How Tax Rates Affect Economies

I finally picked up Jude Wanniski's "The Way the World Works" again. He makes an interesting case for low tax rates when describing the effects of tax rates on various economies following the first world war.

Britain, France and German maintained the high rates (70% on the wealthiest taxpayers) and the US and Italy slashed theirs back to pre-war levels. And which countries boomed throughout the twenties? The US and Italy.

His case is more detailed than that. For example, he cites speeches given by various US politicians who argued for cutting the rates because of the decline in total taxes collected on high incomes while the high rates were in effect. And how Congress continued cutting the rates as the economy revived. Ironically, the national debt DECLINED from $24.3 billion in 1920 to $16.9 billion in 1930.

Jude Wannaski is a conservative (he worked in the Reagan White House), but no apologist for the Bush administration (he actually wrote articles for Al Jazeera denouncing the war).

I also don't think cutting today's rates necessarily has the same effect. Rates are nowhere near as high as they were. But paying taxes does impede economic activity, especially when you can avoid getting taxed for gains not yet realized in a sale of assets. It pays to wait in many cases.

I wonder if a complete switch to consumption taxes (complete with a tax on income and profits leaving the US) would remove this friction from the creation of wealth. It ought to be a low tax (15% maybe?).

I also think there is a fair number of people who are just annoyed that the rich don't pay a lot more. Is it jealousy? Who knows. I do know that when a person has wealth, that wealth has to be earning a return somewhere and that means economic activity is happening and people are working. If you punish such investment with high taxes, such activity declines.

Jude Wanniski has Passed Away

Economist Jude Wanniski passed away yesterday. A very smart man. He was a visionary and had a great knack for explaining things. And he's spent quite a bit of energy lambasting Bush policies, particularily the war in Iraq.

Until I read his book "The Way the World Works" (still haven't finished it) , I'd always wondered what the deal with the gold standard was. He makes the case that it is the most stable of all commodities, as most of all the gold mined is still in existence and the supply cannot change by a great deal in a given period, making its value one of the more constant ones on the planet. In short, ideal as an agreed-upon exchange mechanism.

He will be missed.

A new model for the UN

I am thinking of a new model for a replacement for the UN, one that cuts out governments and lets the people directly participate. The people of each country would be represented if the government allowed its people to join and vote for representatives in this new body. This would mean ditching the unfair Security Council and encouraging democracy.

Proportional representation would keep the politicians from interfering with what the people really want, which is peace.

I can even see the possibility of setting up such an organization independently of the UN. If the people of the world were to form an organization outside of the existing framework, it could gain its own legitimacy by passing judgment on the issues on hand.

After all, what could be more legitmate than the judgment of all the free individuals in the world that care to express their opinions about an issue.

Facing Global Warming

Scientific American had an article on some research that indicates that the earth should already have entered an ice age and that this hasn't happened due to human activity, mostly agriculture that has been going on for thousands of years.

Natural cycles of the earth movement around the sun and other mechanisms are responsible for the cooling and warming cycles and I expect when the natural warming begins, along with our industrial activities, we are in for some problems.

We need to understand how these mechanisms work so that we can maintain the climate status quo. We can neither afford to ignore this problem or simply cease all industrial and agricultural activity. We must instead master it. There is no other alternative but to try.

Secession and the Right to Self Determination

One of the basic reasons for fighting wars is the desire to end a political union. The US, for example, fought a civil war that cost over 600,000 lives.

So it seems that real peace cannot be established in the world without addressing this issue. People have the right of free association and can freely form groups and associations. By banding together. those individuals do not lose this right. So these groups also have the right to enter into associations with other groups and to end those associations.

The right of peoples and territories to peacefully leave political entities is the ultimate way to make government accountable. To paraphrase a heavily advertised mortgage website, when governments compete, you win!

This is actually in practice in Switzerland. There, people in any area can vote to leave their canton (like a county or state, I guess) and join another or form their own. Government, since it is the user of force, has to be a geographic monopoly, but does not have to be a temporal one. Just like any relationship, there has to be an out. A contract without an exit clause is a recipe for disaster.

That doesn't mean there shouldn't be a protocol or process, or that territories can leave a union without taking their share of any debt.

A Smart Guy

George Kennan came up with the policy of containment that was the primary element in the United States' approach to dealing with the Soviet Union. I was impressed with him because he really could see clearly how our own leaders are often compromised by special interests.

This page has some audio files about his contributions.

It's a shame people like this guy don't have more influence.

Gerrymandering

American RadioWorks has an interesting feature on gerrymandering and its stifling effect on American politics. This practice is, of course, non-existent in a system of proportional representation that lets voters be accurately represented in a legislature.