June 15, 2004
Free Trade, Free Markets?
The GOP: Party of the Free Market. Correct? Not so fast. In reading Adam Smith, one is not merely told that government restraint is bad for business, but also government support.
If that is the case, why are we giving tax breaks to businesses to do things, to move in certain directions? If we are dealing with a free market approach, why does it include what is essentially the subsidization of business practices?
I was listening to the news and this expert comes on saying that the improvements in the economy have largely been based on all the money the Bush administration has been pushing into the economy in various forms. Is that a good thing? No. Much of the money that's being used for that purpose is borrowed money. Debt is deadweight on future revenues. Bush is therefore buying the current prosperity at the expense of the future. The theory behind doing this is that one kickstarts the economy, and growth swallows the debt.
But this is a gamble. What's more, it's a treatment of the symptoms. Like many such treatments it may end up masking the disease, allowing it to remain or get worse.
Let's face facts: it wasn't taxes or goverment regulation that killed the boom, it was incompetent and dishonest business practices. It was all the IPOs that involved companies with no business models, which were done by people simply trying to drive speculation through the roof. If you want more details on that, click here for a Frontline documentary on the issue.
It was all the companies who were using means recently legalized in the name of deregulation to cover up and cover for losses, badly mishandling the finances of their companies, but making millions, even billions doing it. Guess what- there's another Frontline about this issue too.
I live at ground zero for the energy company collapse. Enron was in my backyard. I've even visited the buildings where these giant corporations once stood.
Now, many of the libertarian free marketers would say the system worked, the market corrected the error. They're half right. The market did make a correction. But that correction was delayed, and aggravated by a failure of regulation. Had stricter accounting standards been in place, the public and the stockholders would have known about Enron taking bigger financial bites than it could chew. Feedback was the essential element missing, the element that would have allowed the market to correct the problems in Enron and other companies long before they became catastrophic. Here, regulation would have allowed the market forces to do their job.
Regulation on the energy markets would have had the same effect. California was not short on energy, but short on protection from those whose speculative money grubbing drove them to manipulate the markets, creating artificial power shortages and congestion.
We are also suffering because many of our closest business partners in the world have set up trade protections and other market skewing restrictions on our goods. We can go as free trade as we want to, but if all the other countries we deal with fail to do so, we are at an artificial disadvantage. Right now our business interests allow this to happen, to keep imports cheap. But we pay for it, because the market is not free to decide whether our goods, made domestically, are better than those overseas. Again, greed has outweighed the need to set the market right, either by demanding and getting those restrictions cut down, or by inflicting punitive duties and tarriffs on foreign goods, equal to those they have raised. We are losing jobs and business overseas to our competitors, including China.
No market runs itself. People are to complicated as human beings for things to be that simple. The Markets work because they allow people to sort our their mutual self interests without resorting to a clumsy manipulation of the system itself. However, there are many practices encouraged by greed that the market cannot react fast enough to intercept, that it cannot account for. There are also other practices and realms of thought that the market only has a tangential relationship with. The Environment, Scientific Discourse, culture and Art. The market doesn't tell me what's pleasing to the eye, healthy for my body, and what I can find to be reliably true about the universe.
It can only react to these things, and it's awful shame that often, instead of honestly dealing with these issues, the business community instead decides to manipulate, triangulate, and stuff whatever concerns are raised by these fields into a box of what they consider profitable and safe for business. Where the market is encountering realities it should be adjusting to, business is trying to manipulate the market by skewing people's perceptions about our world and ourselves.
I am not so naive as to think that jobs and other economic issues will never compete with the other interests of the environment, of the arts, and of the sciences. I believe we should meet the challenges posed to us by nature, human and otherwise, creatively, with negotiation and discussion, learning and understanding. It is long past time, though, that our business community be taught that its interest cannot always be victorious, that it is business's turn to have to adapt to the realities of the world around it.
Posted by Stephen Daugherty at June 15, 2004 08:51 AMGood post. I wish that some of those “free traders” that cause so much damage would read it.
Posted by: Lynne at June 15, 2004 10:30 PMThese surely are proper points for discussion and worthy of many tomes. Just picking a very few points:
Neither the Dems or the Repubs could possibly be considered “free market” types. Regulations, licensing, taxes, tariffs, etc. are the tools of the “bipartisan” US government; this hardly is free market.
Corporations don’t pay taxes. Taxes are just costs passed on to the consumer. Claiming that a corporation is subsidized by tax breaks is a funny concept, for the above reason and several others. Not taking money forcibly, I suppose, could be a euphemism for a subsidy.
Can we ignore the fact that the US government is the largest corporate entity in the nation? Even as we note the horrific malfeasance of the corporate directors and CEOs, we should note the same behavior in the government. Unfortunately, the US Government can coerce the people to compliance, whether it is conscription or jail or any of an uncountable number of [mostly economic] restraints.
And taxation, in general, is a close kin, a sibling, of slavery. I work for wages which are taken from me, over my objections; so I must be working for a slave master. Government can only do wrong things when it has the resources to do so; these resources are confiscated from the people via taxes.
Posted by: dracjm at June 19, 2004 01:19 AM“Corporations don’t pay taxes. Taxes are just costs passed on to the consumer.”
Consumers don’t pay taxes. Taxes are just costs passed on to the corporations.
Therefore, Governments don’t take in revenues, because nobody actually pays taxes!
“Claiming that a corporation is subsidized by tax breaks is a funny concept, for the above reason and several others. Not taking money forcibly, I suppose, could be a euphemism for a subsidy.”
Tax breaks can become refunds, where for no other reason than the tax laws structured, the federal government gives money to the corporations. Tax Me If You Can, a frontline episode, is quite illuminating on the subject.
The irony is, many of your people are responsible for this situation. One thing is clear- the budget remains the same, no matter who pays the taxes. Right now, business, which are legal entities with many of the rights you and I have, are paying less than their fair share. If they enjoy the benefits of being legal entities with rights, they should enjoy the duties of being such. But they don’t.
Result? We pay more in taxes. Your people, as much as much as they would prefer to live with a different kind of government and a different system of taxation, live in this country with it’s government and it’s tax system
To describe it as corporate, is both correct and misleading, because it’s composition depends strongly on the wishes of the masses. Every so often, even the powerful can be caught off guard concerning this. People abuse power in Government, no doubt, but those people can be voted out, fired, or forced to resign. Corporations, because of their private nature do not have public duties and obligations outside of that which public law imposes on them. Government can coerce things, but our government is itself coerced by the law into doing certain things, and maintaining certain standards. That is the beauty of what the bill of rights does.
And taxation, in general, is a close kin, a sibling, of slavery. I work for wages which are taken from me, over my objections; so I must be working for a slave master. Government can only do wrong things when it has the resources to do so; these resources are confiscated from the people via taxes.
Taxation is no sibling of slavery when we have control over how much is taken and what is doen with it through our representatives in the government. You act as if government is always evil. I wonder how long you would last, or which to last through a period of anarchy. I wonder what you would do without the supports of our government, were you to get your wish. Nobody likes taxes, but then again, nobody likes the results of those not being collected.
No taxes and less government sounds great rhetorically, but it’s been my observation that more people try to cut into the bureaucracy, given the haphazard, compromised way it usually occurs, the more ineffective and inefficient it becomes, causing a vicious cycle of declining usefulness. Much of that corporate malfeasance occured because the SEC at that point had been reduced to doing token prosecutions just to show it could and would punish wrongdoers. If you want justice and fairness, sometimes you just get what you pay for.
Posted by: Stephen Daugherty at June 20, 2004 06:14 PMThe gap between my thinking and that of Stephen probably can be reduced to a few general points, some of which are given below in no particular order:
1 - whatever the word game played, the reality still is that wealth comes from the people, so any tax that gets paid is money extracted from the people.
2 - There is a myth that folks pay taxes voluntarily because these taxes are levied with consent at the ballot. If that were true, we would have no need for the IRS effort to enforce compliance. All folks I know, of all political persuasions, struggle with optimizing tax avoidance; most would cheat if they could; all are willing and do buy across state lines without reporting the sales tax obligation; and so on.
3 - The use of the word “fair” in arguments to describe the rationale for government [taxation] policy leaves open the door to the “road to hell [is] paved with good intentions.” What criteria does the government use to decide fairness? Whenever government imposes its will someone will feel subjected to unfair treatment. Unless this game is limited, such as by the US Constitution, there is no end of mayhem.
4 - If the efforts to reduce bureaucracy lead to more bureaucracy, then we have a serious problem because bureacracy can only grow. Like a cancer, it can grow only if we feed it the resources; let’s not feed it with taxes.
5 - Counting on the good will of elected people is a known recipe for social disaster.
6 - Government intent is almost always benevolent, our government in particular. This is because the American people, who are by and large kind and decent people, define the purpose of government. That government action is always bad or always good is not a resonable statement. As I look at the state of government (not what we want it to be, but what it is), I think that it has betrayed many of its trusts.
On a more personal note, I’m not sure what people you assume I am or who you assume my people are. [Do I have people?] I admit to a preference for the working man and a resentment for the folks that tell me what is good for me. Whatever that makes me must be okay by me [or I would change.] Offhand, I do have three desires for government officials:
1 - admit that “the best laid plans of mice and men” go awry, so get real and leave the ideology behind.
2 - Develop a process by which rational people can measure whether an approach is working. Suppose there is proposal for the legalization of, say, drugs. Prepare a plan with key measurable points, outlining an exit plan as well as the various stages of the program. It takes a long time to effect changes, so we need a road map to keep us from drifting from the approved intent and commitment. The plan must show benefits as well as costs.
3 - think of elected office not as a perq but as a service; think of elected service as a duty not as a career
1)Wealth comes from an agreement between the people. Our money is issued by the Federal Reserve, and nobody else has the right to do so. So by it’s very nature, money is a political as well as an economic construct.
2) We are fully capable of electing, or kicking out of office candidates that fail to set what we see as fair tax rates. When Bush said “No New Taxes” then went agaisnt that promise, a nice chunk of the voters said “fine, no new term”. People do try to get around taxes, naturally, but that’s just human. What, you never ditched chores before? That doesn’t mean they’re not necessary or legitimate, it just means people find it unpleasant. And as we all know, some unpleasant things are nonetheless good for us.
3)As I recall I use the word fairness to describe something you might want from the government. My point was to say that sometimes proper governance requires proper funding. It can go out of control, but that’s where vigilance comes in.
4)My point there was that deconstruction of the government is not something to be done half-assed, or without understanding of the workings of government. Bureacracy doesn’t necessarily grow because of efforts to reduce bureacracy, but bureacratic behavior, in the perjorative sense of the term, may just increase if you take away enough power, or enough funding from an agency, and reduce it to toothlessness and uselessness.
5)Would you rather they be unelected? Or would you just have us approach politics with an unrealistic level of cynicism. Or maybe we should expect the best of these people, and replace them whent they don’t measure up.
On a more personal note, I’m not sure what people you assume I am or who you assume my people are. [Do I have people?] I admit to a preference for the working man and a resentment for the folks that tell me what is good for me.
I made my assumptions based on your strongly anti-tax bias and lack of trust of government. Those characteristics land you on the libertarian right part of the spectrum.
On 1, I agree. On 2, I’d say it’s just about impossible. Because of number 1. People can always put forward plans, but plans rarely survive contact with the real world, and often we are not always clear on what the signs of success are.
On 3, there will always be the tension there. Any position where somebody can do something somebody else can’t will give them power, and give them gifts accordingly. Personally, I think you have to learn to respect the law before you can respect duty.
Posted by: Stephen Daugherty at June 24, 2004 01:14 AMRegarding trust or vigilance: it is for that very same issue that the Constitution set up a system of government with checks and balances. In time, though, the executive and judicial branches, in particular, have crossed over their bounds. Those checks and balances do not seem to be there. And the Constitutional limits of Federal power long ago have been exceeded. You can judge for yourself, but in my book this is bad.
As to the taxes, I think you fool yourself if you think that folks (I’ll allow a very very few exceptions) pay taxes because they think the taxes have been properly willed by them. Consider that many elected officials are victorious in their run for office with less that 1/4 (50% turnout, 50% of the turnout) of the population’s assenting vote. For this discussion it is irrelevant why the 50% did not vote. Further, consider that the legislative bodies (elected officials) now are split in the vote to create a tax, and voila, we see taxes pass with, say, 15% of the public support, at best (assuming the officials uniformly represented those 25% who elected them).
While it is attractive and even clever to say that we are a nation of laws (as a precursor to having respect for duty), I have a fear that we have forgotten that basic notions of justice are far more important than laws. Laws, per force, have to be guidelines, while justice is a more general concept, based on the desire to achieve a high level of “fairness” as defined by a set of social principles, “disputes” being adjudicated by a judge or a jury. Laws can be bad (e.g. many of Nazi Germany’s laws were bad), hence, they should not be held as supreme. I’d rather be in a just world rather than in a legal world.
Also, I am apprehensive of the implicit (if not explicit) claim that democracy assures proper actions (such as taxes). Democracy, per se, with no other constraints is mob rule. There must be a set of fundamental principles to define the limits of what is subject to the vote. For example, there are enough non-Muslims in the US to pass a law requiring that all Muslims be expelled from the country; that would be Democratic and, upon passing into law, legal, but it would not be right.
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