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A Consumption Tax Is A Really Rotten Idea

There are at least three  things wrong with the consumption tax proposed as a substitute for the income tax in the USA.

  1. It is deeply unfair. I am retired. The money I spend for consumption is money that I earned, saved , and paid income tax on at least once (income tax on wages) and probably twice (corporate income tax on the earnings from which wages were paid.) I doubt if the retired community will tolerate this third bite at our remaining apple once they recognize it for what it is: a massive wealth transfer from retirees (and all other savers) to younger consumers.
  2. It is a tax on investment and thus a tax on growth. As we all know, when you tax something, you get less of it. Do we want less investment?
  3. Does anyone seriously believe that the govenrment will give up the revenue stream it receives from the income tax?  I suppose that it might, for one or two terms of Congress. Then there will be another emergency or crisis that “needs” large sums money. If you think the politicians will really abandon their income-tax money machine, I have this bridge to Brooklyn that I want to discuss with you.

In Praise of Inequality

During our recent election campaigns we heard a lot of yammering about “economic inequality”, how unjust it is and how it is increasing.  A closer look reveals that there are (at least) two different concepts at issue here: equality of economic opportunities and equality of economic outcomes.

As to equality of economic opportunities, we (the USA) are in pretty good shape, but we have a lot of room for improvement. In the Human Freedom Index for 2016 (co-published by Cato Institute, Fraser Institute and Liberales Institut) we ranked 23rd out of 159 countries in the “economic  freedom” category. But our rank has fallen from 18th in just two years. We obviously have some work to do.

Two places where we could make some easy gains are the areas of entering a new occupation and starting a new business. A recent estimate says that about 40% of all jobs in the US require some kind of government license or other certification of the worker, usually in the name of protecting the public against incompetence or dishonesty. Thus we license, say, real estate brokers to prevent fraud and other sleazy  conduct; some states require interior decorators to be licensed, no doubt to protect us from ugly designs. The number of regulations, permits and other  obstacles to doing something new in business seems to grow hourly. The Trump administration has been working to mitigate these problems with some degree of success.

Equality of economic outcomes is a horse of a different color. Inequality of economic outcomes means inequality of income or inequality of accumulated wealth, or both.  First of all, there are problems in the definition of inequality and in its measurement. A common measure is  something called the Gini coefficient. (For details, see “Gini Coefficient” in Wikipedia.) This is an attempt to describe a set of economic outcomes – say individuals’ incomes – by a single number. To do this requires some arbitrary assumptions which are hard to justify, and some very complex  computations. This is a fool’s errand, as any basic text on probability theory will explain. I am reminded of an aphorism that Alfred Einstein favored: Everything should be as simple as possible, but no simpler.

But all of this is beside the point. The fact is that equality of economic outcomes is fundamentally a bad idea. Here is why. If everyone received exactly the same income for exactly the same amount of work, no one would have any incentive to work harder, to improve products or design new methods of production. Nothing would change. Innovation would stop. Commercial activities would grind to a halt. (Even Karl Marks did not advocate equal economic outcomes for all; his slogan  was, “From  each according to his abilities; to each according to his needs.”)  You don’t have to perform any kind of an elaborate thought experiment to see what would happen in this kind of world. Just look at North Korea. Or Cuba. Or the USSR  in the 1930s. Or China at the time of the Cultural Revolution. Each of these was/is an economic disaster.

The only equality of outcomes that seems to be available is equal poverty for all. Is that what we really want?













Use and Abuse of Science, Revisited

I have been rethinking my previous post “Use and Abuse of Science” in terms of my more recent post “We Are Losing the War of Words”. I find that I missed the main point in the ‘Abuse” post. Here’s how.

There are several different meanings of the word “science” in common use.

  1. Science consists of a set of statements – verbal, mathematical, aural, graphical etc. –  that describe natural phenomena observable by humans.  For the balance of this discussion I will call this “e- science,” for “experimental science.”
  2. These is another definition of science that includes not only e-science but also all of the societal  and bureaucratic apparatus that surrounds e-science: funding, research institutes, for-profit entities, universities, government organizations, and the peer review system for  vetting and disseminating the results of the scientific research which is the business of e- science. I will use the term “s-science” (for “support-science”) to denote these support activities.
  3. I’ll use the term “t-science” to include both e-science and s-science.

In my critique in the earlier post, I was talking about e-science, while the people I was criticizing were talking about t-science. The discrepancy between our points of view comes about because of my insistence that for any t-science to be valid it must have the support of both valid e-science and valid s-science, and their failure to recognize this requirement. In simpler terms, science  must have both something worthwhile to assert (valid e-science) as well as a mechanism to to support creation and dissemination of it (s-science.)

Sweeping the hyperbole away, the status of the science surrounding the study of global warming seems to be this: The most that e-science can responsibly assert at this time is that human activity has affected our climate, but the effects so far have been small. There is a potential problem here worth monitoring, but nothing that demands immediate drastic action. [The best recent summary of what we know about climate change is in Cato working  paper No. 35: Climate Models and Climate Reality: A Closer Look at a Lukewarming World By Patrick J. Michaels and Paul C. “Chip” Knappenberger
December 15, 2015.]

Some people are using s-science to mis-represent the state of the e-science of climate change. Don’t let them get away with it.








We Are Losing the War of Words

Words are potent weapons of war. Right now they are being used against us on many fronts, and we so unaware of this that we often help advance the agendas of the bad guys.

 Consider this all too common news story:

 Car bomb kills 57 people in a public market square in (fill in your favorite metropolis.)        Terrorist group XYZ claims responsibility.

Note what is happening here. ‘Claiming responsibility’ is a good thing. We teach our kids to take responsibility for their actions, that it’s the grownup thing to do. By attaching the idea of taking responsibility to the murders of 57 people, XYZ is attempting to legitimize these murders.

And we are letting them get away with it when we thoughtlessly use their description. A more accurate report would say:

Car bomb kills 57 people in a public market square in (fill in your favorite metropolis.) Terrorist group XYZ admits guilt.

Let’s use our words to characterize these claims as the admission of guilt for the murders that they are, rather than their words which are intended to make them some sort of political statement.


Use and Abuse of Science

There is no such thing as “settled science”

“Climate warming is settled science, and we should no longer question it. Rather, we should proceed to implement major public policy changes and incur large expenses to mitigate the harm that global warming will create.” This is frequently asserted by those who see great danger in the possibility of climate change.

But they are wrong, in many ways. For one thing, science is never “settled.”

If you don’t believe me, ask Newton. His laws of motion were accepted from 1642 until 1905 Then, along came Einstein, who said: “Not quite.” In the theory of special relativity, he did not assert that Newton was wrong, simply that the laws of motion as formulated by Newton were not applicable to bodies moving at speeds near to the velocity of light. (In fact the Newtonian formulation is so accurate at slower velocities that NASA continues to rely on it to guide its flights to the moon and other destinations.) For objects moving at speeds near the speed of light, a modification was needed, which Einstein proposed and others subsequently proved correct by experiment and observation.

This story was largely repeated with respect to the law of gravity. Once again Newton’s formulation was the best we had for several centuries, and it worked just fine in the context of our everyday lives. But trouble had arisen both at the subatomic scale and at the intergalactic scale. in the 1920s,  Einstein came along agian, this time with the general theory of relativity.  After decades of experiments, some of the basic predictions of the general theory were confirmed.  The physics of this is still unresolved: something called ‘string theory’ is supplying some clues. But, whatever the resolution of these problems, it is abundantly clear that the science is not “settled”.

Science is made in the laboratory, not in the voting booth.

Those who see great danger in the possibility of climate change assert that there is consensus among scientists that human activities are causing deleterious climate change. This may or may not be so. But consensus is totally irrelevant to science.

If you don’t believe me, ask Galileo. In the fifteenth century, he and some colleagues (Brahe, Kepler and a few others) looked into the sky with their newly invented telescopes, measured what they saw and concluded that the earth revolved around the sun. Two popes and 15,000,000 Catholics believed the opposite – that the sun revolved around the earth. That sounds like consensus to me. But the consensus was wrong. (This didn’t help Galileo very much. He was put under house arrest for the rest of his life for refusing to recant except in a pro forma way.)

Observation trumped theology, and consensus had nothing to do with it.

Science has limits that are much narrower than most people understand.

Every scientific ‘law’ is ultimately based on experiments performed or observations made in the real world, which is to say within some environment larger than the experiment itself. Thus an assertion such as “Newton’s Laws of Motion are correct” is really shorthand for “Newton’s Laws of Motion are correct for objects that are observable by eye, by microscope or by telescope.” They say nothing about atoms or intergalactic dust clouds.

Another way of saying this is:  it is scientifically legitimate to interpolate existing scientific laws (you will be right most of the time) but not to extrapolate them (you will be wrong much of the time.)

We will return to the limits of science in the context of other issues as they arise.
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