Opinion: There’s no such thing as a free lunch, especially with government spending

[The_Foxer]

Opinion: There’s no such thing as a free lunch, especially with government spending

This spend-without-paying-for-it approach to government won't end well for Canadians. Read more here

financialpost.com

This is the whole political drive that lead to Modern Monetary Theory - which basically says you can print an infinite amount of money provided you raise taxes to slow things down when inflation heats up, while ignoring the fact that no gov't survives raising taxes (unless they do it in a sneaky way).

We learned how destructive that kind of thinking is in the 80s. Now, only a generation later we've forgotten all of that and have gone down that same road again.

The article is right - we desperately need to get back to a mental attitude of paying as we go.

 

[Tecumsehsbones]

Opinion: There’s no such thing as a free lunch, especially with government spending

This spend-without-paying-for-it approach to government won't end well for Canadians. Read more here

financialpost.com

This is the whole political drive that lead to Modern Monetary Theory - which basically says you can print an infinite amount of money provided you raise taxes to slow things down when inflation heats up, while ignoring the fact that no gov't survives raising taxes (unless they do it in a sneaky way).

We learned how destructive that kind of thinking is in the 80s. Now, only a generation later we've forgotten all of that and have gone down that same road again.

The article is right - we desperately need to get back to a mental attitude of paying as we go.

I hope Modern Monetary Theory is right, cuz there ain't no way the U.S. is ever gonna get outta the hole we're in!

Fun fact: All the U.S. currency and coin in the world is only about 12% of the GDP. The rest of the "money" only exists as figures in a ledger or bytes in the cloud.

Canada's problem ain't quite that bad, but you're doing your best to catch up.

 

[Nick Danger]

A question that keeps pestering me is why our corporate tax rate today is half of what it was forty years ago, when businesses were every bit as profitable as today ? I grew up in the 60s/70s when a single middle class income paid the mortgage, a car payment, took the family on a summer vacation and maybe put a kid or two through college along the way. An alternative to cutting spending is to increase revenues, and a lot of that can be accomplished by ending the free lunch we've been handing to the corporate sector just to line their own pockets.

 

[Tecumsehsbones]

A question that keeps pestering me is why our corporate tax rate today is half of what it was forty years ago, when businesses were every bit as profitable as today ? I grew up in the 60s/70s when a single middle class income paid the mortgage, a car payment, took the family on a summer vacation and maybe put a kid or two through college along the way. An alternative to cutting spending is to increase revenues, and a lot of that can be accomplished by ending the free lunch we've been handing to the corporate sector just to line their own pockets.

The answer lies in the fact that in any tax code over 10 pages long, the remainder overwhelmingly favors the rich.

 

[The_Foxer]

A question that keeps pestering me is why our corporate tax rate today is half of what it was forty years ago, when businesses were every bit as profitable as today ? I grew up in the 60s/70s when a single middle class income paid the mortgage, a car payment, took the family on a summer vacation and maybe put a kid or two through college along the way. An alternative to cutting spending is to increase revenues, and a lot of that can be accomplished by ending the free lunch we've been handing to the corporate sector just to line their own pockets.

You have to look at how corporations and taxes kind of work. Remember that the corporation is not the end user of that money, that money will either be used to pay dividends which are currently ALSO taxed or reinvested at some point. So - if a corporation pays a divided then it still pays tax on that money and then the person receiving the divided pays tax.

Since the new models and tax rates started to come into effect in the 80's and 90's, business investment in Canada has boomed. This creates more jobs. And the vast vast majority of gov't revenues come from income tax, and always will. So it turned out that the gov't made far more money encouraging business growth and development than it did trying to tax business more.

And remember that the people "Lining their pockets" with corporate money are largely pension funds and small personal investors saving for their retirements. Corporate compensation packages to the actual execs are a tax write off for a business already so it really doesn't matter what the rate is.

The bottom line is it would not be possible to increase corporate taxes enough to offset the overspending we're doing right now. That would require some species of income or consumption tax increase. Or less spending.

 

[pgs]

A question that keeps pestering me is why our corporate tax rate today is half of what it was forty years ago, when businesses were every bit as profitable as today ? I grew up in the 60s/70s when a single middle class income paid the mortgage, a car payment, took the family on a summer vacation and maybe put a kid or two through college along the way. An alternative to cutting spending is to increase revenues, and a lot of that can be accomplished by ending the free lunch we've been handing to the corporate sector just to line their own pockets.

You are forgetting burn the bra and equal pay for equal work . And the fact most dual income families have multiple cars , boats RVs and a winter vacation on top . The sixties are gone and aren’t coming back anytime soon .

 

[Tecumsehsbones]

You have to look at how corporations and taxes kind of work. Remember that the corporation is not the end user of that money, that money will either be used to pay dividends which are currently ALSO taxed or reinvested at some point. So - if a corporation pays a divided then it still pays tax on that money and then the person receiving the divided pays tax.

Since the new models and tax rates started to come into effect in the 80's and 90's, business investment in Canada has boomed. This creates more jobs. And the vast vast majority of gov't revenues come from income tax, and always will. So it turned out that the gov't made far more money encouraging business growth and development than it did trying to tax business more.

And remember that the people "Lining their pockets" with corporate money are largely pension funds and small personal investors saving for their retirements. Corporate compensation packages to the actual execs are a tax write off for a business already so it really doesn't matter what the rate is.

The bottom line is it would not be possible to increase corporate taxes enough to offset the overspending we're doing right now. That would require some species of income or consumption tax increase. Or less spending.

Very cogent arguments. Allow me to respond. Not disagreeing with you, just giving the other side.

For reasons that escape me, both of our legal systems have granted "personhood" to corporations. I would argue that this nullifies the pass-on nature of corporate revenues. And frankly, the large majority of the money that a natural person earns is "passed on" to the government in taxes, and to other persons, both natural and corporate, for goods and services (and loan servicing, which is kinda similar to corporations paying out dividends, the fee for use of somebody else's money).

Further, corporate "persons" benefit from government services at least as much as natural persons. Defence, policing, roads, regulation, law and justice, all these government functions benefit corporations as much or more as they do natural persons.

And three other classes of persons lining their pockets with corporate money exist. . . the 1%, corporate officers and directors (many or most of whom are the 1%) and the corporations themselves. When a corporation buys a million-dollar painting, whom does that benefit, aside from the asset value? The executive suite of the corporation, mostly.

Theories vary on the numbers, but they all agree that money in circulation has a far higher multiplier effect than money invested.

Your last point, I agree on completely.

Here's my simple alternative. . . tax corporations like individuals. 1/3 of all revenues (not profits). Then you can eliminate all other taxes. You may say corporations will simply pass on the cost, but that's true of ALL corporate costs. It would be simpler to administer (there are far fewer corporations than individuals), and while the corporations would pass on the costs, natural persons would also experience a large increase in take-home with no tax withheld.

Just some notions. As I said, I don't specifically disagree with any of your points, and I emphatically support the last of them.

 

[The_Foxer]

You are forgetting burn the bra and equal pay for equal work . And the fact most dual income families have multiple cars , boats RVs and a winter vacation on top . The sixties are gone and aren’t coming back anytime soon .

And pay for mulitple cell phones instead of one house phone, pay for the internet, pay for cable tv which used to be a luxury, etc etc.

 

[Tecumsehsbones]

And pay for mulitple cell phones instead of one house phone, pay for the internet, pay for cable tv which used to be a luxury, etc etc.

And in the 60s they paid for color TVs, which their parents didn't pay for. What's your point? Average material well-being increases.

 

[The_Foxer]

And in the 60s they paid for color TVs, which their parents didn't pay for. What's your point? Average material well-being increases.

As tech increased, it increased the number of bills that people had to pay. If the ONLY thing you own is a home, you only need a relatively small amount of money to meet your needs. If you have to have a home and a car and a tv, then you need more income to support an 'average life. If you need a home, two cars, 3 cell lines, an internet service, 200 channels on the tv, etc then it tends to stretch that income quite a bit more.

Our 'needs' have climbed and expanded so dramatically in the last 60 years that the 'necessities' cost a much higher percent of our disposable income. When you add other factors to that it means that a 'good' income simply isn't going to leave over as much discretionary spending as it used to.

 

[Tecumsehsbones]

As tech increased, it increased the number of bills that people had to pay. If the ONLY thing you own is a home, you only need a relatively small amount of money to meet your needs. If you have to have a home and a car and a tv, then you need more income to support an 'average life. If you need a home, two cars, 3 cell lines, an internet service, 200 channels on the tv, etc then it tends to stretch that income quite a bit more.

Our 'needs' have climbed and expanded so dramatically in the last 60 years that the 'necessities' cost a much higher percent of our disposable income. When you add other factors to that it means that a 'good' income simply isn't going to leave over as much discretionary spending as it used to.

OK, terminological quibble, then we'll get to the meat. If it's a necessity, in quotes or not, then it isn't discretionary income.

There are really two questions about the "wealth of the nation." Back to the old pie analogy. How big is the pie, and how is it divided? All of it belongs to somebody. Forget about government "handouts" good or bad. How much of the pie do you get, and how much should you get? That's the underlying question of wages, tax policy, investment strategies and income, all that stuff.

That's the "how is the pie divided" part. How big is the pie has two features: legitimate increases in the actual size of the pie, and debt that will never be paid. The easiest way to increase the size of the pie is to print money and hand it out. Of course, every time that's been tried, it has ended in catastrophe. Maybe we're beyond that. I doubt it.

We can quibble endlessly about the means by which a person gets money. . . wages, government handouts, reductions in government (or debt-service) takings. What's important is how much money, as a share of the total pie, is each person getting?

My view is that every adult should get enough to pay for a one-bedroom dwelling, furnishings, mechanized transportation, three decent meals a day, clothing, household and personal-care supplies, and a reasonable entertainment budget. And the government services that we benefit from. And everybody should be required to work to get that, even to the point of making up non-productive work for those who are genuinely physically or mentally incapable of productive work. That should be, oh, call it a third of the pie, I won't argue about the number. Another third should be rewards for those who do more productive work, either by working more hours or producing more value with what they do. The last third is money unavailable for immediate spending because it's at work producing more money (investment, capital goods, etc.).

This may seem very simplistic and philosophical, but I've found that in many cases, people arguing about the tax rate, or wages, or corporate income, don't really have a firm grasp of this underlying structure. I'd like to hear your thoughts on what I've said here, and make sure we're on the same checkerboard before we begin debating the moves.

 

[The_Foxer]

It's going to sound like we think of this VERY differently, but I don't think on the whole we're actually all THAT far apart.

There really is no pie. Wealth doesn't exist as a static thing. Wealth is a result of activity. You're thinking it's like a lake, but it's more like a river. When the water stops flowing - the wealth is gone. If the water flow increases the wealth is larger and stronger.

And the only thing that creates that 'water' is economic activity. The production of goods and services that are then traded for value. That's what allows for there to be any 'wealth' at all. What would amazon be worth today if nobody bought anything? Wealth is a measure of activity, you can't actually 'divvy it up' independent of that.

Your pie analogy would suggest that somehow if the pie got bigger but the amount i'm taking doesn't grow with it, i some how got poorer. And that doesn't make sense. If there's 10 people and i have 1/10 of the 'pie', then suddenly there's 20 people and the economy doubles am i poor because i only have 1/20th? Probably not. I'm probably the same as i was.

So wealth can only be created by providing economic activity in the form of creating goods or services of value and trading them - so if we want to have a certain level of wealth then we must find a way to create that value in the form of goods or services. If you take water from that river without replacing it with the appropriate goods and services then there's less water for everyone if you get my meaning.

So the best answer is always to focus on ways to increase the opportunity for people to create that wealth and draw their share in return. Society isn't there to give people 'free' money or reward activity that has no value, it's there to make sure there's enough opportunity of different kinds to ensure people have a path to create those goods and or services and receive the benefit.

Having said that - sure you absolutely can take SOME out without significantly harming the flow. So for those who simply can't earn a living we choose to accept a minor reduction of the economic activity so we can afford to give them some of our wealth without doing too much harm. And because we're a nation that cares about it's people we do that. I'm on board with that to the point where it starts to seriously negatively affect the very creation of the wealth.

But - that has to remain limited. And when you base that idea on 'everyone deserves a base amount BEFORE they create any wealth", the system falls apart.

I believe that there should be as many paths and as few barriers to creating (and then benefitting) from wealth. And i support a social safety net even tho it takes away from that goal provided it doesn't create too much of a drag on the economy. But i do believe that as a society people should have a practical and reasonable path to earning wealth sufficient to provide themselves with the "minimum" you mention,

So in the end even tho we get there by different processes, the end result is not that different.

 

[Tecumsehsbones]

No, I think we're pretty compatible. For that matter, I like your dynamic model better than my static model.

But we're at the same questions. . . how do we make more wealth, and who gets what share, be it a pie or river water.

I will point out that if the pie gets bigger or the river broader and deeper, and you started with 10 litres and still have 10 litres, you're no poorer in absolute terms (barring the effect of inflation), but this is the whole "standard of living" thing. At one time in our countries, the standard of living for most people was a one or two-room cabin with no running water, fireplace heat, and lantern light. Obviously, today that's not even poverty-level. That's the argument for keeping people's share of the pie or of the river water as it flows by proportionately the same, and for their work to increase the water, some of which they keep and some of which joins the flow.

Everybody deserves a base amount before they create wealth. They're called "children," and the base amount comes from families and/or government. Long about age 20, give or take a few years, comes time to start pouring some water into the river. At that point, your entitlement to take from the river depends on putting into it.

As you say, the very young, the very old, and the deeply disabled we support free for nothing, because we also have values beyond pure economics (many of the old live at least partly off water they bottled earlier).

 

[pgs]

It's going to sound like we think of this VERY differently, but I don't think on the whole we're actually all THAT far apart.

There really is no pie. Wealth doesn't exist as a static thing. Wealth is a result of activity. You're thinking it's like a lake, but it's more like a river. When the water stops flowing - the wealth is gone. If the water flow increases the wealth is larger and stronger.

And the only thing that creates that 'water' is economic activity. The production of goods and services that are then traded for value. That's what allows for there to be any 'wealth' at all. What would amazon be worth today if nobody bought anything? Wealth is a measure of activity, you can't actually 'divvy it up' independent of that.

Your pie analogy would suggest that somehow if the pie got bigger but the amount i'm taking doesn't grow with it, i some how got poorer. And that doesn't make sense. If there's 10 people and i have 1/10 of the 'pie', then suddenly there's 20 people and the economy doubles am i poor because i only have 1/20th? Probably not. I'm probably the same as i was.

So wealth can only be created by providing economic activity in the form of creating goods or services of value and trading them - so if we want to have a certain level of wealth then we must find a way to create that value in the form of goods or services. If you take water from that river without replacing it with the appropriate goods and services then there's less water for everyone if you get my meaning.

So the best answer is always to focus on ways to increase the opportunity for people to create that wealth and draw their share in return. Society isn't there to give people 'free' money or reward activity that has no value, it's there to make sure there's enough opportunity of different kinds to ensure people have a path to create those goods and or services and receive the benefit.

Having said that - sure you absolutely can take SOME out without significantly harming the flow. So for those who simply can't earn a living we choose to accept a minor reduction of the economic activity so we can afford to give them some of our wealth without doing too much harm. And because we're a nation that cares about it's people we do that. I'm on board with that to the point where it starts to seriously negatively affect the very creation of the wealth.

But - that has to remain limited. And when you base that idea on 'everyone deserves a base amount BEFORE they create any wealth", the system falls apart.

I believe that there should be as many paths and as few barriers to creating (and then benefitting) from wealth. And i support a social safety net even tho it takes away from that goal provided it doesn't create too much of a drag on the economy. But i do believe that as a society people should have a practical and reasonable path to earning wealth sufficient to provide themselves with the "minimum" you mention,

So in the end even tho we get there by different processes, the end result is not that different.

You speak off the golden mountain that the world wants to immigrate to . The great melting pot where all have an equal opportunity. Let’s hope they don’t destroy it and take us with them , although we are doing a fine job on our own .

 

[Dixie Cup]

The answer lies in the fact that in any tax code over 10 pages long, the remainder overwhelmingly favors the rich.

And you're likely right!!

 

[Nick Danger]

Our 'needs' have climbed and expanded so dramatically in the last 60 years that the 'necessities' cost a much higher percent of our disposable income. When you add other factors to that it means that a 'good' income simply isn't going to leave over as much discretionary spending as it used to.

Yes, but wages have remained largely stagnant, in lower income classes not even keeping pace with the cost of living, even with two incomes where one used to suffice.

 

[pgs]

Yes, but wages have remained largely stagnant, in lower income classes not even keeping pace with the cost of living, even with two incomes where one used to suffice.

Yet even the poor have enough to eat , cell phones , a place to live and in many instances a vehicle . Sure there are the street people who are basically destitute but skid row has been with us since the beginning of civilization and the only real solution is instutionalization , and we can’t go there .

 

[pgs]

Yes, but wages have remained largely stagnant, in lower income classes not even keeping pace with the cost of living, even with two incomes where one used to suffice.

Remember woman demanded inclusion into the workforce in the 70’s , equal pay for equal work . They got what they asked for and now you are complaining .

 

[Nick Danger]

Yet even the poor have enough to eat , cell phones , a place to live and in many instances a vehicle.

When money going out grows at a pace larger than money coming in the end result is not difficult to predict. People are getting priced out of the housing market as we speak in BC's major centers.

 

[The_Foxer]

But we're at the same questions. . . how do we make more wealth, and who gets what share, be it a pie or river water.

Well in my books the answer still comes back to the value a person puts in. So to make more wealth they have to produce more things of value. The two best ways for that to happen in my books is a) better access (and encouragement) to skills training and higher education that has value and b) the creation of more industry or opportunity of different types so that people who are skilled in different things can all find a path where they can utilize those skills to create value.

If we have more opportunities for people to gain valuable skills AND more ways for them to use the skills they do have to generate value, there will be more wealth created and those people will get a bigger return on that.

As a side note i do think we need to start to discourage people from taking education that may be of interest to them but has little or no commercial value. Study that stuff for fun on your own but don't go into debt to learn "lesbian dance theory" as the joke goes and then find yourself unemployed with high student debt.

I also think we need to encourage kids to look at trades schools more - here in canada anyway. Because university has long been the 'automatic default' next step that's what everyone does but we desperately need more certified electricians and welders and mechanics etc etc and those may be far more lucrative paths for many people. We only need so many urban planners. More than half the people here wind up working in a field that had nothing to do with their university degree.

I will point out that if the pie gets bigger or the river broader and deeper, and you started with 10 litres and still have 10 litres, you're no poorer in absolute terms (barring the effect of inflation), but this is the whole "standard of living" thing. At one time in our countries, the standard of living for most people was a one or two-room cabin with no running water, fireplace heat, and lantern light. Obviously, today that's not even poverty-level. That's the argument for keeping people's share of the pie or of the river water as it flows by proportionately the same, and for their work to increase the water, some of which they keep and some of which joins the flow.

Well - i wonder how much of that is unreasonable expectation too. I mean my mother grew up not far from that kind of life, no phone lines, coal fired heat and floor grates to let the heat rise thru the house (Forget 'forced air') my grandmother grew up in tat same house with no electricity. They didn't consider themselves to be living in 'poverty', they had good and happy lives. Nowadays people are utterly crippled if the elevator goes down or the water has to be shut off for a few hours.

So sure - i get your point and it's valid that people then had the opportunity to make enough money to enjoy what was considered an 'average' lifestyle at the time and it should be our goal to try to continue to make sure that people today have the same opportunity. But there IS a slight sense of entitlement and expectation that i've seen that's a little unrealistic on occasion too. If you want a radically higher standard of life than previous generations, you're going to have to find ways to create radically higher value or it's not going to work.

Everybody deserves a base amount before they create wealth. They're called "children," and the base amount comes from families and/or government. Long about age 20, give or take a few years, comes time to start pouring some water into the river. At that point, your entitlement to take from the river depends on putting into it.

LOL - well touche. But - even with children the amount is not coming from unearned dollars. THe parents create the wealth and spend it on the kids, so the 'river' is not impacted. What is taken out still equals what goes in.

As you say, the very young, the very old, and the deeply disabled we support free for nothing, because we also have values beyond pure economics (many of the old live at least partly off water they bottled earlier).

And so we should. And usually historically what the right and left quibble about is what level that support should be. And that's a healthy conversation. Today tho both sides seem to go off the track and the conversation devolves into an unproductive slagging match. THe left (painting with a huge brush) demands everybody get everything for free and anyone who says different is a nazi. And the right demands nobody get anything for free and anyone who says different is a commie.

Jordan Peterson (i know i know - shush) had an interesting take on it. He said (more or less) that a heiarchy based meritocratic society was absolutely necessary because that's how we're designed and perform best, and that's why the right is absolutely necessary to promote that, And that the problem with that is that left unchecked all meritocracies eventually become tyrranical and leave many citizens behind suffering in the dust which devalues our humanity, which is why the left is absolutely necessary to challenge that. And that's probably pretty accurate.