True or False? Government creates wealth

[Capitalist]

Something for abstract thinkers this weekend, albeit from the US, but just as relevant here.

True or False? Government Creates Wealth
by Michael J. Hurd, PhD.
Posted on Jul 22, 2004

Q: In past articles you have written that government cannot create wealth, that it can only destroy or redistribute wealth. How can you say this? Consider college financial aid, which helps students get a college education. Consider Medicaid, which provides health care for the poor. Consider NASA, which gives us a space program. The list goes on and on. Government does every bit as much to advance civilization as the private sector--even more!


A: You are actually proving my point, not undermining it. You prove my point through what you evade. Government college grants are paid for with tax money. Tax money comes out of the private sector--overwhelmingly from the "evil rich" who pay the most in taxes. Medicaid money comes from the private sector. NASA money comes from the private sector. Every single government program is financed through taxes. Most taxes come from the richest segment of the private sector. Ironically, most advocates of activist, Big Government are the harshest critics of the highest earners who pay the most in taxes. "Tax breaks for the rich" are the most evil thing imaginable, in their eyes.

Maybe you think that government has a moral right to take money from the private sector to pay for all these things. I do not. I believe people’s individual rights apply whether they earn a dollar, twenty thousand dollars or three billion dollars a year.

Maybe you think that the government sector does a better job running colleges, space programs or health care than the private, for-profit or voluntary sector would. I do not. However, you cannot disagree that government would be completely unable to do any of these things without money provided by the private sector. If the private sector shrugged, and stopped producing all that money, you would witness the ultimate government shutdown.

So you’d better be nice to that upon which you depend. The hated private sector pays every single penny of your beloved government programs. Don't you forget it.

[bongo66]

There is no arguement. Govt destroys wealth and we prosper in spite of govt(those of us who work hard anyway)not because of it.

Any arguement from individuals trying to defend govts(any govt left or right but especially left)as stimulators of economies are either on drugs-no thanks i dont want what you are on-or they simply lack the capacity to think, or choose to ignore fact.

Im a filthy capitalist and up yours:) Bongo

[zyreon]

quote:wealth ( P ) Pronunciation Key (wlth)
n.

1. An abundance of valuable material possessions or resources; riches.
2. The state of being rich; affluence.
3. All goods and resources having value in terms of exchange or use.
4. A great amount; a profusion: a wealth of advice.

Well based on that definition I would concur with the response... adding that a government would create wealth only if you considered SOEs and such (however efficient/inefficient).

Though, as implied with the definition, the exerpt also begs the question; What is wealth?

It appears to me as though the questioner is thinking of welfare, not wealth (financially speaking).

[Gryffyn]

Well G Hart got pretty wealthy out of the govt selling him an underpriced money spinner. Then he made, lost and re-made a lot more himself ;)

Govt and private sector are just members of the greater society at large. Govt is device that society wills upon itself as a whole, dragging dissenters along for the ride. Private rights have nothing to do with it as you are in that society and have to live with its fluctuating mores.

A lot of good argument can be aimed at the level of govt though - I'm for less myself. But it is
disingenuous to argue that the private sector exists apart from society etc.

[Elise]

Nicely put, Gryffen.

Some of the posters here seem to think of Big government as something alive ... it is simply a social construct.

Talking about taxes... I personally think that say 10 times what a person needs to live a what most people would think is luxury.... is simply excess... it is NOT necessarily creating wealth ... afterall, isn't there a law of dimishing returns for the excessively rich?

Besides, what benefits are there for a community when a few individuals control the resources of a community?

Take it to its logical conclusion... excessively rich become overly concerned with retaining their wealth - rather than actually creating new wealth.

In addition, the funds that many excessively wealthy use to "invest" with in new areas - is not so different from any other entity (including the govt).

Just some samples of the not so simple world out there.

I like capitalism myself - but that doesn't mean that it's totally right either.

[Capitalist]

For every dollar taken in tax $6 is lost from the economy. This is a fact.

[Elise]

I meant MORE than 10* rich.

For me, that would be say 10 * 100m US. So, more than that, is simply excess, and I see no problem with mounting taxes over that.

It's kind of like hoarding.

In this case, an individual is basically hoarding the right to manipulate an excess quanity of a communities resources.

Unhealthy, for that individual - and the relevant community, IMO.

[Gryffyn]

Cap - interesting - please expand on fact.

[Gryffyn]

I'd have thought that the only money ever lost from the economy would be that spent or sent overseas. Even if govt takes money it then usually reallocate it within economy.

Obviously you have a more complicated/interesting scenario - all ears.

[Gryffyn]

But, to answer the black or white question - no, the govt does not create wealth.

[Risk]

government creates social wealth...we are all richer because of it.

without government we would have anarchy.

the role of government is to redistribute financial wealth to those that need it most....the sick, the young, the old etc.
wether you like it or not, every single New Zealander benefits from government spending.

I for one, do not think that government's (or indivudual's) primary goal should be the pursuit of financial wealth...but many individuals do seem to have that narrow focus.

[marcer]

Interesting topic Cap.

I would tend to agree that it is pretty unlikely to create $$$ wealth.

However, I think the writer's focus solely on monetary wealth neglects the social job some aspects of the govt does.

One NZ example I can think of is Tranzrail and how after it was privatised, the (now) ex owners reinvested very little back into it and sold it just before its financial situation became public.

Look at how a good rail network (perhaps owned and operated as a non profit org by the govt)would help a lot with our tree transport, ensuring less big trucks on the road.
Social gains here would include less air pollution from truck exhausts, perhaps less road deaths, as well as less slower trucks on the road for other users. Therefore perhaps less hospital costs, time off work etc...

The other thing is that its pretty easy to argue that "its my money, and should choose where I spend it" if you are earning 60 or 70000+ PA and health insurance, tertiary ed for your kids etc is no big deal.(assuming a state with low/no taxes where everything is privatised)

However someone supporting a family on 30000 might suggest that affording all the above is a little more difficult.

"If the private sector shrugged, and stopped producing all that money, you would witness the ultimate government shutdown."

Pretty ironic statement considering many of the VERY wealthy people in the world have enough monetary wealth for 1000's of people to live off PA. And they still want to make more. I don't think a few little taxes will put them off.

I too am interested in how $1 in tax = $6 lost from the economy.

[Cooper]

I agree with Risk... Bongo, you don't prosper despite the Govt. Unless you're built like a brick ****house with an army at your back you're prospering from the regulation and security provided by the Govt, which then allows you to take the opportunities afforded to you from being fortunate to live in this society. If you're so confident you are the maker of your wealth I'll fund a trip to Sudan and you can go make your millions there.
Taxes are an inefficient way to redistribute wealth, sure, but until someone comes up with a structured and fairer alternative I'll just be thankful for what is provided.

[Cooper]

Its all very well for us to sit in NZ and whinge about an overregulated and non-business friendly Government. But this society was built by millions of people already dead and it pisses me off to hear idiots bleating on about how lucky they are to have succeeded in such a stifling environment. We don't have to look very far for our next meal and if an unfair taxation system or a welfare system that overrewards the poor and lazy is the worst you can think of to complain about then you're already well ahead of millions of others in the game of life.
For the record I'm a fairly right wing economist so I'm well aware of the shortfalls of a welfare society... but I'm also aware that I should be grateful for getting the head start I have by being lucky enough to be born when and where I was.

[stormrose]

Elise: Money is never idle. Even if I hoard all my cash - because I like zero's on my bank statements - you can rest assured that the bank is lending my $$ out to others who make good use of it.
The more $$ hoarded by richies, the cheaper $$ are to borrow. The cheaper the cost of capital, the more other people can afford to risk.

Cooper: Political and Social stability is important for capitalism. However, equating less-govt with no-govt is a distortion of the argument.
The "look how much better we're off" argument is for the complacent (ie soon to die). Always look for improvement. The reward is in the journey, not in the destination.
I don't mind a system that gives temporary assistance. However, our present taxation system is distorted towards rewarding losers at the expense of the winners.

[Cooper]

Stormrose: While money may not be idle, it can be used inefficiently. If there is excess capital available at a low price it results in money being used for projects whose returns are not sufficient to warrant the usage of the funds in the first place... look to China to see an Economy awash with capital that isn't using it efficiently (and therefore wasting it).
I wasn't arguing we should all be sitting around smoking marijuana and giving thanks to the great almighty for what we have that others don't. I am saying that if you're going to start whining about what the current system is then at least acknowledge that it does enable you more than other systems do. The statement was "True or False? Government creates Wealth?", not less Government, or itsy bitsy pieces of Government, but Government as a whole. We need Goverment, Government enables us to make the money we do by providing political and social stability, without government we would need to spend more of our time and resources providing for our own security and health, which would then result in a loss to ourselves as we spent our time and capital on providing those public goods. Are you guys all that wealthy that you can provide the security and health care and sanitation for yourselves? If there were no Governing body do you think you'd be able to stop those infernal dole bludging layabouts from deciding to take what is yours by force?
Recognising that I should be grateful that we have the system we are in does not mean I wouldn't change portions of it if I had the chance. If you want to quote low grade philosphy like "The reward is in the journey, not in the destination" then I will respond back by saying that it is only through recognising what we have that we can force improvement without reverting to a system that makes us worse off.
Complacency and gratitude don't go hand in glove. I can appreciate what I have while still looking for more. I hope I'm never that complacent about what the current system provides that I don't appreciate what is providing for me by others.

[Cooper]

IF I was asked what improvements I'd make it would probably be the same as most others on this site (we're hardly a spread of the demographic as a whole)... less taxes, less red tape, stricter welfare controls (a maximum time period for the dole), quarterly rigourous testing for those on sickness benefits, work for the dole schemes, means testing for superannuitants (that's because I'm young and don't want to fund already wealthy people with additional travel funds).... etc etc. If that's what is being asked then I am an advocate for smaller Government.

[stormrose]

RE: Excess capital used inefficiently
Precisely why OCR is a good idea.

Here's more low-grade philosophy for you:
Behavioural science suggests that "getting" has a greater "reward" than "having" (Journey vs Destination).
The applicability of this to evolutionary models lead to the conclusion that continual improvement is a necessary condition for continued survival.

Epstein and Locke influence my thinking on the role of govt. That hardly makes me an anarchist.

On the bulk of it, I think we agree.

[belgarion]

And yet the richest countries in the world all have govts that tax and have done so for many centuries ... and the poorest countries in the world have govts that do not ... Explain that.

Facts are stubborn things. ;)

Might I ask if anyone who has agreed with the thread actually has a degree in economics ... or did they just pick up said 'facts' in the pub? ;)

[bongo66]

We need Goverment, Government enables us to make the money we do by providing political and social stability, without government we would need to spend more of our time and resources providing for our own security and health, which would then result in a loss to ourselves as we spent our time and capital on providing those public goods. Are you guys all that wealthy that you can provide the security and health care and sanitation for yourselves? If there were no Governing body do you think you'd be able to stop those infernal dole bludging layabouts from deciding to take what is yours by force?


Cooper, govt do not provide adequate security or health as it is and that is why many are indeed providing it for themselves so they dont get what is theirs taken by force or get sick because the hospital line is out the door.

Govts ONLY task should be to provide sercurity, internal and external. It doesnt do either well at all. We are vulnerable to terrorism and invasion and many citizens are prisoners in their own homes due to crime in their neighbourhoods.

And we still let them steal our money to provide these and other highly inadeqate services.

Simply put, if we all had more money in our pockets via less taxes we would be able to provide far better health care, education, penal institutions and other services that are presently in a crises state.

Less tax and therefore smaller govt means a more efficient economy and more money to spend upfront without it being filtered through the govt middlemen-that is where your $6 cost for every $1 comes from. It is highly inefficient having middlemen!!!! and there is missed opportunity cost when this money goes through the hands of a big govts employees. Of all people out there Cooper if you cant grasp that concept you shouldnt be investing in the sharemarket. Its economics 101.

The proof the big govt destroys wealth is that govt itself keeps growing in size year by year, on our stolen tax dollars!!! It doesnt grow itself efficiently but it does grow. Think how much our economy would grow if govt was smaller and our money wasnt destroyed by govt employees clipping the ticket along the way.

Bring back Doug Sommers Edgar, at least his clip, clips are smaller, Bongo

[Cooper]

Into my third year of said degree Belgarion... but the effects of Govt are so far reaching that anyone can make a valid comment on this post.
Are you a David Eddings fan by some chance?

[stormrose]

Belg: You missed the point entirely. Who's arguing for zero tax?

If I was to apply similar flawed logic to your post: "A 100% tax would create the most sucessful country in the world." I'm quite sure you don't believe this.

[Cooper]

Bongo... I've said that taxes are an inefficient way to redistribute wealth, it's a well known fact that all else aside it would be more efficient for those on the dole to come and take what they are paid out in dole money out of my home.
I also said that I was an advocate for smaller government, which is pretty much what I take you to be arguing. Where we differ is that I see the current problems as necessary evils which can in time be ironed out, while you seemed to be rabidly anti the whole system in your first post, claiming that you were master of your own destiny and giving the impression that as far as you're concerned the Government does nothing for you but take your money. I'm relieved that you've thought about it and acknowledged that although you may be a good investor you'd be pretty average at trying to police society to your own high standards, and that there is in fact a place for Government after all, despite it's shortcomings.
Ultimately, the beauty of the current system is that if you feel strongly enough about it, you can act to change the system... if you're going to draw up a citizens initiated referrendum for smaller Government then I'll be one of the first to sign.

[Gryffyn]

quote:Originally posted by belgarion

And yet the richest countries in the world all have govts that tax and have done so for many centuries ... and the poorest countries in the world have govts that do not ... Explain that.

Facts are stubborn things. ;)


Belg - they are if you just try make cause and effect statements like the one above!

I think many would argue that the levels of tax - and what it is used for - are important.

[Halebop]

quote:Originally posted by bongo66

...Cooper, govt do not provide adequate security or health as it is and that is why many are indeed providing it for themselves so they dont get what is theirs taken by force or get sick because the hospital line is out the door.

Govts ONLY task should be to provide sercurity, internal and external. It doesnt do either well at all. We are vulnerable to terrorism and invasion and many citizens are prisoners in their own homes due to crime in their neighbourhoods.

And we still let them steal our money to provide these and other highly inadeqate services.

Simply put, if we all had more money in our pockets via less taxes we would be able to provide far better health care, education, penal institutions and other services that are presently in a crises state.

Less tax and therefore smaller govt means a more efficient economy and more money to spend upfront without it being filtered through the govt middlemen-that is where your $6 cost for every $1 comes from. It is highly inefficient having middlemen!!!! and there is missed opportunity cost when this money goes through the hands of a big govts employees. Of all people out there Cooper if you cant grasp that concept you shouldnt be investing in the sharemarket. Its economics 101.

The proof the big govt destroys wealth is that govt itself keeps growing in size year by year, on our stolen tax dollars!!! It doesnt grow itself efficiently but it does grow. Think how much our economy would grow if govt was smaller and our money wasnt destroyed by govt employees clipping the ticket along the way...


This raises several questions...

Other than being able to quote your source as fellow ST contributor Capitalist - please quote your data on the $1 for $6 argument? I could say the exact opposite and it would be quite impossible to prove either way. There are so many extraneous factors involved in an economy that a double blind analysis to prove the contention would be impossible. The 1 for 6 argument is a theory and not a fact, however well founded it's proponants believe it to be.

The government does have to provide security but doesn't this encompass far wider concepts than border protection and law and order? Security is as much a attitunal concept as a physical state (business relies upon the attitunal factors so we keep buying stuff) - which is why healthcare, education and all the rest are part of this equation. The provision of healthcare is adequate - it's not supposed to be great - we don't pay enough taxes or health insurance premiums to afford it.

The concept of inefficient government just doesn't wash. While shortcomings and improvements can be highlighted in any sort of organisation in my experience private enterprise is just a "bad" for ignoring meaningful improvements to process, systems or allowing waste (and other more interesting concepts like nepotism and breeches of our human rights act).

Once of my favourites is ACC. The media loves bashing them and the right especially loves bashing them. Australia has a hybrid system of private and public accident compensation and under their "competitive" process claims costs and premiums, claims tail and rehabilitation stats are all much worse than NZ's. Recent reporting from Australia shows they are now considering a "NZ style system". At the other end of the spectrum, is a country like the UK where the system is mostly private - if you have a minor fender "ding" in a supermarket carpark you're insurer won't get away with forking out less than 500 pounds for "mental anguish and inconvenience" to the third party - on a 100 quid repair! You pay for that and more in insurance premiums (there are a bunch of hidden costs with this as well - UK insurers need more lawyers and legal medical experts, they must carry more capital to meet higher claims costs r

[Cooper]

I apologise unreservedly to Stormrose and Bongo for the tone of my posts... I'm letting pride get in the way of what's panning out to be a very useful and interesting thread. I appreciate and value both of your opinions (if I didn't I wouldn't reply to them) and welcome their thoughts on the subject in the knowledge that they're both a little older (and therefore, as the old chestnut goes, wiser) than me. There is a tendency on this site to tie one's opinion with one's pride and this results in a lot of things being said that are irrelevant and counterproductive (inefficient, ironically). This doesn't mean I agree with you, of course...

[Halebop]

Hi Cooper,

I don't know how other's view your posts but their tone is really quite mild to my reading. Besides, to me the debate is usually more interesting than the topic ;)

[Cooper]

Halebop; Thanks...I work part time as a steel storemanager and have a propensity to revert to truckdriver/steel storeman vernacular sometimes which is fun but not entirely civilised. I'm a little hyperaware of this, hence my post. I do value the opinions of others though, and would hate to think their are posters out there with pertinent points who aren't comfortable posting for fears they're going to get involved in a good old fashioned ST brawl, fun as they are...
Also I'm a little conscious of the fact that it's easy to sit behind a pseudonym (not that mine is...) and attack without much else but a rebuke from another poster as punishment... I was always taught that if you don't have the courage to say it to someone's face then you shouldn't be saying it.

[belgarion]

quote:Originally posted by stormrose

Belg: You missed the point entirely. Who's arguing for zero tax?

If I was to apply similar flawed logic to your post: "A 100% tax would create the most sucessful country in the world." I'm quite sure you don't believe this.


SR, No I don't think I missed the point at all ... I could have just as easily phased the statement the other way ... that is, if the responses in favour of more taxation ;)



Cooper, I have a few things in common with Garion ... a very similar wife being one ;)


Back to the thread ...

A point clearly missed by many is the concept of "Investment Horizons". I.e. the period of time which those making the investment expect to get a return on their investment.

Every market is made up of people who are investing for a return based upon their capital being committed for period of time. The length of time each person chooses differs and frequently explains why the market behaves as it does.

Our accounting rules are based upon one year and yet few 'strategic' plans can be acheived in that period of time. Many say 3 years is a magic number and other shorter or longer.

Almost without exception however, the govts of successful countries are taking much longer term investment views, typically measured in a generation or more.

Thus the premise that Govts do not create wealth may be correct if one uses standard accounting practice and measures dollars used in a year. However, if one uses a couple of generations to measure what they do and uses 'non-dollar' measures of how successful they are (e.g. infant mortality rates), then it becomes very dificult indeed to say that Govts don't create Wealth.

A classic long term investment decision being taken by Govt is the current investment in Rail. If the cost of oil rises as it is expected to over the next few generations, then the cost of building new railway lines, given the high oil component in building them, starts to get really scary. Thus it makes sense to preserve and maintain what is there at present even if the cost to benefit ratio as measured in 2004 makes abandonment of a rail system a more 'sensible' thing to do.

Choo, choo ...

[Dimebag]

ss tax and therefore smaller govt means a more efficient economy and more money to spend upfront without it being filtered through the govt middlemen-that is where your $6 cost for every $1 comes from. It is highly inefficient having middlemen!!!! and there is missed opportunity cost when this money goes through the hands of a big govts employees. Of all people out there Cooper if you cant grasp that concept you shouldnt be investing in the sharemarket. Its economics 101
Bongo - by the sounds of it, that is about all you know - economics 101. You certainly don't appear to have progressed beyond this rather elementary level where economic theories are developed in an idealised and theoretical world, with little resemblence to the real world.

Hard-line proponents like yourself invariably worship the free-market and the superior outcomes it generates. You are implicitly assuming that such markets are 'efficient', and deliver the best outcomes left to their own devices.

Yet your own investment strategy in the sharemarket runs contrary to this belief. As I have mentioned before in other threads, the sharemarket is among the most 'perfect' markets there are, and therefore if any markets were to be efficient, the sharemarket would certainly be among the first.

Yes your investment philosophy in the sharemarket rests on a belief that the market often misprices stocks due to an imperfect pricing process by market participants. In other words, the sharemarket is inefficient at pricing stocks at levels that reflects their long-term economic value. As Buffett has retorted [in the context of Adam Smith's invisible hand], inefficient sharemarkets operate as an 'invisible foot' that trips up the economy and its allocation of resources.

The simple matter is that markets, financial and real, are highly inefficient in the real world and need correcting. When the government intervenes in this regard, it does infact create significant value. If you can't grasp this simple concept they you many not even know economics 101.

For a start, it is embodied in the simple concept of externalities. Governments need to correct for these effects. This creates significant value.

Further, much depends on how we define wealth. "Wealth" is not synonomous with "utility". Wealth is measured in sheer dollars; utility takes into account the real value/benefit such resources generate. Utility is arguably a much better measure of the value of government or not, so the argument that the goverment creates no 'wealth' may be focusing on the wrong variables.

Consider a situation where there are but two people in a simple economy. One has two units of food, the other two units of water. If this two citizens refuse to exchange items, they will both die as we need both food and water to survive. If they trade one unit of water for one unit of food, they will both have one unit of water and food each. They will both survive.

Such a trade creates no 'wealth' [the total output/resources of the economy remain unchanged], but the 'utility' created by transaction is significant.

Traditional economic thinking is simply way too simplistic.

There is a [conceptually very similar] concept of 'diminishing marginal utility of wealth'. This theory states that each $1 increment to somebody's wealth is of less utility than the previous increment.

This is highly defensible. To Warren Buffet, worth circa US$43b, an additional $1 is liable to lead to virtually no extra utility. But to a starving person with nothing, it could well be of real tangible worth.

This truth can be used to argue that the distribtion of resources in society that leads to the greatest level of 'utility' is one that shares resources equally among all citizens. This maximises utility.

So why not do it?

The problem with this pure argument is that it assumes a stagnant size of the 'pie'. Such an enforced egalatarian distribution of resources would remove incentives to create wealth in society and thus the size of the pie

[Dimebag]

Here are a few more criticism of the traditional economic approach to analysis.

Firstly, the overarching assumption is that 'wealth' is the only measure of value in society. Yet we live in a moral society where there is so much more to humans than simply maximising net worth.

The problems exhibited by this assumption are manyfold, and show up when measuring 'progress'. This, particularly, shows up when we talk of 'economic growth'.

Here is a good example.

Lets say you can earn $50,000 pa working 40 hours per week, or $100,000 pa working 80 hours per week. Which would you prefer?

Under the neo-classical ecnomic model, your personal 'economic growth' is 100% if you work 80hours per week.

If everyone in the entire economy works twice as many hours, the economy would boom. More goods and services would most definitely be produced. But are people better off? It really depends how high on your list making money is. But leisure time etc is also of value. Utility does not equal wealth. If much of our 'economic growth' comes because we are working more and more hours, are we getting anywhere?


Here is another argument for the government, and how it may create significant value in society.

The great depression of the 1930s was highly destructive to humans on several levels. Widespread hardship ensued. Virtually all governments of all different philosophies would agree that at whatever cost, such a devastating outcome must never be allowed to recur.

But why did we have such a depression in the first place? My personal belief is that one of the main causes was the lack of a welfare state. The welfare state offers the benefit of a safety-net to all citizens. When people lose their job, they have some basement level of income assured. This limits the economic damage created by a first round recession.

A recession inevitably leads to a loss of jobs. If there is no welfare state, all those now unemployed will have no money and hence cease spending altogether. This leads to further economic damage, so further layoffs are necessary etc and the cycle continues. The value of businesses decline, business owners spend less etc etc and the downturn just continues to get worse and worse. There is potentially no limit to just how bad things could get.

However, the goverment, by providing taxation and welfare services, offers what economists often call 'automatic-stabilisers'. As the economy weakens, welfare payments increase, and thus provide a continued stream of spending from the recently unemployed. This limits the economic damage wielded by a first round downturn. They may also increase government spending to be stimulatory right at the right time. As the economy booms, the tax take increases and welfare payments decline, paying back debt incurrerd to fund welfare payments/govt spending, and cooling off an overheated economy. The result is a much more stable and orderly economic growth and performance over time, which enhances wealth considerably.

I have talked about the regulation of monopoly power in other threads. This is another significatn benefit.

Environmental protection and resource management (sustainable management) offer tremendous utility advantages due to the 'tragedy of the commons' belg talked about a little time ago. Resources would be exploited to extinction by failing free-markets with the ruthless individual pursuit of self-interest. The government helps co-ordinate activities to enhance overall value.

The benefits of security and protection of property rights has already been discussed.

The list goes on....

Dimebag

[Dimebag]

PS

Here are some of my previous comments on the value of limiting market power, correcting for market failure etc.

http://www.sharetrader.co.nz/topic.asp?TOPIC_ID=20148&whichpage=4

[Cooper]

Hi Dimebag, a pleasure to have your intelligent comments weighing in on the side of multi dimensional (as opposed to the cursory one dimensional approach argued by some) thinking. I think, if I'm getting this correctly, those arguing the negatives of the current system are concerned with point 4) of your first post, ie that we have in fact passed the efficient balance of ensuring a sufficient social "safety net" needed to ensure a high level of "society" whilst maintaining the incentives needed to reward those who are the main producers in society and promote a work ethic. The key factor here is that following the rational model presented by classical Economists, those who are putting in the work must be receiving the rewards (incentives to do so) or they quite simply would not be putting in the work.

You summed the general argument well by mentioning externalities and the fact that these are 1) necessary for the functioning of the "welfare" society enjoys and 2) highly unlikely to be looked after by the corporate sector as they are what economists term "public goods" (meaning everyone can use them, but they're not owned by anybody and noone's going to be getting any revenue from them so there's no way in hell a corporation, or an investor, with the standardly accepted goal of "maximising profits" will want to own and incur the costs of running them).
If this thread is going to end in a good old fashioned Keynesian vs Classical (Invisible Hand, no Government intervention) debate then it should be worth noting that the current trend is for an amalgamation of the two... maybe that gives an indication that we aren't dealing with black and white here, just differing shades of grey.
Your mention of monopoly regulation nudges me to ponder that the Government is, in essence, a "natural" monopoly and that under a monopoly there will be deadweight losses as a monopoly is a price setter and therefore does not have to operate with maximum efficiency in order to keep it's costs low. The Government may allocate funds in an inefficient manner, but as it is offering public goods, ie by the very definition itself goods it can not charge for, it is forced to resort to an inefficient manner to raise revenue to provide it's product.

[Cooper]

Just read your posts on earning vs winning Dimebag... total agreeance. The problem is that those who post to this site are representative of those who have benefited from life, either by sweat of their own brow, rent-seeking or by having rich ancestors, and therefore the general reader/poster will have very little first hand experience of, nor sympathy with, the facets of "welfare" you discuss. Therefore the extreme right wing viewpoint is the general trend on this site.

[Gryffyn]

I wouldn't say that the extreme right wing is the general trend here. Sometimes it's a bit more strident, but that makes for some good discussions and contrasting viewpoints. We'd all be worse off if noone ever tried to shake up our personal world-views from time to time.

Some very nice discussion on this thread - makes a welcome change to some ST threads. Thanx Cap. Topic seems to have wandered a bit though into a justification of government and taxes debate. There again, the original poser was an unsatisfying yes/no - for even if you don't think govts create wealth - literal or otherwise - it cold be argued "who cares" - they have other roles to play.

[Cooper]

You're right Gryff, I admit the thread has gone a little off topic.. I think I started that with my kneejerk reaction to Bongo's post. Good thread though Cap.
I wouldn't argue against others posting their view point, no matter how strident... everyone brings a different viewpoint which is what this is all about.
As I've previously stated I generally look at things from a right wing viewpoint so I'm not knocking the ideals this encompasses just stating that given the fact we're all investors this site is destined for a right wing slant, which can result in obviously left wing theories and ideals receiving more than the fair share of criticism.

[ananda77]

Capitalist:

Congratulation, an interesting post with the potential for interesting discussions.

Based on my worldview, the entity government has no existence of its own and therefore I must agree, government does not and can not create wealth/utility per se.

‘Government’ can only be experienced/understood/described/act/achieve in terms of its parts which in total we express as ‘government’ for conventional purposes.

Based on the relative term ‘government’ however, I totally agree with Dimebag's views on the 'government's ability in terms of wealth/utility creation. No doubt, this ability to create wealth/utility, surely depends on the inputs of all entities which make up society (another relative term).

Important in this regard are the values re: inputs/outcomeswe attribute to such relative terms (government/society) not the terms themselves.

[Major von Tempsky]

It's the market that creates value and wealth, not government.
If government employs a team of people for six months digging an enormous hole for $10 million and then continues their employment for another six months to fill the hole in again (read the Treaty industry; Wellington; Defence &) is the filled in hole worth $20 million?
No, its worth nothing.
That's the trouble with the labour theory of value and also the problem ultimately with cost-plus pricing.
The question is what does government produce that the market wants as distinct from simply being imposed on society as an output of government?
Education? But in Australia far more people now send their kids to private schools as a matter of choice, a trend that has developed only over the last few years.
Health? But if you could pay with your own money instead of having it confiscated by taxes wouldn't you pay instead of hanging around on a bureaucratic waiting list while you go blind etc?
Revenue raising traffic officers who ticket people driving safely on clear roads in good weather?
24 councillors in Chch City instead of 12?
An independent but economically unviable Banks Peninsula District Council?
Jim Anderton picking winners instead of letting the market decide?
When you start thinking about it it becomes harder and harder to think of anything which government produces which the market actually wants.

[ananda77]

Major von Tempski:

It's the market that creates value and wealth, not government.

Major, I have to disagree with you. It's neither the market, nor the government which create wealth/utility.

Only individuals have the ability to create wealth/utility and yes, the market, government can be used as vehicles to achieve those outcomes :)

[ananda77]

True or False? Government Creates Wealth

False! Only individuals can create wealth/utility.

quod erat demonstrandum.

[thereslifeafter87]

quote:Originally posted by Capitalist

For every dollar taken in tax $6 is lost from the economy. This is a fact.






Cap, that is a load of bollox.

Have you never heard of Keynes' multiplier effect? That says that every $1 dpent by government, $3 is generated.

While I don't necessarily agree with that, Even Friedman when he argued against Keynes saw that the maximum possible loss to the economy of $1 taken in tax is that $1 that was taken.

But I disagree with that, it is far more likely to be somewhere between say 50c and $3 than 0 and $3

Cap, you cannot state as fact such an outrageous claim with absolutely no empirical evidence to support it.

Government exists because without it we would be at the mercy of whoever controlled the most force (a warlord society).
Society places a monopoly on force in the hands of government, not because it is the best option, but because it is the only option.

No large scale, efficient commerce could exist without a government to enforce contracts.

Simple really.

[thereslifeafter87]

Bongo,
You need to think through what you said. Government middlemen 'clip the ticket' as you put it, thus destroying our economy?

Think about it. What happens to the money the government middlemen collect? Where does it go once it enters their bank account?

I'll let you think about that. That, is economics 101.

[thereslifeafter87]

quote:Originally posted by ananda77

Capitalist:

Congratulation, an interesting post with the potential for interesting discussions.

Based on my worldview, the entity government has no existence of its own and therefore I must agree, government does not and can not create wealth/utility per se.

‘Government’ can only be experienced/understood/described/act/achieve in terms of its parts which in total we express as ‘government’ for conventional purposes.


Ananda. Calling a spade a spade is much easier than saying "this is an object created from steel and wood that is used as a tool for digging, and which is commonly referred to as a 'spade'"
:)

I can also tell its a spade, even if its made out of plastic, or painted a strange colour.

[thereslifeafter87]

Dimebag,
I have to disagree with you on the effectiveness of an increase in government spending to offset recession.

Do you really think that governments can predict economic cycles in such a manner to allow extra spending to have a cushioning effect?

I agree with Friedman when he says that governments can't predict cycles, and also that by the time extra spending is funnelled into the economy, the recession is likely to have passed. Thus the funding simply stimulates the following boom, leading to a greater bust next time around.

You misunderstand Keynes to some extent. What he proposed was not necessarily more government spending, but simply that governments should run deficits in times of recession. They can do that by cutting taxes as well as increasing spending. Private spending presumably also has a multiplier effect.

With a good progressive tax system, that includes taxes on gains of a capital nature, deficits should appear automatically in recessions.

Unfortunately, Keynes' theory is corrupted by the general inability of politicians to not spend money once they have it. Thus the idea using the surpluses gained in boom times to pay for the deficits in recessions does not usually pan out.

We should applaud Michael Cullen for getting that right at least, even as the electorate calls for more spending (well, at least he held out until it got close to election time).

[stormrose]

Cooper: No apology necessary - it's the nature of debating on such media. Keep up the posts and good luck.

Belg: Point taken.

Dimebag: Only an idiot assumes that a general principle can be blanket applied to all situations. Pragmatism in application trumps dogma. That's why I have no problems with most of our govt services per se. The level to which they're provided is the problem.

In many cases, govt run programmes are monopolies. Like any monopoly, the incentive for efficiency is not as great.

Assume that people want the most "utility" that is) for every $1 they spend. Even if a govt programme provides that maximum utility now, there is no guarantee that it will continue to do so in the future. The trouble is - we're locked in until things get so bad the politicians react. In the private sector you vote everyday with your $1.

Dimebag highlighted the problems with utilarianism. I'd have to agree that utilarian approaches are only beneficial in the short-term because the pie is always changing.

The measurements of "utility" are not objective - How can one compare the "value" of lower infant mortality and lower rates of teen pregnancy?
What's the exchange rate?
What are the optimal levels of each? (If your answer is zero then think longer term)

Money is the nearest thing we have to an objective measure of value. Mind you, there's the diminishing value of each extra $1 and disagreements on the value of a life. (Probably because we've never put a life on the market.)

TLA87: I recall research in Rodney Hide's book (on the IRD) who estimates that every tax $ taken needs to return 50%pa to have an equal benefit to leaving $1 in the economy.

No govt prediction is necessary for our welfare system to have its desired cushioning effect.

And, for the poster interested in demographics, my background was poorer than the dole poor. It's right-wing thinking that got me out of the poverty mindset.

[Major von Tempsky]

Ananda, you're expressing a non useful tautology - similar to the spade example.
The market is not different from individuals, the market is the sum of individuals needs quantified into monetary demand for goods and services. Do you really want to discuss the individual demands, one by one, of 4 million NZers instead of the aggregated market?

[Halebop]

Wow. This is a very interesting debate.

The only thing I can add at the moment is a notion Stormrose stirred by quoting Rodney Hyde's book. When something is written it becomes "legitimate" no matter how wise or rediculous the suggestion. Try putting a WET PAINT sign on a dry seat and see what happens? The underlying wisdom is to avoid seating oneself on a wet seat and thus the message received from the sign conforms to an obvious tenet. None the less the message is still mixed or incorrect.

I'm always reluctant to quote someones elses thinking rather than doing my own. Mr Hyde is the sum total of his beliefs and experiences and has as likely probabability of being right, wrong, pathological, a liar or anything else. Just because he wrote it doesn't make right... hmmm, that sounded vaguely like a Skunk Anansie song...

[stormrose]

RE: The statement I mentioned from R Hide's book. The full reference follows.

Hide, R. (1999). The Power to Destroy: Shocking Revelations of IRD Harrassment and Abuse. FTG Press Inc.: Chch, NZ

Chapter Twenty "The True Cost of Tax" begins...
"If politians left an extra dollar in a taxpayer's pocket, that taxpayer would be better off by a dollar and the country would be better off by 47 cents". -- Summary from IRD internal report.

Paraphrasing more from Chapter Twenty...
A 1992 Vic Uni study found that costs of complying with NZ tax laws "are high and are sharply regressive". Compliance costs add up to 2.5% of GDP.
"It's got worse since then." (Hide)

The "IRD internal report" above refers to Research by Former IRD Chief Tax Policy Advisor, Dr Patrick Caragata. Hide talks of the robustness of the research process on pgs 154-155.
The title of the report is "The Economic and Compliance Consequences of Taxataion: A Report on the Health of the Tax System in New Zealand"

My statement "50%pa return" is paraphrased from pg 156 of Hide's book - which Hide paraphrased from the findings of the above report.

Take what you will....my previous statements are two steps removed from the actual research.

[Halebop]

The notion that Mr Hyde selectively quoted someone else's thinking only reinforces the concept.

[stormrose]

Yep - that's a notion not a fact. If you want to challenge on academic integrity then do some research then come back with your results. Otherwise, stop wasting my time.

If you want to argue on level of "notion" then I have a notion too: You're out of your depth arguing at an academic level. I welcome your attempt to prove my notion wrong.

[thereslifeafter87]

Stormrose,
that sounds like a conclusion drawn from the premise that compliance costs, and the cost of collecting taxes are wasted expenses, and the capital involved is lost to the economy.

That is simply not true.

Tax advisors receive money for the advice they give. Government beauracrats receive salaries, the IRD provides money for welfare, education, healthcare etc. which pays beneficiaries, doctors, nurses, and teachers.

This money is all spent in the economy, and goes back to the businesses that originally contributed it in a circular fashion.

Your lawyer and accountant spend the fees you give them in the economy, which contributes to the overall economic climate.
Your friendly IRD representative spends his salary in the economy thus contributing to the overall economic climate.
Even the directors of the software company that makes the systems that the IRD runs that allows the bureaucrats to collect your taxes spend the dividends they receive in the economy, thus contributing to the overall economic climate.

People generally do not think widely enough when considering economic and tax issues.

Rodney Hide has assumed that because research suggests that only 50c of every dollar collected is spent by the government in social spending that the other 50c is lost to the economy. That is simply not so.

[Halebop]

quote:Originally posted by stormrose

Yep - that's a notion not a fact. If you want to challenge on academic integrity then do some research then come back with your results. Otherwise, stop wasting my time.

If you want to argue on level of "notion" then I have a notion too: You're out of your depth arguing at an academic level. I welcome your attempt to prove my notion wrong.


I'd be the first to heartily agree with you that I'm out of my depth on most academic questions. I'm simply not an academic, nor do I pretend to be. My "formal" education is limited to a business degree, a computer programming diploma and some industry certifications ranging from bar keeping to supervising to merchandising to insurance. I also gave up on studies in Theology and Literature and I'm not sure if I'll complete my MBA. I'm not pretending to know everything. I do however believe the same of everyone else. An academic background only provides so much support.

So I'm not challenging any academic integrity. I'm sure you have done extensive research into the credentials of Mr Hyde's single source.

If you choose not to challenge what you see or hear that is your business. However, excellence and innovation are only achieved through challenge and debate on eveything. Very clever people are regularly wrong or have an agenda of their own. Just as Mr Hyde questioned taxation we all need to be similarly tested. Just between you and me some of us don't like it though!

[Cooper]

A degree or a lifetime spent in reading the opinions of others may train you in the usage of a sharp mind and even sharper tongue, but a high school dropout who brings something new and innovative to society which in turn creates an avenue for "wealth" certainly beats us sitting here tapping away...

[Cooper]

quote:Originally posted by Major von Tempsky

It's the market that creates value and wealth, not government.
If government employs a team of people for six months digging an enormous hole for $10 million and then continues their employment for another six months to fill the hole in again (read the Treaty industry; Wellington; Defence &) is the filled in hole worth $20 million?
No, its worth nothing.
That's the trouble with the labour theory of value and also the problem ultimately with cost-plus pricing.


I would say that the industrious people who got paid to dig your hole would value the hole at more than nothing... they can use the money earnt from digging to purchase goods.... you know where I'm going...
The labour theory of value would only be argued by Marxists and idiots and I don't think you'll find anyone here that will defend it.

[Enumerate]

It is interesting to consider the experience of the effectiveness of government spending (from a population tax base) from the perspective of NZ history and in other countries.

High income tax and redistribution through social welfare spending is a fairly recent phenomenon. The basic development of the country (and the establishment current key export industries) has been entirely a private capital affair.

In NZ - the establishment of "infrastructure" (electricity generation and network; roads; airports; telephone and postal system) - has been government funded. A very high price has been paid, to develop these assets - but assets they are, none the less.

Globally, the highest rates of economic growth are present were private capital is free to invest to harness labour skills and natural resources. Compare our growth rate with Australia - where there are higher levels of capital investment. Efficiencies in NZ go some way to make up for lack of capital - but the Aussies still do better.

I believe the most efficient use of resources is made when capital, labour and ideas are allowed to associate "freely".

Taxation funding beyond a small core services ranges from inefficient to ineffective to positively detrimental.

In response to the question posed by the thread is:

"Governments do create wealth - but the opportunity cost is significantly higher than the benefits achieved".

Hence, it is the duty of voting taxpayers to ensure this "opportunity cost" is minimised.

[Halebop]

quote:Originally posted by Cooper

A degree or a lifetime spent in reading the opinions of others may train you in the usage of a sharp mind and even sharper tongue, but a high school dropout who brings something new and innovative to society which in turn creates an avenue for "wealth" certainly beats us sitting here tapping away...


We should get to developing more dropouts then! [:o)]

Seriously though I agree. Those who know why will always add more value than those who know how. The good news is they also employ those who know how on their way through.

But don't underestimate the value of tapping on the keyboard, no matter how purile the argument. Sometimes thinking, especially the stream of consciousness kind, is more productive than doing and ideas come from the strangest places. I'm currently working with some partners on a small software startup - I know for certain that three of the ideas we have incorporated have been either sourced or inspired from:

A. Someone who once fired me (...actually I was asked to "resign")
B. An avante garde music composer and part-time taxi driver
C. A reasonable degree of alcohol and a late night poker game

I can only imagine what the end result will be!

[Awryly]

Ah, Halebop. You are right. The furnace of originality does not need well-ordered fuel.

[Halebop]

A most pleasing turn of phrase Awryly. I hope you don't mind if I borrow it from time to time? [8D]

[Elise]

quote:Originally posted by Cooper


quote:Originally posted by Major von Tempsky

It's the market that creates value and wealth, not government.
If government employs a team of people for six months digging an enormous hole for $10 million and then continues their employment for another six months to fill the hole in again (read the Treaty industry; Wellington; Defence &) is the filled in hole worth $20 million?
No, its worth nothing.
That's the trouble with the labour theory of value and also the problem ultimately with cost-plus pricing.



I would say that the industrious people who got paid to dig your hole would value the hole at more than nothing... they can use the money earnt from digging to purchase goods.... you know where I'm going...
The labour theory of value would only be argued by Marxists and idiots and I don't think you'll find anyone here that will defend it.


I agree with you, Cooper.

I mean, think about the construction of a building. It gets built, and some time later, it gets destroyed. Its value is getting written off each year. Think of any white elephant, whereby the value in it being built is to provide employment/utilitarian value for someone. Which - as you then point out - is redistributed within the economy.

If the relevant community largely agrees with such a process - why not? After all, taken to its extreme, doen't anything have value - dependent upon its percieved value by those who don't possess it?

Ergo, people who are 'rich' are only rich in the sense that the 'poor' (or 'other') people of their community want the same resources.

[Awryly]

Halebop, be my guest.

[Placebo]

Gosh what a busy old board this has been over the weekend!:D

Just to have my 2c worth... I don't think governments create or destroy wealth as such, they are not by their nature benign or malicious beasts, they are neutral with the potential to go one way or the other (depending on their political ethos, taxation, spending policies etc).

It comes down to what we think the role of government is. Ideally, I Government's role is to create an environment (financial, social etc) in which society as a whole can prosper. That's not just to say in terms of material wealth (although it is an important consideration). Some redistribution is, I think, necessary in a caring society to cater for those who may "fall through the cracks". But I think in the main part Government should set a light-handed regulatory framework (enough to offer some basic protections to consumers) that allows business to flourish in a reasonably free environment. Nirvana? Perhaps. I don't advocate a pure rightist economic philosophy, I believe some balance is required and social considerations are important. However, I certainly don't believe it is the role of government to "pick winners" and decide where and to whom to direct funds wholesale.

[Gryffyn]

Halebop - perhaps you could start another thread and tell us more about the start-up. All ears.

[MeNoBatty]

I'll second that, Gryffyn.

Tell us more about the start up, Halebop

[bongo66]

quote:Originally posted by thereslifeafter87

Bongo,
You need to think through what you said. Government middlemen 'clip the ticket' as you put it, thus destroying our economy?

Think about it. What happens to the money the government middlemen collect? Where does it go once it enters their bank account?

I'll let you think about that. That, is economics 101.




And you my friend havent thought at all. If the money that wasnt clipped by all the govt workers we employ to shift paper then it would have been available to those taxpayers which it was stolen off in the first place to pay them. It is more efficient and builds wealth quicker because it is not squandered on pen pushers -the added bonus being if we had far less of those pen pushers, like the IRD for example we would be far happier business people as well.

Your thinking is ****eyed.

Bongo

[stormrose]

TLA87:
[Rodney Hide has assumed that because research suggests that only 50c of every dollar collected is
spent by the government in social spending that the other 50c is lost to the economy. That is simply not so.]
Hide does not suggest this.

Taking the redistribution results in money churn, resulting in benefit to society is wrong. Simply churning money does not increase the size of societies wealth - creating new things does. Leaving more money in the hands of those who truly create wealth (making the pie bigger) has a better chance of suceeding. I agree with B66's point here ... think Enumerate's point on "opportunity cost".



Halebop:
[So I'm not challenging any academic integrity. I'm sure you have done extensive research into the credentials
of Mr Hyde's single source.]
Where are your balls? You raised a "notion" that Hide "selectively quoted" Caragata. (I assume you mean
Hide misconstrued or misrepresented the findings of Caragata.) This is a challenge to Hide's academic integrity.
Where is your evidence? errrr nowhere!

With all your education experience I'm surprised you managed to miss the structure of argument:
notion->hypothesis->research->analysis->conclusion. Until you come up with evidence to support your notion that
Hide misrepresented Caragata then...your notion ranks with my morning motions... flush.

And the quaint fall back to challenge and debate. A bald assertion (Hide misrepresented Caragata) with no factual backup is barely a challenge.

FYI: Hide quoted two academic sources in chapter 20, not one. His book contains numerous other sources.

Caragata's finding were widely lauded and criticised - google is god. You'll see Caragata's research methodology was very robust. Much more robust than your n/motions.


A govt that doesn't back winners? Are you ****ting me? This govt has been backing losers.

[Halebop]

quote:Originally posted by stormrose

Halebop:
[So I'm not challenging any academic integrity. I'm sure you have done extensive research into the credentials
of Mr Hyde's single source.]
Where are your balls? You raised a "notion" that Hide "selectively quoted" Caragata. (I assume you mean
Hide misconstrued or misrepresented the findings of Caragata.) This is a challenge to Hide's academic integrity.
Where is your evidence? errrr nowhere!

With all your education experience I'm surprised you managed to miss the structure of argument:
notion->hypothesis->research->analysis->conclusion. Until you come up with evidence to support your notion that
Hide misrepresented Caragata then...your notion ranks with my morning motions... flush.

And the quaint fall back to challenge and debate. A bald assertion (Hide misrepresented Caragata) with no factual backup is barely a challenge.

FYI: Hide quoted two academic sources in chapter 20, not one. His book contains numerous other sources.

Caragata's finding were widely lauded and criticised - google is god. You'll see Caragata's research methodology was very robust. Much more robust than your n/motions.

A govt that doesn't back winners? Are you ****ting me? This govt has been backing losers.


My balls are between my legs thank you. Your assumption on what I meant is incorrect. I meant what I said, which is why I said it. I have a hard enough time paraphrasing me without you trying. Try the dictionary before google next time.

[stormrose]

Halebop said:
[I meant what I said, which is why I said it.]
And what you said was.....

[The notion that Mr Hyde selectively quoted someone else's thinking only reinforces the concept.]

My dictionary tells me that the term "selective quoted" is an accusation of academic misrepresentation. My interpretation of your meaning is not unreasonable.

**** it, I'm bored. Beer time.

[Halebop]

Truce Stormrose. [B)]

I didn't have a beer but a glass of milk and a kick @rse piece of chocolate cake my girlfriend made seems to have done the trick. [:p]. Now I'm off to do stomach crunches... :(

[Cooper]

quote:Originally posted by Enumerate


High income tax and redistribution through social welfare spending is a fairly recent phenomenon. The basic development of the country (and the establishment current key export industries) has been entirely a private capital affair.



Interesting to note that this did in fact exist, in England at least, in the form of church tithes, which were then redistributed to those in need. I haven't looked into it (quoting 7th form history from memory) but I imagine the lack of checks and balances would have made that even less efficient than todays system.

[Gryffyn]

Yes! Ever wonder why all those churches are so grand!

[Halebop]

It's the reason why Catholic Priests can't take wives. I think it was Pope Pius V (or maybe one of the earlier ones?) who abolished marriage within the clergy. Now that I think about it maybe he just banished mistresses - wives might have already been abolished. Having a wife and mistress was common amoungst senior clergy. Cardinals were known to have oppulent homes, equally expensive second homes for their mistresses and nepotism ran rife within church ranks. With access to all those funds it was a easy thing to afford. The church was usually wealthier than the state or royalty.

Pope Pius banned marriage and imposed stricter moral guidelines. He took a dim view on prostitution too as there had been numerous associated scandals within the vatican. He probably wasn't a perfect picture of morality though because if I'm remembering the right one I think he was also an Inquisitor.

Halebop what is the Popes phone number

[Halebop]

quote:Originally posted by ENIGMA

Halebop what is the Popes phone number


I searched Google. Here is the phone number for the Vatican Telephone Service. Perhaps their directory people can help you. Apparently the Nuns are gainfully employed as operators due to their "qualities of seriousness, reserve and in-depth knowledge of foreign languages".

+39(6)6988 3511

[:p]

Halebop the popes phone number is VAT 69

[stormrose]

Chocolate cake and milk sounds just perfect.

[thereslifeafter87]

Bongo, Stormrose,

'Money churn' as you put it stormrose does create wealth, especially when those who are taxed would have saved the money (or invested it offshore) rather than spending it.

If money is taxed, and part of it is given to civil servants as their salaries, they will generally spend this money in the economy, perhaps saving part of it.

The money they spend goes to someone else who will also spend some of it, and save some of it. And so on and so on.

If we use a basis of 2/3 spending 1/3 saved (though in todays consumer society it would probably be more like 5/3 spent, ah the wonders of consumer debt) we get a net benefit to the economy of $3 for every $1 originally spent by the government.

This stimulates economic activity, encourages investment, and drives profits higher. Conversely, if this money was left in the hands of someone who did not spend it, at the most we would see some diminishing in the value of money (the interest rate) due to more money being saved. If people aren't spending money you get a deflationary cycle. This is what taxation counteracts.

[John Mexted]

quote:Originally posted by thereslifeafter87

Bongo, Stormrose,

'Money churn' as you put it stormrose does create wealth, especially when those who are taxed would have saved the money (or invested it offshore) rather than spending it.

If money is taxed, and part of it is given to civil servants as their salaries, they will generally spend this money in the economy, perhaps saving part of it.

The money they spend goes to someone else who will also spend some of it, and save some of it. And so on and so on.

If we use a basis of 2/3 spending 1/3 saved (though in todays consumer society it would probably be more like 5/3 spent, ah the wonders of consumer debt) we get a net benefit to the economy of $3 for every $1 originally spent by the government.

This stimulates economic activity, encourages investment, and drives profits higher. Conversely, if this money was left in the hands of someone who did not spend it, at the most we would see some diminishing in the value of money (the interest rate) due to more money being saved. If people aren't spending money you get a deflationary cycle. This is what taxation counteracts.


Rubbish. By your rationale, the state should employ people to wander arround our cities slashing tires and breaking windows. Those people would spend their salaries which would "go to someone else who will also spend some of it, and save some of it. And so on and so on". Also, they have increased economic activity by increasing the activity in the glass and tire industry, which will earn more money and spend and so on and so on. Talk about money churn creating wealth!!! [xx(]

While true that the money finds it's way back into the economy, you fail to mention that if the money was left in the hands of the original owner it would also find it's way back into the economy.

Where does a "wealthy" persons money go if they don't spend it? Into their vault like Scrooge McDuck? No. It goes into investments. It goes into banks, it goes into companies. What do the banks do? They lend to companies and individuals. What do the companies do? That create goods and services that people want.

The biggest difference between leaving money in the hands of the individual vs taking it in taxes, is that the first will create maximum utility for the individual who earnt the dollar. The second will create utility for those that the government wants to vote for them. The most important difference, between leaving money in the hands of the individual vs taking it in taxes is that the first creates, for the individual, an incentive to work and create wealth. The second creates a disincentive.

[Halebop]

John I actually agree with what you are saying but both the absolutes and abstracts are hard to prove in practice.

I'm not sure that I as an individual can be counted on to do the wisest thing with the next dollar that I make. A whole bunch of "me's" collectively (society) have shown themselves to be inept at saving and well practiced at spending. Although a mechanism like say the Superfund seems paternal and high tax, it's the first pragmatic and relatively low cost active solution New Zealand has come up with to respond to quite predictable demographic trends.

If we followed the course of allowing everyone to fend for themselves in retirement at some predetermined future date (say 2030) but gave back 5 cents in the dollar in tax to compensate I think the results would be equally predictable. The wealthy would gain more as the 5 cents was channelled into their businesses from higher consumer spending and people would still have nothing more than their over-capitalised homes at retirement. Worse still, the most able younger me's would simply leave, rather than bear the cost of supporting themselves and the oldies.

Despite believing I might be able to find better ways to distribute our tax dollars, when I look at where the money is spent there are very few government functions I would feel comfortable with axing and more than a few I would be happy to spend more on. So I suspect we are already at a roughly equitable middle ground on Government Expenditure, Taxation, Economic Performance, Opportunity and Freedom.

[ananda77]

Initially, during the 1980’s and 1990’s, government-policies were specifically designed to give the top-earning ~ 20% population strata more disposable income, particularly through the implementation of tax cuts and low wages. The theory and ideological justification for such measures was that higher incomes for the rich and higher profits will lead to more investment, better allocation of resources and therefore more jobs and welfare for everyone.

However, towards the end of the 1990’s it became abundantly clear that if wealth is redistributed towards the top, where people already have most of the things they need, it will not go into the local or national economy but to international stock markets.

Alan Pratt (1997): Neo-liberal reforms intended to improve the overall performance of the British economy failed compared with the years of Keynesian ascendancy

Although productivity levels/worker sharply increased as a result of a much smaller work force approx. producing the same level of output,

-annualized growth rates since 1979 are smaller than the average for the previous 35 years

-investment in manufacturing industry barely at the level of 1979

-balance of payments remain in chronic disequilibrium

Paul Dalziel (1999): In 1984, the ‘Economic Summit Conference’ unanimously accepted in its final committee ‘the need for change to meet the goal of higher living standards’ in NZ. The ESC believed, unsound economic management over many years produced ‘poor economic growth’, an ‘unacceptable level of poverty’, and ‘rising unemployment’. The results of the NZ economic reform-program show that it did not achieve the objectives listed above.

-between 1978-1984 annual GDP-paths of NZ and Australia almost identical

-after 1984 till 1992, NZ’s output remained virtually static compared to Australia’s continued growth of 3%/annum

-from 1992–1998, NZ’s growth rate recovered to 3.3% but still remained approx. 1% lower compared to Australia

Dalziel suggests, that if NZ had continued to grow as fast as Australia after 1984, NZ’s GDP in 1998 would have been a third higher than it actually was, resulting in an output-gap of NZ$ 215b = more than two thirds of output in NZ (also: an extra NZ$ 11b, the combined budgets for health and education had been lost).

If government policies redistribute income towards the bottom ~80 percent of society, it will be used for consumption and consequently benefit employment. This will create wealth for all

Ananda 77 very well put but the right wingers will not believe that the bottom end of town provides there profits.

[Halebop]

Agreed Enigma. And I do think the profits come from that end of town! But then the right probably don't think I'm on the right.

[stormrose]

TLA87: I'm talking about creation of wealth - not just recycling money. Even a saved $ is never idle.

Right-Winger 101: it's easier to get rich from poor people than from rich people. The reasons include: have-no-choice, know-no-better, and aren't equipped to deal.

[If government policies redistribute income towards the bottom ~80 percent of society, it will be used for consumption and consequently benefit employment. This will create wealth for all]
Wrong; the top 20% take their money elsewhere. Historical precedence supports this. Their talent and time go walkies too.

[ananda77]

Stormrose:

the top 20% take their money elsewhere. Historical precedence supports this. Their talent and time go walkies too.

...so you are talking of a capital strike here.

Indeed, New Zealand is at high risk from the same "hot money" that was the immediate cause of the 1997 financial crisis in Asia since no capital controls are in place.

The financial crisis in Asia in 1997 was triggered by investors with "hot money" – short term investments – panicking at the state of indebtedness and current account deficits in several countries. Huge inward capital flows of previous years were rapidly reversed, causing severe financial, economic and social problems. Millions were thrown into unemployment and poverty. Governments fell. Whole industrial sectors were sold to US and European corporations.

Malaysia reacted by imposing capital controls to prevent further runs. China and India came through the crisis relatively unscathed because they already had controls in place, as had Chile. Consequently, many economists are favorably reconsidering such policies.

What if a New Zealand government decides it needs capital controls to prevent a similar crisis in New Zealand, or to reduce the dollar’s volatility?

Under the Singapore Free Trade Agreement, NZ can not put controls on capital controlled by any investor with a legal presence in Singapore (Articles 27 and 31). That could be almost any major company in the world: most corporations with any international ambitions have a presence in Singapore because it is a commercial hub for much of South and East Asia.

Example: Bankers Trust (now part of Deutsche Bank) decided it wanted to protect its ability to pull money in and out at will. A Bankers Trust dealer speculated several hundred million dollars against the New Zealand dollar in 1987, crashing it by 10%, so it’s not an implausible scenario . All it needs to do is to make all its investments and do all its dealing through a Singapore subsidiary
(source: Bill Rosenberg. A National/Labour Coalition Installs a Trojan Horse to Carry Trans-nationals)

Alas, we better be nice to Stormrose from now on!! …as NZ-governments are slowly giving away our national sovereignty. :)

[stormrose]

The loss of money is only one problem. The loss of wealth creator talent is worse.

There are dangers in capital controls. Make it too tight and investors simply don't invest in the first place.
An extreme example of capital ($$ + human) fleeing is the communist revolution in China. Capital controls be damned - out capital went. Decades to recover.

The relationship is symbiotic - investors need govts, govts need investors. Problems occur when that relationship gets out of kilter. Think of countries as brides, investors as grooms.

Bah, don't get too uppity about national sovereignty - decentralising power is necessary for prosperity. Think rule of law, limits on power of monarchy, police, bill of rights etc.

In an international sense, (as in a personal sense) sovereignty is limited firstly by what self allows, then by what others allow self to get away with. Honesty, NZ often reminds me of a haughty child.

In continuing that theme. NZ is becoming the western kindergarten. Nice phase, but soon graduated.

**** being nice to me, just be honest. I respect that more.

[Cooper]

If government policies redistribute income towards the bottom ~80 percent of society, it will be used for consumption and consequently benefit employment. This will create wealth for all
[/quote]

The problem is incentives. If wealth is heavily distributed to the bottom 80% of society, 1) what incentive is there to put in the effort to create wealth (ie become the top 20%) and 2) Those who do create wealth from building and running businesses will find they are better rewarded elsewhere and that's where they will go...

[John Mexted]

Agreed Cooper.

The problem is that Government doesn’t just shift income -- By doing so it depresses its production.

The tax system we have discourages productive activity and encourages unproductive activity.

John Mexted if demand does not create production then what does. No use producing product that nobody wants or can afford. Definately it is not demand from the rich is as they can afford to get it all overseas, and in a lot of cases do just that.

[John Mexted]

quote:Originally posted by ENIGMA

John Mexted if demand does not create production then what does. No use producing product that nobody wants or can afford. Definately it is not demand from the rich is as they can afford to get it all overseas, and in a lot of cases do just that.


Enigma. If consumers can not afford the goods offered, wouldn't you think that the solution would be that suppliers would be lowering prices to increase demand to increase their own profits?

Put another way, if I sell a product for $300, but people can only afford $100, is society better served by redistributing money from me to buyers, so that they can afford my goods, or me lowering the price of my goods so that buyers can afford them?

If your solution is a rational one, then as we distribute more and more income from the haves to the have-nots, the higher production (and wealth) should be in that society. What will be the optimal level of production. Is it when money is shared equally among the members?

[thereslifeafter87]

quote:Originally posted by John Mexted

Rubbish. By your rationale, the state should employ people to wander arround our cities slashing tires and breaking windows. Those people would spend their salaries which would "go to someone else who will also spend some of it, and save some of it. And so on and so on". Also, they have increased economic activity by increasing the activity in the glass and tire industry, which will earn more money and spend and so on and so on. Talk about money churn creating wealth!!! [xx(]

While true that the money finds it's way back into the economy, you fail to mention that if the money was left in the hands of the original owner it would also find it's way back into the economy.

Where does a "wealthy" persons money go if they don't spend it? Into their vault like Scrooge McDuck? No. It goes into investments. It goes into banks, it goes into companies. What do the banks do? They lend to companies and individuals. What do the companies do? That create goods and services that people want.



Mexted,
You wrongly assume that savings=investment. This is not the case. Savings = investment + foreign lending.

If a rich person saves their money, some will go into investments, but depending on the rate of interest investors can earn elsewhere, some will go overseas, and be lost to our economy. This means less capital development in our country, less growth, and less return on investment, so more money is invested elsewhere and less in NZ.

John Mexted how do they lower cost of production move it off shore making things worse or what. Unless they are so greedy they working on 500% margins, or are you advocating slave labour.

[Placebo]

quote:Put another way, if I sell a product for $300, but people can only afford $100, is society better served by redistributing money from me to buyers, so that they can afford my goods, or me lowering the price of my goods so that buyers can afford them?

Another approach is to ask everyone else to pay a share of this cost. This is what subsidies are. For example, the cost of many new medicines is beyond the means of most people. The drug companies do not reduce their prices (in many cases they increase them). To enable sales, the companies persuade governments and insurance companies to buy their products, with consumers only paying a part-charge.

I suppose you could argue this is an example of a government redistributing wealth to benefit the community as a whole (if you believe that taking medicine to improve health improves a community). On the other hand, why should I pay someone else's health bills from my taxes?

A dumb argument really. As Mark Twain said, only 2 things in life are assured, death and taxes. And once the Government has picked your pocket, it's up to them what they do with them. Largely I'm comfortable with where it goes, however I draw the line at hip-hop lesbian tours and toilets that go moo (dressed up as "art").:(

[John Mexted]

quote:Originally posted by ENIGMA

John Mexted how do they lower cost of production move it off shore making things worse or what. Unless they are so greedy they working on 500% margins, or are you advocating slave labour.


I'm amazed that I am hearing these discussions on a sharetrading board? A company (or person for that matter) should charge whatever margin they want to. I read plenty of posts in here talking about finding companies with strong defensible positions and high margin. That's what companies and individuals do. They maximise their profit for effort and compete with others doing the same things.

The other kicker is that we all LOVE NZ companies that are exporting around the world and we love it when foreign capital invests in NZ business. However, it would seem that when NZer’s want to buy foreign goods it’s all bad, as it is when NZers invest in foreign companies. [u]Grow up.</u>


quote:If a rich person saves their money, some will go into investments, but depending on the rate of interest investors can earn elsewhere, some will go overseas, and be lost to our economy. This means less capital development in our country, less growth, and less return on investment, so more money is invested elsewhere and less in NZ.

Yes, some investment will go overseas, and some investment will come from overseas. It's what happens when you allow people to invest where they like. If you don't punish sucess, you will find that successful people and companies choose to stay and new investment will arrive. Again, I'm amazed that I'm hearing this on a share trading board.


quote:If a rich person saves their money... And someone earning over 60k is rich? For fecks sake.


quote:I suppose you could argue this is an example of a government redistributing wealth to benefit the community as a whole (if you believe that taking medicine to improve health improves a community). On the other hand, why should I pay someone else's health bills from my taxes? ]

We are talking about general redistribution here. So it's not only for health but for cars, televisions and video rentals. Again, I'll ask the question... If a little redistribution is good for the economy, then surely more redistribution is better. What is the optimal level of redistribution??

[Capitalist]

Us Libs thank all of you for your responses so far. And your thoughts ARE noted and make a difference.

As Jim Peron has said, it is great that these ideas are thought of as interesting enough to discuss, and make people think. Unfortunately the idea of life without government intervention requires a quantum leap in consciousness for most. Hope you like-minded people like fighting losing battles, because unfortunately most of the public, and I mean the vast, vast, vast majority, will be against you. If the people gave a damn in the first place we wouldn't be having these problems. And until they start giving a damn, our revolution will be doomed. The People have to want to be free before they will rebel against oppression, otherwise WE will be seen as the enemy.

Until "the people" wake up and demand change, it is our job to hold down the fort as best we can while trying to wake them up ;).

On that note, here is another article from www.liberalvalues.org.nz/index.php

DPB Holds Back GDP
By Lindsay Mitchell - 27 July, 2004

New Zealand must reform welfare if it wants to lift our GDP per capita rate, said Lindsay Mitchell, petitioner for a parliamentary review of the DPB, commenting on a working paper recently released by Treasury.


"Last month Treasury released a paper about labour force participation and it's effect on GDP. New Zealand women aged 25-34 have particularly low labour force participation rates relative to other OECD countries."

"The paper therefore modelled an increase in labour force participation among this group and found, 'The results suggest that increasing labour force participation of women aged 25-34 to the average, adjusted for Paid Maternal Leave, of the top 5 OECD nations increases employment by 28,800 and generates an additional $1.215 billion of GDP, making GDP 1.0% higher than it actually was in the baseline year 2001.' "

"Ministry of Social Development data showed that in March this year 54 percent or nearly 59,000 of DPB recipients were aged 25-39. Additionally, 68 percent of recipients with children schoolage and older do no paid work."

"The Treasury paper clearly shows that if we can get these parents, mainly women, into work, GDP can be raised. This would not only help close the gap between NZ's GDP per capita and other OECD countries (we currently trail at 20th) but it would improve the lives of these women and their children."

"The report comments, 'GDP has well-known limitations as a measure of well-being. However, some of the factors that drive GDP also have important implications for well-being as it provides social inclusion and protects against poverty. It also has intergenerational effects, and entering employment from welfare can break the cycle of disadvantage and poverty for the worker and his or her children.' "

"If we don't want to keep sliding backwards we must accept, for everybody's sake, that jobs are far better than benefits."


**************************

[Elise]

"If we don't want to keep sliding backwards we must accept, for everybody's sake, that jobs are far better than benefits."

I think everyone would agree with that statement.

Yes, there are some lazy free-riders out there ... but how to quantify that ... its not as easy as one might think.

I think that thinking outside the 'box', Capitalist, is an admirable trait. I would recommend and encourage everyone to do so.

I have really enjoyed reading some of the comments - and have found many contributors quite erudite and knowledgeable. I wish I could express my ideas so well!

One of the nicest things I found, is the way contributors could comment effectively without resorting to the nasty b i t c h y statements that seem to frequent other threads.

Keep it coming...

[ananda77]

Capitalist:

Unfortunately the idea of life without government intervention requires a quantum leap in consciousness for most.

Neo-Liberalism[b] is an attempt of a theoretical [b]synthesis on economics, politics, and philosophy.

Personally, I find the economic/political aspects inherent in neo-liberalism challenging and fascinating and indeed, they produced positive outcomes to a certain degree.

However, underlying values intrinsic in neo-liberal theory in regards to justice, rights, poverty, citizenship, need, and equality created an amount of misery all over the world for the past 25 years which motivate me to argue strongly:

neo-liberals have a case to answer for!!

As far as I am concerned, neo-liberals need a quantum-leap in consciousness to be able of creating the rational, harmonious, and peaceful individual.

[Placebo]

Oh please god noooooo! Don't subject us to the rants of Lindsay Mitchell!!!

[Halebop]

quote:Originally posted by Capitalist
..."If we don't want to keep sliding backwards we must accept, for everybody's sake, that jobs are far better than benefits."

Cap this all makes sense but I'm often left with the uncomfortable feeling the the proponants of these ideals start with their favoured solution and then work backwards.

Jobs are better than benefits? Who can argue against that logic. But this shouldn't be the question. The real question should be something along the lines of How Best to Support our Children? I wonder if a State Sponsored Mum really is the worst solution?

[Major von Tempsky]

Ananda holds up Malaysia as an example to the rest of Asia? Que?
A country governed by extremist Moslems? Check out the statements of its last P.M. Mahathir Mohammed.
What about all the other Asian countries that came through the Asian crisis without capital controls?
Remember NZ under Muldoon with capital controls? Just before he was voted out the NZ government was reduced to instructing NZ diplomats to use their personal credit cards for overseas exchange as NZ Inc didn't have any.
"Neo-liberalism has a lot to answer for?"
Contrast the US economy under Jimmy Carter and Ronald Reagan.
Contrast the US economy under Clinton and George W Bush.
It's much bigger now, and richer now, with lower taxes, and its growing, producing jobs.
Ok, its producing service jobs, not manufacturing, but a lot more jobs overall even if they are in different places and in different industries. Do you want to be a car assembler in the rust belt? Or a service worker in sunny California/Florida etc etc?
And by the way, isn't Dave Barry on the US Democratic Convention hilarious? I can't stop laughing.

MVT Just because it is not your thinking does not mean it is wrong Malaysia came out of the asian crissis far better than most. Maybe Muldoon was right but the crisis was a forgone conclusion once Roger Douglas opened his big mouth. And NZ in my opinion is still paying for it. Remember Malaysia took on Souris and won.

[ananda77]

Halebop:

Jobs are better than benefits? Who can argue against that logic. But this shouldn't be the question. The real question should be something along the lines of How Best to Support our Children? I wonder if a State Sponsored Mum really is the worst solution?

You make an important point here.

Much of neo-liberal thinking is based on assumptions that everyone can be transformed into a thrusting, competitive, achieving, and successful person.

Oh dear, oh dear…poor me and all poor solo-mothers in the world!

The traditional family is a functional necessity for social order according to neo-liberal norms and solo-mothers as representatives of a different family type, one, according to neo-liberal logic which contributes to social decay find themselves in the first line of attack.

However, beds were made, floors were scrubbed, food was prepared and served, the sick tended, and children minded long before people were hired to do any of those things.

As a result of monopoly capitalism which created the universal market place and transformed into a commodity every form of activities of humankind, things that people did for themselves and for each other are now labeled unproductive labor since it has not been drawn into the network of capitalist social relations.

(source: Braverman (1974). In Curtis, B. (2003). third way partnerships, neo-liberalism, and social capital in New Zealand).

[skinny]

This week I'm in the socialist paradise of Sweden for a wedding and a little business. Very nice place. Its hard to argue that a strong welfare state and a very progressive tax system are bad ideas (tho I do try ;)) in a country where crime rates are extremely low, employment rates and productivity levels are amongst the highest in the OECD, world leading technologies are developed (lots of kiwis here in biotech by the way), emmigration rates are very low, and the coffee is damn fine. Slurp [:p]

The Nordics show there is certainly more than one way to grow the pie - makes my job more difficult but there you go.

[Cooper]

It's fine to sit back and say that we should reduce the amount spent on welfare, because that way the funds freed up could go towards areas of society who use it more efficiently than the mere "transferral" of money in welfare payments. The actual act of taking the tax, deciding who should get it, and then distributing the money to those areas involves a loss to society of:

1) The money being lost from areas which could use it to create wealth instead of a transfer from the working to the not-working which in itself incurs no loss other than the fact that those who are not working will use it for demanding goods and services while the working group will arguably put some of the money into the nation's capital stock which can then be used to create wealth.
2) The costs incurred in transferring the money, ie the organisations involved in identifying, deciding and distributing welfare payments.

I wholeheartedly agree that this produces inefficiencies. The point where I disagree is that I would argue that all this is a "necessary evil" to ensure we have a stable and safe society. Ask anyone looking into investing in a foreign country, and they will tell you that the stability and safety of society is a key component of the decision on whether or not to invest. Because we have a stable society we can attract overseas capital at a cheaper rate, we are seen as a country that produces (I hope) reliable and high quality merchandise, we are seen as a reliable and safe trading partner (would you trade with Sudan, Iraq or Afghanistan at the moment without demanding a premium for your goods/capital?) and we also incur the benefits of living in a stable society which allows us the leisure of not having to worry overly much about our own security so we can go ahead and create wealth.
As Halebop says, if we start from the idea that we need to get rid of welfare because it's dragging down our capital stock and efficient usage of money, then we'll find all kinds of negatives. If you ask "what benefits does the current system provide me", then you should be able to see that the transfer of money in the form of welfare payment is simply another method of "buying" security and social well-being, which in turn offers far reaching benefits to taxpayers beyond the immediate "that prick has my money" kneejerk reaction some have. We don't insist on purchasing our military equipment at the cost of production when we trade do we? The margin between what it cost to produce and what we purchase it for is an accepted cost of buying the goods. So should the inefficiencies of the current welfare system be seen as a cost of "purchasing" social stability.

[belgarion]

quote:Originally posted by skinny

This week I'm in the socialist paradise of Sweden for a wedding and a little business. Very nice place. Its hard to argue that a strong welfare state and a very progressive tax system are bad ideas (tho I do try ;)) in a country where crime rates are extremely low, employment rates and productivity levels are amongst the highest in the OECD, world leading technologies are developed (lots of kiwis here in biotech by the way), emmigration rates are very low, and the coffee is damn fine. Slurp [:p]

The Nordics show there is certainly more than one way to grow the pie - makes my job more difficult but there you go.


One of the tings that staggered me about sweden's govt was how much like a 'real' business they were. The capital spending within govt is trully staggering when compared to NZ or GB. As a result, the system is efficient and, due to decent sallaries and funding, well managed (although many swedes who haven't expirienced NZ or GB wouldn't agree with me).

It seemed to me that many NZ polititians spend too much time focussing on how much the system 'wastes' rather than focussing on making it an effective, effecient operation. Swedens MP are far better 'business' men and women that our sorry bunch.

[Gryffyn]

Pity about the high alcohol prices though isn't it :-)

[John Mexted]

quote: a transfer from the working to the not-working which in itself incurs no loss other than the fact that those who are not working will use it for demanding goods and services while the working group will arguably put some of the money into the nation's capital stock which can then be used to create wealth.

Cooper... You miss the most important loss to society. That is the production that is lost due to the disincentive to work. The system actively discourages people from working harder and earning more money, and encourages people to remain/become unproductive.

Here is an example given by Rodney Hide on the Govts family assistance budget…

“Consider two families. They are alike in every respect bar one. There are two parents, one income earner, two children aged 5 and 9, they live next door to each other in an Auckland suburb, and they each pay $300 a week rent.

The one difference is that Family A works twice as hard as Family B. As a result, Family A earns $50,000 a year ($962 a week) while Family B next door earns only $25,000 a year ($481 a week).

Question: how much tax does each family pay? The same? After all, they both consume the same amount of government services.

Or maybe family A pays twice as much? After all, they earn twice as much.

Or perhaps family A pay three times as much because, as Michael Cullen explained, the rich have had it too good for too long?

None of these answers are correct. First up, Family B pays effectively no tax. The government instead tops-up their income by $128 a week. They are net beneficiaries. Their net income is $609 a week.

Meanwhile, the government takes $220 a week from Family A. Their net income is $742 a week. They must send $128 across to their neighbour each week via government and $92 to government itself.

And so Family A that works twice as hard to earn twice as much are only marginally better-off for their effort. Their [u]effective tax rate</u> on the extra $25,000 that they earn is a whooping [u]72 per cent</u>. [u]Of that $25,000</u>...They get to keep less than $7,000 of it and [u]lose over $18,000 of it</u>.”

Can you tell me that this type of redistributive system has no effect on the incentive to work and produce?

Also your "welfare = safe and stable society argument" is disingenuous. You use Sudan, Iraq and Afganistan as examples!!! How about using Singapore, which has virtually no public welfare system. Does Singapore have a safe and stable society? Do people trade with Singapore? Is Singapore one of the wealthiest countries in the world?

One element that you might want to consider when linking welfare with a safe and stable society is this... Was New Zealand safer and more stable [u]after</u> the introduction of the welfare state or [u]before</u> it? I think you will find that the answer does not correlate with your reasoning.

[Cooper]

John Mexted: I posted on the negative aspects of a welfare system in terms of lessening incentives to work on the last page. So far from arguing against you on this I wholeheartedly agree. No system is without flaws and it's far easier to sit and pick holes in a system than to come up with a better one... if you can, please feel free to illuminate me, so I can then subject it to the same analysis you yourself are using.
I have also said that the current system needs work... on the first page I mentioned I'd like to see a more stringent testing of sickness beneficiaries and I'd also like a work for the dole scheme to motivate people to act in a productive manner, while still being provided the net that ensures a safe and stable (a relative term, I know) society.
Mr Hide's arguments make economic sense in that he argues that Family B is a recipient in the transfer system whilst Family A is a provider... again, no argument there. But if we look beyond Hide's argument... what is Family A paying for? To ensure that Family B has a sufficient income so that there is not a dramatic discrepancy between the income of Family B and Family A. Family A is "buying" a service... whether it be keeping Family B with enough to survive comfortably so they don't have to look to "alternate means" to ensure what they believe is a fair distribution of wealth (are you going to argue that a discrepancy between the haves and have nots does not ultimately end in the have nots doing something about this? Good luck... think of any term in history ending with the word "revolution") or even to the simple fact that seeing as they are neighbours Family A has an incentive in Family B having enough money for the upkeep on their house, as Family A's house valuation is tied to the valuation of Family B's house (this can be taken to an aggregate level to represent the country as a whole... again I ask if you would invest capital in an unstable country without demanding a premium for your money... which in itself would reduce the benefits of that capital resulting in less productivity).
Will you argue that there is not an incentive for a society to look after the weakest link? If not, will you present your alternate plan?
That I use the extremes of Sudan, Iraq and Afghanistan is a result of laziness on my part... they are the most obvious countries where society has broken down, and therefore they spring to mind easier in support of my argument. However, despite your use of three exclamation marks you don't seem to have anything that supports an argument against these three as examples of a breakdown in social order. Perhaps I'm that ignorant that I missed something that is so obvious to others that all the argument you need present is to throw in three explanation marks to negate my use of these three examples. If so, please excuse my ignorance and spell out to me why these three countries do not qualify.
I've never had the pleasure of travelling to Singapore and would like to hear how they handle those problems presented by the poorer members of society. Aren't they under Chinese rule at the moment? Is China still a Communist country? Isn't Communism the ultimate system in inefficient distribution of resources? Also, Singapore is a unique example in that it is a huge importer of human Labour. It has a large Capital base which NZ does not (we are a net importer of Capital).
As to NZ before and after the Welfare state, it's not my area. From what I know though, it wasn't that flash. Also, I think you'll find that subsidies, Tariffs and SOE's present a more subtle form of wealth distribution. The Government money spent during the great Deppression, the Influenza pandemics and the two World Wars are also instances of "transfer payments" that may skew the benefits of looking back at welfare payments in NZ. Before that were the Maori Wars, and I don't think that would count as a stable period in NZ history.

[thereslifeafter87]

quote:Originally posted by John Mexted


quote:Originally posted by ENIGMA

John Mexted how do they lower cost of production move it off shore making things worse or what. Unless they are so greedy they working on 500% margins, or are you advocating slave labour.


I'm amazed that I am hearing these discussions on a sharetrading board? A company (or person for that matter) should charge whatever margin they want to. I read plenty of posts in here talking about finding companies with strong defensible positions and high margin. That's what companies and individuals do. They maximise their profit for effort and compete with others doing the same things.

The other kicker is that we all LOVE NZ companies that are exporting around the world and we love it when foreign capital invests in NZ business. However, it would seem that when NZer’s want to buy foreign goods it’s all bad, as it is when NZers invest in foreign companies. [u]Grow up.</u>


quote:If a rich person saves their money, some will go into investments, but depending on the rate of interest investors can earn elsewhere, some will go overseas, and be lost to our economy. This means less capital development in our country, less growth, and less return on investment, so more money is invested elsewhere and less in NZ.

Yes, some investment will go overseas, and some investment will come from overseas. It's what happens when you allow people to invest where they like. If you don't punish sucess, you will find that successful people and companies choose to stay and new investment will arrive. Again, I'm amazed that I'm hearing this on a share trading board.


quote:If a rich person saves their money... And someone earning over 60k is rich? For fecks sake.


quote:I suppose you could argue this is an example of a government redistributing wealth to benefit the community as a whole (if you believe that taking medicine to improve health improves a community). On the other hand, why should I pay someone else's health bills from my taxes? ]

We are talking about general redistribution here. So it's not only for health but for cars, televisions and video rentals. Again, I'll ask the question... If a little redistribution is good for the economy, then surely more redistribution is better. What is the optimal level of redistribution??



Again you miss the point.
What drives an economy is SPENDING.
The people who have to spend the most of their income are the POOR
The poor get most of their income from the GOVERNMENT - through our taxes
If the poor have no money they cannot SPEND
if they do not spend, the economy falters.
If the economy falters, profits fall, investment withdraws, people are laid off, less is spent, the economy falters more and we get recession and depression.
If the economy falters investment form overseas withdraws, and more capital departs our shores.

What stops/prevents this cycle? Only one thing. Government spending.

There are incentive problems I agree. You need to find a balance between incentives and enough spending to support the economy.
I would sa

[thereslifeafter87]

quote:Originally posted by Major von Tempsky

Ananda holds up Malaysia as an example to the rest of Asia? Que?
A country governed by extremist Moslems? Check out the statements of its last P.M. Mahathir Mohammed.
What about all the other Asian countries that came through the Asian crisis without capital controls?
Remember NZ under Muldoon with capital controls? Just before he was voted out the NZ government was reduced to instructing NZ diplomats to use their personal credit cards for overseas exchange as NZ Inc didn't have any.
"Neo-liberalism has a lot to answer for?"
Contrast the US economy under Jimmy Carter and Ronald Reagan.
Contrast the US economy under Clinton and George W Bush.
It's much bigger now, and richer now, with lower taxes, and its growing, producing jobs.
Ok, its producing service jobs, not manufacturing, but a lot more jobs overall even if they are in different places and in different industries. Do you want to be a car assembler in the rust belt? Or a service worker in sunny California/Florida etc etc?
And by the way, isn't Dave Barry on the US Democratic Convention hilarious? I can't stop laughing.


The US economy experienced one of its strongest growth spurts under Clinton. Under Bush it is barely moving? Are you sure thats the point you want to be making?

[thereslifeafter87]

quote:Originally posted by Cooper

It's fine to sit back and say that we should reduce the amount spent on welfare, because that way the funds freed up could go towards areas of society who use it more efficiently than the mere "transferral" of money in welfare payments. The actual act of taking the tax, deciding who should get it, and then distributing the money to those areas involves a loss to society of:

1) The money being lost from areas which could use it to create wealth instead of a transfer from the working to the not-working which in itself incurs no loss other than the fact that those who are not working will use it for demanding goods and services while the working group will arguably put some of the money into the nation's capital stock which can then be used to create wealth.
2) The costs incurred in transferring the money, ie the organisations involved in identifying, deciding and distributing welfare payments.

I wholeheartedly agree that this produces inefficiencies. The point where I disagree is that I would argue that all this is a "necessary evil" to ensure we have a stable and safe society. Ask anyone looking into investing in a foreign country, and they will tell you that the stability and safety of society is a key component of the decision on whether or not to invest. Because we have a stable society we can attract overseas capital at a cheaper rate, we are seen as a country that produces (I hope) reliable and high quality merchandise, we are seen as a reliable and safe trading partner (would you trade with Sudan, Iraq or Afghanistan at the moment without demanding a premium for your goods/capital?) and we also incur the benefits of living in a stable society which allows us the leisure of not having to worry overly much about our own security so we can go ahead and create wealth.
As Halebop says, if we start from the idea that we need to get rid of welfare because it's dragging down our capital stock and efficient usage of money, then we'll find all kinds of negatives. If you ask "what benefits does the current system provide me", then you should be able to see that the transfer of money in the form of welfare payment is simply another method of "buying" security and social well-being, which in turn offers far reaching benefits to taxpayers beyond the immediate "that prick has my money" kneejerk reaction some have. We don't insist on purchasing our military equipment at the cost of production when we trade do we? The margin between what it cost to produce and what we purchase it for is an accepted cost of buying the goods. So should the inefficiencies of the current welfare system be seen as a cost of "purchasing" social stability.




Interesting argument. I have to agree with you.

Great post.

[thereslifeafter87]

quote:Originally posted by John Mexted


quote: a transfer from the working to the not-working which in itself incurs no loss other than the fact that those who are not working will use it for demanding goods and services while the working group will arguably put some of the money into the nation's capital stock which can then be used to create wealth.

Cooper... You miss the most important loss to society. That is the production that is lost due to the disincentive to work. The system actively discourages people from working harder and earning more money, and encourages people to remain/become unproductive.

Here is an example given by Rodney Hide on the Govts family assistance budget…

“Consider two families. They are alike in every respect bar one. There are two parents, one income earner, two children aged 5 and 9, they live next door to each other in an Auckland suburb, and they each pay $300 a week rent.

The one difference is that Family A works twice as hard as Family B. As a result, Family A earns $50,000 a year ($962 a week) while Family B next door earns only $25,000 a year ($481 a week).

Question: how much tax does each family pay? The same? After all, they both consume the same amount of government services.

Or maybe family A pays twice as much? After all, they earn twice as much.

Or perhaps family A pay three times as much because, as Michael Cullen explained, the rich have had it too good for too long?

None of these answers are correct. First up, Family B pays effectively no tax. The government instead tops-up their income by $128 a week. They are net beneficiaries. Their net income is $609 a week.

Meanwhile, the government takes $220 a week from Family A. Their net income is $742 a week. They must send $128 across to their neighbour each week via government and $92 to government itself.

And so Family A that works twice as hard to earn twice as much are only marginally better-off for their effort. Their [u]effective tax rate</u> on the extra $25,000 that they earn is a whooping [u]72 per cent</u>. [u]Of that $25,000</u>...They get to keep less than $7,000 of it and [u]lose over $18,000 of it</u>.”

Can you tell me that this type of redistributive system has no effect on the incentive to work and produce?

Also your "welfare = safe and stable society argument" is disingenuous. You use Sudan, Iraq and Afganistan as examples!!! How about using Singapore, which has virtually no public welfare system. Does Singapore have a safe and stable society? Do people trade with Singapore? Is Singapore one of the wealthiest countries in the world?

One element that you might want to consider when linking welfare with a safe and stable society is this... Was New Zealand safer and more stable [u]after</u> the introduction of the welfare state or [u]before</u> it? I think you will find that the answer does not correlate with your reasoning.



This whole example is flawed as it starts from the premise that if you work twice as hard, you will receive twice as much money...
We all know that is simply not the case.

[ananda77]

Exactly, Thereislifeafter87.

If Rodney Hyde wants to become Prime Minister he has do do better than that!

[John Mexted]

quote:This whole example is flawed as it starts from the premise that if you work twice as hard, you will receive twice as much money...
We all know that is simply not the case.

My mistake. Hide's actual speech below: http://act.org.nz/item.jsp?id=25721

[i]Labour’s fairness

The Future Directions package taxes everyone hard, but allows families with children to claim a handout. Instead of being allowed to keep your own money, you have to pay it to the Government, and then claim it back.

The system is complicated. So much so that the Government is spending $21 million – that’s almost 10 percent of the extra it is handing out next year – just to explain it to voters. One advantage of just dropping taxes is that the effect can be explained in a sentence without costing taxpayers a cent.

The Labour Government thrives on dependency – that’s where it gets its votes. Its interest is to extend and deepen dependency. And, so, families with six children earning over a $100,000 are now to be entitled to a Government hand-out rather than simply keeping more of their own money.

And let’s consider Labour’s view of fairness:

Consider two families. They are alike in every respect, bar one. There are two parents, one income earner, two children aged five and nine, they live next door to each other in an Auckland suburb, and they each pay $300 a week rent.

The one difference is that Family A works twice as long as Family B. As a result, Family A earns $50,000 a year ($962 a week), while Family B earns only $25,000 a year ($481 a week).

Question: how much tax does each family pay? The same? After all, they both consume the same amount of Government services.

Or maybe Family A pays twice as much? After all, they earn twice as much.

Or perhaps Family A pays three times as much because, as Michael Cullen explained, the rich have had it too good for too long?

None of these answers are correct. First up, Family B effectively pays no tax. Instead, the Government tops-up their income by $128 a week. They are net beneficiaries. Their net income is $609 a week.

Meanwhile, the Government takes $220 a week from Family A. Their net income is $742 a week. They must send $128 across to their neighbour each week via Government, and $92 to the Government itself.

And, so, Family A – which works twice as long to earn twice as much – are only marginally better off for their effort. Their effective tax rate on the extra $25,000 they earn is a whopping 72 percent. They get to keep less than $7,000 of it, and lose over $18,000.

It’s no wonder middle income earners are feeling squeezed -- they are being squeezed. The Government is hammering them. They earn too much to receive any handouts, but too little to be comfortable. And, on top of paying for all that they must pay for, the Government takes nearly a quarter of what they earn.

It’s little wonder that families struggle and our economy is sluggish. The tax-benefit system leaves little incentive for anyone to work hard and produce in New Zealand.

Now let’s see what the Budget did for these families. The good news is that the Budget package returns an extra $112 a week in handouts to Family A. They are better off. The other good news is that it hands an additional $144 to Family B. They too are better off.

But the difference between the two families is now only $101 a week. Family A now effectively loses 79 percent of the extra $25,000 they earn.

So picture this: Family A works 60 hours a week. Family B works 30 hours. Family A earns $24 an hour, but only gets to keep $3.36. Why bother? Who would work for $3.36 an hour?

For families with one income earner on the average wage, the effect can be simply illustrated by looking at the effective tax rates they face:

· PAYE tax:

[John Mexted]

quote:Again you miss the point.
What drives an economy is SPENDING.
The people who have to spend the most of their income are the POOR
The poor get most of their income from the GOVERNMENT - through our taxes
If the poor have no money they cannot SPEND
if they do not spend, the economy falters.
If the economy falters, profits fall, investment withdraws, people are laid off, less is spent, the economy falters more and we get recession and depression.
If the economy falters investment form overseas withdraws, and more capital departs our shores.

If spending makes an economy great then why doesn't the government employ people to rob houses? This may sound facetious, but if what you say is true, then people who have their possessions stolen will claim from their insurance companies and purchase more. Of course, the stolen goods would have to be destroyed to create the most spending overall. Hey presto, instant spending and growth for the NZ economy! Apart from the moral issue, why doesn't this make economic sense? Or how about these recent floods in the Bay of Plenty? What a great boon to the economy you must believe that these are! Imagine the spending that will occur as a result of those. And here I was, focused on the lost production. Silly me.

Whether it is spending or production that drives the economy is a chicken egg argument. because they are both interrelated. Production of goods that are demanded leads to employment and spending which in turn leads to more production.

IMO NZ should be focused on incentives (or removing disincentives) for the right sort of behaviors. Saving, working, producing, and taking responsibility for ones health, education and retirement should be incentivised. Not-working and having children that you cannot afford should not be incentivised. It’s simple stuff. If you had a child that was rewarded for bad behaviours and semi-punished for good behaviours, what would that child grow up like?

[John Mexted]

Cooper, you and I were discussing the use of welfare payments to create a stable society, and you use a third world hell-hole and two countries that have just had the crap bombed out of them by the U.S and have been run by religious extremists and dictators, not to mention suffering massive trade embargos (hence the three exclamation points). If I were thinking about investing in these countries, my first thoughts wouldn’t be whether they have welfare payments. Which country you invest in is the same as what company you guys want to invest in. You want a stable company that you believe will deliver you the biggest return. Companies that are atractive to investors grow and prosper. Countries that are attractive to investors do likewise.

Singapore is not a communist country. It is one of the most capitalist in the world. It has low tax rates and members of it’s society are expected to take responsibility for their retirement, savings, health and welfare. It has mandatory accounts for savings that are untaxed and people are expected to care for their families. Singapore is probably Asias richest country.

You point out that Capital flows into Singapore but it does not flow into NZ. Have you given any thought as to why this is?

[Cooper]

quote:Originally posted by John Mexted


You point out that Capital flows into Singapore but it does not flow into NZ. Have you given any thought as to why this is?


Sorry JM I meant that Singapore is capital rich, ie already has a tremendous amount of capital and is an importer of labour, whereas NZ is a Capital importer, we don't have all the capital we need but we have the manpower (simplification).

[Cooper]

quote:Originally posted by Cooper


quote:Originally posted by John Mexted


You point out that Capital flows into Singapore but it does not flow into NZ. Have you given any thought as to why this is?


Sorry JM I meant that Singapore is capital rich, ie already has a tremendous amount of capital and is an importer of labour, whereas NZ is a Capital importer, we don't have all the capital we need but we have the manpower (simplification). Therefore Capital DOES flow into NZ... otherwise we wouldn't have the money to invest (that is why the NZ$ goes up in value whenever we see an OCR rise, an indication of capital inflow)...

[Cooper]

quote:Originally posted by John Mexted

Cooper, you and I were discussing the use of welfare payments to create a stable society, and you use a third world hell-hole and two countries that have just had the crap bombed out of them by the U.S and have been run by religious extremists and dictators, not to mention suffering massive trade embargos (hence the three exclamation points).

In a round about way that kind of proves my point... a reach, addmittedly, but allow me to explain where I get that from.
If we look at WHY the religious extremists, dictators and trade embargoes occured they all begin at a point of social instability... none of these countries were stable to begin with, which led to the unrest that planted the seeds for the current situations. I'm not saying that with a hefty dole payment to the unemployed these countries could have avoided what has befallen them, that would be stupid as there are a mulititude of reasons why these places are in turmoil. What I am saying is that if there were a stable society, there would not then be the unrest to allow the extremists to dominate. The absence of a safe, stable society creates the opportunity for extremists to dominate (Hitler in Germany post Treaty of Versailles is an example) as people turn from a more balanced view toward a "black and white" extremism. A Government based on the ideals of democracy exists in part to ensure a "fair" distribution of society's assets to prevent unrest caused by discrepancies btwn the "haves" and "have nots" (for both practical and altruistic reasons), and to provide what has proven to be the best way to enable a capitalist society.

[John Mexted]

quote:In a round about way that kind of proves my point... a reach, addmittedly, but allow me to explain where I get that from.

Yes, that IS a stretch, because it has little to do with your argument regarding welfare or distribution of wealth. Simply because wealth is distributed evenly, doesn't mean that a country is stable and just because income is distributed unevenly doesn't make it unstable. Your argument is essentially "social unrest = an unstable country". Sure, social unrest is a factor (along with many other Geo-political factors) but uneven distribution of income does not, in itself lead to social unrest and then instability.

Bangladesh, Indonesia and Rwanda all have more even distibution of income than the U.S, U.K and France, but the later are infinately more stable. I would suggest that the wealthier countries seem to be more stable than the poorer ones. This would cetainly hold for Iraq, Afghanistan and the Sudan.

Over-taxation and/or oppressive, corrupt governments are more likely to result in uprising or revolution than uneven distribution of wealth.

What seems to occur is:

- Rich countries tend to be more free (or free countries tend to be more rich)
- Rich countries tend to be more stable (or stable countries tend to be more rich)
- Even distribution of income does not mean that a country is more stable (or a stable country does not mean that a country had even distribution of income).

Based on this, should NZ focus on:

a) Becoming more free
b) Becoming more rich
c) Becoming more stable
d) Obtaining a more even distribution of income
e) A combination of the above

[Cooper]

J.Mexted... You said
"Yes, that IS a stretch, because it has little to do with your argument regarding welfare or distribution of wealth. Simply because wealth is distributed evenly, doesn't mean that a country is stable and just because income is distributed unevenly doesn't make it unstable. Your argument is essentially "social unrest = an unstable country". Sure, social unrest is a factor (along with many other Geo-political factors) but uneven distribution of income does not, in itself lead to social unrest and then instability."
I should have just said that you were putting the cart before the horse and supporting my agreement. My argument is that Government provides a safe and stable society, and that one of the benefits of a safe and stable society is that it attracts capital inflow. Without a safe and stable society this capital comes at a premium. Instead of arguing against what must have been a point which you could not disagree with, you said.."If I were thinking about investing in these countries, my first thoughts wouldn’t be whether they have welfare payments. Which country you invest in is the same as what company you guys want to invest in. You want a stable company that you believe will deliver you the biggest return. Companies that are atractive to investors grow and prosper. Countries that are attractive to investors do likewise. " which far from being a rebuttal to my argument was an agreement. Wasn't that what I'd just said? Did you miss this point?

You said:
"Bangladesh, Indonesia and Rwanda all have more even distibution of income than the U.S, U.K and France, but the later are infinately more stable. I would suggest that the wealthier countries seem to be more stable than the poorer ones. This would cetainly hold for Iraq, Afghanistan and the Sudan.

Over-taxation and/or oppressive, corrupt governments are more likely to result in uprising or revolution than uneven distribution of wealth."

I'm going to take what you say at face value. However, as this is all about, the US, UK and France all have stable secure Governments, whereas Bangladesh, Rwanda and Indonesia all have Governments with a loose hold and/or no sway over, nor support from, the general populous (ie lesser Government). Again, what you offer is in direct support for my general argument that Government's create wealth by enabling a Capitalist environment, and that without effective Government places like Bangladesh, Rwanda and Indonesia are not good places to invest and/or create wealth. Did you mean to back up everything I've been saying or was that a misstep?

You said:
"What seems to occur is:

- Rich countries tend to be more free (or free countries tend to be more rich)
- Rich countries tend to be more stable (or stable countries tend to be more rich)
- Even distribution of income does not mean that a country is more stable (or a stable country does not mean that a country had even distribution of income).

Based on this, should NZ focus on:

a) Becoming more free
b) Becoming more rich
c) Becoming more stable
d) Obtaining a more even distribution of income
e) A combination of the above"


Even if an even distribution of income had nothing to do with a stable society, and I would argue that it does to some extent (not with the same fixation you seem to have on what was essentially a small supportive argument on my part), then we are in total agreement with the above 5 points. As my argument is that Government is the best way to produce these necessities to enable a capitalist, wealthy Nation, I thank you for your support.
Finally, as you seem to disagree with my views that Government creates wealth, perhaps you could offer an alternative. If you are able to find a continuous stream of negatives to protest about the current system, then you must find the positives of another system as easy to spell out. Where is your alternative? I wait with bated breath for someone to offer one so I can use the same analysis to pick out the negatives. If the p

[John Mexted]

Cooper,

Now you are starting to change tack. This is your original post - discussing welfare. It is the first you mention a safe and stable society. You point out the problems relating to welfare, then say that it is all necessary for a safe and stable society. You now say that you meant that government is necessary for safe and stable society. This was not your original assertion.


quote:It's fine to sit back and say that we should reduce the amount spent on welfare, because that way the funds freed up could go towards areas of society who use it more efficiently than the mere "transferral" of money in welfare payments. The actual act of taking the tax, deciding who should get it, and then distributing the money to those areas involves a loss to society of:

1) The money being lost from areas which could use it to create wealth instead of a transfer from the working to the not-working which in itself incurs no loss other than the fact that those who are not working will use it for demanding goods and services while the working group will arguably put some of the money into the nation's capital stock which can then be used to create wealth.
2) The costs incurred in transferring the money, ie the organisations involved in identifying, deciding and distributing welfare payments.

I wholeheartedly agree that this produces inefficiencies. The point where I disagree is that I would argue that all this is a "necessary evil" to ensure we have a stable and safe society.

If your only point is that Government is necessary to create a safe and stable society, then yes we are in agreement. Governments role, IMHO are related to the protection of life, liberty and property. That means a role in defence, a role in the police and a role in the courts. Can I agree that the Government assists in the creation of wealth by providing these services? Yes. Do I belive that our current system of government creates welath overall? No. Why not? Because it is involved with so many areas of the economy, where it actually inhibits wealth creation.

My preference is for a low flat tax scale to pay for necessary government services and the maximum amount of earning left in the hands of the earner.


quote:- Rich countries tend to be more free (or free countries tend to be more rich)
- Rich countries tend to be more stable (or stable countries tend to be more rich)
- Even distribution of income does not mean that a country is more stable (or a stable country does not mean that a country had even distribution of income).

Based on this, should NZ focus on:

a) Becoming more free
b) Becoming more rich
c) Becoming more stable
d) Obtaining a more even distribution of income
e) A combination of the above"


Even if an even distribution of income had nothing to do with a stable society, and I would argue that it does to some extent (not with the same fixation you seem to have on what was essentially a small supportive argument on my part), then we are in total agreement with the above 5 points. quote]

My "five points" aren't points they are a question (yes, I omitted a question mark). Out of those options, which should NZ focus on?

[Halebop]

The problem then John stems back to your question. How do you sythesize NZ's woes or areas for improvement into four (or five) concepts? This of course leaves little choice but to define similarly narrow solutions. Which is why your argument finds so much objection - even in a forum dedicated to people who largely just want to get on with the task of making money for themselves in a self determining manner.

Reaching agreement on even a narrow group of potential solutions is difficult enough as exhibited by this thread. Asking the wrong questions to begin with or a set of questions so narrow that you leave out too much data dooms you to failure or requires a little too much luck to be predictable.

I'm a long time Act supporter and voter but to me the corollary of their existense and most orthodox liberal thinking is very narrow. The title "liberal" becomes an oxymoron as a result. I just checked into www.dictionary.com and here's some of the definitions it gave about liberal, pretty much what I remembered from school...

1. Not limited to or by established, traditional, orthodox, or authoritarian attitudes, views, or dogmas; free from bigotry.

2. Favoring proposals for reform, open to new ideas for progress, and tolerant of the ideas and behavior of others; broad-minded.

3. Of, relating to, or characteristic of liberalism.

4. Liberal Of, designating, or characteristic of a political party founded on or associated with principles of social and political liberalism, especially in Great Britain, Canada, and the United States...

How many of these concepts can we actually apply to a party like Act? They are just as narrow, prescriptive and dogmatic as any other "ism".

Now we can argue semantics and dump on me for having a negative opinion about "liberal" thinking but how about this for an acid test: If it all makes so much sense why don't Act get a bigger share of the voter pie? The answer is NOT that 95% of the voting population wants to keep getting their kushy tax funded subsidies. The answer lies closer to the recognition of how shallow their policies are. Concepts like this suit academic interpretation and analysis - not the real New Zealand. That's why they get argued ad-infinitum in forums like this rather than actually being implemented.

When liberal thinking manages to step beyond it's own orthodox of a single idea (I sythesize every liberal policy I hear into the smaller government dogma) people might find they have something to say and maybe more than 5% of us will even want to hear it.

[John Mexted]

quote:Originally posted by Halebop

The problem then John stems back to your question. How do you sythesize NZ's woes or areas for improvement into four (or five) concepts? This of course leaves little choice but to define similarly narrow solutions. Which is why your argument finds so much objection - even in a forum dedicated to people who largely just want to get on with the task of making money for themselves in a self determining manner.

Halebop. I'm not trying to narrow New Zealands options into four or five narrow solutions. What I am trying to do is simplify the argument somewhat. If you don't simplify a discussion like this, it's an impossible one to make any progress on. What's the alternative? Don't try?

Cooper and I were discussing incentive and disincentives to production. Coopers response was that welfare is a requirement of a safe and stable society. I challenged that assumption, questioning whether it was more important to be rich, free or stable...Whether rich countries are stable, whether stable countries are rich and how important welfare is in relation to those (the original issue). If you don't try and distill discussion down a little you don't get anywhere at all and end up discussing issues that are so far to the periphery that they are irrelevant. It happens when discussing the directions that a company should take, and it certainly happens when discussing the direction a country should take.



quote:If it all makes so much sense why don't Act get a bigger share of the voter pie? The answer is NOT that 95% of the voting population wants to keep getting their kushy tax funded subsidies. The answer lies closer to the recognition of how shallow their policies are. Concepts like this suit academic interpretation and analysis - not the real New Zealand. That's why they get argued ad-infinitum in forums like this rather than actually being implemented.

I disagree. I think that there is a vast difference between good politics and good policy. Policy is generally driven by what people will vote for. What people will vote for against is not necessarily what is best for the country in the long term. An example is the lowering of company tax rates and top tax rates. New Zealanders are opposed to these on idealogical grounds, not logical ones. Many New Zealanders were vhemently opposed to the privatisation of our telecommunications industry (when it took three weeks to get a phone line installed). In 20 years we may look back on our health system in the same way.

As a basis, I'm a beliver in the incentive/disincentive approach. Most things can be analysed from this veiwpoint. It saddens me when an example of a government policy that actually produces a disincentive to make New Zealand a wealthier place is highlighted, and even on a sharetrading board it is met with apathy. 95% of NZers will look at that policy and say "great, more money for families" 5% of NZers will look at that policy and say "hey, doesn't that produce a disincentive to work harder and hey, doesn't that mean that the family pays tax and then gets their tax handed back to them producing an inefficiency in double handling?"

Again, poor policy but it sounds good, so good politics. As Rodney pointed out, an opportunity missed to drop all tax rates above 20% to 20% and leave more money in the pockets of all NZ businesses and workers.

[Capitalist]

5% John? I wish! But with a population of 4 million, and 1 million on a benefit of some kind, the Day of Reckoning will come eventually, and we will be proven correct. Thanks for your insightful contributions, whoever you are.

From Peron's site again:

A Reality Check on Welfare Spending
By Lindsay Mitchell

In 1993 unemployment hit its peak in New Zealand, with an unprecedented 177,000 people drawing the unemployment benefit. That year government spent $1.639 billion on the dole.

Today, unemployment is at a fourteen year low and the government is attempting to use this fact to generate maximum good will in the electorate.

The public assumes that welfare spending will also have dropped significantly. In fact, it has not.

Last year the amount spent on the domestic purposes benefit was $1.634 billion - an amount almost identical to the dole bill of 1993.

What else happened between 1993 and 2003?

Core benefit expenditure:

unemployment and emergency benefits, -19%
sickness benefit, +62%
invalid's benefit, +149%
domestic purposes benefit, +41%
superannuation, +15%
In 1993 total core benefit expenditure was $9.004 billion. By last year it had grown to $10.438 billion.

Additional and integral to the overall picture are the supplementary allowances. The second most costly of these is the accommodation supplement which provides assistance with rent or mortgage payments. This expenditure has risen by 238%. The government spent $200 million on the accommodation supplement in 1992/93. By 2002/03 spending had climbed to $700 million.

Family support rose from $580 to $862 million.

These supplementary increases are, in part, a reaction to the 1992 benefit cuts although they are generally ignored by beneficiary advocates who are still calling for a return to 1992 rates.

Of the core benefits, the invalid's has seen the greatest growth. The fastest growing reason for being on a sickness or invalid benefit is either a psychological or psychiatric disorder. Growing mental ill-health is certainly a factor. Some doctors are reporting pressure to sign patients off to benefits other then the unemployment.

Across the working-age benefits recipients are getting older. This partly reflects the aging population. It is also an effect of the lengthening time people spend on benefits. One interpretation might be favourable - fewer young people make up the stats. But as the benefit explosion is only a product of the last thirty years, we can expect the younger age groups to catch up over the next few decades.

There is also a clear trend for more women to appear in the statistics. While some of the explanation lies in longer female life expectancy, the ratio of females to males is also growing in the working-age ranks.

In 2003 sixty three percent of core benefit expenditure was on women.

As a percentage of the total, Maori and Pacific Island welfare receipt continues to increase while New Zealand European declines.

Outside of the core benefits there is one stand out. Unsupported child's or orphans benefit. This is a benefit paid to the caregiver of a child whose parents can't look after him, for whatever reason.

A 186 percent increase over ten years brought expenditure to $47 million last year. The 9,000 children reliant on this benefit are possibly behind a levelling off of numbers on the domestic purposes benefit.

Yes, welfare spending on unemployment has dropped significantly but growth in every other area has meant overall spending continues to climb. Treasury's expense tables predict a further growth of twenty percent between 2003 and 2008.

What accounted for 33 percent of total government spending in 1993 is now at almost 40 percent with the government super fund included.

Even Michael Cullen has conceded the Budget will mean overall government spending as a percentage of GDP, which had been falling, will now start to rise again.

For the forseeable future social security and welfare spending will continue to be the biggest consumer of taxpayer dollars - by a long sho

[Cooper]

JM, You said
"Now you are starting to change tack. This is your original post - discussing welfare. It is the first you mention a safe and stable society. You point out the problems relating to welfare, then say that it is all necessary for a safe and stable society. You now say that you meant that government is necessary for safe and stable society. This was not your original assertion."

Yes and No, Yes I did change tack in the context of our argument regarding welfare, for which I apologise. But No, I didn't change tack from what I have been arguing regarding the necessity of Government for a Capitalist society... I've been posting since the first page and been arguing that point with things like welfare to back my arguments up. This is a sub-argument, and as you have made some very good points and rightfully questioned my statement regarding welfare (or transfers to be precise) I should get back to that to justify what I have said.
You quoted me:

quote:It's fine to sit back and say that we should reduce the amount spent on welfare, because that way the funds freed up could go towards areas of society who use it more efficiently than the mere "transferral" of money in welfare payments. The actual act of taking the tax, deciding who should get it, and then distributing the money to those areas involves a loss to society of:

1) The money being lost from areas which could use it to create wealth instead of a transfer from the working to the not-working which in itself incurs no loss other than the fact that those who are not working will use it for demanding goods and services while the working group will arguably put some of the money into the nation's capital stock which can then be used to create wealth.
2) The costs incurred in transferring the money, ie the organisations involved in identifying, deciding and distributing welfare payments.

I wholeheartedly agree that this produces inefficiencies. The point where I disagree is that I would argue that all this is a "necessary evil" to ensure we have a stable and safe society.
Then you said:
If your only point is that Government is necessary to create a safe and stable society, then yes we are in agreement. Governments role, IMHO are related to the protection of life, liberty and property. That means a role in defence, a role in the police and a role in the courts. Can I agree that the Government assists in the creation of wealth by providing these services? Yes. Do I belive that our current system of government creates welath overall? No. Why not? Because it is involved with so many areas of the economy, where it actually inhibits wealth creation.

My preference is for a low flat tax scale to pay for necessary government services and the maximum amount of earning left in the hands of the earner.

I have posted since the very first page that I do not believe the current system is without improvement. To quote my comments on the first page:
"IF I was asked what improvements I'd make it would probably be the same as most others on this site (we're hardly a spread of the demographic as a whole)... less taxes, less red tape, stricter welfare controls (a maximum time period for the dole), quarterly rigourous testing for those on sickness benefits, work for the dole schemes, means testing for superannuitants (that's because I'm young and don't want to fund already wealthy people with additional travel funds).... etc etc. If that's what is being asked then I am an advocate for smaller Government."
I imagine we both feel the same disgust and resentment when we hear stories of benefit fraud and of people living at the taxpayers largesse without bothering to look for work. Where we seem to disagree on this point is that you don't seem to want any kind of welfare, whereas I see the current system as necessary, but in need of the odd t

[Halebop]

quote:Originally posted by John Mexted

I disagree. I think that there is a vast difference between good politics and good policy. Policy is generally driven by what people will vote for. What people will vote for against is not necessarily what is best for the country in the long term. An example is the lowering of company tax rates and top tax rates. New Zealanders are opposed to these on idealogical grounds, not logical ones. Many New Zealanders were vhemently opposed to the privatisation of our telecommunications industry (when it took three weeks to get a phone line installed). In 20 years we may look back on our health system in the same way.


Since when was ownership of Telecom the problem? The main problem has historically been competition. It's abundantly clear that a private and commercial Telecom has no interest in competition either. Great I can have my phone installed in 48 hours (actually, I had a phone installed a couple of years ago that took 3 months and a lot of blunt language so I wonder how much progress has been made?). What are my options with broadband internet? Very few. And I live and work from home in CBD Auckland. Yet broadband is the most obvious equaliser - allowing VOIP, data, streaming entertainment from any number of suppliers. It's no coincidence NZ's uptake is so poor.

But you know what? To flatten the Telecommunications ball park a little from it's skewed perspective would take more government intervention (and presumably costs), not less. Excuse my French but this causes me to question the value of carte blanche laissez faire.

I once would never, ever have said this but I also question the orthodoxy of having sold Telecom. That same market value captured by Tappenden/Fay Richwhite/Ameritech etc and subsequent investors could just have easily been retained by society in a corporatised but state owned Telecom. Having worked in and consulted to many organisation types, I see little correlation between the success of an organisation and it's ownership. As well as costs I do see the strategic benefits of society owning assets though.

And this is my real point - for every macro simple concept someone else can come up with a number of micro arguments against. The devil is in the detail, not the easily digestible sound bite. Liberals every bit as much sell their concept in homogenised packages for mass consumption.

It still begs the question as to why they aren't as successful at it?

[Halebop]

quote:Originally posted by Capitalist

...What else happened between 1993 and 2003?

Core benefit expenditure:

unemployment and emergency benefits, -19%
sickness benefit, +62%
invalid's benefit, +149%
domestic purposes benefit, +41%
superannuation, +15%
In 1993 total core benefit expenditure was $9.004 billion. By last year it had grown to $10.438 billion.

...The government spent $200 million on the accommodation supplement in 1992/93. By 2002/03 spending had climbed to $700 million.

Family support rose from $580 to $862 million...

Are these comparisons in real dollars? If not "core" expenditure has risen from $9.784b to $12.030b in 10 years, an increase of 23% versus CPI of around 22%. The people receiving these benefits also starting paying 25% higher GST when it increased from 10% to 12.5%. As very little of their income is able to be saved I'd expect net benefits have been fractionally lower than inflation.

Divorce rates and teenage pregnancy have continued to increase. These would both contribute to the rise in DPB. I'd still see the long term benefit to children of having a single parent at home and I am happy to pay for it, notwithstanding the notion that a minority of mothers attempt to abuse the system.

But again this illustrates the simplicity of the liberal argument. What answers do these economics bring to marriage, relationships, divorce, sex education, birth control and all their attendant social attitudes. As a thinking and feeling human you can't kill these benefits without a thought to the consequences. I think you would find yourself having to spend the money elsewhere anyway (Abortions, Education, Counselling, etc).


quote:Originally posted by Capitalist

...What accounted for 33 percent of total government spending in 1993 is now at almost 40 percent with the government super fund included.

Even Michael Cullen has conceded the Budget will mean overall government spending as a percentage of GDP, which had been falling, will now start to rise again...

This is not even part of the same argument. The government is rightly provisioning for a entirely predictable demographic shift. This same set of demographics currently creates a virtuous cycle as the baby boomers are at their peak earning capacity at a time in their collective lives (they are currently aged 58 to 40) that their overheads are dropping. The same cannot be said for the future when collectively they will be net users of government services rather than net funders.

The smart decision originally would have been some sort of self funded super scheme (I won't bother arguing the mechanics of that one - far too many permutations!). But the fact is - we are locked into a pay as you go system simply because this is the system we have had for a long time. To undo this would require a long term structural change with no hope of changing it for those currently remunerated by the system or approaching the point where they are eligible. By all means make everyone like me under 30something pay for themselves but it is just too late for those older. Your could create some sort of scaling system for those currently in their 40's and 50's but you would probably spend too much administering it anyway.

[John Mexted]

quote:Since when was ownership of Telecom the problem? The main problem has historically been competition. It's abundantly clear that a private and commercial Telecom has no interest in competition either. Great I can have my phone installed in 48 hours (actually, I had a phone installed a couple of years ago that took 3 months and a lot of blunt language so I wonder how much progress has been made?). What are my options with broadband internet? Very few. And I live and work from home in CBD Auckland. Yet broadband is the most obvious equaliser - allowing VOIP, data, streaming entertainment from any number of suppliers. It's no coincidence NZ's uptake is so poor.

I work and live in CBD also. My phone and internet are supplied by a company other than telecom. My internet runs at 10mb/s and my phone and broadband cost less for both than the jetstream that I had that used to run at 250kb/s.

I used Telecom as an example. People were convinced (you may still be) that the state had to run telecommunications. I am sure that if the govt ran supermarkets, people would be against allowing private enterprise to run them. The cries would be heard around the country..."do you want only the rich to be able to afford food?, Private enterprise will hold us to ransom! - The government must control foodstuffs to ensure that foods are shared equally among the people and non go hungry". In that situation, given the previous state of affairs, I firmly believe that New Zealanders would prefer that the government controlled supermarkets regardless of whether it was to their overall advantage.


quote:But you know what? To flatten the Telecommunications ball park a little from it's skewed perspective would take more government intervention (and presumably costs), not less. Excuse my French but this causes me to question the value of carte blanche laissez faire.

Blaming laissez faire capitalism for being unable to immediately repair the damage done by govt control in an industry is hardly an indictment on laissez faire capitalism!?!? It will probably take govt intervention to sort out the issues caused by govt intervention.


quote:And this is my real point - for every macro simple concept someone else can come up with a number of micro arguments against. The devil is in the detail, not the easily digestible sound bite. Liberals every bit as much sell their concept in homogenised packages for mass consumption.

That sounds a lot like, "there are no absolutes so don't try"

It still begs the question as to why they aren't as successful at it?


[u]Basically, because given the choice, people would rather be given money than not.</u>

In New Zealand, 10% of the working age poulation pay 45% of the tax.
I'm sure many of you have heard of the tax and dinner example in Canada but here is the NZ version.

Ten working age people go out to dinner which cost $1000. When it comes time to pay, Rather than paying $100 each, the cheque is divied up according to NZ govt tax system.

One person pays nothing
Two people pay $10 each
Three people pay $40 each
One person pays $90
One person pays $120
One person pays $200
One person pays $450

Persuading those 7 people that they are getting a cheap dinner and that they really ought to take responsibility for the full bill for their own dinner [u]doesn't make good politics</u>. People would rather be paid than pay.

[John Mexted]

Cooper,

Flat tax rate. Say 20% across the board. And no, I am not against a tax free threshold for all (say no tax on the first $8000 on income).

Mr and Mrs Smith earn $25k they pay $3,400k tax. Mr and Mrs Bloggs earn $50k they pay $8400. Mr and Mrs Doe earn 100k. They pay 18400.

John Mexted Your internet where is it available or do they just skim the easy ones & f*ck all the rest that would be internet for the few. Good for the few but not good for the country or the economy. It is this sort of thinking that is ruining most countries. Or would you suggest putting the whole population of NZ in Parnell.

[John Mexted]

quote:Originally posted by ENIGMA

John Mexted Your internet where is it available or do they just skim the easy ones & f*ck all the rest that would be internet for the few. Good for the few but not good for the country or the economy. It is this sort of thinking that is ruining most countries. Or would you suggest putting the whole population of NZ in Parnell.


Enigma, we live in a wonderful world with amazing technology. I actually read your post on the internet, via my phone while travelling in a car just out of Hamilton!

As I mentioned in my post, I live and work in Auckland CBD. Yes, I have good internet access. Should everyone in New Zealand have access to high speed internet? I would hope that in a few years time, everyone will have the opportunity. Given the rate of technological change they probably will. Is it a [u]right</u> to have high speed internet access??? - No, of course not.

I'm not sure where you are angling with your comments, but just because a company is providing a service to one area, it doesn't mean that you can demand it where you are. If it makes economic sense to put a service into an area, someone will do it. The small town where I previously lived didn't have a large aquarium, an observatory, valet car cleaning, a stadium or an ice skating rink but I didn't demand that those services be supplied.

???

JM

John Mexted but a certain level of uneconomic services needs to be supplied or you get the other scenario of everbody living in Parnell. this is where government comes in.

[Cooper]

quote:Originally posted by Capitalist
Core benefit expenditure:

unemployment and emergency benefits, -19%
sickness benefit, +62%
invalid's benefit, +149%
domestic purposes benefit, +41%
superannuation, +15%
In 1993 total core benefit expenditure was $9.004 billion. By last year it had grown to $10.438 billion.

Additional and integral to the overall picture are the supplementary allowances. The second most costly of these is the accommodation supplement which provides assistance with rent or mortgage payments. This expenditure has risen by 238%. The government spent $200 million on the accommodation supplement in 1992/93. By 2002/03 spending had climbed to $700 million.

Family support rose from $580 to $862 million.

These supplementary increases are, in part, a reaction to the 1992 benefit cuts although they are generally ignored by beneficiary advocates who are still calling for a return to 1992 rates.

Of the core benefits, the invalid's has seen the greatest growth. The fastest growing reason for being on a sickness or invalid benefit is either a psychological or psychiatric disorder. Growing mental ill-health is certainly a factor. Some doctors are reporting pressure to sign patients off to benefits other then the unemployment.

Across the working-age benefits recipients are getting older. This partly reflects the aging population. It is also an effect of the lengthening time people spend on benefits. One interpretation might be favourable - fewer young people make up the stats. But as the benefit explosion is only a product of the last thirty years, we can expect the younger age groups to catch up over the next few decades.

There is also a clear trend for more women to appear in the statistics. While some of the explanation lies in longer female life expectancy, the ratio of females to males is also growing in the working-age ranks.

In 2003 sixty three percent of core benefit expenditure was on women.

As a percentage of the total, Maori and Pacific Island welfare receipt continues to increase while New Zealand European declines.

Outside of the core benefits there is one stand out. Unsupported child's or orphans benefit. This is a benefit paid to the caregiver of a child whose parents can't look after him, for whatever reason.

A 186 percent increase over ten years brought expenditure to $47 million last year. The 9,000 children reliant on this benefit are possibly behind a levelling off of numbers on the domestic purposes benefit.






That is timely as word has recently come out about Work and Income trying to get (what are they? Customers? Employees?) the unemployed onto the sickness benefit. To be fair you would have to temper the above figures with (as Halebop has said) an adjustment for inflation, an adjustment for population growth (and therefore tax intake from the Govt) and the realisation that our population is aging and living longer. Apart from that I wouldn't argue against the inherent statement that many are deciding to create a career out of government transfer payments. I agree that we need to do something about this, but not because the idea itself is flawed, but because the general trend towards "career welfarism" is a drain on the welfare system itself in that it lessens the ability to provide to those in genuine need.
Interesting to note that the increase in welfare payments (supposedly to ensure welfare keeps up with inflation) is tied to the CPI index, which may in fact overestimate inflation by as much as 1-2% per year. That means those on welfare long term are actually getting a real pay rise every year. As I said, this makes the [u]current form</u> of the system politically and economically less palatable. A surgeon's knife, not a jackhammer, would be my choice of instrument though.

[Cooper]

quote:Originally posted by Halebop


And this is my real point - for every macro simple concept someone else can come up with a number of micro arguments against. The devil is in the detail, not the easily digestible sound bite. Liberals every bit as much sell their concept in homogenised packages for mass consumption.



I agree Halebop, we're beginning to rehash old territory and it should be realised that no matter the validity of the point there will always be a miniscule detail which can be argued against (while the larger argument goes untested). This applies to both sides of the argument.

[Cooper]

quote:Originally posted by John Mexted

Cooper,

Flat tax rate. Say 20% across the board. And no, I am not against a tax free threshold for all (say no tax on the first $8000 on income).

Mr and Mrs Smith earn $25k they pay $3,400k tax. Mr and Mrs Bloggs earn $50k they pay $8400. Mr and Mrs Doe earn 100k. They pay 18400.

JM, I'll try and make this brief because it looks as though your attention is wanted elsewhere...
Diminishing Marginal Value of money states that the more you have, the less you appreciate the next dollar. That means that, if we use the Blogg's income as the base, the next tax dollar taken from the Smith family is worth MORE THAN $1, because they don't have much and value each dollar more than the Bloggs family. The next tax dollar taken from the Doe family means LESS THAN $1 to them (again using Blogg's value of $1 as a base). This means that far from the same amount of value being taken from each dollar earned by the three families, the amount taxed is scaled (in a "value", not a numerical, sense) with the wealthier Doe family being taxed LESS in real terms than anyone else, and the hardest hit family being the family that can least afford a reduction in their wealth, the Smith family.

That may or may not represent a problem with your argument, as there is the incentive to consider. Reducing it to an individual level, why shouldn't the Doe family get more? They have the natural ability, they earn the money, they went to University to get degrees so they could earn that amount... why should they distribute their hard earned cash to the Smith family?

If we consider the Smith and Blogg's family view... they look at the Doe family with envy... they can not see the effort the Doe family put in to get to where they are, and from where they are looking the Doe family is wealthier only because they have had more luck in life (richer parents who could afford to put them through University while the Smith family had to take the first job available and are now unable to better themselves, stuck as they are in a poverty trap). Given the Doe family value one dollar less than the Smith family, isn't it socially efficient for the Doe family to be taxed, with the money going to help the Smith family? It is better for society for every citizen to be working at maximum efficiency, ie they are all well trained, with clear and attainable incentives, healthy and therefore working better in the job they are doing. If the Smith family are stuck in a poverty trap then 1) Society isn't making efficient use of the valuable resource they provide and 2)The gap between rich and poor will continue to grow (especially with a flat tax).

So the Smith family are getting a little unhappier with their lot every day, they are struggling to make ends meet, get enough money to feed the kids, clothe them and try to help them avoid the trap they are in. They are not very productive at work because, frankly, they aren't exactly management material (Mr Smith left school in 5th form because he had to work to support his parents. He has been wearing the same shoes for two years, he ain't getting promoted). Society is losing from the productivity the Smith's could be providing, the Smith family itself isn't looking like they'll get anywhere anytime soon, and the Doe family grow richer and richer in comparison to the Smiths.
At some point, Mr Smith faces a choice. He can either continue on as he is now, knowing his children will be doomed to live the life he currently does (actually it's a good thing Mr Smith doesn't know that the discepancies between his wealth and Mr Doe's wealth are only going to get larger). The other option Mr Smith has is to do something against his own morality to try and help his family out. Mr Smith tries to steal from the Doe's, gets pinged for it, goes to jail (but not in the same jail as the ban

[Cooper]

quote:Originally posted by John Mexted

[u]Basically, because given the choice, people would rather be given money than not.</u>







Are you sure? You might be right to some extent but there is some fairly clear research regarding those who are stuck in a long term pattern of not working regarding a reduction in their mental and physical health, mostly deppression. They aren't very happy with the fact they aren't working. Also there is a social aspect to consider... if one of my friends told me they were considering doing nothing for the rest of their lives they'd get a serve from me and I'd imagine this is the same regardless of race or demographics.
Personally, I would rather work because the money received is just a part of the rewards for having a vocation. I don't think that would differ substantially over most of the population (although some, inarguably, relish welfare... I wouldn't say this was the norm).
There is a substantial "pull your weight" culture in NZ. This contrasts with your "everyone wants a free lunch" statement.

[John Mexted]

Hi Cooper,

I have really enjoyed this discussion with you and would love to pursue it further. Unfortunately, I am about to get on a plane and will be out of the country for a months travel.

I am in such a rush that I honestly haven't even fully read your post and I can't give it the full attention that it deserves. Enigma, sorry, I don't have the time to respond to yours either, I am literally running out the door with my bags.

Some quick points.

Marginal utility. If a $ is worth more to one person than another, then that person has more incentive to work for it than the richer person (according to yout theory). If a $ is worth less to a richer person you should find that they stop working for it, and opt for the free time instead.

You also mention incentive. Very briefly, do you incentivise people to become rich by rewarding non-work and punishing betterment in earning. When you couple this with your diminishing utility argument, why would anyone want to earn another dollar over $38.000?

The whole "gap between the rich and the poor" is an interesting one. What causes this is something very evil - Maths!!!

Lets say that I earn $30,000 and you earn $300,000. The gap between our income is $270,000. Let's say that the economy grows by 10%. Your earn $33,000 and I earn $330,000. The gap between our incomes is now $297,000! The gap is growing. If it continues for 10 years at the same rate you will earn 778,122 and I will earn $77,812. The gap will be over $700,000!!!!The gap has grown!!!!

In reality though, we are both 160% richer. (and according to your argument, this means more to the poor than the rich because of the utility)

The only way to stop the maths the gap growing is use some blunt instrument to create massively more increase in the groth of lower incomes or create negative growth in the richer group (or both). You then create incentive for not earning and disincentive for earning more (since policy will level you anyway). Makes you think it might just be easier to legislate that everyone gets paid the same, eh?

Would love to keep discussing, by I gotta fly (literally).

JM

[Cooper]

Cheers JM it's been good. You've made me have to think about what I'd previously taken as a given. Bon Voyage!

[thereslifeafter87]

Cap,
So you're saying that benefit expenditure growth of 15% in over 10 years is a travesty?
Thats not even keeping pace with inflation.

In 1993 I would pay 50c for a pack of Hubba Bubba bubblegum.
Now I would pay $1-$1.20. I use this as an example cos I'm not sure of the average compound inflation rate over the last 11 years
A beneficiary who got .50c in benefits would not get about 63c right?
So in real terms, benefits have fallen hugely have they not?
Shouldn't you be celebrating this?

[thereslifeafter87]

JM,
I agree with you entirely on the gap between rich and poor argument.

What matters is not the gap between rich and poor in relative terms, but the living standard of the poor assessed "objectively".

The reason why people would want to earn over $38,000 is because they see this as setting themselves up for the future, so they can enjoy more leisure time then, and gain more utility from their leisure time through pursuits that require significant amounts of money to partake in (overseas travel, etc.).
Also, some people really enjoy what they do, and money is only part of the motivation for them going to work.