Austrian School vs. itulip / FIRE

[DSpencer]

Re: Austrian School vs. itulip / FIRE

The concept is that if you build a bridge, then it is reasonable for you to charge a toll to repay the price of building the bridge (as well as your capital investment, risk, etc etc).

How much compensation do I get for the risk? Do I get to earn a profit aside from the risk compensation? Are the tolls considered to be earned rent forever or at some point am I just a rich rentier bridge owner who sits back and collects the money while smoking a cigar?

However, if you own a house on the other side of the bridge which increases in value $100,000 because it is now accessible to all those job holders on the other side, that $100,000 is unearned economic rent. And in turn any income derived from said $100,000 increase in price as reflected in monthly house rental would also be unearned economic rent.

Hudson specifically calls out that increase in property value due to improvement - i.e. actually doing something like putting in a new building - should not be taxed, only the underlying land.

If I build/buy a house because I expect a bridge to be built that increases its value, shouldn't I be compensated for the risk involved? What if no bridge gets built?

No, the concept of higher property taxes is not specifically to punish the wealthy or take away their money.

The purpose is actually to make it difficult/impossible to earn income from passive activities like waiting for land values to increase. The net result is to force investment into higher yielding but riskier activities like building new companies.

So he wants to create a stock market bubble? I'm half kidding, but this seems like a possible result. Also, what would the effect be on elderly people who want to retire with low-risk passive investments?

The second purpose is to apportion the taxes to those who can pay. While it is true the 'wealthy' pay most of the taxes in the United States, it is equally true that the less wealthy pay far more of their disposable income than those with tons of money.

This idea could be thousands of pages of debate, but suffice it to say that whether the goal is to "apportion the taxes to those who can pay" or "close the wealth gap" or "punish the rich" the end result is about the same.

See above for goals. Also note that originally property taxes were the primary, nearly exclusive source of revenue for local/state governments. As this property tax income was attacked through various means including commercial real estate depreciation and later laws like California's Proposition 13, the local/state governments starting passing heavier income and sales taxes.

Dr. Hudson argues that this process shifted much of the tax burden away from the wealthy - who own a disproportionate amount of the land much as they own a disproportionate amount of the wealth - onto the lesser income classes.

Shouldn't this argument be provable with facts that show who payed what % of taxes before and after these changes? I'm not saying I have facts that show this isn't true or that I don't believe it. I just don't know and maybe someone does.

The effects would likely be far greater than you can imagine. For one thing, property taxes don't translate into property rents very well - rents are a function of tenant income.

Isn't the entire point to effectively raise tenant income by reducing the tax burden on it? Therefore wouldn't this increase in tenant income translate into higher property rents?

Correct me if I'm wrong, but didn't you mention something about compromise in this thread? Out of curiosity, do you believe in these goals and want to see them implemented? If so, are there other areas where you would compromise your views to have these policies implemented?

[c1ue]

Re: Austrian School vs. itulip / FIRE

You said: "So long as productivity increases, this in turn guarantees erosion of purchasing power". Then you show an example of increasing productivity lowering prices to prove your point. Which in my opinion proves the opposite.

Note that while prices were lowered due to the power loom, at the same time so was overall income. The overall economic situation got worse, not better for the 'average' person, though it got really really good for the 'putting out' capitalists.

What we're experiencing today as a nation has many parallels: prices are falling for most everyday goods - at least in real terms. But incomes are equally falling.

Is America better off now because prices are lower?

How much compensation do I get for the risk? Do I get to earn a profit aside from the risk compensation? Are the tolls considered to be earned rent forever or at some point am I just a rich rentier bridge owner who sits back and collects the money while smoking a cigar?

Strictly speaking, the tolls to repay the cost for building the bridge are perfectly reasonable. But of course in reality there are many caveats:

1) Is there a legal monopoly? What about a de facto monopoly? Or an illegal monopoly? While you can technically build a parallel Golden Gate Bridge, there are lots of reasons why this is not a good idea.

2) The taxation of property has nothing to do with profit. Even in so called 'high tax' states, the percentage is low single digits.

If I build/buy a house because I expect a bridge to be built that increases its value, shouldn't I be compensated for the risk involved? What if no bridge gets built?

It doesn't matter, because the presence of the bridge is what drives up the value. Just because you wanted to speculate, or even 'invest' because you knew the bridge was to be built, the fact remains that the bulk of your gain is due to the bridge and not due to any extraordinary risk on your part.

You could as much argue that your investment in building a house across the street from the utility access point of a new development is 'risk' - but in reality you are counting on the developer to build out to the development, thus bringing sewer/water/electricity/gas services to your house. No utility build out, no value increase.

Note again that the increase we're talking about isn't the building. It is the land.

If for example you bought a $20K plot and built a $200K house on it, the theoretical Hudson property tax is on the $20K, not on the $200K. If the house suddenly jumps to $400K - that delta is pure land cost. The house is the same either way.

So he wants to create a stock market bubble? I'm half kidding, but this seems like a possible result. Also, what would the effect be on elderly people who want to retire with low-risk passive investments?

Hardly, because the stock market is also a passive investment with relatively low returns over time.

As for elderly people - age isn't the issue. There is always safety in Treasury bonds, for example, but the point is to make growing wealthier out of passive investments more difficult.

This idea could be thousands of pages of debate, but suffice it to say that whether the goal is to "apportion the taxes to those who can pay" or "close the wealth gap" or "punish the rich" the end result is about the same.

You think so? So how exactly do you describe our present situation - where the middle class and the working class subsidize the wealthy via literally monstrous payments of income taxes, sales taxes, and FICA?

Secondly, what exactly makes a wealthy person so much better? If they are indeed so much more capable, there should not be an issue with them being able to grow their income - after all the Robber Barons of the First Gilded Age were able to amass huge fortunes despite a punitive capital gains and income tax.

Shouldn't this argument be provable with facts that show who payed what % of taxes before and after these changes? I'm not saying I have facts that show this isn't true or that I don't believe it. I just don't know and maybe someone does.

There are all sorts of facts out there: http://www.census.gov/govs/statetax/...ical_data.html

California's sales tax used to be 6%. Now it is 8.25% with pretty much every locale adding another 1% on top of that.

California's income tax rate - top rate today is 10.3%. No easy way to find what it was prior to Proposition 13, but here's the Census data (note this excludes local taxes including property tax):

1971:

Total tax collected: 5,675,445K
Sales tax collected: 3,072,951K
Personal Income tax collected: 1,266,556K
Corporate Income tax collected: 533,121K
California population: 20.346M

Sales tax per person: $151.03
Sales tax as percentage of average national income in 1971 ($10,600): 1.42%

Income tax per person: $62.25
Income tax as percentage of average income in 1971 (national): 0.59%

2009:

Total tax collected: 101,007,459K
Sales tax collected: 36,381,343K
Personal Income tax collected: 44,355,959K
Corporate Income tax collected: 9,535,679K
California population: 36.96M

Sales tax per person: $984.34
Sales tax as percentage of average national income in 2009 ($39,423): 2.49%

Income tax per person: $258.00
Income tax as percentage of average income in 2009 (national): 0.65%

But of course 2009 saw California with 12%+ unemployment.

In 2007, Total personal income tax collected was over $51B with sales taxes collected slightly under $40B - so percentage of income paid for sales taxes should increase roughly to 2.7% and percentage of income paid to California state income tax should be somewhere around 0.75%.

Or in other words, sales taxes increased 80% while California state income taxes increased about 50% comparing 2007 vs. 1971 as a share of income, and 67%/33% comparing 2009 vs. 1971.

Isn't the entire point to effectively raise tenant income by reducing the tax burden on it? Therefore wouldn't this increase in tenant income translate into higher property rents?

No. The goal is not to increase tenant income. The goal is to tax unearned economic rent.

If you've ever rented a house, you should know that your cost basis is irrelevant compared to what people are willing and/or able to pay.

This is a lesson many would be baby rentiers are learning from the ongoing real estate bubble collapse.

Correct me if I'm wrong, but didn't you mention something about compromise in this thread? Out of curiosity, do you believe in these goals and want to see them implemented? If so, are there other areas where you would compromise your views to have these policies implemented?

I don't have specific views on personal income taxes, nor on sales taxes.

I do have very specific views on estate taxes.

As for compromise, that's always a possibility, but not if the destroys the original intent.

Frankly I do not hold any hope that Dr. Hudson's recommendations will ever be carried out barring the ascension of an American dictator or the collapse of the present American economic paradigm.

The vested interests are far too well financed, and it is increasingly clear that you can rob the everyday person by just removing the theft from immediate loss into future, but no less real losses.

It isn't stupidity per se, but it is something perhaps inherent.

[ProdigyofZen]

Re: Austrian School vs. itulip / FIRE

When the money supply increases prices increase. You can see that in the chart that I graphed. I took the CPI date back from 1800 until now. It is a rather astounding visual.

[ProdigyofZen]

Re: Austrian School vs. itulip / FIRE

Sharky, Forget what Clue says. I call your attention to this chart. This is the only chart that matters when trying to figure out if a fiat money system or increasing the money supply increases inflation. Data comes from the Minneapolis Fed Reserve.

[cjppjc]

Re: Austrian School vs. itulip / FIRE

I cannot see the chart.

[ProdigyofZen]

Re: Austrian School vs. itulip / FIRE

CPI date.jpgFor some reason when I upload charts they don't come out right on the screen but if you right click and select open in a new window or tab the chart comes up.

[cjppjc]

Re: Austrian School vs. itulip / FIRE

I've tried that. All I get is garbage. Thanks for your effort.

[DSpencer]

Re: Austrian School vs. itulip / FIRE

FWIW, they work for me. I'm using firefox.

[ProdigyofZen]

Re: Austrian School vs. itulip / FIRE

Here, let me try to get this to work through Firefox instead of IE.

[ProdigyofZen]

Re: Austrian School vs. itulip / FIRE

Firefox works, here is the chart if you can see it.

[ProdigyofZen]

Re: Austrian School vs. itulip / FIRE

C1ue, here you are once again mixing up the Economic Schools of thought.

You continually say that "Then we have the fallacy of the 'efficient markets' thesis - which libertarians everywhere swear by: the idea that the free market will always provide the best solution for any problem."

Which you continue to advocate to Libertarians. Again I have to correct you and say that Efficient Market Hypothesis was advocated by the CHICAGO SCHOOL not the Libertarian school.

"Friedrich Hayek
Libertarian economist Friedrich Hayek was teaching in another department at Chicago in the 1950s and had little intellectual interaction with the economics department. However he and Friedman did work together in supporting a national student organization devoted to libertarian ideas, the Intercollegiate Society of Individualists. Hayek is not considered a member of the Chicago School but rather the Austrian School.^[13]"

http://en.wikipedia.org/wiki/Chicago...l_of_economics

Although they shared intellectual ideas they are not the same.

Show me where EMH theory coincides with Libertarianism? EMH wasn't even invented when individuals were championing Libertarianism.

http://en.wikipedia.org/wiki/Efficie...ket_Hypothesis

If you are just referring to the concept that free markets provide the best solution well yes they do because they provide the equilibrium solution.

There really is no right solution to any problem (for the most part) and most of the solutions to the problem become the problem. Libertarians understand this, that is why they said let the market harsh it out.

This is one thing I don't think you are understanding. Plus I think you believe in human intervention in people's lives because you think yourself or politicians aka government knows best for everyone.

I just want people to make their own choices and if that choice leads to death or the poor house then so be it. You cannot legislate human actions as much as you think you can.

[ProdigyofZen]

Re: Austrian School vs. itulip / FIRE

We are, for the most part, a product of that which surrounds us. And if so, then truly independent thought is quite difficult and rare. And conversely, there is such a thing as a net mental state which drives human behavior..

I think this is the crux of your understanding of how humans act. You believe in the theory of tabala rasa or the blank slate. That everyone is born with a blank slate and we only acquire our mental abilities, athletic abilities, personality etc from our surroundings and experiences.

What you fail to realize is that we are not born as blank slates but with certain innate abilities and personalities. This is another debate to be had but now I see where you are coming from with your statements. We will never agree on anything if you believe most of what we are is a product of our environment.

On a side note the concept about the Jewish soldiers fighting for the Nazis well that is freakin easy to explain. They didnt care about the other jewish people and only cared about their own survival. How hard is that to understand?

It is the same concept of the Muslims and Jews during the reconquista on the Iberian peninsula, the Christians came and asked if you were a Christian and if you said no then you were exiled or killed.

A smart rational person would quickly convert to Christianity or say they are a practicing Christian in order to survive. An idealist would say no and cease to exist.

[c1ue]

Re: Austrian School vs. itulip / FIRE

You post a lot of stuff, but in the end you say nothing.

Since you seem to think libertarianism is different than the free market, then why don't you define precisely what the libertarian scheme would be for handling the FIRE takeover of the US economy and government?

Your complete lack of understanding of the various schools of economic thought is what allows you to distinguish between the Chicago school's Efficient Markets hypothesis: which states that regulation is unnecessary because the free market is far more efficient in regulating economic behavior - and the libertarian school - which says "do as thou wilt" so long as it somehow doesn't impact anyone else.

What exactly is the difference in behavior between the two?

If it walks like a neo-liberal, and it talks like a neo-liberal...

[ProdigyofZen]

Re: Austrian School vs. itulip / FIRE

If I was a girl and I was C1ue's girlfriend I would love it! I would have free reign to sleep with any guy I wanted and later say well I was under their influence and I couldn't make my own conscious decision!

[ProdigyofZen]

Re: Austrian School vs. itulip / FIRE

Actually C1ue I can see that I am getting to you and that your arguments do not work against what I write. You want to know why I know that? Because you are attacking me as a person/individual and this is what someone does when they cannot win an argument. Stop the debate by declaring someone is X.

It is a good tactic but it doesnt work on me.

You seem to not understand what EMH is. Let me pull it up for you.

In finance, the efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.

http://en.wikipedia.org/wiki/Efficie...ket_hypothesis

I really post a lot of stuff but say nothing? That is funny that you are the only one who has observed this while other posters in both the select forum and the open forum have enjoyed my commentary and debates. Again this goes back to you not being able to win the argument.

And yes you are trying to win the argument, everyone one of them on this board because you think your policy prescriptions will work best and that you know best.

Again I must state that I take the position that each individual person knows what is best for them. Unfortunately this is something you will never comprehend.

I never said Libertarianism is different than the free market. You were not clear in your previous post wether you were referring to "free markets" or the efficient market hypthesis which if you can read the above are different concepts. I think you confused the concepts.

In your previous post you said "Then we have the fallacy of the 'efficient markets' thesis - which libertarians everywhere swear by: the idea that the free market will always provide the best solution for any problem."

Okay efficient market thesis to me is talking about the efficient market hypothesis not free markets. First you state efficient markets thesis then state free market later in the sentence.

Maybe we are confused here on what you are talking about. Because to me efficient market and free market are two different things.

The Efficient Market Hypothesis (EMH) was developed and championed by the Chicago School not the Austrians (who are mostly Libertarians). As far as I know there is no "Libertarian" school of economic thought.

Now I am like EJ that my base is in Austrian economics but I use different parts of other economic schools of thought to glean an understanding of the modern economic system. My problem with you is your constant attack of Austrian economics and your silence against Marxism etc. This is a tell tale sign that you harbour Marxist sympathies, again I could be wrong.

I believe I have stated multiple times that I am a Libertarian and believe in the free will of people and markets. You on the other hand have not said what your idealogy is which also leads me to believe you are harbouring socialist government intervention or Marxist sympathies. There is nothing wrong with this but at least come out and say it instead of trying to cache it in code language and trying to trick other people on Itulip.

I do not believe that Libertarians think that the market is efficient due to the fact that they believe in free markets. It is obvious to anyone with rational thought that markets are not efficient and that society is not efficient.

Libertarians accept this fact and say let it be, instead of trying to change every human interaction/thought/reaction by legislating it through government.

There will be poor people, there will be rich people, the system will create excesses and then eventually that excess will cease. I am for the choice of people to do what they want and not be coerced by government officials who think they know best for society.

It seems Mr C1ue that you are the one who doesnt understand the definition of Efficient Market Hypothesis. EMH has nothing to do with regulation of the market and everything to do with tricking people that the market is efficient and they should just put their money in a mutual fund that tracks the market because you have no chance of beating the market due to our theory.

This is the reason why Eugene Fama runs a firm called Dimensional Fund Advisors in Austin, TX. It is a mutual fund company with him on the board who claim the efficient market hypothesis as their market idealogy.

Please get your facts straight. As you said to me in another post "Generally when you are in a hole you stop digging"

Now I would say that there is a difference between the Free Market idea and the Efficient Market Hypothesis. EMH deals with securities namely stocks and the free market deals with all the individuals exchanging goods in the market.