Shifting economic balance

Tenshinai wrote:Random example, if i buy twice as much food during a month, does this affect anyones employment? It might, but it´s quite possible that it´s merely a matter of scale that falls within the already existing framework.

But we're not just talking about you and just for a month, it's that everyone who is now paying a lower rate has that extra money to spend every month. Whatever they spend it on means more business for someone.

Also, that suppostition assumes that any money not paid as taxes automatically stay within the tax payers nation.

Not at all. If you spend your extra money outside of Sweden, then other nations have Kronor to spend. They can either buy Swedish products with that money, or invest it in Sweden in some way. If the Swedish government is running deficits and issuing bonds, they might buy those as their investment, but if not, it's going to be some kind of Swedish assets, the sellers of which now have more Kronor of their own to spend.

And then there´s the bothersome little fact that investment is essentially a nonexistant thing today, >99% of all money that goes into shares or similar, is a roll of the dice in an attempt to make quick cash based on expectations in the stock/financial market games.

Really? It sounds like there's no incentive for people to make long-term investments. Maybe they're afraid they'll lose out if the next election goes the wrong way.

And then there´s the thing about WHAT the money is spent on, the more it´s spent on luxury or exclusive items, the less beneficial to society it generally is, because it rarely generates any additional employment or financial activity.

More money spent buying yachts doesn't translate into hiring more people to build yachts, or overtime for the existing workers?

In the aftermath of our previous rightwing government disaster, in 1990s, this idea was tried. Biggest taxcuts ever, which according to economical predictions were going to provide lots of economical improvement overall, in reality the upsized economy managed less than 10% than all predictions promised.

So you're saying that the economy did improve some, but not as much as the rosy predictions.

The sane thing to do in that situation is to only reduce the highest-bracket rates until they're at the peak

That´s the worst thing you can do actually.
Because if you add money to rich, vast majority of it wont be spent on anything that helps the economy.

If your goal is really to maximize revenues, reducing those rates that are beyond the peak will bring in more tax money, so that's what you'd do. How much you "add money to rich" (again with the strange description) is irrelevant from a tax-revenue perspective. It only matters if it pisses you off that they have so much money and you want to take it away from them. Taking less from them makes you angry, but if it reduces tax revenues in the process, it's cutting off your nose to spite your face.

You can tax "the rich" at extremely high rates, and they'll just factor that into the prices they charge for the goods and services to everyone else. And they'll put money into investments that get special tax status because the government wanted to encourage it, like municipal bonds in the US that earn interest tax-free.

but politically that comes off as "giving tax cuts to the rich" (a peculiar phraseology; taking less is somehow equated with "giving". I guess Haven "gave" San Martin its freedom every day it didn't invade.)

Your prejudice shows.

On the contrary, it's your prejudice that not taking something from someone is the same as giving it to them. It's only "giving" something if it's already yours, which makes sense in this context only if you think that everything really belongs to the government, and it "gives" everyone whatever it doesn't tax. As I said, that's a very peculiar way of stating the situation.

Unless of course you want to live in a world where civilisation is essentially non-existant?
Because that´s pretty much what public cash do, provide the stuff that is too expensive for any individual that want to do it, or needs it done.

Again, I'm focusing entirely on the goal of maximizing "public cash" (tax revenues) by finding the point of diminishing returns and setting the tax rates accordingly.

Why do businesses, motivated to maximize their own profits, ever cut prices? It's because they know there's a "sweet spot" from which reducing prices may let them sell more units, but because the profit per unit is lower, the product of those two numbers goes down; but raising prices, producing more profit per unit on less units also reduces that product. The exact same logic works with tax rates. The trick is to find that "sweet spot" and resist the temptation to keep moving past it (in either direction).

So tell me, what executive is truly WORTH having 300 (or even 3000) times the salary of the people doing the work of his company?

That's a question you'd have to ask the boards of directors who come up with those valuations. You seem fixated on taking that money away from those executives rather than figuring out why the incentives are so skewed in the first place.

Here's an idea: Why don't you and a few thousand people who agree with you that executive salaries are too high each kick some money into creating a corporation that will pay your executives whatever you think is fair. You can take all of the money you save by not paying exorbitant salaries to pay the line workers better, which in turn will attract the most productive workers. If you're right, your company will be so well run that you'll make lots of money, which you can then use to pay even more people good wages.

Prove that all those boards are wrong to pay so much to executives by being more profitable than they are. And watch how quickly capital starts to flow to you and your friends that have shown everyone the better way. With the new investment, you can hire even more people at great wages.

which also encourage employers to invest in automation, retaining to operate the machines just the cream of the crop who can be productive enough to justify the higher wages, leaving the less-productive workers unemployed.

Only an idiot would NOT go for additional automation if it improves productivity and/or quality.
And in any decent society, those unemployed then go educate themselves to whatever else jobs exist.

But when the educational system is as DW has described the Peeps', that doesn't work very well. They just aren't capable of doing the jobs that are productive enough to earn the wages prescribed by law. Instead of making a "substandard" wage, they're unemployed.

Spacekiwi wrote:I have to say i dont really see the point in selling assests to cover short term deficits. assest rich and cash poor suggests a need to modify the in and outgoings, but releasing assests to cover a drain for a short while leaves you worse off further own the track, especially if those assests are currently returning dividends at the moment.

That's because the average politician is incredibly stupid (which probably gives an indication of the intelligence level of the average voter) and completely fails to understand the difference between income and capital.

Selling off (some) assets, using the the money to reduce the amount of outstanding debt thus meaning the ongoing interest payments are reduced in size meaning you're now cash-flow positive would make sense. But, as you say, selling the assets to cover a deficit is remarkably stupid ... and yet politicians (of all stripes) keep doing it!

Going back to the Laffer Curve, I'm not aware of it saying that the ideal tax rate is always less than the one you're currently using. However since it only seems to be used by people who want to lower taxes I guess that would explain it ... the people who want to raise taxes generally seem to think increasing taxes increases tax take by the same proportion (i.e. increase income tax from 40% to 50% should result in 25% more revenue), and seem to find it difficult to explain why it doesn't actually happen that way.

TheMonster wrote:Here's an idea: Why don't you and a few thousand people who agree with you that executive salaries are too high each kick some money into creating a corporation that will pay your executives whatever you think is fair.

Or pick a publicly traded company and start buying shares in it. Keep buying shares and re-investing any dividends you receive along the way. Sooner or later (okay, probably later!) you'll collectively own enough of the company that executive salaries will start moving in the direction you prefer.

Nb. And that "enough" doesn't have to be >50% of the outstanding shares, it doesn't even have to be >50% of the number of shares that actually get voted at the AGM. "Shareholder revolts" are embarrassing for companies, even when the company wins the votes.

PalmerSperry wrote:Going back to the Laffer Curve, I'm not aware of it saying that the ideal tax rate is always less than the one you're currently using. However since it only seems to be used by people who want to lower taxes I guess that would explain it ... the people who want to raise taxes generally seem to think increasing taxes increases tax take by the same proportion (i.e. increase income tax from 40% to 50% should result in 25% more revenue), and seem to find it difficult to explain why it doesn't actually happen that way.

That´s because it doesn´t actually say that. Problem is that there is a big bunch of snotty national economics and politicians that use the curve as "proof" that that´s how it is.
Because "obviously", whatver country they´re involved with "clearly" has too high taxes...
Not surprisingly, these people tend to be funded by same country´s richest 1-10% or so.

TheMonster wrote:But we're not just talking about you and just for a month, it's that everyone who is now paying a lower rate has that extra money to spend every month. Whatever they spend it on means more business for someone.

First of all, my example scales well enough that it doesn´t matter.

2nd and more importantly, as is so common among economists and rightwing politicians you make a serious mistake in your thinking here. Can you guess it?

If not, well, it´s extremely simple really. The money that instead went to tax, where did they go?

You make the fundamental flaw of assuming that money to taxes are somehow lost to the economy, when in fact it is very well established that on average, taxed money tends to circulate through the economy faster than private money.

Which means that lowering taxes more often than not actually reduces the total size of the economy.
And since this is a very rapidly noticeable effect, it is what can cause large negative backlash effects from taxcuts in the shortterm, as the positive effects from taxcuts is nearly always much slower.

Take a look at statistics for nations the IMF has become involved with over the last several decades, and you can find this pattern without much difficulty.

Even when the forced tax cuts are longterm beneficial(not that they are much of the time), it often crashes the economy shortterm.

TheMonster wrote:Not at all. If you spend your extra money outside of Sweden, then other nations have Kronor to spend. They can either buy Swedish products with that money, or invest it in Sweden in some way. If the Swedish government is running deficits and issuing bonds, they might buy those as their investment, but if not, it's going to be some kind of Swedish assets, the sellers of which now have more Kronor of their own to spend.

Good lord man, we´re not living in the 15th century! What do you think banks and money exchanges are for?

And even for private little customers like me, my bank provides a service that essentially makes my money currency-neutral.

Unless i specify that i want an account in a specific currency, any money in is converted to SEK at current rate, any money out is likewise converted to whatever i need it to be depending on where i´m putting cash.

TheMonster wrote:Really? It sounds like there's no incentive for people to make long-term investments. Maybe they're afraid they'll lose out if the next election goes the wrong way.

Election results are irrelevant or nearly so for this. And yes, in some ways in most nations, there is little incentive to go beyond shortterm gambling style "investments".

Most of all it´s a fundamental flaw of thinking combined with simple greed.

This is also why i have quit dealing with stocks. Because i deal with reality, sometimes i can make big scores, but often i take losses for insane reasons.

If a company does GREAT, then it´s value should by default go up to represent that. However, in the marketplace today, wether a company does well or not is mostly irrelevant, what matters is if it does better or worse than "investors" think it should be doing. So in this example, the stocks of a company that does superbly can drop like a brick because "everybody" were hoping, wishing, guessing that it would have done better.

TheMonster wrote:More money spent buying yachts doesn't translate into hiring more people to build yachts, or overtime for the existing workers?

It might. But economy of scale tend strongly to have less direct relation between "more work" and "additional jobs" when it comes to luxury items.
Because luxury items are already from the start a relatively low volume production, and exclusive services will often not upscale, because that makes them less exclusive as well.

Essentially, luxury stuff is commonly very low on worker intensity, so compared to money spent, it generates few jobs.

If for example you take the money spent on that luxury yacht, let´s say $2M for a year´s work, that will keep ~5 people working.

If you spend that same sum half at the grocery market and half buying furniture(just examples here, don´t read too much into it(and i´m also simplifying so i don´t have to show secondary suppliers)) you will probably "support" at least twice as many jobs.

If not for scaling economies, the difference would be a fair bit bigger.

And, if you scale this, say two yachts instead of one over a year, the folks build yachts might need to hire on people, but chances are very high that they wont double their workforce, because economies of scale means that it´s generally easier to produce more of the same thing, so in this example they might hire 2-3 extras.

And while the same is true for the non-luxury trade, they are already running at "massproduction" efficiency which means that on a comparitive basis they may still employ more additional people for the same cash, and on an absolute basis they are pretty much certain to do so.

TheMonster wrote:So you're saying that the economy did improve some, but not as much as the rosy predictions.

Oh nothing "rosy" about them, or at least no according to economists and politicians.

TheMonster wrote:If your goal is really to maximize revenues, reducing those rates that are beyond the peak will bring in more tax money, so that's what you'd do.

Except that´s the problem. It doesn´t work that way. The curve is just a random theory that based on empirical evidence should have been dismissed decades ago.

There is no "peak" to speak of. It´s just complete rubbish.

Even reducing marginal taxes from near 100% (this was once an issue here due to how some incomes managed to effectively get doubletaxed because of stupid tax rules) did not bring in more tax money.

Does that mean the peak is at 100%?
Because that ALSO proves the Laffer curve to be invalid, just wrong. Belonging to the scrapheap of history.

TheMonster wrote:How much you "add money to rich" (again with the strange description)

But effectively correct.

TheMonster wrote:is irrelevant from a tax-revenue perspective. It only matters if it pisses you off that they have so much money and you want to take it away from them. Taking less from them makes you angry, but if it reduces tax revenues in the process, it's cutting off your nose to spite your face.

Oh my you can´t come up with relevant arguments so you have to assign emotional reasons. Pathetic. If you really believe that kind of shit, you have serious issues with prejudice.

If someone earns a lot of money, good for them, that has nothing to do with national economics.

TheMonster wrote:On the contrary, it's your prejudice that not taking something from someone is the same as giving it to them. It's only "giving" something if it's already yours, which makes sense in this context only if you think that everything really belongs to the government, and it "gives" everyone whatever it doesn't tax. As I said, that's a very peculiar way of stating the situation.

Actually, it´s the natural way of saying it, because of historical imperative. But i don´t expect you know anything of that.

TheMonster wrote:Again, I'm focusing entirely on the goal of maximizing "public cash" (tax revenues) by finding the point of diminishing returns and setting the tax rates accordingly.

And you fail. Because you try to apply something that has been proven WRONG.
While i´m trying to work based on what empirical evidence shows.

TheMonster wrote:Why do businesses, motivated to maximize their own profits, ever cut prices? It's because they know there's a "sweet spot" from which reducing prices may let them sell more units, but because the profit per unit is lower, the product of those two numbers goes down; but raising prices, producing more profit per unit on less units also reduces that product. The exact same logic works with tax rates. The trick is to find that "sweet spot" and resist the temptation to keep moving past it (in either direction).

You should probably go back to study economics a bit again. This basic idea has also been disproven. Along with the idea that humans are "rational economic creatures" as it was usually called.

TheMonster wrote:That's a question you'd have to ask the boards of directors who come up with those valuations.

No, because they´re not looking at what the actual worth is, but what they can get away with, because THEIR wages tend to be affected by the same deals.

TheMonster wrote:You seem fixated on taking that money away from those executives rather than figuring out why the incentives are so skewed in the first place.

And again, you throw in a red herring of irrelevance.

TheMonster wrote:You can take all of the money you save by not paying exorbitant salaries to pay the line workers better, which in turn will attract the most productive workers.

Ah but you see THAT, doesn´t work either. One more little snag with economic theory that in reality has little truth in it.

TheMonster wrote:Here's an idea: Why don't you and a few thousand people who agree with you that executive salaries are too high each kick some money into creating a corporation that will pay your executives whatever you think is fair.

And if it was that easy, cows would fly because they would be born with integrated jet engines.

TheMonster wrote:If you're right, your company will be so well run that you'll make lots of money, which you can then use to pay even more people good wages.

Prove that all those boards are wrong to pay so much to executives by being more profitable than they are. And watch how quickly capital starts to flow to you and your friends that have shown everyone the better way. With the new investment, you can hire even more people at great wages.

Actually, now that you mention it, that sounds a lot like my brother´s company.

And IKEA. And a number of other highly successful companies. Wow, what an amazing surprise, i´m right!

TheMonster wrote:But when the educational system is as DW has described the Peeps', that doesn't work very well. They just aren't capable of doing the jobs that are productive enough to earn the wages prescribed by law. Instead of making a "substandard" wage, they're unemployed.

That is a system that has been corrupted for the sake of votebuying.
Any system can be corrupted and any corrupt system can be used to show off how something doesn´t work.

The important part is to look at where a similar system is successful, and see the differences.

Somebody mentioned yachts and taxes.

A number of years ago, some "very bright" politician and a certain politica party decided (again) that it would be VERY helpful to both raise money for the government and extract money from "rich" people by what was a not so thinly covered "Luxuary Tax" on a number of items.
If people could afford to by expensive things that some other people though were an extravagance, then they should have to also pay a premium for doing that. After all, they had way too much money and they sould share it, at least with the government- who AWAYS (sarcasm intentional) does the most proper thing with money.

So they added special luxury taxes on a whole raft of things including "yachts" and set their own rules as to what was to be determined as a yacht. And what was the result?
Well, the people who truly had buckets of money stopped buying anything that would be a "yacht" (and of course all those other things under the new tax rules in the US) and bought them overseas through foreign registered (in tax sheter friendly locations) companies. So they ended up not paying the US tax.

Then there was that "little" unintended consequence of killing off a LOT of small (right down to "Mom & Pop" size) companies and even a fair number of middling moderate sized state level and regional companies because nobody was going to buy their ships (now defined as yachts) and pay the Luxuary Tax. That put people out of work, stopped the flow of money into lots of small town and small regiional economies and damaged both the companies that had been the manufacturs supplies and the the businesses that had been providing goods and services to the now-former employees.

Local press coverage was very vocal and very clear about what was happening but all of that was both ignored by the National Press and by the National Level politicians who conceived of and got the tax passed.

The politicians continued to trumpet that they were bringing in increased tax revenue-very specifically more of this particular tax [which was sort of the truth because before the this tax was passed there was NO taxes generated from this particular tax- such is the politician mind].

They also kept hammering at the fact that anyone who bought (and so could afford and therefore were "rich" or "wealthy") here would be paying those taxes -as they should because they obviously had too much money- and helping to support all those government programs to help people who needed help.

Somehow they forgot to mention that, amoung other things, they had killed off all sorts of small shipyards and private building operations that for- in many cases, generations for the owners and emploees- years employed and supported many thousands of people in small towns all along the coastal regions and rivers of the US.

The money continued to be spent, but no US taxes collected and all of the money went overseas. What a GREAT to extract more money from "the wealthy".

Crawling back under that particular rock...

Tenshinai wrote:You make the fundamental flaw of assuming that money to taxes are somehow lost to the economy, when in fact it is very well established that on average, taxed money tends to circulate through the economy faster than private money.

I often hear this asserted, but it's far from "well established". When someone earns money, they only have the choices of spending it themselves or putting it in a bank, where it is then loaned back out for someone else to spend. Taxation only changes who's making the choices.

Take a look at statistics for nations the IMF has become involved with over the last several decades, and you can find this pattern without much difficulty.

I have no doubt that the IMF can press countries to make lots of bad decisions that adversely affect their economies. Under the circumstances, it would be difficult to isolate a specific one responsible for any ill effects.

Of course, the IMF tends to get involved with countries that have already messed things up pretty badly, so there's an analgous situation to the high mortality rate among patients of doctors who specialize in taking the tough cases.

Good lord man, we´re not living in the 15th century! What do you think banks and money exchanges are for?

All you've done is kick the can down the road.

The key concept to remember about an "exchange" is that what one side gives up, the other receives. So if you spend your SEK buying something from a Eurozone country, and they take it to an exchange to get Euros out of it, the exchange now holds those Kronor rather than the company you bought your stuff from. How does that change what I said? At some point, those Kronor have to be used to buy something in Sweden.

Either that, or you have a heck of a good deal going on. The Riksbank can just print up Kronor for you to spend in other countries, and you get stuff for free, since the magical currency exchanges will just hold on to the money forever. I want in on this. Where do I sign up?

Even reducing marginal taxes from near 100% (this was once an issue here due to how some incomes managed to effectively get doubletaxed because of stupid tax rules) did not bring in more tax money.

I suspect that those nominal rates were paired with exemptions that allowed a lot of income to avoid being taxed at that rate. That was the experience in the US anyway. The rich people can always afford the sherpas (accountants and lawyers) to guide them safely where the average folk step in the wrong place and fall off the mountain.

Oh my you can´t come up with relevant arguments so you have to assign emotional reasons. Pathetic. If you really believe that kind of shit, you have serious issues with prejudice.

I believe you're the one who started taking about my "prejudice", which sounds a hell of a lot like assigning emotional reasons to me. Is it only valid to gore my ox, but not yours?

If someone earns a lot of money, good for them, that has nothing to do with national economics.

Then why did you insert a discussion about how much more executives make compared to line workers into a discussion about national economics? I'm just going on your statement that these executives make too much, plus your disdain for reducing the highest marginal tax rates, to indicate that you specifically want to right the perceived injustice of those high incomes.

Actually, it´s the natural way of saying it, because of historical imperative. But i don´t expect you know anything of that.

It's "natural" to call taking less than before "giving"? If a gang decides the "insurance" payments for businesses on their turf should go down, have they "given" those businesses something? If my homeowners' insurance rate drops, did the insurance company "give" me something? Because then the IRS is going to want to tax it, and I'm not OK with that.

You should probably go back to study economics a bit again. This basic idea has also been disproven.

I don't see how it can have been disproven, because I've personally looked at the IRS figures for the "Reagan tax cuts" and seen that they collected ore money with the lower rates.

Along with the idea that humans are "rational economic creatures" as it was usually called.

Humans are often irrational, but when they have to spend their own money, they tend to do a better job of it than when they think they're spending someone else's money. If there's any truth to the "multiplier", it's probably due to that fact.

No, because they´re not looking at what the actual worth is, but what they can get away with, because THEIR wages tend to be affected by the same deals.

It sounds like the stockholders need to hire better board members.

And again, you throw in a red herring of irrelevance.

I think executive compensation is irrelevant to the discussion of tax policy, but I'm not the one who threw that particular red herring into the discussion.

Actually, now that you mention it, that sounds a lot like my brother´s company.

And IKEA. And a number of other highly successful companies. Wow, what an amazing surprise, i´m right!

Then do business with, and invest your money in, those companies instead of the ones who overcompensate executives (by your standards).

Any system can be corrupted and any corrupt system can be used to show off how something doesn´t work.

Any system powerful enough to punish the filthy bastards is powerful enough to attract bastards to run it. That needs to be factored into thinking about how to design the system.

Erm... shouldn't any in-depth discussion of real-world economics be over in Free-Range Topics, not Honorverse?

drothgery wrote:Erm... shouldn't any in-depth discussion of real-world economics be over in Free-Range Topics, not Honorverse?

One of the things I've always loved about SF is its ability to get us to think about things from a different perspective and examine whether what we think about the real world is right, or just what we've soaked up from the culture in which we're raised.

Take the Grayson attitude toward polygamy, which is offensive to many people who would otherwise find a community with strong religious values to be in conformance with their beliefs.

Precisely the kind of discussion we're having here is bound to color the relationships between, say, Manticore and Haven. Manticore has an interesting institutional bias against outright redistributive government policy (the requirement that voters be net tax payers as well as the power of the Lords), yet it recognizes Prolong treatment as the right of all of its citizens. Haven has had... a rather different experience.

DW has mentioned how the Havenites tend not to like Manticore's overt aristocracy, but perhaps their experience in a closer relationship will affect that.