The following study is the most comprehensive summary of the Global flat tax movement. Before you study flat vs. progressive taxation or taxation theory in detail, some basic statistics theory is important. The moral foundation for progressive taxation is that the rich have more money so they ought to pay a higher amount. And I agree! However, proponents of progressive taxation are making a fundamental mathematical mistake. They are confusing absolute dollar terms with percentile terms.

David Friedman, Economist at the University of Chicago explains this as follows:

To see that, consider two taxpayers, one with an income of $40,000/year, one with an income of $80,000. Consistent with declining marginal utility of income, assume that the former has a marginal utility of income of two utiles/dollar, the latter of one utile/dollar. Assume a flat tax which collects $4,000 from the poorer taxpayer, $8,000 from the richer. The utility cost of the tax is then 8000 utiles for each–“fair” by the standard of equal utility burden. The utility cost to the richer person of each dollar he pays is half as much–but he is paying twice as many dollars.

Generalizing this example, we can see that if marginal utility of income declines with increasing income less than proportionally–if, say, MU(I)=AI^(-.9)–then equal utility shares imply a regressive tax, while if it declines more than proportionally to income, the same rule implies a progressive tax.

Here’s the report: http://www.cato.org/pubs/policy_report/v29n4/cpr29n4-1.pdf

I am familiar with Head Start and respect you for committing you time with the organization. However, you are evaluating the success of private enterprise in a restrictive environment where private enterprise isn’t allowed to thrive. Let me give an example:

" licensed private care providers as well as Headstart Centers for the state of Montana for several years"

Licenses are a form of protectionist controls to benefit the private companies that are already in the market. They are a barrier to entry and are an arch enemy of the free market. Private care is inefficient in sectors with the highest protection because efficiency is the result of competition. Public industries are complete monopolies and therefore have little economic incentive to perform. Now, under the capable leadership of someone like yourself, these institutions may thrive, but they are not sustainable in the long run. Even Head Start has consistently changed its objectives, and when a Senate Committee requested a report on their success in achieving the state objectives at inception, the result was largely disappointing. Here’s another article on Head Start:

http://www.cato.org/pub_display.php?pub_id=5544
http://www.cato.org/pub_display.php?pub_id=1047

Globally, school vouchers and free market education have proven to be far superior. They are cheaper, more committed and have produced better results in almost every country that used them. We fear Indian engineers taking our jobs. Their population has always danced around 1 billion, why the concern now? Because prior to 1991, there was no private education. Today 80% of India’s graduate engineers come from private institutions. Mind you the 20% is also sub-contracted.

Micro-Financing is still being studied by Economists. Most cases were found to be unsustainable in the long run. Their impact was the highest in the poorest developing countries, where aid money and micro-finance got families to a subsistence level, thereby saving lives. However, even in those countries, the programs became more and more dependent on government reimbursements, i.e. taxpayers money. This drainage from the economic system and guaranteed loan defaulting bail out scheme has not achieved the desired objectives. Look up the Kauffman Foundation, they are a private charitable foundation that does pretty much the same thing, except they don’t use government money. Entrepreneurship is crucial to a free market economy. Those licenses you mentioned, thats a barrier to trade that hurts entrepreneurs the most. The red tape to start a business has increased significantly since the early 20th century. Another reason why the current market structure cannot get money to aspiring entrepreneurs is again because of a government granted oligopoly to the banking sector. The Republican Study Committee, as well as the Heritage Foundation advocated a removal of government approval for opening credit channels. Wall Street lobbyists feared competition that may decrypt the regulated citadel that stands today.

I’m libertarian, not conservative. I believe in individual rights and equality before law. I think family values are overrated and over hyped. There are several cultural values that we adapt to and the government regulating culture is the last thing Madison would have wanted. “The biggest fallacy in evaluating public policy is to judge it by its intent rather than its outcome” Minimum wage laws are counter productive- largely an economic consensus on this, as well as empirical evidence. The only case where minimum wage laws produced desirable outcomes were in the company coal mines where you had a Monopsony (Single buyer) market situation. That structure is rare and the Monopsony model is disputed. I can’t go into all the arguments against the minimum wage, but the most substantiated ones are: Unemployment increases, Big Business benefits as smaller producers cannot absorb additional cost, deterrence effect on entrepreneurs, pushes workers with low, inadequate skills out of the labor market, disincentive to train and transfer human capital.

Also, you’re projects are not disconnected from each other. The costs of starting a business, i.e. barrier to entry, include labor costs. The Kauffman Foundation found a lowered rate of entrepreneurship in states that had substantial increases in the minimum wage. Hong Kong is also held as a classical example. They had no minimum wage till 1999, but when the Peoples Republic of China took control and introduced minimum wage reform, unemployment increased and wages actually decreased across the board since economic activity was diminished. Estonia, a country that went through dramatic free market reform saw an increase of 110% for the poorest 5%ile of the income pyramid. Thomas Sowell, a famous economist puts the question to advocates of the minimum wage: If minimum wage removes poverty, then why doesn’t Bangladesh just increase the minimum wage?

I assume you’re speaking of the late 19th century England. That was far from being a free market system. It was a system known as mercantilism (sort of like the Whigs in America). Another key fallacy in upholding England as an example of free markets is their complete monopoly on Money and Banking. They financed their expenditure on colonies by reducing the Gold-Notes ratio. Some Austrians would be very offended if you consider this free market, they spent their life fighting monetary regulation.

I would smell the coffee, if those damn tariffs were removed on Vietnamese products. Your argument citing public industry success is countered by a 17th century work by Friederic Bastiat, where he talks about the visible and invisible benefit/cost. We see NASA’s success, however we can never know the relative success or failure of a privatized system. Again, the country fast moving towards free markets - India has provided the answer. Indian private companies have launched several Israeli spy satellites and Indian entertainment broadcasting satellites in the past two years. Their productivity, accident ration and all those cooky Mudder terms a far superior to NASA. Its funny you mention NASA, since they faced the stiffest competition (debatably). Now imagine multiple NASA’s ! awesome eh? Thats how the Japanese, Chinese and Indians are engaging in a space race today. I don’t know much about Israel, but apparently thats how they got their space race out on the rocks as well. I think they sub-contracted thought.

To use Sowell’s line of reasoning, if state guided technology programs are so successful why have they failed in almost every other country? How come India launched 2 spy satellites in 2 months without being a state controlled entity and without using taxpayer money?

Now here’s the biggest myth of them all: George Bush is a fiscal conservative. He’s just a bit on the right to Lenin. Farm subsidies have never been higher, government spending (minus military) increased more than the Clinton, Bush and Reagan administration combined! Regulations on business increased, accounting firms thrived with more red tape. The only part I really like about Bush, is that he restricted and weakened Eminent Domain.

The Petroleum Based Economy is another myth. The US has ample oil reserves at home and the 40 year Saudi Arabia claim is modest. The economic argument is that reducing supply in oil pushes prices up which increases the incentive to invest and use other fuels. Natural Gas and Oil keep bouncing up and down. Due to this basic economic phenomenon, running out isn’t a problem. The same argument was used for Tin back in the day when everything was made out of Tin. What will we do when Tin runs out? Aluminum along with other materials were discovered and the world still exists.

My fingers are tired and the Portland debate will tire them further. Read:
http://www.cato.org/pubs/pas/pa-596.pdf
“Debunking Portland”

I generally don’t like to attribute too much success to presidents. Reagan wasn’t that good. He was funny, and strengthened the GOP (albeit Jimmy Carter made it easy). Most of the credit for the Soviet Union collapsing should go to Gorbachev and the inherent failure of communism that came calling. Nixon went to China, but equal credit should go to Dang Pao Cheng for pioneering reforms. Nixon never fought the CPC, Cheng did. That was the greater milestone. Trade volumes with China were still insignificant in his time.

We are off CMC vs. Pomona. Its CMC vs. CMC!

I thought you might be interested in reading this:
http://article.nationalreview.com/?q=OTVlZGZhNmUyMWNjNGI4Y2VlZmQwNWRlOTY4N2JiZTY=

I assume you know Professor Pitney.