Make No Mistake: Taxes Are An Evil, However Necessary

I am not about to weigh in on who I think should win the federal election or even whether I’d like to see a majority or a minority.   To be honest, I would love to pick and choose among the policies among all the parties – of course, real politics don’t work that way.

But I would like to weigh in on something that really does need to be said, because I think it can work as a bridge between right and left-leaning policies:  the role of taxation, and why, in fact, the market is preferable in most cases.

Take this all-too-familiar supply-demand curve:

In this case we have a before-tax supply curve (green), an after-tax supply curve (red) and a demand curve (blue).

Tax incidence, deadweight, tax burden
Description of deadweight as it pertains to a tax.

As you may (or may not) have learned in a basic economics class, the ‘invisible hand’ will guide the market towards the price and quantity that matches where the demand and supply curves meet (where green meets blue).  Let’s say that this location is $10 and 10 gajibazillions units sold for a total of $100 gajibazillion dollars.

Now we add the tax.    In this graph, it’s a straight-forward per unit tax, like gas, say at $1 per unit (if we did a percentage tax, like the GST, the space between the two supply curves would get bigger as you moved to the right, but per unit is easier to deal with, so let’s go with that).

When consumers find out that the costs is, in fact, $1 more than the stated cost, they will realize that they are not getting the same amount of product for the higher price (because $1 is going to the government).   “Oh no!” many will say, “the product is not worth all that much money. ”   They will drop out of the market.   Suppliers, responding to the change in demand, will drop their prices slightly so to maximize their profits.   Let’s say the new price is $10.75, and the new lower quantity is 9 gajibazillion units.   This change in behavior of consumers and suppliers in response to the tax is called a market distortion.

Okay – so now some math.   We’ve already discovered that the market volume with no tax is 100 gajibazillion dollars.   The market volume after the tax is $9.75 (remember, $1 goes to the government to pay the taxes) times 9 units or $87.75 gajibazillion dollars, for a difference of 12.25 gajibazillion dollars.

Ah – but of course, the government will be absolutely efficient and non-bureaucratic and responsible with our tax dollars, so we are going to get the value  of those taxes one way or another right?   Sure.   Except, they are collecting $1 for each of the 9 gajibazillion units for a grand total of 9 gajibazillion dollars, well short of the $12.25 gajibazillion dollars that was lost in the economy.  A grand total of 3.25 gajibazillion is lost – a completely unrecoverable loss in the economy simply by applying the tax – and that’s before we consider anything about the costs of administering the tax, whether that tax gets used effectively or efficiently by the government and so on.

This is why taxes are evil.   The flip side, of course, is that there are a number of other things that are more evil than tax burdens.   Things like large government deficits, lack of support for the poor, lack of equality, lack of established order and so on.

This should mean that we ought to consider a few things:

  • anyone who tells you that they are building the economy by using your tax dollars is lying.   Deficits are merely deferred taxes.   You can temporarily stall an economic downturn, or you can build certain sectors of the economy, but when push comes to shove, any tax *takes away* from the economy, and never recovers what was taken away.
  • given a proportional tax rate (eg. income tax, where the tax rate increases as income increases), the market distortions at the higher pay scales will result in even higher market distortions.   This is a pretty solid argument in favor of reducing taxes for those with higher wages, especially if you want to build your economy on a highly skilled labour force.   Another solution is to offer a flat tax rate, which has the added benefit of reducing the administrative costs of calculating your taxes every year.
  • Unfortunately, this implies an inequitable distribution of funds in the economy.   By doing the best possible things for the largest group of people, those at the bottom of the totem pole appear to benefit the least.  BUT, the bottom line is that bottom of the totem pole still benefits – just not as much as those at the top.
  • Anytime you see a promise about a new government program, it is always at least a little bit wise to wonder if those benefits couldn’t otherwise be provided by, well, um YOU.  You earning more money by bringing more value to the consumer contributes to reducing the deficit.   While some would argue with me, this applies to public servants as well (assuming that the service cannot otherwise be provided by the market).
  • Re: corporate taxes – if you pay taxes when you cash in your mutual funds, do you really think you should be paying taxes *again* when your investment turns a profit?   Remember, those corporate taxes are also a tax on your pension.
  • We should be getting away from deficits as soon as possible.  2-3 years is more than enough to stall the economic downturn.  Now it’s up to the private sector to start turning the wheels.
  • Don’t trust party reputations when considering this.  Conservative does not always mean conservative.  Nor does liberal necessarily mean liberal.
  • Yeah, this is all just theory.  If you do not believe that people act rationally (they don’t), nor have perfect information (they don’t), you have reason to question all of this.
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Wikileaks: Where the Hole is Big Enough to Drive a Truck Through

When I first heard about Wikileaks, I felt that possibly they were providing a much needed ‘heads up’ to the public on important International concerns such as the wars in Iraq and Afghanistan.   When I heard about the recent cable releases, I thought they caught the United States in some particularly heinous territory with their International Policy — something that represented a serious shift from the norms of behavior that the country’s citizens would expect from the people who represent them abroad.

Instead, it’s just a leak of cables.   Stories of Omar Khadaffi oogling voluptuous Ukranian blonds.   CSIS members complaining about lawyers.   Frank opinions about Russian dignitaries.    All great stuff to sell newspapers and boost the ego of the ‘leakers’ but nothing representing an international emergency.    Given this lack of urgency, it is my opinion that Wikileaks did the wrong thing when they leaked this information.     There is no ethical standard that I can apply that justifies their actions here.    Let’s go over some of the tests.

Let’s start with Emmanuel Kant’s ‘categorial imperative,’ act only according to that maxim whereby you can at the same time will that it should become a universal law.   I do not accept left-wing minds ought to be allowed to leak private documents to undermine aggressive international policy because I know that right-wing minds would more than enjoy the opportunity to leak medical documents and doctor reports to undermine expensive public health care.

Now, I do not accept Kant wholeheartedly.   I do believe we should make room for exceptions in cases where the action provides a benefit, or prevents a negative that greatly outweighs the negatives that come from the action.     A deontological (Kantian) mind must have a utilitarian conscience.   So, taking the Trolley problem example, I do think there is some justification for pulling the switch that kills one person when it means saving the lives of thousands.    With some clear (and very important) caveats:

  • there is clear evidence of public benefit
  • there is no apparent self-interest in pulling the switch
  • the one person is not known to be vulnerable within the society (see Rawls)

Clearly, I do not see a clear public benefit to the leaks.    I do, however, see plenty of self-interest as media outlet after media outlet uses the juiciest elements of the cables to sell their papers.    The damage that this leak causes, however, will never be quantified.    Government Services will be regulated and secured to the point that they are no longer services in any sense of the word.   Foreign Affairs agents will always be thinking about their (needed) frank opinions in the context of these leaks.   In the best case scenario, this means embarrassment for public officials.   In the worst case scenario, this means a disconnect between diplomacy and policy – which is a euphemistic way of saying “stupid Wars caused by miscommunication.”

The final test is one of my favorites, put out by John Rawls — the ‘original position’ test.   This test would offer that people should act as if they came into society with no understanding of its norms or structure.    The person in this position would want the society that protected its most vulnerable members (because, given no prior understanding of status, someone would want to ensure that they had a decent lifestyle no matter their status).      The so-called transparent society that so many internet lovers desire is not to the advantage of the most disadvantaged.    For one, the most disadvantaged likely have no clue whatsoever that this whole Wikileaks thing ever happened.    All they’ll know is that some authority figure in their country will put two and two together (correctly or incorrectly) and accuse them (correctly or incorrectly) of treason based on pieces of evidence found in these documents.

In short, there is no real ethical justification in my mind for leaking these documents to the public, only a half-baked and obnoxious internet ideology.    It was a wrong-minded action and it should be punished in my view.   Fortunately for the people involved — people who are by no means the vulnerable people John Rawls wanted us to consider — they will be punished in a country that believes in ethical treatment of their citizens and fair trials.

For shame.

Why “The Clash City Rockers” is a Well-formed Song

UPDATE:

It seems that I converted Mick Jones to librarianship after this video.    (Yeah, that’s the ticket.)   Actually, he really just opened up his own collection to the public library.   Bottom line is, Mick understands the importance of making knowledge of all kinds and formats available to the public.   Thanks Mick!

(July 3, 2009)

A long time ago, I used to be a Tutorial Assistant for a Listening to Music course put on by Adrian Hoffman.   Usually at the time when we discussed the “Classical Era” (ie. Mozart, Haydn, early Beethoven) there was a lecture on form.   Often, form was expressed as a tool for absolute music (ie. how to give a song a structured feel to it).    I always itched at doing a lecture on how form can impact program music (music that tells a story or paints a picture) – and especially I wanted to do this lecture using a piece of popular music.

So I did an explanation of form using “The Clash City Rockers” by The Clash.   I should note that I believe that the brief samples I use here qualify under fair use policies, in particular because I am using them in a tutorial about music, adding considerable amount of my own knowledge and material in the process.    Got any other good examples of how the form of a rock song really suits the lyrics/content well?

UPDATE:

You can go through all the verses of the song and perform the same exercise, actually.     Third verse has “everybody gone dry” on the “down” section” and “plug into the aerials that poke in the sky” in the “up” section (sky/up works really well, don’t it?).    Then, the suburbs are down, and the “you won’t succeed unless you try” get the up.   Very simple “up-down” technique that does alot to help the song makes sense.   I’m always impressed when I see this amount of craft put into a song.

UPDATE July 5, 2009

Just watched this with my wife and must admit that the front needs considerable editing.   (yeah, I’m babbling alot about whatever and whatnot – I think I couldn’t decide whether this was a video blog post or a tutorial on music).

Skip to about 1:30 to get to the fun part (where I use the “W” to show how the song is well-formed).   I’m going to spend some time editing this down shortly and I’ll repost it.