Another robot story...

[Pointedstick]

Slotline, thanks to a citizens' dividend other people would have the financial freedom to set up in competition with you as an inefficient manufacturer.

Not if their citizen's dividend is barely enough to pay the asset taxes on their house, car, and furniture.. let alone their financial assets!  The idea of a citizen's dividend leaving people financially free to pursue their dreams makes no sense when paired with a punitive tax on everything that you own.

[stone]

But Pointed Stick, there would be zero tax on wages, capital gains, profits etc.

[Pointedstick]

That's nice, but the eliminated taxes are taxes on gains. Your asset tax taxes basis. In order to avoid needing to liquidate your house, car, furniture, CDs, bonds, stocks, etc, you need to make a gain. Now you're back to square one vis-a-vis leaving people free to pursue their dreams.

If you wanted to exempt personal property, that's different. If you wanted to further exempt real capital like factories and equipment, that's also different. As it is, one bad year and you've gotta sell the factory to pay the tax levied on its capital value.

[RuralEngineer]

That's nice, but the eliminated taxes are taxes on gains. Your asset tax taxes basis. In order to avoid needing to liquidate your house, car, furniture, CDs, bonds, stocks, etc, you need to make a gain. Now you're back to square one vis-a-vis leaving people free to pursue their dreams.

If you wanted to exempt personal property, that's different. If you wanted to further exempt real capital like factories and equipment, that's also different. As it is, one bad year and you've gotta sell the factory to pay the tax levied on its capital value.

Sounds stressful. I think I'll just go fishing instead.

[deke99]

This whole conversation apparently takes place in some world where either the human population is static, or where all people prioritize maintaining (or increasing) their standard of living over having more children.  Transfer payments can never produce an increased standard of living in the long term, because some people will just use the extra money to have more children at a low standard of living.  Over time, you will wind up with more of those people and fewer of the people who prefer a higher standard of living with fewer children.  The implications of this inescapable truth are not entirely pleasant to contemplate.

[stone]

deke99 check this out: http://www.gapminder.org/videos/populat ... kea-boxes/

It is the poorest 2 billion out of the 7 billion people on earth who do all of the population growth. As soon as people achieve a low child mortality rate, the population stops growing. All we need is to get child mortality down everywhere and people will then choose not to have lots of children and population will be stable. If we continue to have a rump of 2 billion people who are subject to high child mortality rates, we will continue to have a billion more people every decade.

[stone]

Pointed Stick

If you wanted to exempt personal property, that's different. If you wanted to further exempt real capital like factories and equipment, that's also different. As it is, one bad year and you've gotta sell the factory to pay the tax levied on its capital value.

You could use the factory as collateral to borrow against. You could ask shareholders to stump up. If something has a high asset value but you are not making money with it then the question has to be asked, -are you up to the job of managing it? If not then presumably someone else would be or it wouldn't have that asset value.

[MachineGhost]

Not if their citizen's dividend is barely enough to pay the asset taxes on their house, car, and furniture.. let alone their financial assets!  The idea of a citizen's dividend leaving people financially free to pursue their dreams makes no sense when paired with a punitive tax on everything that you own.

+1.  Even SS, SSI and SSDI are tax free (at least up to $25K for SS) which are essentially a larval form of CD.

[deke99]

Stone,

That was cute, but the conclusion is ridiculous.  In fact, you can see him wince a little at how stupid it sounds when he says it. The idea that reducing childhood mortality will REDUCE population growth is one of those extraordinary claims that requires extraordinary proof, because the opposite is, at least in the medium-term, OBVIOUSLY correct.

The fact that birth rates have declined in the developed world is an extraordinary thing, unprecedented in human history (rich people having fewer children than poor people), and it requires some explanation beyond a rough correlation with some other variable before it can plausibly be used in a predictive model.

Such an explanation should address why, even within low child mortality countries, some people prioritize having more children over a higher standard of living.  If you'd like to know my answer, it's that the developed world has "succeeded" in making it increasingly expensive to prepare a child for the upper middle class job/mating market.  People who opt out of that process (consciously or not) are unconstrained by national trends in birth rate, but benefit from the low child mortality environment.  So over time, the population of developed countries will contain more of their offspring and fewer of the strivers'.  Of course, nobody who talks like that is ever going to get invited to TED.

[stone]

deke99, I totally agree with your general point about how we need to face up to uncomfortable facts. I like this forum for the fact that a wide scope of opinion gets aired and everything goes into the discussion.

I do however not see it as remarkable that low child mortality rates lead to population stability. Poor people have lots of children because they need to hedge against having no surviving children. If there is a 50% chance that any given child will survive and you want to be absolutely sure of having at least one survive, then you need to have eight or whatever. If there is a 99.9% chance that any given child will survive then you don't need to have lots. This phenomenon is what the data shows all over the world. That gap minder web site does have lots of actual data on it not just opinion. It also has links to the source raw data tables.

Of course there is individual preference involved. We all know people who choose to have huge families. At my school there was a family of 20 and the father was on invalidity benefit . All of that gets swamped by the massive tidal force of the effect of child mortality on overall, population wide, family planning choices.

[stone]

Slotline, you are not just competing against individual entrants with $12000 start up (I agree that is feeble), you are competing against partnerships where each partner is offered an equity stake in the partnership in return for working for not a lot initially and having to live off their citizens' dividend/previous savings. A partnership of all of the material scientists, engineers etc that you speak of could be a frightening competitor. Especially frightening if they have just come from their previous venture where they created a multimillion dollar company, sold it and paid no capital gains tax and want to plough much of that money into this venture so as to not see it eroded by the asset tax.

Slotline, thanks to a citizens' dividend other people would have the financial freedom to set up in competition with you as an inefficient manufacturer.

As the 'inefficient' manufacturer I'm not worried.  If $12,000 made such a difference in their absolute productive output, I would have given them a job.  If I needed to hire extra hands in a market that could support a $12,000 entrant that poses a threat, then I deserve to lose.  That argument has no basis in reality.

For the sake of argument, let's say that in year 0, I am in a vulnerable market.  I make molded plastic parts.  Everyone with $12,000 can go out and buy themselves a 3d-printer.  Good.  So what.  They flood the bottom end of the market with home-made goods, reducing margins to pennies.  I on the other hand have a plant that can create larger parts.  I move out further away from the commoditized market.  I need more specialists.  I need real material scientists and engineers.  I need more technical sales staff.  I also need to drop my smaller machines and replace them with the larger ones.

Are the $12,000 prosumers going to be competing?  No.  Who I'm left competing with are the other molded plastic manufacturers that moved up the market just like me. 

Come year 1, 2, 3, 4.. n, maybe one of the prosumers will have gathered enough capital to do the same thing.  This could be a long while since they now have to deal with the headwind of asset taxation.  If they're lucky enough to reach this level, they're exactly in the same boat.  They are me.  And now we get to fight for the shortage of skilled workers.  We get to make incremental capital improvements that gain nothing.  We get to pass the buck to the customer.  We get to dance.

Past year 0 effects, my argument still holds.  It's not that I'm an inefficient manufacturer.  It's just the way its rigged. 

[stone]

Slotline, I wasn't saying to exempt capital assets.

So, now because of a measly 12k, senior researchers and engineers are ditching their salaried jobs enmass and becoming entrepreneurs...

Senior researchers do get utterly pissed off and frustrated in salaried jobs in many mismanaged corporations.

Also, don't you find it a bit sad that we've lost track of the poor that we were previously championing for, and have now centered around a battle of the top 5% again?  What was this about again?

This is about the currently poor. It is supposed to be a way for no one to be poor. Poor people are not a special kind of people, they are simply people who happen to be poor at the moment. Singapore now has essentially no poor people. Not long ago almost everyone in Singapore was very poor. Scandinavia and Switzerland used to be full of poor people.
It is NOT about education. Education is necessary but not sufficient. The USSR had the best educated population in the world. I know a maths professor who used to work with mathematicians in the USSR. The standard of university entrants and graduates there was incomparable to that in the USA. BUT that superbly educated population were all left to go to waste when the country was plunged into Harvard devised economic nihilism.

[stone]

Slotline, it is not just the annual citizens' dividend, it is also the lack of sales, income and payroll taxes. Also the current inflated housing costs. I'm sure many researchers and engineers and suchlike would be nervous today taking the plunge and leaving salaried jobs with perhaps tuition fee and mortgage debts to pay.

I agree the USSR was more oppressive than what we have in Europe or North America- by a long stretch. The USSR was not "capital redistribution". It was the utter opposite. It was concentrating control of capital in the hands of a select few central planners. What I'm suggesting is at the opposite end of the spectrum from a soviet command economy. I would put the spectrum as: USSR/North Korea> putocratic oligarchies> what we have now> what I'm suggesting. The USSR transfered power from a few oligarchs over to even fewer soviet central planners.

The ideal CD (rent on all productive potential) kills the opportunity

If you build a new asset you get to keep plenty. Imagine a start up company that is worth several million dollars after a few years. The asset tax wouldn't even dent that. All the asset tax takes is the ongoing rent gathered by pre-existing assets. It removes the opportunity to "get rich in your sleep" from owning pre-existing assets but does not impair "wealth creation".

To clarify I'm saying all assets should be taxed equally based on their current market value.
To quote Michal Kalecki :"the inducement to invest in fixed capital is not affected by a capital tax because it is paid on any type of wealth.  Whether an amount is held in cash or government securities or invested in building a factory, the same capital tax is paid on it and thus the comparative advantage is unchanged. "

[stone]

slotline, I'm not sure that I was clear that I was meaning AFTER the USSR collapsed, all those former soviets had the great education and were not under the yolk of communism. They nevertheless did not have opportunity because they didn't have access to finance. The former USSR floundered.

[RuralEngineer]

deke99, I totally agree with your general point about how we need to face up to uncomfortable facts. I like this forum for the fact that a wide scope of opinion gets aired and everything goes into the discussion.

I do however not see it as remarkable that low child mortality rates lead to population stability. Poor people have lots of children because they need to hedge against having no surviving children. If there is a 50% chance that any given child will survive and you want to be absolutely sure of having at least one survive, then you need to have eight or whatever. If there is a 99.9% chance that any given child will survive then you don't need to have lots. This phenomenon is what the data shows all over the world. That gap minder web site does have lots of actual data on it not just opinion. It also has links to the source raw data tables.

Of course there is individual preference involved. We all know people who choose to have huge families. At my school there was a family of 20 and the father was on invalidity benefit . All of that gets swamped by the massive tidal force of the effect of child mortality on overall, population wide, family planning choices.

Do you have any evidence to support the assertion that high birth rates in developing nations come from a desire for "spares?" Every study or bit of info I've seen has attributed it to a lack of access to birth control leading to unwanted births or large families in rural areas due to the need for extra farm labor.

[stone]

Stone, how does it remove the opportunity to get rich while sleeping if its taxed the same as fixed capital assets?

Slotline, all capital -whether stocks and bonds or direct ownership of machines and buildings and organisations- provides a return for the owners. That is what it is for.
You could directly own a factory and employ managers to manage the workers (or robots to get back to where this started) and receive a stream of dividends in your sleep just as if you owned a bond.

And what exactly is a new capital asset versus a pre-existing one?

Imagine you have an idea of how to make something better; you get together the finance, the staff and the equipment to set up an enterprise producing it. You perhaps spend $3M over ten years doing that. After it is all up and running it is a profitable enterprise with earnings of say $1M per year. You sell it for $100M. The new owners keep the existing staff and managers. They collect dividends in their sleep. They could be stock index fund owners such as us.
What I'm saying is that the asset tax is not a tax on the building up of productive enterprise from thin air by human ingenuity and effort. It is a tax on the subsequent collecting dividends in our sleep. Please note I'm not saying profitable companies are somehow not a good thing- they are. I'm just saying that of all the things to tax, ownership is what to tax.

As for effects of taxes on salary, look up Cost of Living Adjustments.  Stew on the idea that discretionary income will equalize back to where it was before the abolition of said taxes.

So perhaps more money will go to profits that will then pay towards the asset tax. The point is that there will be an incentive to hold capital in the form of a productive asset that provides profits rather than in the form of a non-productive asset that doesn't and so provides no means to pay the asset tax. This is a feature not a bug.
I'm also not sure that the whole dynamic wouldn't be changed. The citizen's dividend and increased self employment would mean that salaries would have to entice people. Discretionary income levels do get utterly transformed. Look at what has happened in Singapore or Korea or before that in Scandinavia.

[stone]

Do you have any evidence to support the assertion that high birth rates in developing nations come from a desire for "spares?" Every study or bit of info I've seen has attributed it to a lack of access to birth control leading to unwanted births or large families in rural areas due to the need for extra farm labor.

I'm definitely no expert on this. You caught me out . I just had a quick google and the first thing I opened did mention that effect but said it was hard to pin down how significant it was:

Finally, a third mechanism may be implicated. This is the so-called insurance (hoarding)
effect and refers to the practice of bearing more children than a desired family size even if none of
the children born ever die. This protects the size of a couple’s sibship against any future child death
and, therefore, insures that it attains a desired family size at the end of the reproductive period. This
form of anticipatory behavior can result in increases in fertility when uncertainties in the prevailing
mortality environment increase or when mortality increases with certainty. Hoarding is more likely
to occur in societies where children are expected to be parents’ main line of old age support, to
enhance reproduction of the lineage, or to reduce risk of losses to family assets, stocks or inventories.
The evidence for or against the operation of this mechanism is very weak and difficult to measure
with commonly available data because the insurance strategy depends on an individual couple’s
adjustment to perceived child mortality experience in society at large, and these perceptions are very
hard to identify with precision. Furthermore, since hoarding is spread over the entire reproductive
career of a couple and changes in perception may take a fairly long time to be translated into actual
decisions, the resulting association of mortality and fertility may require a considerable time lag to6
Although the terminology just introduced is fairly standard, some authors prefer to use different definitions. For
2
example, Trussell and Olsen (1983) use the term replacement effects to include what we consider here physiological and volitional
replacement effects. As these authors correctly point out and as we show later, empirically separating pure physiological from
volitional replacement effects is a daunting task, and there is some virtue in utilizing a terminology that lumps them together.
However, for conceptual clarity we will keep these two processes separate and, unless otherwise noted, we will insist on
distinguishing effects that should be expected purely through physiological mechanisms and those that involve some, however
primitive, conscious volitional replacement strategy.
be visible and detectable.2

[stone]

http://www.ssc.wisc.edu/cde/cdewp/96-27.pdf
is the source for the quote above. (I don't seem to be able to modify the comment above)

[MachineGhost]

LOL!  This reminds me of Animal Farm. 

All robots are equal, but some robots are more equal than others!

[Pointedstick]

You perfectly encapsulated everything I wanted to say, Slotine. Bravo.

[stone]

Slotline, the thing is that I thought exactly like you when our personal household finances were all down to salaries and paying off debts. The penny dropped for me when asset appreciation became significant from a personal finance view point.

I think it is critical to understand that I'm not saying capital is bad. This is not a punitive tax idea. It is not intended like tobacco taxes or whatever. I don't know why you get that impression. Do people who advocate sales taxes believe commerce is bad? Do people who advocate payroll taxes believe salaries are bad?

I'm not saying that those with existing capital don't deserve it. I'm saying that the issue is that currently existing capital provides a return that allows more to be gathered; that in turn gathers yet more. It is not simply a case of getting to keep what you made or earned; it is a case of the capital itself gathering more. I'm saying that we should have to put capital to work earning a profit so as to preserve the value of our wealth. We should need to be running against an asset tax so as to stay still in terms of capital appreciation.

About "productive" and "non-productive" assets- I'm not making any judgment as to which is which. I'm simply saying that asset holders need to pay an asset tax and the productive assets are those that provide the means to pay it. You could buy lots of gold bars and charge tourists to gawp at them and hey presto that would provide you with the means to pay the asset tax. You could buy gold bars and keep them in reserve to sell to buy other things when those were at a good price and hey presto that would indirectly provide you with the means to pay the asset tax.

You point out that once created, new capital is immediately like the old- I agree. I'm not saying that new should be favored over the old. I'm saying whatever can out-compete should prevail. You say that a new entrant would have no advantage over a good existing company- I agree. It is only better new entrants that should take over. The point that you seem to have missed is that a disruptive superior new entrant will have a period of extremely rapid growth whilst it is taking off. That is when new capital is being created. During that period the massive growth will render an asset tax insignificant. Real wealth creation such as that is barely impacted by an asset tax simply because >30% per year growth overwhelms it. Once the company is up and running, then it will, if it is profitable enough, provide its owners with a means to store wealth and transport value through time.

This forum is great for getting a robust critical scrutiny of any idea. Thanks guys for delivering on that.

[stone]

Slotline, about Singapore- I agree that Alberta is even more affluent than Singapore BUT IMO Singapore is amazing considering it was incredibly poor at independence- had race riots- people lived in slums. It is not as expensive to live there as in the UK. Public transport is FANTASTIC. A woman can walk alone anywhere at 2am in complete safety. Incredibly low infant mortality rate. Incredibly low rate of unemployment. It is not perfect, I'm simply saying that real values of people's incomes can increase immensely as with Singapore between 1960 and now. Cost of living adjustments don't always take it all.

[Pointedstick]

I'm saying that the issue is that currently existing capital provides a return that allows more to be gathered; that in turn gathers yet more. It is not simply a case of getting to keep what you made or earned; it is a case of the capital itself gathering more.

This seems to be the core of your argument. Let me ask: why is it bad that "existing capital provides a return that allows more to be gathered"? If the quantity of capital is growing, what does it matter if existing capital permits its owners to gather more?

Saying that capital must be taxed in order to winnow out its unproductive uses seems to imply the belief in a fixed quantity of capital that is being hoarded by the (relatively) unproductive, since a growing pool of capital would basically render that argument moot. But if the capital stock is growing, what do you care if some of its owners use it to generate a low-risk or risk-free return for themselves?

[stone]

Pointed stick, you're right, that is the entire basis of what this is about. The point is that there is a choice as to whether to direct the return from capital towards creating more "real capital" (such as inventing new devices, or training more staff, or building infrastructure or whatever) OR to use that return INSTEAD to simply gather claims over already existing "real capital". That choice lies with those holding the assets and receiving the return. Whether they choose one over the other partly rests on how much consumer demand they perceive there is going to be. That in turn depends on the extent to which the return on capital is being ploughed into "wealth creation" or into "wealth aquisition" since the former and not the latter creates jobs and more productive capacity. It is a vicious circle that and my hope was that this is a way to flip out of it.
I guess what it boils down to is that I'm saying that the global economy is operating under capacity. Not everyone has everything they want, not all machines that could be built have been built, there is involuntary unemployment.
When WWII started, all involuntary unemployment was swept away. The economy jumped up to full capacity. I'm just remarking that we don't have that now, so no capital is not expanding as it could be so no the point is not mute IMO.

I'm saying that the issue is that currently existing capital provides a return that allows more to be gathered; that in turn gathers yet more. It is not simply a case of getting to keep what you made or earned; it is a case of the capital itself gathering more.

This seems to be the core of your argument. Let me ask: why is it bad that "existing capital provides a return that allows more to be gathered"? If the quantity of capital is growing, what does it matter if existing capital permits its owners to gather more?

Saying that capital must be taxed in order to winnow out its unproductive uses seems to imply the belief in a fixed quantity of capital that is being hoarded by the (relatively) unproductive, since a growing pool of capital would basically render that argument moot. But if the capital stock is growing, what do you care if some of its owners use it to generate a low-risk or risk-free return for themselves?

[Pointedstick]

Pointed stick, you're right, that is the entire basis of what this is about. The point is that there is a choice as to whether to direct the return from capital towards creating more "real capital" (such as inventing new devices, or training more staff, or building infrastructure or whatever) OR to use that return INSTEAD to simply gather claims over already existing "real capital". That choice lies with those holding the assets and receiving the return. Whether they choose one over the other partly rests on how much consumer demand they perceive there is going to be. That in turn depends on the extent to which the return on capital is being ploughed into "wealth creation" or into "wealth aquisition" since the former and not the latter creates jobs and more productive capacity. It is a vicious circle that and my hope was that this is a way to flip out of it.

My answer is a big, "…so what?" Why is it such a bad thing if some of the existing owners of capital put the capital towards "wealth acquisition" and therefore don't create any jobs with it? Why is this a problem? The only way I can see for this to be a problem is if 1) the pool of capital stock is fixed and 2) a greater and greater proportion of the available capital is being used for enriching its existing owners rather than increasing productive capacity by generating new capital stock. That would lead to a dwindling absolute (rather than relative) amount of capital available for real productive uses, which would cause mass unemployment, economic stagnation, social unrest, etc.

1. Do you have any evidence that any of this is actually happening?
2. If #1 is true, wouldn't a better solution be to more directly increase the capital stock rather than dreaming of ways to redistribute the existing stock in the hope that this redistribution will put more capital in the hands of people who will use their capital to increase the capital stock rather than themselves generating a low-risk or risk-free return from it?