Other peoples’ money

“The trouble with socialism,” Margaret Thatcher once famously said, “is that sooner or later you run out of other peoples’ money. This observation is the key to understanding the wave of government bankruptcies that has already begun to break over us.

The state of California was a leading indicator in the U.S., so broke that it has started issuing IOUs to its suppliers in lieu of cash. The state governments of Illinois, New York and New Jersey are in straits almost as dire. Before I checked, I thought 39 of 50 states were running deficits, but according to this visualization of 2010 estimates, 46 states are now in deficit. A massive selloff of U.S. municipal and state bonds is getting underway as investors run for the exits.

From overseas, we hear endlessly of the threat of sovereign default in Portugal, Italy, Ireland, Greece and Spain – the so-called PIIGS countries. The financially stronger EU countries (by which I mean, basically, Germany) have organized bailouts designed to give bond investors confidence that the PIIGS merely have a temporary cash-flow problem, but the markets aren’t buying it; the rush to unload Irish paper wasn’t even slowed down by the loan to Ireland. Analysts are now wondering if Belgium might be next.

What’s actually happening here is that bond investors are catching wise about the largest political truth of the post-Cold-War era: government is bankrupt. It’s not just individual governments that are headed for financial collapse, but the entire model of ever-expanding statism that began with Otto von Bismarck’s Prussian state-pension system in the late 1800s.

This bankruptcy was inevitable from the moment governments got on the treadmill of buying their legitimacy with entitlement spending. As I observed in Some Iron Laws of Political Economics, in any democracy political demand for income transfers, entitlements and subsidies always rises faster than the economy can generate increased wealth to supply them from; this is backed up by a recent study showing that each additional dollar of tax revenue collected in the United States has produced $1.17 in additional government spending.

Thus, raising taxes never helps. All it does is increase the system’s run rate towards collapse, and increase government appetites for borrowing to cover the ever-widening gap between revenues and political commitments. This is why EU governments are trying to bail out their weaker members – what they fear most is that they’ll lose the ability to paper over that gap using the bond markets, at which point the entire edifice of Eurosocialism will irretrievably crash.

American conservatives who want to blame pet villains like the public-employee unions for the insolvency wave in the U.S. are missing the forest for the trees. Those unions are doing nothing but rational minimaxing within a system where the incentives are broken at a much deeper level. And it’s no coincidence that the same problems are becoming acute simultaneously nearly worldwide, because the underlying problem transcends all details of any individual democracy’s history or particular political arrangements.

Between 1880 and 1943, beginning with Bismarck and ending with Roosevelt’s New Deal, the modern West abandoned the classical-liberal model of a minimal, night-watchman state. But the redistributionist monster that replaced it was unsustainable, and it’s now running out of other peoples’ money. We are living in the beginning of its end.

UPDATE: From the day after I wrote this Europe Debt Fears Hit More Secure Countries. Mene, mene, tekel, upharsin!

283 thoughts on “Other peoples’ money

  1. I see how your theory predicts the eventual collapse of any given welfare state, but how do you account for the appearance of simultaneous collapses all over the place? There does not seem to be any obvious coupling so that a collapse in one state triggers difficulties elsewhere; that has to be added to your model from some outside source.

    I also note that there have been financial crises, bubbles, and state bankruptcies since long before Bismarck, indeed basically since the invention of loans by private creditors to states. Of course one could argue that this demonstrates a fundamental problem with governments, but it does not seem to me that it picks out welfare states as the basic culprit; Spain went bankrupt from fighting wars, not from entitlements.

    In short, it seems to me that you may be viewing the problem through too narrow a lens. It is true that we are seeing welfare states having problems, but it is not obvious that it is the welfare-ness that is the underlying cause.

  2. Amen, brother. I can only hope and pray that the human suffering during the global financial collapse will be as minimal as possible. And hopefully we will emerge from it quickly and with a more sensible, responsible system of government.

  3. Back when the Soviet Union collapsed, I didn’t expect the western “democracies” to follow suit, and collapse for exactly the same reasons. I had hoped at the time that since the cold war was over, our governments would actually demobilize and let us keep more of our earnings. I guess we’ve all got to follow the Romans, and watch the state grow to the point where it collapses, and people learn that mommy can’t keep on taking care of us when the money’s no good.

  4. > And hopefully we will emerge from it quickly and with a more sensible, responsible system of government.

    Whiskey, car keys, teen age boys – what could go wrong?

    Hope is neither a plan nor an estimation of likelyhood.

  5. >I see how your theory predicts the eventual collapse of any given welfare state, but how do you account for the appearance of simultaneous collapses all over the place?

    Your pardon, I should have been explicit about that; I’ve written about it before.

    One coupling is through demography; the Bismarckian state rode the long boom begun by the Industrial Revolution, which tailed off around 1970. During that boom, the kick-the-can-down-the-road approach of piling debt on our descendants was practical because nation-states could foresee steady increases in their working-age populations. No longer. What’s happening now is in part a lag effect of the boom’s end – a transnational phenomenon, leading to parallel effects across the developed world.

    The other coupling is through what the business press calls “contagion”. Any increase in the risk associated with one flavor of sovereign debt causes investors to question others. This means that the erosion of confidence is neither localized nor linear, but global and geometric.

    >it is not obvious that it is the welfare-ness that is the underlying cause.

    You’ve misinterpreted what I wrote. I don’t pin welfarism as the problem, but redistributionism. This is a larger category that includes not only entitlement spending justified as “helping the poor”, but all other kinds as well. Including, for example, green-energy subsidies and inflated public-sector pay. Really I’m calling out any form of wealth transfer mediated through politics rather than markets.

  6. > Spain went bankrupt from fighting wars, not from entitlements.

    Which Spain?

    The current one hasn’t fought anyone. It spent like a 1st world govt with 2nd world resources. The green thing didn’t help.

    The one at the time of Isabella destroyed their currency by discovering more gold than they had other assets – it was a gold-bug’s version of printing too much money.

  7. I see how your theory predicts the eventual collapse of any given welfare state, but how do you account for the appearance of simultaneous collapses all over the place? There does not seem to be any obvious coupling so that a collapse in one state triggers difficulties elsewhere;

    Almost no country exists in a bubble all by itself — and absolutely none exist in industrialized countries. Economics has become more increasingly global over the last 500 years or so, and has globalized at a very accelerated pace since around the time of the Enlightenment. Technological improvements in transportation and telecommunications in the 19th and 20th centuries accelerated this pace exponentially. You can hardly think that Europe or the United States or Japan or China exist in a bubble.

  8. > how do you account for the appearance of simultaneous collapses all over the place?

    It’s not really all that simultaneous. The latest recession has pushed a lot of governments over the edge due to automatic stabilizers(progressive taxation means vastly lower revenue, while programs for the poor mean much higher spending), but it’s only governments who were in trouble already who are pushing towards default now. The more financially responsible governments – Canada, Germany, etc. – are running deficits, but perfectly manageable deficits that put then at no risk of default for the foreseeable future. And of course, there’s some(most notably Japan) who have absurdly high debts but are limping along just fine because they can support them.

  9. >The more financially responsible governments – Canada, Germany, etc. – are running deficits, but perfectly manageable deficits that put then at no risk of default for the foreseeable future.

    That’s the same siren song we were hearing about the U.S. until Social Security went cash-flow negative, and just as bogus. In reality, Germany and Canada are headed for a harder crash than the U.S. because their demographics are less favorable. At least we’ve got growth of the working-age population locked in until 2050; there are entire regions of Germany where, effectively, there are no children.

  10. ESR, how old do you reckon the minimal, night-watchman state was in 1880? That is to say, when do you date the transition from monarchies to minarchies? Do you think the night-watchman state is actually more sustainable than the redistributionist state?

  11. I suspect you’re right, but sincerely hope you’re wrong.

    So, Eric, what do you think a good strategy for weathering this would be for my family and I? I’ve spent the past few years paying off debts aggressively (student loans, car loans, medical debt, etc.) and have little in the way of savings/investments, but no debt other than the mortgage. I have a decent job, but how long will that last if a global collapse is upon us? Can a significantly less wealthy society support as many developers as we have? The only other theoretically marketable skill I have is cooking food and brewing beer — both very much at an amateur level.

  12. ESR, how old do you reckon the minimal, night-watchman state was in 1880? That is to say, when do you date the transition from monarchies to minarchies? Do you think the night-watchman state is actually more sustainable than the redistributionist state?

    The thing about that is, even the old monarchies weren’t very big governments by today’s standards, at least at the highest levels. Sure, they weren’t the modern idea of a free market — there were guilds and feudal relationships and whatnot instead, but those were almost always operated at the most local levels. What there wasn’t was massive redistribution of wealth. Say what you will about inheritance-based noble ruling classes — they made the barrier of entry into the public trough very high, and completely out of reach for most men, limiting the size of government. Even in modern-day UK, the royals get an awful lot of flack for what they cost the public, but compared to the cost of Parliment, it’s a drop in the bucket!

  13. >ESR, how old do you reckon the minimal, night-watchman state was in 1880?

    As explicit ideology, perhaps a century. As actual practice, much older; most feudal and early modern states were minimal simply because there wasn’t enough surplus wealth to support a large permanent political class and their clients.

    >Do you think the night-watchman state is actually more sustainable than the redistributionist state?

    Well…historically, it wasn’t. But the failure mode was political – people and politicians buying into redistributionism because they hadn’t learned it was deadly yet – rather than economic. From the perspective of 200 years hence, I think it may turn out that the last hundred years will be seen as a century-long lesson in Don’t Do That, underpinning a consensus on minimal government as broad and sustained as today’s consensus on civil democracy.

  14. What there wasn’t was massive redistribution of wealth.

    Are you kidding??! Or are you simply confusing “massive redistribution of wealth” with “social welfare program?” France under Louis XVI, for example, had a tax system that redistributed wealth from the third estate upward on a terrific scale.

    Even in modern-day UK, the royals get an awful lot of flack for what they cost the public, but compared to the cost of Parliment, it’s a drop in the bucket!

    “Modern-day” are the operative words here. Modern-day UK is definitely a redistributionist state, and doesn’t have much in common, politically speaking, with the monarchies to which I referred.

  15. >So, Eric, what do you think a good strategy for weathering this would be for my family and I?

    Still working on that. I haven’t got my head around all the consequences of the collapse of Bismarckian statism yet. Some kind of currency collapse following sovereign-debt defaults seems like the most likely disruptor.

    >Can a significantly less wealthy society support as many developers as we have?

    I don’t think that’s the right question. There’s no reason post-collapse society has to be poor, and in fact good reasons to expect it to have a much higher average wealth level – all the surplus the political class has been siphoning off into its projects isn’t going to disappear, after all. The problem we face is transitional, getting from an equilibrium in which government has its fingers everywhere to one in which there may not even be government-issued currencies any more.

  16. I have commented on this before, and I will do so again, because I think it is important. I don’t think the situation is as dire as some people think it is. Don’t get me wrong, the attitude that we should have deficit spending to fix a recession and deficit spending during boom times doesn’t add up, but there is one important thing to note. In particular, the fear of hyperinflation is just not real.

    The US debt is denominated in dollars, an instrument controlled (indirectly) by the government itself. The states that are defaulting do not control their currency. In Europe it is the Euro states that are going down the tubes, and the Euro is controlled by the European Central Bank (which is code word for Germany.) Britain controls the Pound and is not in any danger (especially since Cameron seems to be aggressively tightening spending), Switzerland and Norway are similarly in reasonably good shape.

    Similarly in the US California cannot print more dollars when it needs them, so it doesn’t control them. Illinois, where I live also doesn’t control the currency it uses.

    How it works is simply this: you print more money. Now your dollar is worth less, but that also means your dollar denominated debt is worth less too. So you have less value to pay off, and more dollars to do it with. Of course, the down side is any new purchases, or new debts are based on the new reduced value, so they are more expensive.

    What this means is that you have inflation, and you screw your debtors with a kind of soft default — you don’t default, you just pay a discounted amount.

    The other downside is that you are robbing grandma and grandpa. But you are doing so surreptitiously, so no one will know. (Hey, we get to screw the Chinese too, whose going to complain about that?)

    I should say that there is one hidden thing that I haven’t heard talked about much in all the handwavy “printing money” debate. The truth is that the amount of money that is represented by actual printed money is pretty small. The majority of money is commercial money, that is to say money lent by banks.

    Since I am going long on this I might as well talk about how this works for those of you unfamiliar. Basically, I have $100, which I deposit. Eric borrows $90 from the same bank which he deposits, or spends or whatever. The bank still owes me $100, and there is also another $90 out there too, so, with the wave of a magic wand, the bank as created $90 out of thin air. This total $190 is called M3 money (approximately speaking.)

    However, right now the banks are not lending, because they are scared to death of the Obama administration, not to mention the little detail that it seems now bad business decisions have become criminal offenses. So consequently, there is much less commercial money out there. That is why despite the overheated printing presses there is very little inflation.

  17. If you want to weather this storm, buy ammunition, non-perishable foods, gold and other commodities. Get as much of your assets outside of the USA as you possibly can, and if you actually want to come out ahead on the collapse, short shares of tax-dependent businesses and try to spread your transactions to as many unconnected counterparties as you can.

  18. @esr

    >Still working on that. I haven’t got my head around all the consequences of the collapse of Bismarckian statism yet. Some kind of currency collapse following sovereign-debt defaults seems like the most likely disruptor.

    When you figure that one out let us know ;-)

    It all depends on how bad the society reacts, and what the government does in response.

    My strategy is to live in an out of the way, mostly rural area, be able to stay warm, and feed myself for at least a year. Paying down debt is controversial. If the outcome is hyper inflation, it may be a bad move. If you don’t pay off the debt, hyper inflation takes care of your debt IF you have cash flow to service the mortgage. Paying it off is the conservative bet. You still get the value of the property.

    I also now have my first full time job in a decade. :-(……conservative….. a university job….elder monkey. There are worse fates.

    >I don’t think that’s the right question. There’s no reason post-collapse society has to be poor, and in fact good reasons to expect it to have a much higher average wealth level – all the surplus the political class has been siphoning off into its projects isn’t going to disappear, after all. The problem we face is transitional, getting from an equilibrium in which government has its fingers everywhere to one in which there may not even be government-issued currencies any more.

    If you can make it through intact with real assets you will do fine, as long as the rest of the monkeys don’t break too much and start throwing shit. If that happens you’re on your own….make sure your passport is up to date.

    I hope things will be relatively orderly, or that I am totally wrong about all of this. In the mean time, I refuse to cower in a bunker.

    Long term I am very optimistic. Perhaps we will live to see a new Renaissance!

  19. Actually, 4 states that I looked at are not running a deficit:

    They are Montana, Alaska, North Dakota, and Wyoming.

    ESR says: Foo on them for screwing up the coding then. According to the key they should have been colored white.

  20. ESR: What do you think of the cryptocurrency Bitcoin’s potential as a global currency?

    ESR: Don’t know enough about it. I will investigate.

  21. @Jessica Boxer
    > In particular, the fear of hyperinflation is just not real. [...] How it works is simply this: you print more money.
    > Now your dollar is worth less, but that also means your dollar denominated debt is worth less too.
    This is exactly the sort of thinking which ruined Germany’s economy after WW1 and led to extreme poverty for anyone who had deutchmarks in the bank, which then led to… screw it, I’m bailing out before someone invokes Godwin’s Law, but you see where I’m going here.

  22. May you live in interesting times.

    Global economic uncertainty is generating a great deal of nebulous anxiety and most folks are trying desperately to predict the future in the hope that they can be properly prepared in the event that things go very badly very quickly. I believe that a lot of this anxiety stems from the extraordinarily high standard of living that we have grown accustomed to and also the fact that most of us have never experienced any real hardship in our lives. As a society, we take a great deal for granted; such as, a nice house, multiple cars, readily available tasty and diverse foods, easily accessible medical care, futuristic telecommunications and entertainment, fun vacations, and lots of leisure time. We really don’t want to lose our wonderful king-of-the-planet standard of living, hence the intangible dread that it could all disappear in a poof.

    Human beings are amazingly resilient creatures and, even after a disaster, we tend to stand up, dust ourselves off, and then start rebuilding. Whether doomsday happens or not, at least it won’t be boring and you might even get a chance to do something uniquely meaningful before keeling over dead.

  23. >you might even get a chance to do something uniquely meaningful before keeling over dead.

    Been there. Done that. Have the open-source T-shirts. Thank you, I neither desire nor require a disaster to make my life meaningful.

  24. > There’s no reason post-collapse society has to be poor, and in fact good reasons to expect it to have a much higher average wealth level
    An average by itself is a poor statistical indicator. In this case, I’d rather see the average fall and the median climb than the contrary.

    > – all the surplus the political class has been siphoning off into its projects isn’t going to disappear, after all.
    Most of it will just be spent some other way, like paying the various companies owning and maintaining the roads after the government stops doing it.

    > getting from an equilibrium in which government has its fingers everywhere to one in which there may not even be government-issued currencies any more.
    You mean getting from an equilibrium in which government has its fingers everywhere to one in which big corporations have their fingers everywhere? Well, to be fair big corporations already have their fingers everywhere.
    A collapse would just bring back statism with a twist : (geographically) decentralized statism… I honestly don’t know if it would be an eventual net gain but I’m reasonnably confident it would be a net loss to a large majority of the world population at the early stage (i.e until market pressure enforce some safety measures currently enforced by laws, e.g not using too many carcinogens to boost crop yield / animal growth)

  25. Basic advice:

    1) Own your own business if you have the capability of running one. If you lack this capability (99% of people do) invest in a business run by someone you trust and in a field (with a customer base) you understand.
    2) Live in places with low costs of living. Coincidentally, these are also places that tend to have lots of farm land near by, just in case the shit truly hits the fan.
    3) If you own stocks, own the following categories:
    A) Basic staple necessities. Proctor & Gamble won’t make you rich but they won’t make you broke, either. (This is the Peanut Butter, Soap & Diapers Rule – no matter how bad the economy gets, people will still pay money for peanut butter and diapers)
    B) Businesses that regularly innovate in their field. In tech, this is Apple. Chances are, whatever comes out of the mess will be driven by someone inventing an entire new area of business.
    4) Pay down any secured debts you have first, then unsecured. Try to get OFF of the fucking debt treadmill.
    5) Pick up some useful hobbies – handloading ammunition, gardening, sewing your own clothes, or how to barber hair.

    One of the reasons why this collapse will be more wide spread – but less individually painful – than the 1930s collapse (or the much worse 1873 one) is because of the low cost of communications.

    Read anything Warren Buffett writes about investing. If you have the money to buy them, buy a couple of shares of Berkshire-Hathaway Holdings. His investing strategy is very simple:

    1) Obsessively research 10K statements.
    2) Talk to current management. If they’re not insane, investigate further.
    3) Assess who the customers of a business are.
    4) Determine if those customers are going to be lost anytime for a predictable reason.
    5) Assess whether or not the company is undervalued.

    If you don’t find problems in step 1, proceed to step 2. If step 2 shows ‘sane’ management, examine step 3 – it is amazing how many companies do NOT know who their real customers are. They have an internal vision that doesn’t match reality.

    If 4 is FALSE and 5 is TRUE, buy shares.

    Buffett’s strategy is built on buying businesses that make sense, are well run, and not fucking with them for the most part. It is not a sexy way to make money with stocks; it’s a lot of work.

    Buffett evaluates about 10-20 10K statements a month; each of these is about a 300 page financial document prepared by accountants to appease the IRS and SEC. Once you learn the lingo, they are very useful documents to be able to parse. They are, universally, less interesting to read than watching paint dry, and would drive anyone who can program or do anything creative insane.

    Buffett’s ability to get into a ‘programmer flow’ zen state while reading 10-20 of these a month is unheard of.

  26. Neither Ireland nor Spain are bankrupt due to wealth redistribution and irresponsible government spending. In both cases it was irresponsible speculation and loans by banks that bankrupted their economies. The government deficits are caused by the government having to keep banks alive instead of having prevented the irresponsible actions of the private sector in the first place. Letting all the banks collapse is just as acceptable as cutting down all water supplies and electrical power in a city as part of a utilities bankruptcy.

    Eric, the problem with the anti-state libertarian ideal is that I see some insurmountable hurdles. You want an industrial society, so you need:
    - Insurance
    - banks
    - financial markets

    All three require heavy regulations. Insurance companies and banks are insolvent by definition: The whole point of having them is to have short term liabilities and long term assets. So they can always get in a situation where they will have to pay out more than they can liquidate in cash.

    Industry require financial markets for investments. Banks and financial markets are inflationary: They “create” money because they can lend out more money than they have. Furthermore, financial markets create bubbles because people are herd animals. Combining these factors has created financial crisis like the 1929 crash that indirectly caused WWII and several crises in the 18th/19th century that created widespread havoc (eg, see “Extraordinary Popular Delusions and the Madness of Crowds”, by Charles Mackay).

    So, what would a libertarian financial sector look like? Are there any real world examples? If not, why not? How would a libertarian society prevent that outcome?

    Or maybe a libertarian society can grow an industrial sector without a financial industry?

    I think the underlying problems population pressure. I still have to see a convincing argument that it is possible for 120M people to live in wealth in Japan, 300M in the USA, 700M in the Europe (the continent), and 1.3B in China (still poor, but less so every year) without heavy state intervention. So, how would a libertarian society look, say in Europe, with 700M people in roughly the land area of the USA? Or in China, with 1.3B people on almost the same area?

    And to speak about wealth redistribution. 90% of the economic growth in the USA since the 1990s has ended up in the hands of the 10% richest people of the USA. Redistribution is not about equalizing capital, but income. Btw, Thacher was one of the parents of the current crises. The bank collapse is a direct consequence of policies she shaped and started. I see her views on society as proven destructive.

  27. How to survive the coming collapse from eric’s prediction?

    Move to Brazil of China. India might work too. They are doing well without the USA and Europe.

    If you think they will collapse too, in the long run, consider you will be dead in the long run.

  28. >Eric, the problem with the anti-state libertarian ideal

    I’m not talking about anti-state ideals, I’m talking about the brute reality that the big-state model is structurally insolvent. Nothing you say about the supposed necessity of government regulation can affect that brute reality, nor will asking me to produce solutions affect it. All your verbiage is exactly equivalent to rearranging the deck chairs on the Titanic and arguing that the ship can’t sink because I haven’t told you how to build lifeboats yet.

    No, I don’t know exactly what insurance, banks, and financial markets will look like after a sovereign-debt collapse. We’ll have to find that out by rebuilding them.

  29. >Most of it will just be spent some other way, like paying the various companies owning and maintaining the roads after the government stops doing it.

    Anybody who thinks the majority of government spending is that useful is suffering from a serious case of naivete.

  30. @eric
    “All your verbiage is exactly equivalent to rearranging the deck chairs on the Titanic and arguing that the ship can’t sink because I haven’t told you how to build lifeboats yet. ”

    Do not see these questions as attacks. I do think libertarianism is Utopian, that is true. But I am really interested in how libertarians think they can make a society that works better.

    I will not even contest your prediction of a complete collapse. I do not believe it will end that way, but my believes might be wrong, and you might be right.

    My personal prediction for after an eventual collapse of the USA and EU, is that people will rebuild the “big” states. Just as they did after the Napoleontic wars, WWI, WWII, the Chinese civil war, the civil war on the Indian subcontinent, the fall of the Soviet empire, and any mayor financial or political crisis. The only example of a return to small state situation involved a population collapse like those of the native American empires and the Roman empire.

    And these new states will do what people demand from them: Give safety, wealth and protect against mishap. And this will force any new society to make people co-responsible for each others well-being. Which at current population densities will end in a big state. But that is just my view on human nature.

    So what can be done to improve that situation?

  31. >Just as they did after the Napoleontic wars, WWI, WWII, the Chinese civil war, the civil war on the Indian subcontinent

    Because those crises only deligitimized individual governments. What’s coming, I think is more like the collapse of the Western Roman Empire – an analogy I actually had in mind before you mentioned it. The effect of the collapse of the Western Roman Empire was more profound than the fall of a government; it threw an entire form of social organization on the scrapheap.

  32. “In particular, the fear of hyperinflation is just not real. [to demonstrate, here's a detailed description of why governments inflate]”

    WTF? You explained why a government would want to inflate, but missed the critical detail of why they would stop and not accelerate into hyperinflation. There are many real world examples of exactly how this “inflate to pay debts” policy becomes hyperinflation. Zimbabwe, anyone?

  33. @eric
    “The effect of the collapse of the Western Roman Empire was more profound than the fall of a government; it threw an entire form of social organization on the scrapheap.”

    I agree that a collapse of that proportion would be required. But I understood that the fall of the Western Roman Empire was preceded by a population collapse due to repeated plague like epidemics. For instances, the reconquest of the Western Empire by Byzantium was almost completed when a plague wiped out 30% (or more?) of the population of both the East and the West and the reconquered lands were lost again.

    I really doubt that the mere collapse of monetary institutions could precipitate such a collapse. If all else fails, people will rather be poor and relatively safe than rich and very unsafe.

    Personally, I see only four possible causes for such a collapse:
    - The end of fossil fuels without an alternative
    - The worst of the climate change predictions come true (melting of major ice fields, shutting down “gulf stream”, desertification of current crop lands)
    - Major (nuclear) war
    - A global plague killing >30% of humans

    I think only the war scenario would be considered plausible for the visitors of this blog (I could be wrong).

    But maybe you see other causes of such a collapse?

  34. I love threads like this.

    The nutty survivalist stuff and the doom-and-gloom fall of the Roman empire analogies are hilarious. You can almost hear the smacking of lips at the prospect!

  35. @Tom
    “The nutty survivalist stuff and the doom-and-gloom fall of the Roman empire analogies are hilarious. You can almost hear the smacking of lips at the prospect!”

    Then you must love Collapse by Jarred Diamond.

    You can read about Normans starving in the Greenland snow due to climate change, Easter Island society all but wiped out because they lost their trees, Haiti descending in utter chaos from over population. Or read “Guns, germs, and steel” from the same author about the fate of the Native American, Australian, and Polynesian populations after contracting new (Eurasian) diseases.

  36. I think that it is important to distinguish two subsets of “big government”. And these are “big welfare” vs. “big regulation”.

    An example of state which has relatively big welfare state, but does not suffer from big regulation of business, is Denmark.

    The USA is pretty much the other way round. Welfare state is definitely less extensive than Danish one, but regulations of all kind mushroom, produced duly by the lawyers on federal and state and local levels every single day.

    I generally think that Danish-style “big welfare” is more long-term survivable than “big regulation”, because “big regulation” kills productivity and enterprising spirit in the population much more effectively than a higher tax bracket, provided that the tax bracket is not too high. A country can better afford to lose the lowest-skilled 10% of the population to the Sirens of welfare than lose 2% of the top-skilled population to unconquerable bureaucracy.

    Nevertheless, combination of those two is a very effective killer. This is Greece today: most of the population is used to government handouts AND capable, libertarian-minded Greeks emigrate in droves, because they have zero chance to realize their dreams in Greece proper.

    And USA is headed this way, expanding both these branches of big gov.

  37. Winter, I think that definitive explanation of disappearance of Vikings from Greenland is not settled yet.

    It is entirely possible that the effects of starvation in Greenland were similar to those in Iceland, but Iceland had no competing population, namely the Inuit.

  38. @Marian Kechlibar:
    “It is entirely possible that the effects of starvation in Greenland were similar to those in Iceland, but Iceland had no competing population, namely the Inuit.”

    I suggested Collapse for the entertainment value.

    Even before hearing any of the evidence, a small, isolated population is always vulnerable to collapse for many reasons. Simple probability theory and chance accidents. The same holds for the fate of the Easter Island population. Population swings are so much worse in small isolated populations than in large ones.

    The better question to ask is why the Norse where unable to copy the Inuit and survive? Answers might be that seal hunting is too difficult a skill to be copied from observation and that the Norse were simply too violent and murderous to cooperate or mix with the Inuit (who were not pacifists either). Or maybe the cultures were simply too different to learn from each other. Eg, the Inuit never took over the use of iron.

  39. Your argument misses some important points in my view.

    1 The problem with California, as I understand it as an outsider, is that spending and taxation decisions are taken without regard to the overall budget. The voters demand various goodies, a referendum is held and the goodies are duly provided without any thought of funding them.

    2 As for the problem countries in the EU, the issue is imbalances. Germany is in balance of payments surplus, which by arithmetic means that other countries are in deficit. As the private sectors in these countries are de-levearging (i.e saving a lot), this means (by arithmetic) that their public sectors will be in huge deficit.

    This situation will persist unless they devalue their currencies (thereby improving their external balance) or their private sector starts to spend on a massive scale.

  40. “The only example of a return to small state situation involved a population collapse like those of the native American empires and the Roman empire.”

    What about the peace of Westphalia, which also led to a return to smaller states in the area of the Holy Roman Empire. Many of those small states became rather prosperous too…

  41. > esr Says:
    > it threw an entire form of social organization on the scrapheap

    Is it even possible for a democracy to learn to be fiscally responsible? What’s that quote from the early days of the U.S.A. about democracy lasting until the electorate learns to vote themselves the treasury?

    But seriously, irregardless of how stupid the voting majority is, the Congressmen and Senators that are with-it enough to get elected must already understand and/or can learn that it’s mathematically impossible to run a deficit forever. When things get bad enough, they will solve the problem by fiat, i.e. by passing laws that prevent the government from self-destructing. For example, given a choice between riots in the streets and defaulting on all foreign debts, who doubts the U.S. gov’t will choose to let China suffer? This of course would have huge painful side effects, but when you’re the biggest economy in the world you can do dirty tricks like that and not totally collapse.

    The bigger question is what else will Congress break when they get all gung-ho about changing society. Freedom of the Press, for example? Imagine the Patriot Act times 100 if the majority of the voters think they will shortly be bankrupt.

  42. @ K
    “What about the peace of Westphalia, ”

    Interesting case. The 30 years war in Germany was rather bloody and did not exactly grow the German population. But I do not think it killed as many people as the plague. The parallel peace in the lower countries ended a civil war which involved Spain. At least in the lower countries, the peace did not lead to “small” states. The precursor of The Netherlands was a world power at the time.

    I am not sure whether we can say that the Holy Roman Empire was a big state in the modern sense. And I do not know whether the fragments were “small” or “big” state. We do see a growth of the power of Prussia in these years. Prussia was everything but a “small” or weak state. But in the rest?

    So, if you say this is an example of devolution to a small state condition, I won’t argue. As far as I remember, these small states (monarchies etc) were not paragons of liberty. So I wonder whether the people were actually better off than before the 30 years war.

  43. In Czechia, 30 years war killed over 60% of the population, while Black Death is only estimated to have killed about 33% of the population (unexplained fact is that Black Death did not hit the Bohemian Kingdom very hard).

    Nevertheless, various plagues, when summed together, definitely have surpassed the 30 years war.

  44. @JessicaBoxer:

    Since I am going long on this I might as well talk about how this works for those of you unfamiliar. Basically, I have $100, which I deposit. Eric borrows $90 from the same bank which he deposits, or spends or whatever. The bank still owes me $100, and there is also another $90 out there too, so, with the wave of a magic wand, the bank as created $90 out of thin air. This total $190 is called M3 money (approximately speaking.)

    Yep. That’s called fractional reserve banking. And a third grader could tell you that it’s not sustainable: in your scenario, if your depositor demands his $100 immediately because he suspects you are going to go out of business, you are hosed. “No, no, that’s what they have the FDIC for. See, this happened during the Great Depression, so the FDR made the FDIC to solve that!” Except that you missed the part where esr said that the Bismarckian state created by FDR is collapsing, so the FDIC won’t do you any good. “Backed by the full faith and credit of the United States Government,” indeed! What happens if the U.S. government has no credit?

  45. @Morgan Greywolf
    “Yep. That’s called fractional reserve banking. And a third grader could tell you that it’s not sustainable: in your scenario, if your depositor demands his $100 immediately because he suspects you are going to go out of business, you are hosed.”

    A minor correction: The bank will lend your $100 to eric, who keeps it in his bank account. These $100 of eric are lend to morgan who keeps it in his bank account. The $100 of morgan are lend to jessica, who starts actually spending them. So the bank owes $100 to you and eric, morgan, and jessica owe the bank $300. When all goes “well”, eric, morgan, and jessica repay the bank with interest before you ask your money back with interest. All are “better off”, win-win etc. But until these loans are repaid, the bank is NOT able to repay your $100 now!.

    The $300 borrowed by eric, morgan, and jessica will increase money supply and if there is more money (demand) than production (supply), we get inflation. Hence some government instance (FEDs, European/Chinese/Russian Central Bank) should keep an eye on the supply of money and reign in the banks.

    The problems are indeed 1) Governments have a tendency of stimulating inflation 2) every once in a while customers run a bank. When customers run the bank, the bank will be unable to get their loans back in time to pay out all their clients and goes bust. As a result, non of the customers will get their money back, unless everybody else, eg, eric, morgan, and jessica, will chip in.

    So in the long run, something will go wrong. But in the long run, we are all dead. Meanwhile, we all should have earned enough money to clean up the mess.

    Unless we spend the money on consumables and never actually earn enough to pay back the loans. Then we simply devalue our currency and default on the loans. Just as the US is now doing.

  46. Jessica, the idea that you are going to sneak inflation past anyone over 45 (except for the very stupid) is wishful thinking. We were caught up in the last inflation in the 1970s-early 80s just as we came of age or as young adults – you aren’t going to slip that past us again.

  47. @William B Swift
    “Jessica, the idea that you are going to sneak inflation past anyone over 45 (except for the very stupid) is wishful thinking.”

    If you have debts, inflation will benefit you as your debts will decrease. Wages will roughly be corrected for inflation, as the “real” inflation corrected value of your work will not change. Just the value of any savings will decline with inflation. But then you need to *have* savings.

    People who have a net debt and inflation corrected income, will vote for more inflation. People who have a net worth or are on a fixed income (pensioners), will vote against it. Whether either votes will be successful is a different story.

  48. @esr:

    Well…historically, it wasn’t. But the failure mode was political – people and politicians buying into redistributionism because they hadn’t learned it was deadly yet – rather than economic.

    Dumb question: Wasn’t it the Great Depression/FDR that brought about redistributionism in this country in the first place? Or, which I believe is more likely, is there some vital piece of American political-economic history that I’m missing here?

  49. > You can almost hear the smacking of lips at the prospect!

    Pure crack^Wp0rn for most of the viewers of this blog.

  50. In many respects, this blog has become a nurturing ground for collective intelligence (and I don’t use “collective” as a pejorative in this context).

    A lot of people, both cognitively and intuitively, sense that a major upheaval of some sort is likely to happen sooner rather than later. Accurate prediction is highly desired, but we like in an increasingly complex world and its easier to identify a wide range of disaster scenarios rather than confidently deduce a probable outcome. As a result, most folks tend to worry too much and feel somewhat helpless. This is a mistake in my opinion.

    Look around you and take stock of your resources and also those of this country. My guess is that you will find a lot more positives than you currently realize. There is much truth in the adage, “that which does not kill us makes us stronger.”

  51. I think claiming that people must be loving the idea of a collapse is just a psychologically convenient way to categorize people away so you can dismiss them and avoid dealing with the simple facts of their claims, because in fact they are quite unpleasant for everybody.

    Unfortunately, I refer you back to the “rearranging deck chairs on the Titanic” metaphor. Refusing to face the truth doesn’t make it go away, it makes it worse.

    Speaking for myself, no, I don’t relish this at all. I’m not independently wealthy enough to really prepare. I’m 31, so I get to live through a state’s collapse which has done nothing but take from me. The US isn’t quite as besotted as Europe with the Leftist disease, but I still have no guarantee in the end that the people won’t swing Left and choose a totalitarian dictatorship that promises bread and circuses, with same tired predictable outcome of said that you can see in countries like Venezuela. I’ve got a young kid and one on the way. I try not to think too much about the future with any part of my brain except the strictly rational part because I’m pretty sure my emotional bits couldn’t actually deal with what my rational bit sees coming, namely, not guaranteed disaster but certainly a lot of very unsettling change. (Again, I’m not guaranteeing disaster but I’m having a hell of a time putting a decent Bayesian on it.)

    Make the points that the arguments are wrong if you like. Goodness knows my hindbrain likes those arguments. But you don’t get to dismiss this as some sort of libertarian fantasy. Assuming things go halfway decently there will be opportunities amongst the wreckage but I can’t actually prove that we will avoid some of the worst case scenarios. Gramsci may yet win.

  52. > Unfortunately, I refer you back to the “rearranging deck chairs on the Titanic” metaphor.

    Unfortunately, I refer you back to “Howard Ruff”. Its 1978, all over again.

  53. I don’t recall there being a lot of entitlements with no way to pay for them in 1978, or an aging population.

    Besides, that’s a really terrible argument. Yes, people have been wrong about collapse before. But, you know, collapses have happened. Quite a lot of them, actually. It’s not exactly some unheard of phenomenon that can be easily dismissed with a wave of the hand, it takes a lot more work than that.

    The US actually has a knack for collapsing without utter political chaos (if you ignore that Civil War thing, which I really can’t see happening today), but past results are not guarantees of the future.

  54. >I agree that a collapse of that proportion would be required. But I understood that the fall of the Western Roman Empire was preceded by a population collapse due to repeated plague like epidemics.

    That’s correct. The plagues killed off much of the urban population. Not that I expect that this time; unless the sovereign-debt defaults lead to a series of wars, I’m not expecting this transition to outright kill a lot of people. Yet. Possibly I’m too optimistic about food-distribution networks surviving a currency collapse.

    No, what’s probably coming is a harsh lesson: “sustainable government funding” is a mirage. So is fiat money. Where it will hit home hardest is on government pensioners.

  55. @Jeremey Bowers:

    if you ignore that Civil War thing, which I really can’t see happening today

    Really? Why not? While I don’t think it would happen the same way as the big disputes aren’t neatly delineated by geographic boundaries (which, if you’re a student of history, you know is actually myth regarding the U.S. Civil War), some sort of civil unrest eventually seems likely. The masses are nice and complacent when everything is going well; when times are difficult, violence can and does occur. Look at the list of riots that occurred in Omaha, Nebraska alone during the Great Depression.

    What I’m saying is that your statement that “[t]he US actually has a knack for collapsing without utter political chaos” simply doesn’t pan out. And I also think that it is reasonable to expect that such violence will scale proportionately with the magnitude of the collapse.

  56. >Wasn’t it the Great Depression/FDR that brought about redistributionism in this country in the first place?

    Yes, but that demonstrates less than you think. The “Progressive” movement had been chafing at the bit to enact most of what became the New Deal for thirty years. What the Great Depression (itself caused by government policy blunders) did was make the voting population vulnerable to the pitch.

  57. A minor correction: The bank will lend your $100 to eric, who keeps it in his bank account. These $100 of eric are lend to morgan who keeps it in his bank account. The $100 of morgan are lend to jessica, who starts actually spending them. So the bank owes $100 to you and eric, morgan, and jessica owe the bank $300.

    That’s hardly a “correction”. Fractional Reserve Banking is not Zero Reserve. If the reserve requirement is but 10%, then the original depositor’s $100 allows $90 to be loaned to esr, who will spend it to buy some (hopefully productive) asset. Whoever produced that asset collectively have the $90, and put it in their bank accounts, allowing an additional $81 to be loaned. When that $81 gets deposited, it justifies $72.90 in the third round of loans, followed by $65.61 in the fourth round.

    The sum of the original $100 and these diminishing amounts of loans approach the limit of $1000: the original $100 divided by 10% (or 0.1, the reserve requirement). Similarly, if the reserve requirement were 20%, the original $100 would produce a total increase of $500 ($100 / 0.2) in the money supply. This is why economists talk about the money directly created by the government as “high-powered money”; each dollar directly created results in the indirect creation of many more dollars.

  58. Civil unrest? Sure. You don’t even need a collapse for that, just enough disgruntled people in one place. Just the civil rights movement managed that and I don’t know anyone who really thinks of that as a collapse.

    But an civil war has several problems. First is geographical, you really do need some sort of delimiting line, and there isn’t a convenient one. Second is the military; in the 21st century, whoever has the military would win, and I really don’t see any sort of split occurring there in some way in which the military would start shooting itself. (What are the odds they’d come to the defense of the leftists after the past 50 years of abuse at the left’s hands?) Third is the non-military; if it’s going to be right vs. left, one side has about 98% of the actual firepower and 80% of the will to use it.

    If we did get to civil war, it would be a rather brief affair in which the leftist forces would discover they’re physically outmatched by something like two orders of magnitude at least, and without anywhere near the necessary support for an insurgency operation. Consequently, they’re not likely to spark one. Their power is soft, and the closer they got to actually sparking a shooting war, the more this fact would loom large in their minds. And I don’t see anybody on the right actually lusting for this either, goodness knows I don’t.

    Nobody wants a civil war enough for it to happen. There’s conflict, it may even get violent in some localized places, it won’t be a war.

  59. >And I don’t see anybody on the right actually lusting for this either, goodness knows I don’t.

    Oh, you can find that lust if you look deep enough into the fever swamps of the nativists…the sort of nutters who rant about the Zionist Occupation Government. I know most conservatives want nothing to do with them, but they do exist.

  60. @The monster
    “That’s hardly a “correction”. Fractional Reserve Banking is not Zero Reserve. If the reserve requirement is but 10%, then the original depositor’s $100 allows $90 to be loaned to esr, who will spend it to buy some (hopefully productive) asset.”

    I stand corrected. I conveniently ignored the reserves.

  61. Max E. Says:
    > This is exactly the sort of thinking which ruined Germany’s economy after WW1

    Actually, it isn’t. The Treaty of Versailles specified unrealistic war debts in non fiat currency (specifically gold.) Germany could not simply print more gold to pay for their foreign debt, and so they could not dilute that debt with fiat money. That is ultimately what lead to the hyperinflation which lead to… shall we say other problems.

    Grandma and Chairman Hu do not get paid in gold, they get paid in pieces of paper. The Fed defines the relationship of value to denomination on these pieces of paper, and so they can arbitrarily dilute the debt. Of course, it might be harder and harder to get people to accept those pieces of paper in the future, and that “harder” is manifest in inflation and increasing bond interest. But that is a different story.

  62. > The problem with California, as I understand it as an outsider, is that spending and taxation decisions are taken without regard to the overall budget. The voters demand various goodies, a referendum is held and the goodies are duly provided without any thought of funding them.

    You’d be wrong in at least two ways.

    (1) The “referendum” spending is a small fraction of CA’s govt spending. It’s much smaller than the deficit.

    (2) The revenue is known. Let’s call it I. The referendum spending is also known, let’s call it R. The federal govt also mandates some spending – let’s call that G. The legislature chooses to spend more than I-(R+G). Since the CA legislature is, in principle, working for the people, it’s unclear why you think that the legislature’s preferences should take precedence.

  63. > Of course, it might be harder and harder to get people to accept those pieces of paper in the future, and that “harder” is manifest in inflation and increasing bond interest. But that is a different story.

    Actually, it’s not. If you’re continuing to borrow money, “expected inflation” can’t help you – it’s priced into the interest demanded which keeps you from inflating your debts away.

    A surprise inflation can help you inflate your debts away. The more conspiracy-minded might see that in the current reporting – govt statistics say “no inflation” but do you believe that?

  64. Morgan Greywolf Says:
    > Yep. That’s called fractional reserve banking. And a third grader could tell you that it’s not sustainable:

    I successfully completed Mrs. Gillen’s third grade class, and I don’t think it is not sustainable. There is a reserve maintained, which is why Eric only borrowed $90 of my $100, not all $100. Eric’s money is lent out again and again and again. However, the sum to infinity of a geometric series if finite. If the reserve is a typical 5% then the maximum commercial money created is $1900.

    However, on a more philosophical level, I don’t think there is anything wrong with fractional reserve banking, as long as everyone has their eyes open. If I put my money into buying a 100 shares of Google stock google takes that money (indirectly for sure) and makes better products. I can cash my shares in for money if I want to, or I can let it grow through the mechanism of investment. If I buy 100 shares of Google at $10 each (fat chance I know) my account says I have $1000 to my account, but that cash isn’t in a vault, it is being used to sell advertising, often with similar multiplier effects.

    This really isn’t much different than fractional reserve banking. In a sense, fractional reserve banking is more a phenomenon of accounting than anything. If Eric buys a house in part with my $90, then what my $100 balance really means is $100 or the equivalent share in Eric’s house.

    Of course, the FDIC rather than helping actually hinders in a big way. The first duty of a bank is to convince their depositors that their funds are available on demand, meaning that they behave in a sound manner. Our proxies in the financial community can verify this in various ways to help those who can’t analyze the data themselves. However, the FDIC takes that responsibility away entirely, and changes it from convincing the depositors to convincing bureaucrats. Apparently, the bureaucrats aren’t doing a very good job. And the latest idea of “too big to fail” makes this whole thing even worse.

    So what the FDIC does is takes the natural requirement on a bank: “We pay interest on your money, but prudently so that it is safe”, to “We pay you more interest than the next guy.” And we wonder why the banking system collapsed in an orgy of speculative investment?

  65. Andy Freeman Says:
    > Actually, it’s not. If you’re continuing to borrow money,
    > “expected inflation” can’t help you – it’s priced into the
    > interest demanded which keeps you from inflating your debts away.

    This is correct, you can’t inflate away debts you acquire in the future. However, remember that many of the debts the US Government have, or will have in the future are at a pre-negotiated amount. When you become a grandpa Andy you will receive what Social Security promised you in dollars, not in what these dollars were worth when the promise was made. So the government can (and is) diluting its debt to you, even though it has not come due yet.

    But your basic point is correct, thanks for the clarification.

  66. Jessica Boxer Says:
    > This is correct, you can’t inflate away debts you acquire in the future.

    And I should clarify that most of the really scary numbers of financial obligations on the US Government are of this kind. For example, Social Security and Medicare obligations probably have an NPV of well north of $100 trillion, which makes our bond debt look paltry in comparison.

  67. @Jeremy Bowers:
    “If we did get to civil war, it would be a rather brief affair in which the leftist forces would discover they’re physically outmatched by something like two orders of magnitude at least, and without anywhere near the necessary support for an insurgency operation. ”

    Civil wars are fought between armies. The army that ends up to control the largest industrial base (wealth) of those involved tends to win. In USA terms, you know where your money is basically earned.

    If there would be a civil war in the USA it would most likely involve one part of the armed forces backing the “administration”, the law, and another trying to overthrow them, the revolution. Both parties would have some base in the population that supports them and pays their salaries.

    Any remaining feelings about “left” and “right” or “right” and “wrong” would have long become meaningless.

  68. >(What are the odds they’d come to the defense of the leftists after the past 50 years of abuse at the left’s hands?)

    That’s not as simple a question as you want it to be. For the benefit of those going on about disaster porn, I’ll note that I don’t think outright civil war is very likely either. But in the event of one, those fighting on the side of the Bismarckian big state (a category not quite synonymous with “the left”, though it’s close) would have one set of strings to pull on the military’s allegiance that might trump military conservatism and constitutionalism – the purse strings.

    Without the big state, the big military isn’t possible. That’s bound to lead to conflict of motives – and, in the extreme case, possibly conflict of arms – in the military culture as it tries to adjust to post-collapse reality. It’s not so much that I imagine the statists saying “crush the rebels or your toys will go away”, because it’s going to be obvious to everyone by that time that we can no longer fund (for example) eleven carrier strike groups. It’s more that I don’t think our officer class has any concept of how to defend the U.S. without a heavyweight military. Thus, at least some are going to feel strongly enough motivated to try to prop up the big centralized state that it will override their constitutionalist gut feelings.

  69. >You’ve misinterpreted what I wrote. I don’t pin welfarism as the problem, but redistributionism. This is a larger category that includes not only entitlement spending justified as “helping the poor”, but all other kinds as well. Including, for example, green-energy subsidies and inflated public-sector pay. Really I’m calling out any form of wealth transfer mediated through politics rather than markets.

    Ok, but the point I’m trying to make is that this is not a feature of the Bismarkian state, but of practically any state. Again I remind you of imperial Spain, with the 20% tax on the gold of the Americas (and most of its economy tied in knots by local monopolies; even the slave trade was a monopoly, which England repeatedly went to war to get for its own merchants), which nonetheless managed to borrow so much against that revenue that it went bankrupt.

    I propose that there are two government regimes, both quasistable. There is the responsible government which borrows what it can repay and does not regulate its economy into stasis. This has the failure mode that when everything is going well, it seems ok to add a little bit more regulatory or taxation burden to the economy; the purpose does not matter so much – green energy, an additional warship for security against the evil Otherlanders, infrastructure, whatever. This edges over into a full-on scramble of rent-seeking, as we are seeing now in several places; this is the second kind of government. Again, whetherthe rent-seekers are government unions or well-armed caudillos does not matter so much; Greece or Argentina, the effects are the same. The failure mode of this form of government is that eventually there are no more rents to seek, and there is a bankruptcy or other collapse, possibly also a violent revolution. If you’re very lucky, you get back the first form of government. I can’t offhand think of an example, except perhaps Rome, where it took several hundred years to rebuild.

    I don’t know, maybe I’m just pessimistic today. Rome was hit by multiple disasters, including plagues, climate change, and outside invasion, and it had a much lower surplus in good times than we do. Perhaps looking for historical analogues is futile; technology is a big game-changer, I hope. People starved to death in the Depression; if we have to go without iPods for some years – even if it’s because the economy crashes so badly that iPods cannot be economically made anymore – then oh well.

    Someone mentioned Norway doing well; it’s true that successive Norwegian governments have been reasonably prudent about their spending, but it’s also true that they’ve had a huge amount of oil revenue to lubricate the economy. Anyone can do well when they win the lottery. It’s not an example that would necessarily scale to less lucky nations.

  70. >Ok, but the point I’m trying to make is that this is not a feature of the Bismarkian state, but of practically any state.

    No, there’s a difference that matters. The pre-Bismarckian state may have based its legitimacy and popular appeal on a lot of different things, ranging from the possession of brute force up through the divine right of kings to republican constitutionalism, but it did not rest on the ability to appease rent-seekers. Again, Rome after the failure of the Gracchi brothers provides an instructive example that resembles the modern case more than anything in the intervening millennia.

  71. @esr:
    “The pre-Bismarckian state may have based its legitimacy and popular appeal on a lot of different things, ranging from the possession of brute force up through the divine right of kings to republican constitutionalism, but it did not rest on the ability to appease rent-seekers. ”

    Most of that is because large scale redistribution only became practical after the industrial revolution.

    Note that large empires, eg, Egypt, China, and Rome, did redistribute food to fend off famines. All states did take from the poor and gave to the rich and some actually gave something back if the times were especially hard. As was remarked above, Louis XIV bankrupted France for his wars.

  72. >Most of that is because large scale redistribution only became practical after the industrial revolution.

    Yes. And? Civil democracy wasn’t practical until inexpensive gunpowder weapons meant the peasantry could defeat aristocratic full-time violence specialists, either. History is full of causal linkages like that. If all you’re arguing is that redistributionism is a natural pathology of state systems, then we don’t disagree. But, then, so is totalitarianism, and the 20th century has probably taught us not to tolerate that. The species does learn from history, albeit slowly and bloodily. What I’m saying is that I think the oncoming sovereign-debt collapse seems likely to be such a lesson.

  73. I honestly don’t see a lot of value in speculating about disaster or economic collapse scenarios, but if you’re genuinely worried about a big government, liberal conspiracy intent upon taking over, then I would suggest that you put yourself in their shoes and reverse-engineer their strategy.

    If a small cohort of elitist, incipient tyrants wanted to overthrow the US way of life (i.e. love of liberty), then they would need to find a way to pit “good guys” against “good guys”, and in essence get the two sides to destroy each other. When the smoke clears, they could then deploy a relatively small army of ruthless true-believers and attempt to subjugate the survivors.

    One way they might attempt this is to engineer an economic depression, drive average citizens to desperation, foment insurrection using false-flag agents, and then somehow coerce governmental police/national guard/military units to go to war against the American people. Hints of this strategy can be found in the Ruby Ridge and Waco incidents. In other words, isolate and demonize the fringe groups, and then use that catalyst to institute sweeping population control and indoctrination policies.

    If this type of phenomenon is truly playing itself out, then the game is chess and you must start thinking several moves ahead.

  74. ESR: “It’s more that I don’t think our officer class has any concept of how to defend the U.S. without a heavyweight military. Thus, at least some are going to feel strongly enough motivated to try to prop up the big centralized state that it will override their constitutionalist gut feelings.”

    An interesting thought. My skeptical side doesn’t believe enough of them will feel that strongly motivated. As you describe it, this motivation is very sophisticated; by this, I mean that it appeals to the cerebrum but doesn’t quite manage to root down into the hindbrain. These officers will be propping up the state only because the case “looks good on paper”.

    Then again, can it work to the gut? The military would have to really believe the Union is still salvageable, coupled with the belief that rebellious elements are out to take it down. There’s a toehold for the State to work from. Nevertheless, this would take media control beyond whatever level everyone thinks it’s at now. The US military is all voluntary and very integrated with the public, with every bit as much Internet access, and there are too many established journalists out there who are quite willing to poke at the State if the story’s good enough.

    To “solve” THIS problem, the State would have to resort to some or all of the usual callsigns we identify with fascism: elevated media control, widened definition of “dissident” and confinements thereof, establishment of a highly sequestered subset of the military with the logistical capability to overcome the regular military. All without being detected. I can’t see that happening before the current economic crisis resolves itself, whether through collapse or recovery.

    So on this narrow front, I suspect the US democracy has successfully engineered its own self-control.

  75. >The pre-Bismarckian state may have based its legitimacy and popular appeal on a lot of different things, ranging from the possession of brute force up through the divine right of kings to republican constitutionalism, but it did not rest on the ability to appease rent-seekers.

    This may be so, but I don’t see why it’s important to predicting collapse. Divine-rights monarchs went bankrupt just the same.

  76. @esr
    “all you’re arguing is that redistributionism is a natural pathology of state systems, then we don’t disagree. But, then, so is totalitarianism, and the 20th century has probably taught us not to tolerate that. The species does learn from history, albeit slowly and bloodily.”

    Actually, I think redistribution of wealth is a characteristic of the species. Large and tightly connected societies are simply much better at it. They can evenn do it on a much bigger scale than ever.

    My question would be how yoi think you can prevent it?

    Humans have given and taken “property” from the earliest times. All societies took from primary producers and gave to others. And throughout history a large part of the taking was by legal force.

  77. >if you’re genuinely worried about a big government, liberal conspiracy intent upon taking over,

    I’m not “worried” about that, because it already happened about three decades before I was born. What I’m trying to think through now, and not in an ideological way, is the consequences of a chain of sovereign-debt collapses including one on the U.S. The political class and its clients will, of course, try to keep the pre-collapse system going – big centralized state, fiat currency, transfer payments, and all. I don’t think they’ll succeed.

  78. >My question would be how you think you can prevent it?

    I don’t think I can prevent it at all. What it will take is a very large, very painful lesson in the unsustainability of redistributionism – one that becomes embedded in our cultural memory the way the Holocaust and the Gulags now place explicit totalitarianism beyond the pale. I think that lesson is coming at us now.

  79. @Winter: You’re hitting upon one of the most obvious drives toward statism and nationalism. Redistribution of wealth in its most raw form looks like a raid. Vikings, Mongols, Mohawks, pick your flavor. The obvious response is collective defense. The obvious social implementation requires the tribe, city-state, nation-state. In a sense, you’re trading one form of redistribution for one that involves a lot less burning and raping.

    I suspect we’ll never get away from it until either there’s only one culture (no one feels threatened), or one human per event cone. I.e., not in our lifetimes, for sure.

    Put it another way: we’re not against redistribution of wealth per se, but rather coerced redistribution of wealth. No one minds if Eric decides to treat everyone here to dinner. Similarly, no one minds a true cooperative. That is, unless (a) it gets big, and (b) you’re not in it. Or it gets big enough to be unwieldy and coercion builds up in its crevices like mildew. Trouble is, there’s this huuuge gap between “big enough to be secure” and “small enough to be non-coercive”.

  80. All Ponzi schemes must collapse eventually, and perhaps the big government house of cards is about to fall down. If so, I say “Great, let’s get it over with and start over.” Instead of fretting about the future, let’s embrace the suck and join the fight. Love of liberty is in our cultural DNA and I suspect that we are still in the majority. Instead of the coming doom, perhaps we will have much needed cleansing.

  81. @JessicaBoxer:

    The first duty of a bank is to convince their depositors that their funds are available on demand, meaning that they behave in a sound manner.

    Right. I realize it’s a lot more complicated because than your highly oversimplified example: the bank, when it lends money, has a stake in the collateral, and lots of people deposit money, and banks also have money coming and going, etc. But when there is a run on a bank, that bank is still guaranteed to collapse, no matter how you slice it up. That’s why the government recently ran ads trying to discourage people from doing exactly that by telling them that they don’t need to worry because the banking system and the FDIC are much safer than hiding your money in a mattress. (Whether this is actually true or not depends on lots of things, like what kind morons are actually running the bank, whether or not it is “too big to fail,” etc.)

    People look at “FDIC” and think “Oh, I’m all set.” No, you’re not all set. The worst possible bunch of people to manage this mess would be government bureaucrats at the FDIC and, of course, the Federal Reserve Bank itself, the government with its hand in the cookie jar the whole way. As you say, the recent banking collapse proves this out.

    Remember that this is the same government that thinks that we can spend our way out of economic failure. This is the equivalent of “Oh, well, I don’t have money…. I know I’ll just borrow and spend more money! That’ll solve it!” The proverbial third grader could also tell you that this won’t work.

  82. “missing the forest for the trees”

    Yes, but you might also be missing a small forest for a bigger one, one of general and universal moral crisis. The envy and laziness of unionized workers, welfare clients and public sector employees and the irresponsible pandering of their political representatives are one part of the picture and the short-term, get-money-instead-of-making-money crony-capitalist greed of the rich and the corporations and the irresponsible pandering of their lobbyists and political representatives happened roughly paralelly, and have probably mutually caused each other in a kind of tit-for-tat game, if you can steal from me, I can too steal from you, if the rules don’t bind you, they shouldn’t bind me, vica versa, ad infinitum.

    At the moment there aren’t really any “classes” of people to trust anymore, except for perhaps some small-business owners, freelancers and responsible workers, who are too few and command over too few resources to be able to either stop the collapse or to effect a quick rebuilding. And because this is general and universal, it is primarily cultural and psychological changes to blame – quite probably the modern self-centered approach as opposed to the pre-modern other-centered approach.

    Given the facts that religious people outbreed secular people and fanatical religious people outbreed moderate religious people, and given the fact that group cohesion, mutual helping and trust, and the ability to see work and saving money as a duty and not as a utility to be discarded whenever it seems favourable tends to correlate amongst these lines too, which will be the extremely important kinds of social capital after the collapse, I predict a new Middle Ages after the collapse. Which is kind of sad because I think the world’s best period was somewhere between, from Renaissance to early modernity until modernity became too suicidial.

  83. Shepen:

    Naw, it’s all poor incentives.

    It is nice to attribute the failing economy to the moral failure of a whole group of people. Still, you won’t fix anything.

    If you want to fix stuff, you have to internalize that the facts that incentive matter.

  84. It is absolutely essential to raise taxes. There is still money out there. Still people who are solvent. They will raise taxes, restrict withdrawal of your own money from your bank and they will go after your retirement funds. Don’t worry, the fun will soon be over.

  85. @GoneWithTheWind

    >It is absolutely essential to raise taxes. There is still money out there. Still people who are solvent. They will raise taxes, restrict withdrawal of your own money from your bank and they will go after your retirement funds. Don’t worry, the fun will soon be over.

    Or the fun will soon begin….a matter of perspective.

  86. @esr:

    >That’s not as simple a question as you want it to be. For the benefit of those going on about disaster porn, I’ll note that I don’t think outright civil war is very likely either. But in the event of one, those fighting on the side of the Bismarckian big state (a category not quite synonymous with “the left”, though it’s close) would have one set of strings to pull on the military’s allegiance that might trump military conservatism and constitutionalism – the purse strings.

    When the checks bounce, the troops free lance.

    I hope the power devolves to localities like the USSR. Civil war is a no win proposition. Think Nuclear Vicksburg…..

    disaster porn…. nah. I so very much want to live in the 1950′s. surfs up!

  87. @kiba and @Shenpen:

    Kiba is right. Yapping about moral failures is the kind of unproductive grandstanding I’d expect out of the mouths of conservatives, particularly the Fanatical Fundies Religious Right. Morality and ethics aren’t absolute and have nothing whatsoever to do with the “Thou Shalt Nots” listed in some mistranslated 5,000 year old text.

    The way you get the desired result is through proper incentives, proper incentives revolving around what the left and the right each like to refer to as “capitalist greed.” Self-interest is good. Self-interest is what drives a capitalist economy. In fact, self-interest is what drives the natural ecosystem, so it makes perfect sense to utilize it rather than try to fight it.

  88. You’re all making my head hurt. What we’re seeing is the end result of 30 years of moral hazard, ranging from the bail out of Chrysler to the bail out of the Savings and Loans to the current crisis where we gave the banks a ton of money instead of letting them fail… Add to that the defunding of the SEC, (further elimination of moral hazard via an end to criminal/civil charges against those who violate the rules,) and the rulings by the Office of the Comptroller of the Currency in 2003 to make sure the states couldn’t prosecute banks for violations of state laws… (further moral hazard – though that’s probably not the right word when a government in involved) and we have a kleptocracy that’s out of control regardless of which party is in charge, or what their ideology might be.

    Add to this the changes in regulation that eliminated Glass Steagal and let the banks do things like turn loans into tranches then bet for/against them with CDOs… congratulations, we’ve eliminated the rules about how to safely handle dynamite, and once again, despite the millions rendered jobless and homeless, we haven’t found a way to punish anyone for their misdeeds. We’ve become a very, very corrupt society and we now face the consequences of not providing consequences.

  89. I think what we’re seeing here is the same thing that happened in the housing market: trying to pay off today’s obligations with promises of money tomorrow (or in 30 years), except that government can do this on an absolutely vast scale. California in particular has been doing this for as long as it’s been around, and it’s worked because the new arrivals have made up for the deficits run up by those already there. The property tax structure even explicitly privileges the established residents over the new arrivals, and not by a little. Unfortunately, California now has net domestic out-migration and the whole Ponzi scheme is starting to come tumbling down. It’s not like Phoenix or Las Vegas are much different from Detroit, they just haven’t been around as long and are at earlier stages in the municipal-Ponzi lifecycle.

  90. Shenpen, rent-seeking is as old as organized human society. Even hunters-gatherer tribes have non-productive classes.

    You can’t seriously expect unionized workers not to be lazy, or political hacks not to pander irresponsibly. Look at the graffiti in Pompeii. Pretty much the same kind of political campaigning as today.

    The only thing that matters is how much power does the system give them. Unfortunately, modern American system gives a lot of power to these classes, not least because Americans generally trust (or trusted?) their government.

  91. > Anybody who thinks the majority of government spending is that useful is suffering from a serious case of naivete.
    Anybody who thinks the administrative time/money sinks we find in governments don’t exist in corporations is suffering from a serious case of naivete. They do tend to be smaller due to market pressure, unless there is a monopoly, a frequent occurence in absence of a minimum of oversight, governmental or otherwise…

    My point is not that government are efficient or good or anything, just that their collapse won’t bring all the benefits you claim. For starters a large share of the money formely spent on taxes will be used to pay for roads, local militia, hospitals, schools and other infrastructures and services which the state used to finance. Another significant share will compensate the price increase for goods that used to be subsidised.
    Besides an army of government workers would find themselves unemployed and a number of corporations would be deprived of customers (who’s going to spend millions in tanks and jet fighters for instance?) and may therefore close shop, leaving even more people unemployed. How do you expect the market to react to such an explosion of unemployement. My guess is an overall drop in salaries.
    By the way, how do you expect the army to react upon such a collaspe? Disband? Improvise a dictatorship? Break into myriad of militias? What about nuclear warheads and other WMDs?

    In a nutshell there are a number of ways a government collapse could end up leading to a situation way worse than it is now and I just wanted to point it out because it seemed to me you were drawing an overly positive picture of a potential goverment collapse…

    Regards

  92. Nitpick: it’s “other people’s money.” The apostrophe goes before the S, not after.

  93. >it seemed to me you were drawing an overly positive picture of a potential goverment collapse…

    That’s because I wasn’t anticipating a collapse as total as you’re imagining. I might welcome one, under the right circumstances, but (a) we’re not talking about what I would consider the right circumstances (and what those are is off-topic for this thread, so don’t ask), and (b) sovereign-debt collapses don’t generally take governments down that far.

  94. @Hugues
    Those are the short term consequences. In the long term, the people who were doing the fairly unproductive things would have to find productive things todo, increasing society’s overall productivity. This will bring net benefit.

  95. It’s looking to me that the Politicians will push off making any hard decisions until forced to.

    The more that I think about it, I’m not sure they would do it even then. What do we do when the politicians in charge refuse to fix things? It may be impossible to fight the iron law of bureaucracy.

  96. As Jerry Pournelle said, quoting somebody else: ” Gold cannot always get you soldiers, but soldiers can always get you gold.” I do hope that it does not come to that, but, yeah, canned food and ammo are good things to have.

  97. There is too much wallowing in the fretful side of doomsday prediction. Start a small business today in your spare time. Pick anything, just put your time and effort into something other than worry. We have no control over global economics, but we can control our own bodies.

  98. # Pat Berry Says:
    > Nitpick: it’s “other people’s money.” The apostrophe goes before the S, not after.

    Actually, that isn’t necessarily true. This could be a subtle pun that you might be missing. There are some circumstances in which “peoples’” is correct when “people” is being used to be roughly synonymous with “community”. For example, “The Native peoples, and all of America, Arapaho, Shawnee, and Apache lived a basic life. These peoples’ existence was often brutal and difficult.” In the second sentence “These people’s existence…” has a subtly different meaning.

    So Eric could very well have a subtle pun in his title referring to the stratification of society, the idea of the the money being spend wasn’t just from someone else, but from completely different people, almost like they are a different species. It is a lot easier to spend those damn rich fat cats’ money than to spend the college fund the next door neighbors have save up for little Joey.

    Of course, it could also be a typo.

  99. It is ironic, isn’t it, that in an email about typos, I put in so many typos. My apologies for my sloppy typing.

  100. @esr:

    sovereign-debt collapses don’t generally take governments down that far.

    But under certain circumstances sovereign-debt collapses can cause that, though there is usually either an outside aggressor involved, or a coup from within. Think of the collapse of the USSR or of the Banana Wars, where the U.S. declared, under Teddy Roosevelt’s corollary to the Monroe Doctrine, that the U.S. could interfere in the affairs of Latin American countries when they were unable to pay their international debts.

    It’s unclear to me whether such would be a possibility with the U.S. or the E.U. in the case of a sovereign-debt collapse, but I guess there are many things that remain to be seen.

  101. “Look at the graffiti in Pompeii. Pretty much the same kind of political campaigning as today.”

    Of course, it was the very same kind of moral-economical-political crisis that had broken Rome. The underclass demanded welfare (free wheat), the politically well-connected rich went on plundering the taxpayers (spend money on becoming a consul, then become a proconsul of a province and then pocket their taxes) and plundering and the rural middle-class (the recipe was: send the farmers to fight in wars and when the wife and the kids cannot manage the farm give them loans on outrageous interest and the take the land), independent farms were replaced by slave-driven huge “corporate” farms, which swelled the ranks of the welfare class in Rome, wars, welfare and suchlike broke the treasury which the emperors replied to by debasing the currency which led to price inflation which led to stupid price controls which led to an increasingly disfunctional economy (Diocletianus), the ranks of the state bureaucracy swelled, independent people became more and more wards of the state, and the productive classes were gradually replaced by the parasitic classes like the welfare poor, the state-employed middle and the politically well-connected rich looters. Yes, pretty much the same story.

    And yes, of course, it was a set of incentive problems. That is an absolutely valid analyis, but shows only one part of the picture because incentives don’t come out of thin air, they have culture reasons why exactly the those incentives were set up.

    The other part of the picture is exactly the same story about a general moral crisis, the decline of older values which the conservatives (optimatae) of the time like the two Catos and Cicero described back then pretty much the same way as I describe it now. The decline of old virtues, dignity, gravitas (sincerity), pietas (obeying traditional duties), simple living, duty-oriented, virtue-oriented lifestyles, abandoning them in favour of the easy getting and the pursuit of pleasure and instant satisfaction in all classes of society. This explains another part of the picture. This explains where the malincentives *came from*.

    If you dislike the term moral crisis, feel free to replace it with “high time preferences”. Pretty much the same thing. Just understand the connection: the connection on one hand that high time preferences are caused by cultural changes from preferring virtue to preferring instant satisfaction, and understand that high time preferences also cause unethical behaviour, state-swelling political demands, and irrational decisions.

  102. What makes anybody think the long boom is over? Why would you think that? I’m genuinely curious here – indeed, Matt Ridley’s “Rational Optimist” seems all but ironclad. All we’ve seen since 1970 is Hayekian hyperinvestment boomlets. The oil shock of 1973 explains things until 1980, since then, it’s been simply labor declining as a factor of production.

    SFAIK, global and US GDP growth are both tracking a nice smooth exponential curve. And outside of land, health care, government and education, things are getting cheaper – even oil.

    If anything, this may just be the boom & bust that makes the Bismarckian state obsolete just as the large monolithic tech firm was made
    obsolete in the tech bubble. All three depend heavily on outright law-enforcement or rents fo sustenance, and once they price themselves out of the market, the market views this as an outage and routes around it.

    I think this graph explains it all:
    http://mjperry.blogspot.com/2010/07/increased-worker-productivity-has.html
    It’s a form of singularity, where labor and production decouple just as land area and agricultural production decoupled with the invention of the Harber-Bosch Process. Our social norms ( one must work for wages ) are as always, lagged.

  103. >What makes anybody think the long boom is over?

    Population trends. Fertility started to nosedive in the developed world about 1970. (I was referring to a demographic long boom, not an economic one; you’re right that it could be argued the economic one is still going on.)

  104. > … I was referring to a demographic long boom, not an economic one; …

    Ah, thanks!

  105. > However, remember that many of the debts the US Government have, or will have in the future are at a pre-negotiated amount. When you become a grandpa Andy you will receive what Social Security promised you in dollars, not in what these dollars were worth when the promise was made. So the government can (and is) diluting its debt to you, even though it has not come due yet.

    SS payouts are inflation adjusted, as is Medicare (the other elephant in the room), so any dilution requires “default” on the inflation adjustment. (Some state pensions are inflation adjusted and some aren’t.)

    Long-term fixed-rate bonds can be diluted, but what fraction of US debt is in that form?

  106. > Anybody who thinks the administrative time/money sinks we find in governments don’t exist in corporations is suffering from a serious case of naivete. They do tend to be smaller due to market pressure, unless there is a monopoly, a frequent occurence in absence of a minimum of oversight, governmental or otherwise…

    Size matters, and the difference can be huge.

  107. > They do tend to be smaller due to market pressure, unless there is a monopoly, a frequent occurence in absence of a minimum of oversight, governmental or otherwise…

    Most monopolies are a product of govt action. Govt advocates then suggest using govt to solve the problem that they created….

  108. @Marian

    You can’t seriously expect unionized workers not to be lazy,

    Now hang on, thats going too far.

    Unless your definition of lazy includes workers who are working at the best sustainable pace possible (i.e. one that won’t make you ill) but are still slower than the worker that is given unreasonable expectations and told that they’ll lose their job if they don’t meet them then it’s entirely possible to expect “unionized workers not to be lazy”.

    In a state where the power of unions and employers are appropriately balanced, you could fire someone for “lack of performance in their role”.

    Unfortunately, modern American system gives a lot of power to these classes, not least because Americans generally trust (or trusted?) their government.

    I’d argue that the modern era shows this to be a false assumption. I highly doubt anyone truly trusts their government anymore or at least that those that do are highly in the minority. To me it’d be more likely that it’s because we’ve been conditioned to not speak over the top of minority groups with the result that they can scream the loudest when a political debate is occuring.

  109. Russell: Two points: 1)They may only get 19% of GDP but the question is WHOSE 19%. The rich can move their assets offshore the middle class cannot. 2)This is a different time and they will use different methods. If you own a house I am willing to bet you that your property taxes went up this year (mine did) and the value of your house went down (mine did).

  110. B) Businesses that regularly innovate in their field. In tech, this is Apple. Chances are, whatever comes out of the mess will be driven by someone inventing an entire new area of business.

    I’d actually take the diametrically opposite strategy: Your latter half is right on the money, which is why investing in last year’s “innovators” (and, really, Apple’s excellent at marketing but not innovation) is usually a dead end; they’re the ones who are getting fat and lazy, and the hungry new businesses will come out of left field.

  111. “Fertility started to nosedive in the developed world about 1970. ”

    The trend to lower fertility is much longer, deeper, and wider than that.

    Here is an index from the U.S. Census: the number of children under 5 per 1,000 women aged 20 to 44. (The Census tracked blacks and whites separately, and didn’t track blacks before 1850, so the white number is given.

    1800 – 1,342
    1850 – 892
    1900 – 666
    1930 – 506
    1950 – 587

    Note that 1950 was a rebound not only from the Depression but from the earlier decline. My source for this stat ends there, but straight fertility numbers show the rebound only lasted 20 years.

    Sharp declines in fertility have been seen almost everywhere in the last 50 years, except sub-Saharan Africa and a few some Near Eastern/Middle Eastern countries. Algeria, Iran, Brazil, Vietnam, and Sri Lanka are all below “replacement” fertility.

  112. Morgan Greywolf,

    > Kiba is right. Yapping about moral failures is the kind of unproductive grandstanding I’d expect out of the mouths of conservatives, particularly the Fanatical Fundies Religious Right. Morality and ethics aren’t absolute and have nothing whatsoever to do with the “Thou Shalt Nots” listed in some mistranslated 5,000 year old text.

    Yes, kiba is right. You? Not so much, because you made several absolute statements, which kiba was careful not to do. Shenpen also was pretty careful not to make absolute statements. Many of the “thou shalt nots” are trying to get the incentives right. Morality and ethics can be absolute, starting with “There Ain’t No Such Thing As A Free Lunch”. That is a moral / ethical absolute.

    I’d say you just unproductively grandstanded on the other side. Yapping about moral failures is useful behavior. It’s called social pressure, and I would think someone in favor of freedom would be in favor of it. It’s when we (including those of us among the Fanatical Fundies Religious Right) invoke government coercion that should cause productive grandstanding on your part. I’m happy to say that I recall more productive grandstanding from you than unproductive grandstanding. Thanks!

    Yours,
    Tom

  113. @Christopher Smith:
    “I’d actually take the diametrically opposite strategy: Your latter half is right on the money, which is why investing in last year’s “innovators” (and, really, Apple’s excellent at marketing but not innovation) is usually a dead end; they’re the ones who are getting fat and lazy, and the hungry new businesses will come out of left field.”

    You might be right. If so, however, this paints a dark picture. Incentives matter. If Apple or any hungry new business is about to innovate, then next year it’s a dead end, and its investors dry up and its share price falls. This is bad for them, so said companies need to always look like they will innovate in any given year. But this is solved with marketing, which means Apple, or any hungry business that figures out marketing, wins anyway.

  114. Reports are circulating that the Fed will once again bail out the EU banks and forestall the collapse of sovereign debt in Europe. It appears that the doomsday clock is about to be reset. Is this a reprieve or merely a train wreck in slow motion? Either way, I don’t think we can talk our way of the consequences.

  115. Train wreck in slow-mo.

    The thing that might save us is if enough defaults happen in Europe before a largish US state goes tits up.

    What most of the people who argue “We should let the market run its course” don’t seem to realize is that we tried that.

    Bear Sterns and Lehman Bros were both allowed to fail. JP Morgan got shotgun wed to Chase because letting a third one fail would’ve been a disaster.

    To make sure that shotgun wedding didn’t turn into a bloody mess, AIG had to be bailed out…and then once we did one bailout, everyone heaved a sigh of relief and everyone else knew that their failures would be socialized.

    I’m largely of the opinion that if your bank is too big to be allowed to fail, it’s too big, period, and after the bailout money is infused, you should be met by the Department of Justice.

    This patently did not happen, and most anyone who pays attention to the real economy (shown largely by shipping capacity used…) knew that we were playing a game of musical chairs that was going to end poorly.

    Much the same way that the majority of the oil price boom of 2007-2008, and “peak oil is really gonna kill us all” talk didn’t actually reduce the amount of oil hitting the processing terminals on the Gulf Coast. Capacities remained overbooked by 4-5% the entire time. (We have not built a new oil refinery in the US in close to a quarter century; if the price triples and no capacity is freed up, the likely cause is people trying to get out of one investment and into commodities.)

    (I am personally of the opinion that executive retention bonuses and the like should be tied on what you did five years ago, and based in part on predictions you made five years ago that were validated against results, rather than what you did last quarter. As an executive, you should be focusing on long term strategy.)

  116. >The trend to lower fertility is much longer, deeper, and wider than that.

    True. However, looking at the worldwide trend data obscures the effect I’m specifically interested in, which is the end of the post-Industrial-Revolution boom in the developed world. As you say, the rebound only lasted until about 1970, at which point fertility went into a tailspin. With the U.S. as a partial exception; the picture here is complicated by immigration rates large enough to make it unclear where the fertility of native-borns is relative to replacement level.

  117. @esr: “Anybody who thinks the majority of government spending is that useful is suffering from a serious case of naivete”

    Yes, the US Federal government spends 45% of its tax income on the military. Most of this is utter waste. I’m sure there is a lot of useless spending in education and healthcare too. I don’t know if you consider paying interest on the national deficit a waste, but it accounts for a bit more than 10% of the federal budget.

    I’d also like to remind you that in the last years of the spend-thrifty, soppy, Democrat Clinton administration, there was a surplus in the national finances. The Bush administration decided to cut taxes and increase spending, especially on the war machine. You need to stop running wars abroad because you can’t afford them. That is where your big government spending is happening and that is why US Treasury bonds should be considered to be junk bonds. I’d probably rather buy Greek bonds than US ones, because in Greece the shit has already hit the fan and they are dealing with the situation. Besides they pay a premium on the interest rates as pennance for their sins.

  118. Ken Burnside: What most of the people who argue “We should let the market run its course” don’t seem to realize is that we tried that.

    The problem is not that we let the market run its course and it failed to clean out the garbage that’s tanking the international financial system. The problem is, from my perspective, that international markets no longer function primarily as a means of communicating economic information. The (inevitable?) result of the “mixed economy” is a financial system where communication between economic participants has gradually been replaced with communication between government actors (politicians/administrators/officials), clients (GSEs, TARP recipients, heavily regulated industries, TBTF), and arm-twisted corporations (most of which understand that they can have their entire business destroyed by political actors unless they play nice). For small players in the market it may still be a way to communicate economic value, but I find it hard to believe that many of the large players fail to comprehend that the financial system is one more (and possibly the most important) arena for political power games.

    If we had major market participants that were concerned (as in taking action, not just hand-waving) about issues like the GM fiasco, naked short selling, failures to deliver stock, shareholders outnumbering shares, and a few well-connected financial firms beating the market with statistically mind-boggling consistency I might have some hope for our ability to unwind gracefully through market mechanisms. I think that a generational lesson in the perils of misplaced trust is the best case scenario as social welfare programs and other Ponzi schemes unravel.

  119. > Yes, the US Federal government spends 45% of its tax income on the military.

    I thought it was less than that. Our tax income is 19% GDP and our military spending is under 5% GDP. Have I made a math or factual error here? Are you counting FICA taxes? Am I missing war costs? Those costs wind down as the wars do, but the cost of maintaining quality forces does not.

    > Most of this is utter waste.

    A good fraction is, due to corruption in the procurement process. This seems to be a worldwide phenonmenon, and the U.S. has less corruption in the procurement process than most places. But given how our military spending results in more freedom and therefore prosperity worldwide, I’m not sure the word “utter” applies. “Debatable” would be better.

    > I’d also like to remind you that in the last years of the spend-thrifty, soppy, Democrat Clinton administration, there was a surplus in the national finances.

    Only if you leave out the growth in entitlement and pension obligations, which is fiscal irresponsibility that both parties like to engage in. I, on the other hand, am not willing to do so.

    > You need to stop running wars abroad because you can’t afford them.

    Yes, but that’s because we can’t afford anything. With no bailouts and no entitlement fiasco, our wars abroard would have been relatively cheap.

    > That is where your big government spending is happening and that is why US Treasury bonds should be considered to be junk bonds.

    We are something like $70 to $107 trillion dollars in debt because of the bailouts and our entitlement and pension obligations. The trillion dollar war cost is noticable and expensive, but it’s a small piece. Again, have I made an error in math or fact?

    Yours,
    Tom

  120. A good fraction is, due to corruption in the procurement process. This seems to be a worldwide phenonmenon, and the U.S. has less corruption in the procurement process than most places

    Unfortunately, your rosy imaginings don’t wash with the real world. The annual cost of Medicare and Medicaid in the US is roughly $2,500USD per capita, even though these programs do not provide universal coverage. The cost is at least $6000USD per person actually receiving benefits under these programs (probably higher because I did not fold in people enrolled in both programs).

    To contrast, the annual cost of Australia’s universal (but two-tier) healthcare program is about $900AUD per capita, rising to about $1,100 if you include the universal program for subsidising the purchase of drugs. This could be lower if it was means-tested. Australia has marginally more elderly people than the US.

  121. I was talking about military procurement.

    I see. Regardless, the point I was making is that it is important not to confuse the failure of one country to make a particular kind of policy work with an inherent problem with that kind of policy. It’s no longer clear to me that you were doing so. However, I suspect that many who read this blog believe that entitlements cannot be sustainable. There are good counter-examples to this notion.

  122. in the last years of the spend-thrifty, soppy, Democrat Clinton administration, there was a surplus in the national finances.

    Only if you conveniently forget the Social Security Trust Fund, which is a bunch of Treasury securities held by the Social Security Administration “in trust” for future retirees. If you properly account for those securities, there was always a deficit.

  123. >There are good counter-examples to this notion [that entitlements can be sustainable].

    If so, I am not aware that you have provided one.

  124. If so, I am not aware that you have provided one

    Australia has a history of sustainable spending in combination with strong entitlements. We have been into deficit on entitlement spending before, and we have gone back into surplus by scaling back entitlements (and other spending) to sustainable levels. I’m not touting Australia as the alpha-and-omega of good policy, because the reality is far from it. However, we have much stronger entitlements than the US and we do not have any problem with deficit spiral.

    In the future, costs will no doubt rise, but there is no reason to think entitlements cannot be scaled back, since they have been in the past. It’s worth noting as an aside that in spite of the fact that every Australian gets health care for free, enrolments in private health insurance have risen over the last decade (about 40% of Australians have private health insurance).

    Another good multiple-tier system is Canada’s pension system (3 tiers in this case), which provides only the barest cover for free, with additional public cover that you must pay into, with retirees generally expected to have substantial private savings to have all of their needs met. The pension system in Canada is unlikely to become insolvent any time in the near future.

    Self-funded retirement is newer in Australia, but contributions to self-funded retirement plans (called ‘superannuation’ here) has been compulsory since 1992. Consequently, the pension system is also unlikely to become insolvent any time soon. Nonetheless, entitlements will remain for people who for whatever reason cannot fund their own retirement. This is another three tier system, though it is different to that of Canada.

  125. @The Monster
    “Only if you conveniently forget the Social Security Trust Fund, which is a bunch of Treasury securities held by the Social Security Administration “in trust” for future retirees. If you properly account for those securities, there was always a deficit.”

    Money removed from the economy to save for pensions is a curious matter. A comprehensive pension scheme like used in some industrial societies removes a sizable fraction of GDP into entitlements. Think 5-10%. You really cannot store money as it is only an entitlement itself. Note that most (all) of these schemes defer taxing to the time when the pension is consumed.

    Pension funds have to be lend out (“invested”), but it is difficult to find investment targets with the required low-risk profiles that can take such large amounts of money. So these pension funds invest in the most “reliable” of entities: The state. Note that if the state is not reliable, the banks will be neither. And the combined national debts of these countries more or less equals the pension fund entitlements.

    In a sense, you cannot have saving for pensions and no debt: Someone has to take the pension money and USE it.

    This is a long story to tell you that you simply do not want to admit that it was a despised democrat who balanced the budget.

    Get over it, Clinton balanced the budget better than any Republican has in modern history. Even worse (or better), I think every Republican president starting with Reagan had worse fiscal hygiene than any Democratic president. And the Republican states are the net tax consumers and the Democratic states the net tax producers.

    It is not that this blog is in love with ANY president, or the Republicans. Or am I wrong? (as I am not an USAian, that is even very likely)

  126. Hello Eric,

    As a european and french, I am really interested in this article of yours.
    And I find it particularly “insightive”
    May I translate it in french to put it on my Blog, so that I can share and discuss it with my friends ?
    Thanx

    ESR says: Yes, translate freely.

  127. > The Bush administration decided to cut taxes and increase spending

    The Bush administration did NOT cut taxes. It cut certain tax rates. Tax revenues increased. (We’ve already established that increasing tax rates won’t increase revenues as a function of gdp, so the only real way to increase revenues is to increase gdp.)

    As to Bush’s increased spending, the bulk was on social programs. The prescription drug program was a large component. The democrat objection was that it wasn’t big enough.

    Note that Clinton’s surplus was with a Repub congress. See a pattern yet?

    Thanks to the war and social programs, Bush did turn a nominal surplus into a deficit. His worst deficit (with a repub congress) was significantly lower than Obama’s average deficit and the trend line was down until the Repubs lost congress in 2006.

    For all of Bush’s sins, Bush’s last deficit with a Repub congress is roughly the same as Obama’s average monthly deficit….

  128. Someone has to take the pension money and USE it.

    By being “invested” in Treasuries, the “pension money” was used to conceal the extent of the operating deficit. The National Debt went up every fiscal year.

    While it is true that having a Democrat as POTUS with at least one house of Congress under Republican control brought the deficit to its lowest level in a long time, it is false to assert that it was in fact a surplus.

    Now that Social Security is collecting less in FICA “contributions” than it’s paying out every month, it has to cash in those IOUs. The Treasury Department will have to sell securities to someone else to cover the shortfall. At some point, it may have trouble doing that, and the Social Security Trust Fund will turn out not to have been very trust-worthy.

  129. > ESR says: Yes, translate freely.

    But only if you allow others to translate your translation under the condition that they allow others to translate their translations under the condition that …

  130. The DoD spent about 780 bn. Of that, just over 300 bn is the cost of fighting two wars. Historically, military procurement is about the fourth largest cost center after maintenance, training, and transport. Everyone loves to talk about 0.5 bn warships going well past budget marks, and cost overruns on jet fighters that cost about 0.03 bn each, for 135 copies…

    But in all honesty, they’re rounding errors. (This isn’t to say military procurement isn’t porkbarreled in ways that stagger the imagination, and it’s deeply dysfunctional), but…compare to this:

    Between Social Security, Medicare, Medicade, AFDC and similar social network programs (all of which get counted differently), the US government put out just over 1,872 bn.

    ObamaCare is supposed to be revenue-neutral. The main reason for it being so is that it’s going to collect revenue from 2011 through 2014 before it starts ‘paying out’. If ObamaCare paid out 5K per person covered (about what Canada pays), it would cost about 1,600 bn.

    No, cancelling the F-35 or the LCS program isn’t going to fund free health care.

    0.5 bn versus 1,600 bn. It’s not going to fund free health care by a factor of 3,200.

    But wait – it gets better. Health care costs have risen by about 6.5% per year for the last decade. If you assume inflation of 2% per year (the inflation figures given are…fascinating in their evasions), that’s a net of 4.5% per year.

    From there, it’s a compound interest problem.

    It always amazes me how many people – even people with technical degrees – cannot do arithmetic when comparing budgetary figures.

  131. The special T-bills in the file cabinet in Virginia are not an investment. It’s like saving for a new car, only you want to party on the weekends. You write your self an IOU every Friday and party on. When it’s time to buy the car all you have is a stack of worthless pieces of paper.

    The Clinton surplus, such as it was, was a temporary illusion built on capital gains from the Dot Com bubble. When the bubble burst, there went the surplus.

  132. On the what to do question.

    Learn to do something useful that you can barter with your neighbors. Tax evasion is about to come back in a big way. Hiring out the back door won’t just be for illegal aliens any more.

  133. Ken Burnside>It always amazes me how many people – even people with technical degrees – cannot do arithmetic when comparing budgetary figures.

    It shouldn’t. I always assume that, ‘people get stupid where money’s concerned (myself included).’ I’m rarely wrong.

    BobW> Hiring out the back door won’t just be for illegal aliens any more.

    It never was. Many people who want to live “off the radar” do this, and have for as long as I remember. Some of them get stupid, and buy things like fancy houses or cars with that “second income” and get caught, but I know at least 5 people who this is their sole source of income, they don’t want government money (or government cheese) and they want to be left alone, so they work for cash, buy what they need, and live otherwise off the radar (most don’t even file tax returns as they have “no income” to report).

    It’s no different than prohibition. When work is regulated and taxed beyond a certain point, there’s no real advantage for some folks to play the game and they just say screw it and go off the books. As taxes raise, and regulation increases, that tipping point where people make that decision will increase. Right now, the balance in my neck of the woods is about $5/hr, though with the new minimum wage and other pressure on employers, I suspect it to approach $10 in the next 5 years. I suspect that places like NY, NJ, and CA it might be approaching $10 now.

  134. Lets go back a topic or two, because there is something worth mentioning.

    “Actually, it isn’t. The Treaty of Versailles specified unrealistic war debts in non fiat currency (specifically gold.) Germany could not simply print more gold to pay for their foreign debt, and so they could not dilute that debt with fiat money. That is ultimately what lead to the hyperinflation which lead to… shall we say other problems.”

    How would that happen? No, by the time of the hyperinflation (’22-’23) Germany had paid very little in the way of reparations. The obligations that did Germany in were war debts, which *were* mark-denominated. The hyperinflation was much more due to dealing with war debts without hardships (austerity and taxes) than reparations.

    Which is much more in line with our current sovereign debt situation.

  135. “kiba Says: Actually, 4 states that I looked at are not running a deficit: They are Montana, Alaska, North Dakota, and Wyoming.”

    And off the top of my head, I think three if not all four, have no state income tax. So no big revenue to raise the cost of the next piece of tax revenue.

  136. Alaska is a special case in a different way. Its budget floats on rent it extracts from oil producers.

  137. William Rees-Mogg was quite prescient about all of this. Read ‘The Sovereign Individual’. Published over 10 years ago.

    Regarding the inflation question, I actually doubt that we will see much of it except in the price of commodities. Reason: because the government bailouts are giving the money to the banks who would otherwise have had to take the haircut. This is *replacement* money for the money the deadbeats (mainly Irish and Icelandic banks, *so far*!) wasted. Since the EU thinks it more important that German banks NOT fail, than that Ireland should cast itself into debt servitude onto the third generation.

  138. In case this hasn’t already been pointed out, the main “entitlement” which contributed to the current financial crisis in the US was Bush’s tax cuts for the rich — not social welfare programs.

    I do agree that this is a systematic problem, though, as the rich are more easily able to manipulate the purse strings in their favor — and then get everyone else reciting propaganda about how socialism and the welfare state were really to blame.

  139. >In case this hasn’t already been pointed out, the main “entitlement” which contributed to the current financial crisis in the US was Bush’s tax cuts for the rich — not social welfare programs.

    I know this is an article of faith on the left, but it’s completely false. The Bush cuts increased revenues.

  140. The Bush cuts increased revenues.

    This brings up a question: Is there a case on record where cutting a broad-based tax, such as income taxes. didn’t result in increased revenues?

  141. > However, I suspect that many who read this blog believe that entitlements cannot be sustainable. There are good counter-examples to this notion.

    Perhaps. Paul Ryan advocates something like defined contribution entitlements rather than defined benefit entitlements. I believe that a constitutionally mandated restriction disallowing defined benefit entitlements might work better. The key is to not allow politicians to promise defined benefits in the present or the future to be paid with future taxes or results. Even honest politicians can be fooled by optimism – and we love to elect optimistic people. Now if politicians are constitutionally held to promises that essentially say “In the future we will pay you what we can pay in the future” we might have a chance, but even then optimistic or dishonest politicians will tend to present estimates for those future returns which won’t be there when the time to pay out arrives.

    I haven’t even mentioned the fact that future honest politicians may not consider themselves bound by the promises of past honest politicians, especially with the valid standard reason: “Conditions have changed.”

    In general, promises for the future by politicians cannot be trusted, even when the politicians are honest, and certainly not when they are dishonest. That means that politicians should generally be prevented from instituting programs which depend on such promises. It’s not right to mess over future generations.

    > We have been into deficit on entitlement spending before, and we have gone back into surplus by scaling back entitlements (and other spending) to sustainable levels.

    So far, when scaling back entitlements is attempted here, it is political suicide. I have a hunch this is due to those U.S. Constitutional features designed to limit government power. I also have a hunch that means that circumventing those features to implement entitlements as we have done here (curse you, Franklin Delano Roosevelt, Lyndon Baines Johnson, George Walker Bush and friends) is a really bad idea, since it makes such corrections very difficult.

    Myself, I would rather restore our Constitution and ditch entitlements than adopt the Australian Constitution and save entitlements, but both ideas are pretty much pure fantasy, so please take this as a comment on how much I like our Constitution, and not as anything like a practical suggestion.

    In contrast to my hunch, our deficit commission has made it clear that “scaling back entitlements (and other spending) to sustainable levels” is very much on the table, so I’m somewhat inclined to optimism. Politically I will work to make things work, even if esr says they can’t. It is not in my interest or my descendants interest to have things fall apart.

    Yours,
    Tom

  142. I know this is an article of faith on the left, but it’s completely false. The Bush cuts increased revenues.

    I am not asserting that this untrue, but I would like to see how it is established.

  143. >I am not asserting that this untrue, but I would like to see how it is established.

    See for example this article from American Thinker, which (unlike any articles I could find on the other side of the controversy) cites actual numbers for CBO projected revenues and how actual revenues exceeded them.

    The more honest sort of left-statist is reduced to admitting that yes, revenues did go up, but asserting that they would have risen even more without the nassty nassty tax cuts. This was the line the Washington Post took.

  144. See for example this article from American Thinker, which (unlike any articles I could find on the other side of the controversy) cites actual numbers for CBO projected revenues and how actual revenues exceeded them.

    The argument in the article is less than compelling, even for a correlative one. I would like to see all of the given figures, for example, for time periods preceding and following the given periods. Even then, eliminating confounding factors would be very difficult. The most pragmatic thing to do would be to allow the cuts to lapse tentatively as an experiment.

  145. No, what’s probably coming is a harsh lesson: “sustainable government funding” is a mirage. So is fiat money. Where it will hit home hardest is on government pensioners.

    A harsh lesson is coming, but I don’t think it’s the lesson you think it is.

    Peter Goodchild spells it out. Western civ is entirely dependent on cheap energy, cheap fossil fuels, and cheap minerals. Those things are going away. Without them, the very fabric of society is bound to unravel, and most people within this civilization lack the wherewithal to cope without it.

  146. esr:

    CBO projections are just that — projections. I notice that, conspicuously absent from the article you cited, were CBO projections for GDP. Also absent is percentage of wealth and percentage of income owned by the top 20%, which (if memory serves) grew at an even higher rate than their taxes.

    I don’t know what the right answer is and don’t have time to dig too deeply right now, but there are a few articles that actually have some math and graphs that purport to show that total tax revenue really would have been bigger absent the cuts:

    http://voices.washingtonpost.com/postpartisan/2010/08/cherry-picking_season.html

    http://modeledbehavior.com/2010/07/13/ezra-klein-is-dismayed-that-some-people-think-the-bush-tax-cuts-raised-revenue/

    http://modeledbehavior.com/2010/07/14/the-heritage-foundation-agrees-bush-tax-cuts-permanently-lowered-revenue/

  147. Woozle says:

    >> In case this hasn’t already been pointed out, the main “entitlement” which contributed to the current financial crisis in the US was Bush’s tax cuts for the rich — not social welfare programs.

    Tax cuts are not an entitlement. Letting people keep a bit more of what they earn is not an entitlement. Things like social security, welfare, food stamps, and medicare and medicaid are entitlements.

    As someone once said, words mean things. Try and keep it straight.

  148. @jeff:

    The article you cite has some value, but there is no doubt it is highly colored by the author’s viewpoint. To take just two examples:

    To believe that a non-petroleum infrastructure is possible, one would have to imagine, for example, solar-powered machines creating equipment for the production and storage of electricity by means of solar energy. This equipment would then be loaded on to solar-powered trucks, driven to various locations, and installed with other solar-powered devices, and so on, ad absurdum and ad infinitum. Such a scenario might provide material for a work of science fiction, but not for genuine science.

    Like he’s never heard of lithium battery powered vehicles…

    When it takes an entire barrel of oil to get one barrel of oil out of the ground, as is increasingly the case with new wells, it is a waste of time to continue drilling.

    Well sure, and the drilling will stop at that point if it is oil-powered. But if the drilling is no longer oil-powered, and we just want oil for lubrication or plastics, it will continue for awhile.

    The old bromide that “higher prices will eventually make [e.g.] shale oil economically feasible” is meaningless. This planet has only a finite amount of fossil fuel. That fuel is starting to vanish, and “higher prices” will be quite unable to stop the event from taking place.

    This is quite possible, but OTOH, the higher prices may just slow things down enough for people to adapt and for other energy sources to be brought online. It may be that Paul Ehrlich was early; or it may just be that Paul Ehrlich and his heir-apparent Peter Goodchild are just flat wrong.

  149. >When it takes an entire barrel of oil to get one barrel of oil out of the ground, as is increasingly the case with new wells, it is a waste of time to continue drilling.

    I am so sick of ignorant people making this argument. They seem to think that a KW is a KW and have no knowledge of the second law of thermodynamics. Energy has Quality as well as quantity. Taking 100 kw of low grade energy and converting it to 100 kw of high grade energy is a gain.

    The whole energy accounting idea is an idea as silly as ignoring the time value of money.

    Yeah right…we’re running out of everything. All that material we dug up just vanished. There is no recycling…..

    defeatist crap. Why don’t all you people who think this way just do all of the rest of us a favor and pull your lip over your head and swallow.

  150. This brings up a question: Is there a case on record where cutting a broad-based tax, such as income taxes. didn’t result in increased revenues?

    Depends on what you mean by a ‘broad-based tax.’ In Florida, for example, they recently cut property taxes which resulted in reduced revenues, but I think that’s a very different case than cutting income taxes because so many state programs in Florida are directly funded by property taxes. That’s partly because Florida has no state income tax.

  151. @DarrenCardinal:

    Yes, words mean things. And the whole taxes vs. entitlements debate is so polarized it’s not even funny.

    I’ve had it up to here with leftists who can’t understand that people get upset, and sometimes rightly so, when you take more away from them. But I’ve also had it up to here with conservatives who can’t see that at the margin when somebody transitions from being on welfare to being a taxpayer, there are places where the effective “tax rate” is almost infinite. In some places, earning one more dollar can mean the difference between medicaid and not medicaid. It’s been awhile, but I remember seeing stats in the past where someone being transitioned off welfare lost fifty cents of benefits for every dollar they earned. Perhaps philosophically, taking away an entitlement is completely different than imposing a tax, but again, at the margin a welfare recipient who loses fifty cents of benefits for every dollar they earn is effectively being taxed at a 50% rate. You can argue until you’re blue in the face that it’s not a tax (and surely be technically correct), but that doesn’t affect the fact that if they earn one more dollar (and report it properly) it only enriches them by fifty cents.

    So it always amazes me when people self-righteously claim that the high-powered executives “need” a lower marginal rate to incentivize them to do more work, yet will often fight uncompromisingly against any measures that make the transition off of welfare to productive work more seamless.

    Even my own situation shows some of the idiocy in the tax code. I make enough that various tax concessions (for example the deduction for college education) are “phased-out”. Anybody in one of these “phase-out” ranges is taxed at a higher marginal rate than somebody who makes a million dollars.

    I understand that some people have a visceral reaction against the government subsidizing education and mortgage interest for wealthy people, but phase-outs don’t penalize the truly rich at all. Neither does the AMT any more. And, of course (especially with low inflation) the capital gains tax helps them tremendously.

    I understand the appeal of a flat tax, in that it would fix some of the problems we have now. But I also think that, morally, there is nothing wrong with a somewhat progressive tax. To argue otherwise is effectively to argue that the government should never lend a helping hand in any sort of welfare, because taxes and benefits really do form a continuum. I know some people firmly believe that the government should never provide any sort of welfare. Personally, I think the government should ensure people don’t starve or freeze to death, but that it should be able to provide conditions. For example, live in these bunks and eat these beans. Or “OK we’ll help feed you and your 3 kids, but you’ve got to get sterilized first.”

  152. > The most pragmatic thing to do would be to allow the cuts to lapse tentatively as an experiment.

    Or, we could look at what happened when we had much higher tax rates.

    The US govt has never collected more 20.6% of GDP in taxes, no matter what the rates, and it hasn’t been able to sustain 20%. We’re currently right at the sustainable peak so if you’re going to argue that this time will be different, you get to provide evidence. (And no, “let’s try” isn’t evidence.)

    Or, you can argue why higher rates will lead to greater GDP. Considering that the consensus govt multiplier is 1, but they don’t seem to track reality.)

  153. @Andy Freeman:

    You said we are currently “right at the sustainable peak.” I would be interested in seeing where you get your numbers. I read somewhere that at the end of Clinton’s term, we reached that 20.6% number, but that in 2009 we were at 15%, which is the lowest percentage of the GDP as tax revenue in 50 years.

    Also, how do you know we couldn’t sustain 20%? Certainly, there is a strong argument that pre-Reagan the top rates were too high, but there is possibly an argument that Clinton got it right, and the system was optimized pretty well.

  154. Patrick Maupin says:

    >> So it always amazes me when people self-righteously claim that the high-powered executives “need” a lower marginal rate to incentivize them to do more work, yet will often fight uncompromisingly against any measures that make the transition off of welfare to productive work more seamless.

    It is more about keeping tax rates reasonable so, for example, those high powered executives will invest their money wisely, and not just in things that are designed to avoid taxes like municipal bonds.
    And I have no problem helping people transition from welfare to work, that is exactly what we should be doing.
    Talking about subsidies, you realize these are more a benefit to the wealthy and middle class, not the poor. Personally, I think too many people are going to college, and if you want to go you should find a way to pay for it yourself. There are ways. I worked my way through.
    And personally I would prefer a flat tax, but a progressive tax code doesn’t bother me that much, as long as the whole thing is reasonable.

    And the whole idea of the government requiring people to get sterilized freaks me out. Maybe it is the jew in me.

  155. As far as tax rates:

    I was reading at the Instapundit yesterday, that no matter the tax rates, the government collects about 19% of revenue.

    Since higher rates tend to choke the economy, it will be 19% of less.

  156. Or, we could look at what happened when we had much higher tax rates.

    Or we could not fall prey to a laughably incompetence methods of inquiry.

  157. And the whole idea of the government requiring people to get sterilized freaks me out. Maybe it is the jew in me.

    Obviously a lot of people are freaked out by that. But the current incentives are all wrong, and the chasm between the republicans and the democrats on social issues (which is possibly the only huge chasm between the parties) means that we will never get entitlements right. On the one hand, we have people who don’t want the government spending anything, ever, for anybody. On the other hand, we have people who want to insure a reasonable standard of living for everybody, with nothing required in return. We have a couple of seemingly reasonable compromises (like the earned income credit), but when it comes to social policy, the tension between “every child should have equality of opportunity” and “I should be able to spend my own money in ways that help to give my child every possible advantage” is never discussed in an adult setting.

    This is why we have octomom, and the huge backlash against octomom. Society is poorer when we let people act like cowbirds and require others to take care of their kids, but society is also poorer when we don’t take care of the kids.

  158. @DarrenCardinal:

    Since higher rates tend to choke the economy, it will be 19% of less.

    Apparently, InstaPundit == InstaBumperSticker, because it’s not that simple. Also, the tax rate is “lumpy” and nominally (at least in theory) progressive. So even if it were true that we are only going to get 19% of whatever, there is still an issue to be decided about the various rates and brackets.

    But I would be interested in seeing how the government can collect 19% of GDP with a zero percent tax rate.

  159. >>> But I would be interested in seeing how the government can collect 19% of GDP with a zero percent tax rate.

    Well the gov would collect none, since anything times 0 is zero. Duh. You have to be reasonable in how you look at this. Obviously the gov is not going to lower the rate to zip. The real question is what are the optimal rates. 19 or 20% sounds about right.

    I share societies horror at Octomom. I think maybe we need to promote old fashioned virtue a bit more. It is hard to imagine Octomom in the 50s and 60s.

    Some people seem to feel that we have no right to require people to feed and cloth their kids. More people are on foodstamps than ever before, and more students are receiving free school meals than ever. I really get tired of hearing retarded rhetoric about “starving children”. As a red-blooded American, I simply cannot accept that people cannot feed themselves in this country. “You can’t judge.” I say fuck that.

  160. As a red-blooded American, I simply cannot accept that people cannot feed themselves in this country. “You can’t judge.” I say fuck that.

    Perhaps you should consider the question from the perspective of an objective observer rather than through an ignorant cultural lens.

  161. And who exactly is an objective observer? You? The news media perhaps?

    Is that even possible?

  162. Well the gov would collect none, since anything times 0 is zero. Duh.

    And yet, the conventional wisdom is that lowering taxes always raises revenue.

    The real question is what are the optimal rates.

    My turn to go Duh.

    19 or 20% sounds about right.

    Based on what?

    As a red-blooded American, I simply cannot accept that people cannot feed themselves in this country.

    Okaaaaay. Unemployment is above 10% (not counting people who gave up looking for work several months ago), a lot of people don’t own anything and have multiple kids, and you can’t see how they could have problems feeding their kids without a job? Believe it or not, there are “starving children.”

    “You can’t judge.” I say fuck that.

    Well, there are people who need to be judged. People who spend all their money on booze and neglect their children.

    And then there are people who are just down on their luck. Statistics show that, if you examine individuals, rather than income groups, there is tremendous mobility, both up and down.

    But the problem with judging is that the people who want to work themselves into a position to judge always have an agenda. That’s why, in Texas where I live, we have the school textbook committee always trying to push a creationist agenda.

    So for the most part, I think it would be very useful, if possible, to set up the system so that, in general, you don’t have to judge, because judges can be very biased. Clear, simple metrics are best. BTW, this is the primary argument in favor of a flat tax.

  163. Patrick Maupin says:

    >>And yet, the conventional wisdom is that lowering taxes always raises revenue.

    Well no, the conventional wisdom is not that lowering tax rates to 0 would yield 19 or 20% of GDP as revenue. Use your head.

    >> 19 or 20% sounds about right.
    >>Based on what?
    Based on the idea that no matter what the rates are, gov collects about 19% of GDP. So why not set them at that and see what happens? It might set off an economic boom. You said you favored a flat tax after all. And we can always change the rates later, after all. We always do.

    >> That’s why, in Texas where I live, we have the school textbook committee always trying to push a creationist agenda.

    Who cares?

  164. >> That’s why, in Texas where I live, we have the school textbook committee always trying to push a creationist agenda.

    Who cares?

    OK, let me get this straight. You don’t think it’s a problem that some people can’t feed themselves, and you think it’s peachy-keen fine if, instead of teaching them useful things that could help them feed themselves, like science, we teach them that god will provide. Got it.

  165. > Well no, the conventional wisdom is not that lowering tax rates to 0 would yield 19 or 20% of GDP as revenue. Use your head.

    If you used your head, you would realize that I don’t actually subscribe to this theory, but am merely pointing out that there are a lot of conventional idiots who do. If you don’t believe that, you haven’t been paying attention to what a lot of people on the right say. Even if they talk about the Laffer Curve, they don’t understand optimization or that it’s basically parabola-shaped.

    > Based on the idea that no matter what the rates are, gov collects about 19% of GDP.

    There is a huge difference between 20.6% in 2000 and 15% in 2009.

    > You said you favored a flat tax after all.

    No, I said that there were some good arguments in favor of it. Please don’t put words in my mouth.

    > And we can always change the rates later, after all. We always do.

    It would be interesting to quantify what the whole changing rates thing does to economic growth. Uncertainty can be paralyzing. I bet that a higher, guaranteed stable rate would produce better economic results than the current see-saw.

  166. > I would be interested in seeing where you get your numbers. I read somewhere that at the end of Clinton’s term, we reached that 20.6% number, but that in 2009 we were at 15%, which is the lowest percentage of the GDP as tax revenue in 50 years.

    Time to find what you “read”.

    http://mercatus.org/publication/reality-isnt-negotiable-government-cant-raise-more-19-taxes-long

    She cites the source of her numbers.

    We have three alternatives. She lied, the OMB is wrong, or you are.

    Show your work.

    > Also, how do you know we couldn’t sustain 20%?

    We haven’t, with a wide variety of higher rate tax policies. Maybe a different one would, but you get to explain why “this time will be different”, to coin a phrase. (Hope is not a plan and intent is not a result.)

    > But I would be interested in seeing how the government can collect 19% of GDP with a zero percent tax rate.

    No one said that, the statement was that 19-20% was the max that has been collected, but thanks for demonstrating that either you can’t read or ….

    > That’s why, in Texas where I live, we have the school textbook committee always trying to push a creationist agenda.

    Everyone pushes an agenda. Do you really want to argue that they’re the only bad ones, let alone the worst?

    You’re just mad because they’re not pushing your agenda.

    Me, I’d rather not pay for anyone else’s agenda, but I’ll bet that you don’t want to give me that option.

  167. And who exactly is an objective observer? You? The news media perhaps?

    Is that even possible?

    A good start would be not “refusing to believe” things based on blind faith in some cultural construct.

  168. @Patrick Maupin
    “Like he’s never heard of lithium battery powered vehicles…”

    The sums are not that difficult. If you do them you find you can deliver total energy (replacing ALL sources of energy) for 1B people at a level higher than current consumption in the EU by planting an area in the Sahara less than twice the size Germany with solar panels. Electricity can be transported by high voltage DC power lines with little loss over the whole of Europe.

    For instance, solar flux in tropical regions is around 300 Wm-2 averaged over a day. Take a net efficiency of 5%, losses in surface use and transportation included. The German per capita energy use is ~5.5kW. If we take a generous 7.5 kW as the norm, it would take 500 m^2 per capita to power a country like Germany. For 1B people we would need 500,000 km^2. The area of Germany is 357,114 km^2.

    Easy to translate to North America.

    That is all with current technologies.

    Mind you, the investments would be astronomical and there would still be maintenance and political problems. But it can be done with the means available.

  169. Patrick: Lithium battery powered vehicles still are not suitable replacements for gasoline- or diesel-powered vehicles, simply because you can’t store enough energy onboard to do the same job.Is it coming? Almost certainly. Are we there yet? Not even close. We won’t be there until we can haul four people and an SUV-rear-end of stuff 300 miles at 70 MPH and be ready to do it again in 10 minutes, indefinitely.

    As for:

    Also absent is percentage of wealth and percentage of income owned by the top 20%, which (if memory serves) grew at an even higher rate than their taxes.

    This is totally irrelevant. Fundamentally, arguments about income inequality and the like are nothing more than jealousy-driven leftist complaints about inequality of outcome. Fundamentally, it doesn’t matter how much money someone else has. It’s none of anyone else’s business how much a CEO makes, in either absolute or relative terms, unless they sign his paycheck. What gives you the right to carp about someone else’s wealth?

  170. @Jay Maynard
    “This is totally irrelevant. Fundamentally, arguments about income inequality and the like are nothing more than jealousy-driven leftist complaints about inequality of outcome.”

    It is a valid question what aspect of productivity causes 90% of economic growth to end up in the 10% richest bracket? It is also a very relevant question to ask what makes that one person earns 1000(s) of times more than another, equally qualified, one?

    A basic premise in economy is that efficiency declines if the fruits of one person’s work end up in the pockets someone else. I hear claims of superior injustice due to the forced extraction of taxes. Why is there no call for justice when people are denied their share of their own work?

    So, if Steve Jobs on his own allows Apple to make tens of billions, we can argue he actually is the basis of Apple’s wealth and should get a big share. But if Bernie Maddoff earns his company billions, we feel it is not right he gets anything. And how about Richard Fuld, the CEO of Lehman? He earned Lehman quite some money. And those at the helm at Enron?

    If you say, Fuld and Jobs earned their money within the law, and Maddoff and the Enron gang were criminals, then the answer is that taxes are legal too. So they must be just?

    The question is what structures that produce income are just?
    Slavery, forced labor, bond slavery, and the exploitation of illegal immigrants are all unjust sources of wealth. But it would be foolish to assume there are no other structures in place to rob people of the fruits of their work.

  171. This is totally irrelevant. Fundamentally, arguments about income inequality and the like are nothing more than jealousy-driven leftist complaints about inequality of outcome.

    There is a direct correlative relationship between material equality in a society and the happiness and health of its members.

    If you want to improve the lives of Americans, material inequality becomes an issue that needs to be addressed.

  172. The question is what structures that produce income are just?

    Invalid question. There is no such thing as social justice, and any attempt to impose it is fundamentally evil.

    There is a direct correlative relationship between material equality in a society and the happiness and health of its members.

    Yes. It’s called jealousy. That doesn’t make it something we should encourage.

  173. Patrick,

    It’s easy to mock conventional wisdom by applying it in absurd ways, but it doesn’t teach much, and if it isn’t done gently it can be offensive.

    > If you used your head, you would realize that I don’t actually subscribe to this theory, but am merely pointing out that there are a lot of conventional idiots who do.

    Really? How could you possibly know?

    > If you don’t believe that, you haven’t been paying attention to what a lot of people on the right say.

    That’s your evidence? Do you require everyone who believes in a useful heuristic to always mention the edge cases where it fails or be dubbed an idiot? You and I can be very picky about people putting words in ours mouth, even when those words sound like an attempted restatement of our position. I think that comes with an obligation to be picky the other direction.

    > Even if they talk about the Laffer Curve, they don’t understand optimization or that it’s basically parabola-shaped.

    How do you know? Does that really matter? People talk about heuristics which are only useful within a normal range of behavior all the time.

    Yours,
    Tom

  174. @Jay Maynard
    “There is no such thing as social justice, and any attempt to impose it is fundamentally evil.”

    Are there other people here who support slavery and looting?

  175. Nice try, Winter, but wrong. I don’t support slavery and looting, but because they’re both naked coercive force used to take another’s freedom without their consent. The same goes for Ken Lay and Bernie Madoff: theft and fraud is never acceptable. The problem with the concept of “social justice” is that it tries to go far, far beyond stopping theft and fraud, by defining many things that don’t qualify as one or the other.

  176. Politicians will set tax policy. If tax rates are increased, then individuals will have an incentive to seek tax shelters and use other means of minimizing income subject to taxation. Then government could then respond by closing so called “loopholes” and increasing enforcement. Then individuals could further respond by participating in civil disobedience or resorting to a barter economy. This vicious cycle could keep ratcheting up until a breaking point is reached.

    Of the world economy could collapse while everyone is fretting over inane political battles playing out in Washington DC.

  177. @Jay Maynard
    “The problem with the concept of “social justice” is that it tries to go far, far beyond stopping theft and fraud, by defining many things that don’t qualify as one or the other.”

    So how to define “justice” without referring to the law or morals?

    And if legal == justice, then taxes are just, at any level, as is slavery. If legal != justice, then what IS justice. And if it is not the law that distinguishes between just gains (Jobs?) and unjust gains (Madoff), then what does distinguish between these categories.

    And if you define unjust as using “naked coercive force” then what distinguishes police force to remove people from their homes and possession, or collect taxes, military force to invade a country (eg, Iraq or Afghanistan), miners intimidated by mining “security”, and point blank robbery in the streets?

  178. >So how to define “justice” without referring to the law or morals?

    That’s the wrong question. The right question is “Can you justify any moral claims in which ‘society’ is a referent?” And the answer is no, because “society” is what Max Stirner called a “spook” – a floating abstraction that disappears when you analyze it, serving a a mask for the self-interest of some group of people claiming privileges over others.

  179. Or, as Heinlein asked in The Moon is a Harsh Mistress, when is it morally acceptable for a group to do what is not morally acceptable for an individual member of that group to do? That’s not a trick question. It’s the question.

  180. Winter, what you fail to understand is that taxes are slavery. The government is forcing me to work for its benefit. That’s the fundamental feature of slavery, in any form.

    I refuse to try to define justice, since it’s a fiction designed to make people feel good about doing bad.

  181. >I refuse to try to define justice, since it’s a fiction designed to make people feel good about doing bad.

    *blink*

    Jay, when did you turn into more of a Stirnerite than me?

    You keep talking like this, you’re going to have to turn in your conservative card and hang with us libertarians.

    I actually think it is possible to speak coherently of justice, provided you’re careful of your premises. Nonaggression. Truthfulness. Do as you would be done by. It is even, though rarely, possible to speak of “justice” to a group of people who have all been subject to the same coercion.

  182. @Tom:

    It’s easy to mock conventional wisdom by applying it in absurd ways, but it doesn’t teach much, and if it isn’t done gently it can be offensive.

    I think you should google for the definition of “conventional wisdom.” I am not using it to mean the same thing you do, and that renders the entire content of your post irrelevant. Around here, “conventional wisdom” is a pejorative term for when you see talking heads spouting nonsense and people sagely nodding up and down. I am offended by these people, and intend to offend back, and if you feel caught in the crossfire, then that’s simply because your own definition of “conventional wisdom” is not actually the conventional one.

    If you used your head, you would realize that I don’t actually subscribe to this theory, but am merely pointing out that there are a lot of conventional idiots who do.

    Really? How could you possibly know?

    Because I used the term “conventional wisdom.”

    If you don’t believe that, you haven’t been paying attention to what a lot of people on the right say.

    That’s your evidence? Do you require everyone who believes in a useful heuristic to always mention the edge cases where it fails or be dubbed an idiot? You and I can be very picky about people putting words in ours mouth, even when those words sound like an attempted restatement of our position. I think that comes with an obligation to be picky the other direction.

    You don’t have to mention edge cases if you simply stop talking in absolutes. A lot of people say things like “lowering taxes always raises revenue.” That’s complete and utter BS, and I don’t think it’s unuseful to point that out, and I don’t believe for a second that every listener hears that and thinks as critically as you do.

    Even if they talk about the Laffer Curve, they don’t understand optimization or that it’s basically parabola-shaped.

    How do you know? Does that really matter? People talk about heuristics which are only useful within a normal range of behavior all the time.

    Yes, but they don’t usually use absolute terms.

  183. @Andy Freeman:

    Originally you said we were “right at the sustainable peak” on taxation. Then we had this exchange.

    I would be interested in seeing where you get your numbers. I read somewhere that at the end of Clinton’s term, we reached that 20.6% number, but that in 2009 we were at 15%, which is the lowest percentage of the GDP as tax revenue in 50 years.

    Time to find what you “read”.

    http://mercatus.org/publication/reality-isnt-negotiable-government-cant-raise-more-19-taxes-long

    She cites the source of her numbers.

    We have three alternatives. She lied, the OMB is wrong, or you are.

    Show your work.

    There’s a fourth alternative. She told the truth and you misunderstood her or my question. I said I read in 2009 the revenues were 15% of GDP. The tiny little chart in the article appears to show about that. That’s not really that close to 19%.

    Also, she didn’t really “show her work” in any case. And the whole premise of the article is predicated on the theory that government is always about extracting maximum tax revenue. I admit there is some inertia and some tendencies in that direction, but that is a huge oversimplification. I doubt if anybody ever said “hey, let’s extract 25% of the GDP as tax revenue!” It’s stupid to say that history proves that you could never reach that kind of goal, if that simply never was an actual goal.

  184. I actually think it is possible to speak coherently of justice, provided you’re careful of your premises. Nonaggression. Truthfulness. Do as you would be done by.

    A better term for that is “honor and integrity”. The problem with the term “justice” is that it’s been stolen by the Left and applied to such things as “social justice” (a leftist codeword for equality of outcome) and “environmental justice” (a leftist codeword for radical enviro-wackery cloaked in a thin veneer of racial equality). I’m loath, these days, to even use the term in the sense of criminal law, for fear of being misunderstood.

    It is even, though rarely, possible to speak of “justice” to a group of people who have all been subject to the same coercion.

    Be very, very careful here, lest you start down the slippery slope that leads to such patent silliness as reparations for slavery of generations past.

    You keep talking like this, you’re going to have to turn in your conservative card and hang with us libertarians.

    Unfortunately, the world is not perfect, and while I would happily live in a libertarian society, I see no way at all that the society of 21st century America can ever become one. Thus, I must deal with the world as it is, and while I dislike conservative solutions to problems, I find them more palatable than leftist ones, and when the choice is between the latter two, the conservative solution wins.

  185. Winter, what you fail to understand is that taxes are slavery. The government is forcing me to work for its benefit. That’s the fundamental feature of slavery, in any form.

    You are living inside a bubble of delusion, as evidenced by the fact that you would compare taxation to slavery. Get real. In any case, the condition you list is necessary, but insufficient to categorise something as slavery. For a start, you’re free to leave the US and renounce your citizenship.

  186. @esr
    ““Can you justify any moral claims in which ‘society’ is a referent?” ”

    Yes. But it is a matter of how you define, or interpret, society.

    I am rather bewildered about the use you people from the USA of the word “society”. If we step back and go to a more antropological view of the word. I see society in two, related ways. First, it is the observable subset of humanity with which I “live”. The people I interact with at home, in shops, at work, and in the street. Second, it is the subset of humanity I feel responsible for. Those I feel bad when something bad happens to them, and I feel good when something good happens to them.

    In that view, the USA is a society of people who interact in some large chain from coast to coast. These are also the people who are feeling pity for some US high school girl murdered on some Caribean island, but much less so when it is a South American school girl. In that sense, the USA is a “society” with a shared “culture”, economical, and legal system. In many societies, acts that would considered criminal when performed on members of one’s own society would be perfectly reasonable when performed on outsiders. Say, blowing up a skyscraper with thousands of people to make a political point.

    Now, we could discuss some hypothetical person who feels strongly enough for other people that he would risk his life helping people he never met on the other side of the globe. Or who would give away his work free to people he doesn’t know, and often, doesn’t like if he DID know them.

    Such a purely hypothetical person, if he would exist, might feel society was just humanity. For such a, I admit, purely hypothetical person, society might become an empty word. He would consider all morals to be universally applicable to all humans.

    Back to you, replace society with family, and then say that again. Or your friends and relatives.

  187. > Around here, “conventional wisdom” is a pejorative term for when you see talking heads spouting nonsense and people sagely nodding up and down. I am offended by these people, and intend to offend back, and if you feel caught in the crossfire, then that’s simply because your own definition of “conventional wisdom” is not actually the conventional one.

    I see. Sounds like tribal signaling behavior with little actual content.

    > Because I used the term “conventional wisdom.”

    I see. Your definition of “conventional wisdom” appears to actually mean “people I am happy with mocking on the basis of a sound bite which I think reveals what they think even though I don’t know what they actually think”.

    > You don’t have to mention edge cases if you simply stop talking in absolutes.

    > Yes, but they don’t usually use absolute terms.

    People talk in absolutes for many reasons other than believing in absolutes. It is, for example, often used for emphasis, as hyperbole, in the false hope that it will be persuasive, and in the often false hope that it will forestall people bringing up worthless edge cases. It does work well for this last case on the TV talk shows because they are time limited and tend to give the boot to commentators who insist on spouting pedantic minor points. There are very good reasons talking heads don’t behave like comment sections. BTW, “if you simply stop talking in absolutes”, is talking in absolutes. I wasn’t persuaded. Feel free to mention those edge cases now.

    Ben Franklin advised against speaking in absolute and dogmatic terms. It’s good advice, but it’s very, very, very hard to follow, especially without practice. I’m not good at it. Are you?

    > That’s complete and utter BS, and I don’t think it’s unuseful to point that out, and I don’t believe for a second that every listener hears that and thinks as critically as you do.

    Show me the utility in this case. You did blow smoke, since none of the people you were talking to actually believed what you thought they did and had to waste time pointing out that they weren’t stupid. You also insulted a lot of people who weren’t here to defend themselves. Where’s the utility here?

    Yours,
    Tom

  188. BTW, they don’t keep people like me who make boring pedantic minor meta-arguments about optimal argument behavior around on TV talk shows either.

    Heh.

    Yours,
    Tom

  189. > I said I read in 2009 the revenues were 15% of GDP. The tiny little chart in the article appears to show about that. That’s not really that close to 19%.

    2009 isn’t Bush, it’s Obama and a severe recession. Since about half of workers don’t pay federal income taxes and the vast majority is paid by folks in the top quartile, that drop comes from them taking a hit. A less progressive system wouldn’t have lost as much revenue…. (This is related to why Prop 13 helps stabilize property tax revenues in CA. My house took a 30-40% hit in value yet my taxes paid have continued to increase, as did those of almost all long-term residents. It’s the short-termers who are paying less now than three years ago.)

    A concentrated tax system, and progressive systems are concentrated, are more volatile….

    BTW – Taxes paid per person in the US is right in the middle of the same number for Western Europe. That tells us that tax revenues do not explain why Europe has better govt services (if it actually does).

    Note that the US GDP/person is higher than almost all of Western Europe.

    > The tiny little chart in the article appears to show about that.

    You can look at the numbers used to produce the chart http://mercatus.org/sites/default/files/publication/historical-revenue-path-plus-top-marginal-rates.xls

    > And the whole premise of the article is predicated on the theory that government is always about extracting maximum tax revenue.

    No, it’s not. The article just shows that the amount of revenue that the govt collects as a function of gdp is independent of the top rates once the revenue reaches 19-20% of GDP. Nothing in the article suggests that govt should try to maximize revenue. Note that the article also doesn’t say whether different tax rates produce different GDPs. It just says that given the GDP, the federal govt hasn’t managed collect more than 19-20%.

    > I doubt if anybody ever said “hey, let’s extract 25% of the GDP as tax revenue!”

    Lots of people say “let’s increase tax revenue by increasing tax rates”. The cited data shows that changing top tax rates won’t produce tax revenue above 19-20% of GDP. If we’re already there, changing top tax rates won’t increase tax revenues unless changing top tax rates also increases GDP.

  190. @Tom:

    Seriously. Look at definitions for the term “conventional wisdom.” Then look at how I used it. Then come back to me and explain again how I was misleading you by my use of it, and mock me some more for using it in the usual fashion.

  191. Sometimes i think people get messed up on tax policies because they judge these things on political and not economic criteria.

    Or they don’t really think about these issues, rather they “feel” about them.

    They “feel” that higher tax rates are a handy way to get even with rich people, or those who have more than them.

    Since they are not really thinking, it is hopeless to try to persuade them otherwise. You can’t reach them.
    To anyone who is economically literate, lower rates make sense: the historical record on this is quite clear. But if you feel it is a matter of social justice, or getting even with someone, you will not find this persuasive.

    This is why liberals often seem effeminate: because they are making arguments based on emotion, and sometimes seem hysterical. Men are more logical.

    Think about people like Al Hunt, or Eric Alterman….

  192. @Andy Freeman:

    I said I read in 2009 the revenues were 15% of GDP. The tiny little chart in the article appears to show about that. That’s not really that close to 19%.

    2009 isn’t Bush, …

    OK, stop right there. You’ve been projecting a lot onto what I’ve said (most of which I completely let slide), but I’ve never mentioned Bush once. Based on your other writings, you obviously ascribe some sort of agenda to me, and you’ve put me in some sort of little box. But frankly, that’s bullshit.

    And the whole premise of the article is predicated on the theory that government is always about extracting maximum tax revenue.

    No, it’s not. The article just shows that the amount of revenue that the govt collects as a function of gdp is independent of the top rates once the revenue reaches 19-20% of GDP. Nothing in the article suggests that govt should try to maximize revenue. Note that the article also doesn’t say whether different tax rates produce different GDPs. It just says that given the GDP, the federal govt hasn’t managed collect more than 19-20%.

    But the system has feedback. Rates are adjusted as revenue targets are met. It’s really not that useful to say “this is the most we’ve ever gotten, so you couldn’t possibly get more.” And just looking at top rates, without looking at different incentives that are woven into the tax system, is probably not all that useful.

    It’s obvious that if the government takes too high a percentage of GDP in taxes, that GDP will drop. But it is not at all obvious that the government cannot actually take a higher percentage of GDP, and I don’t think her historical data actually shows that to be the case.

    The cited data shows that changing top tax rates won’t produce tax revenue above 19-20% of GDP.

    No, it doesn’t show that, unless you can also show that the government was consciously trying to exceed this number.

  193. @DarrenCardinal

    Sometimes i think people get messed up on tax policies because they judge these things on political and not economic criteria.

    That’s true of the left and the right, and is happening on both extremes right now.

    This is why liberals often seem effeminate: because they are making arguments based on emotion, and sometimes seem hysterical. Men are more logical.

    I think the french revolutionists would have considered themselves liberal, and their enemies may or may have not thought them effeminate, but that didn’t really matter.

    OTOH, I hope you’re not explaining that Fox news is the thinking man’s channel.

    There are two separate but related arguments here. How much money should the government tax, and in what proportion should it come from which groups? Assume (a terrible assumption, but nonetheless make it for the sake of this argument) agreement on how much money the government should tax. Assume, for the same of argument, it’s 15%. Now, should somebody who only earns $100 in a year really have to give the government $15? Does it really hurt someone who makes a million to give 16% instead of 15%?

    Is that really “getting back”? Is that really envy?

    Maybe this is a slippery slope, but you can’t get away from it. You just have to navigate it as best you can. The world is not black and white, and you cannot separate the political from the economic. Of course, you probably find people who see shades of gray in the world to be effeminate, but I can’t help you there.

  194. @Tom:

    none of the people you were talking to actually believed what you thought they did and had to waste time pointing out that they weren’t stupid.

    Just noticed this. Actually, if you go back and re-read the thread, that happened almost exactly the opposite of what you are saying. I made one flippant comment “But I would be interested in seeing how the government can collect 19% of GDP with a zero percent tax rate” about a quote from InstaPundit and then it spiraled out of control, mostly because a couple of people didn’t understand what “conventional wisdom” meant. Never once did I actually ascribe any viewpoint to some other person, except in one small side-exchange about whether it was relevant that elected officials are busy trying to pollute the science curriculum with equal time for creationism.

    However, several times in the thread, others have ascribed viewpoints to me that are incorrect. I have taken the liberty of pointing out a few of these.

  195. Patrick,

    Seriously, I don’t care at all what the definition is, which I thought would be obvious. I’m complaining about your general argument about idiots and absolute statements including the phrase “conventional wisdom” exactly the way you used it. I don’t care whether that’s usual or not. If it is the usual usage, I would rather it wasn’t used in it’s usual fashion. Speaking of tribal signaling, I’m actually doing it out of tribal loyalty, since you also used the phrase “conservative idiots”.

    BTW, loved the anti-starve-the-beast article. I’m not convinced that raising taxes always raises spending (although it is natural for them to occur together). That doesn’t make sense, and getting a scientific study wrong is a normal result, particularly when you like the results and even more particularly when it’s an economic question. I’m also not convinced that lowering taxes rates always (or even usually) increases tax revenues. That doesn’t make sense either and has the same problems. We need to balance the budget and raising tax revenue would be a good thing.

    OTOH, raising income tax rates during an economic down time, particularly on high incomes, doesn’t sound good to me. When I hear Pelosi complain about “tax cuts for the rich” I imagine her saying, “If we kill the goose now we get all the golden eggs!” I’m sure she wouldn’t agree with that characterization, but it gives the flavor of my objections.

    I would like to investigate two corporate sales taxes (so they tax foreign corporations equally) including all sales (not just retail). One would be progressive based on number of employees. The rate would be zero for corporations with less than 500 employees. The other would be progressive based on net worth. I’m not sure what the zero rate size would be for this one. A rate of zero for companies with a net worth of less than a billion dollars sounds like a good number. The goals are to cause large companies to break up so we no longer suffer from “Too Big To Fail” anymore, or to at least cause them to pay for the privilege of being protected.

    This is a brainstormed idea. It suffers from the problem that different industries have different natural sizes. Long distance railroads, space companies and IC fabrication all have a larger natural (net worth) size than a farm. for example. I’d welcome people’s comments.

    Yours,
    Tom, Pedantic Idiot

  196. Patrick,

    We cross posted.

    > Actually, if you go back and re-read the thread, that happened almost exactly the opposite of what you are saying.

    I just looked again. I don’t read your words the way you do.

    > Never once did I actually ascribe any viewpoint to some other person

    “Never once” is talking in absolutes. You did, at least twice. Conventional wisdom as you describe it requires that you ascribe viewpoints to other people. You specifically ascribed two viewpoints here:

    > If you used your head, you would realize that I don’t actually subscribe to this theory, but am merely pointing out that there are a lot of conventional idiots who do.

    “If you used your head, you would realize that I don’t actually subscribe to this theory” ascribes a viewpoint to a person in this thread.

    “A lot of conventional idiots” is a phrase describing people who, in your opinion “actually subscribe to this theory”.

    Do you want me to look for other examples?

    Yours,
    Tom

  197. @Tom:

    Well, if you really want to be pedantic, you should take note that I never said (nor even tried to imply) “conservative idiot” and that there is now one more instance in this thread where somebody else has placed words in my mouth :-)

    And I absolutely agree that we should be exploring the best way to tax, which (again) is a separate issue from how much to tax. People like to say that the government should not tax to try to change behaviors, but the reality is that any form of taxation (unless it triflingly small) will change behaviors. Some of those behaviors (like corporations moving operations and/or headquarters offshore) are counterproductive to society in almost anybody’s books. Some tax-driven behaviors are arguably better for society, and it may be that a “size tax” on corporations would fall in this category, but on the other hand, it may just be that a progressive corporate tax (with more than a few brackets) is all that’s needed to rein in corporations to the correct size, if that’s a desirable outcome.

    BTW, I think the Democrats might have been able to hold the senate if someone other than Pelosi had been in charge, and if the idiots had had the sense to have the confrontation they’re having now a couple of months ago.

  198. @Tom:

    Well, I will admit to one thing. I meant to say that I wasn’t ascribing viewpoints to others posting in this thread, and I did say that more generally. But surely, you are not going to make a blanket assertion that there is nobody in the world who matches the viewpoint I am ascribing to “conventional idiots” who follow the “conventional wisdom?”

    The “use your head” thing you bring up really is silly and pedantic. I wrote that (with emphasis on “your”) in a very straightforward response to somebody who was telling me to use my head, and did not otherwise ascribe any viewpoint to them — merely asserted that I had described a viewpoint that I have seen but did not subscribe to it myself.

    Yes, please do look for other examples. I freely admit to ascribing viewpoints to unnamed people that are not participating in this discussion, because I have interacted with people with such viewpoints. I do not think that I have placed any words in the mouth of anybody else who is posting on this thread, and the same cannot be said of you or several of the other posters.

  199. >Back to you, replace society with family, and then say that again. Or your friends and relatives.

    That move isn’t justified. I know who my friends and relatives are. I don’t know who “society” is. That’s what’s different.

    I’m willing to use your anthropological definition of “society” when speaking descriptively, but I’m not willing to use it for grounding normative moral claims that imply the use of force. Nor will I readily tolerate others doing so; the stakes, and the potential for ventriloquism and abuse, are too high.

    So, for example, I’m willing to say “American society has a higher tolerance for business risk and business failure than most others.” But I’m not willing to say that “society” has a right to punish people or make war. When Americans take such actions, it can only be because individuals (who are the only moral actors) have delegated certain of their own individual rights to use force to an apparatus which acts on their behalf. The apparatus, the society, “America”, has no intrinsic rights or moral standing of its own.

    This is why I characterize the concept of “society” as a spook. When you use the concept “society” in an anthropological/descriptive way, the worst errors you can make are not very dangerous; at worst, you may encourage people to overgeneralize, believe universal descriptions, and ignore exceptions. On the other hand, the errors that spring from treating “society” as an agent with moral standing are hideously, genocidally dangerous.

  200. > Never once did I actually ascribe any viewpoint to some other person.

    Yes you did. You wanted to know how lowering tax rates to 0 would result in collecting any revenue. I don’t recall any conservative economist or politican, or anybody, taking the tax cut argument to that absurd degree. I think you are setting up a straw man. No one suggested taking rates to zero. I can believe that you were making this argument in a snarky way, but that was not immediately obvious.

    And the conventional wisdom argument is so tedious and passive-aggressive that I can’t be bothered to mess with it.

  201. Patrick,

    I noticed that. You said conventional idiots. I don’t point out all my mistakes.

    > BTW, I think the Democrats might have been able to hold the senate if someone other than Pelosi had been in charge, and if the idiots had had the sense to have the confrontation they’re having now a couple of months ago.

    The factors against them were large, numerous and overwhelming. You don’t prevent a perfect political storm where the Republicans end up controlling the legislature in Maine among many other states by doing something as simple as what she is doing now.

    > but on the other hand, it may just be that a progressive corporate tax (with more than a few brackets) is all that’s needed to rein in corporations to the correct size, if that’s a desirable outcome.

    First, is the corporate income tax levied on non-U.S. corporations who do business here? I don’t want to drive more companies offshore. Second, I don’t hear good things about the corporate income tax. I hear it is very bad for economic growth. Would having a zero percent corporate income tax for corporations with less than 500 employees and less than a billion dollars in net worth fix that? I don’t want it to be progressive based on income. That would cause corporations to avoid income, not get smaller.

    In addition, please replace the word corporate with the word entity in my tax proposal. Sure it means that Warren Buffet has to charge sales tax whenever he has a garage sale, but I can live with that. I don’t want huge sole proprietorships and partnerships which are also too big to fail to replace huge corporations. This also means that the corporate income tax in your proposal should be extended to entities, like Mr. Buffet, who have more than 500 employers or a net worth greater than a billion dollars.

    BTW, this leads me to a compromise on extending the Bush tax cuts, which should help satisfy Mr. Buffet’s complaint about not paying enough taxes. We will extend them for everyone with a net worth of less than 500 million dollars, indexed to inflation. Income taxes do not tax wealth, they tax wealth creation, which is a bad idea. This tweak pushes it towards taxing wealth instead. I picked that number because my own back of the envelope calculation says that is about the size of a 250 person firm, and I don’t want to increase the taxes of any S-corporations or sole proprietorships with less than 250 employees. I suppose I could simply complicate the tax code further by making this an explicit provision. If so, feel free to drop that net worth to 100 million dollars.

    Yours,
    Tom

  202. @esr
    I actally agree. Everyone is responsible for his own actions.

    But somehow, a persion dying for his/her country does cause a different response than someone dying for his employer.

    Maybe “society” does have broader appeal.

  203. Patrick,

    Ben Franklin’s advice is looking very good to me right now.

    > The “use your head” thing you bring up really is silly and pedantic. I wrote that (with emphasis on “your”) in a very straightforward response to somebody who was telling me to use my head, and did not otherwise ascribe any viewpoint to them — merely asserted that I had described a viewpoint that I have seen but did not subscribe to it myself.

    I disagree. It does not matter what you were thinking when you wrote it. It matters that those words ascribe a viewpoint to a person. If what matters is what you were thinking when you wrote it, then I did not put words in your mouth when I read “conservative idiots” instead of “conventional idiots”, because I thought that was what you said, so therfore I did not put words in your mouth. Both cases are nonsense.

    > I do not think that I have placed any words in the mouth of anybody else who is posting on this thread, and the same cannot be said of you or several of the other posters.

    Another absolute statement on your part. I am certain you misunderstand people (and therefore put words in their mouths) sometimes. Do you really want to maintain that you have absolutely always correctly characterized the words of other people in this thread? I believe that you try to avoid it (maybe even try very hard), but it is very, very, very hard to avoid putting words in someone else’s mouth. Am I wrong about this? Let’s check.

    > Yes, please do look for other examples.

    OK, here is a weak one, where you ascibe a bumper-sticker viewpoint to Darrencardinal.

    > Apparently, InstaPundit == InstaBumperSticker, because it’s not that simple.

    Here’s another stronger one:

    > Okaaaaay. Unemployment is above 10% (not counting people who gave up looking for work several months ago), a lot of people don’t own anything and have multiple kids, and you can’t see how they could have problems feeding their kids without a job?

    Did Darrencardinal say that they couldn’t have problems feeding their kids without a job? Do you really think he meant that? Do you really think he thinks that? Or might he think that they would have problems, but the problems aren’t that big in this country?

    Here is a doozy:

    > OK, let me get this straight. You don’t think it’s a problem that some people can’t feed themselves, and you think it’s peachy-keen fine if, instead of teaching them useful things that could help them feed themselves, like science, we teach them that god will provide. Got it.

    Darrencardinal just said “Who cares?” Talk about words in someone’s mouth. You advised me earlier to review the thread. You were right. It is helping me.

    Yours,
    Tom

  204. About the use of “society”:

    I too have always found this term troubling. What exactly does it mean? Who is society?

    I remember reading a Thomas Sowell a few years back where he stated something to the effect that “society” is just another term for government. Society is silent until the government speaks.

    And I still like my idea for economist championship wrestiling, with Tom Sowell and Walter Williams as the world tag team champions.

    Milton Friedman would have been world heavyweight champion back in the day.

  205. @Tom:

    > Apparently, InstaPundit == InstaBumperSticker, because it’s not that simple.

    I viewed that as a denigration of the source, not of Darren. It wasn’t intended that way.

    Did Darrencardinal say that they couldn’t have problems feeding their kids without a job? Do you really think he meant that? Do you really think he thinks that? Or might he think that they would have problems, but the problems aren’t that big in this country?

    Did you not see that was a question? The kind that invites clarification and a response? Even if put in an incredulous tone? Like you’re doing right here? Do you think you’re putting words in my mouth right now? If not, how is my asking Darren this putting words in his mouth?

    As far as the last one, for one thing, that’s fairly obviously (I thought) pretty facetious. But in any case, I already covered that at the start of this very sub-discussion: “Never once did I actually ascribe any viewpoint to some other person, except in one small side-exchange about whether it was relevant that elected officials are busy trying to pollute the science curriculum with equal time for creationism.”

    As I wrote earlier, I stand by that, with the exception that I meant to say “some other person posting in this thread.”

    If what matters is what you were thinking when you wrote it, then I did not put words in your mouth when I read “conservative idiots” instead of “conventional idiots”, because I thought that was what you said, so therfore I did not put words in your mouth. Both cases are nonsense.

    That’s still silly and pedantic. Look, I was retorting “I don’t believe this” when I said “use your head” in direct response to someone who told me to use my head. OTOH, you actually said that I wrote something that I didn’t. That’s (figuratively) “words in my mouth”. Asking somebody if they believe X right after they say something similar to X is not actually ascribing a position to them. Writing “Pat Maupin said X” — well, I think maybe you should double-check that first, because it is, charitably a misquote, or uncharitably, even a lie.

    Look, you jumped all over my case out of nowhere:

    It’s easy to mock conventional wisdom by applying it in absurd ways, but it doesn’t teach much, and if it isn’t done gently it can be offensive

    I explained what I meant by conventional wisdom (which is the standard definition), but you kept at it. I even advised you to look it up, but then you claimed not to care about the definition, while simultaneously getting on my case for using it correctly.

    Seriously, I don’t care at all what the definition is, which I thought would be obvious. I’m complaining about your general argument about idiots and absolute statements including the phrase “conventional wisdom” exactly the way you used it.

    I will be the first to admit that sometimes I dash things off, but I’m really not trying to be that cantankerous here. My use of the term “conventional wisdom” was apparently misunderstood by several, and that caused people (mainly you) to start slinging stuff around. It is not my goal to cause the level of discourse to tend toward pedantry, but when you said “none of the people you were talking to actually believed what you thought they did” that was complete bullshit, because (a) I never assumed what anyone believed, and (b) you OBVIOUSLY assumed what I believed when you were making that very statement.

    So, for the first time, I will attempt to ascribe a motivation to you. You’re still upset because you didn’t know what I meant by “conventional wisdom” and because I refuse to accept your incorrect admonishment for my supposed misuse of the term.

    But I don’t care — feel free to flail away; that’s all I have to say on the matter.

  206. > First, is the corporate income tax levied on non-U.S. corporations who do business here?

    The corporatate income tax is levied on US operations of all corps, foreign and domestic. US corps pay taxes on their US operations plus what they bring back into the country.

    Other countries do not tax repatriated profits, which means that their corps can invest the profits from their US operations in their domestic operations.

    The US taxes repatriated profits from overseas operations, so Google (for example), has to pay US taxes on its profits from its EU operations if it wants to invest that money in its US operations.

    The arguement for this arrangement is that the US is worried about tax dodging, but the result is not taxes collected, but money that stays outside the US. Other countries have the same tax dodging concern….

  207. > is all that’s needed to rein in corporations to the correct size, if that’s a desirable outcome.

    If Goldman Sachs is too big, what does that tell us about the US govt?

    I’ll take the “correct size” argument wrt private enterprise seriously when its proponents are willing to apply it to govt as well.

  208. > Does it really hurt someone who makes a million to give 16% instead of 15%?

    That’s the wrong question. (It’s an envy question, btw.)

    The right question is whether that 1% will do more good in the hands of that person than it will in govt hands.

    Me – I want rich people investing and spending. When they invest, good things happen. When they spend, folks are paid to produce whatever it is that they’re buying.

    Yes, govts buy, but the price signals are mostly wrong – see http://www.theatlantic.com/business/archive/2010/12/should-china-rethink-high-speed-rail/67282/ .

  209. > But the system has feedback. Rates are adjusted as revenue targets are met. It’s really not that useful to say “this is the most we’ve ever gotten, so you couldn’t possibly get more.”

    Sure it is. We have folks wanting to reduce the deficit and folks wanting to spend more money. Both would welcome higher revenues.

    Unless you’ve got some evidence of folks saying “we’re taking too much as a percentage of gdp” who actually got to make policy, you can’t claim that such factors determined policy. (This is similar to “you can’t blame Mellon for the results of Hoover’s policies” because Hoover didn’t follow Mellon’s advice.)

    If it was reasonably easy to get above 21%, it would have happened a couple of times by accident as the economy bounced around. (Do you really want to argue that tax policy accurately predicts what the economy will do?)

    Note that “tax rates are too high” is not the same as “tax revenues as a percentage of gdp is too high”. (Yes, the revenue percentage is always lower than the highest rate, but that’s not enough.)

    > And just looking at top rates, without looking at different incentives that are woven into the tax system, is probably not all that useful.

    You get to argue that point with folks who are advocating higher rates for more revenue. They’re not arguing for any other changes.

    > But it is not at all obvious that the government cannot actually take a higher percentage of GDP, and I don’t think her historical data actually shows that to be the case.

    The data shows that it hasn’t ever managed to take in more. If you want to argue that this is intentional, you get to provide evidence. If you want to argue that this time will be different, you get to provide evidence.

  210. @Andy:

    The data shows that it hasn’t ever managed to take in more. If you want to argue that this is intentional, you get to provide evidence. If you want to argue that this time will be different, you get to provide evidence.

    I’m not arguing one way or the other. I don’t know what the equations are, and neither does anybody else to a final degree of certainty. I will admit that there is no evidence we can get above 21%, but it’s hard to know if that was ever tried seriously.

    The primary statement you made that I questioned was “we’re currently right at the sustainable peak”. But the spreadsheet you pointed me to shows 15.8% for 2009 and 14.9 for 2010 (and lower numbers throughout all the Bush years than the 20.6% peak in 2000). 14.9% is far less than average, so it must be less than what’s sustainable.

  211. @Andy:

    There are two separate but related arguments here. How much money should the government tax, and in what proportion should it come from which groups? Assume (a terrible assumption, but nonetheless make it for the sake of this argument) agreement on how much money the government should tax. Assume, for the same of argument, it’s 15%. Now, should somebody who only earns $100 in a year really have to give the government $15? Does it really hurt someone who makes a million to give 16% instead of 15%?

    That’s the wrong question. (It’s an envy question, btw.)

    The right question is whether that 1% will do more good in the hands of that person than it will in govt hands.

    OK, first of all, I explicitly acknowledged there were two different questions. In previous posts, I even acknowledged that the questions were somewhat linked. But at some point, if it is decided (and however it is decided) that the government is going to take, on average, 15% of everybody’s money, it’s not an envy question for me to ask if they really should take $15 from the guy who only makes $100. And if the answers to the questions are “yes, the government is going to take, on average, 15% of everybody’s income” and “no, don’t be silly — the government is not going to take $15 from someone who is only living on 30 cents a day”, then it’s still not an envy question for me to ask “well what about the guy who lives on sixty cents a day? what about the guy who lives on a dollar a day? The guy who lives on $20 a day — maybe he should pay something, but should it be 15%?”

    If the answer to these questions is that the lowest paid people pay in less than 15%, but that we need an average of 15%, then presto! we have a graduated tax system. That’s what I mean by a slippery slope that you can’t avoid. (I have to give you points for trying, though :-)

    BTW, when Warren Buffett asks if this is fair, is that out of envy?

    Me – I want rich people investing and spending. When they invest, good things happen. When they spend, folks are paid to produce whatever it is that they’re buying.

    That’s certainly an argument for lower taxes, but it’s not really any sort of argument for any particular rate structure to get to a target government revenue — poor people spend and invest, too.

  212. It seems to me that high tax rates are an instrument of corruption. People who have a lot have a lot to lose. The more they have, the more they are willing to spend to protect the rest.

    This becomes a gravy train for lobbyists and anyone else involved in making tax policy. Tax payers in the top brackets don’t wind up paying much more, but somebody gets a cut for helping them avoid paying the full rate.

    It becomes a terrible distraction as high powered people focus on tax avoidance instead of on increasing their income.

  213. It becomes a terrible distraction as high powered people focus on tax avoidance instead of on increasing their income.

    But guess what? They do that right now, even with fairly low rates. The least this probably happened was right after the reform in 1986, partly because the rates were lower, but mostly because the reform swept away all the old cruft and it took awhile for people to add new cruft. OTOH, due to the tensions built in the system, rich people don’t generally do a very good job of this avoidance except in a few limited instances.

    Capital gains taxes are an excellent example of this. The idea that money investment should be taxed less than time investment is contentious. Rather than keep fighting this battle and wobbling the capital gains rates around like a football depending on who is in office, investors should just say “you know what? It’s fair to treat investment income the same as earned income, but you have to let us account for inflation.” Believe it or not, the average investor would come out ahead this way:


    According to a Congressional Budget Office study, taxpayers realized $72 billion in net nominal gains in 1993. But when adjusted for inflation, this gain actually represented a loss of $19 billion. And all of the real gains were realized households with incomes above $200,000. All other income classes suffered real losses yet still had to pay capital gains taxes.

    The Joint Committee on Taxation did an analysis of corporate stock realizations in 1994. It found that the longer the stock had been held the greater the inflation component of the gains. On assets held for 16 years, inflation represented 112% of the realized gains.

    The latest research on this issue was done by the Tax Foundation in 2006. It looked at a share of stock in a Standard and Poor’s 500 index fund in 1956 and how much of the realized gain represented inflation each year through 2006. Over that period, the price level increased six times, so there was no real gain unless the nominal gain was greater than 600%.

    Looking at the tax law in effect in each year, the Tax Foundation found that the effective capital gains tax rate on real gains greatly exceeded the statutory rate in every year. In some high inflation years the effective rate was greater than 100%.

    Sometimes, I think that the right way for Congress to act would be for the senate to set broad policies, in terms that anybody could understand, with some sort of weighting of national priorities, and for the house to create implementing legislation. Separate the design from the implementation. Let people disagree and commit on the design, and then watch the implementation like hawks looking for how things fit in with the priorities. Of course, that’s just a fantasy.

  214. When someone does exceptionally well for themselves, in our civilization, they do so in part because of the infrastructure and other benefits provided to them by that civilization.

    The libertarian/propertarian position, as I understand it, is that if the “rules” say that your one billion dollars was legally earned, then it is yours — but this represents an error in the assignment of value in many ways, the most obvious of which is that the infrastructure that made those riches possible needs to be paid for somehow.

    Taxation is a kluge to reduce that error. It’s full of errors, it’s complicated and awful, it’s subject to political manipulation which make all of those flaws worse — but unless the “winners” in our economic game can be persuaded to voluntarily fund the infrastructure, I see no alternative but compulsion.

    Having it both ways — profiting from the infrastructure without giving anything back — is, yes, just as much an entitlement as social welfare. Where would Ray A. Kroc be without interstate highways? Where would Sergei Brin be without the internet? This isn’t rocket science, folks. If the government gets out of those businesses entirely and completely deregulates them, will the highways still be well-maintained and toll-free? Will the telecomm companies police each other to ensure that Joe’s Web Site on a shared hosting service is just as accessible as YouTube?

    Also, ESR is missing the point about Bush’s tax cuts vs the meltdown. Those cuts may well have increased revenues — for certain people, and perhaps on average — but they nonetheless contributed to the financial meltdown, because the financial health of the ownership class does not equate to the financial health of America. The gap between the lowest and highest earners has been growing for decades now, and those tax cuts only made it worse — which might have been okay if “trickle-down economics” had worked, but it was a dismal failure. You can’t run an economic engine more efficiently by starving half the population any more than you can make a car engine more efficient by cutting power to the fuel pump. “What’s good for General Motors” is not always good for the rest of us.

    Some companies made record revenues last year — during the height of the worst depression since the big one, when people were still being laid off in droves. Can you tell those people, please, why they should be willing to support the idea of cutting the already-threadbare government safety net even further?

  215. >The libertarian/propertarian position, as I understand it, is that if the “rules” say that your one billion dollars was legally earned, then it is yours — but this represents an error in the assignment of value in many ways, the most obvious of which is that the infrastructure that made those riches possible needs to be paid for somehow.

    No. The actual libertarian/propertarian position is that behaving as if individuals owe a debt for “infrastructure” that they cannot repay except by chattel slavery (or, equivalently, taxation) is a practice that leads to intolerable atrocities and must therefore be abjured.

  216. >> The data shows that it hasn’t ever managed to take in more. If you want to argue that this is intentional, you get to provide evidence. If you want to argue that this time will be different, you get to provide evidence.

    >I’m not arguing one way or the other.

    If you’re going to change positions, it would be helpful to acknowledge doing so. If you’re claiming that you weren’t arguing that way, you get to explain

    >>> But the system has feedback. Rates are adjusted as revenue targets are met. It’s really not that useful to say “this is the most we’ve ever gotten, so you couldn’t possibly get more.” And just looking at top rates, without looking at different incentives that are woven into the tax system, is probably not all that useful.

    and so on.

    You’ve claimed that that the fact that revenues have never exceeded 21% is due to several things. However, you’ve yet to provide evidence supporting any of those theories.

    > But the spreadsheet you pointed me to shows 15.8% for 2009 and 14.9 for 2010 (

    Yes, and the observant reader noticed that I pointed out that those years had deep recessions. Tax revenues take a hit during recessions. (The amount of taxes that the system can support goes down when economy weakens.)

    I’m assuming a recovery and growth. During those periods, even when growth did unexpected things, tax revenue never managed to stay significantly above 20%.

    There are several possible goals. Let’s consider two, collecting “enough” tax revenue and maximizing tax revenue as a fraction of gdp. Do you really think that the latter is better than the former. (One definition of “enough” is “as much as possible”.)

    So, let’s get a straight answer to a simple question – why do you want more than 21% of gdp as tax revenue?

    > and lower numbers throughout all the Bush years than the 20.6% peak in 2000

    The word “sustainable” is important. Yes, we can get above 20% for a year or so, but we’ve never managed to stay there, even with no changes in tax policy. Hence the term “sustainable”.

  217. >>> Does it really hurt someone who makes a million to give 16% instead of 15%?

    >> That’s the wrong question. (It’s an envy question, btw.)

    > it’s not an envy question for me to ask

    The “envy” part is the “hurt” when applied to someone up the food chain.

    Yes, if we’re going to collect an average of 15% and we’re collecting less than 15% from some folks, we have to collect more from others. But, we don’t look at that as a “hurt” question.

    BTW – If we’re providing a lot of benefits to someone who makes $10k/year and no benefits to someone who makes $1M/year. it may well be reasonable to tax the $10k person at a higher rate because their effective rate is not the rate that they pay on their “makes”, but on what they get.

    !> BTW, when Warren Buffett asks if this is fair, is that out of envy?

    Warren Buffett lobbies to protect the revenues of his insurance biz.

    I’ve never suggested that Buffet is an authority on what’s best for anything. However, you can’t ask me to accept him as an authority unless you accept him as one. I suspect that that will come in handy.

  218. > investors should just say “you know what? It’s fair to treat investment income the same as earned income

    How about you stop telling other people what they should say, especially since you always tell them to agree with you?

    Note that capital is much more fluid than labor. (I say this as the child of parents who moved several times for economic reasons.) Capital also has other alternatives.

    And, capital isn’t a passive thing.

    Consider Ron Conway, the angel investor. His taxes aren’t all that he pays on his investments – he also puts in time and effort, and he doesn’t get to write them against the return, if any.

  219. >>> The data shows that it hasn’t ever managed to take in more. If you want to argue that this is intentional, you get to provide evidence. If you want to argue that this time will be different, you get to provide evidence.

    >>I’m not arguing one way or the other.

    > If you’re going to change positions, it would be helpful to acknowledge doing so. If you’re claiming that you weren’t arguing that way, you get to explain .. You’ve claimed that that the fact that revenues have never exceeded 21% is due to several things. However, you’ve yet to provide evidence supporting any of those theories.

    No, seriously, you’re putting words in my mouth again. You made an assertion, I asked you why you believed that, you responded, I asked for clarification, provided some additional data, etc. I am not at all sure that the data that you provide proves what you say it does, but I never claimed I knew why rates never exceeded some arbitrary number — just explained that you haven’t convinced me that you know why. You’re very keen on asking others to defend statements they didn’t make, but perhaps not so much on connecting the dots on why your evidence proves your own thesis.

    > I’m assuming a recovery and growth. During those periods, even when growth did unexpected things, tax revenue never managed to stay significantly above 20%.

    OK, but the data also shows a curve during the non-recession Bush years that is a few points lower than the same curve during the Clinton years. That still doesn’t show that we are at the maximum sustainable rate.

    > There are several possible goals. Let’s consider two, collecting “enough” tax revenue and maximizing tax revenue as a fraction of gdp. Do you really think that the latter is better than the former. (One definition of “enough” is “as much as possible”.)

    Where did I ever say that I did? I merely said that the statement “it can’t be done” may or may not be true, simply because you never provided any evidence that that was ever a goal. How the hell does that translate into me suggesting it’s a good goal?

    > So, let’s get a straight answer to a simple question – why do you want more than 21% of gdp as tax revenue?

    I think we’re done here, at least until you take a remedial reading comprehension class.

  220. > I never claimed I knew why rates never exceeded some arbitrary number

    You came up with several explanations, yet never any supporting data.

    > OK, but the data also shows a curve during the non-recession Bush years that is a few points lower than the same curve during the Clinton years.

    No, it doesn’t show a “few points”. It shows a couple of tenths. (The only place with a few points is the recession.)

    The folks arguing for higher marginal rates to significantly increase tax revenue need more than that.

    You haven’t directly endorsed that position, but you have repeatedly said that the 19-20% “limit” isn’t actually an obstacle, that a sufficiently enlightened tax policy could exceed it.

  221. ESR says: The actual libertarian/propertarian position is that behaving as if individuals owe a debt for “infrastructure” that they cannot repay except by chattel slavery (or, equivalently, taxation) is a practice that leads to intolerable atrocities and must therefore by abjured.

    1. The IRS certainly does some pretty atrocious things, given that it has been given way too much power (I would agree with reducing the reach of that part of government, at least) — but I don’t see the inevitability of it. Can you give evidence for the idea that this practice, by nature, leads to atrocities even when well-designed?

    An example of a good design might include attributes such as (a) taxation only of income over X% of the median (so nobody’s having to sell their assets to pay their tax bills — place X at some value >100 but low enough to include, some reasonably constant but small portion of the national income), (b) simple rules with no known loopholes, and (c) the IRS is required to send you a bill each year, at least 6 months in advance, which you may contest. If you do not contest, you are guaranteed immunity against prosecution for any errors on that year’s taxes — even if the error was based on inaccurate statements you made. If you do contest, you get free legal defense (you choose the lawyer); if the IRS loses, they pay a punitive fine N times what you would pay — N-1 of which goes into a taxpayer defense fund which pays for the free lawyering.

    2. So. How does the libertarian/propertarian position propose paying for infrastructure, without making the game even more “winner-take-all” than it already is? Dare I even ask about the common welfare and a social safety net, or does the L/P position consider poor people to be losers who are just lazy and deserve what they get?

    3. Does the libertarian/propertarian position have anything to say about local taxes (e.g. real estate, which I find particularly onerous) rather than Federal, or are they all more or less equally bad?

    4. Does the L/P position see corporate taxes as just as bad as personal ones?

  222. Hmm, perhaps one small addendum concerning European welfare states:

    The idea behind running those states is that debt is not a problem for that states, because of two mechanisms:

    a) Inflation actually reduces government debt (of course, this is on the back of their citizens, which will have to deal with losing wealth). And thus they can use it to limit their indebtness.

    b) Growth is important, because the size of the yearly growth of the GDP is also an indicator to the rise in tax revenue.

    In a “perfect” world, so their assumption, growth will outpace inflation and thus provide a safe way to reduce debt and yet have no pressure to actually get a balanced budget and thus make necessary cuts the government. Every one, however, who has witnessed more than a few years of world-wide politics knows at least several issues that are totally destroy this thinking. First, it is a static analysis, that doesn’t include changes in laws, regulation and taxes and second it does assume that it is possible to target inflation and to know the actual “inflation” of the moment. Both ideas are highly uncertain, because measurements are indirect and prone to meddling.

    If we look at the European welfare states in the last 50 years growth went down, expenditures went up (and so grew the debt) and inflation stayed high, which are primarily the symptoms that caused those nations to fall during a crisis.

  223. >Can you give evidence for the idea that this practice, by nature, leads to atrocities even when well-designed?

    Yes. It’s called “history”. Go learn some and stop talking like a blithering idiot.

  224. Now, Eric, don’t be too hard on the guy. A regrettable truth is that the overwhelming majority of the population is not conversant with libertarian thinking on those issues, and even if you throw out question 1, questions 2-4 deserve answers.

  225. >even if you throw out question 1, questions 2-4 deserve answers.

    I’m not in the mood to teach basic libertarianism to the kind of smarmy git this Woozle is coming off as. He can do his own homework and come back with intelligent questions that aren’t loaded with toxic presuppositions straight out of Howard Zinn, or he can get stuffed. It’s not like the answers to the basics aren’t readily available to anyone who can read.

  226. ESR says: “Yes. It’s called “history”. Go learn some and stop talking like a blithering idiot.”

    That’s insulting and makes an unwarranted assumption. You may apologize at your leisure; until that time I will no longer be taking your opinion on politics seriously. You lose.

    ESR says: Of course, it never occurs to this sort of fool that his unwarranted assumptions about libertarians are insulting.

  227. You haven’t directly endorsed that position, but you have repeatedly said that the 19-20% “limit” isn’t actually an obstacle, that a sufficiently enlightened tax policy could exceed it.

    No I didn’t. Nor did I say anything else you seem to be ascribing to me. Seriously, take that reading comprehension class, then try again.

  228. I remember reading a Thomas Sowell a few years back where he stated something to the effect that “society” is just another term for government. Society is silent until the government speaks.

    Dr. Sowell is a brilliant writer, and when I find myself disagreeing with him, I figure there’s better than even odds it’s because I’m wrong, not him, but I’ll differ with him just a bit:

    The word “society” is often used by statists as if it were synonymous with “government”, but a free society is characterized by its non-governmental institutions.

    I guess it’s like how “hacker” is used as if it meant “computer cracker” by so many people that every time I want to use it in the sense I prefer, I have to explain myself.

  229. > You may apologize at your leisure; until that time I will no longer be taking your opinion on politics seriously. You lose.

    I’ve seen that opinion expressed a number of times, but it’s unclear what the target actually loses.

    Perhaps Woozle will tell us how his not taking ESR’s opinion on politics seriously matters to anyone other than Woozle?

  230. I’m guessing the practical political impact of the debt crisis will be a major rejiggering of the US Constitution to limit BOTH spending as a function of GDP AND the power of the federal government (probably via the Spending Limit and Repeal amendments.) I’ll guess both will have been ratified by 2019.

  231. Some remarks about the Woozle-ESR debate: I see a sad pattern here that I have seen many times on the Internet.

    1) Someone talks about taxation as something necessary for maintaining infrastructure.

    2) A Libertarian challenges this assertion by arguments that, although they may be well-reasoned, are fairly far off the center of both contemporary and traditional political thinking, are out of the comfort zone of many people and not just of people in the hard left but also outside the comfort zone of moderates and conservatives and moderate liberals, are therefore in this comparision relatively extreme

    3) Because they are relatively extreme, the moderate, conservative or moderately liberal observer will think that these L. are really extreme folks and therefore 1) have won as being more common-sensical

    4) and the sad thing about it is that if you look at any modern state, most tax money is NOT spent on that sort of infrastructure where it could be reasonably said that the government is the most reliable maintainer thereof. Such infrastructure could be maintained from no more than 5-10% of a national GDP while most modern governments tend to spend around 30-60%. The argument that some taxes can be justified does not mean that ALL taxes are justified – yet this is the outcome of the argument, because to the moderate reader it seems like only extremists argue against taxes, and everybody else accepts all kinds of unreasonable and unjustified tax levels. At some level 1) is a fraudulent kind of argument: argue for a moderate positon, raise extremist arguments against it which moderates will not accept, and as a result quasi-justifiy all possible extreme levels of spending and taxation in the eyes of moderates.

    5) The important point to understand is that even fully accepting Woozle’s position most governments could be cut back to about one-fifth of their current size, by simply making them stick to essential infrastructure and nothing else. So there is little point in arguing things any further which would alienate moderates. For example, in education, essential infrastructure only means state schools for the truly poorest of the kids and nobody else – both working and middle-class primary and secondary education and tertiary education of all classes could be reasonably provided by the market.

    6) the major difference between a moderately liberartarian and an extremely libertarian view is that moderately libertarian views tend to alienate only people from the dedicated left, while extremely libertarian views tend to alienate all sorts of people: those who try to deduct their views from experience in modern times and applying some common sense to it, those who like to learn from historical tradition (no successful state was ever truly minimal if you account for the local levels as well and not just the national levels) and so on. Thus it is counter-productive esp. that there is no reason to argue for an extreme outcome when there is little political will for a more moderate outcome, I think the eat-elephants-one-bite-a-time school of thinking should be reconsidered.

  232. >I think the eat-elephants-one-bite-a-time school of thinking should be reconsidered.

    Except that the ends define the middle. “Extreme” libertarians like me function as both conscience and theoretical leaders for the “moderates”. Without us, the range of debate would shrink in a direction you wouldn’t like.

    Anyway, you dignify the exchange between Woozle and myself too much by calling it a “debate”. The twerp didn’t know enough to be in a debate; furthermore, he walked in here waving his ignorance and his nasty presuppositions about libertarians like they were proof of his own virtue. I’ve learned the hard way that there’s no point in trying to intellectually engage people with that kind of attitude. Best thing to do is kick ‘em in the ass; either they’ll be shocked into waking up or they’ll go away.

  233. “Except that the ends define the middle. “Extreme” libertarians like me function as both conscience and theoretical leaders for the “moderates”. Without us, the range of debate would shrink in a direction you wouldn’t like.”

    This is an important point. With the success of the left in moving the Overton Window their way, it is the hardcore libertarians who are providing the essential counterbalance. Otherwise you get…well…present day “progressive”-fascist Europe, for one; in other words scary, Orwellian groupthink (I have to say that in certain respects it is worse than it was in the Soviet Union of my days.)

  234. @JB and esr
    “Otherwise you get…well…present day “progressive”-fascist Europe, for one; in other words scary, Orwellian groupthink (I have to say that in certain respects it is worse than it was in the Soviet Union of my days.)”

    Fascinating. I really would love to see all this thinking put into practice. A real Libertarian society. Just to see how it works out. You are sure there have not been experiments? Groups that tried this out. I understand the difficulties of getting rid of state interference.

    I will not kid you not when I say I have very severe doubts that it would work out. But I might be proven wrong and it would be very educational.

  235. >When someone does exceptionally well for themselves, in our civilization, they do so in part because of the infrastructure and other benefits provided to them by that civilization.

    This is an assumption. Maybe its true or maybe not. Plenty of people did very well for themselves when there was a lot less welfare and government spending on infrastructure.

  236. > When someone does exceptionally well for themselves, in our civilization, they do so in part because of the infrastructure and other benefits provided to them by that civilization.

    Then what explains everyone else?

    You’re asserting that their success implies that they owe more. How about some supporting argument that includes the fact that others didn’t have that success?

    If I eat bananas and become exceptionally strong, do I owe something that is not owed by someone who ate bananas and had different results? If so, why? If not, how are bananas different from “infrastructure”?

  237. @Andy Freeman:
    “You’re asserting that their success implies that they owe more. How about some supporting argument that includes the fact that others didn’t have that success?”

    This boils down to the question when gains are just.

    Just a random list of very rich people:
    Pablo Escobar (or his successor), Osama Bin Laden, Bernie Maddoff, the directors of Enron, Mohamed Qaddafi, Vladimir Putin, Richard Fuld, Bill Gates, Larry Elison, Steve Jobs, JK Rowling, Queen Elizabeth.

    Some of these will be “relieved” of their possessions, others will not. Most readers of this blog will be able to point out names in this list whom they find should be justly relieved of their gains. They can point out other names that have the full right to everything they own.

    Is the law the only justification? But most here do claim there are unjust laws. If the law is the only benchmark, then every level of taxation is just, and slavery can be too.

    I do not care whether or not you find massive wealth morally just or not. But I am really interested in learning when you find gains just, irrespective of the amounts involved. You do talk a lot about unjust transfers of money (taxation). And the answer always seems to be that all transactions should be voluntary. But when do you consider involuntary transfers just? Or should Maddoff keep his money?

  238. >>You’re asserting that their success implies that they owe more. How about some supporting argument that includes the fact that others didn’t have that success?”

    >This boils down to the question when gains are just.

    No, it doesn’t. Woozle’s claim was about all people who did “exceptionally well”.

    Do you want to reject that claim and make another?

  239. > When someone does exceptionally well for themselves, in our civilization, they do so in part because of the infrastructure and other benefits provided to them by that civilization.

    How about the obverse of this argument? How many innovations are impeded by obsolete moribund infrastructure and all the associated existence justifying detritus?

    You know….the seen and the unseen.

  240. Eric, please remove previous post…

    If I eat bananas and become exceptionally strong, do I owe something that is not owed by someone who ate bananas and had different results? If so, why? If not, how are bananas different from “infrastructure”?

    Bananas may be different than infrastructure in that, perhaps, only a certain number of people are allowed to eat bananas. The “fairness” of the selection criteria for who gets to eat the bananas is not really an issue, nor is the fact that there is not any kind of formal quota on the number of people who can eat bananas, as long as there is a systemic de facto quota on banana-eaters.

    Now, I don’t think I’m going to get any arguments from any hard-core libertarians or anarchists that we need to castrate the AMA and the bar, to make it easier to get a bank charter, to eviscerate the market value of a New York City taxicab medallion down to that of its intrinsic value as a historical wall-hanging, etc. These are all standard examples of rent-seeking behavior, and it is no secret or new insight that, for any given type of banana, the benefit to those who get to eat them is so much greater per-eater than the loss of not getting to eat them is per non-eater, that the public loss from direct taxation pales in comparison to the public loss from artificial government supported restrictions on who gets to eat what sort of bananas.

    It is an absolute truth that bureaucracies and entitlements expand, but if there any kind of kernel of reasonableness behind entitlements that help out more than a tiny percentage of the populace, it is that their constituent beneficiaries are exactly those people who don’t have the time and energy to go and fight every expansion of private power that benefits doctors, lawyers, taxicab drivers, etc.

    So, I think the end goal of abolishing rent-seeking behavior of all sorts is wonderful. But the focus on taxes and general welfare entitlements is a focus on the wrong end to start with. I used to donate a lot of money to the Institute for Justice. But, after I had a test case that I thought was right up their alley, and communicated with them over it, I came to the realization that they are just like any other organization in their goal of self-preservation uber alles. So I thought about hiring a lawyer and/or dealing with my case pro se, and came to the realization that Dick the butcher was right about lawyers. Perhaps not about killing them, but about how, in order to make progress, we have to deal with them first.

    I don’t know how we go about growing more lawyers of the libertarian mindset (and IJ lawyers are only half-way there, if that, because they still seem to think that lawyers are somehow special), or if we somehow have to convince people to vote for people who will dismantle the lawyer monopolies, but if we could get lawyers to believe they themselves don’t deserve a monopoly, it probably wouldn’t be long before they helped us dismantle the other monopolies.

    So, I agree that government shouldn’t help foster class warfare by uneven taxation of successful people. But I think anybody who wants to spend time and energy on that goal should first work to insure that most successful people are, in fact, successful on their own merits, and not because of some sort of government granted monopoly. Because that government granted monopoly takes money out of everybody’s pockets, and makes some portion of the populace so poor that it’s an unavoidable temptation to try to get some money from somewhere to make it up to them.

  241. @Freeman
    “No, it doesn’t. Woozle’s claim was about all people who did “exceptionally well”. Do you want to reject that claim and make another?”

    I ask a question about morals. Berny Maddoff did exceptionally well. Would you defend his property against claims by his victims? If not, something is different. What is it?

    I have asked this before, but never get a straight answer. When is it just to use force to confiscate property? If you answer “never”, then I know what to expect from a libertarian society. If no one answers, I can draw my coclusions too.

  242. >I have asked this before, but never get a straight answer.

    Our motivation to answer you is nonexistent. You have described yourself as a Communist, from which it follows that we may expect you to (a) lie about what you believe in order to propagandize us, and (b) lie about our beliefs to others.

  243. @esr:
    “Our motivation to answer you is nonexistent. You have described yourself as a Communist, from which it follows that we may expect you to (a) lie about what you believe in order to propagandize us, and (b) lie about our beliefs to others”

    There is a logical paradox lurking in this message. Obviously, I cannot supply any evidence for or against it. So there is nothing to be done. A pity.

  244. >> “No, it doesn’t. Woozle’s claim was about all people who did “exceptionally well”. Do you want to reject that claim and make another?”

    > I ask a question about morals. Berny Maddoff did exceptionally well. Would you defend his property against claims by his victims? If not, something is different. What is it?

    I wouldn’t, but we’re trying figure out your position, not mine.

    Woozle’s claim was about all people. Are you suggesting that Maddoff is not distiguishable?

    If you’re suggesting that Maddoff is distinguishable, then we’re not discussing Woozle’s claim, but one that says that some people who did exceptionally well are different than others.

    Why do you find it so difficult to reject Woozle’s claim? Do you think, as Woozle does, that all people who did exceptionally well are basically equivalent to Madoff?

    > If you answer “never”, then I know what to expect from a libertarian society.

    I’m not a libertarian. That said, I can see why they might not want to play gotcha.

    If you’re going to reject libertarian society because you don’t think that it will use force in situations where you’d like it to use force, it’s fair to ask what society does use force as you’d like. And no, you don’t get to hide behind “if they did it right” – you get to defend every act of force or lack thereof.

  245. @Andy Freeman:
    “I wouldn’t, but we’re trying figure out your position, not mine.”

    This is just to answer your comment. I think it would be impolite to leave you without an answer. Given the distrust of my motives, I do not expect a fruitful conversation anymore. Because without trust, there is no communication. But that does not mean I should be impolite.

    Sorry, that is a misunderstanding. I was trying to figure out your position.

    Woozle thinks people should pay more if they are richer. I think people should pay what the law says. Not more and not less.

    What should the law specify? That is for the people of that country to say. You earn your money in a country, you pay the taxes of hat country. Do I support progressive taxes? Yes I do, even tough I do have to pay up myself. But if you can convince your fellow country men that this is unjust, why should I object?
    (I am aware that some of the readers of this comment will not believe that this is really my opinion)

    My question is what is your opinion of just laws? Woozle wrote that all rich people should pay extra. You seem to object to that because those people have a right to their money and others have not. So my question is simply: When do you think people have right to their money and when not? And this is simply a question for information.

    (and again I am aware that there are readers of this comment who think I need an answer to lie about it, which I do not understand)

    @AndyFreeman:
    “If you’re going to reject libertarian society because you don’t think that it will use force in situations where you’d like it to use force, it’s fair to ask what society does use force as you’d like.”

    That is indeed fair. First, nobody is perfect, no state is perfect. My ideal will not be reached completely. My ideal society would Observe Human rights, protects Free speech and Freedom of movement of ALL people, is democratic, and does not use force unless to protect life and health of the people and the absolute minimum necessary to uphold the law.

    Some countries in North/West Europe come close. But that is because I was born there, undoubtedly. Note that I think that the people of a country have the right to level any taxes (or not) they see fit.

    Does that answer your question?

  246. “Note that I think that the people of a country have the right to level any taxes (or not) they see fit.”

    Sooo… if the people of a country decide to levy 80% on That One Guy Right There, they have the right?

  247. > My question is what is your opinion of just laws?

    I think that they’re just fine. However, a better question is “what is [my] opinion of unjust laws?”

    I’m opposed to unjust laws. I realize that there is going to be quibbling over “unjust”, but there are people who believe that all laws are just.

    > Note that I think that the people of a country have the right to level any taxes

    Are you logic-chopping (they have the right, but it would be wrong to levy certain taxes) or are you saying that all tax laws are just?

    > When do you think people have right to their money and when not?

    WRT taxes, my rule is akin to my rule on criminal law. If I wouldn’t throw my Mother in jail for not paying for {specific program}, I don’t think that it should be paid for with tax money.

    I like my Mother and there aren’t many things that would justify throwing her in jail. That said, I don’t think that she’s special, so I’d extend the same courtesy to all.

    Note that some folks claim that there’s no such thing as “[an individual's] money”, so there can’t be a right to it.

  248. @Paul Brinkley
    “if the people of a country decide to levy 80% on That One Guy Right There, they have the right?”

    Why only 80%? Think BIG!

    Swedish author Astrid Lindgren wrote a story about the fact that her marginal tax rate had risen above 100%. It helped change the law.
    https://secure.wikimedia.org/wikipedia/en/wiki/Pomperipossa_in_Monismania

    If you want to learn how people react to high tax levels, study the history of post WWII Sweden (hint, they don’t).

    @Andy Freeman
    “If I wouldn’t throw my Mother in jail for not paying for {specific program}, I don’t think that it should be paid for with tax money.”

    That is a fair and useful answer. At least it is cautious enough.

  249. I am aware of the Lindgren story, yes. Thing is, YOU just said they have the right to do that. 80%, 110%, 200%. So do they or do they not have the right to tax individuals that highly (according to you)?

  250. @Paul Brinkley:
    “So do they or do they not have the right to tax individuals that highly (according to you)? ”

    Yes, they do have that right.

    Every law has to be judged individually in the context of those who will be affected by it. So if a law, any law, violates, say, the Universal Declaration of Human rights, I consider it wrong. But I see no reason why the Swedes did not have the “right” to set ridiculous or stupid marginal tax levels over 100%. And the “victims”, like Astrid Lindgren, did not feel their human rights were violated. They questioned the sanity of their government, not its right to set tax levels.

  251. > Yes, they do have that right.

    So, think that govts have the right to tax, say, Indians, more than other people.

    I’ll assume that you think that govts don’t have the right to jail people because they are Indian. If that’s true, we have an interesting question – do you think that govts have the right to jail Indians for failing to pay an Indian-specific tax?

    My point is that there isn’t a hard line between tax laws and other laws. If you’re going to argue that govts don’t have the right to pass certain kinds of criminal laws, you’ll find it difficult to consistently argue that govts have the right to pass any kind of tax law.

  252. @Andy Freeman
    “So, think that govts have the right to tax, say, Indians, more than other people.”

    Nope. That is why I started with “My ideal society would Observe Human rights, ” and then followed with the rest.

    The mere fact that taxes are levied is not unjust. But it is unjust if a law violates human rights. There is much more to the morality of a law than just being taxed or not.

    Any law that puts people at a disadvantage based on ethnic or religious (and some other) characteristics is wrong, bad, and unjust. Your hypothetical tax law is unjust not because it levies a tax, but because it unjustly discriminates based on ethnic origin.

    Human Rights have well understood interpretations about what is considered unjust discrimination. Taxing people based on wealth is not considered a violation of human rights. Taxing people based on ethnic origin is considered a violation of human rights.

  253. >Human Rights have well understood interpretations about what is considered unjust discrimination.

    Trusting anything a self-described communist says about “human rights” to represent a coherent ethical position is deeply foolish, as foolish as trusting a Nazi purporting to respect racial equality and for exactly the same reasons. Trusting that a self-described communist is even speaking the truth about his own position, as opposed to propaganda intended to make communism more palatable to those not yet indoctrinated, is equally foolish.

    My principles forbid me from censoring Winter. I cannot require others to shun Winter on this topic, but I recommend doing so. The safest assumption is that all you will hear is lies.

  254. @esr
    “My principles forbid me from censoring Winter. I cannot require others to shun Winter on this topic, but I recommend doing so. The safest assumption is that all you will hear is lies.”

    Clear words. We do not seem to communicate, you need two to tango. It is always “safest” to assume you will hear only lies. It is not very effective, though.

    But maybe it is indeed best for me not to comment anymore on matters of politics, economics, or freedom. I once offered to stop posting if my contributions were unwanted. I take this declaration of distrust as an indication that I should indeed live up to my words. I am not here to stir up trouble. Any such trouble that was caused by me was unintentional and my apologies for that (I am human, so I err). I think I start to understand (but not share) your point of view and I think I cannot contribute anything you (plural) would find worthwhile.

    (I know some will distrust my words. So simply wait and see what will happen)

  255. >> “So, think that govts have the right to tax, say, Indians, more than other people.”

    > Nope. That is why I started with “My ideal society would Observe Human rights, ” and then followed with the rest.

    Not so fast. You explicitly distinguished between your vision of an ideal society and what a society had a right to do. And even in your comments that invoke the UN’s declaration (which is never applied to “certain” countries, which happen to be the worst offenders, suggesting that it is nothing more than a rhetorical club, but I digress), you concluded with “Note that I think that the people of a country have the right to level any taxes (or not) they see fit.”

    Which reminds me, you seem to think that “Human rights” is well defined.

    Here are a couple of “easy” questions.

    Suppose that I’m a medical doctor and you have an illness that I could treat. Under what circumstances am I obligated to treat you?

    If I am obligated to provide treatment, here’s a question about the obligations of “younger me”. Suppose that I’m not a doctor today but we know that I’d be a reasonably effective doctor and that folks will need doctors when I’d finish training. In what circumstances and I obligated to take such training? Does the answer depend on what the training costs me?

    Suppose that I’m somehow physically infirm relative to criminals who might attack me and govt is unable to protect me. Do I have a right to acquire technology that will reduce my relative infirmity to as to make my self-defense effective? (Note – I’m not asking about whether someone is obliged to provide said technology. I’m asking whether it’s “just” to interfere with my efforts to acquire it.)

  256. Meh. I’m okay with Winter continuing to comment here, personally. Which is not to forget that this is Eric’s blog, and in here, he is king. But I suspect the same principles that keep Eric from censoring Winter are largely the same that keep me from ignoring him.

    Besides, this crowd seems to possess a higher than usual inoculation against Communist tracts. So I expect damage to be limited. And if it’s something truly to be resisted, well then, best to have plenty of practice.

  257. I visit Australia often, and have a business interest in SW Australia. It appears defined contribution superannuation (mandatory for almost 20 years) has resolved the pension black hole in the national budget, and that the basic healthcare (public ward, may resemble in costs if not results the old U.S. government funded public health system of the 50s) is not an open pocketbook for those soon to leave us – where the average citizen doesn’t begrudge the wealthy spending their millions on exotic surgery and drugs that might extend their life by weeks to years. And they haven’t gone heavily into spending on preventative medicine – aka welfare for doctors, but have tied visits to the public health facilities to overall management of welfare and their (fairly generous) dole.

    Pity it’s such a nanny state (plenty of budget for regulators and such, and the Greens are doing as good a job killing off businesses and farms as they are in California), but overall it’s in good shape (it somewhat resembles Alaska given their willingness to exploit and export their natural resources), unlike the U.S. If you’re young, looking for work, industrious, and can guess which end of trowel to hold, get a 1 year tourist-work visa, a $1200 round trip ticket to Perth, visit the mineral and energy companies’ employment offices, and even apprentices will be making $3K a week, working 3 weeks of 4 at the mines or energy fields.

  258. > that the basic healthcare (public ward, may resemble in costs if not results the old U.S. government funded public health system of the 50s)

    Note that said “public ward” still exists in the US. In fact, it’s been extended.

    For example, pre-natal care is free. Yet, folks arguing for “health care reform” keep screaming about pre-natal care.

    Worse yet, they use the supposed-lack of pre-natal care to argue for other changes.

    Yes, I’m aware that there are folks who need pre-natal care but don’t use what’s available. Feel free to explain how any of the proposals address that fact.

  259. > For example, pre-natal care is free. Yet, folks arguing for “health care reform” keep screaming about pre-natal care.

    AFAIK, prenatal care is free if you qualify for medicaid, and it seems free if you’re properly insured, but there’s a whole lot of people in between. Most of them can get “low-cost” prenatal care, but I don’t think it’s always free.

  260. In fact all medical care is free if you don’t qualify for medicaid or have insurance. No hospital can turn you down. They bill you and you prove to them you have no assets and little or no income and they then write off the bill. While it may not be the best system in the world at least lets be honest about what it is.

  261. @GoneWithTheWind:

    In fact all medical care is free if you don’t qualify for medicaid or have insurance. No hospital can turn you down. They bill you and you prove to them you have no assets and little or no income and they then write off the bill. While it may not be the best system in the world at least lets be honest about what it is.

    The assertion was that pre-natal care is free (with no qualifications). That’s not true, because if they find and take your assets, then it wasn’t free to you. There’s no reason to be splitting hairs like this — some portion of the population will get free healthcare, but some won’t. It’s fine to argue over policy, but it’s not fine to misstate current policy, which is that, after the hospital helps you out, they’re welcome to try to take all your assets your homestead doesn’t protect. Medicaid will even take your homestead after you’re dead, so the fact you get a benefit from the government doesn’t even necessarily make it “free”.

    @AndyFreeman:

    http://www.dhcs.ca.gov/services/medi-cal/Pages/Medi-CalEligibility.aspx says that all pregnant women qualify for medi-cal.

    Not all Medi-Cal patients get free care. Google for “medi-cal co-pay” or “medi-cal share of cost”. Your assertion that “For example, pre-natal care is free.” is simply not true for everybody. It’s not true for everybody in California, and it’s certainly not true in Texas, where I live.

    It’s OK for you to believe the government should provide fewer services, but you would be more credible if you understood (and didn’t try to misrepresent) the services being provided before you tried to make the argument that people arguing for more services are being disingenuous about the issue of pre-natal care.

  262. Pre-natal care is free for the population that “healthcare reform” advocates were using as reason for doing said reform.

    No one arguing for healthcare reform was suggesting that it was necessary so that Donald Trump’s latest wife didn’t have any out-of-pocket costs.

    Happy now?

  263. @Andy Freeman:

    No one arguing for healthcare reform was suggesting that it was necessary so that Donald Trump’s latest wife didn’t have any out-of-pocket costs.

    No, but according to what you said earlier, pre-natal care would, in fact be free for Donald Trump’s wife if she wanted it: “For example, pre-natal care is free. Yet, folks arguing for “health care reform” keep screaming about pre-natal care.”

    When I showed that was not true, you doubled down. When I showed it still wasn’t true, using the very example you gave, iinstead of agreeing that your argument was highly misleading, you now simply damn your opponents with faint praise by “admitting” they are not asking for free health care for the Trumps, without ever admitting that some of the people they are asking for pre-natal care for (a) have a hard time affording it (are not the Trumps) and (b) do not, in fact, currently receive it free from the government, so (c) your original argument about this point was completely without foundation.

  264. > without ever admitting that some of the people they are asking for pre-natal care for (a) have a hard time affording it (are not the Trumps) and (b) do not, in fact, currently receive it free from the government

    Assumes facts not in evidence.

  265. without ever admitting that some of the people they are asking for pre-natal care for (a) have a hard time affording it (are not the Trumps) and (b) do not, in fact, currently receive it free from the government

    Assumes facts not in evidence.

    Which portion(s) of that statement are you questioning?

    I’ve shown evidence that your own assumed, nay, explicitly stated, “facts” like “For example, pre-natal care is free” are wrong. I’m sure that if you could muster similar evidence that my assumed facts are wrong, you would do it in a heartbeat. Mind you, I don’t expect your definition of “hav[ing] a hard time affording” it would match mine, so I don’t really expect you to agree with my statement in any case.

  266. > Which portion(s) of that statement are you questioning?

    “some of the people they are asking for pre-natal care for (a) have a hard time affording it (are not the Trumps) and (b) do not, in fact, currently receive it free from the government”

    I realize that you want to be “that guy”, but really….

    We’ve established that a lot of people do receive free pre-natal care and that some don’t, based on income levels, and even for many of the latter group, we’ve established that pre-natal care is subsidized.

    Nothing that we’ve seen suggests that folks are having trouble paying for pre-natal care. The poor get it free, the less poor get it subsidized.

    We do know that free and subsidized pre-natal care is underutilized, but it’s unclear how more free care will change that.

    We’ve also seen the irrelevant claim that if someone dies after receiving subsidized pre-natal care, the govt will go after their estate. (It’s irrelevant because that “go after” does not affect pre-natal care received by live people. I trust that the relevance of live is obvious.)

  267. Nothing that we’ve seen suggests that folks are having trouble paying for pre-natal care.

    Except that poor people utilize it much less than well-off people. Granted, there are other factors, like alcoholism and drug use, which correlate both to being poor and receiving substandard pre-natal care, but whether it’s because of cost, assumed cost, or some other factor, the evidence indicates that not every woman is receiving pre-natal care, that the likelihood of a woman receiving prenatal care is highly correlated with income, and that the lack of pre-natal care is correlated with potential long-term health problems. There is a likelihood of some causality to go with this correlation; for example, whether the mother receives sufficient folic acid or not. So, for people who care about this, it is not surprising that they try to remove barriers to access to these services.

    The poor get it free, the less poor get it subsidized.

    OK, but even “subsidized” requires a conscious choice on the part of the mother to pay a co-pay for the pre-natal care, rather than something else that she might desire or need. And, even “free” might have some associated cost, like the requirement to take 3 hours off work to take the bus and sit at a clinic. So some free care might, in fact, be more free than other free care.

    We do know that free and subsidized pre-natal care is underutilized, but it’s unclear how more free care will change that.

    That’s a reasonable statement. I have read a couple of studies, though, that indicate that, in a few cases, there are concrete things that providers can do to help get the care to the people who need it.

    I haven’t paid enough attention to that portion of the healthcare debate to notice the people screaming about prenatal care you are talking about, but is it just possible they are also agitating for education and other vectors to help connect the pregnant with the resources? At least in some parts of Texas, the statistics show that a large percentage of pregnant women receive “inadequate” pre-natal care.

    Personally, I don’t know what adequate vs. inadequate is. I don’t know how much of the correlation between pre-natal care and healthy babies is simply correlation and not causation. I have seen anecdotal evidence that at least some women are put off from receiving pre-natal care by the cost, but for some reason, most of the comprehensive studies I have been able to find on this subject are from the late 1980s or early 1990s and may not be quite as relevant today.

    I think the best long-term solution for this (and for true health care reform in general) involves getting rid of the doctor monopoly/union, but, from the studies I have seen, I disagree with your apparent assessment that it is easy enough to get prenatal care that nobody should be able to make any kind of issue out of it. I absolutely agree, however, that once people have something to make an issue out of, they will expand the scope of the issue.

  268. >> Nothing that we’ve seen suggests that folks are having trouble paying for pre-natal care.

    >Except that poor people utilize it much less than well-off people.

    The problem with arguing that utilization is driven by ability to pay is that ability to pay isn’t an issue for the relevant population – they get free/subsidized pre-natal care.

    > that the likelihood of a woman receiving prenatal care is highly correlated with income, and that the lack of pre-natal care is correlated with potential long-term health problems.

    Yes, but lots of things are correlated with income. More to the point, income is typically a consequence of various things. Do you really think that those things have no other effect? Specifically, do you think that those things have no effect on how well people take care of themselves given their resources? (Consider smoking and obsesity. Both are actually more expensive than the alternative, yet they’re more common on among folks with lower income.)

    > At least in some parts of Texas, the statistics show that a large percentage of pregnant women receive “inadequate” pre-natal care.

    I’ve never disputed that. I’m pointing out that it isn’t due to the cost of pre-natal care, so efforts in that area are irrelevant.

    > I disagree with your apparent assessment that it is easy enough to get prenatal care that nobody should be able to make any kind of issue out of it.

    Since I’ve never written anything consistent with that “apparent assessment”….

    I’ve said that we’re doing the wrong things. That has consequences.

  269. This is definitely moving outside the realm of “politics” as we’ve known it in the formerly great USA and would seem to support Eric’s point:

    Michigan bill would impose “financial martial law”
    http://www.cbsnews.com/8301-503544_162-20042299-503544.html

    “He could then appoint a manager to fire local elected officials, break contracts, seize and sell assets, eliminate services – and even eliminate whole cities or school districts without any public input.”

  270. Speaking as a monetary economist…
    The problem with fractional reserve banking is that it has two Nash Equilibria. There is an equilibrium in which there is no run on the bank: None of the other depositors is rushing to get their money out, so I’m not worried that I have to rush to get my money out. Everyone thinks this way, so no bank run.

    Alas, there is another Nash Eq’m in which everybody runs on the bank: I observe (or even suspect) that everyone else is running on the bank and know that it will soon experience “liquidity problems.” So I run to the bank to get my money back before that happens. Everyone thinks this way: bank run.

    This is why systems like this can go to their bad equilibria so suddenly: The eq’m switching depends on expectations of others’ behavior, and such expectations can be fickle.

    For more on this search on Diamond-Dybvig; it’s the classic paper that makes this point in a formal way.

    Final note: Liquidity problems like this also killed off several institutions very different from commercial banks. E.g., the insurance conglomerate AIG was done in by liquidity problems, not its total assets being worth less than its total liabilities, IIRC.

  271. The U.S. Treasury issues inflation-protected bonds the coupon and principal payments of which are indexed to the price level (TIPS: Treasury Inflation-Protected Securities). When inflation expectations start rising, those bonds will become more popular. The government can’t covertly default on those via inflation, by definition. It would have to overtly default.

    Of course, it could do this by raising the tax applied to those bonds, so that where they would have owed you $10, now they say they just are going to hand over $5. I suppose then, legally speaking it wouldn’t be called “default.”

  272. Um, but people who do exceptionally well DO contribute more. Thats the whole idea behind endogenous growth.

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