Thursday, May 06, 2010

Comment on the Belmont Club:
"Midnight Express"

Arthur Laffer should be laughing. If the tax rate is raised to consume 57% of GDP then investment and productivity will decline. That will result in demands to raise the tax rates to retain the same income for the government. The wonderful concept of Bankruptcy, like the biblical Jubilee, was designed to ensure that the spiral of debt can not eat the future eternally. In order to prevent moral hazard some cost for profligate spending or fraudulent borrowing must be paid. Those are the three sides of the controls that prevent unlimited borrowing and debt that is not devoted to increased productivity for individuals or nations;
1. declining returns,
2. temporal relief,
3. reduced consumption.

What is needed is a defined limit on expected outcomes. Returns obtained from political activity are extracted from productive members of society. Those returns must not be allowed to exceed those that accrue from real work. The best way that I can see to do this is to establish what a minimal floor is and guarantee everyone who exceeds the average lifespan exactly that return and no more. For example, and I am completely pulling these numbers from thin air, if human life needs an intake of 500 calories per day with so many grams of protein then the government will deliver exactly that to each person over the average life expectancy. If a human needs 160 ft² of living space then that is what should be provided. Pensions for civil servants should be kept separate. Provide all benefits by marketable vouchers whose value are just under the individual tax exemption or value of the rebate if a "Fair Tax" system is adopted. That would effectively means test the delivery of these benefits.

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