The Middle-Class Squeeze
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A pure socialist system or a pure capitalist system would probably not have these issues, but then these are both unicorns.
Cronyism seems to be the primary way a socialist system operates. If you're politically connected, you tend to get best access to the goods and tend to be able use regulations to handicap competitors. This makes sense as in a socialist system, the people running the government are more actively engaged in the economy, and the tendency to reward friends and punish adversaries is hard to fight.
In a capitalist system, cronyism can also occur if players collude or if a player obtains a monopoly (or some other type of controlling position). In either case, the system then becomes distorted as players increasingly use coercion instead of mutually beneficial exchange. For example, Apple colluding to keep down the wages of workers.
Whenever you hear people complain about how impossible it is to comply with all the procedures and processes and regulations for getting a government contract to develop some software, it's a safe bet that those procedures and processes and regulations were all put in place by well-intentioned people who wanted to prevent corruption. But as people found more inventive ways of being corrupt, the countermeasures had to grow more complex and invasive, until finally they reached the point where only a handful of companies would actually bother to achieve compliance, guaranteeing them a steady stream of contracts regardless of performance. Which is precisely the result that wasn't supposed to happen.
Also, the mixed socialist/capitalist economies of Europe seem to do better, on average, than our much more capitalist-leaning system, largely because they aren't afraid to implement certain programs and regulations that in the US would be screamed down as creeping socialism even when they'd be more effective than what we actually do.
And then you can literally left suppliers to their own devices.
Currency is a means for us to socialize debts so we can make trade more efficient. When you give Steve money, you're saying, "my people, Steve has provided me $30 of value, so please reward him in kind." Instead of having to give Steve $30 of value directly in return, we communicate that $30 debt to the rest of society with our money.
The problem with our currency is that it forces everyone to honor the debts of every other person on the planet. There are people who destroy our environment, manipulate our politics, and deceive our people in order to earn rewards, and we're all forced to reward them because we can't identify whose socialized debt we're honoring when we reward people in exchange for money.
If we always knew whose debts were being honored, any individual could refuse to honor the debts of people they believe are harming society. You could effectively turn off people's money if they're behaving poorly. No one would work for you if they think others won't honor your debts. If you don't honor the debts of polluters, polluters lose their purchasing power and go out of business. Similarly, pharmaceutical price gougers, war profiteers, and harbingers of financial crises would have powerful disincentives.
This enforcement mechanism would incentivize socially harmonious behavior without requiring consensus on what socially harmonious behavior is. We'd have a market mechanism for social behavior, which would prevent many of capitalism's failures.
We could also prevent wealth accumulation by deciding that recent value transfers are worth more than older value transfers. This is something that people actually believe, but there's no way for our money to express that the work you did twenty years ago doesn't mean as much as the work you do today. A pleasant side effect of codifying this truth is that we could avoid the zero lower bound on interest rates that's making it hard for the world to reach full employment. If unemployment is high, just increase the value of recent work so there's a bigger incentive to put people to work.
Instead of paying people based on how much money they have, you'd pay them based on their merit, calculated however you decide as an individual.
All we need to implement merit capitalism is a ledger of who has provided value for whom to replace our currencies that obfuscate that data. Blockchains give us the power to build this ledger.
It's the reason I can't bring myself to follow the often repeated financial advice to stick your money in an index a fund and then leave it there; I refuse to vote for the behavior so many of those companies engage in.
Is this an idea that you've formulated yourself? I'm very curious about your journey to this idea.
The financial crisis got people thinking critically about what money is, especially the people who hopped on the Ron Paul boat back in the 2008 election season. (I hope you'll hear me out even if you consider those folks to be crazy people.) That's when I first understood that money is debt.
Bitcoin gave us blockchains: the ability to create ledgers that we can agree on without authority. You send transactions to move amounts in the ledger. Ethereum allows us to create arbitrary transaction types that modify the state that transaction type controls.
The Clojure and React communities got me thinking more about different ways to think about state. State is the result of transactions, and if you keep either the transactions or the previous states around, you can control time in your program, among other things.
Apache Kafka, Samza, and related projects introduced me to the concept of a database as a transaction log. One potentially useful application that my coworker pointed out is that we could write events to a Kafka database, then change what they mean later. State is a function of a list of transactions and a transaction processing function. You can change your transaction processing function at any time. Anyone who has the transactions can build their own view of the world with a function they define, so everyone can have their own calculation of merit, for instance.
I've thought for some time that while governments are useful, it'd be better if we could find ways to achieve the same ends without giving anyone power over us. I've been exploring ways to use blockchains to give society the power to self-organize and provide the things we currently need governments to provide for us.
Merit capitalism is a combination of those ideas, and probably more parts of the idea soup in my brain.
Most of society lives in a hamster wheel already. It's what we call having to work for a living. Valuing recent work over older work just puts the wealthy back on the hamster wheel with us, and it will make society more wealthy since everyone has to keep contributing to our total wealth.
Transactional privacy is undeserved. When you spend money, you're putting the rest of society on the hook for the goods or services you just bought. We want to know who you are so we can decide whether we want to honor your debt. If you don't want to tell us, you're free to barter.
Low property taxes force the governments to finance its expenditures mainly through sales and income taxes. The former are optional, the latter happen to penalize those who elect to participate in the workforce (which large property owners can safely sit out).
A property tax is generally progressive because the poor do not own real property. The rich pay more property tax as a percentage of their income/wealth than the poor.
A sales tax is the prototypical example of a regressive tax because the rich consume less (as a percentage of their income) than the poor. Therefore, the rich pay of a lower percentage of their total income to sales taxes than the poor.
An income tax with higher marginal tax rates for higher incomes is the classic example of a progressive tax. Since Reagan, income taxes approximate a flat tax more than a progressive one.
Won't those taxes still be passed to the poor as higher rent?
Although this is effectively the definition of progressive and regressive taxation today—because that's how the terms are almost always used by the large number of people who have only the most casual understanding of tax policy—it is a perversion of the original and long-standing textbook definition, and of the way in which the terms are still used by some economists.
By the original definition, a progressive tax is simply one whose rate of assessment increases ("progresses") with the value subject to taxation [0]. Thus an import duty on bananas is progressive if it taxes them at a rate of 1% ad valorem for the first $1MM's worth, and then at a rate of 2% of their value above $1MM.
Note that the original definition and the popular corruption coincide when the thing being taxed is a person's income. (Together with the mistaken association with "progressive" politics, this seems to be the source of the perversion of meaning.) But the two definitions often differ, and the term "progressive" in the context of taxation originally had nothing to do with how the burden of taxation is distributed across society.
0. This is also the definition given in the Wikipedia article, https://en.m.wikipedia.org/wiki/Progressive_tax (and given by several of the cited sources), although much of the article anyway discusses the burden-of-taxation interpretation.
According to the OED, the earliest noted use of "regressive" in the context of taxation is from Richard T. Ely's writings on political economy in 1891. He was the leader of the progressive movement. His use of the terms progressive/regressive would certainly have meant reform/acting in a backward direction.
Do you have an earlier citation for your definition? I wonder if it is in fact a mathematical generalization of a progressive/populist definition.
But the definition I gave is indeed the original one, and it is not a generalization. A tax may be progressive in your sense but not in the original sense: a luxury tax on yachts, for instance, is progressive in your sense, but not in the original sense if it is assessed at a fixed rate [0].
The OED's first noted usage is way off, by the way; it is easy to verify that the term progressive in the context of taxation pre-dates the Progressive Era by at least a century. For instance, Thomas Paine proposed progressive taxes on estates (using the term numerous times) in his Rights of Man (1791). (He even drew up tables of suggested taxes, the rates of which rose with the value of the estate.) There are more commonplace examples from the first half of the nineteenth century that you can find on Google Books, including several that disambiguate the two senses in favor of the original definition I provided [1].
A great many of the early mentions of progressive taxes, including of those before the Progressive Era, do come in the course of discussing how to make taxation fairer (in the author's view) or how to disperse inherited wealth. Since the rich own more wealth, buy more goods, and have greater incomes than the poor, progressive rates of taxation—in the original sense—tend to result in progressive taxes—in the other sense. I suppose the shift in meaning was to be expected.
0. Unless perhaps yacht is defined as an expensive boat. But the point stands: so long as there exist goods that the rich spend a higher proportion of their income on than do the poor, then a tax assessed at a fixed rate on those goods is progressive in your sense but not in the other.
1. There are also some examples, mostly in tables of import duties, where the terms progressive and not progressive are used in a sense that appears to distinguish duties that are assessed ad valorem versus those that are assessed as a flat fee; so it seems that progressive sometimes also meant merely that the amount of tax collected increased with the value subject to taxation, which is further distinct from our debate over progressive rates.
There's a conundrum here where higher property tax rate decreases the rental's attractiveness to potential landlords purely by biting into the cashflow, which then creates a negative impact on the property price and the base it's taxed at.
US states with higher property tax rates (typically those with low or no income tax rates) do not generally have higher rents, and countries with higher property taxes (Germany) do not typically have significantly higher rents than their counterparts https://lareviewofbooks.org/essay/why-your-rent-is-so-high-a...
Consumption tax is 100% broken.
My parents were immigrants and not savvy enough to buy a house. I'm wondering how I can ever afford a 200K down payment on a million dollar house, and if that is in any way a reasonable idea. Taxing income is the wrong approach since people getting income are contributing to society. The lottery winners who happened to own houses in the right place .. I'm not sure what they contributed.
If you can't afford to save, you can't afford the mortgage.
If they do, then someone who's going to get that house should foot the taxes.
The reality is, as much as everyone bitches about income taxes, a progressive tax system [regardless of the exact source, you could do a "progressive sales tax" for instance] is critical to prosperity.
Property taxes are in many ways effectively a tax on owning rental property which translates into higher rents [up to the market's willingness to pay, which is quite high given people are spending 50% of their income in some places in rent].
It would help fix inequality, reward hard work, punish idle land rentiers and punish urban sprawl, all at the same time. What's not to like?
Not to mention, property taxes fluctuate wildly and are incredibly hard to predict and plan for. "Reassessments" happen randomly, seem to be applied haphazardly/unequally (see Philadelphia for a recent example) and can in a few short years move home ownership from affordable to unaffordable for the same person with an unchanging situation.
It's hardly a silver bullet. You can never actually pay off a piece of property.
Can also be a nice buff to pension.
That, or perhaps, instituting a 3% transaction tax for every damn unit of debt or equity sold. Whether its a broker or bot, tax it.
But, of course, most of the ruling class wants to talk about "skin in the game" and advocating regressive sales or property tax.
That is also not entirely true. Sales of publicly traded stock by large shareholders is public information, and as an example, Mark Zuckerberg, sold a $2.3 billion chunk of shares in 2012 post-IPO when he became eligible http://www.theguardian.com/technology/2013/dec/19/facebook-m... and has not sold a single share ever since https://finance.yahoo.com/q/it?s=fb except for a disposition (charitable contribution). He probably doesn't need to either, there's a long wait before that bank account gets depleted.
It does not make sense for 1% to be transacting heavily in the assets they own, and if they're company officers they're frequently sending negative signals by doing that.
For one, capital gains are voluntary, and sellers more or less choose when to accrue them (and time them against losses in portfolio to minimize the impact).
For two, bulk of the money in the market is paying capital gains tax of 0%, as it belongs to a retirement account, charitable foundation, pension fund, foreign entity, university endowment, trust fund or some other tax-exempt structure. US-affiliated taxable accounts are not the majority in the market (source on this is Ken Fisher's Debunkery http://www.ken-fisher-debunkery.com/ published in 2011, I'm not sure whether situation changed since then).