A New Economics

How Economists Could Get It Right!

Government debt and deficit measures include a large quantity of government I-O-Me's. These items and the rather significant ability of government to issue currency make these measures useless to judge an economy. Economists try anyway. Using recognizably meaningless measures to make such judgments is nothing short of looking for answers in all the wrong places.

It is not only the error of economic procedures that recognition of the meaninglessness of government debt/deficit demonstrates. It also shows that one must look elsewhere for useful measures.

There are many false beliefs held as gospel by economists. Of course, because not all hold the same false beliefs, it is difficult to argue with these fervent believers. However, when one sets aside these errors, getting the right answers to macroeconomics issues becomes a very simple set of rules:

  1. The value of money is everywhere and at all times the only relevant outcome of monetary policy and control of money value should be the sole function of government monetary activity. The first condition is accepted by some economists, the second seems to be disbelieved by all.

  2. Capital formation can be optimized by taxing away some economic [or monopoly] profit [Note 1] such that capital grows at its maximum rate. This is done by assuring that taxes [Note 2] all become fixed costs of production and that the amounts are empirically determined by the resulting growth rates of capital.

  3. Economic growth can be optimized by subsidizing variable costs of production [Note 3] at a rate that is empirically determined to result in the maximum growth rate of the economy.

NOTE 1:"Economic" and "monopoly" profit are the same thing under different names, another of the confusions created by the expert terminology of economists.

NOTE 2: These "taxes" could be called "fees for the privilege of limited liability" because that is what they are.

NOTE 3: The only relevant variable cost of production is labor.

In time these three simple rules will be demonstrated. For a start see - Can It Be? - for a simple approach to stop banks from exposing taxpayers to unjustified risks; and, - Supply and Demand, Again - which demonstrates the foolishness of many economists who believe the aggregate demand of an economy can be controlled by deceiving the public with money manipulation and shows that stable money is the only rational goal of monetary policy.

For a more extensive understanding of the many economists' delusions see:

Three Steps to Economic Freedom


How to Tax and Spend to Prosperity

Of particular interest may be the "Monopoly Tax" described in this article. The rationale behind the impost [a charge for society's grant of limited liability] and a demonstration of the economic effect of its causing economic growth when properly constructed is presented. As a brief introduction of the tax/fee, it is based on the capital value of limited liability license holders [corporations] with the amounts of the fee adjusted to maximize the growth rates of the corporations. A second tax, for use by state and local governments, would apply the same method of rate determination to taxes on real estate with a homestead exemption to free people from being taxed from their homes and progressive rates based on the owners assessment of the property's value.

I have calculated an approximation of the tax receipts using the total presented as Clinton's 1999 budget as if it were funded by the Monopoly Tax. Some obvious compromises must be used since there has not been the accumulation of empirical evidence that would be developed as described in the article. However, the scale of things can be derived from existing data.

First comes an estimate of the asset value that would be subject to the tax. Using the Wilshire 5000 equity value of approximately $10.0 trillion and a guess that debt supported by those equities is $5.0 trillion gives a total subject to the tax of $15.0 trillion. Although it would be nice to apply the progressive rates as described in my proposed system, that will have to wait for the empirical data from actual application. Lacking that data, consider a uniform [or average] tax rate of 1% per month.

While 1% per month may appear large to some, consider that:

  1. It is not unusual for the market value of these equities to change by more than 1% _DAILY_.
  2. It is also not much different than the charge states and/or localities charge people for the "privilege" of owning a home.
  3. And, if that is not enough to dissuade those who find the amount excessive, consider that much of the amount to be collected by this tax [Or limited liability license fee.] would have been paid as income and payroll taxes "in the name of their employees" but because those taxes are eliminated it is merely a change in accounting of these taxes that had been called "wages" but were never seen by the so-called wage earner.
  4. Of course, a little less spending by bringing home all the troops protecting the WWII winners and losers or elimination of any other of the myriad wasteful government undertakings might help to reduce the tax burden a bit.

For the uninitiated, much of personal income taxes and other payroll taxes are collected by the corporations that would instead pay the monopoly tax while nominal wages [Not after tax wages which likely will actually increase.] are reduced by an equal amount. In further note of this consequence, it may be necessary to remind some that wage rates are not set in a vacuum and the elimination of those liabilities called taxes on wages would substantially affect negotiated nominal wage rates.

Initially, other taxes paid by these corporations would also be eliminated changing only the form [From "variable" to "fixed" costs.] and not actual amount of taxes paid by or through these corporations. Subsequent amounts would be determined [as demonstrated in "Three Steps, etc."] by maximizing the growth rates of corporate value and the overall economy.

The yearly amount that would be collected by such a tax would then be $0.15 trillions per month times 12 months, or $1.8 trillions per annum. This is about $70 billion more than the current $1.73 trillion budget submitted by Clinton for 1998. Not a bad approximation for such a crude estimate. (However, one must recognize that the transition would take time as attempting an immediate changeover would undoubtedly be VERY disruptive.) A minor consequence would be the replacement of a very complex system of government revenue raising that imposes a myriad of forms, rules and other burdens on many millions of people and wastes untold hours of effort to comply with these burdens that could better be applied to useful production with a system that is simple for both the companies affected and the bureaucrats tasked with enforcement. [There are about 7,000 companies in the current Wilshire 5000 index. This could expand to perhaps 10 times as many as some of the larger companies choose to decompose themselves into several smaller units to reduce their tax liability. This added competition would probably be recognized as a good thing but some may consider it less than desirable.]

In short, the proposal is to:

Tax Privilege, Not People

Although I don't expect many to actually set aside their beliefs and honestly consider these proposals, I'd appreciate very much hearing the opinions of those few who do. In any case, thank you for trying.

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Confessions of a Socialist-Libertarian

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� 1996, 1997, 1998 John B. O'Donnell

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