Tuesday, July 26, 2011

Tyler Cowens Reading Ludwig von Mises’s Incorrect Analysis on Taxation

Does He Understand Why vonMises Gets It Wrong?

Tyler Cowens is an eminently likeable and intelligent economist whose Forum, The Marginal Revolution always manages to educate and elucidate.  One of the features of that Forum is a list of what Mr. Cowens is currently reading.


by Tyler Cowen on July 25, 2011 at 6:12 am

2. Ludwig Mises on the exhuastion of the reserve fund.  I first read that passage when I was fourteen years old and I was scared.

Reading the particular passage from Mr. vonMises (yes, that is the one Michelle Bachmann takes to

the beach) one finds that it starts out this way.  


The idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population is a fund which can be freely used for the improvement of the conditions of the less prosperous. The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor.

In the field of public finance progressive taxation of incomes and estates is the most characteristic manifestation of this doctrine. Tax the rich and spend the revenue for the improvement of the condition of the poor, is the principle of contemporary budgets
 This is scary, Mr. Cowens, because it is so absolutely wrong.  It envisions a class warfare where there is none.  It fails to comprehend the most basic of economic ideas.  And even worse, it appears to be believed by a great number of people who are in position to effect public policy.

In the field of public finance, progressive taxation is advocated because it provides for public investment, investment that would otherwise not take place.  This public investment, in education, infrastructure, national security, environmental and business regulation if done correctly produces an economic society where wealth and income rise for all.  Far from detracting from the wealthy, it enhances their wealth, as one can see from the U. S. experience from the end of World War II to the present.


Would YOu Buy A Used
Economic Theory From
This Man?
 The passage above is probably the greatest evidence of the near total lack of intellectual understanding of economics that is Conservative economic philosophy.  That so many believe what is so basically wrong is truly scary. 

Hopefully that is what is also scary to Mr. Cowens.

2 comments:

  1. "In the field of public finance, progressive taxation is advocated because it provides for public investment, investment that would otherwise not take place."
    ^ Prove it. Gov't intervention in public education (for instance) have caused the system to slowly erode by creating 'false' demand for students. Schools 'dumb down' over time instead of increasing in effectiveness. Schools don't look for profit from the consumer (the parents, or the students) but instead from government subsidies (taxation, which is not a free-market device: the consumer has no choice but to purchase this service) and grants they receive for accepting students. Now with the push to send all students to college, universities have been receiving more gov't aid and instead of improving their methods, they have developed a system of bureaucracy, advocating stasis. They get more gov't money if they dumb down the learning environment to promote kids to 'stay in school.' It is no surprise to me that charitable donations (the college I went to is private, thus relied heavily on these) to universities have been decreasing overall - the average american becoming a weaker employee over time.

    "This public investment, in education, infrastructure, national security, environmental and business regulation if done correctly produces an economic society where wealth and income rise for all."
    ^ Prove it. There is no way for everyone to be rich. This is the fundamental economic problem: scarcity of resources. If by wealth you mean standards of living, then I certainly agree that these should be increasing on average over time. And they are, certainly. Gov't intervention (in the USA) hasn't (yet) pushed society backwards, it has merely slowed progress. Gov't intervention creates ("fake") demand for goods and services. The drug war, for instance, creates fake demand for drug-enforcement, hurting real, otherwise-innocent people in the process. How many would-be engineers and scientists (and many others) are in prison instead of pursuing real endeavors. And, of course the states' and federal gov'ts then must pay for any and all enforcement costs, such as keeping these people in prisons. Though I am libertarian at heart, I understand that some services being about the free-rider problem, meaning that if this service was implemented, there would be people in direct benefit who did not bear any of the costs involved. Thus, taxes are a necessary evil for certain purposes. In general, redistribution of wealth means redistribution of resources in a non-market environment. Politicians do not know what the people want to buy, so let the people decide by voting with the only thing that matters: greenbacks!

    "Far from detracting from the wealthy, it enhances their wealth..."
    ^ Prove it. Redistribution of wealth disproportionately targets wealthy people. The wealthiest amongst us are entrepreneurs. These people are rich for a reason: they understand their bottom line. When gov't intervention hurts the bottom line, they can (and do, historically speaking) fiddle around with their budgets and balance sheets until they 'work' again. Often, this means layoffs, worse benefits, and lower income for employees (it depends on the severity of the interventionist policies being erected). Not only does intervention hurt wealthy people, but through the trickle-down effect it hurts people who cannot afford to be that hurt: the (not-necessarily-poor-but-poorer) workers.

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  2. Is this a joke? Even if you support progressive taxation, that passage by Mises is irrefutable.

    You are free to believe whatever you wish, and to support whatever method of public finance you think best, but objecting to Mises' simple description of what progressive taxation is seems silly to me.

    It is what it is.

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