An alternative to progressive redistribution of wealth

For the serious discussion of weighty matters and worldly issues. No off-topic posts allowed.

Moderators: Azrael, Moderators General, Prelates

phonon266737
Posts: 517
Joined: Tue Mar 25, 2008 1:41 am UTC
Contact:

Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Wed May 26, 2010 10:47 pm UTC

Indon wrote:I think that votes for money is plutocracy, and not democracy at all. Our government already has excessive plutocratic features in practice. I don't want to aggrivate the problem. (Yes, my point assumes that plutocracy is a problem - feel free to contest me on that if you like)

It's not a plutocracy though. What I truly want to achieve, is that the tax level for each tax bracket is set by the bracket below . Thus, you are influencing taxes for a bracket which you very well may achieve in your lifetime! But at the same time, if an overwhelming majority want a tax break for the bracket above them, but the bracket below wants increases, then we may very well see the tax burden spread out, as opposed to 20% of earners paying 80% of the income tax. When the majority are setting taxes, it is natural that it will be mostly born by the upper class and corporations, causing jobs to move overseas.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Thu May 27, 2010 12:03 pm UTC

phonon266737 wrote:It's not a plutocracy though. What I truly want to achieve, is that the tax level for each tax bracket is set by the bracket below . Thus, you are influencing taxes for a bracket which you very well may achieve in your lifetime! But at the same time, if an overwhelming majority want a tax break for the bracket above them, but the bracket below wants increases, then we may very well see the tax burden spread out, as opposed to 20% of earners paying 80% of the income tax.

You're providing proportionally greater say in how the taxation system works based on how much money you make - because the more you make, the higher the tax bracket you have a say about.

phonon266737 wrote:When the majority are setting taxes, it is natural that it will be mostly born by the upper class and corporations, causing jobs to move overseas.

That's not the natural part.

The natural part is that people empowered to avoid taxes, and inclined to do so, will attempt to avoid taxes. This is true for any quantity of taxes that can be avoided.

The solution is not to lower taxes. The solution is to make them harder to avoid.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

phonon266737
Posts: 517
Joined: Tue Mar 25, 2008 1:41 am UTC
Contact:

Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Thu May 27, 2010 12:29 pm UTC

So, make it harder to move to a region where taxes are lower? Have the government take your belongings if you want to leave the country, eh?

Not to mention that, if taxes are too high, and leaving isn't an option, you can always just sell off your assets and close up shop. That usually works out well for the executives.

And it is quite natural for the poor to think that "Rich" = "Infinite Money" Many people can't even understand a household budget of 20k per year, let alone trying to fund mass entitlement programs.

Example - to balance the current budget would require a tax increase of ~ 235k on all taxpayers making over 250k. The money just is not there to fund the monstrosity!

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Thu May 27, 2010 12:33 pm UTC

phonon266737 wrote:So, make it harder to move to a region where taxes are lower? Have the government take your belongings if you want to leave the country, eh?

That's not the primary ways wealthy Americans avoid taxation.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

phonon266737
Posts: 517
Joined: Tue Mar 25, 2008 1:41 am UTC
Contact:

Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Thu May 27, 2010 4:40 pm UTC

Stronger enforcement == A tax hike. There's really no difference. For example, to balance the US budget at projected spending levels, you're talking about generating more than 200k in new tax revenue from every single person who earns more than 250k. You don't think that would make wealthy people leave the country?

I suppose that deficit spending, though, is a slightly different topic. Because then you're not redistributing the income of the wealthy - you are redistibuting the future income of the wealthy, and letting today's wealthy hang on to what they have.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Thu May 27, 2010 4:47 pm UTC

phonon266737 wrote:Stronger enforcement == A tax hike. There's really no difference.

Except that stronger enforcement makes people pay the taxes they're supposed to be paying in the first place.

The difference between "obeying the law" and "dodging or breaking the law" is fairly substantial, though for purely mathematical purposes obeying a low tax law and dodging a high tax law so that you pay low taxes is very similar.

phonon266737 wrote:For example, to balance the US budget at projected spending levels, you're talking about generating more than 200k in new tax revenue from every single person who earns more than 250k. You don't think that would make wealthy people leave the country?

Current spending levels are still rather at a spike, and are expected to decrease, allowing a lower rate of taxation to pay off debt.

Furthermore, the keynesian approach is supposed to be to raise taxes when the economy is doing well, not when it's doing poorly like it is now - when more people are making more money that can be taxed. Why would someone leave the country during such a windfall?
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

phonon266737
Posts: 517
Joined: Tue Mar 25, 2008 1:41 am UTC
Contact:

Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Thu May 27, 2010 7:10 pm UTC

Indon wrote:Current spending levels are still rather at a spike, and are expected to decrease, allowing a lower rate of taxation to pay off debt


Yes, sure, they are going to "decrease".
Budget FY:
2009
usgs_09.png
Stimulus "Spike" in 2009

2010
usgs_10.png
Stimulus "Spike" in 2010
usgs_10.png (10.23 KiB) Viewed 3570 times

2011
usgs_11.png
Stimulus "Spike" in 2011
usgs_11.png (10.07 KiB) Viewed 3570 times


The spike has become a permanent hike. It doesn't even appear spike-like anymore! And people used to complain the last administration spent too much.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Fri May 28, 2010 2:02 pm UTC

phonon266737 wrote:The spike has become a permanent hike. It doesn't even appear spike-like anymore! And people used to complain the last administration spent too much.


No, it hasn't, we've just gone into a depression we haven't recovered from yet, so our GDP is struggling - due to the fact that the underlying causes (blatantly poor regulation caused by corporate control of regulatory bodies, a "competitive" economy that generates profit but doesn't give Americans jobs they need to actually buy goods we make, etc) aren't fixed, and because the problems those causes generated, such as our private debt, are really huge problems.

Edit: To be clear, the GDP and such are supposed to recover before we drop spending and raise taxes.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Sat May 29, 2010 3:14 pm UTC

Indon wrote:That's not the primary ways wealthy Americans avoid taxation.
Indeed- they do it legally. And so if you want to reduce "tax avoidance" you need to do so in a very unpopular way. Like, for example, the Alternative Minimum Tax which was enacted to catch a handful of high-income people who managed to pay no taxes on their high income, and now hits an immensely larger swath of the American population that it wasn't intended for.

And, should we be complaining that wealthy Americans avoid taxation by playing the system, and that poor Americans avoid taxation because the system plays itself for them?

Indon wrote:No, it hasn't, we've just gone into a depression we haven't recovered from yet, so our GDP is struggling
Here's a fun exercise. Redraw those graphs as if our GDP was increasing by 3% each year, instead of the 2% it did last year, or the small decline earlier.

Hint: There's still a hike for as long as the graph goes.

Indon wrote:a "competitive" economy that generates profit but doesn't give Americans jobs they need to actually buy goods we make
About 70% of the American economy is consumer spending and consumption; about 5% is corporate profits. It makes for great rhetoric, but I'm not seeing it in the numbers.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

phonon266737
Posts: 517
Joined: Tue Mar 25, 2008 1:41 am UTC
Contact:

Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Sat May 29, 2010 11:57 pm UTC

I would just like to point out that in a market "with perfect competition, profits go to zero". Econ 101
What would you like as a replacement for competiton? Right now we have car companies (say, Ford) trying to compete with GM. Tough situation because Ford has to eat it's own losses, but US citizens have to eat GM's losses. And they already had to buy the thing in the first place.

Plus, another econ 101 thing - we just passed a law that makes it more expensive to hire because of health care. It also makes it more expensive to provide retirees. If these things cost more money, companies will do less of them. Corporations aren't endless pools of money, they have incomes and, for the most part, try to keep costs under control. If the price of gasoline goes up, people stop going on long trips. If the cost of labor goes up, people stop hiring.

Thirdly, profit is headroom.
Fact: The economy fluxuates up and down.
Fact: Revenues fluxuate with the economy
Fact: A portion of corporate expenses are fixed and do not fluxuate with the economy
Fact: Profit = Revenue - Expenses

If profit is zero, then in a downturn, profit becomes negative, companies have to reduce fixed expenses (layoffs, plant closings).

By attacking corporate profits, you're magnifying the cycle of recessions and booms.
Imagine if individuals were only allowed to invest 5% of their income and had to spend the rest, or it got taxed away as windfall profits. Thus someone earning 45k per year gets ~ $865 paycheck weekly. They could only put $40 in the bank!
In reality, this is simply being wasteful, and when the time comes for an unexpected expense, they go declare bankruptcy.

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Sun May 30, 2010 3:44 pm UTC

phonon266737 wrote:I would just like to point out that in a market "with perfect competition, profits go to zero". Econ 101
Quick point: that's economic profits, which means everyone has their money in the best possible investment. There's still a return on capital, which is what most people consider "profit." When you add friction, profits equal the level of friction- and so the highest economic profit companies are those that have the most friction preventing other people from effectively competing with them. This generally takes the form of patents, brands, licensing, or other restrictions. (Patents and brands are very different from the licensing or other restrictions, but they function similarly when it comes to determining profit.)
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Tue Jun 01, 2010 2:08 pm UTC

Vaniver wrote:Indeed- they do it legally. And so if you want to reduce "tax avoidance" you need to do so in a very unpopular way. Like, for example, the Alternative Minimum Tax which was enacted to catch a handful of high-income people who managed to pay no taxes on their high income, and now hits an immensely larger swath of the American population that it wasn't intended for.

Here I think you touch upon the actual problem with taxation and balancing deficit spending - increasing it is hard in a democracy, and even more so when your democracy is heavily influenced by wealthy agents, as American democracy is. How can we raise effective taxation on the rich when the rich have so much influence on our laws?

Vaniver wrote:And, should we be complaining that wealthy Americans avoid taxation by playing the system, and that poor Americans avoid taxation because the system plays itself for them?

There are legitimate social reasons why government should advantage the poor - there is no legitimate social reason why the government should advantage the wealthy.

Vaniver wrote:Here's a fun exercise. Redraw those graphs as if our GDP was increasing by 3% each year, instead of the 2% it did last year, or the small decline earlier.

Hint: There's still a hike for as long as the graph goes.


You're right. I decided to check the source to find out why. The numbers are guesstimated by usgovernmentspending.com, a website with such confidence-building nuggets as the tea party fact sheet.

A far better argument against that 'data' is just to call BS on it altogether. It's made up numbers functioning under the libertarian belief that governments do not reduce spending, and so obviously it does not reduce spending.

Vaniver wrote:About 70% of the American economy is consumer spending and consumption; about 5% is corporate profits. It makes for great rhetoric, but I'm not seeing it in the numbers.

I know far too many people who are unemployed through no fault of their own to believe those numbers.

phonon266737 wrote:Thirdly, profit is headroom.
Fact: The economy fluxuates up and down.
Fact: Revenues fluxuate with the economy
Fact: A portion of corporate expenses are fixed and do not fluxuate with the economy
Fact: Profit = Revenue - Expenses

Did you know that, instead of drawing profit, a company can reinvest in a way that makes liquidity available to the company?

Yes, companies can essentially save money for when times are bad. It's a good strategy for individuals, and guess what? It's not so bad for businesses either!

Drawing profit actually prevents this and causes layoffs and other reductions in hard times. So it's the corporate profits themselves magnifying recessions.

You see, profit isn't just making more money than you take in. Non-profit organizations do that too (albeit generally by accident). Profit is when that money goes to the owners of the organization.

phonon266737 wrote:Imagine if individuals were only allowed to invest 5% of their income and had to spend the rest, or it got taxed away as windfall profits. Thus someone earning 45k per year gets ~ $865 paycheck weekly. They could only put $40 in the bank!


You're conflating investment in productive assets with savings. I question if you are making this statement in good faith, as that's a really glaring mistake to make and not in keeping with the standard of discussion I see from you.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Tue Jun 01, 2010 3:18 pm UTC

Indon wrote:Here I think you touch upon the actual problem with taxation and balancing deficit spending - increasing it is hard in a democracy, and even more so when your democracy is heavily influenced by wealthy agents, as American democracy is. How can we raise effective taxation on the rich when the rich have so much influence on our laws?
What? There's an even better question: in a democracy, how can we raise the proportion of income-earners paying taxes? The flat tax, probably the only politically palatable way to do so, doesn't have much support.

I mean, how politically powerful are 'the rich' when they're the only ones paying taxes?

Indon wrote:I know far too many people who are unemployed through no fault of their own to believe those numbers.
Those numbers are easily consistent with a 10% unemployment rate. I know they call it 'capitalism' but free enterprise has, since Adam Smith, been structured around the consumer.

Indon wrote:Drawing profit actually prevents this and causes layoffs and other reductions in hard times. So it's the corporate profits themselves magnifying recessions.

You see, profit isn't just making more money than you take in. Non-profit organizations do that too (albeit generally by accident). Profit is when that money goes to the owners of the organization.
Those words don't mean what you think they mean. Corporations are taxed on net income (before taxes) and then choose how much of the resulting net income to retain (retained earnings) and how much to distribute to the owners (dividends).

When you increase corporate income taxes, that decreases the amount of net income that there is to retain or distribute.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Tue Jun 01, 2010 5:03 pm UTC

Vaniver wrote:What? There's an even better question: in a democracy, how can we raise the proportion of income-earners paying taxes? The flat tax, probably the only politically palatable way to do so, doesn't have much support.

I mean, how politically powerful are 'the rich' when they're the only ones paying taxes?

But the rich aren't the only ones paying taxes, and it's debatable (a debate I believe we've had, and one that wouldn't fit in this thread) if they're paying enough to justify their benefit from government.

Vaniver wrote:Those numbers are easily consistent with a 10% unemployment rate. I know they call it 'capitalism' but free enterprise has, since Adam Smith, been structured around the consumer.

Well, our consumers are losing their jobs and going bankrupt, and not just now either - there's basically been a strong (and still growing) distinction between our nation's prosperity, and its' profitability, for years before the most recent crash.

Also, the jobless rate's higher than 10%. People are just running out of unemployment insurance.

Vaniver wrote:Those words don't mean what you think they mean. Corporations are taxed on net income (before taxes) and then choose how much of the resulting net income to retain (retained earnings) and how much to distribute to the owners (dividends).

When you increase corporate income taxes, that decreases the amount of net income that there is to retain or distribute.


I was talking about the distribution - thus the mention of profit. It's easy to attack corporate profits while allowing corporations to reinvest, though corporate income taxation doesn't necessarily do that.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Tue Jun 01, 2010 9:14 pm UTC

Indon wrote:I was talking about the distribution - thus the mention of profit. It's easy to attack corporate profits while allowing corporations to reinvest, though corporate income taxation doesn't necessarily do that.
But... subsidizing retaining profits over distributing them, like the current system of double taxation does (or a single taxation system that only hid distributed income and not retained income), generates inefficiency without doing anything positive besides sticking it to those rentiers.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

phonon266737
Posts: 517
Joined: Tue Mar 25, 2008 1:41 am UTC
Contact:

Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Wed Jun 02, 2010 12:13 am UTC

Indon wrote: The numbers are guesstimated by usgovernmentspending.com, a website with such confidence-building nuggets as the tea party fact sheet.

A far better argument against that 'data' is just to call BS on it altogether. It's made up numbers functioning under the libertarian belief that governments do not reduce spending, and so obviously it does not reduce spending.

The only "Guesstimated" numbers are state/local expenditures for the last 3 years - probably because data has not been compiled yet. Everything else is very clearly sourced from the US govt. That also make no attempts to hide the data that is not sourced - in fact, they do themselves a disservice by having those giant red "Guesstimated" blocks which comprise only a tiny portion of their data.
http://usgovernmentspending.blogspot.com/2009/03/table-of-data-sources-by-year.html

You're conflating investment in productive assets with savings..

Sorry, that was a bad analogy. But the common layperson generally correlates "wow, this widget is $10! They must be making a killing on it" with profit, and doesn't relly concern themselves with retained earnings versus divdends. This quantity is also the quantity that corporations are taxed on - though there are further taxes on "drawing profit" for C corps.

Vaniver, here's an easy way to fix things. Rather than follow the proposed 2011 budget which allows "Bush" tax cuts to earners over 250k to expire, and maintains them plus adds new tax breaks for earners below 250k, just let everything expire?

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Wed Jun 02, 2010 1:54 pm UTC

Vaniver wrote:But... subsidizing retaining profits over distributing them, like the current system of double taxation does (or a single taxation system that only hid distributed income and not retained income), generates inefficiency without doing anything positive besides sticking it to those rentiers.


It could theoretically be used to do things like raise people's wages. Or benefits or training or something like that. Or encourage businesses to save, as I noted earlier could be used to allow them to avoid laying off in bad times.

phonon266737 wrote:The only "Guesstimated" numbers are state/local expenditures for the last 3 years - probably because data has not been compiled yet.

That is to say, everything after the spike is made up by libertarians who don't believe the spike could have actually decreased. Surprisingly, none of this guesstimation involves the spike decreasing any further - the timeframe the spending levels off approximately correlates to when the data is being made up.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Wed Jun 02, 2010 11:29 pm UTC

Indon wrote:It could theoretically be used to do things like raise people's wages. Or benefits or training or something like that.
Why would we expect those theories to be true?

The primary effect would be to increase the replacement of dividends with stock buybacks, reducing efficiency in the capital markets.

Indon wrote:Or encourage businesses to save, as I noted earlier could be used to allow them to avoid laying off in bad times.
They do this anyway- remember when Microsoft didn't pay out a dividend because they wanted to have a giant pile of cash in case of a anti-trust decision going against them? I don't see the mechanism by which this would encourage them to have larger stockpiles, or why it would solve the underlying problem that during recessions the marginal product of labor decreases in value, leading to wage or job cuts.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Thu Jun 03, 2010 12:22 pm UTC

Vaniver wrote:Why would we expect those theories to be true?

The primary effect would be to increase the replacement of dividends with stock buybacks, reducing efficiency in the capital markets.

Firstly, note that any measure that targets corporate profits would also target stock buybacks. My preferred way to effectively control corporate profits, in fact, is capital gains taxation on individuals, which targets stock buybacks. After all, corporations don't make corporate profits, people who own corporations do.

And honestly, even if what you said were true, that'd probably be a good thing too, as it makes other sources of capital, such as loans for privately owned businesses, more optimal.

Frankly I'm not a fan of the stockholding approach to capital generation - stockholders, especially in the last few decades, have influenced companies to act in shortsighted ways to generate higher immediate profits rather than to grow. It's not healthy for the rest of us when this shortsightedness contributes to economic collapses.

Vaniver wrote:They do this anyway- remember when Microsoft didn't pay out a dividend because they wanted to have a giant pile of cash in case of a anti-trust decision going against them?

They are theoretically capable of doing this - but stockholder expectations provide pressure for them to do otherwise, and higher rates of profit encourage money to be more agile - that is to say, more oriented towards generating immediate profit instead of sustainable gain. Lower rates of profit, meanwhile, encourage less risky business approaches in order to better justify the lower gains.

External measures are not good at directly controlling the risk end of business management of stock corporations. It can control the reward, however, which would indirectly influence the risk as part of businesses adapting to capital markets.

Vaniver wrote:I don't see the mechanism by which this would encourage them to have larger stockpiles, or why it would solve the underlying problem that during recessions the marginal product of labor decreases in value, leading to wage or job cuts.

The reduction of the incentive to invest shortsightedly for quick, high profit, leading to more responsibly-run publicly owned businesses.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Thu Jun 03, 2010 2:00 pm UTC

Indon wrote:Frankly I'm not a fan of the stockholding approach to capital generation - stockholders, especially in the last few decades, have influenced companies to act in shortsighted ways to generate higher immediate profits rather than to grow. It's not healthy for the rest of us when this shortsightedness contributes to economic collapses.
Everything is a tradeoff- and trust me, having joint-stock companies is worth dealing with some investors being short-sighted. Put a tiny tax on trading if you want, to make speculation less profitable, though the tax code is already structured to reward longer-term investors (through the tax rate difference on short term vs. long term capital gains), but getting rid of joint-stock corporations literally made the difference between not being a world power and being one. They were that revolutionary.

Indon wrote:The reduction of the incentive to invest shortsightedly for quick, high profit, leading to more responsibly-run publicly owned businesses.
That's a very broad brush for a relatively minor problem. The main problem with any talk of 'profit caps' are risky businesses- if I fund a biochemist working on a new pharmaceutical, I will either lose all of my money or get back massive amounts of money. When profit is capped, that evaporates, like any wildcatting field. Such fields provide necessary services to the economy and society, and should be given room to operate in ways that seem crazy for other businesses, because they're not other businesses.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Thu Jun 03, 2010 2:53 pm UTC

Vaniver wrote:Everything is a tradeoff- and trust me, having joint-stock companies is worth dealing with some investors being short-sighted. Put a tiny tax on trading if you want, to make speculation less profitable, though the tax code is already structured to reward longer-term investors (through the tax rate difference on short term vs. long term capital gains), but getting rid of joint-stock corporations "literally" made the difference between not being a world power and being one. They were that revolutionary.

Discouraging joint-stock companies wouldn't get rid of them, and I very much question your claim that they made the difference in being a world power.

Vaniver wrote:That's a very broad brush for a relatively minor problem.

I disagree that it's a minor problem.

Vaniver wrote:The main problem with any talk of 'profit caps' are risky businesses- if I fund a biochemist working on a new pharmaceutical, I will either lose all of my money or get back massive amounts of money. When profit is capped, that evaporates, like any wildcatting field.

Markets cap profits all on their own (or at least they should) - deterrent measures such as taxes just reduce those caps.

It's good to have some risk. It's not good to have lots of risk, to the point where a significant part of the economy relies on it, because if you have a significant part of the economy relying on risk, that part of the economy is going to occasionally die, damaging the stable part of the economy each time.

If we're seeing a lot of risk in the economy producing this problem, we need to tone back on the amount of risk being taken.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

phonon266737
Posts: 517
Joined: Tue Mar 25, 2008 1:41 am UTC
Contact:

Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Thu Jun 03, 2010 6:09 pm UTC

However, the "risk" we are talking about here, is the ability for a person with a low income / credit rating to get a loan without being "sharked" with ridiculous interest etc - profits for the bank. If you don't allow that reward, then you can certainly remove that area of lending in its entirety. However, the availability of loans is a very important thing for someone to climb up the "wealth ladder" (specifically, buying a house, saving lots of money long-term) - you can either do it for a loss, or do it for a profit, either way lending to that sector is known to have foreclosures.

A more real problem is the low reserve ratio, which is why the banks started failing in the first place. In "good" times, the reserve ratio could be higher, and lowered during times of financial crisis - this doesn't involve bailing anyone out, just requiring them to keep less cash on hand.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Thu Jun 03, 2010 6:19 pm UTC

phonon266737 wrote:However, the "risk" we are talking about here, is the ability for a person with a low income / credit rating to get a loan without being "sharked" with ridiculous interest etc - profits for the bank.

No it's not. It's the ability for any person to obtain entrepreneurial capital, to include loans, for a crazy idea that might pay off massively.

The only category of loans that fall into the high-risk-high-reward template are precisely those loans with ridiculous interest - otherwise the loans do not have high reward.

phonon266737 wrote:A more real problem is the low reserve ratio, which is why the banks started failing in the first place.

I don't buy for a second the argument that fractional reserve banking is the cause of everyone's economic woes.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Fri Jun 04, 2010 2:44 am UTC

Indon wrote:Discouraging joint-stock companies wouldn't get rid of them, and I very much question your claim that they made the difference in being a world power.
The Dutch East India Company, the world's first joint-stock corporation, outperformed the rest of Europe combined in Asian trade during the period which only the Dutch were doing joint stock companies. It wasn't until after the Glorious Revolution, when many Dutch financiers followed their king to London and introduced the joint-stock corporation to Britain, which the British East India Company became, that British company began to have the capital to compete with the Dutch and became a significant player in Asia.

If there was anything suggesting Holland would be a major European power, it was its liberalism (in the classic sense) and the technological growth that fostered, not any natural resources or stockpiled wealth.

Indon wrote:It's not good to have lots of risk, to the point where a significant part of the economy relies on it, because if you have a significant part of the economy relying on risk, that part of the economy is going to occasionally die, damaging the stable part of the economy each time.

If we're seeing a lot of risk in the economy producing this problem, we need to tone back on the amount of risk being taken.
I would argue the risk there is not that things go badly, but that there's significant connection that causes that problem to spread. I would argue that most government intervention along these lines has been in the wrong direction, though.

Generally, governments oppose corrections in the market, and foster connectivity- especially when you look at the prominence that real estate has in American finance, which I would say is in no small part due to government promotion of home ownership.

To get back to the original point: I think there are far better ways to encourage responsible investing than limiting the profits corporations can earn or significantly altering their tax structure.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

nitePhyyre
Posts: 1280
Joined: Mon Jul 27, 2009 10:31 am UTC

Re: An alternative to progressive redistribution of wealth

Postby nitePhyyre » Fri Jun 04, 2010 5:38 pm UTC

I am under the impression that laws are currently set up so that corporations have to make the choices that give the most money to stock holder. As in if there is the option that will give huge pay offs now, but that would perhaps cause unwelcome destabilization later - the company HAS to take the option. If there is the choice to spend money to process and treat dangerous chemicals, or dump them legally into the ocean - they HAVE to do the dumping. Essentially, if there is the choice between money, or morality, sustainability, (insert any virtue), they must pick the money.

I think getting rid of this compulsion would help somewhat in promoting responsible investment.
sourmìlk wrote:Monopolies are not when a single company controls the market for a single product.

You don't become great by trying to be great. You become great by wanting to do something, and then doing it so hard you become great in the process.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Fri Jun 04, 2010 6:27 pm UTC

Vaniver wrote:The Dutch East India Company, the world's first joint-stock corporation, outperformed the rest of Europe combined in Asian trade during the period which only the Dutch were doing joint stock companies.

That company is not an example of free market operation. It is an example of the power of noncompetitive measures applied to a market to gain advantage.

I should say that it's more likely the Company's paramilitary control that provided it with a trade advantage.

Vaniver wrote:I would argue the risk there is not that things go badly, but that there's significant connection that causes that problem to spread. I would argue that most government intervention along these lines has been in the wrong direction, though.

Generally, governments oppose corrections in the market, and foster connectivity- especially when you look at the prominence that real estate has in American finance, which I would say is in no small part due to government promotion of home ownership.

Well, generally market corrections cause misery, frequently to people who never actually did anything wrong (eg - the workers of a company that is mismanaged to the ground), so trying to discourage those fosters a meritocratic economy. It may well be that other measures would better compensate for this, such as a stronger general social safety net to catch people like that, but I should think that's the kind of rationale behind a welfare state.

As for connectivity, in times of stability economic interdependence is generally a good thing. It's only a liability when an economy is destabilized - which risk can (and at sufficiently high amounts, will eventually) do. It should also note that economies trend towards greater interdependence due to technology, even wholly independent of government influence. Take the economic impact of that volcano in Iceland for example.

This interdependence has forced people's behavior to change - one very notable effect is that it has ended violent war between industrial powers. Is it surprising that as interdependence increases, further measures to limit risk to individual elements become sensible?

It's also important to note that even completely unrelated events can occur simultaneously - as an engineering example, a building can be constructed to survive, say, a "hundred-year storm" - a storm of such intensity that it will happen on average every hundred years. This means that if you get unlucky enough to get a thousand-year storm, your building will probably be flattened. The same can happen in economics, and greater amounts of risk introduce more elements, even if unrelated, which can all hit simultaneously and cause an economic 'storm'.

Vaniver wrote:To get back to the original point: I think there are far better ways to encourage responsible investing than limiting the profits corporations can earn or significantly altering their tax structure.


Possibly. What kind of alternatives would you propose?
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Sun Jun 06, 2010 4:33 pm UTC

Indon wrote:That company is not an example of free market operation. It is an example of the power of noncompetitive measures applied to a market to gain advantage.

I should say that it's more likely the Company's paramilitary control that provided it with a trade advantage.
What? Everyone else was doing paramilitary control, and different Europeans succeeded in different areas (though the Dutch did the most shipping and had the most valuable spots). There are pretty convincing reasons to expect the large differences in success between European powers were heavily influenced by the differences in financial sophistication between those powers.

Indon wrote:Well, generally market corrections cause misery, frequently to people who never actually did anything wrong (eg - the workers of a company that is mismanaged to the ground), so trying to discourage those fosters a meritocratic economy.
What does meritocratic mean?

This thinking is the groundwork for the primary problem with modern American capitalism: private reward and public risk. The people who 'never did anything wrong' benefit from institutions with short-term outlooks, and then offload the misery that results from those short-term outlooks onto the public at large: making it better and better to be one of those people. Perhaps, if there are too many investment bankers and they're a drain on the economy, many of them should lose their jobs as investment bankers and find new careers that are more productive?

Positive change requires misery.

Indon wrote:Possibly. What kind of alternatives would you propose?
I think a tax on trading securities would be somewhat helpful, but I think that if you have a cultural problem (investors see stocks as charts instead of companies) then it should be approached with a cultural solution, not a political one. Governments are pretty bad at directing culture, and it is generally ugly when they succeed.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Mon Jun 07, 2010 3:30 pm UTC

Vaniver wrote:What? Everyone else was doing paramilitary control, and different Europeans succeeded in different areas (though the Dutch did the most shipping and had the most valuable spots). There are pretty convincing reasons to expect the large differences in success between European powers were heavily influenced by the differences in financial sophistication between those powers.

I should think a system dominated by use of force probably sees most of the differences in results based off of who made the most effective use of force. Mike Tyson and Mohammed Ali weren't good boxers because they were managed well.

Vaniver wrote:What does meritocratic mean?

That people should be rewarded for what they do, because when people aren't rewarded for what they do, they don't do as much. It's about empowering people to be able to improve their situations through labor.

Vaniver wrote:This thinking is the groundwork for the primary problem with modern American capitalism: private reward and public risk. The people who 'never did anything wrong' benefit from institutions with short-term outlooks, and then offload the misery that results from those short-term outlooks onto the public at large: making it better and better to be one of those people. Perhaps, if there are too many investment bankers and they're a drain on the economy, many of them should lose their jobs as investment bankers and find new careers that are more productive?

Maybe, but that's not how capitalism resolves problems. How can producing a stable and healthy economy be competitive in a capitalist system if it's not as good at generating capital?

For that reason, I would suggest that modern American capitalism is precisely what you should expect from a capitalist system - systemic improvement in process over time with the ultimate objective of generating maximum profit.


Yeah, but the people doing things wrong aren't experiencing any of that misery. The system is such that it basically rewards people who do bad things - not (necessarily) because of government intervention either, but because of market structure. How can good thrive in a world where it is evident to all that evil wins?

I think a capitalist system is constructed such that it will encourage the cultural problems that you describe, and that by changing government function to inhibit the success of problematic behavior, we can make the cultural aspect of the problem more managable.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

nitePhyyre
Posts: 1280
Joined: Mon Jul 27, 2009 10:31 am UTC

Re: An alternative to progressive redistribution of wealth

Postby nitePhyyre » Tue Jun 08, 2010 1:13 am UTC

sourmìlk wrote:Monopolies are not when a single company controls the market for a single product.

You don't become great by trying to be great. You become great by wanting to do something, and then doing it so hard you become great in the process.

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Tue Jun 08, 2010 1:55 am UTC

Indon wrote:I should think a system dominated by use of force probably sees most of the differences in results based off of who made the most effective use of force. Mike Tyson and Mohammed Ali weren't good boxers because they were managed well.
Supply chains are rather relevant during contests of force, particularly on the other side of the globe, and affected by financial sophistication.

Indon wrote:That people should be rewarded for what they do, because when people aren't rewarded for what they do, they don't do as much. It's about empowering people to be able to improve their situations through labor.
Does merit measure effort or product?

Indon wrote:Maybe, but that's not how capitalism resolves problems. How can producing a stable and healthy economy be competitive in a capitalist system if it's not as good at generating capital?

For that reason, I would suggest that modern American capitalism is precisely what you should expect from a capitalist system - systemic improvement in process over time with the ultimate objective of generating maximum profit.
I don't understand this response. Are you saying that, when investment banking firms go under, under capitalism none of them would switch career fields? Or that instability is better at producing capital than stability?

For the second half, yes, Schumpeter argues that capitalism as free enterprise will morph into some melding of corporatism and socialism, as has been happening and will continue to happen. But I would rather respond to that existential threat with a renewed defense of free enterprise than shrugging my shoulders and accepting the march of History.

Indon wrote:Yeah, but the people doing things wrong aren't experiencing any of that misery.
Why do you have this medieval morality that equates misery with wrongdoing? People don't get sick because they offend God, they get sick because of germs. People that do good work in an industry that becomes obsolete or for a company that is mismanaged didn't deserve for their job to disappear, but that doesn't matter.

A key insight of capitalism is that a system which puts efficiency above sparing feelings does more to improve the lives of everyone involved than a system which puts feelings first.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Tue Jun 08, 2010 12:04 pm UTC

Vaniver wrote:Supply chains are rather relevant during contests of force, particularly on the other side of the globe, and affected by financial sophistication.

Generally, a military's logistics strategies are considered a military matter. Napoleon's russian campaign did not fail because he wasn't syndicated.

Vaniver wrote:Does merit measure effort or product?

Product, and I know where you're getting in regards to supply and demand, but that's not what I've been referring to - I've been referring to businesses in an industry with a demand, being poorly run and going under because running a business for the short-term generates more profit.

Vaniver wrote:I don't understand this response. Are you saying that, when investment banking firms go under, under capitalism none of them would switch career fields?

No. I'm saying that when investment banking firms go under, it's not necessarily because there are too many - it might just be because they were all run into the ground. And a free market system doesn't seem to have a correction mechanism for that.

Vaniver wrote:For the second half, yes, Schumpeter argues that capitalism as free enterprise will morph into some melding of corporatism and socialism, as has been happening and will continue to happen. But I would rather respond to that existential threat with a renewed defense of free enterprise than shrugging my shoulders and accepting the march of History.

So you would struggle to maintain more instability in the economy solely because it makes more money?


Vaniver wrote:Why do you have this medieval morality that equates misery with wrongdoing?

Because of incentives. The incentive to profit is supposed to be the underlying human mechanic for capitalism, and an instable capitalist system skews incentives for both owners and workers - for owners by rewarding them for unsustainable practices, encouraging them to keep tanking firms, and for workers by punishing them for working hard on a corporation that's just going to go under anyway, discouraging them from working.

Capitalism is supposed to make people work better because people who work hard and make the right decisions will be rewarded. How's that working out?
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Tue Jun 08, 2010 1:52 pm UTC

Indon wrote:Generally, a military's logistics strategies are considered a military matter. Napoleon's russian campaign did not fail because he wasn't syndicated.
What does a land war in Asia have to do with violently competitive trading in the Indies?

Indon wrote:And a free market system doesn't seem to have a correction mechanism for that.
Yes, it does. It's called bankruptcy. Not only is it almost impossible for everyone to be facing the same risks (my bank, for example, wasn't exposed to the housing crash, and the people who shorted the housing market at the right time came out ahead), even if the entire industry is wiped out, if there's a demand new capital will repopulate the industry (and hopefully the new firms will learn from the example of the old ones).

Indon wrote:So you would struggle to maintain more instability in the economy solely because it makes more money?
I don't think any system has a credible way to reduce instability beyond free enterprise's ability to. They can move that instability around in space and time, and certainly increase it, but any policy change that seems like it actually reduces instability fits into a free enterprise system about as well as any other.

Besides, it's not about the money. Money is just a proxy. It's about the productive power, and the productive power is about thriving.

Indon wrote:Because of incentives. The incentive to profit is supposed to be the underlying human mechanic for capitalism, and an instable capitalist system skews incentives for both owners and workers - for owners by rewarding them for unsustainable practices, encouraging them to keep tanking firms, and for workers by punishing them for working hard on a corporation that's just going to go under anyway, discouraging them from working.

Capitalism is supposed to make people work better because people who work hard and make the right decisions will be rewarded. How's that working out?
Pretty well, actually. Here's the real question for you, though: in an unfair world were things change rapidly and often without warning- i.e. reality is unstable - how much stability should we expect from our systems? It is not the strongest of the species that survives, nor the most intelligent, but rather the one most adaptable to change.

Capitalism doesn't reward unsustainable practices unless the sustainability doesn't matter. When wood prices go up because supplies are down, the person who clearcut their forest misses out on the gains and the person who sustainably managed a forest receives the gains. When land prices increase significantly, the person who clearcut their forest gains because that plot is more valuable for development than it was as a forest.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

phonon266737
Posts: 517
Joined: Tue Mar 25, 2008 1:41 am UTC
Contact:

Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Tue Jun 08, 2010 2:58 pm UTC

Claiming that the US operates as a capitalistic economy is a difficult claim. For example, the housing crisis started with the Fannie Mae / etc banks pushing home sales to those who traditional underwriters would not provide a loan. Public debt = 90% of GDP and federal government spending = 25% (including state and local, it's more like 40 or 50) of GDP are two other strong indicators that capitalism is not really at work here.

Let me put that in other terms - something like 45% of our economy is planned by our officials. A 45% planned economy, is not capitalism.

When a company is "too big to fail" , what happens when they fail? I can assure you, capitalists didn't coin the term.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Tue Jun 08, 2010 5:13 pm UTC

Vaniver wrote:What does a land war in Asia have to do with violently competitive trading in the Indies?

The same thing any war would have to do with any war, I imagine.

Vaniver wrote:Yes, it does. It's called bankruptcy.

Only if the people doing the wrong things are the one going bankrupt. But they aren't, now are they?

Vaniver wrote:I don't think any system has a credible way to reduce instability beyond free enterprise's ability to.

I think we've talked quite a bit about how encouraging excessive risk actively generates instability, and that it would be fairly trivial to simply generate less risk.

Vaniver wrote:Besides, it's not about the money. Money is just a proxy. It's about the productive power, and the productive power is about thriving.

Money is a proxy for people's ability to survive. It's pretty damn important.

Vaniver wrote:Pretty well, actually. Here's the real question for you, though: in an unfair world were things change rapidly and often without warning- i.e. reality is unstable - how much stability should we expect from our systems?

So little that it would give even more justification to try to construct a more stable system, as opposed to a less stable one like you seem to advocate.

Vaniver wrote:It is not the strongest of the species that survives, nor the most intelligent, but rather the one most adaptable to change.

You realize that you're referring to a discredited pseudoscience with that line, right?

Vaniver wrote:Capitalism doesn't reward unsustainable practices unless the sustainability doesn't matter.

Except it does. Shareholders encourage unsustainable practices to increase profits then divest, benefiting from their irresponsibility, and leaving their companies - and society - to pay the price for those practices.

When wood prices go up because supplies are down, the person who started clearcutting the forest then sold the operation at a premium while it was in the process of profitable clearcutting benefits more than either actor in your scenario in the short term, which is the only term the market provides incentives for.

phonon266737 wrote:Claiming that the US operates as a capitalistic economy is a difficult claim. For example, the housing crisis started with the Fannie Mae / etc banks pushing home sales to those who traditional underwriters would not provide a loan. Public debt = 90% of GDP and federal government spending = 25% (including state and local, it's more like 40 or 50) of GDP are two other strong indicators that capitalism is not really at work here.

Let me put that in other terms - something like 45% of our economy is planned by our officials. A 45% planned economy, is not capitalism.

When a company is "too big to fail" , what happens when they fail? I can assure you, capitalists didn't coin the term.


Comparing the US with actual planned economies of comparable development levels, the US has vastly higher economic instability. There's a difference, and I can tell you what that difference is.

The difference is that the US is not a regulated economy - it is a market so free that legislation is monetized. As you can expect when something is monetized, companies use the service to try to generate profit.

Since monetized legislation is such a good investment, it is a very large industry - exactly as you would expect in a free market. Demand is extremely high, so supply will expand to fulfill it. The libertarian claim - that we can control this market supply-side - is an absolutely absurd claim in contradiction to the very economic principles libertarians might otherwise claim.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

phonon266737
Posts: 517
Joined: Tue Mar 25, 2008 1:41 am UTC
Contact:

Re: An alternative to progressive redistribution of wealth

Postby phonon266737 » Tue Jun 08, 2010 5:33 pm UTC

Indon wrote: a market so free that legislation is monetized. As you can expect when something is monetized, companies use the service to try to generate profit.
Since monetized legislation is such a good investment, it is a very large industry


I'd just like to say, I think we all agree that this is bad. and, as you point out, in a place where you can "buy" legislation, the last thing we need are the paid-off legislators writing new regulations.
Last edited by phonon266737 on Tue Jun 08, 2010 5:49 pm UTC, edited 1 time in total.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Tue Jun 08, 2010 5:42 pm UTC

phonon266737 wrote:I'd just like to say, I think we all agree that this is bad. and, as you point out, in a place where you can "buy" legislation, the last thing we need are the paid-off legislators writing new regulations.


Oh, very much so. Where we would differ is the solution.

But the solution isn't to strip the power to create regulation from government, because the demand still exists - so long as corporations have the capability to spend money to influence government, they will simply do so in order to expand government power until it once again can create profitable regulation, and then profit from doing so, because spending money to obtain favorable legislation is extremely profitable.

This might be a bit off-topic, though, unless I can tie it back to the rich getting too rich to be healthy for society by becoming able to accomplish exactly this.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Tue Jun 08, 2010 6:32 pm UTC

Indon wrote:The same thing any war would have to do with any war, I imagine.
I see. I think I'm going to go with the economic historians on this one, rather than the questionably applicable example of Napoleon having to deal with a Scorched Earth defense. The two primary benefits of the joint-stock corporation were more capital and longer-term investment horizons- meaning that the Dutch company built more refueling stations, trading ports, and defenses, all of which were critical to maintaining control and being able to ship goods cheaply.

Indon wrote:Only if the people doing the wrong things are the one going bankrupt. But they aren't, now are they?
Where is that "only" coming from? And they would be if the government weren't intervening. Do you think Goldman Sachs would still be around without their former employees staffing the Treasury Department?

Indon wrote:I think we've talked quite a bit about how encouraging excessive risk actively generates instability, and that it would be fairly trivial to simply generate less risk.
How does free enterprise, which limits additional risk to individuals willing to take it on themselves, encourage excessive risk? It's risk-spreading that encourages excessive risk. Indeed, we should even examine the word "excessive"- the market is a discovery mechanism to figure out what the proper level of risk is for different applications, since it can't be known beforehand. Corrections are a necessary part of that discovery.

Indon wrote:So little that it would give even more justification to try to construct a more stable system, as opposed to a less stable one like you seem to advocate.
I don't understand how this makes sense. If there are fundamental limits to the stability which life can offer us, then why is the proper amount of stability always more? Shouldn't we expect there to be some optimum level of stability, and shouldn't we try to encourage and reward the people that can most effectively manage the instabilities of reality, instead of people who would do great work in an abstract, static world?

Indon wrote:You realize that you're referring to a discredited pseudoscience with that line, right?
I'm referring to actual Darwinism, and evolutionary economics. I mean, that line in itself contradicts the viewpoint of eugenics wherein there is some desirable trait that people should be selected according to- it celebrates diversity rather than homogeneity, just like actual evolution.

Indon wrote:Except it does. Shareholders encourage unsustainable practices to increase profits then divest, benefiting from their irresponsibility, and leaving their companies - and society - to pay the price for those practices.

When wood prices go up because supplies are down, the person who started clearcutting the forest then sold the operation at a premium while it was in the process of profitable clearcutting benefits more than either actor in your scenario in the short term, which is the only term the market provides incentives for.
I'm unconvinced that the market is only short-term. Long-term investors exist, and tend to outperform short-term investors. Corporations that build for the long haul tend to outperform short-sighted ones. Stocks that pay dividends have higher returns than stocks that don't. Commodity speculators, on the whole, lose money- meaning that they voluntarily put up their own resources to smooth out resource prices, leading to higher stability.

Besides, ownership is the primary source of long-term incentives. I don't think there's much evidence democratic governments are better at managing resources for the long term than markets are (and anti-democratic markets are flat-out horrible)- the only cases I can think of are when governments create property rights out of something that used to be free to all comers, then sell those property rights off, which further supports that ownership and long term thinking are inherently connected.

Indon wrote:The difference is that the US is not a regulated economy
How can you say this with a straight face? The government has lost track of the number of crimes that exist. You can say "the US is not a well-regulated economy," but then the challenge is finding a well-regulated economy.

Indon wrote:The libertarian claim - that we can control this market supply-side - is an absolutely absurd claim in contradiction to the very economic principles libertarians might otherwise claim.
Is there a better option that approaching it from the supply side? Of course libertarians understand that people will seek rent- more importantly, they understand how rent-seeking can be disguised as concerns about safety or quality. But if you aren't arguing for a supply-side solution, you have to be arguing for a demand-side one, and I don't see how that can work. We can talk about different supply-side solutions, but to dismiss the Libertarian answer as supply-side when it seems like your solution is also supply-side seems inconsistent at best.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Tue Jun 08, 2010 7:35 pm UTC

Vaniver wrote:I see. I think I'm going to go with the economic historians on this one, rather than the questionably applicable example of Napoleon having to deal with a Scorched Earth defense. The two primary benefits of the joint-stock corporation were more capital and longer-term investment horizons- meaning that the Dutch company built more refueling stations, trading ports, and defenses, all of which were critical to maintaining control and being able to ship goods cheaply.

So the joint-ownership corporation is better because it provides resources to build a bigger military? Isn't that indistinguishable with just having a bigger military in the first place?

Vaniver wrote:Where is that "only" coming from? And they would be if the government weren't intervening. Do you think Goldman Sachs would still be around without their former employees staffing the Treasury Department?

No, they wouldn't be. Their companies would be, but the people who made the bad decisions would still be rich as a result of them. They were never and could never be punished for their bad decisions.

Vaniver wrote:How does free enterprise, which limits additional risk to individuals willing to take it on themselves, encourage excessive risk?

Because high amounts of risk become systemic risks, and the consequences are felt by everyone else at sufficiently high levels of risk.

Here's an easy example: A grocery store in a small town. The grocery store is not a risky venture. But if everyone in the small town starts gambling, and they all bust simultaneously, the grocery store will go out of business solely because of the excessive risks assumed by others.

Vaniver wrote:I don't understand how this makes sense. If there are fundamental limits to the stability which life can offer us, then why is the proper amount of stability always more?

The proper amount of stability is the amount that can convince individuals that their actions are capable of meaningfully affecting their position in the system. If an individual's actions are less important than random factors, people stop working, because people only work in a system in which they are empowered.

What you propose is essentially to let those people lucky enough to be empowered in their situations work, while allowing the world to crush the dreams of everyone else. That's not going to lead to a productive economy.

Now, one potential alternative would be to retain an unstable economy while actively decieving workers into believing that they are functioning within a stable economy and that they should blame themselves for failures which are not in reality their own. But I'm pretty sure you aren't of the opinion that it's possible to fool all of the people, all of the time (I am, but I'm absolutely terrified by the prospect of someone proposing something that evil).

Vaniver wrote:I'm referring to actual Darwinism, and evolutionary economics.

I should note that in modern societies actual, literal evolutionary success is more strongly correlated with being poor (well, specifically, in the economic range between abject 'absolute' poverty and being middle-class or wealthier in first world terms, where community population increases at the highest rates), so your statement in that context is clearly counterintuitive.

Vaniver wrote:I'm unconvinced that the market is only short-term. Long-term investors exist, and tend to outperform short-term investors.

In a market environment, It's only demonstrably a superior strategy if selection effects cause it to dominate.

Selection effects appear to be causing short-term investment to dominate - because corporations are irrelevant to investment strategies. Investment strategies are individual, not communal, and the most successful one is emerging as the economic equivalent of russian roulette.

Vaniver wrote:Besides, ownership is the primary source of long-term incentives.

It's apparently not a very good one. But luckily, we don't need to subvert it! Regulation (and inevitable restraint of the profitability) of assets does not prevent their ownership.

Vaniver wrote:How can you say this with a straight face?

Because regulation requires the government control the market. In the US, only the inverse is true.

There are well-regulated (or, arguably, less poorly regulated) economies among our first world peers - they are regulated ones, where corporations largely lack the power to influence government. Success of regulation is in a direct, inverse relation with the power of corporate entities to influence regulation.

Vaniver wrote:Is there a better option that approaching it from the supply side?

Since we have every reason to believe that approaching it from the supply side will fail every time - because a government powerless to control corporations is powerless to prevent the imposition of control by corporations - while controlling the customers directly and preventing them from being able to seek favors has shown some degree of success in practice, the choice seems fairly obvious.

You can feel free to propose a supply-side solution that doesn't leave corporations empowered to control the government and favorably expand its' powers, and yet doesn't require an unrealistic society. I'd like to hear any suggestions.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

User avatar
Vaniver
Posts: 9422
Joined: Fri Oct 13, 2006 2:12 am UTC

Re: An alternative to progressive redistribution of wealth

Postby Vaniver » Tue Jun 08, 2010 8:48 pm UTC

Indon wrote:So the joint-ownership corporation is better because it provides resources to build a bigger military? Isn't that indistinguishable with just having a bigger military in the first place?
This is like saying "training methods are inconsequential, you just need skilled soldiers."

Indon wrote:No, they wouldn't be. Their companies would be, but the people who made the bad decisions would still be rich as a result of them. They were never and could never be punished for their bad decisions.
Are you including the people whose wealth was primarily tied up in the companies they were running, and thus would have lost almost all of that if the company went into bankruptcy?

Indon wrote:Because high amounts of risk become systemic risks, and the consequences are felt by everyone else at sufficiently high levels of risk.

Here's an easy example: A grocery store in a small town. The grocery store is not a risky venture. But if everyone in the small town starts gambling, and they all bust simultaneously, the grocery store will go out of business solely because of the excessive risks assumed by others.
A better example would be ghost towns in mining areas, where changes in the situation turned an area from profitable to live in to unprofitable to live in. Should we subsidize ghost towns after they become unprofitable, or should we let them spring up and disappear?

Indon wrote:What you propose is essentially to let those people lucky enough to be empowered in their situations work, while allowing the world to crush the dreams of everyone else. That's not going to lead to a productive economy.
Nice demonization! Estimate for me the percentage of people whose dreams are crushed by the world under a free enterprise system, and the percentage of people whose dreams are crushed by the world under your preferred system.

The history of free enterprise has been an almost unbroken increase in the number of people who are able to chase their dreams, and reap the rewards or costs of doing so.

Indon wrote:I should note that in modern societies actual, literal evolutionary success is more strongly correlated with being poor (well, specifically, in the economic range between abject 'absolute' poverty and being middle-class or wealthier in first world terms, where community population increases at the highest rates), so your statement in that context is clearly counterintuitive.
If you focus on genes and bodies, sure, but I'm talking about institutions and laborers. A cheetah can't change his genes, but a person can change his profession. Memetic evolution is different from genetic evolution in several important ways.

Indon wrote:Selection effects appear to be causing short-term investment to dominate - because corporations are irrelevant to investment strategies. Investment strategies are individual, not communal, and the most successful one is emerging as the economic equivalent of russian roulette.
Again, the only reason this could be the case is if you have a government intervening to shield losers from their mistakes. You're not going to find me arguing for corporatist governments.

Indon wrote:It's apparently not a very good one.
You understand that history is long, right? And that you actually have to look at it to learn from it?

Indon wrote:In the US, only the inverse is true.
Again, it makes for great rhetoric, but I don't see the evidence. Regulation is imperfect- duh. Regulatory capture happens- what did you expect? But to argue that corporations control the government entirely, always get what they want, or even have the same motives requires massive ignorance about what's actually going on.

Indon wrote:You can feel free to propose a supply-side solution that doesn't leave corporations empowered to control the government and favorably expand its' powers, and yet doesn't require an unrealistic society. I'd like to hear any suggestions.
A government which is banned from empowering rent-seekers, and has a judiciary and populace educated on what that is, seems like it would have a chance at succeeding. In England tariffs had been for a long, long time been seen as an enemy of the common man, thanks to the Anti-Corn Law League which pointed out that the protectionist Corn Laws served the interests of the wealth landowners and farmers while bleeding dry everyone who needed to eat. I think such a success is possible in America (and similar things have happened before), though difficult and costly.
I mostly post over at LessWrong now.

Avatar from My Little Pony: Friendship is Magic, owned by Hasbro.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: An alternative to progressive redistribution of wealth

Postby Indon » Thu Jun 10, 2010 12:55 pm UTC

Vaniver wrote:This is like saying "training methods are inconsequential, you just need skilled soldiers."

Except that administrative structure =/= administrative functionality.

The US military features one of the most well-cultivated business environments in the world - it is not a joint-stock corporation, even though it shares many practices with them.

Vaniver wrote:Are you including the people whose wealth was primarily tied up in the companies they were running, and thus would have lost almost all of that if the company went into bankruptcy?

Yes, stockholders go down with the ship. But with the rise in mutual funds and other asset management services (a perfectly understandable specialization, I'll admit), the people making the decisions are often no longer even the owners. I suppose the ridiculous and extreme example would be an asset management company whose owners were all also its' customers.

There's also the divestment problem, whereby stock owners will trade in and out to get a cut of high, risky growth, each acknowledging that they might be the one holding the stock when it goes down, but considering it too unlikely to want to change the company's practices. Divestment carries the illusion that it reduces risk (and arguably, in some ways it does).

Vaniver wrote:A better example would be ghost towns in mining areas, where changes in the situation turned an area from profitable to live in to unprofitable to live in.

Except it isn't, as that has nothing to do with risk. Mines are built to be emptied - most businesses aren't shouldn't be.

Vaniver wrote:Nice demonization! Estimate for me the percentage of people whose dreams are crushed by the world under a free enterprise system, and the percentage of people whose dreams are crushed by the world under your preferred system.

You neglect to note that the kind of system I describe exists in many economies in the industrialized world, and the question of their happiness is indeed a pertinent one. As noted in... some other thread in which we've been having a related conversation, someone noted the comparative economic mobility of various nations. The US was lower than nations closer to my ideal system.

Vaniver wrote:If you focus on genes and bodies, sure, but I'm talking about institutions and laborers. A cheetah can't change his genes, but a person can change his profession. Memetic evolution is different from genetic evolution in several important ways.

In enough ways to make your 'survival of the fittest' implications frankly silly. The only meme dying these days as a result of mechanics like that is "corporations are trustworthy and capitalism works".

Vaniver wrote:Again, the only reason this could be the case is if you have a government intervening to shield losers from their mistakes. You're not going to find me arguing for corporatist governments.

This is the case in governments which don't do that, because the corporate concept of limited liability itself shields losers from their mistakes... okay, actually, to be fair, that is a government intervening, because LLCs are government-sanctioned constructs. If your idea of free enterprise involves fundamentally revamping the idea of the corporation, I might have less of a problem with it.

Do you want to remove the concept of limited liability? Should the owners of a corporation be considered liable for more than just the assets of their corporation if they cause more damage than the corporation can be liable for?

Vaniver wrote:You understand that history is long, right? And that you actually have to look at it to learn from it?

And filled with systems that were tanked by the people who owned them, for many varied reasons and in many varied ways.

While I agree that ownership is an incentive, and can theoretically function, it seems possible in a free enterprise system to game things so that it no longer provides a meaningful incentive, and such practices seem to be becoming more prevalent with time, despite their repeated failures in producing a healthy economy.

Vaniver wrote:Again, it makes for great rhetoric, but I don't see the evidence.

The effectiveness of lobbying and its' prevalence on our legal process? The failure of laws and measures with public support due to lobbying? The literal writing of laws by corporate lobbyists?

What would function for you as evidence that corporations are abusing their power to influence government policies to a large degree?

It's obvious that corporations can't control the government completely - the only group capable of controlling the government entirely are the people, because they carry the mandate, regardless of the type of government. That doesn't mean that problems like tyrants, despots, or corporate plutocracies can not dominate the process.

Vaniver wrote:A government which is banned from empowering rent-seekers,

Banned by what? What keeps a corporation empowered with the ability to influence the government from simply changing this?

Vaniver wrote:and has a judiciary and populace educated on what that is, seems like it would have a chance at succeeding.

Here we come to the actual requirement for your idea. I would say that such a requirement is equivalent to the requirement needed to make a regulated system function - a people educated in the ability of corporations to abuse systems and proactive in preventing such abuses.

In fact, since this is also required for a free market to function by producing informed and proactive consumers, my system would seem to have a lower threshold for effectivenss. :D

Furthermore, I would assert that the populace capable of implementing your solution would also be able to implement my solution, as the people in your solution need to be capable of keeping corporations from influencing their government inappropriately.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image


Return to “Serious Business”

Who is online

Users browsing this forum: No registered users and 6 guests