Basic tax / government waste theory

[Toronado3800]

I worked myself into a hole at lunch discussing tax theory. My point on government waste was lost to the following theory:

Any money the government takes in is obviously spent, usually in our own economy. Republicans and Democrats have run deficits since WWII. Obviously infrastructure is an investment. We need sewage and roads. Let's take a look at some "bad" cases though.

Terrible but we still don't loose anything If the government spends a billion tax dollars building an space ship that explodes on takeoff is it a total loss? The ship was. But, that billion dollars was spent with Boeing, Lockheed, their subcontractors, their workers, whoever builds that stuff. The corporation and their workers are going to spend that money again.

Total loss scenario: of government spending I can think of can be foreign aid spent the wrong way. All the dollars spent with the Marshall Plan rebuilding countries against communism left the U.S. economy. What did we get for it? Maybe peace if it was well spent. Aid for Lybia? I suppose I can imagine a return if it makes them hate us less. Aid for the Mujahideen in their war against the Russians, maybe, maybe not well spent.

Ok, so what I need are examples of tax money going to something that doesn't recirculate in our economy. My friend brought up a study of pig sex in Iowa or something like that. Darn it if we didn't figure that money wasn't even wasted because professors at whatever University won the contract. We kept thinking the worst thing for America was when them Boeing employees bought "made in China" DVD players or one jokester said Chinese range finding equipment for hunting.

 

[Oddball]

See: Broken window fallacy.

Have you ever been witness to the fury of that solid citizen, James Goodfellow,*1 when his incorrigible son has happened to break a pane of glass? If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: "It's an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?"


Now, this formula of condolence contains a whole theory that it is a good idea for us to expose, flagrante delicto, in this very simple case, since it is exactly the same as that which, unfortunately, underlies most of our economic institutions.

Bastiat: Selected Essays, Chapter 1, What Is Seen and What Is Not Seen | Library of Economics and Liberty

 

[Toronado3800]

I agree with

1.10 It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another.

The lost space shuttle has numerous opportunity costs. Lost time, in any space race with the Chinese or whoever, and the 1.10 point.

What about the balance between something more common like the government spending a billion dollars on an aircraft carrier vs taxes being lower and citizens spending a billion dollars on Vietnamese furniture.

The time my tax money sits in the government's "pockets" is lost. As is a certain amount of its value in times of inflation. Still probably not equal to the amount of good the government hiring another employee to update the SEC rulebook will do.

I'm reading on. That's a good link.

 

[Oddball]

Something like an aircraft carrier involves (ostensibly) national defense. Or, the collectivized manifestation of the individual right to be free from outside aggression. There's a difference between a public good (a highway available to all) and a public service (like gym or sports stadium) that are only available to a few.

Any time your money pays a politician or bureaucrat it is lost, as they produce nothing of added value for the general economy.

 

[Toronado3800]

1.35

But here is what you do not see. You do not see that to send home a hundred thousand soldiers is not to do away with a hundred million francs, but to return that money to the taxpayers. You do not see that to throw a hundred thousand workers on the market in this way is to throw in at the same time the hundred million francs destined to pay for their labor; that, as a consequence, the same measure that increases the supply of workers also increases the demand; from which it follows that your lowering of wages is illusory. You do not see that before, as well as after, the demobilization there are a hundred million francs corresponding to the hundred thousand men; that the whole difference consists in this: that before, the country gives the hundred million francs to the hundred thousand men for doing nothing; afterwards, it gives them the money for working. Finally, you do not see that when a taxpayer gives his money, whether to a soldier in exchange for nothing or to a worker in exchange for something, all the more remote consequences of the circulation of this money are the same in both cases: only, in the second case the taxpayer receives something; in the first he receives nothing. Result: a dead loss for the nation.

An answer about pointless government spending. The modern analogy would be a debate if the homeland security department was needed or if the FBI and CIA just needed to refocus.

 

[Oddball]

Yes...Or if the DEA or ATF were necessary at all.

 

[Toronado3800]

Have welfare on my mind now:

An effect of taxing me $100 is I have $100 less to spend on luxuries or something important like rent. This fights inflation and may cause deflation in local rent prices.

Let's assume that $100 is redistributed to someone so poor without it they'd be desperate enough to kidnap my child for ransom (like happens in Mexico) or resort to some kind of crime. This $100 has proven useful for maintaining my lifestyle. It has kept the poor man on the good side of the law where he is more likely to get a job.

That Bastiat argument against the $100 welfare tax would be without it I'd have money to spend at a business which would hire the desperate broke man.

Hmmm, an argument against....as an American I'm silly enough to spend my $100 on Korean goods causing a loss of some percentage of that money.

 

[Oddball]

Problem with that scenario is that $50.00 of that $100.00 ends up in the pockets of tax collectors, social workers and other bureaucrats, who produce nothing.

Private charity is much more efficient and doesn't overstate the costs of aiding the needy.

 

[Toronado3800]

Very true, a good percentage is lost to the wages of folks public working for either public or private charitable organizations.

Having been raised Catholic and to marvel at the majesty of all Rome's ruby's and gems I don't believe private charity to be significantly more efficient than government work. The televangelist revolution of a few decades back left me jaded also. Maybe off topic and a sign to pick your charities CAREFULLY.

****************
So then my mind is to deficit spending. Or borrowing from tomorrow to benefit the person who "needs" the welfare today. Preferably by having that person who needs the welfare do something for the public good be it digging a ditch or building a windmill.

I can argue against deficit (gasp: credit card!) spending with the best. It increased the cost of whatever is purchased by whatever interest is collected. Comparing to micro scale, making payments for that automobile allows one to get to work to earn money for not only the car but the rest of life.

Once again I buy decade old cars which I pay for with time under the hood, but I understand the potential bad turn of events which could make a car payment necessary.

I'm on 1.8 Public Works in the link

 

[Oddball]

Don't mistake crooks like Jim and Tammy for charities like Goodwill and DAV. Also, a giant centralized operation like the Vatican can hardly pass muster as a "private" charity, even though it's not a governing body over a given geographical region.

 

[Toronado3800]

wow, as if on demand

1.93
As a temporary measure in a time of crisis, during a severe winter, this intervention on the part of the taxpayer could have good effects. It acts in the same way as insurance. It adds nothing to the number of jobs nor to total wages, but it takes labor and wages from ordinary times and doles them out, at a loss it is true, in difficult times.

So to paraphrase this and other nearby passages into immediate terms:

In tough times you can temporarily put people to work hopefully doing USEFUL work at the loss of administration costs (and I'll throw in interest cost)

 

[Oddball]

Even though I don't necessarily agree with the principle, the two caveats are clear:

1) It is a temporary measure, for an extraordinary situation.

2) There is absolutely no added value to the general economy, nor are there any "created jobs" that weren't displaced from another sector of that economy.

Two points that are, unfortunately, ignored -and indeed denied- by today's Keynesian voodoo witch doctors.

 

[Oddball]

So then my mind is to deficit spending. Or borrowing from tomorrow to benefit the person who "needs" the welfare today. Preferably by having that person who needs the welfare do something for the public good be it digging a ditch or building a windmill.

I can argue against deficit (gasp: credit card!) spending with the best. It increased the cost of whatever is purchased by whatever interest is collected. Comparing to micro scale, making payments for that automobile allows one to get to work to earn money for not only the car but the rest of life.

Once again I buy decade old cars which I pay for with time under the hood, but I understand the potential bad turn of events which could make a car payment necessary.

I'm on 1.8 Public Works in the link

There are two kinds of deficit spending:

1) Where the person accepting the debt has ownership of the property being exchanged.

2) Fiat money debt, where the money is created out of thin air.

The first is self-explanatory and doesn't risk debasing the currency. The latter is the subject of the following book and audio presentation:

The Creature From Jekyll Island

Creature from Jekyll Island (softbound book)

 

[Toronado3800]

2) There is absolutely no added value to the general economy, nor are there any "created jobs" that weren't displaced from another sector of that economy.

Is this applied to the following semi-hypothetical situation:

Obama decides unemployment is unacceptably high, labor costs are low, and the power grid could use updated because of decay and the improved efficiency of new technology. The government uses fiat debt to fund a billion dollar grid improvement system which will pay for itself in 20 years out of its 40 year life expectancy.

Just hypothetically. I had to come up with some example.

 

[Oddball]

If it's that obviously great of an investment, sell bonds to finance the operation and raise money that's already out there.

 

[Oddball]

P.S.

Even though Baghdad Ben Bernanke has claimed that the Fed wouldn't be monetizing the debt, the Fed has sent prop players into the last few bond auctions, who have subsequently sold those bonds on the secondary market back to the Fed.

I hope you don't need anyone to draw you a picture as to how messed up that is.

 

[Toronado3800]

Ah yes the efficiency of upgrading should be apparent enough for that.

In the 1.126 Restraint of Trade section Bastiat stops his following of the franc too quickly. Maybe for economy of time and space in his writing.

Two reasons:

Even if France's iron is more expensive to mine I'll side with the benefit of keeping some domestic production capacity.

The 10 francs Goodfellow is paying for Belgian ore compared to 15 for French ore are leaving the country helping the Belgian economy. There is a benefit unto itself for the Belgian economy rolling. However when push comes to shove there is a 5 franc benefit to France to for folks to buy domestically. Before any necessary administration cost.

I love the phrase "great law factory" Bastiat uses btw.

Excellent reading Dude. Due to the lateness of the hour I'll get back to more reading tomorrow.

 

[Neubarth]

Very simple solution to our economic problems as I have been saying for years now. Let the world move to a basket of curriencies that does not include the Dollar as a means of exchange between countries. Let us move the value of the dollar to fifty percent of that basket of currencies and peg it there. Our standard of living will take a hit, but soon we will have full employment and China will be buying our plastic and other cheap crap just like we used to buy theirs.

Of course, this will never happen, but it sure is fun to think about the American Dollar going down in value with all of our Industrial Might and capacity for production that has moved off shore in the past forty years. It would all come back.

Hell, we should encourage the Germans, French, Chinese and Japanese to put their currencies in the Basket and encourage other countries to join in if they wanted their currency to have a fixed value opposite the Yuan, Yen Mark and Frank. If they would not for logical reasons at least we would have the YYMF.

Everybody would call it the "Yes, Yes, Mo Fo" and the whole world would be happy that they were off of the Dollar for international exchange.

 

[william the wie]

A few points just for Ss & Gs:

It was Fisher not Keynes who came up with the idea of counter-cyclical policies. Keynes was simply a credit grabbing attention whore. A critical reading of his general theory in particular is disheartening. There's no there there when examined.

DARPA style prizes work. Only the winner gets paid and the research made by all contestants purportedly exceeds prize money by about an estimated 40 to 1. Such prizes are rarely used.

 

[Oddball]

Excellent points.

OTOH, however useful that the DARPA model may be for things like fighter aircraft and tanks, it's of dubious merit when putting together an electrical grid that spans several states.

It's also notable that Keynes was a proponent of eugenics.