Sunday, December 12, 2010

An Alibi for Robbery

Government always uses the idea of taxation as an imperative must, and then ties morality and charity to it, as if it is pertinent to being an American in general. When one finally dusts off the sugar-coated gobbledygook, people finally see that below the veneer of good intentions, lies an abyss of treachery, inefficiency, waste and fraud. People don't realize how they are being completely counterintutive by relying on the state to coddle them and protect them. Most people believe the state is necessary because they confuse its existence (unnecessary) with the essential nature of many of the services and resources it currently (and poorly) provides, and over the provision of which it exercises a monopoly (almost always under the pretext of their public nature). People observe that today highways, hospitals, schools, public order, etc. are largely supplied by the state, and since these are highly necessary, people conclude without further analysis that the state is as well.

They fail to realize that the above-mentioned resources can be produced to a much higher standard of quality as well as more efficiently, economically, and in tune with the varied and changing needs of each individual, through the spontaneous market order, entrepreneurial creativity, and private property. Moreover, people make the mistake of believing the state is also necessary to protect the defenseless, poor, and destitute ("small" stockholders, ordinary consumers, workers, etc.), yet people do not understand that supposedly protective measures have the systematic result, as economic theory demonstrates, of harming in each case precisely those they are claimed to protect. Thus the clumsy and ill informed idea that higher taxes, to fund more government services, is dead in its tracks. Simply put, by privatization empirically demonstrating its efficiency, cutting spending (and more logically getting rid of government altogether), would require no taxes, only voluntary exchange and personal will to fulfill one's necessities in life.

The problem with today’s deficit is that the federal government has overspent, but what's new? First I want to show how the theory of diminishing utility can be applied to tax increases. Taxes have always been high, but never have revenues yielded the intended target by the government in so implementing them. As seen in the chart above, from 1930 to 2010, tax revenue collection in the United States has never topped 20.9%, averaging 16.5% of GDP over these 80 years. This comes despite the drastic historical fluctuation in the rate of taxes on the wealthiest Americans. As we move toward debt reduction, it is critical to keep the long-term path of the United States in mind, woefully government continues choosing ineffective plans. Veronique de Rugy of the Mercatus Institute empirically shows how despite tax increases spending has still remained high, as well as revenues remaining low. Surely this is not a good panacea. It would be more effective to get spending within GDP ratios, since our spending has hovered between an abysmal 15-20%. Also a VAT-tax would further reduce our consumption power, and create problems in the long run. Therefore tax increases of any kind are out the window.

In other cases that show the fizzling effects of Keynes' Multiplier, Robert Barro of Harvard University demonstrates how for every 1 dollar spent, the government only returns 70 cents. More recently John B Taylor of Stanford University and The Hoover Institute has done extensive analysis on the recent government stimulus. His data yielded the ineffectiveness of the government injection of capital, and how states used the money to fund their debt, which in turn returned no multiplier at all. Sadly the amounts of money that the government said was going to fund shovel-ready projects never got there, and instead went to fund government wages, entitlement debt, and over abused unemployment insurance.

Next here I will show how cutting spending will reduce the deficit drastically. For this I would use Daniel Mitchell’s method of capping spending at 1% to reduce the deficit by 2017. The Congressional Budget Office estimates that tax revenue will grow by an average of 7.3 percent annually over the next 10 years. Reducing the budget deficit is easy – so long as politicians increase overall spending by less than that amount. By bringing in more revenues than expenses, you are then reducing the deficit. Tad DeHaven of Cato has a much more detailed and overall realistic plan (Plan to Cut Federal Spending and Balance the Federal Budget) that the government should adopt. As the plan points out, the proposed cuts would make sense whether or not the federal government was running deficits. The point is that over time a steady decrease of the debt would abound. Policymakers should be focused on cutting federal spending because it would increase individual freedom and spur economic growth by shifting resources from the lower-return government uses to higher-return activities in the private sector. Sadly, after all is said and done in Washington, whatever rigmarole they propose will only provide us with higher spending and inefficiency, something which government always does.

The most outrageous thing about the deficit is not that those we trusted abused our trust, but that we as rational individuals still believe that a group of individuals, subject to the flaws and whims of every day people, are trusted in the first place to organize a society. Government has only grown since the first day central planning became en vogue with those power seeking individuals that tried a short-run stimulus through taxation in the Articles of Confederation. Free States was what the revolutionaries fought for, not a central government that resulted in something extremely close to Socialism, that which we have today. Negative long-run consequences arise whenever a bailout of any kind is thrown upon the back of a society which has no business within the expenditures rendering the debt in the first place. Sadly the attempt of centralizing a group of free states through taxation aimed at debt reduction, resulted in the first bailout indited by a group of power-hungry men; it took ten years to compromise a document that in the end unjustifiably expanded government power. Had they understood the powers of the Free-Market and privatization, society might be more prosperous, yet simply their hunger for power, resulted in an inefficient and ineffective system of centralization that has grown in tyrannical proportions.

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