Comments on Comments is a regularly irregular post, in which I attempt to respond to all thoughtful reader comments, inquiries, complaints, suggestions, etc.

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Brad left a comment on with several questions:

Sometimes I think about the conversations we have had over the years and I wonder how much government/taxes/The Man would be acceptable to you…

How much would be acceptable? Preferably none. Would I be more satisfied with simply less? Well, yeah. But at that point, if the government were only in charge of one or two or three things, and the entire corpus of human needs and wants was otherwise satisfied by voluntary exchange in a free market, it should be easier to convince people that no government is a viable goal.

…Then I saw “free society” in your sentence.

The other night I was watching MTV and they took a “Sweet 16? rich kid into some jungle and made them live with a jungle tribe to show them what real living is all about. The tribe lives off the land. Has no currency. No wars. They trade with neighboring tribes. They have a chief who got the job just because he’s old. I watched the show and I thought of the tribe as a “free society.” Is this kind of what you mean as a free society?

If not can you please describe what your free society would look like or at least a glance on how it would operate. If I missed a post let me know.

I’ve seen that episode, where they transplant some spoiled rich girl, who’s never had to work a day in her short life, and drop her in to some tribe in sub-saharan africa, where she has to harvest dirt and feces for sustenance. There are a number of reasons why people in some countries suffer needlessly. Africa, in particular, was decimated by the slave trade and centuries of Dutch, English, and French imperialism. At present, crop subsidies in the developed world keep the desperately poor farmers in third world countries desperately poor,

All that aside, no, it’s not exactly what I have in mind., although the “no wars” idea is pretty cool. It kind of makes you wonder, if the developed nations are so freaking civilized, why is it that most of their problems are resolved with bombs and bullets?

For a better treatment than I could ever hope to offer in limited space, with limited time, I’d recommend The Voluntary City. I’m not sure how much of it is available on Google, but you might try reading the foreword/introduction to get a glimpse. I own a copy of it, which presently is buried under the passenger seat in my car, I think.

Let me know if you’d like to borrow it.

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My friend RJ recently read Ron Paul’s Manifesto. I might borrow his copy. We were discussing it (I haven’t read it) and he mentioned the list of suggested readings in the back of the book, which starts with Rothbard’s What Has Government Done To Our Money.

I loaned him my copy.

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Anarcho-mercantilist left a comment on Public Goods Do Not Justify Taxes. Thanks for clarifying the definitions of “public” vs. “club” goods. This is a distinction, I think, without a substantial difference, since most people are willing to stretch the definition of “public” to include just about any good or service that can be shown to have any positive spillover effects, e.g., we all benefit from education because educated people are more productive/less criminal, etc. These disputes are usually over some secondary or tertiary effect, the primary benefit of education accrues to those who are educated, just like the primary benefit of my garden is me.

I don’t have any serious objection to anything in Anarcho-mercantilist’s comment. I particularly like his comments on the subjectivity of value.

Kip, Esquire left a comment on Public Goods Do Not Justify Taxes, he says specifically that I did not make my case, only proving that:

“not all goods provided by governments these days are really public goods.” I wholeheartedly agree with that second assertion, but can’t let you bootstrap it into the [public-goods-do-not-justify-taxes-argument], which you never even try to prove.

I tried not to spend the whole post tearing down public goods strawmen, but apparently failed. I buried my thesis at the very end and without much exposition.

That thesis is, the “public” nature of a good (i.e., the fact that it may be non-rival and non-excludable) tells us nothing about whether or not the good ought to be produced, nor does it tell us in any meaningful way, what the appropriate or adequate supply should be. What I mean by this is, if you’d like to make a case for taxation based on “public goods”, you’re going to have to do more than just demonstrate that some goods are “non-rival, and non-excludable,” two facts which cannot be combined in such a manner as to prove (universally) that it is justifiable to force people to pay for those things which, although they may benefit from them, may be undesirable to them.

Maybe I need to further develop this line of thinking. Kip continues with a challenge:

If you want to impress me, jump straight to Rand’s “public goods” — a (defensive) military, a (rights-protecting) police force, and a civil court system to enforce contracts — and explain to me why THOSE don’t justify taxes.

I’d like to explore some of the ideas that anarcho-mercantilist brought up in his comment, above, but in any event, these topics have been addressed by countless others. Maybe I’ll discuss them in greater detail another time, they deserve their own blog post. At the very least, a Police force (or something very similar to a police force) could conceivably be a club good. All they need to do is not investigate alleged crimes against non-members. The very nature of a monopolistic police force, on the contrary, is that they will “protect” you, and compel payment from you, even if you don’t wish to be affiliated with them in any way. A “rights-protecting” police force is accountable to the market, and its customers should be free to abandon it if the service is inadequate or oppressive.

Any further commentary on the topic of taxes should also address the moral problem of violently compelling individuals to pay for things which they do not even want. I have no noteworthy objections to paying for things I consume. My objection is principally that I’m obligated by law, under threat of violence, to pay for these things whether I want them or not, whether I plan to use them or not, and further that I’m compelled to purchase them at a monopoly price from an agency which precludes competition.

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Commenting on Comments #30, my friend Brad suggested some new plugins. I’ve begun implementing them. I like the “related posts” one alot.

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anarcho-mercantilist left a comment on SEC Outlaws Interpersonal Loans:

David, you seem to defend Prosper, which is another a government-granted patent monopoly.

See in the about page:

“Prosper’s marketplace platform is patent pending.”

There are (or were) a number of companies offering similar services prior to the SEC order, and almost every business model is “patent pending.” I’m not going to waste my time objecting to that, and even if I were, certainly you can recognize there is a substantial difference in the degree to which Prosper’s “monopoly” affects the market, and the degree to which the Government’s monopoly affects the same market.

That said, I did not mean to defend Prosper per se, reviewing my post, I’m still unsure how you’d arrive at that conclusion.

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Mike Gogulski left a comment on The Dollar Standard Flooded the World with Funny Money:

People have burned banknotes in the past this way because that was the economic thing to do. Why is it that, having already seen this photo, tens of thousands or more do not run immediately to their neighbors ready to enlist in the revolution?

The photo to which Mike refers, was of a German woman feeding near-valueless Marks into a woodburning stove, in lieu of cords of wood, the latter being more valuable than the former.

Mike, I’m not sure I’ve got a good answer to your inquiry. The Germans literally watched their economy crumble, day-by-day, and give rise to a brutal, totalitarian regime, and they did nothing to stop it. Economic historians could point to a number of similar monetary calamities in the history of the world. Actions have predictable consequences; this is not uncharted territory. I think people prefer naivete to knowledge, especially in circumstances where knowledge is of things undesirable.

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That is all for now.

The title is a reply to a recent comment on What is an Appropriate Tax Rate?, RG said (tongue-in-cheek) that “No state has ever reduced its taxes to prosper.”

No? Ever hear of a little country called Ireland? I hear they’ve been doing pretty well lately.

RG asked some serious and pointed questions, and like always, I try to respond to thoughtful comments.

[Y]ou analyze NY, MA, and CA taxes on the basis of their income, sales, and corporate tax rates. However, you totally forgot City of NYC taxes for New York (you didn’t think I was using Syracuse as an example, did you?). Additionally, you forgot property taxes (which must be nonexistent where you live, or you wouldn’t have skipped them). The indisputable point is that the places that create our industries also have the highest tax rates.

Those tax rates were the most readily accessible, and required the least amount of interpretation. Can you blame me for reaching the low-hanging fruit? City sales taxes and/or income taxes are generally very low, and moreover, to the specific point I was trying to make, they are applied with some degree of equity, to all businesses and individuals within the jurisdiction. Property taxes are far from non-existent where I live

But you think I chose special cases, so let’s examine: Cali is indeed beautiful. But again, did you think I meant that Cali’s industries came from the lower-tax Inland Empire or central Cali? No, those jobs come from the higher tax coastal and Bay regions. Similarly, NY’s engine of growth is the highest-tax part: NYC (which is also the engine of growth for NJ). I missed your argument about why the high tax rate in MA (specifically, the Boston area) does not drag on growth. In any case, you seem rational so I’d love to see a counterexample of a place with a substantially lower overall tax burden that has created a non-extractive (i.e. mining) industry.

I’m not accusing you of special pleading. On the contrary, I don’t find anything special about the cases you did present. I suspect that high tax rates are generally a consequence of wealth, rather than the cause, as you imply. To your question about lower tax burdens being an engine for growth, despite my complaints, the U.S. has a pretty low overall tax burden so it is not really a surprise that many innovations come from here. Also, have you ever heard of Ireland?

Ireland is currently the second richest country in the European Union, with a per capita GDP higher than that of Germany, France and Britain. But in the mid-1980s, the economy was faltering, college graduates were emigrating, and the outlook was bleak…

Ireland may not have created any new industries, but reducing their overall tax burden sure seems to have helped.

My first point is this: these places create jobs because they are the types of places where people who create jobs want to live. (Incidentally, NYC didn’t just happen to end up as the hub of global finance. They had to work at it e.g. by building subways and schools and bridges.)

Incidentally, multinationals that relocate to India often request larger tax levies from the government. Why? Because wouldn’t it be better if the government built roads, airports, water, sewer, etc.? A software company does not want to build these facilities. Further, it is a waste of finite resources to duplicate them everywhere.

If you’re “requesting larger tax levies” aren’t you really paying for these things voluntarily? Wouldn’t it be even better if multinationals didn’t depend on tax revenues generated by subsistence farmers, in order to subsidize the infrastructure that permits them to operate in these locales? Moreover, many large plants to maintain their own security, roads, water, and fire departments.

My second point is this: society matters. It’s strange to make this argument with a blogger over the U.S.-government developed Internet — obviously you are not very introspective about your place in the world — but I will try. People organize into societies. Those societies have shared values. In our society (let’s call it The Rich World), those values include some notion of addressing Problems of the Commons as well as addressing Common Defense. Any system of human organization that does not address these two fundamental issues will collapse. This is the fundamental characteristic of zero-tax systems.

Oh, I see, because I didn’t recognize that Al Gore invented the internet, I obviously don’t know what I’m talking about? The so-called “problems of the commons” can more often than not, and without too much effort, be attributed to insufficient property rights. This is the nexus of Coase’s seminal work, . Paradoxically, Government should by its very nature, suffer from the tragedy of commons.

I should interrupt myself: you are not at the point of a gun. You may always retire to the other major society on Earth (let’s call it The Developing World) or a non-society (let’s call it Antartica).

So if I don’t like it I should get the fuck out? How thoughtful.

I will not address the question of why a country might need a robust defense mechanism when it is many miles away from any current enemy. Instead, I will leave it as an exercise to the reader (once that reader has become acquainted with the history of World War II).

Do you mean the same World War II that was caused by the crippling war reparations after the Great War? John Maynard Keynes, far from my favorite economist, pretty much predicted the end of that story in The Economic Consequences of the Peace.

I should also add that you are taking very contradictory positions from the outset. One cannot talk about taxes destroying productivity without the willingness to look above the individual level.

I’m not playing this game. Any disincentive to production must destroy production. Tax policy is a disincentive, and it is widely recognized as such: tax alcohol to reduce consumption, tax imports to reduce reliance on them, tax gasoline so we’ll use less of it, etc. Why is it that miraculously, when we talk about taxing income, that people are so quick to assume it has the exact opposite effect?

In any event, I’m not arguing for some Benthamite fiction of “the greater good,” primarily because we can no more measure utility today, than could Bentham in his day. But even if we could, the crux of my objection to taxes is a moral one. This entire chain of posts has been, essentially a tangent.

You also ignored another key point of my questioning, which you brushed away by not wanting to discuss “abstractions” such as economies. (A very odd position for a financial blogger.)

It’s not an odd position, at all. If your income goes up by $50k next year, and mine stays the same, it is intellectually dishonest to assert that our “collective economy” became more productive. There are no national economies. There are only individual economies. You can group them together by whatever arbitrary lines on a map you think are suitable, but the aggregate is generally meaningless.

Anyway, the point I was trying to get across was that obviously a tax rise in NJ did not cause job losses in other states; and it didn’t cause those job losses in NJ either. There was likely another cause for all the job losses (perhaps the rise of foreign shipyards, or a drop in consumption over that period, or poor management at the firms in question, or bad unions, etc.).

I find it perplexing, actually, that you so flippantly dismiss the very real possibility that the luxury tax had anything to do with the Yacht industry’s downfall, a Congressional study, after all, is the source of the figure “7,600”.

If it didn’t cause the loss of over 7,000 jobs nationwide, then why were people were trying to repeal the luxury tax as early as 6 months after it was enacted. Some dealers were reporting sales down 80% or more. Industries dont’ die overnight.

In addition to the FEE publication I linked to initially (here), you’d do well to read a little bit more about the luxury tax and its effects on the yacht-building industry. You can find some information here, here, here and here.

If you’d like to discuss this further, I’d be happy to exchange e-mails with you. You can reach me through the Contact Me link here or at the top of the page.

If you enjoyed my post, Entrepreneurs, the Firm, and the Knowledge Problem, I suggest you head on over to Cato and check out Roderick Long’s essay, Corporations versus the Market, in which he dispells many popular libertarian fallacies of the allegedly “free market,” and the rampant government interference which pretty much destroys any argument in favor of economies of scale.

I don’t normally blog “hey, look at this” sort of links, but this is an exception. I plan on writing more on the topic in the near future, several drafts already in the works.