Monday, December 13, 2004

The First Post on Our New Topic.

Let's see . . . off the top of my head I would suggest the following as requirements for a thriving economy:

1) Low or nonexistent taxation on accomplishment.
2) Sensible monetary policy.
3) Competition.
4) As little gov't regulation as we can get away with.

1) Low or nonexistent taxation on accomplishment.
Success generates capital. This capital is, by and large, reinvested into the business in many ways: R&D, capital improvements, paying competitive wages, etc.

Penalizing those who create opportunities by confiscating their legally earned wealth limits those opportunities and thus limits the economy.

This applies to supposed corporate taxation as well. [slight edit]You CANNOT truly TAX A CORPORATION. Any and all taxes are passed on to the consumer, thus lessening the ability of the end-user’s dollar to purchase goods and services. I suppose this lesson will only be learned around the same time it is understood that the whole “employer contribution to Social Security” is a myth and a scam.

2) Sensible monetary policy.

Unfortunately, I don't know enough about this area to comment extensively. I do know that this issue, mismanaged, can definitely halt an economy in it's tracks. I will look into this later and come back to post a revision on this point with what I have discovered would make good monetary policy.

3) Competition.

When only one company produces a product or delivers a service, that company has no incentive to improve their product/service.

Competition improves the quality of goods and services that we have to choose from to meet our needs. This encourages spending which improves the economy.

(BTW - The “it keeps prices lower” argument is a red herring in that consumer spending will set a price the market can bear regardless of the number of companies in a particular industry. People may still bitch, but if they are willing to pay it, then, by definition, it is a price the market will bear. If the sole company around sets their price above this mark, people will find not-quite-exact alternatives or do without. Most arguments of this type really boil down to “I want to pay less.”)

4) As little gov't regulation as we can get away with.

Let's face it, gov't regulation costs BILLIONS of dollars each year for questionable benefits. We must find a way to invoke _sensible_ regulations that are based on _fact_ rather than the enviro-fad-of-the-moment or this week's social-consciouness-cause-celebre.

Complete lack of regulation leads to some gross abuses by unscrupulous people. We need SOME rules to define acceptable conduct. As it stands we have _literally_ millions of words of codes and regulations which have little or no demonstrable benefit and cause definite demonstrable harm.

Every dollar spent on bad regulations is another dollar not spent on those things mentioned in point 1 above, which means lessened positive impact on the economy.

J at TAotB


Blogger Rico said...

Those are good ideas.....the only problem arises with companies like Microsoft. They have to be kept in check and taxation is one way to do so. I am conservative and totally agree with you, but the unfortunate reality is that the economy does require a blend of government intervention and laissez-faire.

12/13/2004 02:31:00 PM  
Blogger Jennifer said...

Let's add a dash of realism, at the risk of spoiling the party...

How can conditions include situations that will never arise?

Minimum government regulation? Under which particular political banner is that likely to happen?

Politicos of all stripes are utterly unable to keep their sticky mitts off anything.

If only 'twere not so...

12/14/2004 09:08:00 AM  
Blogger Craig R. Harmon said...

Actually, little government regulation is a tradition value of both libertarians and conservatives. While conservatives have not always been able to stay out of the regulatory business, they tend to do so to a greater degree than Democrats. Libertarians, while they have not had a bite at the national level, perhaps at local levels they apply this trait.

Low taxation, too, tends to be traits of libertarians and conservatives. Thus you have Bush instituting across the board tax breaks and Democrats have complained ever since.

It is true that I don't forsee the sort of lax regulation that we had prior to the melt-down in 1929, which provided all the proof anyone needed that some government regulation was required, or small government that we had prior to the New Deal, especially with Social Security and Medicare as indispensible as these have become, but these are still ideals for which to strive.

12/14/2004 09:34:00 AM  
Blogger Craig R. Harmon said...

"(BTW - The “it keeps prices lower” argument is a red herring in that consumer spending will set a price the market can bear regardless of the number of companies in a particular industry."

I would say that there are exceptions to this. Pharmaceutical companies, for example. As soon as drugs come out of patent protection and other companies become involved in production, the price drops dramatically to a point just over production cost due to the fact that the originating company no longer has a monopoly.

Computer prices, too, have reacted to competition. Back when IBM and Apple were the sole players in the home computer market, they were able to demand just about any price per unit. Once other companies came along producing knock-off PC's, prices went down. Apple's prices never did come down to the degree that PC's did, to this day, because they kept such a tight reign on their trade secrets, not allowing competing companies, with very few exceptions, to produce knock-offs.

In fact, except where industries agree to 'fix' prices or artificially limit supplies, another reason for some Government regulation, any industry's prices are an interplay between what the customer will pay and the price at which any company is able to sell their product while still making a profit.

You see this happening at grocery stores and department stores. The customers will go where the prices are low. Wal-Mart is an excellent example. They do all that they can to procure products at as low a price as possible to sell at as low a price as possible. Any company not willing to do likewise, typically get's squeezed out of the market.

You occasionally see this happening in Gas Station price wars, where individual stations must keep a close watch on the prices others are advertising to avoid losing business. Granted, it's been a while since gasoline price wars have broken out.

I think you place too little importance on the place of competition in regard to lowering prices.

12/14/2004 09:55:00 AM  
Blogger Dingo said...

Nice topic - sorry, this is a little longer than 1500 words.

Unfortunately, the last three are inexpiably linked and thus make the first one impossible (no or little taxes) - let me explain.

First, we will start with competition. This is essential for a well functioning economy. The whole "the market" will set the price even in a monopoly is wrong. This is true in discretionary spending such as video games, CDs, or any other product that a person would buy with "excess" money (excess money is anything left over after paying for necessities such as housing, food, clothing, medication, etc) would be set by market demands, but this is not due to necessities. For anything that is a necessity, the market cannot be based on a purely monopoly system. As pointed out by a previous poster, prescription drugs is a well fitted example. When there is a monopoly on necessities, it merely squeezes out the non-necessity market because no excess money is left over for buying discretionary items. So, to stop monopolization, you need the government. Which leads me to the second point.

Second, because monopolies are bad to the market as a whole, government regulation is a necessity. Without government oversight, monopolies form and stop competition and slow economic growth. Additionally, without government regulation, other problems arise. I don't think that anyone would really argue that child labor laws, maximum working hours, minimum wage laws, etc are really a bad thing. When it comes to capital markets, you need transparency and accountability. This is done by the SEC and the DOJ. Without the two, investors cannot have confidence in the capital markets. Look what Enron and WorldCom did to investor confidence. Looks at the problems of transparency that lead up to the great depression. The SEC was created to make sure that the same precursors to black Monday doesn't happen again. When the SEC gets loose on enforcement (as had happened) bad things happened that kill investor confidence. Without confidence people put their money in the bank instead of stocks. But what happens when people don't have confidence in banks to keep their money safe? Then you have a run on the bank, as seen in the beginning of the great depression. That is why the FDIC was created (more government regulation). Government regulation also sets minimum safety standards so consumers can have confidence in what they are buying. When one company is screwed by another company, there needs to be a (relatively) efficient and just judicial system. Yes, too tight of regulation can strangle economic growth, but overall, it does more to help create growth through creating stability. To pay for all of this, you need taxes to pay for the government oversight and court system.

Third, sensible monetary policy. This, again is a governmental issue. Monetary policy cannot be set by individuals or buy corporate America. the constitution only allows the president and the legislative branch the ability to do this. Thus, again, Treasury, Commerce, and Energy Departments - More taxes.

Fourth, let get back to that guy who "achieves". First, we need to look at how he achieves. For the sake of argument, lets make him the ultimate in achieving the American dream. He came from modest beginnings (he didn't inherit his wealth). Did he achieve in a vacuum? Not at all. Most likely, he went to a public school that was funded by public taxes. His self esteem was helped along by after school activates that were funded by public taxes. After high school, he went on to a state university that is subsidized by public taxes. He took out federal Stafford and Perkins loans which are subsidized with taxes. He starts up his company afterwards and works his ass off. He is there day and night, growing his company. But to do it, he is using public roads and highways to ship his goods to his customers. The roads are paid for by taxes. He uses the public utilities for water and sewage built with Muni bonds. He uses the court systems to protect his contracts with other companies. He goes public and issues stock to gain capital (investor confidence in capital markets created by the SEC). He hires intelligent workers to manage his various departments. These people were educated in the public school system which is paid for with taxes. He gets security from the police and protection from fire by the fire department. Etc, etc, etc. Without the infrastructure that the taxes people prior to him paid, he would not have been able to create and grow his company. Municipal infrastructure reduces the transaction cost enough so his company can grow. Infrastructure builds his road to success.

So, in the end, you need taxes, you need limited government regulation. Don't look at it being a confiscation of wealth per se, but a repayment on a loan paid for by other tax payers. The more you achieve, the more you probably use the government resources. If someone is willing to use the infrastructure, but is unwilling to give back, I am not too sympathetic to that person. I just see them as greedy. Yes, you can over tax a society into regression, but that is only seen at very high amounts. The difference between 36% and 33% (or whatever it is I pay now) didn't make me want to produce more. Nor would I produce less if it went back up to 36%. I would rather have a sound monetary system (reduction of the deficit instead of barrow and spend) which would protect me more in the long run (lower inflation, interest rates, etc) than the extra 3% now.

12/14/2004 11:49:00 AM  
Blogger Craig R. Harmon said...

"sorry, this is a little longer than 1500 words."

Actually, that's only 948 according to my word-count plug-in.

12/14/2004 01:09:00 PM  
Anonymous Anonymous said...

Actually, I don't mind constructive critisim. You backed up what you said and didn't make an ass out of yourself. So therefore, it's all good :) I appreciate your insight.


12/14/2004 04:55:00 PM  

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