Monday, 24 May 2010

“Tax cuts don’t cause growth”? [updated]

THERE IS A STRANGE POST over at The Sub-Standard purporting to demonstrate that tax cuts don’t cause economic growth, and that Bill English’s reliance on such a process to balance his budget is therefore illusory. “Tax cuts don’t cause growth” is the post.

33814183_bc322c7343 To call its evidence for that proposition "cherry picking" would be too positive about it.  The argument posted is essentially that of Gordon Campbell, and it would be more accurate to call it the result not of cherry picking but of sifting through an intellectual dung hill.  It first of all accepts at face value that this budget has just delivered tax cuts—which, when you consider all the tax increases in the budget and soon to come (alcohol, tobacco, ACC, GST, electricity, petrol, etc., etc.)  is patently ludicrous—and then purports to show that history itself  is against the proposition of tax cuts causing growth, and that it is in fact high taxes that presage real economic growth.

Before fisking its main claims, it’s worth noting that Arthur Laffer’s famous curve is not itself even mentioned here—which is the actual theoretical construct Campbell and the Sub-Standard are attacking , (Laffer’s Curve itself, along with all its problems, provisos, assumptions and associated literature, is simply not mentioned)—and no mention is made either of any of the notorious historical examples of high taxes strangling economic growth—such as Britain’s famous post-war experiment in democratic socialism and usurious taxes that led it in just thirty post-war years to near bankruptcy.

Now Mr Laffer and his adherents can defend themselves—and post-war British history can speak for itself.  So in the space available in a blog post I want to simply fisk the most stupid of the historical claims made by Campbell and the Sub-Standard. 

BUT FIRST, LET’S UNDERSTAND in very simple terms what does causes economic progress—understand enough at least, to enable us to spot the error in the Sub-Standard’s post.

Now, the seed corn of economic growth is capital—capital put to work producing economic wealth, and still more capital.  It’s an ongoing virtuous cycle dependent on one thing: that you keep growing your seed corn instead of consuming it. 

    “Capital [explains George Reisman] is the accumulated wealth that is owned by business enterprises or individuals and that is used for the purpose of earning profit or interest.
    “Capital embraces all of the farms, factories, mines, machinery and all other equipment, means of transportation and communication, warehouses, shops, office buildings, rental housing, and inventories of materials, components, supplies, semi-manufactures, and finished goods that are owned by business firms.
    “Capital also embraces the money that is owned by business firms, though money is in a special category. In addition, it embraces funds that have been lent to consumers at interest, for the purpose of buying consumers' goods such as houses, automobiles, appliances, and anything else that is too expensive to be paid for out of the income earned in one pay period and for which the purchaser himself does not have sufficient savings.
    “The amount of capital in an economic system determines its ability to produce goods and services and to employ labor, and also to purchase consumers' goods on credit. The greater the capital, the greater the ability to do all of these things; the less the capital, the less the ability to do any of these things.”

The key to economic growth is capital accumulation; and, in a word, the key to capital accumulation is saving.

    “Capital is accumulated on a foundation of saving. Saving is the act of abstaining from consuming funds that have been earned in the sale of goods or services.
    “Saving does not mean not spending. It does not mean hoarding. It means not spending for purposes of consumption. Abstaining from spending for consumption makes possible equivalent spending for production. Whoever saves is in a position to that extent to buy capital goods and pay wages to workers, to lend funds for the purchase of expensive consumers' goods, or to lend funds to others who will use them for any of these purposes.
     [ref: George Reisman: “Economic Recovery Requires Capital Accumulation, Not Government 'Stimulus Packages'”]

As I quoted John Stuart Mill here the other day saying, “What a country wants to make it richer, is never consumption, but production.”

When spending on production exceeds spending on consumption, more capital goods are produced and a process of capital accumulation (and economic growth) is begun. When spending on consumption exceeds spending on production, however, the result is the opposite: capital is consumed instead of accumulated—and since the means by which economic activity is diminished, so too is the economic activity that the consumed capital would have made possible.

So (leaving aside the risks and uncertainties associated with entrepreneurs directing their capital towards all the various places it can be put to best use) the simple equation to look at as a predictor of economic growth is the proportion of productive spending to consumption spending.

The higher the proportion, the higher the rate of economic progress; the lower, the less.

SO WITH THAT BRIEFEST of introductions out of the way to help explain the inescapable relation of capital to economic growth, let’s look at the Sub-Standard Campbell’s argument that tax cuts do not cause growth.

Their argument, in a nutshell, is that history suggests otherwise.

    “For decades, right wing economists have claimed– both here and overseas – that tax cuts are a crucial engine of economic growth. Reality, as often as not, has begged to differ.
    “Here in New Zealand during the mid 1980s, a major package of tax cuts was followed by years of little or no growth, and ultimately, by a recession. In the early 1990s, Bill Clinton’s tax hikes immediately preceded the longest and most sustained economic boom in the US since the Second World War.
    “In 1998, the true believers in the National government were predicting that tax cuts would foster savings – fully one third of that round of tax cuts, Treasury predicted, would be saved. They weren’t.
    “In 2000, the incoming government hiked up the top tax rate – and this neither caused, nor prevented, a prolonged bout of economic good times. Ultimately, there is no essential link, either way, between tax cuts and economic growth.”

money_dn_drain In fact there is an essential link, but it’s one that those right-wing economists themselves have ignored.  Since government spending is overwhelmingly spending on consumption rather than production, the key thing to notice is whether the tax cuts are delivered by accompanying cuts in government spending, or whether the cuts are funded by borrowing—borrowing which takes real savings away from producing new capital (and, thereby, growth) and pours it  instead down all the government’s favourite black holes.

High government deficits stifle growth, whereas lower deficits (if the released capital is put to productive use) tend towards allowing it.

That’s the key to understanding the apparently paradoxical history presented above (which for ideological reasons ignores the eighties boom entirely).  Bill Clinton’s tax hikes were used to reduce the government’s borrowing, leaving more capital available for growth. So too (at least at first) were Michael Cullen’s tax hikes in the 2000s, which left (some) more capital available for productive use. 

It also explains some of the other history cited.  The use if history to prove points in a short post such as this is inherently once-over-lightly, but Gordon Campbell’s cited historical facts are woefully deceptive:

The highest period of growth in U.S. history (1933-1973) also saw its highest tax rates on the rich: 70 to 91 percent [says Campbell]
The period in question is carefully chosen. It saw both low taxes and high taxes; low deficits and high deficits; and encompassed four distinct periods, all of which go against Campbell’s claim:

    1. from the depth of the Great Depression in 1933 to the start of the war, Roosevelt’s meddling created massive regime uncertainty, and his high deficits sucked out capital; the result was not growth but stagnation.
    2. during the war the government both raised taxes and went into deficit, massively consuming existing capital.  With price controls, rationing, military conscription and an essentially command economy “one simply cannot speak with confidence about such
      matters as, for example, the rate of growth of real GDP or the rate of inflation
      from year to year during the period from 1941 to 1947.” [ref: Robert Higgs]
    3. the “economic miracle” in this period is the post-war American boom, which absorbed 10 million servicemen and turned the whole world economy round—a boom that started after both deficits and taxes were slashed, and private savings (built up during the war years of military production when there were virtually no consumer goods on which to spend) were finally put into private investment, converting factories from producing tanks, guns and planes to more fridges, cars, housing and the productive capital that was to sustain the post-war take-off.
    4. when the post-war boon began to wane, however, it was pumped up unsustainably by the Keynesian manipulation of the late-Eisenhower fifties and Kennedy/Johnson sixties (the Keynesian call for high deficits was just one reason the Keynesian Kennedy & Johnson White Houses were meddling in Vietnam), which led inexorably to the stagflation of the seventies, and what should have been the collapse of the “consumptionist” Keynesian world-view.

The authoritative paper to read on the first three periods is probably Robert Higgs’ “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War.” A useful paper on the history of the fourth period is Allan Meltzer’s “Origins of the Great Inflation.”

The rest of subStandard’s pseudo-history is no better. Let’s fisk:

During both world wars, taxes soared to record heights. And the supercharged economies that resulted produced high growth for decades afterwards. World War I was followed by the Roaring 20s…

The Roaring Twenties were powered by low taxes, Low government spending and higher productivity (through the use of new invention like automobiles and reticulated electricity) and, as it was learned subsequently, lower interest rates than was economically sustainable—producing not “decades of growth afterwards” but decades of penury. Campbell’s history is just wrong.

… World War II was followed by the boom times of the 50s and 60s.

See above.

The [US] economy has grown strongly over the past several years because of the [Bush] tax cuts. Reality: The 2001-2007 economic expansion was sub-par overall, and job and wage growth were anaemic…

Bush’s tax cuts were unfunded by equilibrating spending cuts, which meant that once again it was an expansion hobbled once again by deficits (which meant private investment competing with government for credit), by the bureaucracy that was being paid to hamper growth, and fuelled by unsustainably low interest rates -- leading to extensive malinvestment and the inevitable bust.

And in 2008? The American economy, despite all the recent Bush tax cuts, simply imploded.

The tax cuts were unfunded, and the extensive malinvestments caused by unsustainably low interest rates inevitably led to the bust—precisely as Austrian economists said it would.

06-30-04-death-and-taxes THE FACT IS, THAT no matter how much they torture history to make it produce their point, history itself does not at all demonstrate what Mr Campbell and the Sub-Standard say that it does.

Real, sustainable economic growth is not the result of high taxes, but of long-term sustainable capital growth and accumulation—and hence, ever-greater and ever-increasing productivity.

Since government spending is overwhelmingly thrown away on consumption spending instead of on productive spending,however –practically every dollar that governments spend is consumption spending --capital growth is hampered rather than helped, by high government spending.  It’s a handbrake, not a help-mate.

Governments you see have only three means by which they can obtain money to spend: taxes, borrowing, or the printing press.  The higher their spend, the more one or more of these three hurdles are put in the way of successful capital accumulation. The more governments spend, the less private investment can happen.

By that standard then, it should be clear that tax cuts themselves are only an indirect means by which to encourage growth, and without commensurate spending cuts are potentially more destructive than constructive.

In short, tax cuts without govt spending cuts simply imply that a different form of handbrake is to be applied.

By that measure then, it’s true that Bill English’s “tax cuts” (delivered without any spending cuts at all, but with both new borrowing, new spending, and a hint of inflation to come), are at best an illusion--and at worst a destructive nonsense.

But it says nothing at all about the general proposition.

UPDATE: The subStandard’s position is a simple “consumptionist” world view, i.e,, the idea that the government can promote prosperity by exchanging its own consumption for your production.  That position is most thoroughly attacked in George Reisman’s classic article: “Production Versus Consumption.”


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The Better Blog Awards

Demonstrating again that the mainstream media still doesn’t understand blogs, Qantas has been asked again to put their name to a ridiculous “media”  award for “best blog” as part of the Qantas Media awards, the nominees for which this year are a journalist no-one reads, a journalist everyone wishes they didn’t read, and a blogger who (by the look of it) is only read by his parents.

Since the announcement, blogetic derision has been near universal. And further afield, “the Qantas Media Awards have this much credibility," Air New Zealand CEO Rob Fyfe did not say when he was not asked to bankroll a new blogger’s award.

For a new and genuine blogger’s award has been announced, to be backed (in a manner of speaking) by Qantas rival  Air New Zealand.

    “The competition will be judged by the same criteria that the Qantas Best Blog Award was meant to be judged and it is only open to blogs ‘primarily dedicated to reporting news to views on news.’ We don't care about your personal finances, how your baby is doing or how wonderful your husband is for putting out the rubbish.”

The organisers  haven’t just persuaded themselves to make up some quotes from Rob Fyfe, they’ve also (somehow) persuaded both Bomber Bradbury and Matthew Hooton to cooperate on a judging panel. A signal achievement indeed.

Mind you, the competition is still self-selecting, so you’re still unable to nominate your own favourite blog(s). But they have offered you another chance to look at those naked Air New Zealand  sky maidens

Sunday, 23 May 2010

Is Christianity Compatible with Capitalism?

Is Christianity Compatible with Capitalism?

Yaron Brook from the Ayn Rand Institute debated this at Stanford University with Dr. Jennifer Morse of the Acton Institute for the study of Religion & Liberty.

A great debate for a quiet Sunday.

Watch it online at ARC-TV:

Is Christianity Compatible with Capitalism?

Saturday, 22 May 2010

QUOTES OF THE DAY: “What a country wants to make it richer…”

_Quote What a country wants to make it richer, is never consumption, but production. Where there is the latter, we may be sure that there is no want of the former. To produce, implies that the producer desires to consume; why else should he give himself useless labour? He may not wish to consume what he himself produces, but his motive for producing and selling is the desire to buy. Therefore, if the producers generally produce and sell more and more, they certainly also buy more and more. Each may not want more of what he himself produces, but each wants more of what some other produces; and, by producing what the other wants, hopes to obtain what the other produces. There will never, therefore, be a greater quantity produced, of commodities in general, than there are consumers for.
    “But there may be, and always are, abundance of persons who have the inclination to become consumers of some commodity, but are unable to satisfy their wish, because they have not the means of producing either that, or anything to give in exchange for it. The legislator, therefore, needs not give himself any concern about consumption. There will always be consumption for everything which can be produced, until the wants of all who possess the means of producing are completely satisfied, and then production will not increase any farther.
    “The legislator has to look solely to two points: that no obstacle shall exist to prevent those who have the means of producing, from employing those means as they find most for their interest; and that those who have not at present the means of producing, to the extent of their desire to consume, shall have every facility afforded to their acquiring the means, that, becoming producers, they may be enabled to consume.”
            - John Stuart Mill, “Of the Influence of Consumption on Production

_Quote The two great values to be gained from social existence are: knowledge and trade. Man is the only species that can transmit and expand his store of knowledge from generation to generation; the knowledge potentially available to man is greater than any one man could begin to acquire in his own lifespan; every man gains an incalculable benefit from the knowledge discovered by others. The second great benefit is the division of labor: it enables man to devote his effort to a particular field of work and to trade with others who specialize in other fields. This form of cooperation allows all men who take part in it to achieve a greater knowledge, skill and productive return on their effort than they could achieve if each had to produce everything he needs, on a desert island or on a self-sustaining farm.
    "But these very benefits indicate, delimit and define what kind of men can be of value to one another and in what kind of society: only rational, productive, independent men in a rational, productive, free society."
            - Ayn Rand, "The Objectivist Ethics," from her book The Virtue of Selfishness
                (quoted in her essay “The Nature of Government”)

Fireworks at Ryogoku Bridge - Hiroshige


Another classic by the master of Japanese prints, Utagawa (Ando) Hiroshige (1797-1858). This print was from his last series “One Hundred Famous Views of Edo.  First printed in 1858, Frank Lloyd Wright was said to have owned a copy.

Friday, 21 May 2010

Friday Ramble: The non-budget edition

Frankly, I’m sick of hearing about the goddamn budget and all the insufferable spin and lies about it.  So this latest Ramble is a goddamn budget-free zone.  Except for this:

_QuoteThe policies advocated by the welfare school remove the incentive
to saving on the part of private citizens. On the one hand, the measures
directed toward a curtailment of big incomes and fortunes seriously
reduce or destroy entirely the wealthier people’s power to save. On
the other hand, the sums which people with moderate incomes
previously contributed to capital accumulation are manipulated in
such a way as to channel them into the lines of consumption."

-Ludwig Von Mises, Human Action

  • Given the Keynesian spend-borrow-and-hope economics of stimulunacy applied by most of the world’s governments over the last eighteen months, it was surely inevitable that their borrowing-led stimulunacy would lead inexorably to a debt-lead “sovereign debt” crisis.  And frankly, their Keynes-led lunacy wasn’t doing too much better before that either.
    Bloomberg: the past five years don’t make Keynes look good – COBDEN CENTRE
  • Doug Reich explains why Europeans’ attempt to fake economic reality is doomed to failure.
        ”Market prices for securities tend to reflect the underlying fundamental value of those securities. Rather than an actual plan to cut government budget deficits by say, oh, I don't know, STOPPING SPENDING, Europeans have announced the magical creation of $1 trillion of phony money to bail out countries who are broke and can not pay their creditors. Investors have responded by selling eurocurrency and entering transactions to protect themselves from the devaluation of the currency or the default of these governments to pay their contractual obligation. Such activities allow prices to immediately reflect the true value of these instruments.”
    Germans Announce Law to Reverse Cause and Effect - Euro Drops – RATIONAL CAPITALIST
  • “Trying to suppress the symptoms without addressing the causes behind the widening in the spread can only make things much worse.”
    The Eurozone Stimulus Package and Economic Fundamentals – FRANK SHOSTAK
  • Remember how excited everyone was a few weeks ago when that unexpected drop in unemployment was announced. "That's the single biggest drop in the Unemployment Benefit since the recession began," Social Development Minister Paula Bennett enthused, after which everyone jumped on everyone else to say how amazing we all were,  Alan Bollard started harrumphing about raising interest rates, the NZ dollar went up, and Treasury started pretending the NZ economy was going to grow at around three percent over the next year.
    But guess what.  Now that the mainstream media has moved on to the next figment of their imagination, an Official Information Request made by blogger Lindsay Mitchell suggests that the form and content of Bennett’s announcement was deliberately deceptive, despite it being swallowed whole by nearly everyone.
    OIA response reveals real reason behind drop in the dole  - LINDSAY MITCHELL
  • “There will be no real growth and development in NZ while this culture prevails.”
    Owen McShane: Three Tales of Stupidity – OWEN McSHANE
  • Just while everyone is getting excited at Britain’s new political leadership, they go and announce the sort of attack on property-owners that would leave  Bernard Hickey in ecstasy.
    U.K. Capital Gains Tax Rise From 18% to 50% Would be Legalised Theft  - MIKE SHEDLOCK
  • Obama has a new US defence policy.  It’s called “Hope.”
    Coulter: "Obama National Security Policy: Hope Their Bombs Don't Work" – RATIONAL CAPITALIST
  • Wonder how it will work with North Korea?
    S Korea Confirms North's Torpedo Sank Warship (Killed 46) – BERNAMA
  • Obama’s totalitarian credentials become more obvious by the week.  This week’s example: Obama's regulatory czar Cass Sunstein talks about requiring Internet sites to automatically post links to opposing viewpoints.
    Weasel Words From a Would Be Tyrant – NEW ZEAL

  • Meanwhile, back in Venezuela, there’s more theft and disaster from Obama’s pin-up boy Hugo Chavez. Not content with arresting the country’s butchers last week for refusing to sell their meat at a loss, this week he’s nationalising a group of iron, aluminium and transportation companies for refusing to produce under threats.
    Venezuela's Chavez orders takeover of iron-makers  - BUSINESSWEEK
  • Obama’s poster-boy is visibly destructive.  His latest poster-girl, Supreme Court nominee Elena Kagan is less so. But it shouldn’t be. “What is the problem that so many liberal/left MSM pundits and columnists have with identifying the moral, political, and judicial philosophy of President Barack Obama’s latest nominee for the Supreme Court, Solicitor General Elena Kagan?” wonders Edward Cline. “Kagan’s positions are, if not overtly socialist, then pragmatically statist. She is for disarming Americans, she is for ‘selective’ censorship, and she worked with the Clinton administration on the first round of attempted socialized medicine. She is no friend of freedom.”
    No Friend of Freedom: Obama’s Supreme Court Nominee, Elena Kagan – CAPITALISM MAGAZINE
  • Stephen Hicks outlines how Kagan can seemingly be both for free speech and against it--a position that would make Lewis Carroll want to write about it.
    Kagan, the Supreme Court, and regulated speech – STEPHEN HICKS

_Quote Today’s debate about global warming is essentially a debate about
freedom. The environmentalists would like to mastermind each
and every possible (and impossible) aspect of our lives.”

- Vaclav Klaus, Blue Planet in Green Shackles

  • Former NZ Minister of Energy, and of Science & Technology Barry Brill explains why New Zealand’s temperature record is hopelessly compromised.
    Crisis in New Zealand climatology: The warming that wasn't – QUADRANT
  • Here’s another relatively rational look at NZ’s leaking home problem, by a chap called Ken Collins:
    Leaky Buildings – Part 1 – How did we get here. – THE SCIENCE OF ARCHITECTURE
  • No-one has been more of a thorn in the side to ClimateGate’s biggest villains than Canadian mathematician Steve McIntyre. So check out McIntyre’s presentation to the recent Heartland Institute conference ‘Reconsidering the Science and Economics of Climate Change,’ including an outline of the ‘hide-the-decline’ trick.
    Heartland Presentation – CLIMATE AUDIT
  • [Click through for all three parts]
  • To get some idea of why McIntyre upsets The Team so much, read one of his most recent pieces re-examining the way the IPCC team decided that “1998 was the warmest year in the millennium.”
    AR4 on “1998 was the warmest year” – CLIMATE AUDIT
  • By the way, this was voted best handout at the conference.
  • Specially for reader Julian, a meditation on the saying “"If you never miss a plane, you're spending too much time at the airport."
    If You Never Miss a Plane... – BRYAN CAPLAN
  • If you’ve spent any time here at all at NOT PC, you’ll know I’m very supportive of Montessori  education. So here’s a great page of links from Montessori trainer Susan Stephenson’s site giving you a full idea of what’s out there on the net to help you out with your Montessori adventure.
    The Montessori Method of educating & raising children to develop their fullest potential – SUSAN STEPHENSON
  • But as you might also be aware,  when choosing a Montessori school for your child it’s becoming increasingly difficult to find one that is actually a genuine Montessori school, and not just a Monte-Something school with Dr Montessori’s name on the signboard. This excellent two-part Canadian TV report will sharpen your critical faculty when seeking out a school for your child, and give you some idea of what to look for if you want the genuine article.
  • If liberals understand that abortion is no business of the state, but a matter of choice between a woman and her doctor, why don’t they apply that principle in the wider context?
     Abortion-Only Laissez-Faire?PRINCIPLED PERSPECTIVES
  • The elephant in the room when it comes to the debate on Arizona’s new anti-immigrant laws is drugs, specifically the War on Drugs.  Cato steps into the breach.
    A Forceful Call For Change From El Paso – CATO
  • Arizona’s attack on immigrants is, or should be, a litmus test for freedom-lovers.
    The Arizona Litmus Test – FUN WITH GRAVITY
  • However, Arizona’s new anti-immigrant laws have certainly flushed out (again) the fact that when it comes to freedom, conservatives are firmly opposed.
    On Immigration, Too Many Conservatives Oppose Liberty – ARI ARMSTRONG
  • I wonder if this might change their minds?  Or just start them to boil over. ;^)
  • So what’s the Objectivist view of immigration? Here’s a(nother) quick look.
    Immigration - DIANA HSIEH
  • Specially for Draw Mohammed Day yesterday, I’m reposting this classic Cox& Forkum cartoon:

Wikipedia defends its right to publish Muhammad images

  • And courtesy of Craig Ceely, an easy way to make every day a Draw Mohammed Day—and every email a Drawn Mohammed Email.  I give you, the Mohammed Emoticon:
    Dim, Maybe...But Not Dhimmi – LADY’S MAID JEWELS
  • For some reason or other, I can’t get this tune out of my head.  Which seems only appropriate, I guess. “He’s got the rhythm in his head.”

  • Yes, “rhythm is our business.”  Take it away Jimmy Lunceford
  • And since the theme is rhythm . . . it surely “don’t mean a thing if it ain’t got that swing.”

Have a great weekend!

What will I be when I grow up?





[Thanks to reader Richard for the funnies.]

Budget 2010: Answers on a postcard please

So what exactly makes this “the biggest change in the tax system for 25 years”?  Is it just because it’s been nearly that long since Government Slavery Tax was last whacked up?

Anybody else remember this government’s election pledge not to raise GST?  And to give significant tax cuts?

How grateful are you  now to Dodger Rugless for introducing Grab, Snatch & Take all those years ago?

Is it really a tax cut when taxes across the board are going up?

How come none of the Nats or any of the dozens of talking heads interviewed yesterday mentioned the cost of the Emissions Tax Scam?

Why are so-called conservatives cheering hikes in welfare at a time of depression?  How grateful would you be now for a politician with Ruth Richardson’s courage?

If Greece, Ireland & the UK can recognise that now is a time to cut the salaries of MPs & bureaucrats, why has the NZ government been doing the opposite?

If conservative governments are supposed to be responsible, why is it that when this government is already spending beyond its means, it now intends to borrow nearly half-a-billion more to fund it increase its spending by yet another $1.1 billion?

Just how the fuck is that revenue-neutral?

Has anyone noticed any decent spending cuts anywhere?

How coincidental is it that most of the changes in this budget are too complicated to calculate simply? You think that’s just coincidence  that it leaves ample room for spin?

If demand for rental units stays the same, but the supply of rental units goes down because owning a rental unit has just been made less attractive, what do you think will happen to rents?

If this government truly wants to help local businesses, then why has it just made it necessary for landlords to raise rents on commercial property?

If the money supply were to stay the same while GST is increased, what do you think that would do to the total level of spending in the economy as measured without GST? And by implication, to GDP?  And, by further implication therefore, what does this tell you about this government’s expectations (or even instructions) regarding monetary inflation?

Regardless of what you think you’re going to win on the budget’s swings, if when prices go up by more than six percent next year as a result of  the budget, will that make you worse or better off?

You think it’s just coincidence that the government’s online Budget tax calculator tells you all about what you win on their swings, but nothing about what they take away on the roundabouts?  You know, like rises in rents and price inflation and ACC levies; like increases in Government Slavery Tax and tobacco and alcohol tax; like the coming rises in petrol and power tax because of the ETS . . . ?

Did you notice how Bill English now insists your buildings won’t depreciate in their first fifty years?  Bet you didn’t know he’s relying on the New Zealand Building Act to make it so.  And we all know how well their Building Act works, don’t we?

If it’s true that wages rise as productivity-per-worker rises (which it is), and it’s true that productivity-per-worker rises as more capital is made available per worker (which it is), and it’s true that this government wants wages to rise (which is questionable), then why is this government discouraging capital investment by not allowing businesses to write off the depreciation of their productive capital?

How excited are you at the IRD getting more than one-hundred million dollars to “crack down” on the so-called “black economy,” i.e., on the only part of the economy that is actually working.

If you voted for ACT in 2008, how do you feel about them voting “enthusiastically” for this budget?

They say a picture is worth a thousand words.  Are these the best thousand words about this budget?

budget1 [Cartoon from The New Zealand Week]

Answers on a postcard, please.  More questions welcome.

UPDATE: Accountant Mark Hubbard has a few questions of his own, and more than a few answers.

Jiyu Gakuen School, Tokyo – Frank Lloyd Wright


Another of the fourteen buildings Wright designed in his ten-year sojourn in Japan building the Imperial Hotel in Tokyo, ‘Jiyu Gakuen,’ the school he designed in 1921-22, means ‘free spirit,’ the very spirit with which Wright was seeking to endow the building and the children who used it. 

Centred on the dining hall and assembly room shown here, the classrooms wrap around and enclose a grass courtyard.


“Wright fashioned every detail with young children in mind, explains “Wright archivist Bruce Brooks Pfeiffer.

5a     “The scale of the rooms themselves, as with the furniture, likewise considers a child’s point of view.  Wright and Arata Endo, his associate in Japan, wrote, ‘This little school building was designed for the Jiyu Gakuen—in the same spirit implied by the name of the school—a free spirit.  It was intended to be a simple happy place for happy children—unpretentious—genuine.’


Check out the school’s English language website for more info, and this (somewhat dark) slide presentation on the school by Wright apprentice Edgar Tafel. And I’ll keep looking out for a scan of the Wright’s delightful sketch of the school which first made me fall in love with it.

Thursday, 20 May 2010

The End of the Euro: Wheeeeeee . . . [updated]

The End of the Euro is nighAll that’s left now is food for the vultures.

UPDATE: Neil Hume at Alphaville reports, "they have it all planned: they are going to sink the ship (Greece). Merkel is now drafting law for orderly insolvencies, but they don't want anyone to make money out of it, hence the ban." If this is true, it 's curtains for Europe. Shorting the Euro at this point is like shorting Lehman: you may see savage short covering squeezes but the end result is well known. [Hat tip  Bob English]

Budget Day: Open Debate [update 4]

I know there are plenty of intelligent readers out there with plenty to say about all the new theft announced this afternoon, so let’s use the power of the internet to get your thoughts recorded here.

Which is to say, this is an Open Debate on the Budget.

Go to it!

“Everybody Draw Mohammed Day”—it’s here [updated]

jp-mo-300x216 It’s not just Budget Day today, it’s also the first annual International “Everybody Draw Mohammed Day”—which does at least have parallels with Budget Day because after Bill English has read out the contents of his Tax and Tax and Tax Budget we will all, I suspect, feel like our wallets have just been taken out with a sword.

International Everybody Draw Mohammed Day was announced, if you’ll recall, to support free speech, numerous cartoonists and the makers of South Park, upon whom retribution was called down for the sin of poking fun at he who shall not be mocked, nor whose supporters may be taken the piss out of.

Even before it’s kicked off internationally there’s a good helping of mockery from which to draw much mirth.

Just who exactly are all these taxpayers?

Here’s a question to contemplate this morning: Just how many actual taxpayers do you think there are in New Zealand?

You know who I mean, the ones actually paying for the whole dog and pony show. Let’s see if we can deduce it to the nearest dozen or so, eh?

The Stats Department reports the estimated resident population of New Zealand was 4.03 million in New Zealand at the last count in 2006. So let’s say 4.0 million in total, of which 2.7 million or so are of a working age—and of these around 200,000 are in school or courses of study.

So we’re already down to 2.5 million.

Of these 260,000 or so are self-employed, 1.8 million or so are working for wages, and a lucky 170,000 are living off their investments.

Some people are doing all three, and all power to them for that.

So let’s say we’ve got around 2 million in total keeping the bureaucrats and moochers fed and working (you see what I did there?). And of those, well over 800,000 are receiving government money directly, so they’re out too.

Which leaves us just 1.2 million to feed Bill English’s ego this afternoon.  Except not all of those are actual tax-payers.

You see, the ranks of those 260,000 self-employed include “consultants” working for all manner of government departments, both central and local, giving “advice,” writing reports, and selling their various shell games and motivational bullshit; and we've also got self-employed planners, arborists, quality assurance blowhards and the Directors of the Pipi Foundation. All of them making a living by sucking off the state tit. Since we’re only looking for the number of taxpayers down to the nearest dozen, let’s say fully a third of self-employed people keep their families fed this way, and each of them has a 'support team' working for them of at least three or four. So that’s around 300,000 on the take.

Down to 900,000. And we’re still going.

Now, what do lawyers do all day? Take Mai Chen and Geoffrey Palmer for example: would there be a reason for their existence if they couldn’t go up the road and put their tongue in the ear of Government fairly frequently?

And what about the other large law factories that infest our city restaurants and bars? Would the law factories exist in such size and numbers if the government’s legislation factory were called to a halt? I think not.

And if tax laws were radically simpler, as they were maybe seventy years ago before the birth of the Welfare State, would we need so many accountants? I think not either.

Neither lawyers nor accountants work for government directly, but they’re no less arms of the state for all that—and they sure as hell wouldn't exist in the quantities they do without Big Government's blandishments. For the most part they're parasites, and their costs come out of our pockets. So deduct another 200,000, because their shiny suits seem to be everywhere (and what's worse, some of these people are this country's best and brightest, their efforts being expended not on producing wealth but instead on making it impossible for others to do so; but that’s another story).

So we're left with how many then? 700,000? Does that seem about right?

No, of course not.  There’s at least 200,000 of them on middle-class welfare, sucking down Welfare for Working Families like there’s no tomorrow while pretending they’re not beneficiaries.

So that’s just 500,000 hardy souls who are braving red tape, OSH, assorted government inspectorates and regulatory agencies, and (if they’re an exporter) the tyranny of distance, or a small domestic market if they're not; braving all this just so they can earn a living and carry all the rest of us on their backs. And from these few brave souls Bill English plans reaps around $60 billion every year, and pays off his quarter-of-a-billion dollar of borrowings every week. 

Do the sums. What those 500,000 are each being forced to pay to keep the welfare state running now is not pretty. And they've just been “asked” to pay $1.1 billion more . . .

Now, THIS is a Decent Budget! [updated]

I’m very pleased to see a budget released today that frees New Zealanders instead of shackling them further.  I’m talking of this one:


Libertarianz Alternative Budget 2010

    "I'm pleased to present a real alternative to the tax-and-spend budget that National will present today," Libertarianz leader Richard McGrath said today.
    "Unlike other political parties, Libertarianz believes your money belongs to you," explains McGrath. "That's why our budget is designed to slash taxes and let you keep far more of your own money."
    "National is making a big deal about finally offering you a tax cut this year. But keep in mind that National's income tax cut will be much reduced by an increase in GST.  This isn't a tax cut, it's a tax shuffle. Libertarianz policy has always been and will always be to cut taxes as fast and as hard as possible."
    "Libertarianz will make the first $50,000 of income tax-free immediately. This means that the average New Zealand household, with an income of $68,000, would keep an extra $403 per week, going a long way to offset rising food, electricity and fuel prices."
    "We will also immediately scrap GST, knocking $27 off a $250 grocery bill and ten dollars off the price of a tank of petrol."
    "The government will say they can't afford this – but it's not their money – it's YOURS. You have the right to spend your money however you wish. Libertarianz is pro-choice when it comes to your money."
    "Of course you can't cut tax without cutting government spending – and we're happy to oblige. Education, health, and superannuation are far too important to be left in the hands of politicians."
    "We will allow people to spend as much or as little of their money on these as they wish. It is up to you to decide how much to spend on your family's healthcare, your family's education and your family's future."
    "Schools and hospitals will be given back, as shares, to all New Zealanders. All other state assets not required for the essential functions of government (law and order, and defence) will be sold.  The proceeds will be used to fund superannuation and healthcare for the retired, along with residual obligations such as ACC, invalids benefits. The DPB will continue for three years."
    "With the Libertarianz budget, the churning of money through the government's sticky fingers will be almost eliminated by the tax-free threshold. A flat tax on income over that $50,000 threshold of 25%, reducing 5% per year for 5 years, will fund a smooth transition. After 5 years, no more revenue will collected from the citizenry by coercion or force. The government will have to ask you nicely if they want your money."
    McGrath concludes, "It's enough to make you vote Libertarianz!"

For more information, see or contact:
Dr Richard McGrath
Libertarianz Leader

POSTSCRIPT: Questions?  You have questions? 

Fear not: Your questions about the 2010 Libz Alternative Budget will be similar to questions about previous Libz Alternative Budgets, which all seek to wean New Zealanders from the state teat.

So here are some answers to frequently asked questions about a previous model.


UPDATE: Matt Nolan at The Visible Hand of Economics gives the Libz budget the standard mainstream critique:

“…far too extreme – even if solely on efficiency grounds.”

There’s more.

Michelangelo Portrait Bust, by Sandra Shaw


It takes some courage to sculpt a bust of the world’s greatest sculptor. But with this piece, sculptor Sandra Shaw demonstrates she has courage and talent in spades.

Imagine, if you will,  [says Sherri Tracinski]

    “a sculpture that portrays a creative genius in a moment of pride in his own work. Viewing such a piece for a moment at a gallery or in a museum provides a great deal of fuel, reminding you of the pride you seek in contemplating your own work and reviving a sense of joy in achievement that might have been dampened by a grinding work schedule. It is amazing that such a refueling can occur from just a brief moment's viewing—but imagine what is possible if that same work sits next to you in your office, providing that same sense-of-life refueling every day, in every moment that you look up from your desk.”

The sculpture Sherri is talking about here is this one, above.  I thoroughly recommend her account of it.

Incidentally, you can still buy a casting of the Michelangelo from the Quent Cordair Gallery … or anything else of Sandra Shaw’s work.

Tempting, huh.

Wednesday, 19 May 2010

DOWN TO THE DOCTOR’S: Theft, and lots of it

Libertarianz leader Dr Richard McGrath ransacks the newspapers for stories on issues affecting our freedom.

This week: Theft, and lots of it

_richardmcgrath Story of the week, certainly from a business point of view, is Bill English’s second Budget. As usual, the metropolitan papers are full of commentary that has a distinct bias against people that have made themselves wealthy through hard work. There seems to be a general consensus that such people are not paying their “fair share” of tax. The DomPost headline “How The Wealthy Dodge Tax” says it all. As though tax avoidance was illegal, which it’s not. Or immoral, which it’s not. Tax avoidance is a legal and moral act of self-defence. Tax evasion is an illegal but moral act of self defence. As John Shewan, oft-quoted chairman of Price Waterhouse Coopers, opines, tax avoidance trusts are the result of stupid tax rules. Not that he questions the moral legitimacy of extortion, which is what taxation is. Shewan argues that the laws as they stand allow people to defend themselves against government predation, as though self-defence was a bad thing. (I wonder if he thinks women shouldn’t scratch the eyes of would-be rapists?)

John Key wants more “fairness” in the tax system—which means what,exactly?

A flat tax system, so that everyone gets the same amount of their earnings stolen from them? No, I don’t think John is going to give us that.

A tax-free income band as proposed by the Libertarianz Party, so that the first $50,000 of earnings was left untouched, so that everyone got a tax cut? No, John isn’t partial to that either.

What then? John’s dream for the country is to align the proportion stolen from people’s paypackets with the proportion stolen from their trust accounts. Good boy, John! Equal theft from all! I think that’s what people voted for in 2008, wasn’t it?

John Armstrong, in the NZ Herald, says this Budget is all about tax, tax and tax. Taxes on emissions. Taxes on income and spending. If it moves, Bill will tax it. (And if it stops moving, he’ll put it on welfare.)

According to Mr Armstrong, National “needs to demonstrate it wants to stem tax avoidance.” Which means, if I might translate into common sense, that “people need to be relieved of any means to protect the money they have rightly earned.” A Herald reader responded thus:

    “The snarky comment thrown at higher income earners about wheelbarrows perpetuates the entrenched attitude in NZ that anyone who works hard to improve their income is a greedy fat cat who should be penalized by having a huge portion of their income expropriated and given to politicians to spend on vote-winning schemes such as ‘Working for Families’ (as in, I'm working, for your family)… That so-called wheelbarrow of cash is mine, I worked for it, I made sacrifices to earn it. I am, & many others like me are, sick and tired of donating it to politicians’ pork barrel schemes!”

Well said, that man!

The Christchurch Press notes that “Key Defends Tax Cuts.” Well, sort of. He (rightly) argues that reducing the rate of theft on higher income levels will stimulate economic growth. But does he believe that increasing the consumption tax will also stimulate growth? Imposing consumption taxes tend to hurt most both low-income earners and the traders who do business with them. Imposing additional taxes on landlords discourages people from investing in rental property, reducing supply in the long-term. Imposing a tax on carbon dioxide emitters hampers local industry, encouraging it to move offshore. 

So much for encouraging growth.

“Rich Kiwis Miserly With Words,” says the DomPost. By which they mean wealthy people are reluctant to publicly disclose the methods by which they protect their assets from the IRD. Wouldn’t you be reluctant too, if it was your money? Bob Jones, bless him, is not afraid to come out fighting. “Any tax system would be unfair,” he says. Damn right. “I’m a libertarian,” he says, “[and] if I had my way there wouldn’t be any taxes at all.” Good on you, Bob. I guess that means you’ll be voting Libertarianz next time.

Sam Morgan, sadly, claims later in the same article that he doesn’t “have a proper job” and that it’s not right that he doesn’t pay tax. Sam, you helped create TradeMe, which has enriched the lives of countless New Zealanders. You have been richly rewarded for a fantastic effort. You deserve your wealth. Bill English and John Key do not. They have stolen enough of it already. You owe them nothing. They owe you your freedom. Stop giving your oppressors the sanction of the victim. That is what they are after, what they crave above all else. They want you to love them, as they drain your lifeblood and disempower you. Anyway, as someone pointed out in the comments that follow the article, Sam is probably paying upward of $3m in tax on the earnings of his trust. He needn’t feel the slightest bit guilty for his sin of being productive.

My advice, Sam, is find a tax haven and shift your fortune there. Or gift the money to the Libertarianz Party at the rate of $27,000 each year so that Bill and John don’t get their sticky paws anywhere near it.

This is what John, Bill and Steven are doing with some of that money you, the successful, have been trying to keep: propping up the socialised railway system, formerly known as Michael Cullen’s train set, with a billion dollars of your money. It’s so financially unviable it needs more than the cost of purchase to keep it going. John Key has a dream, however: that in TEN YEARS, the nationalised railway system will be financially viable. TEN YEARS! Oh, and they only want another $3.6 billion of your money to keep it going until then. Forget whatever dreams you might have had for that money of yours; John has his own dream for it. A dream that is a claim on your wealth and assets.

Say “Hi!” to the newish boss, same as the old boss.  

“When the people fear the government, there is tyranny - when the government
fear the people, there is liberty.”
- Thomas Jefferson  

Let’s (not) bash landlords

Everyone’s getting excited about the prospect of watching Bill English bash landlords tomorrow afternoon, with no thought (or just poorly-thought out thoughts) as to what bashing landlords will do to tenants, or to whether or not landlords themselves deserve to be bashed by the double-dipper.

Which of course, they don’t.

But bashing landlords is always fashionable, and those doing the bashing can always count on the support of ignoramuses who can be heard to argue that landlords’ income is unearned—i.e., that their rents and the capital gains they might enjoy from their property are “unearned income” that these (so-called) “greedy scum” don’t deserve to keep.

Now, if you think that sort of argument and this sort of argument sounds just like stale, warmed-over Marxism, you’d be right, as Amit Ghate points out today in a fortunately-timed article entitled ‘The Nonsensical Notion of ‘Unearned Income’.’ 

    “The concept of ‘unearned’ income is the remnant of a long-refuted economic theory known as the ‘labor theory of value.’  Though first proposed by classical economists such as Smith and Ricardo, today it is most closely identified with Karl Marx, who was its last — and most consistent — advocate.
    “Essentially the labor theory of value holds that values are determined by the (physical) labor it takes to create them. Thus physical exertion becomes the measure of an item’s worth. According to  Marx — and to his modern adherents like [Bill English], [Idiot/Savant], [the writers of The Standard] et. al. — any values created in ways other than by brute force are ‘unearned.’ …   So while today’s politicians generally fail to protect the individual’s right to property, they’re openly hostile to so-called ‘unearned’ income and property.  Hence their unabashed support for these new taxes.”

I recommend reading Amit’s explanation of why this idea of “unearned income” is fundamentally wrong, and is the argument behind more than just attacks (and taxes)on landlords.  Hint: it’s all about the mind, grasshopper.

POSTSCRIPT: There’s an added irony about the parasites who attack landlords as “greedy scum” while sucking down as much taxpayers’ largesse as they can.

In general the parasites at The Standard and No Right Turn uphold Marx’s exploded Exploitation Theory (i.e., the theory that “capitalism promotes a system of slavery wherein the labor of workers is exploited to attain profits on behalf of the relatively few businessman or capitalists”) and Marx’s “Iron Law of Wages” (i.e., the theory fallacy that without trades union and benevolent labour-loving government, employers would pay employees whatever they want, driving employees’ wages right down to subsistence level).

But when it comes to landlords, they’re both now arguing against the Exploitation Theory, “arguing that [rents] are set by supply and demand, not at whatever level the landlords want and not at whatever level the tenants want.” See, here’s IowaHawk writing in the comments at The Standard:

    “Rentals are not set by landlords saying:
            ’Gosh Humphrey, I think I deserve an extra $500 a year.”
            ‘Why yes Reginald, that’s only fair. I deserve to make an extra $1000 a year in rent, so I’ve raised the rent on my peons too!’
    “No. Rentals are not set by landlords making up what they want. They are set by supply of rental property vs demand for rental property. Charge too much and you find your property empty – and for landlords with a mortgage that’s very, very expensive.” [Emphasis in the original]

Ironic, don’t you think.  Especially because the same argument they’re using here for rents overturns their own theories about an “iron law of wages”: that is to say, wages are not set by employers making up what they want, [emphasis mine] they’re set by a combination of supply and demand and the productivity of labour. (Read George Reisman’s ‘Classical Economics vs. The Exploitation Theory’ for the full story on this, which also explains the role of the mind in overturning the fallacy.)

REMINDER: Perigo on air now [update 2]

A reminder note here that Lindsay Perigo is on Radio Live from 12:30pm to 4pm this afternoon.

Listen in online at the Radio Live website, or just check out radio frequencies there.

And ring in on 0800 RADIO LIVE (0800 723 465).

UPDATE 2: Well, that appears to be that then.

US Senate stands unanimously athwart Euro bailout yelling “no!”

The one-trillion dollar European bailout was made up mostly of smoke and mirrors—the smoke was the “shock and uh” of the initial announcement, intended to arrest the Greek crisis.  The mirrors came later, i.e., a labyrinthine tale of credit swaps and paper-printing and IMF money explaining (supposedly) where the trillion dollars was supposed to come from, and how exactly the “sterilisation” of that sea of money was supped to be done.

Except the mirrors are still awfully foggy, and the lions’s share of that money—the only part of if that wasn’t just paper  hot off the printing press—may now not be coming at all, because “the US Senate has just voted 94:0 to block use of taxpayers’ money for IMF rescues.” Explains Ambrose Evans-Pritchard in the UK Telegraph:

    “Europe may have to clean up its own mess after all. The US Senate has voted 94:0 to block use of taxpayers’ money for IMF rescues that make no economic sense or bail-outs for countries like Greece that far are beyond the point of no return.
    “ ‘This amendment will help prevent American taxpayer dollars from underwriting dysfunctional governments abroad,’ said Texas Senator John Cornyn, the chief sponsor. ‘American taxpayers have seen more bailouts than they can stomach, and the last thing they should have to worry about are their hard-earned tax dollars being used to rescue a foreign government. Greece is not by any stretch of the imagination too big to fail.’
    “Co-sponsor David Vitter from Louisiana said America had run out of money. ‘Our country already owes trillions of dollars in debt. We simply can’t afford to take on other countries’ debt in addition to our own.’ “


[Thanks to reader Julian for the tip. And Bernard Hickey for two hat tips.]

How to talk straight

Q: How do you know when a politician is lying?
A: When their lips move.

While Australia’s opposition leader Tony Abbott confesses he’s the very epitome of that joke, except maybe when he’s reading out something speechwriters have written for him, New Jersey governor Chris Christie tries to break that mould.

Do you think we could do with more straight talking like that here?  And maybe in Oz?

Wouldn’t it be refreshing if all the spinsters were sacked?

As the IndyPosted blog says of this.

“When Christie runs for  reelection, there will be no question of where he stood when he was in office. That is how you have a political debate, when opposing sides label their ideas honestly. That is why people are e mailing each other this video and urging them to watch it. Even if you disagree with Christie, it’s good drama.”

Sure is.

Meanwhile, Tony Abbot struggles with the Cretan paradox.

[Hat tip Canadian blog Small Dead Animals, which has the neat headline for it: The World Still Has Too Many Communications Directors ]