Monday, April 30, 2012

Libertarian Response

No Libertarian believes that people should be able to "do as they please." That is a misrepresentation of the philosophy of freedom libertarians hold. A more correct way of stating this philosophy is " I should be able to do what I please AS LONG AS I do not violate the property rights of others." Frank again does a poor job of characterizing this philosophy.

I applaud his reference to the contributions of Coase and he does a fair job of presenting the typical case for Pigovian taxes. But he perhaps needs to go further on government failure and less on "market failure."

As far as workplace safety or perhaps even smoking in restaurants (where employees and patrons are harmed), who typically gets forgotten is the property owner. In a true market economy, a restaurant owner would decide his or her own policy and it would be up to the employees (or potential employees) and people who are hungry to work/eat there or not. (see my essay "Smoking an Property Rights" on

Again, workplace regulations do NOT rob me of my personal freedom IF it is the employer who is making the rules. It is when the government (i.e., OSHA) forces safety regulations that libertarians get heated. And even if his point that higher taxes on the most prosperous members of society will not make the economic pie smaller, it still does not justify it on moral/normative grounds.

All in all, I was glad to read this book by a well-known economist. It is important to read a variety of books and become familiar with a diverse range of opinions.

Wednesday, April 25, 2012

When Markets Aren't Enough...

American society, and capitalist economies in general, has achieved unprecedented levels of prosperity by utilizing competition and private markets. Both of which have proven beyond doubt to be among the most essential tools for human advancement. Few dispute this. In fact, in the last few decades economists across the spectrum of ideas have all come to regard the preceding claims as truth.

Still, many remain unsatisfied. Some in the economic community, Cornell's Robert Frank being a prominent example, argue that a capitalist economy, while generally beneficent, creates sub-optimal outcomes. The existence of poverty in all capitalist economies is proof of this. They have a point. More disputably, however, they carry that point further and argue that sub-optimal outcomes imply a need for positive government intervention to correct the situation. This is where agreement ends. The counter-contention to this is a negative one. Mainly, that intervention by public actors to improve private outcomes inevitably worsens the situation. This, they argue, is because the government lacks the information needed to accurately assess and correct the situations that lead to poor outcomes. The former contention, that market failures and undesirable outcomes demonstrate a need for regulation, planning, and income redistribution, has been vastly more successful in the past century than the latter. Together with the widespread acceptance of a need for intervention, we have seen the widespread adoption of the modern welfare state. Critics of intervention still maintain their negative position. But while they never quite lost the argument, they have lost a large share of influence.

Let's assume that they were wrong. Assume that, as it turns out, government intervention can improve the situation on behalf of those in poverty sufficiently enough to outweigh any costs or unintended consequences of public action. How, then, should the defenders of the market order and critics of government action respond? In short, what should redistribution look like in the context of a market economy?

One of the oldest cases against government redistribution is that private redistribution is more efficient. Critics of welfare programs also argue that, if they are removed, private charity will swell to take the place that government programs formerly occupied. Both may well be correct, but, even if we ran the experiment, we can never fully know if the resulting outcome would be the best one possible. Moreover, there are reasons to think that it wouldn't. In spite of their enhanced efficiency, private, nonprofit organisations have their own share of problems that inhibit their ability to reduce poverty. Funding is one problem. This is because charities rely on private donations to make their activity possible. It's easy to assume that there exists enough good will in people to solve any problem, but the real world is not so simple. Private donors face a strong disincentive to give, knowing that by doing so they cannot ensure that others will be as generous. Sometimes, the knowledge that others are giving can be a direct disincentive to donate. Why sacrifice for a cause that the Bill Gates's of the world could solve relatively painlessly?

If the result that I've outlined is correct, and private charity would be inadequate if it was provided by purely private means, then the obvious place for government intervention would be to increase facilitate charitable activities. This could be achieved in numerous of ways by public policy, but one of the least distortionary ways to do so would be by incentivizing private giving. We already do this, by allowing taxpayers to deduct charitable donations from their taxable earnings. Such a modest scheme would be few objections even in the most capitalistic societies. If the level of charity is still perceived as insufficient, the level of private donations could be enhanced further by a system of matching donations. For every dollar donated, a donor could receive a reduction in their taxes owed by some portion of that amount. Thus, donors will give larger sums to charity knowing that it only cost them a fraction of the amount that they spent. This will preserve most of the same incentives by private donors to chose the worthiest causes to direct their money toward, while having a positive effect on the volume that they do so at.

I am not fully convinced that there is a case for government redistribution. It may turn out that, at a certain extent, additional private charity stops being beneficial to the citizens that it tries to help. But it is important that defenders of a market order propose realistic alternatives to the status quo, even if they are less than ideal. With the case for public welfare so far from being discredited, society should at least attempt to provide such services in the least-harmful manner. We can safely assume, regrettably, that we won't.

Monday, April 23, 2012

Beauty of Variety

Before our discussion on Thursday, I’m not sure I would have ever considered taxation as theft. After all, it’s a social detail everyone’s programmed to regard from a very young age, as necessary, required, and generally unavoidable. Upon our discussion last week, I began to view taxation differently. Before, I simply assumed that I paid taxes because I owed something to society.  By taking part in a system, I had accumulated some debt to pay for my existence because after all, freedom isn’t free.
I realized that the biggest difference in viewing taxation as theft is simply in the definition and underlying assumptions. So if theft is taking something from someone without their consent then I suppose taxation does take a personal income. The reason why taxation may be considered theft is because often what is given in return is different than what that individual believes they are paying for. It comes down to that classic example. Just because you leave the money in the parking lot and drive away with someone’s car doesn’t mean you magically own that car by any stretch of the imagination. It’s still theft, the owner was still harmed, and no voluntary action really took place.

In finishing The Darwin Economy, it began to strike me rather odd that Frank believed taxation was this indisputable good, and framed it as if taxation was this marvelous tool in reprimanding the wrongs of society. But if taxation is theft in the first place, how could it really be so effective? The reason why Frank believes taxation is beneficial is not only because he does not view it as theft but primarily because he has vastly different fundamental views of the purpose of government and the systems which encompass the functions of taxation, ultimately bringing him to his conclusion.

 He believes that if society allows opportunities to be possible by infrastructure then the concept of money is therefore a governmental and societal creation which is used with the understanding that it must be reinvested through taxation. Government, in Frank’s mind, is an unavoidable necessity simply because the government unites individual interest into a collective function, orchestrating such services which have somehow been deemed necessary. If nobody really owns anything, and private property rights really don’t exist, then we are all renters of governmental property and somehow our tax dollars are allegedly suppose to compensate for this unavoidable debt.

By Frank’s definition of taxation, it is understandable why he makes certain assumptions which may seem rather hasty or misplaced. It is because he functions under vastly different perceptions of the system in which he lives and interprets the  roles of government as inevitable, therefore building his arguments accordingly.

On another issue, in no way does a libertarian desire the world to be controlled completely by their views alone. True, they may desire common beliefs in certain areas…everyone does… but just as pointless as it would be to limit variety and live in a world of libertarian clones, neither would it be very interesting to exist in a world consisting only of conservatives. Frank makes a valid point even if framed in a rather shaky assumption of libertarian desire. Diversity nurtures Prosperity. Each individual’s differences will complement another’s. Each weakness will be compensated by another’s strength. This is the quiet yet beautiful reality which Adam Smith observed long ago as to why the market works …because individual desire allows humans to function in their own specialized professions where their needs are not only met, but likewise, they are given the opportunity to fulfill the needs of others. In no way is a system perfect. What system is? But specialization does demonstrate how diversity can work toward progression.

Therefore, in my opinion, taxation seems to be such an uncreative solution to problems which involve such unique and complex individuality. In so many ways, it undermines the ability of individuals to function as intellectual beings and assumes that because a social reality is not perfect then someone somewhere must have gotten it all wrong. I would like to have a little more faith in human competence before raving about the capabilities of taxation. After all, humans were designed to thrive in environments where their talents can be used and appreciated as not just another taxpayer but someone who has something beneficial to contribute to society as a whole.

Of the many confusing moments in this book, I will say that Frank allowed me the opportunity to encounter the ideas of those who have very different views and even more variant convictions than my own. While Frank seemed to paint libertarians in only two shades, “movement libertarians” and “antigovernment activists,” his writings have allowed me to be more conscious of the way in which I unconsciously categorize other’s ideas which may seem different from my own. There will always be more to the story than just a stereotype. Surely, there are many views and even more assumptions about the way an economy should be run, but if anything, I hope I never forget that it’s truly diversification which makes the market and each person’s individualized talent something notable in collaborating and ultimately strengthening the resolve of the collective.

...Until next semester.

A Curious Task

This semester has distilled within me a great fear of those who would act in my best interest without my consent. Far too many individuals would if given the power hold themselves as ruler of their fellow brethren, in order to attain some higher need. This need may stem from a desire for power or of a purely altruistic love. Regardless of intent this need will always hold a certain commonality. Hubris. Yes hubris, a true pretense of knowledge and of the self.
This is not meant to be a diatribe directed against society or collective reasoning. Frank points to the state as the only avenue for peace and prosperity, the only stay against a life that is nasty, brutish and short. Yet he is caught unaware of a simple trick that we are taught as children; that there is a state, that there is a social contract, that there is a responsibility to be a good slave. The state does not exist, nor does the social contract. The state at any given point in time is simply someone pointing a weapon, the social contract is a mythical document designed to allow the slaves to police themselves.
In a free society there would be violence and aggression yes, but it could not be constant. In a state society that violence is very much assured. People can and will economize and produce without violence, it has always been done outside the threat of state.
When looking to design the world around you look to yourself. Does your opinion matter? Do your own morals? Would you not want to be forced to follow another's? If yes, then ask yourself: If I would not want this done to myself then why would I do it to another? For quite some time the study of economics has avoided the issue of morals, even though they must indeed play a factor in one's rationalization. Though modern models may be tidy and neat we are urged to try and be respectful of what is not known. Always look for what is not known, expect the unexpected and hold true a grasp upon reality. To close, a quote I hope any economics student will find valuable: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." - F.A. Hayek

Last chapter

In the last chapter, Frank discusses and polishes the last bits of his argument. With the emphasis of efficiency producing the highest autonomy for everyone and government interfering messes that up. Along with some ideas government should consider with what to do on social security and retirement he sums it up like the last verse of John Lennon with his song "Imagine".

Giving head way to his last examples and thoughts, I would like to pick at them in which they were addressed. Some will not be covered of course and I hope they will be in the meeting this Thursday. Now on the lovely topic of efficiency. Efficiency in some relative degree is beneficial to both parties when regarding the short-run that is observable, comparative to the long-run which will most likely never be reached. Of course efficiency will be the best of outcomes. When has efficiency not been the better outcome? That is it's definition is it not? (When regarding to the time-frame and reference at hand)

Knowing this I think Frank has some interesting thoughts regarding retirement. If people were to be 'forced' to have a savings that could be mandated I think many more people would be frustrated with this than the normal anti-government groups. People would most likely view this as just another large tax and less say about what they can afford or not. The pessimism I would most likely assume would be enough to disrupt the consumption and GDP growth of the country as a whole. While this could possibly work for most elderly people, the costs I believe would vary as with any other social policy. These variances could have large impacts on a massive macroeconomic scale.

In the end I'm all for efficiency and the understanding of it. Yet I believe in using a Kaizen (sorry if the spelling/lettering is bad) approach like in accounting. Rather than changing policies that can have large effects quickly, perhaps it should be a slower approach? This may seem a bit of a stretch but if baby policies or laws were implemented, for the greater good of the people and not just a select few, could benefit the country slowly rather than rapidly I think the effects or variances would almost be non-existant outliers. But perhaps maybe I'm just a dreamer as well.

Tuesday, April 17, 2012

Lofty Ideas

I swear to the mighty god Zeus if I hear the libertarian call of " taxation is theft " again I might puke. For a group of young college going Americans to say that taxation is thievery obviously do not know the meaning of the word.

a : the act of stealing; specifically : the felonious taking and removing of personal property with intent to deprive the rightful owner of itb : an unlawful taking (as by embezzlement or burglary) of property

Since Today was the last day taxes were due , I think it is funny that many on campus strive to do their taxes as fast as possible and go to great lengths to make sure they are filled correctly. This is because everyone knows the government looks down on those who do not pay it forward, or at least prove that they are to poor to.

Since this is a huge voluntary surge, I.e there are no IRS cronies on campus busting down peoples doors, I wonder why YOU PEOPLE say this taxation is theft? I have known since i was a child that the government provides a large number of services to the public at large. I also knew from a young age things are not free. So how can anyone who has benefited from even one government program say that taxation is theft? What you are really trying to say is the price you pay is too high, or even that you would like to opt out of a annual payment plan that you feel does not benefit you as much as you pay into it.
Ninos stated " taxation is people taking my money and giving it to others" when really taxation is you paying in currency for the social and physical wealth you accrue from government services. If you feel you are not getting corresponding benefits to your payment you have two choices , one is to stop using the service and stop paying for it ( and the only way to do that legally is to move), or change the system to where you feel you are paying a corresponding amount for your services used.

But also this leads to another argument, what about our evil progressive tax system that is bleeding the upper class in class warfare to support the do nothing poor masses? Well everyone receives varying benefits from the government, but most of government spending does not go to income based programs. The majority of funding goes towards the military and Social Security. these constitute over 60% of the budget, and both have nothing to do with income levels. SS is based on age, and the military is our national defense system. I do not agree with SS programs , they are a relic of the great depression that have no logical founding or sustainable way to operate, but that means a large portion of our budget is spent on services that benefit all of America in one way or another.

The cool thing about a progressive system is it takes full advantage of price discrimination. People with more money are willing to pay more for these government services , even if they receive less , or they simply would not pay them and move somewhere else. There ability to pay means that they can charge less to people who cannot afford as much, but even still the gap of taxation is huge. As a matter of fact with a good enough CPA many hyper wealthy individuals are able to pay far less taxes comparative to their income than lower income individuals. The problem is that means the middle class and upper middle/ lower upper class is shouldered with the majority of the tax burden.

So next time you start to say taxation is theft , try and remember what it is theft really is and if taxation really fits the description.


Thursday, April 12, 2012


So, Frank begins by criticizing "trickle down economics" (a popular term in the 1980's when Ronald Reagan was President), basically the term for supply-side economics. He challenges the claims made by the supply-siders by citing evidence that Japanese work more than their American counterparts and that even though real wages have gone up, people are working less. He also challenges the Republican notion that lowering taxes on businesses will lead to more hiring. His main point is that, "We have no persuasive reasons to believe that higher taxes on top earners would inhibit economic growth." Moreover, lower tax rates on top earners can actually stunt growth.

While I understand his logic that raising taxes on top earners will dissuade people from purusing winner-take-all types of jobs (i.e., portfolio managers), why should government redirect people? I don't see an ethical justification for this. And as far as his blame for the recession of 2008, he needs to look at government and Fed other words, Frank needs to study the Austrian school.

I was glad to agree with him on page 167, "...I believe that imposing higher income taxes on top earners would be a bad idea." But his insistence that taxes are not theft is not correct. Taxation is government taking from me and giving to others. However, I agree (maybe at the price of angering some of my Libertarian friends) that some taxation is necessary and legitimate for national defense and providing a court system.

Also, economist and my acquaintance David Henderson has a piece in Cato worth reading:

Monday, April 9, 2012

Scaled to Proportion

Pigouvian taxes are nothing new, and probably one of the most controversial taxes out there. In theory they sound nice…utopian even. Yet, there are people on both sides meaning that the reality is much more complex than Frank portrays in Chapter 11.
  A tax on harmful activities must have some type of clear objective if, as Frank proposes, this type of tax is to raise revenue AND help halt negative externalities. Wouldn’t at some point individuals either find ways of going around the tax or just quitting the harmful activity all together? This outcome might be nice if it was something like air pollution given that the city still had means of gaining electricity etc., but if harmful activities are taxed because they’re harmful…eventually won’t tax revenue significantly decline?

  I suppose it seems kind of obvious, but income taxes have probably been around so long because not matter how much technological and societal change may occur…one thing seems to remain relatively constant: people desire to make a stable income. It's become a necessity. With this in mind, I would be skeptical as to how this type of tax may accomplish a goal without further information as to how it is expected to function since uncertainty is bound to arise. Therefore, I wouldn’t get my hopes up on a sin tax making any significant dent in the national deficit or raising much additional revenue any time soon.

 No one doubts that social engineering exists. In fact, Frank has seemed to base his book off of the idea that society, with the right elements in place, can be coerced in one direction or the other. But again, the same age old argument comes up. Does society really need coercing? I believe Frank would answer that question by saying, “Yes, because society often chooses negative benefits over the more optimal choice, which means they must be coerced in a specific direction if they are to make the best decision for all.” At what point is the best decision the most optimal outcome? At some point, society as a whole will have to learn from their own mistakes; after all it’s not always about reaching a level of perfection but about being aware so that the most optimal outcome may be reached.

 Interestingly enough, I had a conversation with a friend about cigarette taxes a couple weeks ago. She explained to me that she has a research internship over the summer on the “Psychological Effects of Cigarette Taxes” which is actually quite fascinating and relevant for this specific chapter. Apparently, recent evidence has suggested that many individuals buy more cigarettes in larger quantities because they feel pressured by the uncertainty of whether cigarette taxes will increase so they “stock up.” Since some use nicotine for its calming effects, the idea of not having a cigarette is extremely stressful, leaving some to smoke more cigarettes more often making the problem for some, worse.

 Then again, one could argue that smokers pay their debt to society because smoking is, after all, an expensive habit, but if it’s about making sure “the good of the collective is met” as Frank has seemed to base his book off of, others won’t stop… and the problem will only increase as time goes on. Likewise, just because cocaine is illegal doesn’t mean people will stop using it. A tax or a ban may force others to reconsider or just pressure others to find alternative ways to engage in that harmful behavior whether it is detrimental to that individual’s wellbeing or not.

 I understand why Frank wants to tax such environmental issues as air pollution, but his argument on wearing a helmet seems extreme to say the least. Humans are social creatures and therefore are apt to be influenced in some way both emotionally or physically by the actions of others. A sin tax tends to focus on the physical harms which are uncured by others because those effects are generally more measureable, but emotional pain is difficult to quantitatively measure, making a tax on indirect harm seem extraneous. Frank argues from a social standpoint using examples to convince his audience that taxes on indirect harm alleviate pressure on those who want to adopt safety measures yet choose not to maintain social appearances. Either way, it is their choice, and forcing individuals one way or the other, seems to be the equivalent of attempting to compensate against pain itself.

 Personally, I stand somewhere in the middle. Environmental issues will have to dealt with at some point, and a tax be the best solution. Pollution is a problem, and while such technological advances as hybrid cars and solar panels have been developed for the purpose of lowering our carbon footprint, it is up to us to take necessary action in ensuring that our world is not decimated by carelessness. On the other hand, that doesn’t mean I think everyone should be taxed on bubblegum because there is the likelihood of it getting stuck to your shoe or being stuck to the underside of a desk. What I do think though is that the solution should be scaled to the proper proportions, considering the range and magnitude of individuals affected so that treasured individuality may not be sacrificed for the sake of an issues which must be resolved anyway.

Arther Pigou For The Win?

Chapter 11 of The Darwin Economy was dedicated to Pigouvian taxes, excise taxes or fines inposed on firms in order to curtail production. Pigouvian taxes are a winning policy, according to Frank, because society derives benefit from a reduction in the economic activities that they are imposed upon. Pigouvian taxes are a win for the goverment, too, because of the boon of new revenue that they may generate. Consumers of cigarettes and other products that are subject to the taxes would sneak out a win too, apparently, because, they will appreciate the extra nudge that helps them quit. Sounds like win-win-win policy if there ever was such a thing. But alas, there's no such thing. So how might we end up losing in all of this?
Implementation of a Pigouvian tax system is one area where we society might run into some problems. It's not supposed to be. After all, the simplicity of such a tax is one of it's supposed merits. All that is requires is to a) calculate the net social cost of a particular negative externality, b) calculate the volume of the negetive externality in terms of units of output, then c) divide a by b to obtain figure c. Figure c, in dollars, is then extracted from firms in proportion to their output. So, if man-made global warming costs society 1 billion dollars annually, and my power plant is responsible for 10% of all carbon emmisions, then I would owe the government 100 billion dollars. Assuming that my smokestack ruins the our common airspace evenly, and that the harm from lower quality air reduces all of our wealth proportionally, then a pigouvian tax on carbon combined with an even, across-the-board reduction of income taxes would result in a more just distribution and bring the market towards equallibrium. Unfortunately, those twin premises are nearly never present.
So what must we, as planners of society (or the structure thereof), determine in order to obtain a similarly just distribution and a similarly efficient market? To ensure that the revenue is distributed justly and efficiently while recognizing that some members of society, such as residents of coastal towns who are dispropotionately affected by global warming, ought to be compensated with a sum similar to the cost imposed on them, the government must then evaluate claims for damages on a case-by-case basis.
The result would be a system similar to our workman's compensation scheme. Where claimants are readily granted damages, often in cases where their claims are of dubious merit, and the payments routinely made by firms have little connection to the particular harms that they cause and mostly just reflect the average costs that the industry as a whole imposes. Ultimately, actual victims of polluters and other trangressors may end up the losers in such a system. Such a scheme, while in some cases preferable to a system where parties who were harmed are unable to seek damages, is generally inferior to a traditional tort system where affected parties seek damages for their undue harm from particular transgressors.
It is that reason I believe that class action suits of greater scope should be made possible. Individuals harmed by a particular polluter should be able band together more easily to sue entire industries for damages. However, damages should only be equal to the harm that is directly attributable to the externality, and only in proportion to the actual harm that was caused. So that, for example, if the citizens of a village have their risk of lung cancer increased 50% by a nearby factory, those who end up with lung cancer band together and sue the factory, but will only recieve damages equal to 50% of the cost that breast cancer imposed on them. Perhaps even some version of the Coase theorem can be applied, so that economic damages would be less if the villagers with cancer could have avoided it at less cost by moving. While ideal, such a change in legal structure is far away and ought to be carried out slowly and thoughtfully, with room for trial and error. Otherwise, such a regime could easily be plagued by inefficiency and frivilous suits.
Still, the commons are such that negetive externalities may, in some situations, never curtailed by tort suits and private negotiation. These are the few cases where I would favor a Pigouvian tax scheme as preferable to non-intervention. Greenhouse gas emissions and ozone-depleting aerosols are two examples of externalities that I may favor taxing in such a manner. Such cases ought to be the exception rather than the rule, because of how clumsy the scheme inevitably must be. No one can be expected to know, much less agree upon, the actual social cost imposed by carbon emmisions. This is because their are too many people affected and too many variables are at play. The best that anyone can gander is rough estimate that might take us only slightly closer to equilibrium.
The classic piece of advice for people involved in a con is, "if you don't know who the mark is, it's probably you." This is just one of the many ways that economists can remind me of criminals and charlatans, but its a big one. When we as a society are touted the benefits of a particular policy, my advice is that if we are told that everbody wins, we as a whole stand a good chance of being made worse off.

Decapitation the great headache cure!

Don't cut off someone's head if they have a headache, maybe try giving them less booze.
A state imposed pigouvian tax sounds wonderful until one studies the cause of the initial externalities. Frank's example of a Soda tax is a perfect example for this criticism: If high fructose corn syrup is a societal problem rather than taxing it why don't we just stop subsidizing it? Franks argument would hold up better if he didn't use such terrible examples.

I like the core concept of a Pigouvian Tax. A fee on a negative externality, simple and reasonable. Pollution, waste, is a sign of inefficiency. In the market the goal of a firm can be profitability; if a firm is wasting money on fuel for inefficient capital then their profit margins are lower. This is a structural mechanism of the market, an implicit fee on an externality, not because pollution is morally wrong but because it is wasteful and expensive in the long run. When property holders are sensitive to long term costs than efficient production is incentivized. But a state pig tax is not a market mechanism, it is an arbitration enacted by someone holding a gun.

The imposition of a pig tax is not only difficult, it is dangerous. The more basic a negative behavior the easier the tax method. If the goal is to tax sugar where should the tax be imposed? On the producers? Or perhaps those who use the product? Try and figure out a way to impose to taxes on a edible good, the difficulty is surprising. Aside from the obvious imposition issue there is of course the communication issue, the likelihood of taxing a subsidized good is quite high. There is also the danger of setting the price too high and hurting what could have been a competitive firm.

How can the pig tax be used in a positive manner? Let firms use it in the form of a fee. If a firm is actually sensitive to costs and externalities it can use a pigouvian structure within its own confines as a means of resource allocation. Crowdsource the model! Many people impose fees upon themselves to limit their own behavior, why can't firms? A spontaneous group has great opportunity for innovation if the service is not already monopolized by the state. Violence is not the only solution to curbing negative behavior.

Chapter 11

Right away  Franks says that taxation rather than regulation will cut down on harmful behavior and boost revenue, but come on. Boost revenue, yes, probably, but I can't think of a single case in which someone quit smoking or drinking because of taxes. I think people simply account for the added tax as part of the price, and they are still willing to pay. I think that goes for the pollution issue he discussed. Am I the only one who doesn't care if companies have to pay a tax on their pollution, or are regulated on it? It's something that should have been regulated in the first place, and as he points out, if they don't have any consequence, then they will pollute without care. It should be seen as any other aspect of their business, they shouldn't get any sympathy just because some people still have their heads up their asses about global warming. Cutting down on harmful pollution can only yield positive results, and climate change is not the only problem that results from pollution, it can lead to harmful breathing condition for people near it, and it can contaminate water or soil. This is one issue that I don't really understand the opposition on.
But in his example of adding a fee to travel thru London during peak times seems like it could have unseen consequences. I've never been to London, but I imagined if that were the case in Fairbanks and the city started charging motorists if they wanted to drive down Airport Way during peak times. I think it would be a huge burden to some people, and it would have a negative effect on businesses like gas stations and coffee carts, that people will swing into really quick on their way somewhere else. A road fee like that would turn their peak business hours into lulls. Yes, traffic would be better, but I know when and where traffic is going to be heavy, and I decide whether or not I want to deal with it, or take an alternate route. And I do that all on my own, without any monetary incentives, as I'm sure everyone else who drives does. I'm sure there are other positives, too, maybe over time, if more people did take public transportation, air quality in that area could improve, or roads would not have to be repaired as frequently, but those seem like very long term "what ifs" compared to the short term "most likelys".

Wednesday, April 4, 2012

Stupidity of Repetition

Finally a solid chapter. The way Frank talks about the fallacy of trickle down economics makes my hair tingle. I like that he addresses the fact that just because trickle down economics has been repeated over and over it does not make it true. His sentiment that just because the personal incomes of top earners goes up, it does not affect hiring decisions is genius! especially since the main touting of trickle down economics is that lower taxes on the rich creates jobs. One might say giving them higher incomes would allow them to spend more and thus stimulate the economy, but in any respect the same exact amount of money would be spent either way.
I notice a lot of people blogging, at least people who identify themselves as libertarian, are now relying on his disdain for policies he attributes to them as well as his definition of a libertarian as the basis of their arguments and not really talking about economics, or simply attacking his credibility as an author or as a source. This logic is unsound, as it does not address any of his economic proposals and only his character and what he defines other people as. If we want to have a discussion about subjective values, save it for church or synagogue or mosque or whatever.
To address one more thing , I like that he debunks trickle down theory while at the same time saying he is not in favor the current income tax model. Anyone wanting to say that he is suggesting heavier taxes on the rich have been thwarted,this is relevant because this is the biggest complaint I have heard in my economic career. He is only saying that the justification of consistently lowering taxes on the rich has absolutely no justification and is simply crony capitalism at its finest.
This last chapter was brilliant, finally i saw a lot of evidence that directly changed the way i viewed economics. I went in a firm believer of trickle down as i knew it, and left with a much better understanding of how the current idea of trickle down theorem is simply crony capitalism fueled by stupidity of repetition.

O btw srry for the late post, saved it on my comp and didnt remember to post cause i got caught up responding to other posts.

And for anyone who tries to say trickle down policies improve the economy of the united states, look at this :

Monday, April 2, 2012


In reading Chapter 10, I found some of the elements Frank brings up to be quite fascinating. Some of the ways in which he approaches various issues in this particular chapter, I agreed with. Other elements, I feel, he kicked to the curb rather without considering their potential.

It is well known that trickle-down theory is an idea which is often used to dispute the use of taxes because it provides a type of hypothetical comfort that all money spent will be dispersed among those with lower-incomes and not be held hostage in the upper-income brackets. To some extent, I think this theory holds true by emphasizing how funds may be distributed through the basic laws of supply and demand.

On the other hand, I am not na├»ve enough to think that the application of this idea, while it looks good on paper, is not drastically more complex to apply in real life circumstances. Not always will those funds trickle down the way they are expected to. In this respect I agree with Frank but on the other hand, I don’t think that just because those resources may not reach lower income brackets as effectively as they do in our heads, the concept should be abandoned all together.

Personal incentives are crucial in the shaping of a market economy, and in many of his examples, Frank seemed to be attempting to prove that because those incentives may appear inefficient, having those areas controlled with taxes will magically solve his personal perception of inefficiency. Sure, the tragedy of the commons is just what it is: a tragedy which everyone deals with in some respect on a daily basis, but there are other angles which I feel Frank purposely avoids. Community land and resource priviledges are abused primarily because there is no sense of ownership. If there was ownership, then someone would have the incentive to intervene in the preservation of resources and mediate between various self-interested users.

In reality, if public parks or fishing waters were privatized, the incentive structure would still exist, and the tragedy would not occur. Yet, Frank seems to believe that if something must intervene, it must be the government.  While I don’t entirely disagree with him, I feel he weakens his point by ignoring the positive possibilities which privatization may present.

Also, I was rather perturbed at the way in which Frank was so bold as to blame the state of the current economy on college graduates stating that if they had simply chosen different field of study,  curing life-threatening illnesses or working on solar panels, perhaps our economy would be in a better state instead of sending "the nation into the deepest economic downturn since the Great Depression.” (Pg. 167)

College students, just like any other individual, respond to personal incentives and will react accordingly. Fame and fortune go a long way in western culture, so can we really blame younger generations for responding to the incentive structure of those that came before them? I think not.

Personally, I feel taxes serve some relavant purpose in this day and may be necessary in some respects by allowing groups of individuals to put their collective resources to work to gain services which they value collectively. That being said, Frank still seems to believe that more diverse taxation is the prescription which cures all ills and that the government is the ultimate doctor which will generally guide the economy towards the most health-conscious outcome. While this may be true in some respects, I can’t help but wonder if Frank’s good-intentions will only lead to a governmental overdose, leaving me to ponder...

Is too much really better than none?

Mindless Statistics

In chapter 10 of The Darwin Economy, Robert Frank, again, sets out to invalidate the economic theories and "mindless slogans" of "movement libertarians" and right-leaning economists, whom he considers one and the same. This time he sets his sight on the Laffer Curve and the underlying premise that high marginal tax rates act as a disincentive to work hard. Personally, I disagreed with his argument against the Laffer Curve, but that's not what I want to talk about. I've already touched on that in another post and it's, Frankly, not interesting enough for a second post. Instead I'll address a claim that he casually made, one with profound implications.
Frank rejected the theoretical construct of the Laffer Curve because of a counter-incentive that higher marginal tax rates may create. Essentially, lower wages may actually incentivize hard work. This is because people may end up working harder to overcome the obstacle that high taxes create to their desired standard of living. I disagree, because I doubt that people set target incomes and work as hard as they find necessary to hit their target. But it was, nevertheless, a fair point. His next claim wasn't. He wrote: "Economic theory tells us nothing - absolutely nothing - about which one of these opposing effects might prevail."At that point he switched to using statistics to make his case against the Laffer Curve. That's where things got ugly.
His first point was that work hours have been decreasing throughout American history even as wages have increased. He may be right, maybe higher wages did cause us to spend more of our time on leisure, but we have no way of knowing from that one statistic. Throughout American history, hundreds of changes to the labour market have occured in areas such as union representation, work-hours legislation, regulation, corporate governance, inflation, tax structure, and a shift from work in agriculture to factories to services. Any one of these variables can be pointed to as the reason that we work less and none of them can be easily tested. His next few claims weren't any better. They consisted of statistics that compare Japanese and American CEOs, another comparison between modern and historical America, and an OECD study that lumps together first-world and second world countries. In all of these examples we see the same problem, apples and orages comparisons. Unfortunately for Frank, there isn't a statistic out there that doesn't have that problem, although he could have chose better ones.
This is why more work should be done improving economic theory. A better understanding of human nature and our motivations would have been infinitely more usefull than survey data that compare very different economies. Had Frank chose to work on developing economic theory rather than dismissing it, he might have gained some intellectual ground against the libertarians he opposes.

Chapter 10

Taxes may be somewhat of a drag on economic growth, but not as much as it would be if there was no tax system, therefore everything that is provided by taxes were left up to individuals to take care of themselves. Taxes are clearly necessary (in my opinion) for to maintain things like our public roads, our prisons and our police force and military. I think that it is human nature to come together and combine resources, I think the "libertarians" he's referring to just want a say in what their resources support. I do agree that it is a drag on economic growth when wasted on dead end programs, or bailouts for corrupt companies. I think he makes a very good point that if everyone were to be taxed the same amount, that the service available would only be as good as the poorest tax payers could maintain.

I think in general, if a person works hard and tries hard, they will be successful, but "luck" definitely comes into play. but rather than luck, I think it can be chalked up to Who You Know and Nepotism. I think this becomes obvious with all of the employee swapping that goes on between politics and corporations.

I disagree with him that private incentives create waste, I think that the incentive are what drive people to become exceptional in their field, whether it's in money markets, the NBA, or anything else. He says that if there weren't such high incentives for winner take all positions people would be more inclined to be doctors or teachers... no they wouldn't. And if they did, wouldn't that just flood the market with doctors and teachers? No matter what job you're talking about, there's always going to be only so many positions to be filled, which is exactly why private incentives are there. the more exceptional you are, the less likely it is you will be passed over for your desired position. And who says that just because you're  talented with deriving high interest loans (probably a total misquote) that you would be any good at treating illness or shaping the way children think and learn? People are going to strive for the niches that fit their personality. Yes, maybe they could have been great at something else, but we aren't a culture the idolizes our doctors and educators, we idolize people who are rich and famous! And, we don't like to share. So why wouldn't Harvard and Yale's best and brightest want to do the same? Odds are, the reason they are able to go to those schools in the first place is because their parents held the same things in high regard as they do: money.

Sunday, April 1, 2012

Ch 11

This chapter I believe was the core foundation of last week's arguments but with perhaps not a new light but more of a detail on the matter. Frank brought up the main topic himself of whether or not to consider taxes as theft and to go against the majority I think i'm starting to take his view on this matter. The arguments he presents are a little bit more descriptive, and perhaps a little thought out, than the opposition to the idea that government is essentially stealing. Even if those people who are opposite of free riders, meaning the people who pay taxes but recieve fewer benefits from them such as a couple with no kids for free schooling, it is still essential for any government to have some form of tax. If the opposition still would like to suggest that it is not needed; government as a whole would not function to exist.
As Frank stated " informed person would want to live in such a society" in which there is no tax revenue to provide common goods and services we have today. The idea that taking something from a store owner and then leaving the correct money behind is still stealing because it is involuntary, I can't truly say that this alone when regarding the government and large mass of population, that this is enough justifiable means for any business or persons to withhold tax money from the government. Considering that most Americans earning less than $40,000 annually do not pay their taxes as suggested in many statistics, it seems to me that there is more room in the budget than intentionally believed (if most people contributed).
But of course less and less people would be more gracious with their personal wealth if perhaps taxes increase, but in the event that those taxes they should have paid would have been very important of course they would have shelled it out. Yet instead they bicker about how they probably mis-allocated the few resources rather than being more careful and quick to assume their anti-tax slogans. I believe this next meeting we have will be interesting considering that Frank actually discussed some of the items of mention last week.