What are Taxes Worth?

In my post on A Wife Swapping Economy...I predicted that Peter Boettke would be the first economist to fully endorse pragmatarianism.  Here's my extended response to his blog entry...Don Boudreaux on Ludwig Lachmann...

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In the comments, Tom Palmer shared his favorite essay by Lachmann, "The Market Economy and the Distribution of Wealth".  I read it twice and found lots of great clues.  Here's one..

Moreover, what is a resource today may cease to be one tomorrow, while what is a valueless object today may become valuable tomorrow. The resource status of material objects is therefore always problematical and depends to some extent on foresight. An object constitutes wealth only if it is a source of an income stream. The value of the object to the owner, actual or potential, reflects at any moment its expected income-yielding capacity. This, in its turn, will depend on the uses to which the object can be turned. The mere ownership of objects, therefore, does not necessarily confer wealth; it is their successful use which confers it. Not ownership but use of resources is the source of income and wealth. - Lachmann, The Market Economy and the Distribution of Wealth

...which you can compare to this clue that Bastiat offered before Lachmann was even born...

If the socialists mean that under extraordinary circumstances, for urgent cases, the state should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions, we will, of course, agree. This is done now; we desire that it be done better. There is, however, a point on this road that must not be passed; it is the point where governmental foresight would step in to replace individual foresight and thus destroy it. It is quite evident that organized charity would, in this case, do much more permanent harm than temporary good. - Bastiat, Justice and Fraternity

...which you can compare to this clue that Turgot offered before Bastiat was even born...

There is no need to prove that each individual is the only competent judge of this most advantageous use of his lands and of his labor. He alone has the particular knowledge without which the most enlightened man could only argue blindly. He alone has an experience which is all the more reliable since it is limited to a single object. He learns by repeated trials, by his successes, by his losses, and he acquires a feeling for it which is much more ingenious than the theoretical knowledge of the indifferent observer because it is stimulated by want. - Turgot, The Turgot Collection

Our most valuable resource isn't any of our material resources...it's our individual "foresight"...our own "particular knowledge"...which I've taken to refer to as our unique perspectives...Perspective Matters - Economics in One Lesson.  Our unique perspectives allow us to see how limited resources might be used in new, valuable and productive ways.

Yet, for the past 300 years the people who have understood the value of perspectives have argued to limit the scope of government and reduce taxes.  Why didn't they see the value of millions and millions of taxpayers, each with their own unique perspective, having the freedom to use their taxes, the symbolic representation of their own countless sacrifices, to determine the proper scope of government?  Why didn't Turgot or Bastiat or Lachmann or Hayek or Friedman or Buchanan or Boettke or Kling or Rizzo or Caplan or Boudreaux see the value of allowing millions and millions of our most productive perspectives to use their taxes to reveal exactly what the government does that is worth their countless individual sacrifices?

You guys have the power to fundamentally change the debate with liberals.  Why not switch tactics on them?  Why not simultaneously prove that Einstein's definition of insanity doesn't apply to you guys?  Why not try an Aikido move by letting liberals have their taxes in exchange for individual foresight?  Would it be worth it to give up one thing you value in exchange for another thing that you value even more?  That is, of course, the very definition of sacrifice.

Why not have this discussion with liberals?  Discussion is simply free-trade.  It's where two or more people freely exchange their perspectives with each other.  We all value our perspectives... so wouldn't we all stand to benefit by freely trading our perspectives on perspectives?

How would liberals respond to our offering?  Is Paul Krugman really going to argue that his perspective does not matter?  Is Jeffrey Sachs really going to argue that the combined perspectives of 538 congresspeople are more valuable than the combined perspectives of 150 million of our most productive citizens?  Would Krugman and Sachs really argue that, from their perspectives, one use of a limited resource is as good as any?  Would they really argue that, from their perspectives, economics does not matter?  Let's find out!

Perspectives Matter - Backstory

The study of knowledge (epistemology) is pretty darn interesting.  Here are a couple discussions which provide some recent background on my upcoming post (Perspectives Matter - Economics in One Lesson).  The first discussion took place on a political forum...Libertarian Pudding Tastes Good!!!...and the second discussion took place on Gene Callahan's recent an entry on business cycles....Notes on a General Theory of the Social Cycle.

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Reiver

Why isn't socialism a viable concept? Because it's impossible for a king...or a committee...to determine the optimal level of funding for an organization.

This doesn't make sense. Economic planning is the norm in all viable economic paradigms. Capitalism is certainly reliant on it, with the invisible hand often deliberately avoided.

Not Amused

Companies change their plan with conditions, government try to force the condition to fit their plan.

Companies often reduce spending, and terminate products that are no longer viable. Government rarely reduces spending, and rarely only terminates program spending.

Over time, companies provide more value for the same, or less cost, or go out of business. The cost of government has little to do with it's value.

Reiver

Companies change their plan with conditions

But they actively avoid the market. The visible hand is just as prone to error from distributed knowledge, with the price mechanism no longer directly used for allocative purposes. That ensures his comment was nonsensical. Note I'm not defending government planning at all (especially as government planning is not needed within socialism, except with the usual need to take into account market failure in social investments)

Xerographica

It's only nonsensical if you're unfamiliar with the opportunity cost concept...

Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice". The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently. Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs. - Wikipedia

To familiarize yourself with this concept take a look at the following...

• Partial Knowledge and Opportunity Costs
• The Opportunity Costs of War
• The Opportunity Costs of Public Transportation
• The Opportunity Costs of Public Goods

If a pragmatarian system were implemented...would you guess that the scope of government would narrow or broaden? In other words...would the result be anarcho-capitalism, pragma-socialism or somewhere in between?

Reiver 

It's only nonsensical if you're unfamiliar with the opportunity cost concept...

Opportunity costs ensure a distinction between economics and accountancy. It doesn't provide any counter to my comment. Try again:

The visible hand is just as prone to error from distributed knowledge, with the price mechanism no longer directly used for allocative purposes. That ensures his comment was nonsensical. Note I'm not defending government planning at all (especially as government planning is not needed within socialism, except with the usual need to take into account market failure in social investments)

To familiarize yourself with this concept take a look at the following... 

I'm not interested in your petty advertising of your blog. Defend your argument with something that makes sense!

Xerographica

Reiver, the bottom line is that either your perspective matters...or it doesn't. For the intents and purposes of this discussion I'm defining "perspective" as all your values, desires, wants, needs, concerns, fears, hopes, dreams, tastes, preferences, priorities and partial knowledge.

Does your perspective matter? If not, then I'll just spend all your money for you. Will you be able to complain about how I spend your money? Of course not. You know why? Because your perspective doesn't matter.

Xerographica

Maybe you missed my question. Here it is again...

Reiver, the bottom line is that either your perspective matters...or it doesn't. For the intents and purposes of this discussion I'm defining "perspective" as all your values, desires, wants, needs, concerns, fears, hopes, dreams, tastes, preferences, priorities and partial knowledge.

Does your perspective matter? If not, then I'll just spend all your money for you. Will you be able to complain about how I spend your money? Of course not. You know why? Because you perspective doesn't matter.

So does your perspective matter? Is this a difficult question for you?

Reiver

The problem is that you have made economic comment that is certainly invalid. Clearly you also cannot (at least attempt to) suggest otherwise.

Xerographica

Why are you avoiding the question? Let me ask again. Does your perspective matter?

Reiver

If you want to improve your comments and achieve some validity? Certainly! So far I haven't seen a valid economic comment from you. Your attempt to reply with a reference to opportunity costs, for example, was laughable

Xerographica

So your perspective matters! But only in terms of me improving my comments and achieving some validity? Your perspective only matters in this ridiculously limited regard? You exist solely to improve my comments? Are you sure your perspective doesn't also matter in other areas as well?

Reiver

Your dodge really isn't imaginative or entertaining. Except for your petty attempt at advertising your blog, care to actually try to respond 'with economics'?

Xerographica

LOL...I'm asking you if your perspective matters. How did I define "perspective"? I defined it as all your values, desires, wants, needs, concerns, fears, hopes, dreams, tastes, preferences, priorities and partial knowledge.

Economics, in case you missed it, is the study of scarcity. For some reason you believe that your perspective...your values, desires, wants, needs, concerns, fears, hopes, dreams, tastes, preferences, priorities and partial knowledge...has nothing to do with with study of scarcity.

*awkward*

Hmmm...maybe you should read my blog and then try again.

Reiver

You're not going to impress me with reference to ECon 101 textbooks. Let's see if we can coax you towards economic comment, just for the crack:

The socialist calculation debate has effectively been won. Rather than referring to the theoretical reproduction of neoclassical perfect competition, we can refer to the use of market socialism and how- with a more stable market supported by the defence of property rights (including the worker right to receive the value of their labour)- it actually reduces the need for economic planning

Try and critique the comment. Don't go back to the insipid dodging!

Xerographica

Insipid dodging? My "insipid dodging" definitively proved that you don't know the first thing about economics. You can't even answer the question of whether your perspective matters. If people's perspectives do not matter then what's the point of discussing scarcity? One use of a limited resource would be as good as any.

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The economist Gene Callahan recently posted an entry on business cycles....Notes on a General Theory of the Social Cycle.  So I posted a comment on how how perspectives matter...but Callahan totally misunderstood me.  I took full responsibility and tried again.  Here was his response...

@xerographica: “The problem is that I’m the only one seriously advocating that taxpayers be allowed to directly allocate their taxes.”

That’s cool and all, but i don’t see what it has to do with creating a general theory of social cycles.

Shucks.  Here was my third attempt...with a bit more polishing...

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It boils down to hedging our bets. We all make mistakes…aka fallibilism…therefore…we shouldn’t put all our eggs in one basket. Let’s evaluate this on three levels...

1. Epic Fail = Socialism resulted in epic fails because all the eggs were in one basket. One committee controlled an entire nation’s resources.  
2. Substantial Fail = Mixed economies like our own result in depressions and recessions because we allow a committee (538 congresspeople) to control the distribution of 150 million people’s taxes. In other words…we have way too many eggs in one basket. For example, a tax rate of 25% means that 538 congresspeople control around one quarter of our nation’s resources.
3. Micro Fail = If I gamble my home on a business idea that doesn't pan out…then I'll lose my home...but this won't have any impact on my neighbors’ homes.

The only difference between the three failures is scale/scope.  Depressions and recessions...widespread failures...are a direct result of large scale resource misallocations.

As we established…the efficient use of limited resources depends entirely on our perspectives. Does congress have any idea what your perspective is on how they should spend your taxes? Does it matter that they do not?  What difference does it make that 538 congresspeople have no idea what 150 million people’s unique perspectives are?

People think that voting reveals their perspectives. Nothing could be further from the truth. The only way to reveal somebody’s perspective is to allow them to make decisions with their own, individual time/money. This is exactly why taxpayers should be able to choose which government organizations receive their own, individual taxes. This would allow them to integrate their unique perspectives…which would lead to the efficient allocation of public funds…which would reduce…if not eliminate…widespread failures.

Of course…I could be wrong!  The thing is though...this very concept is based on the idea of fallibilism…

It follows, then, that a less centralized society has the advantage of a greater diversification of its performance across a larger number of preceptors. This is because diversification here dilutes the impact of the ability, or the lack thereof, of each preceptor on the aggregate societal performance. – Raaj K. Sah, Fallibility in Human Organizations and Political Systems

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Callahan responded that I was trolling and bothersome.  He also said that pragmatarianism is my "pet peeve".  It's my "pet peeve" that the perspectives of 150 million taxpayers do not matter in the public sector?  That's one way of putting it.  Why isn't it his pet peeve as well?   Why isn't it every economist's pet peeve?  Does it matter that your perspective has no direct influence on the distribution of public funds?  Is it possible for a committee of 538 people to efficiently allocate a huge chunk of our nation's resources?  Am I tilting at windmills here...or are economists ignoring the neon pink bull wreaking havoc in our china shop?