Laffer Curve is Dead

This chart which was stolen from my favorite economic blog, Carpe Diem, shows that the laffer curve is likely not as dead as some (Paul Krugman) would want you to believe. The marginal tax rate goes down and the government just gets a smaller piece of a bigger pie.

Economics and Jesus

In my spare time, I enjoy few debates more than what Jesus' view on the economy would be. So, this morning and after every one left (about an hour ago) I treated myself, this Christmas, to reading a few articles debating the issue.

I love this topic because both side has excellent points and, due to the topic, is impassioned. Some people will adamantly swear that Jesus was a socialist. They use quotes like "Give up all your possessions and follow me." They also use some of the parables, mainly the parable of the good samaritan, which is in Luke 10: 25. They argue that Jesus was a radical who cared nothing for the ways and means of the world but only sought to follow God. He flipped over tables in church because he was so incredibly anti-materialistic. He freely gave up himself for the good of others. How can one not see how clearly socialist he is?

The other side says that Jesus is an anarcho-capitalist. He did not believe in the hierarchy and believed in direct aid to the poor. Notice that Jesus did not dictate someone else to die on the cross for the sins of mankind. Jesus came to this earth to set us free. Governments can do nothing but inhibit freedom, so therefore, Jesus must be an anarcho-capitalist. They then point to the parable of the sower which is in Matthew Mark and Luke. He told us to use our talents wisely. There is no wiser use than what the free markets will determine.

The benefit of this argument is that both sides have a great deal of evidence. I will not tell you where I stand on this argument tonight, because I want to clearly state my views on this topic and that will simply take more time than I am willing to commit this close to midnight.

I hope all of you had an incredibly Merry Christmas and I hope that God blesses you in the upcoming new year.

Why the last post matters

Thanks to Angry Bear Blog for creating this fantastic chart. The author is a liberal economist who I read every day and encourage you to do the same.

If companies and people save their money, they can't spend their money on improving and growing their business... meaning they can't hire.

Tax Cuts

There are two real questions when dealing with tax cuts. The first, and the one this entry will not address, is whether it is moral for a government to take money from individuals based on the threat of force to give to programs the individual does not agree with. The second, and the reason for this entry, is whether it can get an economy rolling again. Will the people spend enough money to stimulate the economy.

We will first deal with why these tax cuts will not be as effective as possible, if at all. Milton Friedman, likely the best economist to ever live, spent a great deal studying the effect of tax cuts on the population. He developed the Permanent Income Hypothesis which states that people's consumption patterns are not determined exclusively, or even primarily, with current income levels. Instead, people base their consumption patterns on long term income expectations. People consume based on a constant proportion of their long term income.

He also found that short term increases do little to nothing to increase consumer spending. In fact, in one situation, a government gave the people a one term tax refund before hiking the tax rates. Friedman predicted consumer spending would go down even though the people received the refund and he was correct.

The tax bill passed is not an effective way of spurring consumer spending because it is a temporary increase. These increases are not effective. If Congress truly wanted to increase spending and spur economic growth they would pass permanent tax cuts. Unfortunately, this is politically impossible.

Census Shows People Respond to Incentives

The Census is out. This has major implications in politics, with the GOP netting 6 seats but the more interesting point is that it shows how people respond to incentives. Michigan is the only state to have a decrease in population. They lost enough people where we are reasonably certain people moved away, rather than a stagnant population dying off. Why is this important?

The Michigan economy is terrible. While other states are certainly suffering, they pale in comparison to Michigan. People moved to find jobs and a better life, not in a differnet country, but in a different part of the same country.

Further proof of this is Texas, which saw the greatest population gain. Certainly some percentage of this is from immigration, both legal and illegal. Even subtracting that percentage, however, is becomes abundantly clear that people were moving into Texas. They did this because there were jobs and low taxes. People respond to incentives, but I guess I am just a fool who happens to believe in the laffer curve.

Rothbardian Anarchism vs. Friedman Minarchism

Murray N. Rothbard is probably the most famous modern anarchist of the Austrian school of thought. Rothbard became an anarchist from a minarchist because he believed that the free market would be more efficient in all aspects, including militarily. If the free market is truly superior, why would this cease to be the case when it comes to personal security, and collectively, national security. National security has always been the achilies heel of anarchy. If the anarchist country is attached, how do we, as a nation respond without a central government.

Milton Friedman came up with a semi-solution of this by ceding national security to the government. He said there were two types of goods and services: divisible and indivisible. Divisible goods could be easily separated by individual. I can decide which type of tie I prefer and purchase accordingly. If you have a different preference, you can purchase differently. That is a divisible good. National security is an indivisible good. I cannot purchase one level of national security, while you purchase another. We must purchase equal amounts, even if this does create the free rider problem.

Why is this important today? The TSA has recently been accused of unnecessary procedures to keep us safe. The TSA has claimed that this is necessary, in part because it is an indivisible good (without using that language). The problem is that this is inaccurate. Security could be, and in my opinion, should be provided by the individual airline companies. These different airlines could then provide varying levels of security, if they chose. The “traveling public,” as the TSA calls us, would then get to choose whichever level of security we are comfortable with.

Note that the real financial losers here are also the “traveling public.” Not only do they have to go through time consuming and humiliating procedures, but they are forced to pay for it… literally. The taxpayers fund the TSA who then executes the safety procedures. They also provide partial immunity to the airline industry, meaning that if another disaster occurred the government would be forced to bail out the airline industry again. The airlines get what they want: less liability. The government gets what it wants: more control. The people get to pay for it all.

New Years Resolution

Hello all,

I have ignored you. Every year I make a new years resolution and am usually pretty good about keeping it up. This year, the resolution will be this blog. I will post a minimum of 7 posts per week starting now.

Enjoy,

George