Sunday, March 21, 2010

Feds never pay taxes

This story from Drudge the other day caught my attention:

More than 3 percent of the 2.8 million federal civilian employees owed the Treasury unpaid federal income taxes in 2008, according to the IRS. If you include retirees and military service members, the numbers go from nearly 100,000 up to 276,000 current or former workers who owe $3 billion in taxes.

The problem here is that federal employees pay no income tax. As Murray Rothbard observed:

If a bureaucrat receives a salary of $5,000 a year and pays $1,000 in "taxes" to the government, it is quite obvious that he is simply receiving a salary of $4,000 and pays no taxes at all. The heads of the government have simply chosen a complex and misleading accounting device to make it appear that he pays taxes in the same way as any other men making the same income. The UN’s arrangement, whereby all its employees are exempt from any income taxation, is far more candid. - Man, Economy and State with Power and Market, pp. 1151-2

There are other problems with federal employees, such as that they make more money than productive private sector employees, and that, when not completely worthless, they actually inhibit production by insisting that the private sector participate in an Olympics of bureaucratic games in order to provide goods and services to consumers.

Anything which draws attention to the bloated government sector can't be all bad, but the focus on unpaid taxes rather misses the point.

Monday, March 15, 2010

On the coming death of Keynesian economics

For those who believe the economic crisis is over, Keynes is the hero of the hour. His ideas were implemented by enlightened Governments around the world--especially those of the United States and the United Kingdom. Without the decisive action to bail out bankers with borrowed money, these countries would still be mired in recession.

For the narrative to fit, no mind must be paid to the fact that countries which neglected to implement Keynesian ideas, such as Germany, are doing even better. And we must refrain from pointing out that the boost in GDP has done nothing to reduce unemployment. This is a jobless recovery, whatever that may mean.

I don't for a second believe this crisis is over. I am also far from convinced that the credit given to Keynes will be turned to blame should the recovery fail to materialize. Gary North is more optimistic than I am:

When the USSR went bust economically in 1988, then lost the Afghan war in 1989, and finally committed suicide in 1991, Marxism died. All the footnotes in the Marxist books no longer mattered in academia. All the post-1991 wailing by Marxists that the Soviet Union really had never been truly Marxist has been ignored. Why? Because the Marxists took credit for the USSR for 74 years. They praised the Soviet Union's central planning. So, in 1991, they could not get off the sinking Soviet ship in time to justify the Marxist system.

By 1991, China's economy was booming because of Deng's abandonment of Marxist economics in 1978. That left only Albania, Cuba, and North Korea. The Marxists had nowhere to turn to that offered evidence of economic success. Overnight, they became a laughing stock on campus.

This will be the fate of Keynesians when the governments of the West finally go bust or else abandon the deficits and the fiat money.

North has a point, but I see two problems with his analysis. First, it is extremely unlikely that the "recovery" will last seventy-four years. It is far more likely that it will be revealed to be chimerical by the end of the year than that it should last three quarters of a century. This is important because the more an idea is impressed upon the minds of men, the harder it is to uproot. If the stock market collapses tomorrow, and the unemployment numbers shoot up, the Keynesians will have some explaining to do. But the longer the false recovery lasts, the harder it will be for them to explain away the failure of their theories.

Second, I am not so sure the Keynesians will be discredited by more than the small number of people who pay attention to these sorts of things. Ron Paul has done a tremendous service in educating people--myself included--about the school of Austrian economics. His impact, exemplified by his recent win at the CPAC straw poll, should not be understated. But even with the increased interest in economics that accompanies every end of the boom phase of the business cycle, much work remains.

North is aware of this, but I'm still concerned that so much of the populace remains completely ignorant of economics in general, or at least of any alternative to the Keynesian chatter that dominates everywhere outside of the Internet, that the opportunity will only be capable of so much. Mainstream economists should have been run out of town after their embarrassing inability to notice the economic crisis they now take credit for having averted. But Krugman still has his column, and I think it depressingly likely that this will not change, even should the economy worsen to the extent that no one can mention recovery without being laughed at.

After all, most of the neo-conservatives who proved so abysmally inaccurate about WMDs, the Al-Qaeda connection--in fact, most everything about the Iraq War--are still ubiquitous. Bill Kristol will probably continue to write alongside Krugman even after they should have both been discredited.

This said, North is right about the opportunity for adherents of the Austrian school. As economics is only one of my interests--I have a full-time job as a computer programmer--I don't think I'd be able to contribute to North's project to dismantle the Keynesian system. Nor, to be honest, do I believe my sparse readings in economics qualify me for the role. But I wish him the best of luck.

Still, my brother, who is presently majoring in economics, and I plan on reading Keynes's General Theory of Employment, Interest and Money sometime this summer on this blog. I can't promise a line by line examination of the book, but we should be able to cover some of the main points, as PJ and I have tried to do for On Liberty and The Republic. Every little bit helps.

Sunday, March 07, 2010

Stock up now

The tax on pipe tobacco is heading drastically upwards:

Just about every member of the pipe smoking community should already know about H.R. 4439, the Tobacco Tax Parity Act of 2010. It proposes to raise the tax on pipe tobacco 775% from $2.8311 to $24.78 per pound.

Since I happen to smoke pipe tobacco, this issue is nearer to my heart than it may be to yours. But it should be aggravating to anyone who cares at all for liberty. If the Government can place prohibitive taxes on any economic good, it can make them all but illegal. I'm not certain we'll see a black market for tobacco emerge, like the ones we already have for drugs which are actually illegal, but as the taxes continue to increase, that day becomes ever nearer at hand. In the meantime, we must simply pay exorbitant prices for a legal good.

The article I linked to contains an interview with an entrepreneur who sells roll your own tobacco and pipe tobacco. It's instructive for two reasons: first, in that it demonstrates how decisions by bureaucrats destroy working sectors of the economy without the least concern. Both the entrepreneur and his customers benefited by the free exchange of tobacco for money; they will now have to pay more dearly--but at least the State can make steal a bit of money from its citizens.

Second: regulation hurts small companies more than it hurts corporations. To be in favor of excessive regulation and yet to be anti-corporation is to reveal oneself to be ignorant, or a moron, or both.

These oppressive bastards are going to make everybody in pipe tobacco register in their states. Folks in roll-your-own and cigarettes do now. Every year you have to get your brand certified. In terms of incrementalism, that’s one of the next steps, and another thing to destroy manufacturers because the paperwork is so regressive and so time-consuming, it’s more than a small company can sustain.

The people in government can do it because they don’t have to pay for their payroll. They can just steal more money from taxpayers. They can add employees ad nauseam to process all the paperwork because they don’t have to produce anything to pay all the salaries. For a business it’s a little different. It gets to a point that a business just says screw it, I can’t afford the paperwork. It’s time to shutter the store. We’re getting to that point.

It would be hyperbole to suggest that this is evidence that we no longer live in a free society. But it is telling that this sort of thing can happen without anyone really noticing. Sure, Pipes Magazine picked up on it, but if Lew Rockwell hadn't linked to it, I'm not sure how many people would have noticed. The next thing you know, Obama and the Democrats will extend the PATRIOT Act...