Putting the world to rights

Other discussions not related to the Permanent Portfolio

Moderator: Global Moderator

User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Putting the world to rights

Post by stone » Thu Jan 31, 2013 2:05 am

Hi, I've tried to write down a "putting the world to rights" type all encompassing viewpoint of our whole economy and how to fix it  ::)
I know I have probably wittered on here before more than sufficiently about my pet subject of an asset tax BUT this has plenty of other witterings that perhaps might be fun to unpick/ tell me how I'm in a muddle. It has about what automation means for the job market, what money is,  global capital flows, 1970s stagflation and how the great moderation "worked" until it didn't. It would be great to get any feedback (however scathing) about any bit of it. Please just look at any bit of it that might interest and slag that off. I've pasted contents page below and a link to the whole thing.
http://directeconomicdemocracy.files.wo ... cracy8.pdf
Contents
Introduction ... 1
Why deployment of capital by the wealthy fails to provide an optimal economy........................ 2
Doesn’t government deficit spending cure any such problem? .................................................... 6
Labour unions don’t solve the problem. ............................................................................................ 7
How direct economic democracy could optimise the economy .................................................... 7
Isn’t a financialized economy the goose that lays our golden eggs? ......................................... 10
How money, credit, tax and inflation relate in our current system. ............................................. 12
A zero interest rate policy does not reduce the financial overhead ............................................ 18
More detail of the suggested asset tax, citizens’ dividend and financial reform....................... 21
How this relates to land value tax, Georgism and wealth taxes today. ..................................... 26
Appendix: Gold Island –a fable ... 28
Diagram of monetary flows under our current system and under an asset tax system. ......... 30
Introduction
Direct democracy means rule of a country directly by the population (in contrast to representative
democracy where elected representatives rule the country).
“Democracy”? typically is used to refer to legislative power. However much of the way that people
and resources are controlled is by financial means. Proposals to make such financial power more
democratic have been termed “economic democracy”?. Generally such proposals entail transferring
financial control to elected representatives.
Direct economic democracy is the idea that financial power needs to be wielded directly by all of the
individuals in an economy.
A laissez-faire economy may provide direct economic democracy if all the participants have a share
of the wealth. In practice however, a laissez-faire approach leads to polarization of financial power.
Once some people have accumulated sufficient savings, these are used to acquire assets that
provide a return that enables more to be gathered. This compounding claim over wealth
redistributes financial power towards an oligarchic concentration.
2
Sustained peace and prosperity depends on the economy reflecting the priorities everyone has for
using their own time and the natural resources. If power is concentrated with a few people then
everyone else becomes economically excluded. That results in wastage of that most precious
resource- the ingenuity of the seven billion people we have on Earth. Money is an administrative
tool that we all use to govern our real lives. It is our responsibility to ensure that the nature of our
monetary system as best as possible facilitates the real economy we wish for.
When considering the distribution of financial control, it is important to distinguish between tangible
sources of wealth (such as land, infrastructure, technology, organization and expertise) and claims
over such wealth. Clearly increasing tangible sources of wealth will make the economy as a whole
wealthier. Much confusion arises when that gets conflated with simply increasing claims on the
same tangible wealth. The term “wealth creation”? is often confusingly used to refer to increasing
claims on the same tangible wealth.
I am putting forward the idea here that sustained direct economic democracy depends on
moderating the extent to which claims over wealth can be used to gather more such claims. Direct
economic democracy depends on everyone having sufficient claim over the economy’s wealth. In
order for such a widespread wealth distribution to be maintained, generalized “return on capital”?
would have to be taxed in such a way that, rather than money gathering money, adept use of wealth
is required simply to preserve it over time. The tax burden would need to shift off taxing what
people did to instead taxing what they owned. That would mean replacing all current taxes with a
uniform asset tax that applied equally to all gross asset values of land, cash, stocks, bonds,
collectables, commodities etc. If something could potentially be sold, then it would need to be taxed
at a proportion of its market value each year in order to be legally owned.
Some other changes could also contribute towards direct economic democracy. I would suggest
these reforms:
? Replace all current taxes with a uniform tax on gross assets.
? Replace means tested benefits with a uniform citizens’ dividend paid to every citizen
irrespective of any other earnings.
? Have widespread public comprehensibility as being a key criterion for monetary and
financial policy and regulation.
? Transfer financial power away from banks to all individual citizens.
Here I set out the overall reasoning behind this idea, then delve under the bonnet of our current
economic system and finally provide more detail about suggested changes.
Last edited by stone on Thu Jan 31, 2013 2:55 am, edited 1 time in total.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
WildAboutHarry
Executive Member
Executive Member
Posts: 1090
Joined: Wed May 04, 2011 9:35 am

Re: Putting the world to rights

Post by WildAboutHarry » Thu Jan 31, 2013 7:36 am

Stone,

I'd like to comment, but I don't know what "wittering" or "slag off" mean :)

Asset taxes, though, are generally "rubbish".
It is the settled policy of America, that as peace is better than war, war is better than tribute.  The United States, while they wish for war with no nation, will buy peace with none"  James Madison
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Putting the world to rights

Post by Pointedstick » Thu Jan 31, 2013 9:50 am

Welcome back, Stone! Looks like interesting stuff; I'll gladly read it.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Putting the world to rights

Post by Pointedstick » Thu Jan 31, 2013 10:33 am

I'm still reading, so forgive me if this is covered later, but since your proposals involve the government radically re-architecting the economic system, what's to stop wealthy special interests with ties to government from using that government power to simply tilt the new playing field to their advantage in the same way they've done with the current one? An asset tax will hit the wealthiest and most politically-connected people hardest. It's not at all difficult for me to envision them very easily and successfully lobbying politicians to carve out exceptions esoteric enough that they can easily make use of them but complicated enough that most other people have difficulty doing so.

…Just like they've already done. In fact, just yesterday, Barry Rotholtz accidentally demonstrated this by dismissively suggesting that anyone who complains about their tax burden should set up an LLC and make use of a professional accountant.
It is very simple to process to set up an LLC corporation, max out your 401k, do all of the perfectly legal things you can do. All the while directing your accountant to stay on the correct side of the bright line of what is legal and what is not, and reduce your taxes the maximum amount.
http://www.ritholtz.com/blog/2013/01/fo ... x-burdens/
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Thu Jan 31, 2013 12:44 pm

Pointed stick, my hope was that by paring the tax system down to an incredibly simple flat tax on anything owned, it would be harder to create those hidden loop holes for the well connected. If people at large thought of tax as being what is protecting the value of their money and their wage contracts then perhaps that would create political will to limit loop holes ???
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Thu Jan 31, 2013 12:56 pm

Pointed stick, I'm probably naively hoping that it wouldn't actually impair anyones quality of life. Without corporation tax or capital gains or income tax etc my hope was that business could be prosperous and so stocks would pay out well and so the wealthy could still continue to live the life that they are accustomed. Venture capital would be very tax efficient. Its basically supposed to be a way out of our current "depression kept at bay by massive deficit spending" rut.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Putting the world to rights

Post by Pointedstick » Thu Jan 31, 2013 2:02 pm

As I've alluded to before, the biggest problem I foresee is what to do about people who are asset-rich but cash-poor. Your perspective is definitely a very British one in that there seems to be this tacit assumption that a wealthy landed aristocracy will eventually gobble up all the resources, leaving the asset-poor working and lower classes with nothing. But things are often different in other countries. In the USA, a lot of people are asset rich but cash poor. A good example is an elderly widow with a house full of old furniture. There are several of these people in my family alone.

Now, the citizen's dividend will replace her current government retirement income, but will it be able to cover her expenses after she pays the taxes on the house? And is the furniture taxed, too? What if she inherits a beautiful painting and she goes on Antiques Roadshow and finds that it's a collector's dream and its value is currently $100,000; now she has to pay an additional $7,000 every year just to keep the painting. That seems terribly unfair.

It's not just old people. Does the citizen's dividend really make me free to pursue my dreams with that $11,000 (£7,000) yearly payment if I have to pay $7,000 of that money against the value of my $100,000 house? Your asset tax seems extremely punitive to home ownership.

Situations like these will, in the real world, cause politicians to write exceptions for things like your first home, furniture, vehicles, antiques, firearms (in the USA), farmland, livestock and so on and so forth; basically anything that's likely to comprise the bulk of the property owned by poor people. But rich people will just find ways to use these to their advantage like they always do. They'll consolidate their real estate holdings onto one gigantic mansion on a 400-acre farm and buy a ton of antique furniture and expensive cars, for instance.

You can phase these exemptions out for certain income levels or after some number of cars or animals, or so many acres or land, but then you're starting to get back where you started in tax labyrinth territory.
Last edited by Pointedstick on Thu Jan 31, 2013 2:09 pm, edited 1 time in total.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Thu Jan 31, 2013 2:37 pm

Pointed stick, I guess house prices would revert to being the same sort of multiple of the medium wage that they were in say 1960. That would reduce the asset tax. People who were asset rich but cash poor could do an equity release arrangement. People in my family have done that now.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Putting the world to rights

Post by Pointedstick » Thu Jan 31, 2013 2:47 pm

In a nutshell, my objection is that your asset tax taxes basis rather than gains.

As much as I hate the income and capital gains taxes, as least I always have enough to pay them by virtue of having earned more (because the rate is less than 101%). With a tax on asset values, you can very easily be placed in a situation where the tax is more than you can afford, either because you're short of cash, your citizen's dividend doesn't cover the full amount, the asset doesn't generate any income--or enough income, or some combination of those.

I didn't see an explanation of what happens to assets whose tax you can't pay. Forced sale? Confiscation? Liquidation?


Saying that houses would revert to lower prices is possible, but no panacea. Even if the value of a modest house fell to $50,000, that's still a $3,500 yearly tax on the house alone. Are you expecting the value of cars, furniture, appliances, and computer equipment to fall as well? Even a fairly frugal household could easily wind up generating $10,000 in asset tax liabilities every year.

I'm assuming this system would do away with state and local taxes too? How would municipalities and states fund themselves? Would they be totally dependent on financing from the central government?
Last edited by Pointedstick on Thu Jan 31, 2013 2:54 pm, edited 1 time in total.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Thu Jan 31, 2013 3:06 pm

Pointed stick, my idea was that there are working assets such as stocks, farmland etc and consumption assets like houses, paintings etc. Working assets would become priced to a price where the yield paid the tax. Consumption assets would be priced at what people wanted to pay for consumption. Having a painting seems to me just like going to see concerts or whatever. If you couldn't aford to keep a painting under an asset tax, then you probably can't aford to go to concerts etc willy nilly today. I don't see why one thing is worse than the other?

In the UK the striking phenomenon is not so much landed gentry as banks. UK households have assets of £10T. UK financial institutions owe each other £10T. That is the astonishing debt/wealth burden here.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Putting the world to rights

Post by Pointedstick » Thu Jan 31, 2013 3:13 pm

stone wrote: Working assets would become priced to a price where the yield paid the tax.
Isn't that equivalent to a 100% income tax? Why bother owning and developing such an asset if you have to struggle mightily to simply break even on it? Why would I bother starting a business if the income I derived from my might--if I'm lucky--only barely pay the cost of the taxes it incurs?
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
l82start
Global Moderator
Global Moderator
Posts: 1291
Joined: Sun Apr 25, 2010 9:51 pm

Re: Putting the world to rights

Post by l82start » Thu Jan 31, 2013 3:19 pm

stone wrote: . Consumption assets would be priced at what people wanted to pay for consumption. Having a painting seems to me just like going to see concerts or whatever. If you couldn't aford to keep a painting under an asset tax, then you probably can't aford to go to concerts etc willy nilly today. I don't see why one thing is worse than the other?
what about sentimental and family value? if some painting i own and cherish, of some long dead relative, that was handed down through generations, turns out to be painted by some guy whose stuff just became collectable, i should be forced to sell it or choose between it and some other thing i own to pay the tax on it?
i don't know much about the tax system you are proposing, but it seems to have potential hit the average guy in odd and unexpected and possibly unfair ways
-Government 2020+ - a BANANA REPUBLIC - if you can keep it

-Belief is the death of intelligence. As soon as one believes a doctrine of any sort, or assumes certitude, one stops thinking about that aspect of existence
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Thu Jan 31, 2013 3:37 pm

Pointedstick wrote:
stone wrote: Working assets would become priced to a price where the yield paid the tax.
Isn't that equivalent to a 100% income tax? Why bother owning and developing such an asset if you have to struggle mightily to simply break even on it? Why would I bother starting a business if the income I derived from my might--if I'm lucky--only barely pay the cost of the taxes it incurs?
If you started a buisness then you would be creating massively more value than simply buying a pre-existing business. The asset tax wouldn't make so much of a dent in such a something out of nothing creation.
People need something as a store of value for their savings. They could either own stocks and farmland or cash or paintings or whatever. The "working assets" such as stocks and farmland would preserve value. The "consumption assets" would be just that.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Thu Jan 31, 2013 3:53 pm

l82start wrote:
stone wrote: . Consumption assets would be priced at what people wanted to pay for consumption. Having a painting seems to me just like going to see concerts or whatever. If you couldn't aford to keep a painting under an asset tax, then you probably can't aford to go to concerts etc willy nilly today. I don't see why one thing is worse than the other?
what about sentimental and family value? if some painting i own and cherish, of some long dead relative, that was handed down through generations, turns out to be painted by some guy whose stuff just became collectable, i should be forced to sell it or choose between it and some other thing i own to pay the tax on it?
i don't know much about the tax system you are proposing, but it seems to have potential hit the average guy in odd and unexpected and possibly unfair ways
I think a lot of art pricing now is due to people using art as a piggy bank for storing value. I think art would probably be more easily afforded under an asset tax system. Currently you would have to pay inheritance tax on a valuable painting. Since you can't currently pass it on to descendants in a tax free way, perhaps it isn't so different to take out some equity release scheme to pay the tax whilst you are alive in return for the asset when you die?
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Thu Jan 31, 2013 4:08 pm

pointed stick
Saying that houses would revert to lower prices is possible, but no panacea. Even if the value of a modest house fell to $50,000, that's still a $3,500 yearly tax on the house alone. Are you expecting the value of cars, furniture, appliances, and computer equipment to fall as well? Even a fairly frugal household could easily wind up generating $10,000 in asset tax liabilities every year.
I'm assuming this system would do away with state and local taxes too? How would municipalities and states fund themselves? Would they be totally dependent on financing from the central government?
I think the key thing is that I'm not advocating more government consumption. Infact, current boondoggle government schemes would no longer be needed to stave off rescession. The public overall would not have more money taken off them.
I was thinking of centralized taxation.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Putting the world to rights

Post by Pointedstick » Thu Jan 31, 2013 4:24 pm

stone wrote: I think the key thing is that I'm not advocating more government consumption. Infact, current boondoggle government schemes would no longer be needed to stave off rescession. The public overall would not have more money taken off them.
I was thinking of centralized taxation.
Pumping money into the economy to stave off recession through deficit spending is a by-product most of the time, not the real cause. Rather, that deficit spending happens because there's a politically-connected group that can mobilize enough voters to make it happen, either to deliver them some sort of benefit, or in an attempt to bring about a change in society congruent with the their worldview. Having a government that's accountable to the people virtually guarantees boondoggles simply because every boondoggle benefits someone, at cost to possibly someone else. The nature of the boondoggles simply changes to those with more visible and widely-distributed benefits and costs that are better-hidden.

stone wrote: If you started a buisness then you would be creating massively more value than simply buying a pre-existing business. The asset tax wouldn't make so much of a dent in such a something out of nothing creation.
I'm not sure I follow you. Here's a concrete example: let's say I start a very capital- and inventory-intensive small business and the tax assessor tallies up the value of all my capital assets, inventory, materials, etc, and determines the business's value to be $100,000. Now I need to earn a $7,000 profit every year to simply break even. If I only earn a $3,000 profit, I'm in the hole $4,000, which I have to make up from my citizen's dividend, other income, cash savings, or by selling the business. That doesn't seem very fair to me.
Last edited by Pointedstick on Thu Jan 31, 2013 4:28 pm, edited 1 time in total.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Fri Feb 01, 2013 2:14 am

Pointed stick, imagine you were wanting to start some advanced 3D printing business and had $1M to get it off the ground. You would buy materials and equipment and hire staff. They would try and develop the new technique that was just a concept of yours before. You would end up sinking your $1M into the development and whilst it was in the development stage the resale value would be the $100k you mentioned. If you buy lots of specialist equipment and materials; then they immediately depreciate to a fraction of their value. Money spent on staff costs is obviously gone. My guess is that until you got a viable business going you would be unlucky to have more than $100k of asset value. You have avoided 90% of the tax that you would have had to pay had you simply sat on your $1M. Compare that with the current situation where you would be paying payroll tax for all of your employees and their wages would have to cover their income taxes etc. Not to mention the fact that the wages would have to cover the mortgages everyone was paying on houseprices inflated to a multiple of a "sensible" price.
If your business took off and became worth say $5M, then you would be able to sell it for $5M and under an asset tax system not pay a penny of capital gains tax. Alternatively if it was yielding $1M a year in profits you could keep that without paying any corporation tax. If you subsequently ploughed that money back into your next venture (as Edison did throughout his life), then once again it would be largely consumed and so tax efficient.
The current tax system favours buying pre-existing assets such that money is simply used to bid up the price of pre-existing assets. An asset tax system favours ploughing money into creating new assets.

Whilst the asset tax creates an issue for those who are asset rich but cash flow poor, it is simply facing them with the reality of what they have set up. The whole global economy has become asset rich but cash flow poor thanks to our current arrangements. The result is that we don't do what needs to be done. In order to be prosperous we need to be creating and improving real economy efficiency. If instead of that we simply bid up the price of pre-existing assets then we are not contributing and so IMO it is hard to justify (even unrealized) capital gains aquired in that way.
Last edited by stone on Fri Feb 01, 2013 2:18 am, edited 1 time in total.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Fri Feb 01, 2013 2:38 am

As an example, I know of a start up company where one of the partners pulled out and was bought out by the other partners seven years after start up. Two years later, the company was bought for 10x the value given when she pulled out. She claimed that she had been paid too little for her stake. She lost her case because in the intervening two years the company had transformed due to having got a sought after new technology up and running and having a booming demand for it. Essentially all of the money ploughed into that company was spent on staff costs and perishable disposible materials (molecular biology reagents) with no resale value.

Under an asset tax system that would have been much more tax efficient than under the current system where a big chunk of the wage costs went to tax.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Putting the world to rights

Post by MachineGhost » Sun Feb 03, 2013 7:56 am

stone wrote: Pointed stick, my hope was that by paring the tax system down to an incredibly simple flat tax on anything owned, it would be harder to create those hidden loop holes for the well connected. If people at large thought of tax as being what is protecting the value of their money and their wage contracts then perhaps that would create political will to limit loop holes ???
There would be no hidden loop holes if there were no taxes, which are just necessary to keep hyperinflation at bay under a fiat monetary system.  So whats wrong with a universal transaction tax instead of an asset tax?  Taxing capital is just a dumb idea compared to taxing consumption.  Are you stuck on equality issues?

I'm having a very visceral reaction to your proposal.  An asset tax is incredibly unfair.  It is almost a punishment for the virture of existing.  And all of us MUST be successful to continue to exist.  You propose to tax that.  So forgive me if I feel like cursing you out.
Last edited by MachineGhost on Sun Feb 03, 2013 8:07 am, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Sun Feb 03, 2013 4:09 pm

MachineGhost, I understand how an asset tax sounds utterly wrong. As I see it though wealth means a claim over future labour from other people. To transport that claim through time in a way that preserves the capacity to honor it, the wealth has to be doing something useful. That is all an asset tax is about.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Putting the world to rights

Post by Pointedstick » Sun Feb 03, 2013 9:51 pm

stone wrote: MachineGhost, I understand how an asset tax sounds utterly wrong. As I see it though wealth means a claim over future labour from other people.
No, money is a claim over future labor from other people. Wealth isn't necessarily that at all, and the more illiquid and real forms of wealth (houses, art, gold bullion) represent exactly the opposite: a claim over the past labor from the other people who already created it.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Mon Feb 04, 2013 1:57 am

Pointed stick, when you buy a valuable painting it does act as a store of value. At anytime it can be exchanged back for money. Your saving is just as evident as an economic phenomenon as if you were holding money directly. You say it is a claim over past labour not future labour. If that were true then it would have no future value and so not be subject to an asset tax. An example of a claim over past labour would be throwing money in the hat of a street musician. In that case you are giving payment for something that has been done and is no longer with us.
From the link at the start I wrote:
From an individual’s perspective it makes perfect sense to save. People have differing needs and
earning capacities at different times of life and need to even those out. Across the economy as a
whole, no problem arises from individuals saving so long as for everyone saving there is someone
else drawing down savings (for instance retirees drawing down retirement savings). If economy-wide
net saving is occurring, that also isn’t a problem if it is simply a reflection of rational increases in
tangible investment in productive capacity. Problems arise from non-productive net saving across
the economy.
When saving is used to defer consumption the primary resource that is being “transported through
time”? is a claim over other peoples’ labour. We decide not to pay for a restaurant meal today so that
we instead may pay for nursing care in fifty years’ time. This system works very well if various people
are saving and drawing down savings at any given time so that overall there is no net saving.
Obviously however net saving across the economy cannot achieve the impossible. If all restaurant
staff are left idle today then that cannot miraculously conjure up nursing capacity in fifty years’ time.
One tragic limitation of money is that it renders everything down into an imperishable abstraction.
What is done with money gets mirrored by what consequently gets forced on the real world even if
that entails unintended waste. Because every unused man-hour is permanently lost, a conflict arises
between the imperishable monetary savings and the lack of any reflection of those savings
remaining in the real economy in the form of capacity to honour that claim on future production.
This view is nothing new. This 1933 quote from Marriner Eccles seems as relevant today as when it
was made.
“It is utterly impossible, as this country has demonstrated again and again, for the rich to
save as much as they have been trying to save, and save anything that is worth saving. They
can save idle factories and useless railroad coaches, they can save empty office buildings and
closed banks, they can save paper evidences of foreign loans, but as a class they cannot save
anything that is worth saving, above and beyond the amount that is made profitable by the
increase of consumer buying. It is for the interests of the well to do – to protect them from
the results of their own folly – that we should take from them a sufficient amount of their
surplus to enable consumers to consume and business to operate at a profit. This is not
“soaking the rich”?, it is saving the rich. Incidentally, it is the only way to assure them the
serenity and security which they do not have at the present moment.”?
Pointedstick wrote:
stone wrote: MachineGhost, I understand how an asset tax sounds utterly wrong. As I see it though wealth means a claim over future labour from other people.
No, money is a claim over future labor from other people. Wealth isn't necessarily that at all, and the more illiquid and real forms of wealth (houses, art, gold bullion) represent exactly the opposite: a claim over the past labor from the other people who already created it.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Putting the world to rights

Post by Pointedstick » Mon Feb 04, 2013 11:00 am

stone wrote: Pointed stick, when you buy a valuable painting it does act as a store of value. At anytime it can be exchanged back for money. Your saving is just as evident as an economic phenomenon as if you were holding money directly. You say it is a claim over past labour not future labour. If that were true then it would have no future value and so not be subject to an asset tax. An example of a claim over past labour would be throwing money in the hat of a street musician. In that case you are giving payment for something that has been done and is no longer with us.
Your painting acts as a store of value because there's value embodied in it, value that was imparted by its creator. I just don't see how the painting sitting there, inert, acts as a claim on future labor. Now, if you sell your painting for money, then it's plausible to see the money as a claim on future labor since that's its entire reason for existence: to be exchanged for someone's productive output.

But your ability to transform a storehouse of past value is and always will be subject to the whims of the market. If that painting suddenly becomes less valuable because, say, someone discovers a treasure trove of superior works by the same painter, you can now exchange it for less of other people's future labor, as represented by its diminished monetary value.

Under your asset tax, the tax assessor would re-value the painting and then charge you less tax on it, despite the fact that it's still just sitting there and you took no actions! You're taxed not for your own actions, but instead for the actions of everyone around you that affect the market price of your assets even if you don't opt to sell them on that market! It all seems terribly unfair. If the market price of your assets rose, you could be rendered a pauper or forced to sell them to pay the tax. The entire economy would be subject to immense uncertainty as people re-arranged their assets to minimize their market price, impoverishing everyone in the process.
Last edited by Pointedstick on Mon Feb 04, 2013 11:08 am, edited 1 time in total.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Putting the world to rights

Post by MachineGhost » Mon Feb 04, 2013 11:04 am

And an asset tax won't reduce the cost of anything, just increase it as the tax adds extra regulatory burden and hassle.  It will put a floor under which it won't go lower.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
stone
Executive Member
Executive Member
Posts: 2627
Joined: Wed Apr 20, 2011 7:43 am
Contact:

Re: Putting the world to rights

Post by stone » Mon Feb 04, 2013 11:51 am

MachineGhost wrote: And an asset tax won't reduce the cost of anything, just increase it as the tax adds extra regulatory burden and hassle.  It will put a floor under which it won't go lower.
The lack of income tax, sales tax, corporation tax etc would reduce costs a lot. An asset tax would also ensure that full use was made of capital. Capital would be deployed where ever it could yield enough to pay the tax. That improved efficiency would lower costs IMO.
It would also avoid the proliferation of duplicate paper claims over the same underlying real wealth. IMO such "pretend" wealth is a huge source of distortions and consequent inefficiency.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
Post Reply