Alberta Treasurer Stockwell Day is proposing to de-link Alberta’s provincial tax system from its federal counterpart. Instead of Albertans paying provincial tax on a percentage of their federal tax payable, a tax on a tax, they will instead pay a single rate of 11% on their taxable income, a tax on income.
This move to flatter taxation is to be applauded and Mr. Day has ensured that the move is beneficial to all income groups. [Part and parcel] with the planned move to the single rate tax is a substantive increase in the provincial basic personal exemption and spousal exemption to $11,620 up from $7,131 and $6,055 respectively. And Mr. Day has pledged to index the exemption to inflation to ensure that the hidden tax increase known as “bracket creep” is vanquished from the Alberta landscape. . . .
Alberta has now ensured that those with incomes under 11,620 pay a rate of 0% and everyone else pays 11% on their income above the basic personal exemption. So the effective provincial rate on someone earning $30,000 is 6.7% and the effective rate on someone at $100,000 is 9.7%.
Tweak the numbers to fit the current American situation, but the basic idea is good and simple: put all income into one bowl, exempt the first $X per person, and tax all the rest at the same rate. Cut the tax form down to a page, make the tax code transparent, drastically reduce the IRS payroll (and trim a lot of corporate bureaucracies as well) . . . what’s not to like?
Before Stockwell Day was a screamingly ineffective campaigner for Prime Minister of Canada, he was the treasurer of Alberta; and back in those days, when I was a graduate student in BC, he came up with the simplest and best tax system I’ve yet run across.
Alberta Treasurer Stockwell Day is proposing to de-link Alberta’s provincial tax system from its federal counterpart. Instead of Albertans paying provincial tax on a percentage of their federal tax payable, a tax on a tax, they will instead pay a single rate of 11% on their taxable income, a tax on income.
This move to flatter taxation is to be applauded and Mr. Day has ensured that the move is beneficial to all income groups. [Part and parcel] with the planned move to the single rate tax is a substantive increase in the provincial basic personal exemption and spousal exemption to $11,620 up from $7,131 and $6,055 respectively. And Mr. Day has pledged to index the exemption to inflation to ensure that the hidden tax increase known as “bracket creep” is vanquished from the Alberta landscape. . . .
Alberta has now ensured that those with incomes under 11,620 pay a rate of 0% and everyone else pays 11% on their income above the basic personal exemption. So the effective provincial rate on someone earning $30,000 is 6.7% and the effective rate on someone at $100,000 is 9.7%.
Tweak the numbers to fit the current American situation, but the basic idea is right on: put all income into one bowl, exempt the first $X per person, and tax all the rest at the same rate. Cut the tax form down to a page, make the tax code transparent, drastically reduce the IRS payroll (and trim a lot of corporate bureaucracies as well) . . . what’s not to like?
We now know that federal employees across the nation owe fully $1 billion in back taxes to the Internal Revenue Service.
As in, 1,000 times one million dollars. All this political jabber about giving middle-class Americans a tax cut. Thousands of feds have been giving themselves one all along—unofficially. And these tax scofflaws include more than three dozen folks who work for the president with that newly decorated Oval Office.
Read the rest of Andrew Malcolm’s piece for the gory details. Granted, $1 billion is a small percentage of the deficit we’re running these days, but that’s still a lot of money—and a lot of hypocrisy.
Looking at this, I can’t help thinking that one big place to start reining in spending is the federal payroll. If you were to downsize all non-military federal departments, agencies, etc. (excluding specific cases like the membership of Congress and the Supreme Court) by 10% at every level, then cut salary and benefits of all non-military federal employees who make more than, let’s say, 200% of the poverty line by 10%, I wonder how much that would save? (I exclude the military because they’ve been dealing with cutbacks while the rest of the federal government has not.)
[Thursday] night, as part of a procedural vote on the emergency war supplemental bill, House Democrats attached a document that “deemed as passed” a non-existent $1.12 trillion budget. The execution of the “deeming” document allows Democrats to start spending money for Fiscal Year 2011 without the pesky constraints of a budget.
The procedural vote passed 215-210 with no Republicans voting in favor and 38 Democrats crossing the aisle to vote against deeming the faux budget resolution passed.
Never before—since the creation of the Congressional budget process—has the House failed to pass a budget, failed to propose a budget then deemed the non-existent budget as passed as a means to avoid a direct, recorded vote on a budget, but still allow Congress to spend taxpayer money. . . .
—This is not a budget. The measure fails to meet the most basic, commonly understood objectives of any budget. It does not set congressional priorities; it does not align overall spending, tax, deficit, and debt levels; and it does nothing to address the runaway spending of Federal entitlement programs.
—It is not a ‘congressional budget resolution.’ The measure does not satisfy even the most basic criteria of a budget resolution as set forth in the Congressional Budget Act.
—It creates a deception of spending ‘restraint.’ While claiming restraint in discretionary spending, the resolution increases non-emergency spending by $30 billion over 2010, and includes a number of gimmicks that give a green light to higher spending.
Honestly, this is a firing offense, by any reasonable standard; it is a profound evasion of responsibility on the part of the House, and a willful attempt to deceive the voters of this country, and should be rewarded with electoral defeat. I’m glad no Republicans voted for it, but I have no illusion that that was purely a matter of conservative principles, as opposed to party politics; I praise the 38 Democrats who voted against it, though I’m sure there were some who did so because Speaker Pelosi gave them permission; but any Democrat who voted in favor should be replaced by a politician with more integrity than that, whether Democrat or Republican.
I put up a post a few months ago arguing that the effort by corporations to use copyright law as a club to try to control people’s behavior is both philosophically problematic and economically counterproductive; the evidence shows, I believe, that they’re better off letting the market work than trying to over-regulate it. As I noted, though, corporations would rather regulate competition out of the way than have to actually compete, and they would rather try to control the market by regulation than have to rely on making a better product or selling it more cheaply. Thus we had, for instance, Viacom suing YouTube to try to force YouTube to remove any videos that might infringe on copyright law; as Farhad Manjoo writes in Slate,
a ruling in Viacom’s favor would have much wider repercussions. It would shift the balance of power between Web companies and entertainment companies, requiring sites to essentially ask permission or seek licenses from Hollywood and the music labels before innovating. Some of the world’s biggest Internet companies—not just YouTube, but also Facebook, Amazon, Yahoo, eBay, Flickr and others—would never have been able to get off the ground had they been required, as struggling startups, to constantly police their networks for potentially infringing material.
Interestingly, though, Viacom didn’t win—not at this stage, anyway; Judge Louis Stanton of the U.S. District Court for the Southern District of New York granted YouTube’s motion for summary judgment. Their policy has been to let copyright holders advertise alongside their content, and to take that content down if the copyright holder asks, and the judge decided that’s good enough. Viacom appealed, of course, but Judge Stanton has given us an all-too-rare victory for common sense; here’s hoping the decision stands.
I have thought more than once that someone ought to try to apply systems theory to economics in a systematic way. The application of systems theory to family therapy by Murray Bowen was a huge step forward, as was Edwin Friedman‘s work in turning Bowen’s model more broadly to congregational dynamics and leadership; Rabbi Friedman’s book Generation to Generation is one every pastor should read (and periodically re-read). Systems theory helps us to understand that problems don’t exist in isolation and can’t be addressed as if they did; we all exist within interlocking relational systems, and the problems of any given individual relate to the problems of the systems of which they are a part (and indeed, may have more to do with the health of the system than with that individual).
As a consequence, systems theory teaches us that the brute-force approach to problems, the use of compulsion and coercion, is often not the best approach, because it attacks the symptom without doing anything about the underlying issue—and indeed, will likely make the underlying issue worse. Rather, it’s necessary to address problems by changing the system. To do that, you have to identify the ways in which you are supporting the system and enabling its current dysfunction, and then change your own behavior. This changes the incentive structure within the system and shifts the stress of maintaining it off of you and on to the other members; this creates a great deal of pressure on the system which will ultimately, given sufficient time, break it, thus making real progress possible.
The same is true of our economy, which is itself a system—or perhaps one might say, a meta-system, since the “individuals” which interact are corporations, which are their own complex systems—and which is, of course, embedded in the even larger meta-system of the global economy. Problems, whether they be with companies, sectors of the economy, aspects of the economy, or whatever, don’t exist in isolation, and can’t be addressed as if they did. This means that the brute force approach, the attempt to compel the behavior one desires of a given corporation or industry through legislation and regulation, is at best highly inefficient and at worst actively counterproductive. It’s like swatting at a mobile—you put the whole thing in motion, setting it turning in ways you couldn’t have predicted, leading to results you didn’t anticipate. This is why the Law of Unintended Consequences has such force.
Rather than simply trying to regulate the economy into moral behavior, we need to recognize that it’s a complex interlocking system of human relationships, and to try to address corporate and economic issues accordingly. Obviously, this is easier said than done, as the system is far too complex to be fully comprehended by the human mind, but taking this approach at least gets us closer to understanding the real issues. For instance, don’t just look at bad behavior—whether of a rebellious teenager or a company that’s cooking the books—look at the structure of incentives within the system and see what that behavior is in response to, and what’s rewarding it.
This is not a new idea in the world of economic theory; in fact, it’s quite important in the work of the Austrian school of thought, of folks like Ludwig von Mises and F. A. Hayek. It’s one of the reasons I believe they were closer to right than other economic approaches, because they understood and emphasized that the incentive structure drives economic action—that people will tend to do what they have an incentive to do, and to avoid doing what they have no incentive to do—and that when the incentives are out of whack, it will produce behavior which will be bad for the economy. One example of this is Hayek’s Nobel Prize-winning theory of the business cycle, which makes clear that if interest rates are set such as to provide an incentive for highly speculative investments, people will speculate; the result will be an economic bubble which will eventually, inevitably, burst. Just check the housing market.
To try to rationalize the economy, then, to produce steady, sustainable growth, we need to understand (as best as possible) how our laws and regulations and the decisions of government entities like the Federal Reserve and Fannie Mae create incentives for counterproductive behavior; and then we need to work to change those incentives to reward behavior that will produce long-term health rather than short-term big profits. This means not trying to fix the economy by regulating it more—indeed, it might well mean deregulating it to some degree, not because “business can be trusted” (it can’t, but neither can government), but because deregulation simplifies the system and makes it easier to see what’s actually going on.
Hayek, by the way, though an advocate of the free market, was by no means opposed to regulation; he was enough of a realist about humanity to recognize that there is a proper role for government to play in economic matters. As such, there have been those on the Right who have criticized him for not supporting the free-market system enough. From an Austrian perspective, it seems to me, the key is that the government should only regulate cautiously and with humility, out of the expectation that it knows and understands far less than it thinks it does.
Regulation to prevent clear injustice is necessary, as are efforts to insure the free flow of information, because most people will abuse the system if you give them a clear shot and a big enough reason; but regulation to try to control outcomes is almost certain to backfire. When the government tries to pick winners and losers, you end up with crony capitalism and the disasters we’re seeing now. The best we can do is to try to keep the process as fair as possible, so that everybody’s playing by the same rules; try to keep the structure of incentives as rational as possible, so that the market isn’t tilted either towards excessive risk or excessive caution; and to remember this insight from Hayek’s 1988 book The Fatal Conceit: The Errors of Socialism (quoted at the end of the rap video “Fear the Boom and Bust”):
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
Incidentally, the odds are pretty good that you’ve seen that rap video, produced by filmmaker John Papola and economist Russ Roberts (of George Mason University and the blog Café Hayek, which I have in the sidebar), which envisions a rap duel between Hayek and John Maynard Keynes; after all, it’s now up to nearly 1.2 million views for one version of it on YouTube alone. If not, though, unless you absolutely can’t stand rap—and maybe even then—you really ought to watch it here; it’s a great piece of work. Then go read the explication of the video (which I linked above) by one of the posters on Daily Kos (yes, seriously), and Jeffrey Tucker’s piece on the website of the Ludwig von Mises Institute. You’ll be amazed how much you can learn from a rap video. (For my own part, I’m no more a Keynesian than I ever was, but I definitely have more of an appreciation for his work now than I did.)
A couple months ago, President Obama gave a speech in St. Charles, MO in which he argued that his health care plan would make Medicare stronger even as it cut the Medicare budget, because “There’s no cutting of Medicare benefits. There’s just cutting out fraud and waste.” As you can probably guess, I’m skeptical about that, but maybe not for the reason you think. I’m not skeptical because it’s him or his party—this is a recurring bipartisan theme. Politico’s Chris Frates put it well when he wrote,
Obama’s efforts follow those of a long line of Republican and Democratic presidents who promised to save taxpayers money by cutting fraud, waste and abuse in the government insurance programs. The sentiment is popular because it has bipartisan support and doesn’t threaten entrenched health industry interests that benefit from the spending.
“Waste, fraud and abuse have been the favorite thing to promise first because it’s a way of promising cost control while not doing any of the painful stuff,” said Len Nichols, a former senior health policy adviser in the Clinton administration. The method is “as old as the Bible,” he said.
“It’s a way of promising cost control while not doing any of the painful stuff”—that’s it right there. It’s how politicians convince us that they’ll be able to cut government spending (which we want) without cutting any of our programs (which we don’t want). After all, politicians who cut our programs—even if we elected them to cut spending, even if we know government desperately needs to cut spending—tend to become unpopular as a result, at least in the short term . . . and we know there’s nothing politicians hate worse than being unpopular.
The problem is, the idea that we can solve our budget problems (or even make a major dent in them) is a myth—a fairy tale—a chimera. It’s never happened yet, and it isn’t going to, either. That’s not to say, certainly, that we shouldn’t do everything we can to reduce waste and fraud, but we need to do so realizing that we’re fighting, at best, a holding action; we’re never going to achieve victory, and we’re never going to gain enough ground to make a significant improvement in the budget. In truth, just keeping waste and fraud from growing is an accomplishment.
That might seem cynical, but I think it’s just realistic. Waste is an inevitable part of any human activity, as we should all know from daily life. There’s always peanut butter left in the jar when it’s “empty”; there’s always shampoo left in the bottle when we can’t get any more out; there’s always some of the fruit that falls off before it’s ripe. We can and should work to reduce waste—say, the amount of energy given off by our light bulbs as heat rather than light—but we’ll never eliminate it. We’re simply too limited to ever achieve 100% efficiency.
Within large organizations, there’s an additional problem that reinforces and aggravates this reality: cutting waste isn’t to everybody’s benefit. The bureaucracy has its inevitable turf wars, which waste money, and its (often competing) agendas. What’s more, the people who control the money as it trickles down through the system have the same self-protective instinct as anyone; those who benefit from waste want to see it perpetuated, and this waste has a constituency. The people who profit by waste are there, they are connected, they have clout; those who would profit if waste were removed are abstract, theoretical, not present, not connected, and can’t prove their case, since it’s a might-have-been. Anywhere except Chicago, a voter who shows up and argues will beat a voter who isn’t there any day.
As for fraud, any time there’s a lot of money moving around, there will be those unscrupulous and clever enough to siphon some of it off. Whatever ideas you come up with to stop them, or failing that to catch them, will have only limited success; as in warfare, so in this area, the advantage is constantly shifting between offense and defense—the defense may pull ahead for a while, but the offense will always adapt and regain the advantage. What’s more, when it comes to preventing fraud, the defensive position is intrinsically harder, because the fraudster only has to find one loophole in order to succeed, while those on the other side have to keep every last loophole closed, even the ones they don’t know are there. In the end, we can only say of the fraud artist what Dan Patrick used to say of Michael Jordan: “You can’t stop him—you can only hope to contain him.”
All of which is to say, the commitment to fight waste and fraud in government is laudable, and we should certainly do everything we can to encourage our politicians in that direction—but any politician who tells you they can solve our budget problems by eliminating waste and fraud is selling you a bill of goods. The only way to significantly reduce waste and fraud is to significantly reduce the spending that produces and attracts them; if you want to cut waste and fraud, you have to cut government.
Just because it’s showing signs of life doesn’t mean it’s getting better. For those who think otherwise, here are some questions to consider. (And yes, as someone has already demonstrated, there are ways to try to explain away each question; but as any baseball fan knows, if there are a lot of “ifs” and they all have to have the “right” answer for things to go well, things probably aren’t going to go well.)
I’d never heard of the groupOK Gountil a month or two ago when my brother-in-law played me the video for their song “This TooShall Pass,” from the album Of the Blue Colour of the Sky. I enjoyed it, but the group didn’t really stick in my consciousness until they released a second video for the same song, featuring a most remarkable Rube Goldberg machine:
At first, the most interesting question to me was, did they really shoot that in a single take? (Answer: it took them over sixty tries, and apparently they ended up having to splice two of them together.) With that answered, I discovered that in truth, the most interesting question is this: why did they make a second video to the song when the first one (featuring the Notre Dame marching band) was perfectly fine? As Dylan Tweney wrote on the Wired website,
OK Go developed a reputation for making catchy, viral videos four years ago with the homemade video for “Here It Goes Again,” which features the band members dancing around on treadmills. The company ran afoul of music label EMI’s restrictive licensing rules, which required YouTube to disable embedding, cutting views to 1/10 of their previous level. Now, the new video is up—and it’s embeddable, so the band seems to have won this round with its label—and is already generating buzz on YouTube and on Twitter.
Actually, it’s not so much that OK Go won the round as it is that they cut ties with their label and went independent. As one commenter on another OK Go video (“We’re Sorry YouTube”) put it,
OK Go got into a huge fight with EMI and Capitol over how their viral videos were distributed. They wanted You Tube viewers to be able to watch the videos without worries about the labels coming down on people who posted. In the end, they ended up leaving EMI and Capitol and forming their own label. In fact, they were so mad that’s why they created a second video for “This Too Shall Pass” with the Rube Goldberg machinery. This video is just their humorous way of dealing.
In the cheap political calculus that floats around, it’s usually assumed that because conservatives support big business, big business is politically conservative—which in economic terms means in favor of deregulation and the free market. In truth, though, this is a long way off the mark; big business is very much in favor of regulation, because regulation is the simplest way of squashing competition. It’s certainly easier than actually having to outcompete people. Thus the approach of big companies like EMI to something like YouTube is generally to try to regulate it by one means or another so as to maintain as much control as possible over how their material is used; they want to ensure that nothing happens that they don’t approve, and that they don’t miss any opportunity to make money.
Now, I don’t want to minimize the importance of intellectual property and intellectual property rights; it’s morally wrong when people who create things don’t profit from their creations as they should, and I’ll even grant that the companies which connect musicians and authors and other creative types to those who want to buy their creations should also make an appropriate profit for their work. But the approach EMI took here is extremely short-sighted, because it treats the economic process as a zero-sum game; thus it assumes that if someone is able to, say, watch an OK Go video someplace other than on YouTube (i.e., someplace that doesn’t have an ad for EMI up right next to the video), that represents a lost profit opportunity which can never be recovered. That simply isn’t true.
Rather, what OK Go understands and EMI (like many other corporations) doesn’t is that giving things away can often be the best way to make money. The best illustration of this I know of is the success of the Baen Free Library at Baen Books. Baen, founded by the late Jim Baen, isn’t a huge publishing company by any means, but it’s a significant one in the world of science fiction; and spurred on by Eric Flint, one of their authors, they opted years ago to start making a significant number of their titles available free online. As Flint explained at the time,
Losses any author suffers from piracy are almost certainly offset by the additional publicity which, in practice, any kind of free copies of a book usually engender. Whatever the moral difference, which certainly exists, the practical effect of online piracy is no different from that of any existing method by which readers may obtain books for free or at reduced cost: public libraries, friends borrowing and loaning each other books, used book stores, promotional copies, etc. . . .
Any cure which relies on tighter regulation of the market—especially the kind of extreme measures being advocated by some people—is far worse than the disease. As a widespread phenomenon rather than a nuisance, piracy occurs when artificial restrictions in the market jack up prices beyond what people think are reasonable. The “regulation-enforcement-more regulation” strategy is a bottomless pit which continually recreates (on a larger scale) the problem it supposedly solves. And that commercial effect is often compounded by the more general damage done to social and political freedom. . . .
We expect this Baen Free Library to make us money by selling books.
How? As I said above, for the same reason that any kind of book distribution which provides free copies to people has always, throughout the history of publishing, eventually rebounded to the benefit of the author. . . .
I don’t know any author, other than a few who are—to speak bluntly—cretins, who hears about people lending his or her books to their friends, or checking them out of a library, with anything other than pleasure. Because they understand full well that, in the long run, what maintains and (especially) expands a writer’s audience base is that mysterious magic we call: word of mouth.
Word of mouth, unlike paid advertising, comes free to the author—and it’s ten times more effective than any kind of paid advertising, because it’s the one form of promotion which people usually trust.
That being so, an author can hardly complain—since the author paid nothing for it either. And it is that word of mouth, percolating through the reading public down a million little channels, which is what really puts the food on an author’s table. Don’t let anyone ever tell you otherwise. . . .
The only time that mass scale petty thievery becomes a problem is when the perception spreads, among broad layers of the population, that a given product is priced artificially high due to monopolistic practices and/or draconian legislation designed to protect those practices. But so long as the “gap” between the price of a legal product and a stolen one remains both small and, in the eyes of most people, a legitimate cost rather than gouging, 99% of them will prefer the legal product.
Of course, some might be skeptical: is it really working? Well, about a year and a half after Flint launched the Library, he wrote an extended piece showing that the Library had actually boosted sales of the books Baen gave away—by quite a significant amount, actually.
The Library’s track record shows clearly that the traditional “encryption/enforcement policy” which has been followed thus far by most of the publishing industry is just plain stupid, as well as unconscionable from the viewpoint of infringing on personal liberties. . . .
Making one or a few titles of an author’s writings available for free electronically in the Free Library seems to have no other impact, certainly over time, than to increase that author’s general audience recognition-and thereby, indirectly if not directly, the sales of his or her books.
I believe it also—I leave it up to each individual to weigh this out for themselves—places such authors on what you might call the side of the angels in this dispute. For me, at least, this side of the matter is even more important than the practical side. It grates me to see the way powerful corporate interests have been steadily twisting the copyright laws and encroaching on personal liberties in order to shore up their profit margins-all the more so when their profit problems are a result of their own stupidity and short-sighted greed in the first place.
I will leave you all with one final anecdote. Napster, of course, is held up as the ultimate “villain” with regard to the so-called problem of online piracy. The letters I received as Librarian were addressed to the issue of books, not music. Yet I was struck by how often—perhaps in a hundred letters—the writers would mention their own experience with Napster. And, in every instance, stated that their purchases of CDs increased as a result of Napster—for the good and simple reason that because Napster enabled them to sample musicians, they bought music they would not otherwise have been tempted to buy because CDs are too expensive to experiment with.
Not enough? Well, check out what Janis Ian had to say. Or consider a personal anecdote: a few days ago, Ray Ortlund put up a blog post with a video of Quicksilver Messenger Service’s song “Pride of Man.” An embedded video, note. I’d never heard of the group before, and neither had Sara; we now own a copy of their “Best of” album, and I think there’s pretty good odds we’ll buy more before all is said and done. If the record labels had their way (or if, at any rate, they all operated like EMI), that sale would never have happened.
Yes, copyright is important. Yes, intellectual property is important. The laborer is worthy of his hire, after all. But using copyright as a club, seeking ever greater regulation of people’s behavior out of fear of what they might do, isn’t just philosophically problematic—it’s unprofitable, because it has a dampening effect and a chilling effect on the very market on which companies depend. A receding tide lowers all boats, but a rising tide lifts them. Just ask Eric Flint.
even ahead of tort reform, I think, is the simplest: cost transparency. As Barbara Kiviat writes,
A big part of the reason consumer goods are so cheap in the U.S. is because people always know what they’re paying. As a consequence, consumers can push prices lower by voting with their feet. If CVS tries to sell me a toothbrush for $4 when the one at Rite Aid goes for $3, I will shop at Rite Aid and CVS will learn its lesson. This dynamic almost entirely accounts for the success of Wal-Mart. Yes, Wal-Mart has more efficient (and therefore cheaper) distribution than almost any other company on Earth, but the whole reason Wal-Mart is going for cheap in the first place is because there are hundreds of millions of Americans who demand it—a demand that is listened to because people are able to make well-informed decisions about when to walk away.
Lately I’ve been wondering if we might not be wise to unleash such price-crazed consumerism on the field of health care. The great health care debate has two prongs. I don’t know the best way to expand coverage to the uninsured. But I do have an idea about how to drive down the eye-popping cost of medical treatment: price tags. . . .
I have long been fairly quiet about health-care policy because I feel I don’t know enough about the intricacies of the debate. But one thing I do know about is the price-setting power of the enlightened consumer. I know about the effects of price transparency, and I know about what happens when you give Americans the tools to hunt for deals and value. Think about Wal-Mart. Think about going on Expedia to comparison shop airline tickets. Think about the first question you ask when you are considering buying a particular house.
