The Dim-Post

July 21, 2012

Which ‘Economist Party’ policies would I vote for?

Filed under: economics,Politics — danylmc @ 8:24 am

This came up on twitter yesterday. Various economists were linking to this post from NPR, which presents:

the common-sense, no-nonsense Planet Money economic plan — backed by economists of all stripes, but probably toxic to any candidate that might endorse it.

The first two policies are US based. The rest are:

  • Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that’s good. Don’t tax companies in an effort to tax rich people.
  • Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.
  • Five: Tax carbon emissions. Yes, that means higher gasoline prices. It’s a kind of consumption tax, and can be structured to make sure it doesn’t disproportionately harm lower-income Americans. More, it’s taxing something that’s bad, which gives people an incentive to stop polluting.
  • Six: Legalize marijuana. Stop spending so much trying to put pot users and dealers in jail — it costs a lot of money to catch them, prosecute them, and then put them up in jail. Criminalizing drugs also drives drug prices up, making gang leaders rich.

And there were various comments to the effect that these were obvious, very sensible things to do, but politicians were too stupid, afraid, venal etc to do them. Eric Crampton insisted that there should be an Economist Party in every country, and I, snide jerk that I am, replied:

Economist Party motto: ‘We provide the flawless theories; you provide the horrible consequences.’

To which Eric replied:

So, you oppose specific policies on that list then, Danyl? Marijuana legalization? Carbon tax? Please advise.

So here’s my answer. Like many economists – and all who would endorse that list – I’m a liberal. I’m ideologically in favor of things like marijuana legislation, especially since the status quo on prohibition is such a disaster.

But when it comes to public policy I’m pretty conservative. This isn’t an ideology so much as just a gut feeling that you shouldn’t make radical changes to highly complex systems that will effect millions of people unless you know what you’re doing and can be confident things are going to work out.

Take marijuana reform. Matthew Yglesias had an interesting piece on this just yesterday, in which he pointed out that if growing marijuana was legal, economies of scale and industrial farming techniques would transform the market for this commodity:

One potential data point is Canada’s industrial hemp industry, where production costs are about $500 per acre. If the kind of mid-grade commercial weed that accounts for about 80 percent of the U.S. market could be grown that cheaply, it implies costs of about 20 cents per pound of smokable material: Enough pot to fill more than 800 modest-sized half-gram joints for less than a quarter!

So cafes could afford to give away joints the same way they give away packets of sugar. The implications of this are staggering. What would the social and economic consequences of nearly-free marijuana look like? What’s the impact on the healthcare system? Safe to say that economists recommending this policy have no idea whatsoever, because no country has ever implemented it – they’re not making this recommendation based on any empirical evidence, but on ideological grounds. Which is fine – people with strong political ideologies should agitate for their beliefs – but economists don’t see themselves as ideological activists, and they certainly don’t portray themselves in that light; on the contrary they present themselves as very serious scientists proposing ‘common-sense, no-nonsense plans.’

(Which is not to say I don’t think we should stick with prohibition, just that the change needs to be gradual and incremental.)

Let’s take two more of them items on the ‘Economist Party’ list. Eliminate all corporate and income taxes and replace them with a consumption tax. The theory behind this is that taxing something disincentivises people, but work is a good thing so we don’t want to tax it. If you tax consumption (like we do with GST) then this encourages saving and reinvestment, which is good for the economy.

So I get the theory. But the big downside of such a policy is that it might not raise as much revenue as you think, which means that the government would have to cut spending. And what if these policies weren’t actually that great for the economy, and didn’t lead to growth?

Impossible, right? These are ‘common-sense, no-nonsense plans’ that all economists agree will work! The reason I raise such an impossible outcome is that when National reduced corporate and  income taxes and increased consumption taxes back in 2010, it led to reduced revenue, which led to spending cuts, and didn’t actually lead to economic growth.

So the very serious, very sensible Economist Party would look at that policy failure and think, ‘Huh! Well, let’s just assume that a much more extreme version of that policy would work perfectly.’ That’s why I wouldn’t vote for any Economist Party policies.

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77 Comments »

  1. Your point about the difference between ideologically agreeing with something and being wary of the changes is helpful. I think I’ve felt the same way for some time and been confused as to what I actually do think, and this clarifies things a lot.

    I can give you examples of people getting very creative and inventive avoiding consumption taxes. On a visit to Sweden a few years back we got to mix with the locals a lot and watch what they really did. One guy was doing up his house, fitting new window frames. Did he buy frames? No, not at 25% VAT. Did he buy timber to make the frames? No. He went to his father in law’s farm and cut some trees, milled them and made his windows from that. Another bought a pleasure boat, but just the shell. He fitted out the inside completely himself. And they both made a fine job of it too. Everyone we met there seemed to be terrifically capable and always making things. Wherever we visited they brought out stuff with ‘Torsten maked it’ or “Gerd maked it’. Usually woodwork or textile stuff like weaving (yes, someone made the loom). Whether this was widespread or just the people we met I can’t say. But I did make the connection between the VAT rate and the way they lived, and I wondered at the time if it was actually an argument for increasing GST. Long winters might help too.

    Comment by Roger Parkinson (@RogerParkinson) — July 21, 2012 @ 9:39 am

  2. Tax revenue is up since the tax changes. Just not as much as forecast.

    Comment by Rob — July 21, 2012 @ 11:05 am

  3. I suppose such naivete is amusing, until you realise that these fools actually have the ear of governments.

    I’ve alluded to it before, but here’s the full version of a joke that experimental physicists like to tell about theoretical physicists (and mathematicians):

    Due to cutbacks, a university shuts down its theoretical physics department, leaving a number of its faculty looking for work. One manages to find a job on a dairy farm and discovers that he quite enjoys the job and becomes quite fascinated with the cattle, observing them at great length. Finally, one day he decides to give a seminar, as he often did at his old job, so he gathers together the rather bemused farm workers one day, sets up a whiteboard, writes down some formulae and then draws a circle. He then begins, “Consider the properties of spherical cow…”

    There’s another:

    An experimental physicist goes to their university’s resident bean-counter asking for funds to construct a particle accelerator. The bean-counter, uncomprehending as so many of his species are, asks why. “The theorists only ask for money to pay for pencils, paper and wastepaper baskets,” he says. “The philosophers don’t even ask for money for wastepaper baskets!”

    I could go on, I suppose, with Cargo Cults and their wee problem with actually getting the cargo after building the facsimile airstrip or T H Huxley’s quote about the tragedy of beautiful theories being slain by inconvenient facts. Really, do any of these people know the difference between “should work” and “actually does work”?

    Comment by Rhinocrates — July 21, 2012 @ 11:07 am

  4. When people understand the fantasyland departure point of many (most?) economists (perfect information, rational actors, all that stuff) they more readily understand why the journey quickly starts to resemble something fantastical. More “Through the Looking-Glass, and What Alice Found There” than common sense appreciations of the real world. In that sense, asking economists what theoretical abstract they think will lead to a more perfect world is about as helpful as seeking advice from Al Qaeda on the best solutions to our social problems. It seems to me economists have a child-like lack of appreciation for the dynamics of the social and cultural forces their changes might unleash. For instance, inheritance taxes and progressive income taxes exist to serve purposes other than simple economic ones. In a democracy, inheritance taxes are designed to prevent the emergence of an anti-democratic, reactionary and decadent rentier class living on un-earned and inherited income. Progressive income taxes can also act as a brake on wealth disparity – if you are earning ten million a year but paying a marginal income tax rate of 97% on income over $500,000 then that will not only insure the one percenterts stay much much less than that but the money may be re-distributed to ensure that (for example) education remains well funded, free and equal.

    Many of the voices heard in current debate in New Zealand are starting to display the consequences of not recognising the consequences of not having the above two tax settings. This emergent class interest urge for rentier incomes and protection of privilege can be seen in two apparently unrelated yet to me connected issues. No one will yet actually come out and say it, but it is pretty obvious that one of the reasons the government won’t embark on a house building program is because if it did then the price of houses would fall, with a deleterious impact on that section of our society that not only owns property but completely controls the media discourse on these issues, which links this lack of action on one policy front with the speed of the backdown over another. The desire of this newly minted rent taking class to protect and pass on it’s privilege was starkly displayed with it’s reaction to the perception that their childrens education was threatened with changes to class sizes. They want small classes and league tables and national standards not for a better education for all, but the tilt the playing field at the earliest possible opportunity towards their children and their interests. The speed of the governments background shows how sensitive BOTH major parties are to the wishes of this property owning petite bourgeoisie.

    So it seems to me the trick with economic policy isn’t to adopt a default conservative approach because you can never be sure with complex systems. That is the refuge of Napoleons enemies. Rather, the trick is to know when to be bold and to know when to be cautious and to be clear about what you expect the policy to achieve in a societal and cultural terms. This need for better democratic leadership is urgent, because to quote Napoleon again, “when small men attempt great enterprises, they always end by reducing them to the level of their mediocrity”.

    You want to boldly abolish income tax? Fine, but first have the guts to clearly tell the voters exactly what sort of society and culture you expect to emerge from that particular change and expect to be judged on that.

    Comment by Sanctuary — July 21, 2012 @ 11:14 am

  5. Aside from carbon tax, does the NPR piece talk about any other tax on externalities? (too lazy to read it).

    The obvious catch that I can see that, while lowering corp tax should increase investment in plant etc, if the product being produced is profitable for the company but awful for everyone else (i.e. landmines, cigarettes) then no effective socio-economic disincentive applies at the point of production.

    As you have pointed out, the only tariff would be on consumption but unless the company’s product was entirely consumed domestically, then there would be potentially no nett tax gain. It would actually incentivize companies to export; fine if that’s high value finished goods, shitty if it’s cancer sticks.

    Comment by Gregor W — July 21, 2012 @ 11:23 am

  6. The suggestions on this list are the creations of simple minded fools. Elimination of income and company tax? Thats roughly akin to the 1st year Pols student who argues that all private wealth should be confiscated and redistributed because, like, Trotsky and stuff man. There is no such thing as an economic silver bullet which will solve all our problems.

    Comment by alex — July 21, 2012 @ 2:21 pm

  7. The problem with consumption/sin taxes is that they rocket in good times, sink in bad. And the usual requirement of government expenditures is that they go up in bad (even if you think the state should restrict itself to police, army & justice functions).

    Comment by Owen — July 21, 2012 @ 2:30 pm

  8. I’d like to see money itself get taxed, as an alternative to income tax/consumption tax. Money in the wild would just decrease in value over time with the difference returning to the public purse (compare/contrast inflation, which this is not the same as – or else it is inflation perfected). That with a nice land tax would work pretty well. It’s all speculative/theoretical, which is what Danyl was rightly criticising – I guess I’m just throwing it in while I have taxes on my mind.

    Comment by Zip — July 21, 2012 @ 4:03 pm

  9. “backed by economists of all stripes,”

    All economists agree

    Sh*t Lazy Economists Say

    Comment by Simon — July 21, 2012 @ 5:07 pm

  10. Um, presumably there would be a tax on legalized marijuana? Which will mean that while it might well be cheap to manufacture/grow, it wouldn’t actually be very cheap to buy. Perhaps ending up at a similar price to tobacco; that is very cheap to make too, on a large scale.

    Of course, the main point that economists are anything but sensible still stands.

    Comment by RJL — July 21, 2012 @ 6:04 pm

  11. As an economist, I hate when economists do things like these. Especially when they use lazy arguments.

    ‘We like income, so why tax it?’, they ask, but then go on to suggest a consumption tax. People don’t like income by itself. People like income because it allows them to purchase and consume things! We like consumption, so why tax it?

    There are legitimate reasons why we might favour a consumption tax over an income tax, and vice versa. Would have been nice to see those reasons outlined as opposed to some silly ‘consumption is bad’ statement.

    Comment by detmackey — July 21, 2012 @ 6:38 pm

  12. Well, I guess I’d agree with you if the arguments of the non economists were more impressive or at least not as bad. But the efforts of Rhinocrates and Sanctuary don’t immediately suggest that might be the case. How many people would have incomes above $10m if they were taxed at 97per cent above $500,000? And the NZ government through HNZ does build rather a lot of houses without an obvious impact on price while richer countries like Australia and the US manage to build higher spec houses for less than we do even in high growth areas like Brisbane and Houston.

    Comment by Roger — July 21, 2012 @ 6:55 pm

  13. How many people would have incomes above $10m if they were taxed at 97per cent above $500,000?

    That sentence encapsulates the problem. What is the predicted result? Where’s the data? Is the same metric used in every case? Where are the case studies? Where’s the demonstrated, reproducible observation of causation? How is causation distinguished from correlation? Are the variables isolated? Are there controls? How are the variables shown to interact? Is there a theory that consistently accounts for the chain of cause to effect? If one wants to present a set of ideologically-framed wishes presented as if they were engineering solutions – “If we do X, then we will inevitably get Y in all cases”. Internal consistency is no indicator of external consistency. The very fact that economists dare to speak of “externalities” is evidence of their intellectual dereliction.

    Take for example this recent news report:

    http://www.newscientist.com/article/dn22082-chemical-bond-discovered-that-only-exists-in-space.html

    Now that seems to violate “normal” observation, but could potentially be accommodated within broader physical theory. The results look compelling, but so far we don’t know for sure. Now this will take some time to be verified, but the essential point is that the observations will have to be repeated, otherwise they remain mere observations, and they will have to take into account the aggressive review of astronomers, physicists and chemists at the very least (with mathematicians doing the grunt work). That is perfectly normal, and necessary. That’s how real science works.

    Science relies on what Edward Wilson refers to as consilience – that is, the interrelationship of knowledge. Economics, as it is currently practiced exists in a protected bubble, with no review from real scientific disciplines, it has demonstrably – and catastrophically – failed in the case of the continuing financial crisis and any attempt to present it as a science with real predictive efficacy is delusional. I have hopes that it will one day be a science, but as it is now, it’s physics before Newton, evolution before Darwin (let alone the “New Synthesis” that depends on the likes of Margulis or Crick, Watson, Franklin and Wilkins) and chemistry before it stopped being alchemy.

    Economics, as it is currently practiced, is a pseudoscience, and to use it as a basis for policy as if it were as certain as engineering is a pernicious folly. One would have thought that the failure of the Soviet Union would have shown that internally consistent theories are doomed to failure – they have to be externally consistent as well.

    Comment by Rhinocrates — July 21, 2012 @ 8:31 pm

  14. arguments of the non economists

    Ha! If economics has any claim to be a predictive science, then it definitely has to be subject to review by real scientists of related disciplines who are not restricted to that narrow discipline. Now I don’t claim to be able to comment on the specifics of economics per se (any more than I can comment on the specifics of phrenology or astrology), but I can recognise a pseudoscience when I see it.

    Comment by Rhinocrates — July 21, 2012 @ 9:20 pm

  15. Talking to yourself again eh Rhino.

    Comment by Tim — July 21, 2012 @ 9:55 pm

  16. As I recall, the technical term for a prediction made about the future by an economist is “wrong”. I would have thought that if we’re going to hand public policy to one group in society, it might be useful if they had a track record in not being completely and utterly wrong about minor issues such as .. oh, I don’t know … the last three stock and property bubbles in the US, perhaps?

    Comment by The Economic Illiteracy Support Group — July 21, 2012 @ 9:55 pm

  17. @13

    Irrelevant.

    @14

    Exactly.

    Comment by Rhinocrates — July 21, 2012 @ 10:00 pm

  18. GB Shaw was correct when he observed that”If all the economists in the world were laid end to end they would not reach a conclusion.”.

    Comment by peterlepaysan — July 21, 2012 @ 10:10 pm

  19. @14

    To elaborate, if a theory or paradigm is to have any worth, it must have proven predictive efficacy. Neoliberal economics is quite the opposite. Therefore it is worthless and its persistent proponents, after the evidence of its failure are fools or frauds.

    Comment by Rhinocrates — July 21, 2012 @ 10:14 pm

  20. Neo-liberalism hasn’t failed. It makes the very richest people much richer, and the very poor people only a little poorer, while most people go nowhere in real terms. That’s exactly what it was supposed to do. Highly successful method of ensuring almost all economic growth is channelled to the benefit of the very few at the top.

    Removing both income and investment tax would be a further boon to the richest amongst us. They could easily double their real wealth every 5 years while the rest of us paid for everything with consumption taxes.

    Comment by tussock — July 21, 2012 @ 11:42 pm

  21. @18 And while Tim may be dim, none can fault him for lacking ambition.

    Comment by paritutu — July 21, 2012 @ 11:55 pm

  22. Oh goody the DimPost has finished it’s conversion to a slavering bunch of disenfranchised standardista’s banging on endlessly about “neo-lib” this and “right wing” that.

    Comment by wusel — July 22, 2012 @ 11:57 am

  23. Hey Tim, wusel’s escaped again. You need to take your pills.

    Comment by Judge Holden — July 22, 2012 @ 2:02 pm

  24. Last time I checked, I still had the vote. How about everyone else?

    Comment by Rhinocrates — July 22, 2012 @ 2:23 pm

  25. Nice rebuttal, Danyl. One of the starker points about implementing nice ideological fluffy bunny theories like those of the Economist Party is the certainty of the revenue lost and the uncertainty of the projected revenue gains.

    That is, the NZ govt has expenditure of roughly $70bn a year. This is paid for in part by PAYE – about $24bn, and company tax – about $7.2bn (2010-11 figures IIRC). Axing these as the Economist Party wants is definite and sudden, leaving the NZ govt looking for GST revenue to triple to fill that gap. Raising the GST rate will help, but raise it too much and you kill spending, cutting total GST revenue… Either way, it is bleeding uncertain, which means highly risky, especially for the people relying on govt services like hospitals.

    And expanding on Gregor’s point, axing company tax sounds fine – any corporate profits either get reinvested (which is good for growth) or paid out as dividends, which we’ll tax through PAYE (ignoring that they want to scrap that as well). Except the NZ govt only has sovereign ability to tax PAYE on Kiwi residents – any dividends sent offshore can’t readily be taxed by the NZ govt, so that revenue is lost (especially given tax agreements to avoid double taxing foreign investors). And given that 3/4 of our Balance of Trade deficit is profits vanishing offshore, that indicates a big chunk of company tax revenue would be lost (not to mention the greater dividends flows offshore would worsen the BoT deficit).

    Oh well, back to the Roger Douglas playbook of fantastical fly-by-night schemata.

    Comment by bob — July 22, 2012 @ 3:44 pm

  26. That’s right wusel, cause this site was never left wing, it’s just the recent arrival of standardistas who have ruined it for the rest of us right-minded folk.

    Comment by MeToo — July 22, 2012 @ 4:46 pm

  27. Rhino = 6/23 comments, add in your nom de plumes and ‘comrades in marx’ such as Judge Holden, MeToo, Sanctuary et al and you have an echo chamber of the righteous preaching to each other – good times!

    Comment by wusel — July 22, 2012 @ 6:01 pm

  28. The problem for economists, well everyone I think, is firstly – real people don’t want efficiency they want security. Secondly, people have perfected the art of dressing up what makes themselves better off with sophisticatedarguments that sound like they’re arguing for the common good.

    I think we should give praise that we have any sort of minimal functioning society at all.

    Comment by NeilM — July 22, 2012 @ 6:15 pm

  29. Tim – while it’s clear that both you and Rhino are ideosyncratic (though in a diametric fashion), it’s also clear that while there is only one of him, there have been at least three representations of you under various handles.

    These are genuine questions: Why do you bother with something so transparent given the stylistic similarity of your comments? Isn’t this a waste of your 155 IQ?

    Comment by Gregor W — July 22, 2012 @ 6:43 pm

  30. Tim/wusel/lil stevie’s IQ is reportedly greater than 155 Gregor. Sadly it’s shared by at least 5 different identities, putting him in the “someone with an IQ over 30″ category.

    http://www.urbandictionary.com/define.php?term=Someone%20with%20an%20IQ%20over%2030

    Comment by Judge Holden — July 22, 2012 @ 6:57 pm

  31. Do I have to say anything else when you boys just ‘have’ to get your online cocks out to prove you lefty inches?

    Comment by wusel — July 22, 2012 @ 7:45 pm

  32. Incredible lack of creativity among the trolls on this thread. Sometimes people of all political persuasions can make interesting and valid points. Other times reading the comments is like wading through shit.

    Comment by alex — July 22, 2012 @ 9:12 pm

  33. @25 real people don’t want efficiency they want security

    Interesting point there NeilM. I’ve seen efficiency seen as the opposite on a spectrum from resilience – “efficiency” being somewhat brittle when it comes to shocks, while redundant systems with lots of informal and alternative connections tend to weather shocks more. There’s probably an enlightening discussion to be had.

    Comment by Rhinocrates — July 22, 2012 @ 9:22 pm

  34. “But when it comes to public policy I’m pretty conservative. This isn’t an ideology so much as just a gut feeling that you shouldn’t make radical changes to highly complex systems that will effect millions of people unless you know what you’re doing and can be confident things are going to work out.”

    I’m pretty sure most politicians feel they know what they’re doing and are confident they’ve got things worked out.

    Comment by Hugh — July 22, 2012 @ 9:40 pm

  35. I must say, I’m rather surprised at my ability to rile Little_Stevie/Will/Leon/Wusel/Tim/Ramesses Niblick Kerplunk Kerplunk Oops Where’s My Thribble or whatever he’s calling himself lately. It’s like discovering that after being bitten by a radioactive wombat I’ve acquired a superpower, but a thoroughly pointless one, like the ability to turn marmalade into porridge.

    Comment by Rhinocrates — July 22, 2012 @ 9:59 pm

  36. Yeah, but isn’t there some rule about feeding trolls, and how you shouldn’t?

    Comment by helenalex — July 23, 2012 @ 9:27 am

  37. Yeah, but isn’t there some rule about feeding trolls, and how you shouldn’t?

    You’re right.
    I will apply the same approach as I do to my daughter, and not feed Tim sweets / ice cream after 6 p.m. given that the results appear to be broadly similar.

    Comment by Gregor W — July 23, 2012 @ 9:50 am

  38. I don’t think the rational actor thing is the biggest flaw in economists. Engineers, who are a generally successful profession, also use ideals to begin formulating plans and estimates and we can see from experience it isn’t a completely useless concept.

    The real problem, and the thing that differentiates Engineers and their ilk from Economists, is that Economists had no, and did no significant work on a, theory of corruption. Unlike Engineers who think to test materials for weaknesses and when moving from theory to practice put quality assurance systems in place Economists never thought to allow for corruption in their theories nor promoted when moving from theory to practice methods of assuring it’s avoidance.

    The inaccuracy of Economics seems to inspire unquestioning belief that undermines prudent precaution.

    Comment by Fentex — July 23, 2012 @ 10:04 am

  39. “…The problem for economists, well everyone I think, is firstly – real people don’t want efficiency they want security. Secondly, people have perfected the art of dressing up what makes themselves better off with sophisticated arguments that sound like they’re arguing for the common good.

    I think we should give praise that we have any sort of minimal functioning society at all…”

    This problem is made worse by the way modern management theory is now so thoroughly aligned with economic theory that crack-pottery has been elevated to a degree program at our university business schools. To illustrate with an example, if a team work hard, do a top job, and become an “industry best practice” outfit then they hope they’ll be richly rewarded by a grateful management – or at least safely assume they will have some sort of job security, barring a major technology change or disaster, right? Well, you’d be wrong if you have the sort of “modern” management consultant I personally saw in action. His view of the team in question was that it’s peak efficiency meant it provided an excellent opportunity for outsourcing off-shore to save a hundred grand in salaries, since its documentation was fully up to date, it had a proper and well maintained knowledge base and could accurately describe its tasks and duties and therefore we could fully cost capture the services we required from a contractor. Risk free savings, and all that. I was appalled at the evil logic of it all. How can you make a suggestion like that – affecting a dozen hard working, excellent people – and sleep at night? Talk about a willing executioner, but as a consultant he pocketed a huge six figure sum for six months work and added lustre to his reputation as an awesome “change agent”. To me, it was just another example of how one side of the employment bargain – the employers & their hired gun consultants – have torn up the social contract and stomped into the mud in their quest for “efficiencies” – the compulsion for which is now at fetish levels.

    Comment by Sanctuary — July 23, 2012 @ 10:54 am

  40. This is a rather simple basic way of illustrating the liberal agenda in regards to taxation. It doesn’t take into account the harmful effects of the actions. For example, cafes giving away joints like they do with packets of sugar is economically viable but bad for crime, health, every other aspect of living.

    I believe in taxing companies on their profits and on taxing individuals on their income because the tax goes towards health and education, parks, the environment, the government creating jobs when they are needed (if you have a sensible government), etc. Without tax, it is up to the individual to pay for the full cost of their children’s education, to pay for the full cost of their family’s healthcare, which isn’t affordable for those on low incomes even perhaps if they don’t have to pay income tax.

    In terms of New Zealand’s tax structure, I think the top rate of company tax needs to be increased from 28% to 30% to make it more sustainable. I think GST needs to be reduced from 15% to 12.5% also. We also need to look at measures to bring in more taxation to cover superannuation payments, such as a comprehensive Estate Taxation and a Lotteries and Gambling Taxation.

    Comment by Daniel Lang — July 23, 2012 @ 12:01 pm

  41. This problem is made worse by the way modern management theory is now so thoroughly aligned with economic theory that crack-pottery has been elevated to a degree program at our university business schools.

    Half right, Sanc.

    While I can only speak from an MBA perspective, though it’s essentially axiomatic that B-School will be tightly aligned to ‘flavour of the month’ economic theory purely by virtue of being a B-School, said theory only makes up a small element of the post-grad curriculum.
    A significant proportion of the coursework is around operational management theory and practice, problem theory, organisational behaviour theory et.al.- far more interesting topics IMHO.

    The crack-pottery might well occur at undergrad level though which obviously poses is own dangers in terms of engendering orthodoxy in minds that haven’t been taught the skills to perform effective critical analysis; saying that, this conundrum probably applies to most under-grad courses.

    Comment by Gregor W — July 23, 2012 @ 12:07 pm

  42. Economics is a bitch. If the deep-space, white-dwarf electrons in theoretical physics could hear what you were saying about the inappropriateness of their anti-bonding orbitals, I suspect they’d modify their behaviour (perhaps to maximise their own individual social welfare) and make experiments difficult.

    Ps love how included in shit economists say is “spend” and “print”:

    Comment by Clunking Fist — July 23, 2012 @ 1:32 pm

  43. “All economists agree”! LOL: all the economics is settled, eh?

    Comment by Clunking Fist — July 23, 2012 @ 1:34 pm

  44. I think we’re being a little unfair on economists to compare them with scientists. Science models the properties and actions of physical actions, so repeatable observations and experiments is part of the proof, along with logical theory.

    Economics deals with human behaviour – ouch! Economic theory should still meet standards of logical theory and demonstrable data gathering and analysis – it is the latter where the Randians seem to fall down.

    Comment by bob — July 23, 2012 @ 2:13 pm

  45. Eeeep! Should read as ‘actions of physical objects’. Sorry.

    Comment by bob — July 23, 2012 @ 2:15 pm

  46. Do note that it’s possible to combine legalization with an excise regime like that in place for tobacco. The fields of marijuana you get at low cost wouldn’t be that much different from fields of low cost tobacco, before excise is applied. It wouldn’t bother me if excise weren’t applied, but a high excise combined with legalization seems very likely to beat prohibition.

    Comment by Eric Crampton (@EricCrampton) — July 23, 2012 @ 3:13 pm

  47. The very fact that economists dare to speak of “externalities” is evidence of their intellectual dereliction.

    I call bullshit, Rhino.

    If there’s any one aspect of economics which puts it above other academic pursuits it’s the recognition, discussion, and development of theories around externalities.
    Quite frankly, if more politicians, pundits, bloggers, and shills sat back and thought “what are the unintended consequences of this policy I’m pursuing?” before pursuing it, the world would be a better place.

    Comment by Phil — July 23, 2012 @ 6:00 pm

  48. @#46: I’d be just as happy to pay an excise that kept it at market rates just for the benefits of:

    a) destigmatisation of marijuana smoking
    b) not being branded a criminal
    c) the profit going to the government instead of those other gangs
    d) police finding something more useful to do with their time

    Comment by nommopilot — July 23, 2012 @ 7:06 pm

  49. *I meant current market rates

    Comment by nommopilot — July 23, 2012 @ 7:07 pm

  50. also @#46

    there’s also regulation: we don’t sell alcohol or tobacco to just anyone, so why would it be the case with weed?

    Comment by nommopilot — July 23, 2012 @ 7:09 pm

  51. “Economists never thought to allow for corruption in their theorie”

    Zuh? Friedman’s “interest capture” is basically just another word for corruption.

    Comment by Hugh — July 24, 2012 @ 7:15 am

  52. Indeed. You could also argue the genesis of behavioural economics is: “Why do people so often do things they earlier said they woudn’t?”

    Comment by Phil — July 24, 2012 @ 11:29 am

  53. @ the Comment by Gregor W — July 23, 2012 @ 12:07 pm

    Interesting comments, but not what I was really banging on about. What I want to understand is how the process of a business school taking a well meaning, idealistic, normally functioning moral young person and turns them into person capable of behaving with the emotional detachment of a concentration camp guard works. Something is rotten in how we teach business, in how we teach (or don’t teach) ethics and morality in business. We are all first and foremost moral human beings. This observation has been true since the time of the ancient Greek philosophers. We are all responsible as moral beings for our actions. This much was shown as true most recently in the Nuremburg trials. Yet we have manage to create a business culture which rewards best those who can dehumanize their language and actions best. To me, this moral vacuum is what lies at the heart of malaise of the wests business, financial and media elites. They’ve lost their moral compass. They no longer know what is right and what is wrong. And we are teaching it in our business schools.

    Comment by Sanctuary — July 24, 2012 @ 12:36 pm

  54. If you look at the rules regarding taxation, depreciation, etc, they differ depending on the country and this is one reason why business schools lack morals and ethics in their teaching. What’s the point of telling students that there are hard and fast rules regarding tax obligations, when it can be so easy for graduates to figure out how to use tax havens and other discrepancies in the tax systems of different countries to their immense advantage?

    Comment by Dan Lang — July 24, 2012 @ 1:08 pm

  55. I think most business schools have either a compulsory ethics paper or ethics mainstreamed into each major. But you can’t teach ethics to people who are inherently unethical – a one semester course won’t undo the way someone was raised or their personality traits. Ethical people are ethical business people.

    Maybe business studies just attracts students who are more interested in making money than being ethical human beings. Or who see profit maximisation as the only proper function of business.

    Comment by MeToo — July 24, 2012 @ 1:32 pm

  56. My point Sanc is your assumption that business schools take “well meaning, idealistic, normally functioning moral young [people]” and turn them into something sub-human. On what do you base that?

    Comment by MeToo — July 24, 2012 @ 1:46 pm

  57. Sanc.

    Firstly, props on running out a massive quasi-Godwin. I salute you, Sir!

    To your proposition; that the absence of ethics in the B-School curriculum takes otherwise well meaning souls and creates ruthless corporate automatons, bereft of fellow feeling and emotional intelligence.

    Maybe I am the exception but my B-School experience did not resemble that.

    While I can confirm that there are no specific ‘ethics’ papers in the Vic MBA course, ethical precepts, praxis and analysis is embedded in a number of the papers, i.e. Org Behavior, Marketing, Commercial Law and Problem Theory – particularly the latter which examined cognitive process (from Platonic/Epicurean approaches through to neuro-scientific analysis and rational versus emotional decision making etc.)

    Comment by Gregor W — July 24, 2012 @ 4:58 pm

  58. Ha ha. The truth is slowly becoming more clear. The left aren’t liberal at all. They stole the word in order to corrupt it.

    Danyl, you must remember not to give away the secrets of newspeak like this. You should be more careful in future.

    Comment by Swan — July 24, 2012 @ 10:21 pm

  59. @44 Bob

    I think we’re being a little unfair on economists to compare them with scientists.

    Ahem, it is they who make the comparison and they who have to bear the inevitable and deserved ridicule.

    @47 Phil

    puts it above other academic pursuits it’s the recognition, discussion, and development of theories around externalities.

    “Above”? Oh dear. No, I’m afraid not. If anything, what’s symptomatic of a paradigm in crisis is the accumulation of supplementary theories instead of integration with real science across a wider field, “Consilience” as Edward Wilson calls it (you can look him up). Chemistry defers to physics, physics makes use of mathematics and so forth. Economists just keep adding prefixes. The best analogue is the case of Ptolemaic astronomy – the Earth-centred model was proven to be untenable by direct observation, so to reconcile the discrepancies between observation and theory, Ptolemaic astronomers simply added more complications such as “epicycles” to explain how the observed motions of the planets diverged from the theory based on the premise of an earth-centred planetary system. It didn’t help. Adding “plugins” and fixes doesn’t work. You have to demonstrate that your discipline is consistent with others at a fundamental level.

    “what are the unintended consequences of this policy I’m pursuing?” before pursuing it, the world would be a better place.

    I believe that that is precisely the point that Danyl is trying to make about the naive manifesto of the ‘Economists’ Party’

    @51 Hugh…

    “interest capture” is basically just another word for corruption.

    Cribbed from Wikipedia, I admit…

    George Orwell provides six rules for writers:
    Never use a metaphor, simile, or other figure of speech which you are used to seeing in print.
    Never use a long word where a short one will do.
    If it is possible to cut a word out, always cut it out.
    Never use the passive where you can use the active.
    Never use a foreign phrase, a scientific word, or a jargon word if you can think of an everyday English equivalent.
    Break any of these rules sooner than say anything outright barbarous.

    Comment by Rhinocrates — July 25, 2012 @ 12:17 am

  60. Addendum:

    “interest capture” is basically just another word for corruption.

    I don’t think that that description of what Friedman thinks of as a risk or tendency actually describes the sheer scale of the black economy (or even that it is intended to), which we see a hint of in the recent study on the scale of funds – about U$21 trillion hidden in tax havens:

    http://www.bbc.co.uk/news/business-18947576

    This is finance’s “dark matter”.

    …Or the labour of the world that is unquantified because it is not paid. Marilyn Waring’s book Counting For Nothing is a good starter there.

    Comment by Rhinocrates — July 25, 2012 @ 12:27 am

  61. Rhinocrates @ 60

    …Or the labour of the world that is unquantified because it is not paid. Marilyn Waring’s book Counting For Nothing is a good starter there.

    Oh please, everyone knows that women are just another externality to take into account when measuring GDP (the one true measure of economic activity).

    Comment by Vanilla Eis — July 25, 2012 @ 7:51 am

  62. On B-school and ethics thing, Luigi Zingales, (B-school professor from the University of Chicago) just recently wrote this mea culpa http://bloom.bg/O56h5Y

    He blames the B-schools, and physics envy.

    Comment by Pascal's bookie — July 25, 2012 @ 10:24 am

  63. Nice link PB. Zingales writes about economics as a discipline, but that is not the sum total of business schools. There’s lots of good stuff in other areas of business schools, as GregorW recounts about his MBA experience.

    And it’s not either/or when it comes to ethics – a stand-alone ethics course taught by some lowly person is not the answer, but neither IMHO is mainstreaming ethics. You need both. A specialist in moral philosophy so students get a good grounding, and then the disciplines reinforce that in all their teaching. I know of a finance department that think ethics = teaching the professional code of conduct. It’s not, it’s much much more than that, and that is why you need specialists in ethics in business schools. Overhauling the teaching of economics so it is more of a social science and less maths would help, too. But I can’t see that happening anytime soon.

    Comment by MeToo — July 25, 2012 @ 11:21 am

  64. … of if they used joules instead of dollars in their calculations. :)

    Comment by Rhinocrates — July 25, 2012 @ 11:38 am

  65. specialist in moral philosophy so students get a good grounding, and then the disciplines reinforce that in all their teaching.

    Moral Philosophy should be mandatory for all undergrads if we had a decent university system (Greek and Rhetoric as well if I had my way, b’gad).

    Furthermore, move Accountancy, Statistics and Laws to a trades college where they rightly belong alongside Carpentry, Ironmongery and Barber-Surgery!

    Comment by Gregor W — July 25, 2012 @ 12:00 pm

  66. Drusus, Marcellus and Julian unite against the evil Economist Overlords :)

    Comment by merv — July 25, 2012 @ 12:12 pm

  67. “Yet we have manage[d] to create a business political culture which rewards best those who can dehumanize their language and actions best. To me, this moral vacuum is what lies at the heart of malaise of the wests business, financial and media [and political] elites. They’ve lost their moral compass. They no longer know what is right and what is wrong. And we are teaching it in our business schools [universities].”

    There (any html failure aside) I fixed it for ya, Sanc.

    Comment by Clunking Fist — July 25, 2012 @ 12:28 pm

  68. @67 Thinking of Transpacific Partnership, Agenda21, Kyoto, European Union, all the non-democratic institutions and agreements, often negotiated in secret, which are imposed by the elite.

    Comment by Clunking Fist — July 25, 2012 @ 12:31 pm

  69. Brian Cruver, the guy who wrote the book about the collapse of Enron, stated in his book that the subject of ethics in his business school was laughable. It became clear from the tone he used that it was only there as a subject as window dressing, kind of like putting lipstick on a pig. If you put lipstick on a pig, then it’s still a pig.

    Then, with Enron itself, there were related party transactions that went back for about five years before the whole thing turned to custard. Likewise, with Bernie Madoff, the corruption went back many years. This is why the financial system needs to be more regulated.

    Comment by Daniel Lang — July 25, 2012 @ 12:50 pm

  70. “Then, with Enron itself, there were related party transactions that went back for about five years before the whole thing turned to custard. Likewise, with Bernie Madoff, the corruption went back many years. This is why the financial system needs to be more regulated.”

    Just like the Roman Empire. I suspect by the time the authorities wise up, the horse will already have bolted. The guilty parties might just do a Christopher Skase, while the homelands sink in civil unrest.

    And are agencies like the NZ Treasury and US Federal Reserve natural magnets for society’s Gordon Gekkos and Allan B’Stards?

    Comment by DeepRed — July 25, 2012 @ 4:35 pm

  71. Oh, oh , oh!

    BINGO!

    We are playing leftie buzz word bingo aren’t we???!

    Neo-liberalism
    anti-democratic
    reactionary
    decadent
    rentier class
    right wing
    one percenterts (sp)
    Randian
    financial and media elites
    moral compass

    Comment by Tim — July 25, 2012 @ 6:01 pm

  72. “They’ve lost their moral compass.”
    I thought everyone had a moral GPS unit these days.

    Comment by herr doktor bimler — July 26, 2012 @ 11:34 am

  73. “And are agencies like the NZ Treasury and US Federal Reserve natural magnets for society’s Gordon Gekkos and Allan B’Stards?”
    Well, you’d be for Ron paul’s policy of Ending the Fed, then!

    I think where there is any concentration of power, you get undesirables and pig troughers. (Not just Baroness Ashton, Tony Blair, Winston Peters, John Key, Chris Carter.)

    In business, you get individuals who can speak the language of business. In institutions, you get individuals who can speak the language of bureaucracy. Just think about those Bishops you meet who don’t seem very Christian, or those Green politicians who bang on about co2 but still fly at taxpayers’ expense ( whilst imploring us not to fly), or those free-marketeers who are quite happy to have the taxpayer fund a RWC.

    Comment by Clunking Fist — July 26, 2012 @ 2:03 pm

  74. @ CF #73: Chris Hayes seems to have nailed it nicely:

    Chris Hayes on the Twilight of the Elites and the End of Meritocracy

    Comment by DeepRed — July 26, 2012 @ 3:36 pm

  75. I love this blog, and it’s sister publication whale oil. Always has me in stitches. Never ceases to amazes me how many people take it seriously. Satire. Brilliant

    Comment by Laughter is the best medicine — July 27, 2012 @ 7:42 pm

  76. Yeah, politics: you gotta laugh. Cos it’s not serious or nthing, is it?

    Comment by clunking fist — July 29, 2012 @ 7:58 pm

  77. Stupid wife, using the family computer. How dare she: kicking me off my wordpress. Nice article DR, not sure the solution (sing kumbya and do trust falls) is the answer, though.

    Comment by clunking fist — July 29, 2012 @ 8:01 pm


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