Thursday, January 19, 2012

Should capital gains tax rates reflect ordinary income tax rates? Maybe in Wonderland


[Update]: In his column today, Krugman continues the theme that capital gains taxes should be higher, although he does not say HOW high. His reference toward Ronald Reagan invokes another logical fallacy, as though whatever Reagan did regarding taxes always should be acceptable to people who hold to free-market principles.

Krugman also fallaciously assumes that wealthy people pay ONLY 15 percent of their entire income in taxes. However, this interesting chart appeared today in the Wall Street Journal that lists ALL federal taxes paid by people in different income groups, and it tells a much different story. (Of course, Krugman is well-known for making up history, whether it be tax or regulation history. One might expect such behavior from a political operative.)


Now, why would Krugman try to be deceptive here? Why is Krugman nearly always deceptive? It is because he has traded whatever academic integrity he had to be a political operative. It is one thing to argue about tax rates and quite another to present a false picture of a situation -- when accurate information is available. [End Update]

In his post on the post-war history of capital gains taxes, Paul Krugman points out that the rates have been higher in the past than they are now. That obviously is true, but it opens up other arguments. For example, he declares this:
Here’s how Romney’s low taxes will be defended by smarter conservatives (the less smart ones will just shout “class warfare”): they’ll claim that there are compelling reasons to have low taxes on capital gains, and that there is therefore nothing wrong with having very high-income people paying lower tax rates than the middle class.
Like Barack Obama, he is slippery with his language, for even with lower rates, people who gain most of their income via investment are going to pay significantly higher amounts in taxes than others. Unfortunately, in a speech the other day, Obama first mentioned tax rates and then he claimed that the wealthy thus pay "lower taxes" than do people in the middle class. That simply is false, but a president who claims that paying unemployment benefits will "create more jobs" than the construction of an oil pipeline (and, by insinuation, more wealth) simply is delusional about the economy. Keynesianism will do that to people. The U.S. economy did well relative to the rest of the world (which was recovering from World War II) at this time, so does Krugman also believe, in the name of "fairness," that the capital gains rates also should have been 91 percent? I don't know, but I don't see, using his own logic, how he can argue against that modest proposal.

In fact, during that time, even some of the LOWEST rates were higher than 25 percent or slightly under 25 percent. Thus, will Krugman and Obama complain that the capital gains rates in the 1950s were unjust because they were lower than tax rates that people earning small incomes were paying? I don't know, although it seems that Krugman seems to be fixated on the current situation while claiming that the 1950s were prosperous years, and I suspect he believes that the high tax rates were part of the reason for the prosperity.

(He certainly has not made any statements in public to the contrary except to tell me in a 2004 Q&A at the Southern Economic Association meetings that the 70 percent rates of 1980 were "insane." I have not seen him making any similar statements in any of his writings since then.)

If Paul Krugman believes that capital gains taxes always should be at the top rate, since it would be unfair for investors to pay the same rates (or less) than the middle class, perhaps we need to look at the various marginal rates of income taxation to see if Krugman is trying to pull a fast one. For example, during the time in the 1950s when capital gains rates were 25 percent, the top income tax rate in the USA was 91 percent.

The following table that lists inflation-adjusted income tax brackets since 1913 might make things a bit more clear:

Partial History of Marginal Income Tax Rates Adjusted for Inflation

Income First Top Bracket
Year Brackets Bracket Rate Income Adj. 2011 Comment
1913    7 1% 7% $500,000 $11.3M First permanent income tax
1917    21 2% 67% $2,000,000 $35M World War I financing
1925    23 1.5% 25% $100,000 $1.28M Post war reductions
1932    55 4% 63% $1,000,000 $16.4M Depression era
1936    31 4% 79% $5,000,000 $80.7M
1941    32 10% 81% $5,000,000 $76.3M World War II
1942    24 19% 88% $200,000 $2.75M Revenue Act of 1942
1944    24 23% 94% $200,000 $2.54M Individual Income Tax Act of 1944
1946    24 20% 91% $200,000 $2.30M
1954    24 20% 91% $200,000 $1.67M
1964    26 16% 77% $400,000 $2.85M Tax reduction during Vietnam war
1965    25 14% 70% $200,000 $1.42M
1981    16 14% 70% $212,000 $532k Reagan era tax cuts
1982    14 12% 50% $106,000 $199k "
1987    5 11% 38.5% $90,000 $178k "
1988    2 15% 28% $29,750 $56k "
1991    3 15% 31% $82,150 $135k
1993    5 15% 39.6% $250,000 $388k
2003    6 10% 35% $311,950 $380k Bush era tax cuts
2011    6 10% 35% $379,150 $379k

In the end, I don't think Krugman is making much of an argument. For example, as one who was in college in the early 1970s and then being in the workplace for more than half the decade, the 40 percent capital gains rates also coincided with an era of high inflation and high unemployment. If Krugman believes that capital gains rates should reflect normal income tax rates, then he is saying that we need 40 percent capital gains rates again.

For that matter, the 1970s were a time of economic stagnation, not unbridled prosperity, as Krugman wants us to believe. He might hate the 1980s, but that also was a time of huge private investments in the high-tech sector and telecommunications, and Daniel Henninger of the Wall Street Journal has an excellent column about that era, including the corporate raiders that Krugman claims did so much damage. The article deals with the actual state of business entrepreneurship at that time, something that Krugman is incapable of understanding, since all of his economic analysis is done with the crude aggregates of the Keynesian models, and there is no way to fit entrepreneurship into those contraptions.

There is a larger issue, however, and that is private investment as a whole. Krugman, being a good Keynesian, holds that economically speaking, government "investment" is just as good as private investment, so it doesn't matter if the government is building nuclear weapons or a farmer is growing crops. If the GDP numbers of both are equal, then both are equal in their wealth component.

Is this a ridiculous example, since even Krugman would admit we cannot eat nuclear weapons? In one way, yes, but in the Keynesian structure, it is not ridiculous. And given that Krugman has given us his "confidence fairy" ditty numerous times, it is clear that he does not hold private investment to be anything but another form of spending, and if government can spend in equal amounts, then it is just as well and perhaps better, since in Wonderland, State Power equals freedom and prosperity.

91 comments:

Anonymous said...

I've neve liked the way the tax code treated different income streams. All income whether it's from interest, rents, wages, capital gains (possibly indexed to inflation), royalties, profits, dividends or gambling winnings for that matter should be treated as normal income and taxed at the same rate. Otherwise you're treating some people's economic activities better than others. As to the double taxation issue the easy solution is to just get rid of the corporate income tax. The people in control of the corporate structure don't pay it. It's a source of government coruption. It punishes the people who do the actual hiring. And it's mostly paid for by the consumer.

Anonymous said...

Dividend income should be tax exempt. Everything else should be taxed at the same rate as wages.

Positive Dennis said...

I have no objection to one rate to rule them all. But as the previous poster mentions, you need to have some sort of inflation adjuster. This would probably reduce taxes so I find this mildly humorous.

I talked about the effect of inflation on investors on my blog.

http://www.prophecypodcast.com/journal/2011/5/14/inflation.html

American Patriot said...

Cap gains taxes are indefensible - at least as far as equities are concerned because they constitute double taxation. Many countries (like Switzerland) do not have them, or the ones that do, have very low rates with whole categories of investments being exempt. You cannot tax income at corporate level and then again later, and expect capital not to flee elsewhere.
As usual, progressive morons make absolutely no sense!

As far as individual rates go, I still have not found a Marxist - ehem..I meant progressive - who can explain to me why in the 1950s, when the economy was in midst of booming with post war build-up, those 90% top rates did not increase the taxes as percentage of GDP? (the answer is of course because there is something called tax avoidance) In fact, during Reagan era, in 1988 and 1989 when the top rate was 28%, we collected 18.3% of the GDP in taxes. During the 1940s and 50s when the top rates were over 90%, we averaged 17.8% of the GDP. Hmmm...I wonder what happened?
LOL

Anonymous said...

American Patriot. How are capital gains double taxation? Isn't the price a stock based upon perceived value? I think you mean dividend income since that is a distribution of after tax profits to shareholders.

Major_Freedom said...

No system of taxation is fair. It is a pointless endeavor to find one that is.

Tax reform is just a game of pass the bill.

Daniel Hewitt said...

Anon,

How are capital gains double taxation?

Steve Landsburg explains:
http://www.thebigquestions.com/2010/09/14/getting-it-right/

Anonymous said...

Daniel,

Read it and don't agree. There is no double taxation as only the gain is subject to tax.

IMO this country would be better off if only divided income were not subject to tax. This would prevent shareholder dilution due to the granting of stock options.

ekeyra said...

MFer, is right. "Taxes" and "fair" dont belong on the same continent, must less the same sentence or paragraph. How is stealing people's money fair just because you take the same amount or percentage from everyone you rob?

I think that just makes you an ocd criminal.

Django said...

For Krugman's arguments not to contradict themselves he has to believe government "investment" is better than private investment.

Tel said...

"How are capital gains double taxation? Isn't the price a stock based upon perceived value?"

Because you work for the money which you use to buy that investment and you are taxed (income tax) on your earnings. Then you buy the investment (with what's left after tax) and you are taxed again on the return that you get.

In Australia, for young people earning higher than average income, marginal income tax might be 40% or there abouts and that's what you get hit with on the interest on your savings account. So you save money in an account paying maybe 5% interest and it actually pays perhaps 3% after tax. But wait! Inflation rate is 3% (actually higher, because the official inflation rate always understates the real value)... so you are earning nothing (actually going backwards when you look at fuel prices, electricity prices, bus tickets, etc. etc.) and as a consequence people stopped trying to save money quite quickly once capital gains tax was introduced.

Then the wise government decided to force compulsory superannuation onto us because we needed to save more (go figure) which is managed privately (often by unions) but heavily government regulated.

So the only investment you are allowed in Australia is buying your own home, which basically means the government is propping up the high price of housing.

Tel said...

Anon:

"There is no double taxation as only the gain is subject to tax."

Except that without gain your investment is absolutely destroyed by inflation... but hey let's just pretend shall we?

"IMO this country would be better off if only divided income were not subject to tax."

...and people create a company, buy shares in the company so they can pay themselves dividends instead of a wage -- brilliant!

Tel said...

Dennis:

"... you need to have some sort of inflation adjuster."

Resulting in exactly the same problem as inflation indexed securities, the government discovers that the smaller the "official" inflation figure, the more they earn. What do you think happens next?

morse79 said...

Deceptive? As usually you are way behind on Krugman and just making stuff up. Just read his blog from yesterday -

"According to this analysis, in 2005 the top .01 percent paid only 17 percent of income in income taxes — but they faced an overall federal tax rate of 31.5 percent, with almost all the difference being imputed corporate taxes."

I don't see any deception here. Care to tackle his argument as to why corporate taxes are passed on to shareholders and employees? Or care to respond to the Picketty Saez piece Krugman links to?

William L. Anderson said...

Does Krugman see the government taking a third of someone's earnings as a "low" tax? Read the column and tell me where Krugman is claiming that the rich pay a third of their income just in federal taxes, not to mention state and local taxes.

The column claims that wealthy people pay lower taxes than everyone else. I would say that is deceptive.

American Patriot said...

Regarding Reagan, the tax increases he signed in to law were primarily witholding taxes in order to try and fix the social security. Ordinary income taxes were never raised. That is a fact.

Regarding who pays more taxes table included in the article, it is useless/meaningless to look at who paid what percentage of the taxes without looking at what they earned. It happens that the top 0.1%, 1%, 5%, and 20% paid a higher effective rate than anyone else because they earned less of the national income than they paid out in taxes. That is the ONLY meaningful stat us anti-collectivists should be talking about.

morse79 said...

Now you are backtracking.

You wrote, "Krugman also fallaciously assumes that wealthy people pay ONLY 15 percent of their entire income in taxes."

He does no such thing. He cites the same CBO report the WSJ article you cited. Of course, he unlike the WSJ he also looks deeper into the claim and the fact that corporate tax rates do not fall solely on shareholders (and argument you have not responded to).

And he doesn't claim either that rich people pay lower taxes than other people (they do pay lower effective rates than some lower tax brackets), only that they received a large tax cut the past 10-15 years with no corresponding improvement in our economic outlook or prosperity. Another argument, that you have not tackled. Why is it that investment growth seems to have no relationship with capital gains rates?

http://www.washingtonpost.com/blogs/ezra-klein/post/do-low-taxes-on-capital-gains-spur-growth-not-necessarily/2012/01/19/gIQAJZ4yAQ_blog.html

William L. Anderson said...

I have taken the following directly from Krugman's column today. I think that it absolutely contradicts what Morse is saying:

But the larger question isn’t what Mitt Romney’s tax returns have to say about Mitt Romney; it’s what they have to say about U.S. tax policy. Is there a good reason why the rich should bear a startlingly light tax burden?

For they do. If Mr. Romney is telling the truth about his taxes, he’s actually more or less typical of the very wealthy. Since 1992, the I.R.S. has been releasing income and tax data for the 400 highest-income filers. In 2008, the most recent year available, these filers paid only 18.1 percent of their income in federal income taxes; in 2007, they paid only 16.6 percent. When you bear in mind that the rich pay little either in payroll taxes or in state and local taxes — major burdens on middle-class families — this implies that the top 400 filers faced lower taxes than many ordinary workers.

William L. Anderson said...

If you notice, Krugman says that people in top brackets pay "lower taxes than many ordinary workers."

I did not say that, Krugman did.

American Patriot said...

morse79:

the fact remains that, among OECD countries, we have the highest corporate tax rate and one of the highest cap gains rates (many like Switz. Taiwan, and Singapore have none or exempt certain activities to promote investment)

Now, do you want to be another Japan or do you want to be a Singapore? Keynesians prefer the Japanese path. Many here do not because we know the path Keynesianism leads to.
Where you might ask? Try Japan, post WWII Europe (especially the case of Greece and UK that recieved heavy doses of Marshall Aid as opposed to growth in Germany and Sweeden that recieved the smallest doses), mid 1930s U.S., etc., etc... Examples are numerous and results are anemic growth and stunted productivity and innovativeness.

Regardless of the tax cuts (GWB), rich as well as the upper middle class pay a higher effective tax rate. No matter how loud Krugman barks, he cannot change that fact. This is wrong in a fundamental way. No one has the right to steal one's private property they earned with their OWN sweat equity. There is no philosophical argument for it - NONE!!!

Here is a little test:
Assume I am your neighbor. I come to you and demand you give me $1000 so that I can send my son to college. What would you do? Since the key word is demand, you'd rightly call the police, right? After all I am extorting money from you.
Then, how is it morally defensible when the government does the same thing in the name of economic justice? Afterall, the extra taxes paid by the productive class of the society go to pay for the bottom 50% to pay less than 0%.

P.S. Are you familiar with the OECD study that found that U.S. has the most progressive tax code among the OECD countries? And you want even more progressivity? Tell me that you are a Marxist at least. I hate people who pretend to be something other than what they are.

morse79 said...

Saying that the top 0.1% pay lower rates than many ordinary workers is not the same as saying that they pay lower rates than ALL workers, which is what you implied. And Krugman's statement is correct.

Strike 3.

morse79 said...

"Now, do you want to be another Japan or do you want to be a Singapore?"

"Regardless of the tax cuts (GWB), rich as well as the upper middle class pay a higher effective tax rate. No matter how loud Krugman barks, he cannot change that fact. This is wrong in a fundamental way. No one has the right to steal one's private property they earned with their OWN sweat equity. There is no philosophical argument for it - NONE!!!"

That is the not factually true. And there is absolutely a philosophical argument for income redistribution, social safety nets, and public works. For one, there is no such thing as "sweat of your own brow." Every private entrepreneur benefits from an elaborate system of public goods ranging from safety, roads, education, r&d to perhaps even culture itself preserved through public works.

Sam said...

Who are the "many ordinary workers"? Seems like Krugman knows he is being deceptive and is creating an argument that he, or his supporters, can bend later on to defend him/himself.

American Patriot said...

Wow. You echo Elizabeth Warren.
Here is the fallacy of your twisted thinking:
Those entrepreneurs have paid for all those amernities and MORE! Why should anyone (especially those helping society by producing and innovating) pay disproportionately more than the leaches of the society? How do you justify that?

(Not to mention that those arguably inferior public goods (like education) do as much to hinder entrepreneurs as they do to propel them.)

You demonstrate your collectivist nature and the motto you obviously live by: from each according to their ability, to each according to their need.
You are a Marxist!

young austrian said...

"Every private entrepreneur benefits from an elaborate system of public goods ranging from safety, roads, education, r&d to perhaps even culture itself preserved through public works"

This is very similar to what Elizabeth Warren said only a few months ago, and I don't think that its logic can hold. Entrepreneurs "benefit" from these things because they oftentimes do not have a choice. In the instance of the roads, for example, (and with the exception of a few private toll roads) the government more or less has control. So an entrepreneur is "forced to benefit," in a way, since he needs the roads but cannot opt to use a private highway.

It appears as though people benefit from the roads provided by the government only if you assume that roads would not be provided otherwise. With 40,000 dead a year on our government's highways, I tend to disagree. Perhaps, rather than benefitting from the way the roads work now, we are actually disadvantaged, and would be better served by private management.

But we don't know, because the government renders it impossible.

Here is what I take issue with: your argument assumes that it is valid for the state to monopolize certain industries--such that a citizen has no choice but to utilize the government provision--and then to use that as a reason to undermine the freedom and decision-making of the individual. This is no more than a void contract.

the fact of the matter is that an individual was never given the choice. if someone chose to enlist with the state and benefit from them, you might have a better argument. but this whole idea of the social contract based on an inevitable utilization of monopolized state provisions is inconsistent with the fundamental nature of individual rights.

morse79 said...

"Why should anyone (especially those helping society by producing and innovating) pay disproportionately more than the leaches of the society? How do you justify that?"

To live in a decent society? To ensure a safety net? To allow people to consume what they produce? Because those who benefit more should pay more? Plenty of reasons that do not make you a Marxist.

You diminish your argument with the name-calling.

William L. Anderson said...

Krugman wrote: "lower taxes than many ordinary workers." He did not say lower tax RATES. He said "lower taxes."

You accuse me of putting words in Krugman's mouth, yet when Krugman says something you don't like, you re-interpret it. Krugman said that wealthy people pay LOWER TAXES than do people of lesser incomes. We need to evaluate that statement to see if it is true.

morse79 said...

"It appears as though people benefit from the roads provided by the government only if you assume that roads would not be provided otherwise."

That is the usual libertarian response - the counterfactual that ALL (not just roads) of the current nexus of public and private investments and interactions could have been provided otherwise and more efficiently by private enterprise alone.

And if "Cleopatra's nose, had it been shorter, the whole face of the world would have been changed."

The problem is that it is a completely untenable counter-factual. Things happen for a reason. While some public goods might be imposed or eventually live out their purpose, you cannot assert that ALL public goods could have been provided privately at the time of need.

In addition, we have plenty of economic theory to indicate that at times private enterprise cannot produce the most efficient outcome alone given problems of coordination, information, time preferences, and transaction costs.

And purely private enterprise will not always produce the most politically or morally suitable outcome. We might as a democratic society value a social safety net (there is an economic reason as well btw). The libertarian position is a radical rejection of politics, which in my opinion predates economics.

Of course AP will accuse me of wanting to control ALL industry, and call me a SOCIALIST, STATIST. or COLLECTIVIST for daring to think differently than him.

morse79 said...

O come on! Look how far you have backtracked! The op-ed clearly is talking about tax rates and not total taxes (and Krugman has addressed the issue of tax rates vs. tax share in his blog).

The op-ed talks about % of income paid in taxes and tax burdens. That is a tax rate. Do you really think Krugman is that stupid to not realize that the rich pay more dollars in taxes than others?

Major_Freedom said...

morse79:

"To live in a decent society? To ensure a safety net? To allow people to consume what they produce? Because those who benefit more should pay more?"

You are redefining the terms "decent", "safety", "allow", and "benefit more".

It is not "decent" to initiate violence against your fellow man.

It is not "safety" when your wealth is being robbed at gunpoint.

You contradict yourself when you say "allow" people to consume what they produce, because your worldview requires that people NOT be allowed to consume what they produce, and instead be force to pay the state.

As for "benefit more", you are insinuating that those who PRODUCE more, who earn more, are somehow "benefiting more" from "the public", as if that creates a debt to "society." But if people produce more, they aren't accumulating debts, they are PRODUCING goods and services.

"Plenty of reasons that do not make you a Marxist."

It doesn't matter if you hold other "reasons." If you hold the Marxist creed "from each according to their ability...", then you are in fact a Marxist.

morse79 said...

http://krugman.blogs.nytimes.com/2012/01/19/the-tweeting-dead/?gwh=B3275D48A22C1F75F4C74FE557FF502D

American Patriot said...

"To live in a decent society? To ensure a safety net? To allow people to consume what they produce? Because those who benefit more should pay more? Plenty of reasons that do not make you a Marxist."

morse79:

it all depends on what you think a safety net should consist of. To me, people are resilliant bunch who can accomplish a lot more than you progressives think. Case in point is the Danish study that proved that cutting unemployment benefits from a ridiculous length to a much shorter one led to people finding a job that much sooner. That has also been proven in other cases.

Government does not owe anything to anyone other than their safety. Just about everything else is extras that are not provided for in the Constitution (or the DOI)
Education or welfare are not rights. They infringe on others' private property. That is theft when you confiscate property forcefully. That is fascism and Marxism. It is wrong.
People can provide most of what you consider safety net for themselves if the government gets out of the way. Yet, the government only promotes laziness.

The other part of the argument is that there is something called private charity. In this country that accounts for many billions of dollars. I can assure you that we could eliminate welfare and everyone - including those currently on it - would be much better off. There are many anecdotal signs of that.

Just looking at Europe proves that more welfare means progressively greater unproductivity for societies. Another is to look at the war on poverty.
I suggest you pull up the graphic of what happened to poverty in the U.S. starting in 1963 when LBJ's war on poverty officially started. It is tartling to see how the graph turns upward steeply thanks to government fostering greater reliance on welfare type programs.

Finally, do not get sore on name calling. You clearly are a Marxist whether you accept it or not. I do not mind being called a conservative or a free market proponent. Why does it bother you to be called a progressive or a socialist or whatever?

young austrian said...

@morse

no accusations, but i do disagree with some of the things you've said.

For one, I do believe that the private sector would provide roads (as well as everything else) with more efficiency than the government, by definition. I'll admit to that.

But that wasn't really central to my point. My point was that if the government provides something and doesn't allow others to, then it is intellectually void to assume that this somehow binds citizens to fund those things. If a citizen does not have a choice and does not enter into this arrangement willingly, then how can we call that a contract of any kind? This is not a question of efficiency or markets, but rather a worry about the dubious nature of this strand of thinking.

And secondly, you say that "we might value..." But how does one go about deciding what "we" value? If you think about it, the only way to do so is to look at something (votes, polls, whatever) that aggregates what a lot of people value. But that doesn't mean that "we" value it, it just means that any number of people individually value something. Now, normally this leads to the discussion of how those people, if they value that thing, should fund it themselves, and of course I agree with that. But, like the first point, that is not what's at issue here.

These are two philosophical problems. How can the imposition of a contract without the opportunity for the citizen to agree or decline warrant further obligation on the same grounds, and how can we identify a collective will, or what "we" want, without merely summing up individual desires?

These are not rhetorical questions; I would be interested to hear your response.

morse79 said...

Hey Major, where is the sign up sheet for the militia? I mean, how can you bear to live under such tyranny? Down with states, long live anarchy!

Major_Freedom said...

morse79:

"That is the usual libertarian response - the counterfactual that ALL (not just roads) of the current nexus of public and private investments and interactions could have been provided otherwise and more efficiently by private enterprise alone."

That is the usual statist response - the counterfactual that SOME government projects cannot be produced ever in the free market, because the free market does not yet want them due to other, more urgent needs have to be met before the large projects are economically viable and valued by the individuals involved.

"The problem is that it is a completely untenable counter-factual. Things happen for a reason. While some public goods might be imposed or eventually live out their purpose, you cannot assert that ALL public goods could have been provided privately at the time of need."

Need? By WHOM? You don't decide what others need. They do. No, you cannot hide your tyranny by couching it in terms of majority vote, because that just transfers the oppression from you against everyone else, to the majority against the minority.

You want the values of 49% of the people to be violently squashed, and hence all the projects that could have been produced had the minority been free to dispose of their property like the majority is free to dispose of their property in democracy, to be squashed as well.

You are ignoring the legitimate counterfactuals by resorting to the sloppy and vague "things happen for a reason" mantra, like we're all supposed to sit back and look at geneocide, accept it, because "things happen for a reason."

Yes, things do happen for a reason, and in the economy, the reason is individual choice, not some mystical historical inevitability.

"In addition, we have plenty of economic theory to indicate that at times private enterprise cannot produce the most efficient outcome alone given problems of coordination, information, time preferences, and transaction costs."

All that theory is flawed.

"And purely private enterprise will not always produce the most politically or morally suitable outcome."

That doesn't justify government to steal people's resources.

The most suitable outcome can only be borne out of utilizing information generated in the marketplace.

"We might as a democratic society value a social safety net (there is an economic reason as well btw)."

Who's "we"? Not the minority of course. They don't exist.

"The libertarian position is a radical rejection of politics, which in my opinion predates economics."

No, libertarianism is a rejection of initiations of violence against person and property.

And no, economics predates politics. Politics requires resources from the economy. The economy does not require politics to produce resources.

Economics logically and temporally is a priori to politics.

"Of course AP will accuse me of wanting to control ALL industry, and call me a SOCIALIST, STATIST. or COLLECTIVIST for daring to think differently than him."

Wanting the state to control anything makes you a socialist to that extent.

Major_Freedom said...

morse79:

"Hey Major, where is the sign up sheet for the militia?"

I already said I am not advocating or supporting militia attacks on the government.

"I mean, how can you bear to live under such tyranny? Down with states, long live anarchy!"

Substitute "masters" for "states", and "anarchy" for "freedom" and you sound like a slave owner mocking his slaves.

You're depraved.

morse79 said...

@young Austrian,

Thank you for the civil response.

There are three issues with your response -

1) The "belief" that all goods could be provided privately is still just a belief. You need to trace individual goods and also consider the fact that some goods need to be provided much quicker than a private market can. For instance, I have written about the dramatic rise in Alzheimer cases and how private companies are begging for more public investment. The cure will not come in our lifetime without government investment (and government investment is no guarantee either obviously).

2) Government provision has most definitely been associated with public consent. Austrians seem to never address the issue of democratic consensus. Besides, many public goods are not government provided but government supported.

3) Value can be derived from democratic consensus. Yes, the will of the majority matters but what is the alternative besides anarchy?

We can also derive from, dare I say, expertise (KEY the accusations of supporting mindless bureaucrats to control your life). We know that the key to long term economic prosperity is an educated society We have a field that studies public health (do you really want a private company responding to an outbreak of Ebola?). The other Austrian way of arguing is to deny ANY scientific positivism in the study of economics.

morse79 said...

@ Major,

Then you are just a raging hypocrite!

If you think a modern democratic
state with moderate taxation, a limited supply of public goods, and a pretty basic social safety net is tyrannical and you are unwilling to do anything about it besides post on Prof. Anderson's blog then you are sad indeed.

Am I mocking the "slaves"? Well, if all slaves want to be free, that freedom gotta come from somewhere so do something! Or are you just passing the buck?

young austrian said...

@morse

just to respond briefly to the points you've made:

1) I've read your writing on the Alzheimer's cure, and I am (as I'm sure you've guessed by now) a subscriber to the belief that if things go unfunded, it is because they are not highly valued priorities. I will not elaborate here since this view has already been established more or less in its entirety on these pages.

2) I don't disagree with your notion that government provision often comes as a result of democratic consensus. What bothers me is that democratic consensus rules not only over those who willingly enter into its terms, but those who don't as well. I am reminded of those "don't vote" campaigns from a few years ago, that ended with "but remember, if you don't vote, you can't complain." I actually find the opposite to be true. If you don't vote, then you have not willingly entered into the terms of the state. It troubles me that the will of the state still triumphs over those who do not enter into its terms. But, of course, we are arguing two different things at this point.

3) Well, in many ways I believe there are alternatives. For instance, if the majority chooses that social welfare programs, then let them fund those programs. I do not believe it is valid to infringe upon the property of those who have not willingly entered into the agreement.

And, as for public health, it is always important to look not only at that which is seen, but also that which is not seen. No one can deny that the state has provided public health measures (though, I will as always advocate for the market on this one), but it's also important to consider what the biggest factors in our increase in public health have been. Things like the flush toilet and automobiles (which did away with the need for horses) did much to do away with fecal-oral spread diseases here, and truly should not be underestimated. Some respond that automobiles and sewage have created new, less immediate health concerns, and that is true, but it remains to be seen how best they will be dealt with, and by whom.

and thank you, too, for your civil responses

Major_Freedom said...

morse79:

"Then you are just a raging hypocrite!"

Not at all! It's not hypocritical of anyone living in a world of governments to want government to be voluntary and not mandatory.

It's also not hypocritical for someone who holds private property rights as absolute, to refuse to leave their private property EVEN IF there exists a free society next door. The moral obligation to cease and desist meddling with other people and their property is on the NON-OWNERS, not the owners.

"If you think a modern democratic
state with moderate taxation, a limited supply of public goods, and a pretty basic social safety net is tyrannical and you are unwilling to do anything about it besides post on Prof. Anderson's blog then you are sad indeed."

If you think a modern democratic
state with moderate taxation, a limited supply of public goods, and a pretty basic social safety net is not tyrannical and you are only willing to do anything to me besides post on Prof. Anderson's blog then you are sad indeed.

"Am I mocking the "slaves"? Well, if all slaves want to be free, that freedom gotta come from somewhere so do something!"

So now you want to blame the victims. So very expected from a closeted tyrant like you do.

"Or are you just passing the buck?"

Oh so it's my fault that those in the government initiate violence. There you were telling me the majority is responsible, and now you're saying it's my fault?

Talk about YOU passing the buck! Whoever the buck sticks to, they're to blame! Ignore your advocacies of course.

Mike M said...

I’ll throw this into the mix.

A progressive tax code is unconstitutional, as it violates the intent behind “general welfare” and equal protection” clauses of the Constitution. All citizens should be treated equal under the law unless it is your intent to create Animal Farm with some pigs more equal than others.

BTW just because the USSC has not ruled it unconstitutional doesn’t mean it’s right. There is plenty of history in the USSC shirking its objective duty

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phillydog said...

Krugman = Champagne Socialist. Facts have never got in the way of his arguments. His capital gains position omits one key fact:

By way of example if Joe the Plumber's corporation makes $1M in pre tax profits he should have to pay $350k in corporate taxes. If he then paid a dividend to himself of the remaining $650k he would pay 15% taxes on that, or $98k, for a total tax bill of $448k or a tax rate of almost 50% before taking into account state and local taxes which would push his ultimate tax bill up further. If Joe chose not to dividend out his profits and sold his business instead he would have to pay capital gains taxes on any gains he made from the sale. (Conversely if his company subsequently went bankrupt he would not pay any taxes and lose whatever he invested in his business). Either way his business should have already paid taxes of 35% of any profits it made.

http://bluecravat.blogspot.com/2012/01/champagne-socialist-just-cannot-help.html

Tel said...

MF: "The moral obligation to cease and desist meddling with other people and their property is on the NON-OWNERS, not the owners."

To be fair MF, unless you are a native American, it itsn't your property by any peaceful means. You might have purchased it, but not from the real owners. However, I completely accept that you have to go through the pragmatic business of living with what you have got.

Ideals are there to help you recognise which way you would like to go, if and when that might be possible.

Joseph Fetz said...

Tel, if you can find the very first human that homesteaded my current plot of land, I will kindly give it back to him.

morse79 said...

@Joseph Fetz

Isn't that the whole conceit of MF approach? The system of individual property rights that he envisions as the sole basis for human society can only even be thought of since there are nation states to begin with. Politics predates and economics.

Joseph Fetz said...

morse79,

Do you have kids? I am quite sure they grasp the concept of property rights (if only minimally) even though they have no conception of politics or states. I also would think that ownership over one's physical body would require no concept of a state at all.

morse79 said...

Yes, kids' understand property rights. They also understand authority (aka the parent), distribution, and fairness. And note that I said the SOLD basis for society, which is what MF has persistently argued.

morse70 said...

SOLE

Joseph Fetz said...

So, is it cool with you if I end you life? And if not, why not? Or, how about every month I walk through your door, take a look around and grab whatever strikes my fancy while saying, "see you next month"? Can a society (i.e. social cooperation) exist without property rights? If so, how?

jorod said...

Problem is, no one takes the time to really analyze these things. Obama can lie all he wants because no one is going to check anything he says. People go by what they want to hear, not what is true.

morse79 said...

Why would you think that I think that? Society must have property rights. But there is also something called democratic consensus.

Bala said...

"Isn't that the whole conceit of MF approach? The system of individual property rights that he envisions as the sole basis for human society can only even be thought of since there are nation states to begin with."

The usual morse nonsense. Yeah!! If the nation state didn't exist, people would die because they wouldn't know how to breathe.

morse79 said...

OK Bala, then if you are so puritan give your property back to its original owner.

Bala said...

"OK Bala, then if you are so puritan give your property back to its original owner."

Ha Ha Ha!!! If you are so clear, find the original owner of the property and demonstrate that he was expropriated without his consent.

Statist buffoons are indeed hilarious!!!

Bala said...

"OK Bala, then if you are so puritan give your property back to its original owner."

And then there is the point of my brief post which you have (as is usual with you) utterly failed to comprehend. I said

"Yeah!! If the nation state didn't exist, people would die because they wouldn't know how to breathe."

in response to this idiocy from you

"The system of individual property rights that he envisions as the sole basis for human society can only even be thought of since there are nation states to begin with."

How is my being puritanical in any way relevant to this? All you have done is to come up with more nonsense (as usual). To say that property rights wouldn't exist but for the nation state is unadulterated cr@p.

morse79 said...

Property rights do not exist without enforcement. Enforcement is not necessarily the purview of the democratic nation state, but that is a whole lot better than living under a king. The property you claim as your own has to come from somewhere. Someone has to take it first. That is usually a state, unless you have your own army.

The utter nonsense is to think that an economic system predates a political system, instead of viewing them as inextricably intertwined. Ironically, the Austrian view of property rights and unfettered economic calculation as the basis of human organization places them in the same ontological space as Marxists.

Anonymous said...

morse, ever hear of private law?


And who ever said property rights can't be enforced without the state.


http://www.lewrockwell.com/rothbard/rothbard133.html

Bala said...

"Property rights do not exist without enforcement."

And enforcement does not require The State, genius.

"Enforcement is not necessarily the purview of the democratic nation state, but that is a whole lot better than living under a king."

Why are the democratic nation state and a king the only 2 options? I guess that's all Statist buffoons can think of.

"The utter nonsense is to think that an economic system predates a political system"

Yeah!!! No exchange could have happened until a nation state evolved. People were living in splendid isolation not exchanging anything with each other till the great nation state was born. What goop. Only Statist buffoons can come up with something as stupid as this.

Tel said...

"Tel, if you can find the very first human that homesteaded my current plot of land, I will kindly give it back to him."

His/her remains are probably buried on or near your plot of land, and I doubt you would take to kindly to having a team go through and dig that up.

Look, my ancestors are part Irish, part Slavic and part Germanic. We have probably lost more to war and brutality than many groups of people ever had to being with, but when those families (on both parents sides) left their homelands with nearly nothing, the first thing they did was move to a new land where they could take advantage of someone else's loss.

The principle of non-violence is not a principle, it is a hopeful ideal. Violence was the norm for ALL of human history, and very likely violence is to be expected in the future as well. Violence still is the norm, the basic animal state. I own a pet cat, they are lovable and fuzzy but you would not want to have to go through the average short life of a rodent in my house.

Property rights are not rights as such, they are a truce between individuals. I promise to respect your property if and only if you promise to respect mine. I promise to refrain from violence only to the extent that other agree it is a good idea to refrain from violence towards me.

Morse:

"The system of individual property rights that he envisions as the sole basis for human society can only even be thought of since there are nation states to begin with."

That would be meaningful only if nation states had a notable history of respecting property rights, which they don't. After all, it was the power of nation states that systematically conquered the primitive peoples of America and Australia in order to on-sell that property at a profit. History is written in blood, and by far the majority of that blood is on the hands of nation states. I'm not religious, and I don't believe in original sin, but you don't have to go back very far to find un-original sin. It's common as bums.

Let's accept that none of us are without sin, and go on to look for ways to make the situation better, rather than pretending to be holier than thou.

Tel said...

"OK Bala, then if you are so puritan give your property back to its original owner."

Morse, you know that Bala is from India -- one of the very few nations that has not appropriated land at least as far as recorded history can easily be traced. Perhaps Bala has Mughal ancestors, I have no idea.

Joseph Fetz said...

Bala,

Thanks for essentially stating the case much the same way I might have (or, better).

Tel,

I am sure that you know that I respect your opinion, and if you don't, you do now. However, the primary thing that I was trying to get across is that the past cannot be changed, and it cannot always be righted. If we could do a regression to find the correct owners of property, or what have you, I would be all for it. However, that cannot be done, and most of those people are dead. Also, we cannot assume that descendants are the rightful owners, because we don't know that the original homesteaders wouldn't have exchanged their claim to somebody else. This may sound a bit esoteric, but I believe that the past doesn't exist at all but in our own minds and/or interpretations of it. Basically, once it is gone, it is gone, especially if those involved are no longer alive.

As for private property not being a principle, I disagree to an extent. I tend to think of the idea of property as innate to human reason, that it first arrises in the ownership of one's self, it then extends itself to the physical world around us by means of our interaction with nature.

There will always be those who wish to take what is rightfully belonging to others, of that there is no doubt. And yes, they (property rights) do represent somewhat of a truce between individuals, but this doesn't negate the logical substance behind the fact that the idea of ownership is an extension of our own being.

I do disagree that NAP is not a principle, but rather an ideal. Sure, not everybody holds that principle, but I would tend to think that most people, if they thought it through more diligently, would agree that it is a well-reasoned principle of human cooperation.

It should not be surprising that humans exhibit a certain animal instinct, we are after all merely animals that can reason. However, when it comes to a society, the primary substance of a society is cooperation between individuals. I simply do not see how such cooperation can be exist without property rights and all that that entails. In other words, I do not see how chaos would not be the norm without the respect for property rights and the non-aggression of the same.

Joseph Fetz said...

Sorry, on property rights I accidentally said "principle" rather than "rights". My bad.

Bala said...

"Perhaps Bala has Mughal ancestors, I have no idea."

Not to my knowledge. I am a Tam Brahm (as they are called out here, short for Tamilian Brahmin) who cannot by any stretch of imagination be linked legitimately to anyone with anything to do with the Mughals.

Major_Freedom said...

Tel:

"MF: "The moral obligation to cease and desist meddling with other people and their property is on the NON-OWNERS, not the owners."

"To be fair MF, unless you are a native American, it itsn't your property by any peaceful means."

False. Native Americans did not homestead the entire North American continent, and not all of their land that was homesteaded was stolen. You cannot say that because I am not of Native descent, that I ipso facto do not have legitimate property rights.

And even if I own land property that was at some point in the past stolen, then my property rights would only be unjustified if the actual land I own was legitimately owned by Natives who have currently living descendents. But then you'd have to present me with the descendent, conclusive documentation that his ancestors homesteaded this particular land, and didn't just claim to own it. Then you might have a case. But in any event, the argument I made not falsified or refuted simply because the argument is uttered by someone who will be affected by it if justice were to be had.

Major_Freedom said...

morse79:

"Joseph Fetz: Tel, if you can find the very first human that homesteaded my current plot of land, I will kindly give it back to him."

"Isn't that the whole conceit of MF approach? The system of individual property rights that he envisions as the sole basis for human society can only even be thought of since there are nation states to begin with. Politics predates and economics.

False. The individual property rights I "envision" do not require nation states. The only require specific courses of individual human action, namely, original appropriation (homesteading), or free trade. These two types of action do not depend at all on nation states, governments, politics, or anything. They arise naturally by virtue of individual humans acting in this way.

Politics can only codify certain AGREEMENTS on positive laws and rules of conduct. Therefore, politics can only ever be respectful of pre-existing individual property rights which predate politics, or in violation of pre-existing individual property rights which predate politics.

Economics therefore predates politics.

"Property rights do not exist without enforcement. Enforcement is not necessarily the purview of the democratic nation state, but that is a whole lot better than living under a king. The property you claim as your own has to come from somewhere. Someone has to take it first. That is usually a state, unless you have your own army."

Utterly false. Legitimate property rights arise before legal enforcement is ever required. Legitimate property rights do not arise once some land owner declares "I am the owner, and if you trespass, I have the right to demand that you leave." That is just when pre-existing property rights are COMMUNICATED from the owner to a non-owner.

Legitimate property rights arise through totally unplanned, totally organic, natural, individual human action vis a vis the natural world. As soon as an individual homesteads a piece of land, that land is his property, regardless of who else agrees, regardless of any positive laws that may or may not be in effect.

"The utter nonsense is to think that an economic system predates a political system, instead of viewing them as inextricably intertwined."

It is utter nonsense to believe that economic principles at the individual level, can only ever take place AFTER a state of existing individual property owners has been formed. It is utterly contradictory. A state cannot form unless there are existing private property owners exploited by other existing private property owners the latter of whom declare themselves, UNJUSTLY, as the only legitimate contract and rights enforcer in the territory.

"Ironically, the Austrian view of property rights and unfettered economic calculation as the basis of human organization places them in the same ontological space as Marxists."

LOL, when you try to sound smart by using seemingly sophisticate words, you end up looking terribly uninformed.

morese79, EVERYONE is in the same "ontological space." We all exist in the same physical world! So, yes, me, and everyone else, we all exist in the same ontological space as the communist North Koreans!

The Austrian view of property rights is diametrically opposed to Marxism. In fact, it is precisely you who is closer to Marxism than Austrians. Austrians hold private property to be legitimate, organic, and not a product of the state. Marxists hold the exact opposite in all respects.

LOL, and trying to sound smart with "ontological space", which really just means "the physical world", that's funny.

Joseph Fetz said...

MF,

I actually thought that this became more of a discussion of political philosophy rather than economics, so morse's comment on Austrians struck me as quite odd.

Joe

Joseph Fetz said...

Oh, and Morse's statement regarding politics predating economics seems strange, as well. I can only determine that he is talking about the study of such, rather than the actual practical realities. Obviously, economic activity between humans must have predated political structures, because political structures necessitate economic activity between actors in order to be existent.

Anonymous said...

Tel.

You still failed to explain how capital gains is double taxation. Taxes on dividends IS a double tax since its "after tax" profits are subject to tax on the individual level.

Capital gains experiences no such thing. Buying stock is no different than buying any other "good".

morse79 said...

@ Joseph - it is a discussion of political philosophy and economics. The statement that politics precedes economics means that as human beings you are inevitably born into a social and political system (I agree, not necessarily nation states). All economic interaction takes place within that context.

@ MF - You wrote a lot (again), but I think it comes down to this statement - " As soon as an individual homesteads a piece of land, that land is his property, regardless of who else agrees, regardless of any positive laws that may or may not be in effect."

Well, that assumes a)endless territory; b)everyone agrees that the territory you have claimed for yourself is valid (why not go ahead and claim the world?); c) that other people respect your notion of property rights; d) you can claim that property without violence.

In the real world, land is only made available to claim as one's own when the territory itself has been appropriated prior, sometimes by force and the value of property rights has been internalized and enforced. Does this require nation states? No. But that is a discussion of what type of political organization is necessary rather than a denial of the political.

Oh and on this - "morese79, EVERYONE is in the same "ontological space." We all exist in the same physical world!"

Ontology in reference to the study of human behavior - are we political or merely material? Those are ontological debates over the nature of being. The word was not used to "sound" smart. Did you have to google the word?

Major_Freedom said...

morse79:

"@ MF - You wrote a lot (again), but I think it comes down to this statement - " As soon as an individual homesteads a piece of land, that land is his property, regardless of who else agrees, regardless of any positive laws that may or may not be in effect."

"Well, that assumes a)endless territory; b)everyone agrees that the territory you have claimed for yourself is valid (why not go ahead and claim the world?); c) that other people respect your notion of property rights; d) you can claim that property without violence."

It requires exactly ZERO of those supposed assumptions.

a) No, it doesn't require infinite territory. The homesteading principle fully recognizes the fact that land property is finite. Once all land is homesteaded, then the only principle that would justify property rights in the long term is free trade. Those born into a world with 100% private property will be of course be given permission to reside on their guardians' property, but can be sent away at the property owner's behest just like what happens today.

b) This point is just silly. I said that legitimate property arises because of an individual's actions vis a vis the world, and it doesn't matter if anyone else agrees, and you are so dense that you retort with "this assumes everyone else agrees?" Are you blind?

c) This is just a restatement of b), and is therefore false for the same reason.

d) Violence is not needed to homestead or freely trade for anything. Both are peaceful actions that do not violate anyone else's property rights. You can't violate someone's property rights when you homestead, because it is by definition unowned land. Free trade is voluntary and consensual, hence it is peaceful.

"In the real world, land is only made available to claim as one's own when the territory itself has been appropriated prior, sometimes by force and the value of property rights has been internalized and enforced."

This is just muddleheaded meandering that is going nowhere.

"Does this require nation states? No. But that is a discussion of what type of political organization is necessary rather than a denial of the political."

So you're saying nation states are not required, but you hold that because supporting nation states "is a discussion", it somehow has validity? What, are you saying private law anarchistic societies are not "being discussed"?

The quality of your posts is declining VERY rapidly, and they were already low quality to begin with.

"Oh and on this - "morese79, EVERYONE is in the same "ontological space." We all exist in the same physical world!"

"Ontology in reference to the study of human behavior - are we political or merely material?"

What the heck is this? Your attempt at sounding like you know philosophy? "Political" and "material" are not mutually exclusive concepts such that we must ask ourselves if we are either political or material. We can be political AND material, or we can be NEITHER political nor material, if by political we of course mean governmental.

The philosophical antonym of materialism depends on what one means by materialism. If you mean we are "commodity fetishists", then the antonym would be something akin to asceticism. If you mean we are just physical matter that is fully deterministic, then the antonym would be something akin to "free will", or "compatibilism."

"Those are ontological debates over the nature of being."

Yeah, in the sandbox.

"The word was not used to "sound" smart. Did you have to google the word?"

Haha, no. But you should have.

morse79 said...

"This is just muddleheaded meandering that is going nowhere."

Is that why you did not address any of the points of my comment? Your vision of property rights assumes a utopia - a natural state of being that never really existed and never will exist where free roaming individuals see a piece of land and claim it as their own. Of course, they claim reasonably small plots and no other roaming people will challenge that with violence because everyone accepts the premise of property rights. Oh, and we also assume that no one else had a claim to the property you are claiming, and if they did, you are able to take it without violence. That is just crazy!

You clearly do not understand the concept of the political. Nation-state are a manifestation of the political, but clearly not the only entity we can imagine. Your argument rejects the political, not just the nation-state. That is radical. You might hate society, but you are inevitably part of it. Or as Rousseau put it, "man is born free but everywhere he is chains."

As far as ontology goes, I am not going to get into a pissing contest with you about who "knows" philosophy better. Suffice to say, that years of study at the highest level have prepared me for the proper use of these terms. Material and political are clearly not exclusive, but Marxists deny the political as the PRIMARY motivator of human behavior in favor of class-based MATERIAL analysis. Ironically, most Austrians I talk with also reject the notion that mankind is PRIMARILY motivated by political inclinations. Instead, they argue that mankind is solely and economic being and that politics has gotten in the way of efficient economic interaction.

I also find it interesting that your arguments sound eerily like Michelle Foucault's in the 1970s - a clear leftist.

And of course you have continued the trend of hurling insults and bumping your chest instead of actually engaging with other people here. The only explanation I have is that years of self-delusion have inflated your ego to the size of Texas. If you were interested in convincing me or other readers of the wisdom of your ways, your antagonistic approach clearly fails. If instead you are interested in stroking your own ego... You have done a phenomenal job.

morse79 said...

Michel Foucault.

Bala said...

" Your argument rejects the political, not just the nation-state. That is radical. You might hate society, but you are inevitably part of it."

Genius!!! How is the rejection of the political tantamount to hating society?

Bala said...

" Instead, they argue that mankind is solely and economic being and that politics has gotten in the way of efficient economic interaction."

They do not argue that mankind is solely an economic being. This is utter nonsense and reflects complete ignorance of anything Austrian. What Austrians would say is that economic reasoning tells us that politics makes society worse off by reducing the utility of the individuals who are coerced in the process while the so-called benefits cannot be compared with the costs since comparison of utility across value scales is impossible.

Joseph Fetz said...

Morse said, "The statement that politics precedes economics means that as human beings you are inevitably born into a social and political system"

What has that to do with the origin of either economic or political systems? You said that politics predates economics, yet your above statement assumes a political system already exist. As I said, a political system requires an economic system in order to be existent, if you can show that that statement is wrong, have at it, but what you say above doesn't even address it at all.

I'll go a little further, economic activity doesn't even require more than one person (e.g. Crusoe).

morse79 said...

@ Joseph,

I had this discussion last year with someone on this blog who argued that cavemen had free markets. Well, that is first of all not the greatest model to emulate. It also goes against everything we know about primitive man and the earliest civilizations. It goes against what we know about animal society and hierarchy. No, cavemen did not have property rights and free exchange. They had individuals who were more powerful and could elicit compliance through force, charisma, or perhaps mysticism.

Crusoe is a horrible example, since he did not live on the island alone and was the product of his own civilization.

Just think about it - you are not born trading. You are born into a social system, and politics starts at the home. The idea that a person is born outside of a social context (which implies a political context as well), as some sort of rugged individual is just a thought experiment with no referent in reality.

morse79 said...

@ Joseph,

I had this discussion last year with someone on this blog who argued that cavemen had free markets. Well, that is first of all not the greatest model to emulate. It also goes against everything we know about primitive man and the earliest civilizations. It goes against what we know about animal society and hierarchy. No, cavemen did not have property rights and free exchange. They had individuals who were more powerful and could elicit compliance through force, charisma, or perhaps mysticism.

Crusoe is a horrible example, since he did not live on the island alone and was the product of his own civilization.

Just think about it - you are not born trading. You are born into a social system, and politics starts at the home. The idea that a person is born outside of a social context (which implies a political context as well), as some sort of rugged individual is just a thought experiment with no referent in reality.

young austrian said...

I have to say that I'm with Joseph Fetz on this one, but I think it comes down to your definition of economics.

Although it's true that you're not "born trading," that does not necessarily mean that you're not an economic actor before you're a political actor.

After all, each human being responds to incentives from the time he or she is old enough to be aware of them. By choosing to do one thing over the other, by responding to a desire to eat over a desire for leisure a human being is making economical decisions. So if that's what we mean, then I think economics usually does come before politics.

I guess it also depends on how you define politics. If that has to do with the power dynamic between any two groups of people, or even any two people, then the two might emerge simultaneously.

At that point, it doesn't much matter. But if you define politics traditionally, as coming from its root "polis," which means city, then it's hard to say how it could have come about before the economics of acting alone as well as in exchange with others.

again, though, i don't think it much matters for practical purposes what the case is, in the end.

Joseph Fetz said...

Your conflating economic activity with trading, this is wrong. It is especially wrong when attempting to make the claim that political activity predates economic activity. Politics necessitates both economic activity, as well as more than one actor. Economic activity does not.

Now, you can make the claim that the family setting represents a very basic political environment, however this shouldn't negate the fact that humans do not require a political setting to engage in economic activity; I would call a mother rearing her child more of an economic consideration than a political one. For instance, the very first human certainly would engage in economic activity in what Rothbard described as "autistic exchange", which is essentially tradeoffs between taking one action vs the other to reach an end. Clearly, this is economic activity, but it exists only in the mind and involves only a single individual-- there's means and ends, tradeoffs, incentives, etc, everything required for us to call it "economic".

When I mention Crusoe, I am not talking about the actual Robinson Crusoe, rather I am talking about the model named after him. This model clearly shows that economic activity is present when there is only one actor present. Economic activity is something that is innate to human reason and existence, politics is not. If an actor never even conceived of political activity, he would still engage in economic activity, even if the exchanges are only made with regard to time, resources or the next best means of action.

As for the claim (by somebody) that cavemen had free markets, that seems a bit of a stretch. The reason being that markets require things like private property, a system of laws or rules to govern such and more than one actor-- this is both political (very basic) and trade based activity.

When discussing one thing predating the other, we must examine the origins of something, not any considerations of something currently existing. As I have said, economics does not require political activity to exist, yet politics does require economic activity to exist. Obviously, this would require economics to predate politics (with regard to the origins of these human activities).

Joseph Fetz said...

Sorry, one correction:
The sentence "not any considerations of something currently existing" should be " not any considerations of something as it currently exists".

American Patriot said...

"Why would you think that I think that? Society must have property rights. But there is also something called democratic consensus."

"kids' understand property rights. They also understand authority (aka the parent), distribution, and fairness. And note that I said the SOLD basis for society"

morse79:

You have made my case. You, in true progressive fashion, have let the cat out that you believe collective rights trump individual rights (even if they do not harm anyone)

Joseph Fetz said...

AP,

I noticed that, as well. However, it goes much deeper than that. He apparently believes that individuals do not exhibit economic, goal-seeking behavior (i.e. actors seeking ends through means) without some sort of political sphere to govern such. He essentially is assuming that the collective had arisen before the individual, which is entirely absurd on its face-- how can a group of individuals precede the individuals themselves?

Major_Freedom said...

morse79:

"This is just muddleheaded meandering that is going nowhere."

"Is that why you did not address any of the points of my comment?"

I addressed every single one of your points. Just because I don't accept them, it doesn't mean I didn't address them.

"Your vision of property rights assumes a utopia - a natural state of being that never really existed and never will exist where free roaming individuals see a piece of land and claim it as their own."

False. First, history is not proof or disproof that a particular set of ethics is Utopian or not Utopian. Second, for you to believe that "it never will exist" is nothing but an absurd appeal to believing yourself to be Nostradamus who can predict the future actions of people who aren't even born yet.

Homesteading and free trade are possible in all worlds, for all populations, at all times, any time any population wants to practise it.

"Of course, they claim reasonably small plots and no other roaming people will challenge that with violence because everyone accepts the premise of property rights. Oh, and we also assume that no one else had a claim to the property you are claiming, and if they did, you are able to take it without violence. That is just crazy!"

You're fallaciously presuming violent aggressors always win and defensive protectors always lose.

"You clearly do not understand the concept of the political."

I clearly do understand the concept of the political, which is why I know you are wrong about it.

"Nation-state are a manifestation of the political, but clearly not the only entity we can imagine."

You make it sound like "The political" is some sort of mystical essence emanating from the primordial soup of existence, such that humans are bound into bondage of masters and slaves.

Nation states are in fact the product of ideas and choices. They are not inevitable. They are not necessary. They are the outcome of certain ideas that gain prominence over other ideas.

Major_Freedom said...

morse79:


"Your argument rejects the political, not just the nation-state. That is radical."

So what? Slave emancipation was considered "radical" prior to slave emancipation. You're not refuting something by calling it "radical."

"You might hate society, but you are inevitably part of it."

You are conflating society with the state. They are two different things.

"Or as Rousseau put it, "man is born free but everywhere he is chains."

Rousseau was wrong.

"As far as ontology goes, I am not going to get into a pissing contest with you about who "knows" philosophy better."

You already put yourself into one, you lost, and now you're pretending as if you never started.

"Suffice to say, that years of study at the highest level have prepared me for the proper use of these terms."

Am I supposed to be impressed by non-provable claims about your education? Puhlease. I only judge ideas. I don't care about you as a person, or your supposed education. I know that you're simple minded and believe to know more than he does, because your mind has been warped by fallacious myths that were disproved ages ago.

"Material and political are clearly not exclusive, but Marxists deny the political as the PRIMARY motivator of human behavior in favor of class-based MATERIAL analysis."

Materialism and politicism are not even comparable. One is a metaphysical view of the world, the other is a normative set of ethics for humans to act in accordance with, at their choice.

Furthermore, the fact that you interpret Marx has holding the "primary motivator of human behavior" to be "class-based material analysis", and you hold this conception favorably, contradicts your assertion that politics precedes economics.

"Ironically, most Austrians I talk with also reject the notion that mankind is PRIMARILY motivated by political inclinations."

How is that "ironic"? Most Austrians are ethical libertarians. Arguing in favor of liberty is a political argument. That doesn't mean it's wrong.

Major_Freedom said...

morse69:


"Instead, they argue that mankind is solely and economic being and that politics has gotten in the way of efficient economic interaction."

Wrong. Yes, they hold humans to be actors. But you're misinterpreting them to be somehow cold hearted "efficiency" bastards because most Austrians reject the violent state.

There are only two kinds of interaction, consensual (peaceful) and nonconsensual (violent). There are two ethics associated with these types of interactions. Austrians are typically libertarian, so they reject the nonconsensual (violent) ethics. You are a statist, so you reject consensual (peaceful) ethics.

Mankind isn't violent by nature and they are not peaceful by nature. They are actors and choosers by nature. People can choose either violence or peace. They are not destined to doing one or the other.

Politics has gotten in the way of peaceful interaction, because the state is inherently violent. They initiate violence and threats of violence against innocent people, to extract money/property and obedience from them.

"I also find it interesting that your arguments sound eerily like Michelle Foucault's in the 1970s - a clear leftist."

I find it hilarious that you actually wrote the male Michel (his actual name) like the female "Michelle" (not his name).

I also find it hilarious that you seem to believe name dropping is somehow going to support your idiotic and false claims.

"And of course you have continued the trend of hurling insults and bumping your chest instead of actually engaging with other people here."

You conflate "engaging" with "agreeing". I will engage violence advocating idiots like you, but I won't agree with you. No, this isn't "chest thumping". If you perceive that is what's happening, then no wonder you always lose. This is an intellectual sphere, not a battlefield of brute strength. I am asking that you cease advocating for brute force to settle inherently peaceful social issues.

"The only explanation I have is that years of self-delusion have inflated your ego to the size of Texas."

Oh I get it. You feel intimidated. Sorry, not interested in your emotional baggage problems.

"If you were interested in convincing me or other readers of the wisdom of your ways, your antagonistic approach clearly fails."

It's not failing. I am not trying to convince you of anything. I am doing this purely for my own enjoyment, and for the benefit of readers here who actually think. You violence advocates are lost causes.

"If instead you are interested in stroking your own ego... You have done a phenomenal job."

I won't "stroke" your ego. If you want others to stroke your ego, then you're talking to the wrong person.

macroman said...

Australia has avoided double taxation of company profits in a way that seems sensible. Whwn dividends are distributed the recipient receives a tax credit for the company tax already paid. The recipient declares the dividend as income and pays his marginal tax rate on it, but uses the tax credit to pay some or All of it. Thus company tax can be lower than the highest marginAl income tax rate, and those subject to the highest rate cannot avoid it by taking income in the form of dividends.

macroman said...

Young Austrian, flush toilet are good, but it is really the incoming water pipes and outgoing sewerage pipes which make them disease preventers. Most economists and most people have accepted that it is a waste of resources to have three or four or whatever higher number of competitors you need to have a competitive market in water and sewage supply. Five sets of duplicate pipes and trench digging is too big a price for some obscure ideological point. Much better to accept that there are such things as market failures and look for creative solutions which do not exclude some possible role for government.

Anonymous said...

macroman:
Just because a monopoly for certain services is more efficient doesn't mean regulation and enforcement of it are necessary. If people don't want more than one pipeline/sewage company in their community then they won't purchase services from new competitors. If the single firm that provides the service decides to charge too much, then people will purchase the cheaper service of another firm and run that one out of business. Also, the Home Owners Association in an area could simply purchase the sewage service from whatever sewage company they want, thus allowing for multiple sewage companies to exist in an area but also allowing only one set of pipelines for a community. There - creative solutions without the need for government coercion. Maybe we should consider those peaceful ones before we get out the gun and force our neighbors/sewage companies to listen to us?

I never could understand the statist position that a government-enforced/government monopoly was not a market failure but any other monopoly is. If a firm in a market tries to set prices then other firms will step into compete. Historically, "market failures" have happened because of government intervention, not a firm wielding "price setting market power." Only government has the gun and public approval to enforce its price-fixing.

macroman said...

Anonymous said: "Just because a monopoly for certain services is more efficient doesn't mean regulation and enforcement of it are necessary ... Maybe we should consider those peaceful [but inefficient solutions] before we get out the gun and force our neighbors/sewage companies to listen to us ... Only government has the gun and public approval to enforce its price-fixing"

Thanks anonymous for an explicit statement of what seems always to be implied by the Austrian economists on this blog: that is a moral argument rather than an economic one.

So I will respond briefly to the moral argument and the constant comparison of tax raising to armed robbery (rape and blood-thirstiness also get a mention by others).

First of all, I think we need to recognize that that paying a tax or being liable to taxes (in western democracies) is very different from being robbed at gun-point (or being raped, or being beaten). Just think about why "punishment" is not the same as "cruel and unusual punishment", and "due process" is very different from the arbitrariness of a desperate armed robber.

Anonymous said...

"The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital from static to more dynamic situations, the ease or difficulty experienced in new ventures in obtaining capital, and thereby the strength and potential for growth of the economy"

John F. Kennedy