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The story behind Hayek v. Keynes, The Fight of the Century

If you haven’t seen the latest EconStories video, The Fight of the Century, watch it.

This week on EconTalk, Russ Roberts interviewed his collaborator on this project, John Papola, and as ever, it’s worth listening to, here for an introduction to the ideas discussed. While there, subscribe to the podcast. It covers a wide range from week to week, and while Russ has an openly Austrian instinct, his guests come from across the spectrum, if with a bias in the regulars.

The one fault I’d find with the video is that I think Keynes’s lines would have been more interesting had they been scripted by a Keynesian, and they would have avoided what small accusations they got, and discuss in the interview, that his lines are not properly representative. But I do think Hayek’s case does not get a proper airing, so this video is a good addition to the debate from the Hayekian perspective, with the message that the only way we get prosperity is by producing things other people care about, and that this can best be determined by the free market. Any fair-minded assessment of the economy in either Ireland or the US over recent decades, cannot describe the system of government schemes and tax breaks, particularly in housing, as the free market.

And if you didn’t know this was a sequel, here’s part one:

Receipts for tax payments

Third Way, an American think-tank, last year had a simple proposal that should be possible to implement here as well, highlighted this week in Slate to coincide with the US tax-filing deadline. Each taxpayer would receive a breakdown of how their tax contribution was spent. It should be relatively costless, the same formula for all taxpayers, the amount paid divided by the proportions of government spending in each department, in one extra page sent with a P60.

At its simplest, it would simply present fifteen figures, one for each government department, though with a little extra effort, it would make sense to itemize further, to separate Environment from Local Government, Tourism from Transport, etc.

There are two broad appeals to this. One is a matter of fairness, if people are paying in some cases over 50% on some of their income, it should be clear to them how that is spent. The other is that voters would then be better informed in public debate, arguments at election time about spending and taxation would be much more concrete for them.

Site value tax or site sales profit tax?

6 March, 2011 1 comment

We’re awaiting this morning the Programme for Government, which will be some sort of compromise between the manifesto of Fine Gael and Labour. Given the ratio of seats of 76 to 37 (2.05:1), the balance will be in Fine Gael’s favour, but there are elements of Labour’s manifesto I like, and not just on social issues. In their section on taxation, Labour write, “Labour accepts that it will be necessary to introduce a site value charge, in order to prevent higher taxes on work”. Fine Gael have instead proposed a “site sale profits tax”, levied on the profit made from the site value on the sale of a residence. As a reliable and sustainable form of taxation, I find a site value tax most attractive, possibly the least worst form of any taxation, and it is possibly too the only economic measure proposed by Labour I would certainly endorse. But I only fully appreciated the problems with own proposal last Thursday, as I was doing a last-minute flyer drop off Leeson St the day before the election. I met an elderly couple who felt it wrong that they would particularly be hit because they wished to trade down on their retirement.

A site value or land value tax is economically attractive because it does not disincentivize further investment in one’s property. And other than occasional changes to the amount because of improvements in amenities like a new Luas line, it is a fairly steady source of revenue. A transaction tax, whether it be stamp duty or sales profit tax, would be dependent on vagaries of the market.

Labour did, however, acknowledge that because there would need to be a preliminary survey of property, it couldn’t be introduced till 2014. There should also be relief for those who have recently paid high levels of stamp duty. If we do get a pledge on such a tax in the Programme, and if that’s the timescale we get, I will be pleased, particularly so if over time more is raised through a land tax and progressively less through taxing income.

Rational optimism

7 June, 2010 5 comments

Last week, I attended a lecture by geneticist Matt Ridley, hosted by the Irish Skeptics Society. I have before read his books The Red Queen and The Origins of Virtue, explaining the genetic origins of human instincts and society. Politically, he is a proponent of free trade and small government, having written for The Economist from 1984 to 1992, and he served as non-executive chairman of Northern Rock from 2004 to 2007. His understanding of science and human nature leaves him open to the accusation of an attempt to justify his politics, but it is not with Ridley that we’ve first seen a convergence in views on the market and evolution. Charles Darwin saw the parallels between the simplicity of natural selection and Adam Smith’s invisible hand, while Friedrich Hayek saw the same processes of emergent order in nature as in many human endeavours such as the market, language or societal customs, none of which were ever formally instituted.

Ridley’s thesis is that what makes homo sapiens fundamentally different from all other species is our capacity to trade. Recent studies in the genome code have shown that even our closest relatives, homo neanderthalensis, probably had language, and excavations have shown that they had burial customs, but no neanderthal tool has been found more than two hours from where it was made. Of course, even if we have been trading as a species for 120,000 years, the acceleration of the benefits of trade only began to take off in the relative recent past, some time in the mid-eighteenth century. As a sign of the improvements to the common man from trade in those years, Ridley compared the situation of Louis XIV of France, who had nearly 500 people to prepare food for him, to any of us today, who have hundreds of people working for us, if we want to think of like that. Once we pay them for what we want, what difference is it to us that they’re also working hundreds of other people too?

Read more…

A liberal on trade

In The Storm, Vince Cable, Deputy Leader and Shadow Chancellor of the Liberal Democrats, outlines the bizarre Alice in Wonderland nature of trade negotiations argued on protectionist assumptions.

The main trading countries have been locked for several years in negotiations that centre on the following proposition: you agree to stop shooting yourself in the foot by paying out subsidies and hurting your consumers through costly import restrictions, and we shall, reluctantly, do the same. Or, more accurately, if you refuse to stop shooting yourself in the foot, we shall also refuse to and, indeed, shoot ourselves in both feet, just to show that we are more serious.

Bastiat and the fallacy of the Broken Window

11 April, 2010 2 comments

Tom G. Palmer explains in this short story from Frédéric Bastiat why destruction is not a reason for economic rejoicing:

A liberal on taxes

13 January, 2010 Leave a comment

A liberal should never forget that whatever justification given for taxes, to fund justice and security, public services, social welfare, or certain macroeconomic aims, they come from the people. German Foreign Minister Guido Westerwelle, leader of the FDP, Germany’s liberal party, in coalition with the Angela Merkel’s CDU, expressed this view well.

What kind of decadent understanding of the state is it that sees tax cuts as a gift? Citizens give the state their taxes, not the other way around.

(As reported by Derek Scally, The Irish Times, 8 January 2010)

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