Friday, July 26, 2013
The usual Left-driven hypocrisy
The Sharing Economy
by Don Boudreaux
One of the political left’s most popular (the most popular?) trope is to complain that free markets promote and exacerbate economic “inequality” (where “inequality” is used as a synonym for “observed differences across people – or statistical categories of people – in some variable, usually pecuniary income or wealth, that we presume to be especially important”).
But what are too often overlooked are the many ways that markets spread economic benefits and costs and, in the process, promote greater economic equality than would otherwise exist. The ways that markets promote this sharing of benefits or costs are numerous. Here’s just one example: the real-world consequences of what economists identify as the “law of one price.” This sharing works across geographic space and across time.
Suppose you’re strolling down 5th Avenue in Manhattan on a beautiful Autumn day. You notice as you cross 14th Street that Golden Delicious apples are selling for $3.00 a piece. A few minutes later, when you reach Washington Square park, at the foot of 5th Avenue, you notice that Golden Delicious apples are selling there for $1.00 a piece. Having nothing urgent to do that day, you buy several boxes of Golden Delicious apples in Washington Square park and then haul them up to 14th St. to sell them. You buy low ($1.00) and sell high ($3.00). Your buying low in Washington Square park will, of course, cause the price of Golden Delicious apples sold in Washington Square park to rise, and your selling those apples up at 14th St. will cause the price of Golden Delicious apples sold at 14th St. to fall. You – and other apple arbitrageurs – will continue to haul apples from Washington Square park up to 14th St. until the price of apples in both places is pretty much the same (say, $2.00 per apple). One price will reign in both places for Golden Delicious apples.
Your profit-seeking actions here enable people up at 14th St. to share in the relative good fortune of people down at Washington Square park – that relative good fortune being an initially higher supply of Golden Delicious apples at Washington Square (or, more generally, a lower marginal value of those apples at Washington Square than at 14th St.). Or, looked at differently, your profit-seeking actions oblige people down at Washington Square park to shoulder some of the relative misfortune of people up at 14th St. – that relative misfortune being an initially lower supply of Golden Delicious apples at 14th St. (or, more generally, a higher marginal value of those apples at 14th St. than at Washington Square).
Your profit-seeking actions moved a valuable good from where it was relatively more abundant to where it was relatively less abundant, causing the relative abundance of Golden Delicious apples at both sites to be pretty much equal to each other.
(If you doubt the veracity of my hypothetical, imagine how surprised you would be if, in fact, you saw interchangeable apples selling for one price at some location and, at pretty much the same time, selling for a very different price at a nearby location. The very fact that such price differences aren’t common attests to the validity of the law of one price.)
Now suppose that before any of this arbitrage takes place, a neighborhood association up at 14th St., upon hearing rumors that Golden Delicious apples sell at Washington Square park for a mere $1.00 a piece, enacts and enforces legislation to force the price of those apples at 14th St. down to $1.00 each. What’s the consequence? Answer: no one down at Washington Square bothers to haul apples from Washington Square up to 14th St. The (presumably well-intentioned) legislation prevents the market from performing its sharing function. People down at Washington Square continue to enjoy apples at a price so low that it doesn’t reflect – as it otherwise would – the demands for apples of the folks up at 14th St. The legislation meant to help the folks at 14th St. ends up benefitting the folks down at Washington Square by eliminating the incentives of arbitrageurs to haul apples from Washington Square up to 14th St. And this legislation harms the people at 14th St. by artificially eliminating the incentives that would otherwise have driven arbitrageurs to haul apples from where they are relatively more abundant (Washington Square park) to where they are relatively less abundant (14th St.).
The very same analysis holds over time. When speculators buy today in the hopes of selling tomorrow at higher prices, these speculators move goods across time; goods are moved from a time when they are relatively more abundant to a time when they are relatively less abundant. Successful speculation obliges people in times of relative abundance to share their good fortune with people existing in times of relatively less abundance. Or, alternatively stated, successful speculation enables people in times of relatively less abundance to share in some of the good fortune of people existing in times of relatively great abundance.
And, of course, what’s true for ‘long’ speculation (buying today in hopes of selling at higher prices tomorrow) is true for ‘short’ speculation (selling today in hopes of buying tomorrow at lower prices). ’Short’ speculators, if they are successful, move goods from tomorrow (when these goods are relatively more abundant) to today (when these goods are relatively less abundant).
Beautiful, isn’t’ it?! (And no, I do not ask this rhetorical question facetiously.)
Why are tax campaigners campaigning to make the poorest of the poor poorer?
Written by Tim Worstall in Britain
Most here will know that my favourite blood sport is hunting Richard Murphy and his buddies in the Tax Justice movement. But even I am appalled at the latest demand from them: that multinationals should be forced into paying more corporation tax in poor countries. They make this demand because they are willfully blind to the most basic point about corporation taxation: the incidence of said taxes. Here's what is said:
Corporate taxes are incredibly important to many developing countries. When many in their populations are too poor to pay any taxes and when corruption undermines much of the local tax base from commerce (and this fact has to be recognised at present) then the revenues to be earned from multinational companies form a significant part of the tax base of these states. In that case the base erosion that is now well documented due to transfer mispricing out of these countries on royalties, management services, interest, insurance and other charges levied on an intra-group basis, usually from tax haven subsidiaries within the same multinational entity, is of massive concern to these states and forms a major part of the illicit flows that prevent the provision of adequate services by many governments, undermining democracy and blighting many lives over succeeding generations.
We have argued for fundamental reform on behalf of these countries.
They're arguing that the poorest of the poor should be pushed further into poverty as a result of their determined ignorance about that tax incidence. We've known for well over a century now that companies do not actually bear the economic burden of taxes levied at the company level. It is either the workers, in the form of lower wages, or the investors, in the form of lower returns that do. This is not an arguable theoretical point: it's just a truth about this particular universe that we inhabit. No, don't worry about why for the moment, simply take it as being one of those truths.
We also know what it is that influences who carries the burden, workers or investors. The mobility of capital and the size of the economy of the taxing jurisdiction relative to the size of the world economy. The precise splits are argued about, volubly, but but all economists are agreed on those two basic points. It's some combination of the workers and shareholders and the smaller the economy and the more mobile capital the more it is the workers, the less the investors.
One more interesting point: Atkinson and Stiglitz, back in 1980 or so, showed that the burden could in fact be greater than 100%: the loss to workers and or shareholders could be greater than the sum raised in revenue. And yes, the smaller the economy and the more mobile capital the more likely this is and that this burden will be on the workers. So, what do we know about these developing economies where we are told that companies really must cough up more corporation tax in? In fact, that multinational companies must cough up more tax in? Quite: we know that these economies are very small compared to the world economy. That's why we call them developing economies: because they're small and poor ones.
Further, given that we are specifically talking about multinationals, the capital we're talking about must be perfectly mobile. It is outside investment going in: not domestic investment pondering whether to leave or not. If we piece all of this together then we get the ugly reality. The truth is that the burden of higher corporate tax on multinationals in these poor countries will be upon the backs of the workers. Those workers being, by our very definitions of poor and developing country, the poorest of the poor. These are the people we actually want to help and here the "Tax Justice" campaigners are insisting that their wages should be driven even lower. And as Joe Stiglitz has pointed out, their wages could be driven down by more than the actual revenue raised.
This is not, I would submit, a sensible way of improving people's incomes: imposing a tax which we know will reduce those incomes.
As above I usually take my pursuit of these people as a rather jolly blood sport. A day out with the hounds and if the odd vulpine gets harmed well, no matter and that's not really the point of it all: it's the jolly day out that is. But then we find them proposing something quite as barmy, even evil, as this. They simply will not listen to what they are being told about the incidence of corporate taxation. They just don't want to believe that it's not either the company or the evil capitalists who bear the burden of these taxes. As a result they ignore that their recommendations will grind the faces of the poor even more firmly into the dust. At which point the pursuit of their errors become less a jolly day out and more of a necessary duty.
If you want to raise wages in poor and small economies then you want more multinationals to invest in those poor and small economies. Trying to tax said multinationals more so that they invest less and thus depress wages just isn't a good method of raising living standards in these places. We want to tax less, not more.
Cost-Cutting Board Ready to Veto Your Doctor
By Nat Hentoff
A major section of Obamacare that requires employers to provide health insurance for their employees or pay a fine has been postponed until 2015, resulting in much confusion and controversy around the nation. But little attention has been paid to the president’s most threatening weapon for cutting health care costs: the Independent Payment Advisory Board. It still remains, causing the administration fury when it’s called a “death panel.”
The IPAB is, according to the authors, “directed to ‘develop detailed and specific proposals related to the Medicare program,’ including proposals cutting Medicare spending below a statutorily prescribed level.”
For instance, as I’ve pointed out, whatever Medicare-paid prescriptions your physician has authorized for your benefit can be vetoed by the IPAB (whose members have never examined you) if they cost too much.
Meanwhile, this 15-member board, which can remove you from the universe, “will control more than a half-trillion dollars of federal spending annually.”
Rivkin and Foley continue: “Once the board acts, its decisions can be overruled only by Congress, and only through unprecedented and constitutionally dubious legislative procedures — featuring restricted debate, short deadlines for actions by congressional committees … and super-majoritarian voting requirements.”
In this United States of Obama, “The law allows Congress to kill the otherwise inextirpable board only by a three-fifths super majority, and only by a vote that takes place in 2017 between Jan. 1 and Aug. 15.”
If this board “fails to implement cuts, all of its powers are to be exercised by (Health and Human Services Secretary Kathleen) Sebelius or her successor.”
I don’t remember voting for her or him.
Rivkin and Foley say with fearful logic: “At a time when many Americans have been unsettled by abuses at the Internal Revenue Service and Justice Department, the introduction of a powerful and largely unaccountable board into health care merits special scrutiny.”
It sure does. What will members of Congress do about this next outrage by Obama? What will the 2016 presidential candidates say about it?
There’s more that needs special scrutiny. When I first heard of what follows — “Another ObamaCare Tax That Is Bad for Your Health” (Fred Burbank and Thomas J. Fogarty, The Wall Street Journal, July 8) — I was very disturbed. This cold-hearted Obama reduction of our health care possibilities took me back almost 20 years. I was 69 at the time, and my physician told me, “Your life is hanging by a thread. I must prepare you for open-heart bypass surgery.”
As described at about.com, during this procedure, the chest is opened with an incision that allows the surgeon access to the heart, which is temporarily stopped with a solution of potassium (“What Happens During Open Heart Surgery,” about.com).
“At this time,” the article continues, “the heart-lung machine does the work of the heart and the lungs.”
While I was getting ready for this very daunting surgery, my doctor and others told me how lucky I was because this particular open-heart procedure had only become possible some years before with newly researched techniques.
But now, under Obama, as physicians Burbank and Fogarty report in their op-ed for The Wall Street Journal: “On Jan. 1, manufacturers of medical devices in the U.S. were hit with a new 2.3 percent tax on revenue, one of the many sources of money tapped to pay for Obamacare …
“Its effect on U.S. medical-device startups— the small companies that fuel innovation — may prove devastating.”
Why? Burbank and Fogarty answer: “Coincident with the 2.3 percent tax, venture capital investment in medical devices has all but ceased. … Ask yourself two questions: Who would want to invest in a highly regulated, government-controlled industry that faces a unique tax? What startup medical device company can reach the magical break-even point with a (special) tax on its revenue?
“When combined with the ever-increasing time it takes to get approval from the U.S. Patent and Trademark Office and the Food and Drug Administration, this levy is bound to destroy startups and stunt medical-device innovation in the U.S. and thus the quality of health care worldwide.”
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Posted by JR at 1:50 AM