Monday, July 17, 2017

Public Finance For Andy Seal

Comment on: The Controversy over Democracy in Chains by Andy Seal


In 1954 Paul Samuelson wrote "The Pure Theory of Public Expenditure".  He recognized the inherent problem with public goods.  You can benefit from national defense without paying for it, so you might as well pretend to have less interest in it than you truly do (false signal).  Therefore, taxation should be compulsory.  But then Samuelson simply assumed that planners would do an adequate job of correctly guessing your true valuation of defense.  He assumed omniscience.

The reason that I haven't purchased MacLean's book is because everything that I've read about it leads me to believe that she thinks that the other 1954 thing... "Brown v. Board of Education" was somehow more relevant to Buchanan and the formation of public choice than Samuelson's paper.

You've read MacLean's book... did she even mention Samuelson's paper?  Did she mention anything about the fact that the biggest economic defense of our current system of government is based on the assumption that planners are omniscient?

Buchanan had absolutely no issue with Samuelson's view on the inherent problem with public goods and the need for compulsory taxation.  But when it came to his assumption of omniscience, Buchanan had a very big issue.

In 1963 Buchanan wrote "The Economics of Earmarked Taxes".  He argued that taxpayer earmarking would eliminate the incentive to give false signals.  Since you are paying taxes anyways, if you were given the opportunity to earmark your taxes, then the amount of your tax dollars that you earmarked to defense would accurately reflect your valuation of defense.  Say that your valuation of national defense is $1000 of your tax dollars but you only earmark $100 tax dollars to national defense.  It doesn't mean that you'll be able to spend the difference on private goods (ie clothes, food). It means that you'll have $900 tax dollars to earmark to other public goods (ie education, healthcare)... which you value less than national defense. Therefore, there's absolutely no incentive to give a false signal.

MacLean is correct that Buchanan's work is anti-democratic.  Unfortunately, as a result of her economic ignorance, she thinks that his work is inspired by racism and/or the ultra-wealthy.  No.  Seriously?  No.  His work is inspired by his very serious concern about the assumption of omniscience.  If this absurd assumption is abolished, then the conclusion really can't be direct democracy.  No economist in their right mind is going to argue for voting on the amount of money to spend on defense.  Because if that was sane, then we might as well vote on the amount of money to spend on milk.  Except, if voting is used to allocate all resources, then money itself would be pointless.

Buchanan is our Goliath.  MacLean is not your David.  But at least she tried.  If she hadn’t, it’s doubtful that you would have written anything about Buchanan.

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