Tax avoidance through the ages

A sure way to commit suicide would be to hold one’s breath waiting for the G8 leaders to actually clamp down on money laundering, illegal tax evasion, and corporate tax avoidance.  It’s theater in which the politicians can pretend to deal with a problem while listening to the lobbyists who want even more loopholes.

Through the millenia those in the elites have taken for themselves the agricultural and luxury surplus mostly using force or coercion.  With the industrial revolution things changed.  Production increased so that there was some to share and the supply and demand for labor to produce that production was such that workers could claim some.

In this new situation the most effective way to cream off a big chunk of the surplus was to get governments to pass legislation restricting competition.  Thus we have trade restrictions, licensing requirements and patent and copyright legislation.

As the economy has gone into an extended decline tax avoidance has become another effective means for getting an excessive share.

Both of these approaches provide lots of work for lobbyists and most politicians are willing listeners.

So we now have increasing inequality, a concern for some but not all people.   The rich keep getting richer and more people are sliding onto or over the margin.

Even if we come up with a non-violent way to eliminate the rich it would not solve the problem as the rest of us would be lined up to take their places.  The most effective way to deal with the rich would be an economic crash and/or hyperinflation, but that would get the rest of us as well.

Are small-scale economies the answer?

Some people see small, local economies as the answer to current problems.  Currently the catch word is Transition as in the Transition Town network as reported in The Guardian.

Generally speaking, the Transition vision is of a move towards self-sufficiency at the local level, in food, energy and much else, but the specifics of what “getting it right” might look like were never handed down from above, says the article.

 

It could work for a few small groups but as a solution to the world economic problem I have to be skeptical.  This world has had lots of experience with local, small-scale production.  In fact economic theory starts with firms that are too small to influence prices with their purchasing or selling decisions.

lalolalo_Running_pigOne of the problems with this approach is the dynamics of small communities.   Some people think of small communities as being utopia where everybody is friends, cooperates and decisions are made by consensus.  

Those of us who live or have lived in small communities know this a long way from reality.  People have disagreements which never get resolved, even if one party leaves the community.  Us guys lived on a British Columbia coastal Indian reservation for four years.  Here where it was very difficult to leave, lots of people did not speak to each other.  They had a long tradition of feasts and large family dinners but they would have up to three or four hundred people eating  in the recreation center and one could almost hear a pin drop because it so quiet from people not speaking to each other.  Some of their leaders described the reservation as a prison camp.

We now live in a small rural community of mostly white people.  This is not so bad but there are still many people who don’t speak to some others.

I figure economics is about relationship as expressed in the exchange of goods and services.  When you try to go local you are cutting yourself off from lots of people who thanks to modern transportation are within visiting and trading range.  No small community is going to have all the resources it requires to maintain itself.  The local natives in our area needed arrows for hunting.  There was some usable stone in their area, now on a major highway.    Better stone was several days away and the best, obsidian, was found in what is now the United States.  Trying to go local limits your range of consumption.

The important thing to ask with this type proposal is will it solve the overall problem and that depends upon what the problem is.  I think the problem is that we have used up the most easily accessible energy and mineral resources.  While there may be lots of resources left it will take a lot of energy to retrieve them.  It may be there are some small deposits of energy or minerals which can easily be mined in which case some small economic communities  could fare reasonably well.  Another question:  would small-scale agriculture provide enough food for seven billion people?

This world has had several millenia of experience with local economics.  Since  the industrial revolution most of us have enjoyed the products and social interaction of dealing with people around the world.   I’m not sure I would want to lose that and I am not worried.

Intelligent machines, neurological disorders and decision making

It is tempting to say computers with artificial intelligence will never replace humans with all their neurological disorders but after reading this article in The Economist a couple of weeks ago, one needs to be careful.  It could be wishful thinking.

For me this raises the issues of how we use agricultural surpluses and what impact smart computers will have on decision-making..  How do we use the human energy and time released by technology?

When I studied European economic history the professor spent a lot of time talking about medieval improvements in agricultural productivity.  In medieval times there were three classes of people – those who prayed, those who fought and those who worked to support the first two.  The more productive agriculture became the more people could pray or fight as most of the agriculture surplus went to monks and knights.

This professor went on to write a book about the industrial Revolution in which he pointed out the plague reduced the supply of workers who were then able to claim a better standard of living and keep it.  (This made it efficient to replaced labor with coal which was very cheap in England.)

For most of human history those who prayed and those who fought were able to claim for themselves the surplus.  Since the Industrial Revolution the increased production and the supply and demand for labor have been such that  workers have been able to claim a share of the agricultural surplus and industrial production.  To the fighters and the prayers have been added those who manage.  We also have the work ethic and a religious like belief that the only way to share the surplus to have everyone working regardless of how useless and meaningless the work is.

With the development of machines that can make decisions  and with problems in the resource base the demand for labor is going down quickly and lots of people around the world are unemployed.  I fear we are returning to what has been the norm for several millenia – a few people will live in luxury and the rest will survive at a subsistence level.

computer_rageThis post started with an article about smart machines.  I figure that most, if not all of us, have a neurological disorder in that our brains are wired differently.  We behave differently, develop different values and make different decisions. How will this impact on machines that make decisions?  How will our society be changed if decision-making is by computers that do not have disorders?   Will different machines be able to make different decisions from the same inputs or will all machines make decisions according to the values of the people who programmed them?

However intelligent computers develop I enjoy the reading and thinking that goes into this weblog.  I hope I don’t lose that.

A universal income scheme

I believe we should have a collective responsibility to ensure everyone has the opportunity for a standard of living similar to most others.  I also believe our technology is such that everyone should not have to work throughout their lives, that subsidies should be given to consumers rather than producers, and that there is a need to change the way in which we create money.

I have been asked by a member of LinkedIn to elaborate on the collective responsibility.  The other things are important to the answer.

In some small-scale societies the collective responsibility takes the form of a sharing economy where people share their food and other production with relatives, clan members or anyone who needs it.  We probably need something a little more formal and impersonal.  One way would be a universal income scheme.  Milton Friedman proposed a negative income tax which is a good place to start a discussion.

The key to our high-tech society is the number of people for whom each agricultural worker can produce enough food.   That is clearly somewhat high which means the rest of us can be doing other things.  Sometimes it seems what most of us do is to work  to keep the military-industrial complex going.

Subsidies to producers distort prices and interfere with the efficiency of the economy.  Therefore subsidies should be given to consumers.  A universal income scheme would be a fair way to do this.  I see this as being good for the environment and as a transfer of decision-making from government and bankers  to individuals.

I believe the most funny of all money creation schemes is the fractional reserve banking system.  Interest is charged on the money created, bankers are very powerful and too important to let fail, and it is all a Ponzi scheme.  One alternative could be to take  the concept of the Local Exchange Trading System (LETS) and expand it into a National Exchange Trading System (NETS)  It would probably be feasible to include a national income scheme into this type of money creation.

With the world economy in trouble and with so many indications the slide will continue for some time more and more people, through no fault of their own, are going to find themselves unemployed and without an income.  Thus it gets more and more important for us to live up to our collective responsibility to ensure everyone has the opportunity for the same standard of living as everyone else.

Some of the ideas in this post are included in the essay “LETS go to market: Dealing with the economic crisis” on this weblog.

The risks of making loans

Crowd funding for unsecured personal loans is interesting in that it spreads the risk and potentially dangerous in that  it may attract investors who ignore the risk factor.  It is also unique in making loans that do not add to the money supply via fractional reserve banking.

An article in this week’s The Economist reports on some American firms that are making crowd sourced loans to individuals usually to consolidate and reduce the cost of credit card borrowing.  This model means borrowers get a cheaper interest rate and depositors get more on their deposits.  This is different from crowd sourced funding for business development although both involve risk.

CCBill_20120401When ever one makes a loan, either directly or though an intermediary (a bank deposit) one is transferring purchasing power to somebody else.  Mostly one hopes to get more purchasing power (interest or dividends) back.  There are three risks in doing this:  a government may decide to give you a haircut, the person may default or you may get caught by inflation.  We can try to protect ourselves from default by purchasing deposit insurance.  I don’t know how to protect ourselves from a haircut or inflation.  Maybe by supporting the Tea Party.  These risks will always be there no matter how bankers try to offload them.

As I understand it the crowd loan companies allow you to put a small amount of money into a number of loans.  Each amount is tied to that loan and your deposit is returned to you if, as and when the borrower repays the loan.  This allows you to spread your risk among a number of borrowers.  This may let lenders think they are reducing their risk but most business and financial models work well when the economy is growing and have problems when growth declines.  There is some probability our economy will continue to decline for some time to come.  Here is the risk statement of one of these companies.

I like that this way of funding loans does not involve fractional reserve banking and thus has a neutral impact on the money supply.

I fear that too many people will see the higher interest rates being paid on deposits and  ignore or not realize the risk involved.  If and when the risk becomes reality, there will be a lot of crying and screaming and possibly a lot of suffering.

It may be that the risk in crowd funding is no greater than with other forms of saving/making loans.  It is just a little more obvious. I still think that given the current economic situation the best investment is a market garden.

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