Free market adjusts to taxes…like any other "scarcity"
Stolen from an e-mail from coberly and worth a comment or two I think:
…”the free market” adjusts… freely… to taxes the way it adjusts to any other “scarcity.” but apparently economics has not discovered this fact.
Yes of course markets adapt to taxes.
And of course economics does not ignore this. It’s the whole field of the study of tax incidence in fact.
For example, corporations do not carry the burden of the corporate income tax. It’s some combination of shareholders and or workers. What are the determinants of which it is?
It’s size of the economy relative to the world economy plus the mobility of capital in and or out of the taxing jurisdiction. The smaller the economy, the more mobile the capital, the more it is the workers that carry that burden, the less the shareholders.
Now, this analysis has been around since at least 1899. And it’s clearly and obviously an example of how markets adapt to taxes. Actually, it’s an example of *how* markets adapt to taxes.
So to say that economics doesn’t recognise that markets adapt to taxes seems very strange, Especially since economists have been studying how markets adapt to taxes for over a century now…..
Of course free markets change behavior in response to taxes.
Problem is, the adjustments that optimizes entity and individual results may or may not optimize the economy as a whole.
“…free markets change behavior in response to taxes” doesn’t say much about the optimization tradeoff in the rest of your comment.
What “entity and individual result” combination optimizes the “economy as a whole”?
More importantly optimizes with respect to what?
with respect to what?
The measures politicians and economists focus on the most – GDP growth, employment, real incomes, etc.
George Lucas did some interesting tax planning.
Anti-competitive? Optimal? Dunno.
there are economists and economists. the ones who get the big bucks to opine on television, and the politicians who repeat their wisdom as gossip do not seem to understand, or know about, the compatibility of taxes with the “free market.”
as for “optimization,” that, i am afraid, is politics. which means it is mostly self-serving bogus argument, entirely free to change position according to the short term interest of the arguer.
my suggestion: impose the taxes you need to pay for the part of the economy “best” done by government (according to common sense, not “economists”), and collect the taxes at the places easiest to collect them. i recommend corporations or at least “incomes.” i don’t like “property” taxes because they can tax a person into poverty. Incomes, personal or corporate, can adjust to the tax level. will adjust, if not prevented by politics.
any “optimization” can be achieved by spending as needed. “tweaking” the tax code is usually an exercise in what amounts to graft by those with the most power.
Hello again boys and girls. All this tallk about taxes and whether such an expense may harm, hinder or in any other way effect a business planning decisions is getting tedious. Most of these discussions are based on ideological opinion. Even with the Congressional Research Service providing reasonable evidence of the disconnect between taxation and economic growth (or lack of growth) the forces of wealth accumulation continue to scream in opposition to the concept.
Taxes are just another expense of doing business as they are just another cost of living. Government has to be paid for (though we’re getting little return from the members of the Congress). Stop arguing about the wisdom of taxation. Try to recall the axiom about “death and taxes.” If you’re still wondering about the need for government of any given size try producing some valid research on the size of government relative to the size of the citizen population.
i hope you noticed that i was agreeing with you.
optimizing “gdp” helps exactly who?
are you sure that mo’ money is the best we can hope for as human beings. even if that mo’ money goes to the Romneys?
(btw i know the romneys spend money and “create jobs” at least by their spending. the money passes on to other hands. but the resources used up in supplying the romneys with their needs are not replaced.)
As we usually do on most of these subjects. And I’m not even a socialist. I just want the wealthiest people to stop their whinning and pay a fair share of the tax burden. The USofA has 300M
residents and spans a continent and then some. It has by far the biggest military apparatus in the world. It has probably the best university system any where and a transportation infrastructure that is unmatched by any other country.
How the devil can anyone use the term US exceptionalism if they are going to cry about their exceptionally low taxes. It doesn’t happen by luck or by strictly private “business” intervention. It happens when a great and big country uses its resources to build an exceptional society. That’s what your government does and it does so by paying its citizens and their commercial organizations to get a job done. Pay your damn taxes and stop whinning. That last sentence is not addressed to you Dale.
optimizing “gdp” helps exactly who?
dunno, ask the economists who opine on such topics
not sure if the first x sentences were addressed to me, since i agree with them. but it never hurts to say it again.
please note, i have no objection to taxing the rich to pay for what the country needs. i do however object to “tax the rich” as a plan to solve all the worlds problems, and i especially object to taxing the rich to pay for social security which doesn’t need their money.
the problem with “tax the rich” as a political philosophy is that it alienates the rich, not all of whom are bad guys and might be willing to pay their fair share if it was presented to them in a fair way.
otherwise “tax the rich” is just about as smart as “cut taxes” as an answer to every problem.
i thought it was you who brought up the question of “optimize” the results of taxation.
now you are saying you don’t know what “optimize” means, except that you are for it?
i should say that i know there are people who study these things who understand them better than i do.
i am only a poor blogging wayfarer who asks questions hoping for better answers. i’d say that mostly i don’t get them.
I wasn’t claiming paternity.
“The measures politicians and economists focus on the most – GDP growth, employment, real incomes, etc.”
I am a humble bookkeeper, and not about to define macroeconomics.
“For example, corporations do not carry the burden of the corporate income tax. It’s some combination of shareholders and or workers. What are the determinants of which it is?”
Does that explain why high corporate taxes led to rising wages while low corporate taxes led to flat or falling wages? My guess is that the usual economic analysis has the signs reversed.
Well yes STR. But an objective look at the treatment of economists and most politicians shows that they pay bupkis in the way of attention to broader measures of employment and real income. Or more properly real wage. Instead for the whole of my life economists and politicians (and I include the central bankers of the Fed as being both) have paid slavish attention to a wholey arbitrary metric called NAIRU, which in practice has meant that EVERY upward tick in employment and/or real wage has been an argument for counter-cyclical action to maintain ROI for the ‘coupon clippers’. Often on the specious argument that any move that would have the effect of reducing such yields would inevitably result in capital flight and a spike in inflation. Leaving everyone the loser.
Oddly though the real world effect has been stagnation of real wage and higher levels of unemployment. Meaning that most workers lose anyway.
Non Accelerating Inflation Rate of Unemployment. NAIRU. It rules our world. Or at least those portions of our world reflected in the business press. Good news for workers is bad news for the economy. It is literally axiomatic. Because taught as an axiom at every academic Econ program influenced by its author Milton Friedman and the University of Chicago Business School. Which is to say almost all of them.
Freshwater vs Saltwater. Orthodox vs Heterodox. On a theoretical level maybe the dividing line is ‘Keynes’. But at the operational level it has for half a century been NAIRU.
Oddly NAIRU theory, despite some shaky empirical evidence (see Carter/Reagan stagflation and the against theory combination of high employment/low inflation of the later Clinton years), has a totally coincidental effect of being really, really beneficial to the top 1%. And really cynical people might think that Central Bankers, in part appointed by Member Banks and so Capital writ large self-servedly seek to maximize the interest of the banking class.
Naaahhh. Must be some other explanation.
“there are economists and economists. the ones who get the big bucks to opine on television,”
Now that is to laugh.
I’ve recently had three requests to opine. As in, would Tim Worstall care to come and opine.
One was on US TV. National, you know, the good stuff. Fee offered was $150. This isn’t “big bucks”.
Another was part of the HuffPo thing. They wanted me live when where I live that would have been 2 am. And I would have to have bought some hardware. Fee offered was zero.
Awake and sober at 2 am for nowt really doesn’t do it.
The third was a speaking request. Two days travel (which they would pay for, but still, two day’s travel) for a €150 fee.
I agree, there are people who get great big speaking fees. But “big bucks” for appearing in the media not so much. As an example, the BBC pays £50 for a radio show.
Beer money: good beer money. But it ain’t big bucks.
The reason why? ‘Coz there’s Debbie Schlussel out there who will appear for nothing.
i wasn’t thinking of you when i said “economists… paid big bucks to opine.”
Just to clarify how the game works. Tim replied to Coberly as though the economist gets paid a fat fee for a TV interview. No, that’s not the process. A broadcaster with a particular ideological ax to grind picks the economist who is known to agree with the acceptable point of view. No need to pay a fat fee. The appearance itself is of great value to the economist being interviewed. Others get to be aware of that “expert’s” point of view and may call upon him in some other more lucrative situation. Start at an early point in one’s career and be sure to take positions which support the One Percent concept of wealth distribution and soon enough you identified as the economist in the know. It’s not even close to “on the take” because time had been spent building the correct image for a successful professional in the field. Going to grad school in Chicago was a good starting point in economics, but not the only one. A couple of well thought out papers on the miracle of the market place, the adverse economic effects of taxation, the damage done by big government, etc. and one is moving in the right direction. A gig with Morgan Stanley or Citibank even if brief is also good resume fodder for the young economist on the go. Or is it on the take?
So, just to be clear, coberly says “economics” has not discovered a whole branch of economics, except some economists have and others have not. Rdan approves? Coberly then says when it comes to making decisions about the economy, economists should be ignored and “common sense” should be applied, and then says there are experts who know more than he does – presumably economists. This is what “looking for answers” looks like?
There is just a ocean of claims in popular culture about “what economists don’t know” and “what economists fail to understand” – claims that in many cases are simply false. If memory serves, coberly has offered up his fair share, but he is not alone here at Angry Bear. It’s hard to see how anything useful can be learned by starting with a false premise.
So thanks to Tim W for kicking off the comments in a useful way.
Maybe the point you are missing. and coberly is stressing, is that economics is too often the science of subjective opinion, ie common sense and nonsense. One can never be sure, however, which opinion is best. Why assume that an economist is right about any thing if one can find totally divergent “evidence” supporting opposing sides of any argument in economics? Think of it this way. We have Krugman, Stiglitz, Galbraith, etc., and on the other hand we have Hubbard, Summers, Laffer et al. They seem to have no ground for agreement on the effect of this on that in regards to almost any economic issue. And they are all very well educated and credentialed. Frankly kharris, such an inability to have a scientific consensus is absurd and, therefore, I submit that covertly is correct. Use a lot of common sense when reading an economist’s commentary on any topic, especially economics. Case on point, Tom Hungerford and the Congressional Research Service vs. the Heritage Foundation. I’d be curious to know the relative compensation of professionals from both organizations. Yes, I’m suggesting that we can pay many economists to opine on any topic in any way that we would prefer.
your mindless need to attack me at all costs does not serve you well.
i really can’t recognize any of my comments in your characterization of them.
perhaps beauty is in the eye of the beholder.
but just to try to be a little clearer
I often hear politicians and the economists who support them say, or imply, that taxes interfere with the pfree market. I thought it might be useful to point out that a free market responds to “taxes” in essentially the same way it responds to gravity or friction or entropy… it’s a cost of doing business.
Except that pfree marketers are always paying someone to mess with the tax code so that it is hard for a genuinely free market to actually adapt to the taxes.
I certainly was not claiming any expertise. I probably was claiming that “tax experts” and “tax optimizers” have no expertise an honest person need take seriously.
Does this mean my two or three beers you owe me is not affordable?? Oh my.
To be fair all around, this was only a snippet from coberly, and could have been better labeled topical thread, and not a post at the least. coberly had no say in the matter. Stack it up to having succumbed to election day shorthand