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Monday, January 21, 2008

Is Austrian Economics Pseudo-Science?

Razib of gnxp thinks so:

The "grasped a priori" part has really bothered me. I mean, I read psychology and history, I can't derive it a priori. Recently I was going over some issues in modern Middle Eastern history, and learned that King Hussein of Jordan had apparently asked Israel for permission to send a brigade to Syria to invade the Jewish state during the 1973 Yom Kippur War. Honestly, I really don't know if I could ever grasp Arab psychology a priori. The more and more I read about psychology the more I think that anyone who believes that they could develop an axiomatic system of human action from insights they grasped a priori is totally retarded (mad props to Aristotle though, he worked before the cognitive revolution)...

My readings in psychology and history makes it very difficult for me to understand how anyone could adhere to a Misesian form of Austrianism with its commitment to praxeology. In short, I really think praxeology is a rotten foundation for any system of thought.

I don't care for the personal attacks in Razib's original post, but he raises a good question: considering how bad we are at introspection, why should we trust introspection to build an economic order?

Anyone from Chicago Boyz care to answer?

Monday, June 12, 2006

Shrink the Gap. Support the Gas Tax

"The Energy Challenge," by Stephen F. DeAngelis, Enterprise Resilience Management Blog, 12 June 2006, http://enterpriseresilienceblog.typepad.com/enterprise_resilience_man/2006/06/the_energy_chal.html.

First, the reality:

Of course, China could buy state-of-the-art equipment that helps reduce the pollution created by coal-fired plants, but it fears that doing so could put the brakes on its economy, something it believes it can't do at this stage of its development. As a result, it buys antiquated equipment from local manufacturers, burns indigenous coal, and refuses to ask consumers to pay for measures that could protect their health. The article estimates that 400,000 people a year die in China from pollution-related illnesses. As its population ages and the long-term effects of pollution begin to kick in, the piper that China refuses to pay today will cost even more tomorrow in health care costs and subsequent productivity reductions.

In Beijing and Tianjin, I saw the face of pollution. But even I didn't see the 400,000 dead in Zhongguo per year. I am lucky I was merely robbed of the sky for a month, not my life like that annual half-million. I was merely sent to the Emergency Room.

Next, the hope. (Hint: it's a geogreen gas tax).

Read more ...

Thursday, April 27, 2006

Republican Senators Understand Barnett's "Flows"

Grand strategist Thomas PM Barnett defines four "flows" of the contemporary world

(1) the movement of people from the Gap to the Core;
(2) the movement of energy from the Gap to the New Core;
(3) the movement of money from the Old Core to the New Core;
(4) the exporting of security that only America can provide to the Gap

Now the Republican Senate identifies two more

(5) the movement of clean air from the New Core to the Old Core
(6) the movement of terrorism from the Gap to the Core

and is about to speed up one, and decrease the other

Read more ...

Tuesday, April 25, 2006

Keep Gas Prices High Forever

The current high prices for oil and gas gives us a great opportunity. They focus the minds of Americans on the great problems in the world today.

The American People will make great sacrifices to achieve a Goal, but will not tolerate meaningless hardship. The currently high prices are meaningless. They represent nothing more than the fluctuations of supply and demand, instability and war.

President Bush should turn this around. He should announce that gas prices will never come back down: that we will never subsidize Oil-Tyrants again. He should do this with a new federal gas tax, which will floor the price of gas at five dollars per gallon.

This money should not go to the general treasury. Instead, it should be immediately divided evenly given to heads of household as a monthly check. Immediately, this would make those who consume a lot of gas (and thus support the destructive policies of Iran, Saudi Arabia, and Venezuela) subsidize those who do not so contribute to geopolitical instability. Better, it would encourage the economy to swiftly move to other sources of motor power.

18:05 Posted in Oil, Public Finances | Permalink | Comments (43) | Tags: gas prices

Sunday, April 02, 2006

The FairTax: A Rallying Point for 2006

Brendan is a long time friend of mine. I've known him long since he helped me out against The Nation Master entity, and I've checked his blog -- I Hate Linux -- regularly since before tdaxp was born. I am now proud and delighted to announce he has allowed me to host his review for The FairTax Book After reading Brendan's column, I strongly support the tax reform he proposes.

What would you say if I told you that there is currently legislation in front of the House Ways and Means Committee with 52 cosponsors that would not only eliminate the federal income tax, but also remove the need for the IRS, allow you to take home your entire paycheck without Social Security and Medicare deductions, and make April 15th into just another spring day?

Read more ...

Friday, March 31, 2006

Increase Immigration to Shrink the Size of Government

"Mike Bales' Infantilism," by Dan, tdaxp, 26 February 2005, http://tdaxp.blogspirit.com/archive/2005/02/06/mike_bales_infantilism.html.

"The Road to Dubai," by Paul Krugman, New York Times, 31 March 2006, pg A21.

Two days ago I argued that we should annex Mexico to expand States' Rights. However, we don't need to go that far to bury the dreams of the big government elite. Simply embracing sustained immigration leads to smaller government and more freedom

The Face of Small Government

The paleoeconomist Paul Krugman eloquently demonstrates this point in his New York Times column today...

Read more ...

Monday, July 18, 2005

Let's Tax and Spend for Better Health Care

"U.S. weighs taxing health care benefits: Unusual coalition from both the left and the right looks at ending exemption for job-sponsored plans," by Kevin Hall, Knight-Ridder, 17 July 2005, http://timesunion.com/AspStories/story.asp?storyID=379969&category=NATIONAL&BCCode=HOME&newsdate=7/17/2005.

Tax-free corporate health insurance, which super-empowers big business, is a relic of price controls from the Second World War


Today's system of employer-provided health care dates to World War II, when the federal government imposed wage caps to help the wartime economy. Unable to offer higher wages to attract scarce workers, companies competed for them by offering health insurance.


The war ended, but job-based insurance stuck. By the mid-1950s the Internal Revenue Service code favored it. Companies were allowed to deduct the costs of employee health care plans from their taxable income. For employees, those often-generous benefits were separate from taxable wages.

This pork warps the free market


Some right-leaning advocates think the tax exclusion for job-sponsored health benefits should end because it distorts the free market. The Heritage Foundation, a conservative policy-research center, says the exclusion leaves consumers in the dark about the real costs of health care, leading them to make uninformed decisions that ripple through the health care economy, driving up costs.


And doesn't help those who need it the most


"The tax break is regressive because people at the lower-income brackets get less benefit. It does just the opposite of what it should," said David Kendall, a senior health policy analyst at the Progressive Policy Institute in Washington, a research center for the centrist Democratic Leadership Council. "It promotes coverage for people who can already afford it."

Census Bureau data show that 82 percent of Americans who earned more than $75,000 last year had job-sponsored health plans excluded from taxation, but only 23 percent of Americans who made less than $25,000 did.


But if we ended this regressive, distorting loophole, we could afford to give health credits to all Americans


Advocates on left and right agree on this: Ending the tax exclusion should be accompanied by a new national tax-credit system for health care.


It's easy to do


Tax credits would exempt health plans from taxation up to a set dollar limit. Employers would put price tags on the benefits they provide to employees -- many already do this to remind workers why wages aren't rising -- and anything above the government-set limit would be treated as taxable income. This would allow the taxation of so-called Cadillac health plans, the generous ones that cover everything from fancy eyeglasses to hair transplants.


"The mechanics of doing it don't have to be revolutionary," said Mark Pauly, an expert on health care costs at the University of Pennsylvania's Wharton School. "The main problem now is that the exclusion makes expensive insurance look cheap."

This is a first step to solving our biggest domestic problem. Let's do it.

Tuesday, June 28, 2005

Richard Rahn on Taxing and Growing

"The Taxing of Nations," by Richard Rahn, The National Interest, Spring 2005, ppg 112-118.

A very good article by a senior fellow at the Discovery Institute on taxes and growth.

On the harm of taxing capital:

Economists have long known that taxing capital is economically destructive. Nobel Prize-winning economist Robert Lucas, after carefully reviewing relevant economic studies, concluded in 2003 that reducing capital-income taxation from its current level to zero (using other taxes to support an unchanged rate of government spending) would result in overall welfare gains of "perhaps 2 to 4 percent of annual consumption [compounded] in perpetuity."

On the importance of the birth rate on retirement savings

It is often said that demographics drive history and, to a considerable extent, the lower-than-replacement birth rates on the continent are at the root of the tax-rate war [attempts by "Old Europe" to force developing countries to raise their capital tax rates]. Starting in the 1960s, these countries built welfare states with generous retirement systems. Such systems are barely sustainable, even with rapidly growing populations. "Defined-benefit" systems are in essence Ponzi schemes that require the number of new workers to grow as fast, if not faster, than the retirees, because it is the taxes of the working population, not any sort of savings, that are used to finance the payments to retired workers. Europe is plagued with stagnant or falling populations, which means that the proportion of the elderly is increasing rapidly."

On the pain Old Europe must go through before it can grow again

In Many countries are moving to a "defined-contribution" system, much as Child did a quarter century ago (and as President Bush is now advocating for the United States). In such a system, workers are required to invest a given percentage of their incomes in relatively safe investments, such as government bonds r high-grand corporate bonds and stocks. The Europeans have waited too long, however, to make the necessary changes without going through considerable pain. They cannot get out of the dilemma by raising taxes, because their current tax rates are already above the revenue maximizing point. Hence, any tax increase will further reduce economic growth. Because present growth is so low, tax increases will actually lead to less tax revenue over the long run. The European governments are then left with no alternative to to begin reducing real benefits. But the public is not yet willing to support politicians who tell them the unpleasant truth. As a result, reducing benefits is constantly postponed by the politicians.

On just how insane capital taxes can be in Europe -- which leads to capital flight

Individually, most Europeans understand the reality they are facing. Thus, we find that Europeans have much of their income. The problem is that Europeans have few profitable domestic investment alternatives available to them -- given that tax rates on capital income often approach or even exceed 100 percent when an adjustment for inflation is made . (For example, if you are French investor who received 4 percent on a capital investment before taxes, but are subject to a 50-percent-plus tax rate on that investment, while the inflation rate is 3 percent, the actual after-tax return is negative 1 percent.)

Friday, June 10, 2005

1983 Adoption of Revolutionary/Insurgent Tactics by American Right in Social Security Debate

1983 Adoption of Revolutionary/Insurgent Tactics by American Right in Social Security Debate

"The Prince," by Nicolo Machiavelli, Medieval Sourcebook, AD 1513, http://www.fordham.edu/halsall/basis/machiavelli-prince.html.

"Achieving Social Security Reform: A “Leninist” Strategy, by Stuart Butler and Peter Germanis, CATO Journal, Fall 1983, https://www.cato.org/pubs/journal/cj3n2/cj3n2.html (from Clean Cut Kid).

"Boyd on al-Qaeda's Grand Strategy," by John Robb, Global Guerrillas, 8 May 2005, http://globalguerrillas.typepad.com/globalguerrillas/2004/05/journal_boyd_on.html (from Safranski on GG through tdaxp).

Chad at CCK pointed me to a 1983 article in the CATO Journal that calls for the adaption of revolutionary/insurgent tactics in the Social Security debate. While the authors incorrectly describe the style as "Leninist," it shares more than a little with Maoist and Sandinist thought. Indeed, it is historical proof of explicit Fourth Generation Politics more than two decades ago. And I thought I was original when I saw fourth generation struggle in the Social Security fight.

I am pleased to find proof that at least some groups have purposefully applied revolutionary/insurgent tactics to modern politics. The remainder of the post are my comments on the first few pages of the article.

Marx believed that capitalism was doomed by its inherent contradictions, and that it would inevitably collapse—to he replaced by the next stage on the ladder leading to the socialist Utopia.

The first paragraph, and the authors identify the most important part of decades-long political struggle: a happy ending

Lenin also believed that capitalism was doomed by its inherent contradictions, and would inevitably collapse. But just to be on the safe side, he sought to mobilize the working class, in alliance with other key elements in political society, both to hasten the collapse and to ensure that the result conformed with his interpretation of the proletarian state. Unlike many other socialists at the time, Lenin recognized that fundamental change is contingent both upon a movement’s ability to create a focused political coalition and upon its success in isolating and weakening its opponents.

A step below Marx's path-to-victory is Lenin's grand strategy. Lenin recognized the need for a correlation of forces -- creating a full array of friendlies who help pull the movement to victory. Likewise, Lenin's "isolating and weakening" of the opposition is analogous to Isolation and Subversion in the famous PISRR model of conflict.

As we contemplate basic reform of the Social Security system, we would do well to draw a few lessons from the Leninist strategy. Many critics of the present system believe, as Marx and Lenin did of capitalism, that the system’s days are numbered because of its contradictory objectives of attempting to provide both welfare and insurance. All that really needs to be done, they contend, is to point out these inherent flaws to the taxpayers and to show them that Social Security would be vastly improved if it were restructured into a predominantly private system. Convinced by the undeniable facts and logic, individuals supposedly would then rise up and demand that their representatives make the appropriate reforms.

Simply good conflict preparation -- drawing on the lessons of history. Lenin did his work in the 1910s. This article was published in the 1980s. A lifetime had passed, but the rules of ideological struggle remain the same. It is up to the wise historians to discover them, and it is up to the wise warrior to be a historian.

While this may indeed happen, the public’s reaction last year against politicians who simply noted the deep problems of the system, and the absence of even a recognition of the underlying problems during this spring’s Social Security “reform,” suggest that it will be a long time before citizen indignation will cause radical change to take place. Therefore, if we are to achieve basic changes in the system, we must first prepare the political ground so that the fiasco of the last 18 months is not repeated.

More wisdom. While the article suggests a way to hurry up the social security reform over what would naturally happen, the authors prepare the reader for a struggle that will take "a long time." Bush's misstep on the aircraft carrier in the Pacific was to imply that the war would soon be over. Butler and Germanis are not making that mistake.

Likewise, Butler and Germanis are preparing the battlespace. Foolish commanders fight where their enemy wants to fight. Wise strategists select the battlespace at a time and place of their choosing. An implication of this strategy is avoid direct confrontation until the battlespace has a friendly correlation of forces.

First, we must recognize that there is a firm coalition behind the present Social Security system, and that this coalition has been very effective in winning political concessions for many years. Before Social Security can be reformed, we must begin to divide this coalition and cast doubt on the picture of reality it presents to the general public.

More preparation of the reader. The authors are hyping the strengths of the status quoistas. This is building for a call to the fight in the way of the weak - guerrilla warfare.

Second, we must recognize that we need more than a manifesto— even one as cogent and persuasive as that provided by Peter Ferrara. What we must do is construct a coalition around the Ferrara plan, a coalition that will gain directly from its implementation. That coalition should consist of not only those who will reap benefits from the IRA-based private system Ferrara has proposed but also the banks, insurance companies, and other institutions that will gain from providing such plans to the public.

Another recognition of weakness. Butler and Germanis lay out their planned correlation of forces. They see what Nicolo Machiavelli saw nearly five hundred years ago

Those who by valorous ways become princes, like these men, acquire a principality with difficulty, but they keep it with ease. The difficulties they have in acquiring it rise in part from the new rules and methods which they are forced to introduce to establish their government and its security. And it ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, then to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them. Thus it happens that whenever those who are hostile have the opportunity to attack they do it like partisans, whilst the others defend lukewarmly, in such wise that the prince is endangered along with them.

The no-changers have "the laws on their side," but the Butler and Germanis are trying to minimize their other weakness -- "the incredulity of men, who do not readily believe in new things until they have had a long experience of them." The authors are presenting a slow, building plan that will give men long experience with the benefits of reform. Specifically, powerful men "those who will reap benefits from the IRA-based private system... but also the banks, insurance companies, and other institutions..."

As we construct and consolidate this coalition, we must press for modest changes in the laws and regulations designed to make private pension options more attractive, and we must expose the fundamental flaws and contradictions in the existing system. In so doing, we will strengthen the coalition for privatizing Social Security and we will weaken the coalition for retaining or expanding the current system. By approaching the problem in this way, we may be ready for the next crisis in Social Security—ready with a strong coalition for change, a weakened coalition supporting the current system, and a general public familiar with the private-sector option.

"Modest changes" help with the Machiavellian building of a favorable correlation of forces. While "expos[ing] the fundamental flaws and contradiction in the existing system... [to] weaken the coalition for retaining or expanding the current system" is another Isolation-Subversion PISRR attack.

Peter Ferrara’s “family security plan” provides a sound framework for reform.2 The Ferrara plan resolves the contradiction within the existing system and provides a realistic phase-in process for a private pension plan. Recent efforts to publicize and implement the Ferrara plan, however, only confirm the fact that a successful reform strategy must be designed within a framework of well-understood constraints and opportunities; otherwise we will fall into the same political traps that have discouraged many a would-be reformer.

Butler and Germanis are saying that having a plan for after victory is not enough, there needs to be a plan for victory. Good examination of the existing battlespace and history.

In an effort to identify a broad framework for Social Security reform, the Heritage Foundation (1982) gathered various experts, who discussed the essential ingredients of reform. The principles and observations that emerged from that gathering can now be summarized.

Calming Existing Beneficiaries

The sine qua non of any successful Social Security reform strategy must he an assurance to those already retired or nearing retirement that their benefits will he paid in full. It was irresponsible in the first place for the federal government to promise unrealistic benefits. But it would be even more irresponsible now to break faith with the millions of people who have based their retirement plans on these expected benefits. Instead of spreading widespread panic among our elderly, which will only undermine our efforts to reform the system,

The authors being by demanding an Isolation attack, separating existing seniors from younger defenders. Isolation is a critical part of struggle. Butler and Germanis's focus on Isolation is reminiscent of the planning of war genius John Boyd.

From a purely political standpoint, it should be remembered that the elderly represent a very powerful and vocal interest group. This power was reflected in the recent bailout plan, which made no effort to address the system’s underlying structural problems. One congressman, with disarming frankness, implicitly evidenced that considerable power when he explained his position on Social Security reform: “I have no intention of trying to explain what needs to be done,just give me a vote on something that can save the damn thing until I retire." ‘‘~

The authors recognize the power of greed in the social security atrophist camp. Again, to quote ol' Nick

Nevertheless a prince ought to inspire fear in such a way that, if he does not win love, he avoids hatred; because he can endure very well being feared whilst he is not hated, which will always be as long as he abstains from the property of his citizens and subjects and from their women. But when it is necessary for him to proceed against the life of someone, he must do it on proper justification and for manifest cause, but above all things he must keep his hands off the property of others, because men more quickly forget the death of their father than the loss of their patrimony. Besides, pretexts for taking away the property are never wanting; for he who has once begun to live by robbery will always find pretexts for seizing what belongs to others; but reasons for taking life, on the contrary, are more difficult to find and sooner lapse. But when a prince is with his army, and has under control a multitude of soldiers, then it is quite necessary for him to disregard the reputation of cruelty, for without it he would never hold his army united or disposed to its duties.

Except Machavelli did not foresee the vampire quality of the current system: to rephrase for the modern environment, Seniors will sooner forgive the bankruptcy of the nation than being prohibited from stealing from their grandchildren.

Still, same lesson applies.

The political power of the elderly will only increase in the future. The proportion of the population over 65 will rise steadily, from 11.3 percent today to 18.3 percent by 2030. So any proposal aimed at cntting benefits will face increasingly stiff opposition from the elderly, undermining the prospects for genuine reform. Any plan to change the system must therefore he neutral or (better still) clearly advantageous to senior citizens. By accepting this principle, we may succeed in neutralizing the most powerful element of the coalition that opposes structural reform.

The authors see that the most powerful element of the correlation of forces opposing them -- the elderly -- are only increasing their power. A correlation is that isolating the elderly from Social Security atrophists is the best move the reformers can make.


The full article, which fully develops the plan, is available from the Fall 1983 edition of CATO Journal. Highly recommended.

Tuesday, May 17, 2005

New York Times on National Savings Rate

"H&R Blockbuster," New York Times, 17 May 2005, http://www.nytimes.com/2005/05/17/opinion/17tues1.html?.

A good suggestion from Nyt on increasing national savings: government-matching of IRA contributions

Another important reason is that typical tax- sheltered savings accounts - unlike the matched I.R.A. deposits in the H&R Block test - are not structured to take advantage of how people actually behave with regard to their money. It is more difficult to part with a portion of one's paycheck than it is to save part of a tax refund because a paycheck represents bread and butter, while a refund seems like a windfall. Psychologically, a match that is paid directly into one's account is more gratifying than a tax write-off. And then there's convenience. H&R Block made it easy for its clients to save. We can't say the same thing for the United States Congress, with its hodgepodge of poorly targeted and complex savings programs.

Lawmakers in Washington could establish a generous and easily understandable I.R.A. match for a fraction of what it would cost to extend the Bush tax cuts for the wealthy. The evidence in favor of doing so is compelling. Then, when the ideological din abates, a future Congress can enact the reforms that are actually needed to strengthen Social Security after midcentury: modest tax increases and tempered benefit cuts, phased in over decades.

Their suggestion to tax the young more to support a unconsciounable 1930s-era SS system is less moral, but I'm glad they have joined the discussion.

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