Hiding in plain sight

Inflation and productivity: It has been pointed out that government expansion of the money supply is partially hidden behind increased productivity. That is, as humans become more productive, prices will tend to fall, or rather, would tend to fall if the government were not expanding the money supply, thereby pushing prices back up. These two phenomena partially hide each other: the real drop in prices caused by increased productivity is partially hidden by the expansion of the money supply, and the expansion of the money supply (i.e. debasing the currency) is partially hidden by increased productivity.

Inflation and fiat currency: The debasement of the currency is, of course, nowadays also hidden by the fact that a coin is no longer merely an ingot of precious metal with a government stamp guaranteeing its weight and quality. In the days of precious metal it was possible to observe the debasement merely by carefully comparing new and old coins.

Taxation and fragmentation: The state nowadays takes a large fraction of people's income. This is hidden in various ways. One way is by splitting the tax into multiple parts. The national government takes one part of income, the state (e.g. California) takes another part of income, and the tax is further divided into "income tax" and other taxes, such as property tax, sales tax, the splitting of the total income tax into a portion paid by the employer and a portion paid by the employee, tax on imports, and various other taxes. Each individual tax represents only a small-ish fraction of income, but taken together they add up to a large fraction of income.

Taxation and lost opportunities: The harm done by taxes is even greater than the taxes added up, because taxes act as a brake on economic activity. It is not easy to imagine something that remains only an unrealized possibility, so it is not easy to see this particular avenue of harm.

Taxation and productivity: The state also hides behind the past. When we judge something, we often rely on comparisons. For example, I judge my car as "good" by comparing it to other available cars. Among other things, my model is low-maintenance, but what this really amounts to is that it is low maintenance in comparison to other cars currently available. In a parallel world in which the majority of cars were vastly more reliable than they are here and now, then my exact same car would be (correctly) considered a high-maintenance car, and very likely a pile of junk.

Inflation partly hides behind increased productivity, and government taxation also partly hides behind increased productivity. Even though taxes have gone up, productivity has gone up even more, so we are taking home more than we have ever taken home, more than our grandparents took home. Taxes make us worse off in comparison to how well off we would have been today in the absence of taxes, but they do not make us worse off in comparison to how well off we (or our grandparents) actually were when taxes were lower. The past is the point of comparison that is actually available to us, and we are better off compared to then.

Had government raised taxes abruptly, everyone would feel it. But as long as government raises taxes slowly enough so that what is left over still increases (because of increased productivity), people will be less likely to feel the pinch.

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The problem is the "plain sight," not the system

Our govt has never published an honest set of books. An honest set of books requires a double entry system. that is why the Mafia invented it.

I propose that paper money and checks be eliminated and replaced by electronic transfer. That every transaction over $100 be published on the web. Coins OK for buying lunch or whatever. A money trail for every person, government, and business.

By the way, when the country was on a gold standard very few working class people ever had a gold coin.


The boiled frog.

The interesting question is, how high are taxes compared to the Laffer maximum. An experiment of nature is provided when government raises the tax on some luxury good - yachts, expensive motor cars. Revenue plunges. Often this is declared to be a good thing - the yachts, or cars are "obscene" so the fewer of them the better. Taxes on luxury goods are generally at or above the Laffer maxium, so we can say that the Laffer maximum is around 25%, for taxes on luxury goods.

Raising the tax on luxury cars has an immediate and dramatic effect on revenue, since the tax is collected on purchase. But suppose it worked like an income tax, that the tax was collected on people enjoying a luxury car, instead of on purchase. Then in the short run, the increase in tax would produce an increase in revenue, at least for a few years after the rise in tax - in which case taxes on luxury goods would be far above the medium term Laffer maximum - since as it is they are already above the Laffer maximum. Which suggests that taxes on income are far above the medium term Laffer maximum, even though somewhat below the short term Laffer maximum.

Laffer maximum

Just want to point out that I don't want taxes at the Laffer maximum. My goal in life is not to maximize government revenue.

Also, it's possible, nay probable, that setting taxes at the Laffer maximum for a period of years will result in a lower and lower tax base, iteratively over time. Setting the tax rate below the Laffer maximum will allow an economy to grow faster than it otherwise would. Thus, given a period of time we could define a new concept, the Iterative Laffer Maximum, which is that tax rate that will generate the most taxes interatively over a period of years. Presumably this rate is less than the Laffer Maximum for any particular year.

I don't want the tax rate to be at the Iterative Laffer Maximum either.

If you want tax below the

If you want tax below the Laffer Maximum of the Laffer iterative Maximum, then I'm with you. The only just tax rate is 0. However if this is what you meant, I guess you would have just said : "there should be no taxes". I take it you meant, overall I would prefer to see taxes above the Laffer Maximum or above the Laffer iterative Maximum. Therefore it means you're willing to sacrifice other people's right to keep their income to thwart the state. Not very libertarian of you.

And don't cop away by saying : I have no preferences. When you say "I don't want to", you're expressing a preference.

Not a Libertarian


"I take it you meant, overall I would prefer to see taxes above the Laffer Maximum or above the Laffer iterative Maximum. "

No, I thought I was saying the opposite. I want taxes below both of those.

"Not very libertarian of you."

I'm not a "libertarian" but I'm also not out to maximize the size of the state for the sake of maximizing the state. Setting taxes at the Laffer Maximum would maximize the state.

No, I thought I was saying

No, I thought I was saying the opposite. I want taxes below both of those.


Setting taxes at the Laffer Maximum would maximize the state.

I think intuitively that the iterative Laffer Maximum would be much lower than our current level of taxation. If you maximize total discounted state cash flows, you get the taxation rate that would be charged by a rational line of kings. This is also the taxes that would be charged by a private government venture.

Iterative Laffer maximum

Just a note that what you're calling "iterative Laffer maximum" seems to be the same as what what James is getting at with "short term" versus "medium term" - you're both talking about the depressive effect over time of taxes on the economy and how that affects tax revenue later on. Your "iterative" might be (depending on how far in the future you're thinking) "long term" or "extreme long term".

However, for various reasons we can't have much confidence in the government led by democratically elected politicians thinking past a few years, even in its own best interest. Hoppe's argument for monarchy as preferable to democracy, whatever else you may think of it, makes this point, which I find persuasive.

As James points out, empirically this seems to be the case. Government is taxing above the medium term Laffer maximum (and certainly, therefore, above the long term maximum - the "iterative" maximum).

From the end of WW2 to the

From the end of WW2 to the end of the last century the living standard of every social class was raised, the welfare class most of all. The price of gold has paced inflation. Most every working class person can buy a greatly improved new car with a half year's pay. Food prices dropped from 50% of one's wage to less than 10%. Clothing and tools are cheaper. Medical treatments would be cheaper if we were satisfied with 1950's meds. House prices on a sq ft basis have probably doubled but half of that is because of government regulations.