BBS

[BigBallinStalin]

Taxation is an exchange.

It is! Just as shooting someone and taking their stuff is an exchange. It's understood that by 'exchange', I mean 'voluntary exchange'. It's just shorter to write 'exchange'.

[BigBallinStalin]

I would personally not apply the breaking window parable to taxes, mostly because taxes impose an added burden of bureaucracy (and associated costs). Breaking a window imposes a "I could have purchased something else" burden, but does not impose a bureaucracy burden. Taxes do.

And all producers are consumers, so your point about my point is largely irrelevant.

Sure, about taxes, but the story's headed in the right direction.


Suppose there was a tax on beer. Who experiences the deadweight loss? Consumers, producers, or both?

Story does head in the right direction.

Both. I make that point to make it real for people who mostly consider themselves consumers (or at least they consume different kinds of products compared to what they produce). So when Person X says "INCREASE TAXES ON GASOLINE" I like to note that those taxes will ultimately by paid by Person X, not by the oil company, so that Person X keeps that in mind when making that argument.

Oh, I see. To avoid full agreement, which is so boring, I'd like to nitpick. The retailer/oil company does 'pay' some of the tax, in that they incur a cost from the tax. Had there been no tax, they would have been able to sell some marginal amount of gas.

[thegreekdog]

I would personally not apply the breaking window parable to taxes, mostly because taxes impose an added burden of bureaucracy (and associated costs). Breaking a window imposes a "I could have purchased something else" burden, but does not impose a bureaucracy burden. Taxes do.

And all producers are consumers, so your point about my point is largely irrelevant.

Sure, about taxes, but the story's headed in the right direction.


Suppose there was a tax on beer. Who experiences the deadweight loss? Consumers, producers, or both?

Story does head in the right direction.

Both. I make that point to make it real for people who mostly consider themselves consumers (or at least they consume different kinds of products compared to what they produce). So when Person X says "INCREASE TAXES ON GASOLINE" I like to note that those taxes will ultimately by paid by Person X, not by the oil company, so that Person X keeps that in mind when making that argument.

Oh, I see. To avoid full agreement, which is so boring, I'd like to nitpick. The retailer/oil company does 'pay' some of the tax, in that they incur a cost from the tax. Had there been no tax, they would have been able to sell some marginal amount of gas.

Yes, I understand that, but there's a practical element of these types of taxes that makes paying them more real for consumers than producers.

If the guvmint passed a 10% gas tax on gasoline producers and the producers pass that on to customers, a normally $1.00 gallon of gas (HAHAHAHAHAHAHAHAHAHAHAAHAHAHA) would cost the consumer $1.10. Now I know and you know and many people know that the increased costs means that more people won't buy gas (Mets: "That's the point of the tax! YES!" [fist pump]), but for the general consumer, who doesn't understand that, saying "You know you're going to pay 10 cents more per galloon" is a more effective deterrant for someone who would otherwise support the tax.

I can speak for myself when I say that when a guvmint increases or adds a tax (whether consumption tax or income tax or sales tax), my immediate reaction is "Oh shit, now I have to pay more for the product/service." My immediate reaction is not, "Oh shit, now the producer can't sell as much which will affect other parts of the economy which could effect me." Why? Because I like the immediacy of "Oh shit, now my stuff is going to cost more."

[BigBallinStalin]

I'm just having a lil fun, but that's one implication of redistribution for the sake of maximizing net utility. There's a small gap between making moral obligations and then having the state impose them on others. Democrats, Republicans, Green Party, and other sorts of self-proclaimed 'liberals' cross that gap frequently.

I've already said that a donation can 'create' wealth--in a similar sense to taxation, but if you don't think about the opportunity cost, you'll fail to consider the net creation of wealth. There's a difference between "zero-sum" and "positive-sum." I'm not sure why you can't grasp that distinction and the distinction between exchange and taxation/donation.

I'm not sure why you still haven't understood that I'm arguing that donations to the poor are positive-sum. The marginal increase in productivity for every dollar is greater for the poor than for the wealthy. In other words, at the risk of getting pummeled for a simplistic graphic,

Sure, I understand that logic, and sure wealth has been 'increased', but on net, it's difficult to say.

Let's clarify some things. You're presenting a donation not as an exchange but rather an investment. If you give someone who's very poor $10, then presumably they would use that $10 to produce a greater gain--relative to your spending the $10 on some item deemed to be frivolous. (1) I don't see how that's true in most cases. For example, if we're subsidizing poor people within poor countries, then their weaker institutions won't yield as much in productivity (as TGD says). Nevertheless, if you paid a poor Chadian family to move to the US, they would likely be more productive in the US with that money than they would have been in Chad. (2) If we subsidize someone who then spends it on a 'frivolous' item (e.g. alcohol), then... according to the logic of the graph, has net wealth increased--because that person is poor or what? Why is it that being poor makes one's spending yield greater returns? How do frivolous items yield less in productivity than non-frivolous items?

For example, if you 'invest' $15,000 into a poor student's tuition (scholarship), then this is creates wealth--if that student becomes more productive than he would have without the scholarship. Let's say the student yields 10%. If that $15,000 could have insetad been invested into Project X and yielded 10%, then it's a transfer of wealth which would be zero-sum. If Project X could have yielded 12%, then the scholarship is negative-sum. If <10%, then it's positive-sum. I don't see how (a) being poor, (b) living within worse institutions, and (c) the difference in the nature of the goods bought guarantee a greater yield.

To note one historic example which counters your argument, the past several decades of economic development in poorer countries followed a similar logic to yours, but these countries still are poor. It's not just a matter of dumping IMF and World Bank money into investment projects, and in general, such investments have reinforced the poor quality of their institutions, or have never really benefited the poor--but rather the local elites.

[BigBallinStalin]

I would personally not apply the breaking window parable to taxes, mostly because taxes impose an added burden of bureaucracy (and associated costs). Breaking a window imposes a "I could have purchased something else" burden, but does not impose a bureaucracy burden. Taxes do.

And all producers are consumers, so your point about my point is largely irrelevant.

Sure, about taxes, but the story's headed in the right direction.


Suppose there was a tax on beer. Who experiences the deadweight loss? Consumers, producers, or both?

Story does head in the right direction.

Both. I make that point to make it real for people who mostly consider themselves consumers (or at least they consume different kinds of products compared to what they produce). So when Person X says "INCREASE TAXES ON GASOLINE" I like to note that those taxes will ultimately by paid by Person X, not by the oil company, so that Person X keeps that in mind when making that argument.

Oh, I see. To avoid full agreement, which is so boring, I'd like to nitpick. The retailer/oil company does 'pay' some of the tax, in that they incur a cost from the tax. Had there been no tax, they would have been able to sell some marginal amount of gas.

Yes, I understand that, but there's a practical element of these types of taxes that makes paying them more real for consumers than producers.

If the guvmint passed a 10% gas tax on gasoline producers and the producers pass that on to customers, a normally $1.00 gallon of gas (HAHAHAHAHAHAHAHAHAHAHAAHAHAHA) would cost the consumer $1.10. Now I know and you know and many people know that the increased costs means that more people won't buy gas (Mets: "That's the point of the tax! YES!" [fist pump]), but for the general consumer, who doesn't understand that, saying "You know you're going to pay 10 cents more per galloon" is a more effective deterrant for someone who would otherwise support the tax.

I can speak for myself when I say that when a guvmint increases or adds a tax (whether consumption tax or income tax or sales tax), my immediate reaction is "Oh shit, now I have to pay more for the product/service." My immediate reaction is not, "Oh shit, now the producer can't sell as much which will affect other parts of the economy which could effect me." Why? Because I like the immediacy of "Oh shit, now my stuff is going to cost more."

[Metsfanmax]

Let's clarify some things. You're presenting a donation not as an exchange but rather an investment. If you give someone who's very poor $10, then presumably they would use that $10 to produce a greater gain--relative to your spending the $10 on some item deemed to be frivolous. (1) I don't see how that's true in most cases. For example, if we're subsidizing poor people within poor countries, then their weaker institutions won't yield as much in productivity (as TGD says). Nevertheless, if you paid a poor Chadian family to move to the US, they would likely be more productive in the US with that money than they would have been in Chad.

Yes, but that argument just demonstrates that there are some ways that are more effective to "invest" than others. I accept that not every method will result in equal productivity gains. Of course, there's a wide spectrum of possible investments in between "have them waste the money" and "bring them to the United States," and we could be focusing on finding the right one. But also, keep in mind that I'm not just considering immediate relative productivity gains, but also long-term ones (see the graph -- if you bring someone out of a poverty trap, you've permanently increased their level of productivity, for a one-time fixed cost).

(2) If we subsidize someone who then spends it on a 'frivolous' item (e.g. alcohol), then... according to the logic of the graph, has net wealth increased--because that person is poor or what? Why is it that being poor makes one's spending yield greater returns? How do frivolous items yield less in productivity than non-frivolous items?

Yes, it's quite right that if they also spend it on a frivolous item, then productivity has not increased (though utility likely has). But if you target your donations smartly, then there are ways to minimize on this. For example, in some situations microcredit may be better than a straight up cash transfer, because there's an incentive to earn the money back. But in many other cases, cash transfers are sufficient for permanently boosting productivity, and so some amount of loss on the transaction should be accepted.

For example, if you 'invest' $15,000 into a poor student's tuition (scholarship), then this is creates wealth--if that student becomes more productive than he would have without the scholarship. Let's say the student yields 10%. If that $15,000 could have insetad been invested into Project X and yielded 10%, then it's a transfer of wealth which would be zero-sum. If Project X could have yielded 12%, then the scholarship is negative-sum. If <10%, then it's positive-sum. I don't see how (a) being poor, (b) living within worse institutions, and (c) the difference in the nature of the goods bought guarantee a greater yield.

I think you just have to go to the literature for this one. There are plenty of interventions which have had rates of return that are far higher than anything you would achieve in a typical Western market. Again, this doesn't mean one intervention fits all, but there are interventions that work.

To note one historic example which counters your argument, the past several decades of economic development in poorer countries followed a similar logic to yours, but these countries still are poor. It's not just a matter of dumping IMF and World Bank money into investment projects, and in general, such investments have reinforced the poor quality of their institutions, or have never really benefited the poor--but rather the local elites.

Yes, but I also think we're getting better. Much of development policy over the last decades was not evidence-based, and now that people are starting to take evidence more seriously when it comes to what investments are effective, I am hopeful that aid (both at the macro and micro levels) will be more effective.

[BigBallinStalin]

Let's clarify some things. You're presenting a donation not as an exchange but rather an investment. If you give someone who's very poor $10, then presumably they would use that $10 to produce a greater gain--relative to your spending the $10 on some item deemed to be frivolous. (1) I don't see how that's true in most cases. For example, if we're subsidizing poor people within poor countries, then their weaker institutions won't yield as much in productivity (as TGD says). Nevertheless, if you paid a poor Chadian family to move to the US, they would likely be more productive in the US with that money than they would have been in Chad.

Yes, but that argument just demonstrates that there are some ways that are more effective to "invest" than others. I accept that not every method will result in equal productivity gains. Of course, there's a wide spectrum of possible investments in between "have them waste the money" and "bring them to the United States," and we could be focusing on finding the right one. But also, keep in mind that I'm not just considering immediate relative productivity gains, but also long-term ones (see the graph -- if you bring someone out of a poverty trap, you've permanently increased their level of productivity, for a one-time fixed cost).

Right, it's an economic development issue....

(2) If we subsidize someone who then spends it on a 'frivolous' item (e.g. alcohol), then... according to the logic of the graph, has net wealth increased--because that person is poor or what? Why is it that being poor makes one's spending yield greater returns? How do frivolous items yield less in productivity than non-frivolous items?

Yes, it's quite right that if they also spend it on a frivolous item, then productivity has not increased (though utility likely has). But if you target your donations smartly, then there are ways to minimize on this. For example, in some situations microcredit may be better than a straight up cash transfer, because there's an incentive to earn the money back. But in many other cases, cash transfers are sufficient for permanently boosting productivity, and so some amount of loss on the transaction should be accepted.

... which depends on the means for shifting trajectories toward good institutions, so as to increase prosperity. But...

For example, if you 'invest' $15,000 into a poor student's tuition (scholarship), then this is creates wealth--if that student becomes more productive than he would have without the scholarship. Let's say the student yields 10%. If that $15,000 could have insetad been invested into Project X and yielded 10%, then it's a transfer of wealth which would be zero-sum. If Project X could have yielded 12%, then the scholarship is negative-sum. If <10%, then it's positive-sum. I don't see how (a) being poor, (b) living within worse institutions, and (c) the difference in the nature of the goods bought guarantee a greater yield.

I think you just have to go to the literature for this one. There are plenty of interventions which have had rates of return that are far higher than anything you would achieve in a typical Western market. Again, this doesn't mean one intervention fits all, but there are interventions that work.

To note one historic example which counters your argument, the past several decades of economic development in poorer countries followed a similar logic to yours, but these countries still are poor. It's not just a matter of dumping IMF and World Bank money into investment projects, and in general, such investments have reinforced the poor quality of their institutions, or have never really benefited the poor--but rather the local elites.

Yes, but I also think we're getting better. Much of development policy over the last decades was not evidence-based, and now that people are starting to take evidence more seriously when it comes to what investments are effective, I am hopeful that aid (both at the macro and micro levels) will be more effective.

... the means of attaining change for the better faces knowledge and incentive problems. My concern is that a moral obligation for allocating income away from 'frivolous' goods toward presumably good investments provides that incentive to do well, but it doesn't provide the necessary information for implementing the appropriate change.

For example, there are investments in physical infrastructure which have high yields for the business which gets the WB/IMF contract, but these investments are part of "geo-political growth." The investors coordinate with the donating governments, the international aid organizations, and local corrupt governments which all fail to promote the necessary institutions for attaining growth in the long-run. Foreign governments will report wonders about foreign aid because they get something in exchange for dealing with the donating countries (it's an exchange of favors). It doesn't follow that building roads in a country with poor institutions will promote that good change. There's a measurement problem and the persistent problem of good intentions not leading to good outcomes.

I don't remain hopeful at all about foreign aid because not only does it suffer from a knowledge problem, but also better measurement won't overcome its incentive problem (e.g. the geo-politics which shape the means through which loans and investments are made. Supporting foreign aid is simply another means of reinforcing poor institutions abroad and within one's own country--a la crony capitalism).

Because of this, I tend to view such moral obligations as dangerous since they can (and have been) counter-productive in promoting good institutional change. Also, such moral obligations often times slide into justifying the confiscation of property by government in order to reallocate it to others (for a variety of goals--other than 'helping people'). They tend to fail in promoting that liberal order complemented by a protective government.

[BigBallinStalin]

As you said, one great example of promoting good institutions within developing countries is to bypass the entire geo-political scheme of foreign aid by directly supplying loans via microcredit organizations. But, this just supports my point about favoring exchange over donation. If the loan is paid off, you profit from doing well (as opposed to merely feeling good - $amount donated).

[AndyDufresne]

As you said, one great example of promoting good institutions within developing countries is to bypass the entire geo-political scheme of foreign aid by directly supplying loans via microcredit organizations. But, this just supports my point about favoring exchange over donation. If the loan is paid off, you profit from doing well (as opposed to merely feeling good - $amount donated).

Where do those KIVA-like micro-loans come into play? Though technically loans (you get the money back)... but since you don't see any interest on the investment, are they more akin to donations in terms of the feely goody?


--Andy

[BigBallinStalin]

As you said, one great example of promoting good institutions within developing countries is to bypass the entire geo-political scheme of foreign aid by directly supplying loans via microcredit organizations. But, this just supports my point about favoring exchange over donation. If the loan is paid off, you profit from doing well (as opposed to merely feeling good - $amount donated).

Where do those KIVA-like micro-loans come into play? Though technically loans (you get the money back)... but since you don't see any interest on the investment, are they more akin to donations in terms of the feely goody?


--Andy

Hm? Either it's a loan, or it's a donation. If it's a loan, then there's interest to be paid. If not, then it's a donation. Some loans can start as loans but can later become forgiven, but that's just giving someone money (e.g. whenever the US forgives a loan to country X; the US is just paying them to do something for the US).

[mrswdk]

Taxation is an exchange.

It is! Just as shooting someone and taking their stuff is an exchange. It's understood that by 'exchange', I mean 'voluntary exchange'. It's just shorter to write 'exchange'.

Taxation is a voluntary exchange, as was proved when I comprehensively bested you in a debate about this exact topic in another thread a while back.

[BigBallinStalin]

Taxation is an exchange.

It is! Just as shooting someone and taking their stuff is an exchange. It's understood that by 'exchange', I mean 'voluntary exchange'. It's just shorter to write 'exchange'.

Taxation is a voluntary exchange, as was proved when I comprehensively bested you in a debate about this exact topic in another thread a while back.

Sure, dude.

[AndyDufresne]

As you said, one great example of promoting good institutions within developing countries is to bypass the entire geo-political scheme of foreign aid by directly supplying loans via microcredit organizations. But, this just supports my point about favoring exchange over donation. If the loan is paid off, you profit from doing well (as opposed to merely feeling good - $amount donated).

Where do those KIVA-like micro-loans come into play? Though technically loans (you get the money back)... but since you don't see any interest on the investment, are they more akin to donations in terms of the feely goody?


--Andy

Hm? Either it's a loan, or it's a donation. If it's a loan, then there's interest to be paid. If not, then it's a donation. Some loans can start as loans but can later become forgiven, but that's just giving someone money (e.g. whenever the US forgives a loan to country X; the US is just paying them to do something for the US).

I was thinking specifically of the KIVA micro-loan phenom. 'x' number of people band together to loan 'x' amount of dollars to an individual or group (often in a developing country). Those people may only put in $25, but collectively it may amount to a few thousand dollars. These people don't receive any interest -- they simply receive repayment of their money, usually in increments every term, until it is paid off.

I don't think if this has any relevance to the discussion you were having with Mets. This is why I stick to animated Star Trek gifs.


--Andy

[BigBallinStalin]

As you said, one great example of promoting good institutions within developing countries is to bypass the entire geo-political scheme of foreign aid by directly supplying loans via microcredit organizations. But, this just supports my point about favoring exchange over donation. If the loan is paid off, you profit from doing well (as opposed to merely feeling good - $amount donated).

Where do those KIVA-like micro-loans come into play? Though technically loans (you get the money back)... but since you don't see any interest on the investment, are they more akin to donations in terms of the feely goody?


--Andy

Hm? Either it's a loan, or it's a donation. If it's a loan, then there's interest to be paid. If not, then it's a donation. Some loans can start as loans but can later become forgiven, but that's just giving someone money (e.g. whenever the US forgives a loan to country X; the US is just paying them to do something for the US).

I was thinking specifically of the KIVA micro-loan phenom. 'x' number of people band together to loan 'x' amount of dollars to an individual or group (often in a developing country). Those people may only put in $25, but collectively it may amount to a few thousand dollars. These people don't receive any interest -- they simply receive repayment of their money, usually in increments every term, until it is paid off.

I don't think if this has any relevance to the discussion you were having with Mets. This is why I stick to animated Star Trek gifs.


--Andy

Oh, okay. Technically, that's a loan. The interest rate is 0%. It's actually a loss--compared to the more profitable loans they could have made. But of course, this could be a club thing, so it's not a loss.

This isn't very relevant, but it's relevant enough.

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