# Canadian Economics 101



## Simpleton (6 Oct 2004)

Tax Cuts - A Simple Lesson In Economics

This is how the cookie crumbles. Please read it carefully. Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way Canadians pay their taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh $7.
The eighth $12.
The ninth $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."

So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes.

So, the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his 'fair share'?

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being 'PAID' to eat their dinner.

So, the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings). The eighth now paid $9 instead of $12 (25%savings). The ninth now paid $14 instead of $18 (22% savings). The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for dinner (having moved to Chicago the day before), so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important.

They didn't have enough money between all of them for even half of the bill!

And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in the United States, Europe and the Caribbean.


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## Bruce Monkhouse (6 Oct 2004)

I'm definitely printing this one off for some of my more "socially-minded" friends. ;D
I would still like to see the flat tax brought in with no way to hide money.  I hate this percentage thing, why should the guy who works two jobs at 10 bucks an hour have to pay more percentage than the guy who works one job at 10 bucks an hour?
And of course my favourite, it looks like Mr. Martin is soon going to tax me more so that couples with two jobs can do it a lot cheaper than I who always worked OT. or a part-time second job so my wife could stay at home and raise the children the old-fashioned way, not this nouveau "raising of children by the state" thing.


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## I_am_John_Galt (6 Oct 2004)

Had this archived in the old email jokes:



> >  The Ant and The Grasshopper - CLASSIC VERSION
> >
> >The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks he's a fool, laughs and dances and plays the summer away.  Come winter, the ant is warm and well fed. The shivering grasshopper has no food or shelter, so he dies out in the cold.
> >
> ...



Actually, what's really sad is that Bastiat foresaw the problems with federally-mandated wealth redistribution over 150 years ago!!!





> Have you ever heard anyone say: "Taxes are the best investment; they are a life-giving dew. See how many families they keep alive, and follow in imagination their indirect effects on industry; they are infinite, as extensive as life itself."
> 
> ...
> 
> ...



http://www.econlib.org/library/Bastiat/basEss1.html#Chapter%201


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## Brad Sallows (7 Oct 2004)

It amuses me to know that when net Canadian personal income increases by X in any given year, federal and provincial governments would obtain the most personal income tax revenue if all of X was earned by the people in the highest tax bracket.  (Conversely, a government can take a staggering revenue hit if those earnings fall substantially.)  I sometimes wonder how socialists reconcile their envy of high income earners with their thirst for public revenues.


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## Infanteer (8 Oct 2004)

> I sometimes wonder how socialists reconcile their envy of high income earners with their thirst for public revenues.



Through a fairytale ideological outlook that sees everyone the same in terms of capabilites and desires?


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## I_am_John_Galt (8 Oct 2004)

Another brutal one is the socialist myth that progressive taxation somehow redistributes wealth from the rich to the poor (even ignoring for the moment the perverse logic of punishing people for contributing more to society).

To wit:
Person A has a $10,000,000 inherentance and say he makes $50,000/year.  At an average 30% rate Person A pays $15,000/year in taxes into government revenues.

Person B has a $100,000 inheretance and makes $100,000 and pays taxes at an average 45% rate; $45,000 to CCRA.

Person B (the 'poor' guy) has paid 45% of his wealth in taxes, but Person A (the rich guy who's wealth is supposedly being redistributed) has only paid 1.5% of his wealth!!!

You can fiddle with the numbers as much as you want, but at the end of the day the high-income taxpayer always pays disproportionately more than the low-income individual, weath is not relevant: INCOME determines taxation (that's why we call it 'income tax') and it is INCOME that is being redistributed.  Despite the socialist rhetoric, WEALTH has no bearing and is not redistributed in any way.  The system protects accumulated wealth and is biased against new accumulation of wealth (i.e., by the poor and middle class).

Existing wealth has no bearing on taxation (in our system): progressive taxation ignores wealth while systematically descriminnating against those that generate the most new wealth.  The end result of progressive taxation is to keep the rich, rich and the poor, poor.

Anyone who is aware of this basic identitiy and says otherwise is lying (not to mention itching for a fight!).

It's no wonder the Champagne Socialists > particularly love progressive taxation so much: they get to keep their wealth and at the same time perpetuate the myth that they are somehow helping the poor!


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## dutchie (8 Oct 2004)

Existing wealth has no bearing on taxation (in our system): progressive taxation ignores wealth while systematically descriminnating against those that generate the most new wealth.

I hadn't thought of this before, but it just confirms my belief that the rich stay rich only in spite of our taxation system, the middle class will never get rich, and the poor will be subsidized no matter what. I like a lot of the 'social safety net' programs we have (but not all), but I should pay proportionally the same as every other Canadian.

Why do we reward those that contribute the least? What motivation is there for me to earn more? So I can pay more? And if I was making half what I am now, why work harder (or go to school)? Having said that, I don't agree with taxing based on accumulated/inherited wealth either.....that just seems wrong to me.

I have always liked the idea of a flat tax....it hits us all equally.


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## I_am_John_Galt (8 Oct 2004)

Caeser said:
			
		

> I hadn't thought of this before, but it just confirms my belief that the rich stay rich only in spite of our taxation system, the middle class will never get rich, and the poor will be subsidized no matter what.


Not "in spite of"; "because of"




> I have always liked the idea of a flat tax....it hits us all equally.


Yeah, me too, although I think a purely consumption-based tax (i.e., sales taxes only: no income taxes for individuals or businesses) would be 'fairest' and the least among evils (although very susceptible to cheating in cash-based transactions) ...


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## dutchie (8 Oct 2004)

Not "in spite of"; "because of"

What I mean is that our taxation system should _promote_ increased wealth, but yeah, we're splitting hairs here.

I think a purely consumption-based tax  

Wasn't income tax supposed to be temporary to cover the War effort? Or is that just another urban myth? 

I agree with you - tax me on what I spend, not what I save, and not what I earn, ideally, but lets start with a flat tax. I think that if this actually happened, it wouldn't be long before   we start bringing in exclusions, breaks, and other bits to bring us right back where we started. It's a slippery slope, and the left would slant the system to the poor/underprivileged/unlucky/uneducated/lazy before too long.


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## Brad Sallows (8 Oct 2004)

Government requires a fairly constant, or at least predictable, revenue stream.  It would first be necessary to observe gross consumption and income over time before swinging wildly one way or the other.

In a discussion of wealth one should distinguish between assets which are easily or conveniently mutable and those which are not.  An elderly person's major asset may be an owned home.  If her income doesn't support the property taxes, is "too bad, so sad, pack up and move" a satisfactory attitude on the part of the municipality or province?  Is a multigenerational family in which parents, grandparents, and children all work or contribute (eg. "Grandma's Daycare") and live in one enormous (and valuable) home wealthy?  (The home is likely to be registered in only one or two names - are those people "wealthy"?)

People are not in fact trapped as "poor", "middle class", or "rich".  Over time it is observed that most people experience income mobility.  The approximate number of people in an income range may not change much, but it is not composed of the same people from year to year.  One study in the US observed that over 10 years, just under 15% of the people who were in the lowest income quintile at the start remained there throughout.  (The people who remain in low income are not generally speaking just there because of their ill luck.)  Also, while it is truth that the North American middle classes are shrinking, it is mostly because people are moving up, not down.


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## dutchie (8 Oct 2004)

Wow, Brad, that post was surprisingly upbeat for you. 

The flat tax idea is not a new one, and I know and have considered some of the flaws as you pointed out (particularly the little old lady scenario). I am not prepared to refute all of those points, but I will ask you this:

If not the flat tax, than what would you propose to make taxation more fair to all Canadians? And hopefully less confusing and mysterious.


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## Brad Sallows (9 Oct 2004)

Progressive income tax without a hockey sock of exemptions and special cases would work just fine.  I would rather eliminate consumption taxes.  I prefer to see as few brakes on transactions as possible.  I believe fundamentally that the more often money changes hands, the better off everyone is.


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## I_am_John_Galt (11 Oct 2004)

Brad Sallows said:
			
		

> Progressive income tax without a hockey sock of exemptions and special cases would work just fine.


Never has worked, can't see how it ever would (+ can't see any politician not making exemptions for his/herself).



> I believe fundamentally that the more often money changes hands, the better off everyone is.


Only when it happens willingly! (Any taxes, because they are coercive by nature, destroy wealth)


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## loyalcana (12 Oct 2004)

The problem of the inheritance tax model is that its not the problem of a progressive income tax, it occurs in both regressive and flat income tax systems. The problem stems from the fact that Canada does not have a estate tax like countries in the world(removed by Mulrony).

And for those who use a accountant to file their taxes.
A progressive income tax system(used by almost everybody) works by differrentiating income into several brackets(16% $0-35000,22% $35001-70000,26% $70001-113804,29% >113804 at the federal level). Thus a person earning $120,000 will be paying an average 22% federal income tax rate (before other things such as capital gains/losses).

A regressive income tax system would work in the exact opposite way with the tax rate going down with every bracket, but such a system would be political suicide. However PST and GST are generally considered to be regressive.

A flat income tax system is one in which everyone is assessed the same rate regardless of income. However for it to be truly a flat-rate system it would have to do away with deductions that would change the system into a progressive or regressive system.


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## Brad Sallows (12 Oct 2004)

In my narrow ideological view, a transaction is an exchange; more importantly, it is informed and voluntary.  Taxation is simply confiscation, so I don't count it as "money changing hands usefully".


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## rw4th (17 Feb 2005)

I don't really care if we retain the monarchy or not, as long as balance is restored between the branches of government. Having the PM rule like a king during his tenure is not working.

I take it we're continuing the socialism debate here as well. For all you pro-socialism types, please answer me this question: the extensive social programs you seen to favor are very expensive. Where does the money come from (please think long term in your answer)?


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## CivU (17 Feb 2005)

"For all you pro-socialism types, please answer me this question: the extensive social programs you seen to favor are very expensive. Where does the money come from (please think long term in your answer)?"

The progressive tax system.


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## rw4th (17 Feb 2005)

> The progressive tax system.



Please define what that entails


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## CivU (17 Feb 2005)

Simply put, a progressive tax system is what currently exists.  The higher your income, the higher your tax contributions.


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## rw4th (17 Feb 2005)

My point in bringing up taxation was this: 

Social programs cost money, a lot of it, and the government gets this money through taxation. Now given the fact that social programs seem to be ever expanding (more health care, more welfare, more free education, etc), and our population growth is going down, in 3 or 4 generations, where will the money be coming from? Do you think we will be seeing 60, 70, or even 80% taxation levels? And what effect would that level of taxation have on the economy?

If you don't see this happening, then explain to me where else the money will come from?


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## dutchie (17 Feb 2005)

rw4th said:
			
		

> My point in bringing up taxation was this:
> 
> Social programs cost money, a lot of it, and the government gets this money through taxation. Now given the fact that social programs seem to be ever expanding,... and our population growth is going down, in 3 or 4 generations, where will the money be coming from? Do you think we will be seeing 60, 70, or even 80% taxation levels? And what effect would that level of taxation have on the economy?
> 
> If you don't see this happening, then explain to me where else the money will come from?



Obviously with a reduced population, the cost of social programs will be less. 

I would also challenge you on your assertion that Social Programs are 'ever expanding'. It really depends on where you live. Yes, Federal Programs (not Social Programs, that is the responsibility of the Provinces) do tend to increase in scope over time, such as Compassionate Care Benefits (EI), but actual Social Programs in BC have been cut since 2001 when the Gordon Campbell Liberals came to power. You'd have to do a province-province comparison to see if in fact 'Social Programs' are 'ever expanding', which I suspect you have not (and neither have I).


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## Infanteer (17 Feb 2005)

Caesar said:
			
		

> Obviously with a reduced population, the cost of social programs will be less.



Wrong.

The challenge of "expanding" public social programs is that demographics means that all of these programs will grow in scope and costs in absolute terms because while people may be having less children, meaning less growth, the percentage of the population requiring rather then contributing to the tax base will grow.  Demographic trends show that there will be a reduction in the ratio of working people (who contribute with their income) to elderly people (who draw on the system through CPP, increased reliance on HealthCare, Old Age Pension).

I think the ration today is roughly 3:1 in terms of workers:elderly (I'll have to check on that), but that ratio is gradually falling.   We have trouble maintaining a credible social net now with the taxes collected of a ratio like that - how do you think things will work when the ratio becomes 2:1 or 1:1?   R4W is bang on with his point.


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## dutchie (17 Feb 2005)

You are right Infanteer - there is a big problem on the horizon due to the upcoming shift in workerensioner ration, not to mention that people are living longer. However, that was not the point that was put forward by rw4th. The point was, as our population DECREASES, the cost goes up. If you take the decrease to the extreme, like a decreses to 10 million or less, I suspect that the cost per capita would in fact go up. But a modest decrease in population should not significantly increase the cost per Canadian.

And again, Social Programs are Provincial, where as we are speaking (primarily) of Federal Programs (EI, CPP, OAS, ect). Health Care being the exception.

Question: what should be done to prepare for the massive funding crisis to the ISP fund? (That includes CPP, OAS, etc.)


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## Infanteer (17 Feb 2005)

I think the "worker" crunch is going to come up before trends in global population decine, so it is a more relevent issue.

As for "social programs" terminology, I think the general context that we use it in is that a social program is a public delivered service in place of private means.


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## dutchie (17 Feb 2005)

So I ask: What do we do about the impending funding crisis?


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## rw4th (17 Feb 2005)

> As for "social programs" terminology, I think the general context that we use it in is that a social program is a public delivered service in place of private means.



I agree with that. 

Population growth is decreasing, meaning there less â Å“new peopleâ ? - by birth or immigration - almost every year. The cost of social programs will not go down, it will only go up (look at every socialistic country out there and will find very high taxation levels that keep climbing every year). This is not only due to people getting old, but the general feeling of â Å“entitlementâ ? socialist communities foster, meaning every generation will want more and more â Å“free stuffâ ? from the government.  

So what happens when taxation gets to high? Amongst other things people have less money to spend, which affects the economy, which causes increased un-employment, which means the government needs more money to pay EI and/or re-training programs, so they raises taxes, and round and around it goes. 

So where does it all lead? Anybody?


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## Infanteer (17 Feb 2005)

Caesar said:
			
		

> So I ask: What do we do about the impending funding crisis?



Move away from social-cushion cash cows which are beginning to become unstable now.


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## Infanteer (17 Feb 2005)

rw4th said:
			
		

> So what happens when taxation gets to high?



People leave in search of Greener pastures.   That is why CivU's reference to progressive taxation is off-base (and why I stuck it in the economics 101 thread).   Progressive income tax is silly and undemocratic.   Not only does it "penalize" higher income earners (60,000k +) by making them pay more (in relative terms) then other citizens, but it seems hypocritical to tell people that they will be regarded equally in terms of rights and freedoms, equality before the law, etc, etc as a democratic system but then turn around and tell them that they have to contribute more (in relative terms) then others - odd way of doing business.   Considering people who earn over 60,000k a year pay over 55% of all income tax collected, it would be foolish to drive them away to the Caymen Islands (or the United States) in an effort to support an ever-increasing Social-Cushion bill.

The analogy at the beginning of the thread is a good one.


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## Brad Sallows (17 Feb 2005)

In practical terms there are limits to the taxes people will endure. Push them high enough, and there will be more activity under the table - unreported transactions, direct barter of skills and services.

Among those who retire, most have means of some sort and will continue to pay some taxes on the income they obtain from investments.

In the worker:retiree ratio, what really matters for government revenue purposes is the gross income of the workers.   On the face of it, it seems fewer workers should mean a drop in that number.   However, if the work force does shrink substantially it is going to be a seller's market for labour.   People should be able to command higher wages for a given job, or move up to better incomes as positions are vacated by retirees.   In fact I think it likely a great many retirees are going to continue with second (or third, etc) careers after "retirement", albeit not as intensely.   I am not convinced the tax base is going to collapse relative to the burdens to be borne.


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## dutchie (17 Feb 2005)

I think there are a number of things going on here. 

First, 20 years ago, income in retirement came in two forms: CPP or a company pension. I don't know about you, but I am not relying on CPP/OAS to get me by when I'm old and codgy. I also have a good Fed Gov pension (same one as the Reg force), but I still would like to have RRSP's (I keep on meaning to get those!).

Second, people are working longer. As the life expectancy increases, our ability to work goes up. My dad is 66, he tried to retire but couldn't do it. He got too bored. Of course, there are people who retire at 55 (like my father-in-law, former High School teacher), but generally, those are people who prepared to do that for years. Unfortunately, the increase in average retirement age will not match the increase in life expectancy, IMHO, so there will be a 'net loss'.


Solutions:

The Government needs to continue to promote RRSPs and the like, and continue to offer good tax breaks for those that prepare for their own retirement. There is no way that we can maintain the current system if everyone relies on CPP.

Continued pressure from the Provincial governments to get welfare recipients who are capable of work back into the workforce. The system is designed to allow people who can't work to live. It is not designed to pay those who don't feel like working, or who can't hold down a job (through no fault of their own). We can't afford the cost of welfare, and we can't afford the loss of taxes their work represents. 

We need to be open to change regarding CPP/OAS.


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## Infanteer (17 Feb 2005)

Brad Sallows said:
			
		

> In the worker:retiree ratio, what really matters for government revenue purposes is the gross income of the workers.   On the face of it, it seems fewer workers should mean a drop in that number.   However, if the work force does shrink substantially it is going to be a seller's market for labour.   People should be able to command higher wages for a given job, or move up to better incomes as positions are vacated by retirees.



But with less people, can we assume that people will automatically step up to vacant positions by increasing their skill sets.  If 20 teachers retire, are we going to assume that of the 15 eligible to step into teachers positions, the 3-5 who are Starbucks employees are going to have the desire/ability to train up to that level.  As well, do you think that the ability to command a higher wage will be sustainable with the shrinking "workerensioner" ration?  It seems that at some point, a company will no longer be able to keep up with increased income demands by a smaller workforce because it can only bring in an absolute number in terms of income (based on the overall market size).

Did that make sense?

The point of expanding the years of a work force is a good one though.  I already see stories of people complaining about manadtory retirement ages and proposals to kick the Retirement Age up to 69-70.  As people are healthier in more advanced age, the desire to be productive for longer will get stronger (being unemployed can be boring).


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## Infanteer (17 Feb 2005)

Caesar said:
			
		

> Solutions:
> 
> The Government needs to continue to promote RRSPs and the like, and continue to offer good tax breaks for those that prepare for their own retirement. There is no way that we can maintain the current system if everyone relies on CPP.
> 
> ...



You won't find me disagreeing with anything you've proposed here.


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## rw4th (17 Feb 2005)

Infanteer: some of my posts were moved here, but the point I am (or was) trying to make is still in the "Flavours od Democracy" thread. I'm trying to explain why I beleive that unchecked socialism will always turn into complete wealth redistribution and a totalitarian government to enforce it. Unfortunately most of the relevant posts seem to still be over in the other thread.


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## Infanteer (17 Feb 2005)

I figured that the "nuts-and-bolts" discussion of taxation that you were right to bring up would be better in a seperate thread so as to not see the original thread disappear in the specifics of finding funding for Canadian government programs.

I wanted to keep the "Flavour of Democracy" thread, along with your original posts, more focussed on the "Social" vs the "Independent" citizen, which seems to be the thrust of the discussion there.


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## a_majoor (17 Feb 2005)

A look at three major trends that changed economics for the better during our lifetimes:



> *The Triumph of Economic Technology*
> Three 20th century advances that changed the world.
> 
> technology n, 1. the practical application of knowledge especially in a particular area
> ...


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## squealiox (18 Feb 2005)

majoor,
An interesting article, though i don't think i would necessarily lump all three of those developments together as "technological advances". 
Number 1, the end of the gold standard, was long overdue, being a major move away from 19th-century mercantilism (the quaint notion that national wealth should be measured by a single commodity, be it gold, rice, oil, head of cattle or number of paper clips). The US was forced to drop the gold standard in 1971 because of the rise of the eurodollar markets (ie, dollars traded outside US, the real innovation here), which were out of its control. (google "Bretton Woods")
Number 2, targeting interest rates, is more of a contingency than a bright new idea. what happens when interest rates fall down to near zero, as in Japan today? "quantitive" monetary policy, once again, where the central bank simply tries to increase the money supply, that's what. central banks' control of interest rates is not absolute, after all.
Number 3, tax cuts/fiscal stimulus spending. Good idea sometimes, other times not. also an article of faith for those who've already made their minds up on the subject, pro or con.

if you want to find the real economic "technology" that is changing our world, you should look to the private sector. Today's big thing is the derivatives market, which allows companies to allocate away unprecedented amounts of risk, to a degree impossible before the necessary mathematical models were developed over the past few decades.

a long-winded response to a long-winded cut-and-paste, i know, but my point is is that economics is not like particle physics. A great deal of what you read about it in the media is driven by partisanship and ideology (left and right), which is unfortunate, since it really is an interesting field, when you cut thru a lot of the bs.

as for   comparing the economic "systems" of canada/eruope/usa, they're all pretty much the same, each with their own set of compromises to suit local political tastes. the capital tends to flow to the most efficient parts of any of these economies, regardless of whether they are hampered with 35-hr workweeks, ag subsidies or excessive defence spending (unfortunately not a problem in canada).


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## a_majoor (18 Feb 2005)

I hardly disagree with you, the author's choice to call these changes "technology" was a bit puzzling to me as well.

The growth of the private sector, in particular the derivatives market is partly cause and effect: the "Big Bang" of the 80s which caused these and other markets to explode was a result of deregulation and "supply side" stimulus. Without the deregulation, these markets would not have functioned as effectively; without the tax cuts, there would be a lot less incentive for financial management companies to have moved into those fields.

Economics is a fascinating field (that is my higher education), but as you say, it is a descriptive science, which can only explain what has happened and point to general future trends. Too bad the people in power havn't taken a lot of these lessons to heart...


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## CivU (18 Feb 2005)

Infanteer, can you elaborate on how our progressive tax system is silly and undemocratic?


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## Infanteer (18 Feb 2005)

It all in the original post.   I find it odd that we like to look at citizens in an eqalitarian manner when it comes to treatment by the government and then we abandon that notion when it comes time for the government to help itself to the pockets of private citizens at tax time.   It only seems intuitive that everybody in a democratic system should put in equally (a flat tax, every one contributes "X" percentage of their income) to a system where they have an equal share in.

It appears that a "progressive" agenda of folks like Jack Layton is to make the country increasingly rely on the folks doing the best in the domestic economy.   Do it enough, and you'll drive them away (the analogy at the beginning of this thread is a good way to explain it).

Government won't be able to support its largess?   That's too bad.   I think someone who makes 60,000k a year will use it in a manner far more advantageous to the national economy then the government (government expenditures, as explained in Econ101, are a negative) - people who make money don't usually stick it under their mattress.

You'll most likely disagree with me, which is fine.   It really is a question of who you believe should manage a persons money - progressive income tax seems to imply that higher income earners need the government to manage more of their money for the "public good".   When you start picking up 55% of the tax burden and open the paper to sponsorship scandals, HRDC, and other fun little things, maybe you'll change your mind.


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## rw4th (18 Feb 2005)

I think what Infanteer is suggesting would work much better then a â Å“progressiveâ ? tax system. A low flat income tax, and higher sales tax, with higher taxation rates on items considered â Å“luxuryâ ?. 



> When you start picking up 55% of the tax burden and open the paper to sponsorship scandals, HRDC, and other fun little things, maybe you'll change your mind.



Tell me about it   :


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## Infanteer (18 Feb 2005)

The Canadian Taxpayer's Federation compiles stats on all this stuff:

http://www.taxpayer.com/main/content.php?content_id=6

Here is the 2002 stats for income tax collected in Canada:

http://www.taxpayer.com/pdf/Tax_Statistics_on_Individuals_2002.pdf

As you can see, people who pay taxes (over the basic exemption up to 60,000k) and are "average Joe's" like most of us (myself included) make up 64% of the total amount of taxpayers (total percentage of tax-returns submitted).   This 64% of us payed 43% of the total income taxes collected.

High income earners (who earned 60,000k and up) were 13.5% of the total, and this small percentage ended up paying the other 57% of the total tax burden.

Now, this is not a bad thing in absolute terms.   Since income tax is a percentage of ones income, of course the higher earners are going to put more in towards the total.

What I have a problem with is that the average tax assessed on the high earners (13.5% of the taxpayers) was about 20% of their income while for the average guy (64%) it was only at about 10%.   We are penalizing people for being competitive and either maximizing an investment or bringing a skill to the job market that is in high demand (people usually don't get payed for nothing).   We are essentially saying that you "owe" more to the public pot because you did well for yourself.

Seeing how these people have a high degree of opportunity and mobility, they can either find ways around paying these taxes or leave Canada all together.   I don't know about you, but driving off investors, venture capitalists, and skilled professionals isn't very conducive to a strong economy.   As well, how well would our Government-run Social programs if that 57% of the income pool dried up.

Again, it is easy to say "Well, they make more, so they can afford it", but in the traditions of John Rawls, but yourself in their shoes.   I wouldn't be too happy if I put in more money which represented a greater percentage of my income only to see nothing come out of it.   I feel that egalitarian notions that underscore our democracy should mean that every citizen holds an equal share in the country, is entitled to equal say in its direction (1 Vote), and bears an equal part of the burden.   It is amusing to see that for the most part, the Socialist edifice in Canada is upheld by those who thrive under a Free Market.


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## a_majoor (18 Feb 2005)

Some practical explanations as to how things work in the "real" economy:

*There Was No Double-Dip*
The Bush expansion is in its fourth year.

By Greg Kaza

A persistent growl from the bear camp two years ago was that the U.S. economy was headed for a â Å“double-dip recession,â ? meaning the economy was in danger of sliding back into a period of negative growth after having climbed out of it. I respect Stephen Roach, the Wall Street economist who popularized this idea (he was one of the few who forecast the 2001 recession). Yet the double-dip argument was always weak, although that hasn't stopped partisan, and even some non-partisan, economists from giving it considerable attention.

Here's a sampling. In July 2002, The Christian Science Monitor cautioned: â Å“Rumbles of double-dip recession: Trillions in stock-market losses and sagging consumer confidence threaten to repeat a pattern last seen in 1981.â ? CNN/Money fussed in August of that year, â Å“Watch out for the Double-Dip: The economy has hit an air pocket and some fear the worst.â ? Not to be outdone, The New York Times fretted in July 2002, â Å“Is Economic Double Dip Lurking on the Horizon?â ? The double-dip gave partisans one more excuse to attack the Bust tax cuts. In September 2002, then-Senate Minority Leader Tom Daschle confirmed that â Å“There is a real possibility for a double-dip recession.â ?

What gave some economists heartburn at the time? Brief, slower annualized real growth of gross domestic product in 2002, and fears of an â Å“exogenous shockâ ? to the economy.

Today it is clear that there was no double-dip. The 2001 recession started in March and ended in November, according to the National Bureau of Economic Research (NBER) â â€ the official business-cycle umpire. Fears about exogenous economic shocks and lagging real GDP â â€ it has grown each quarter since the third quarter of 2001 â â€ were exaggerated.

Some of us argued in 2002 that the recession had ended. NRO economics editor Larry Kudlow spoke for many bulls in May 2002 when he said, â Å“On Wall Street today, there are too many doomsayers who believe a double-dip recession is on the way.â ?

Well, the doomsayers were once again wrong: The Bush expansion is now in its fourth year. In March it enters its fortieth month. That's longer than five other postwar expansions (1945-48, 1954-57, 1958-60, 1970-73, and 1980-81). Key indicators outside of GDP have also expanded, including the Fed's industrial production index, which measures the physical output of the nation's factories, mines, and utilities. Industrial production reached its trough during the month the 2001 recession ended. Double-dippers ignored it at their peril.

*Any review of historical industrial production data, important in the NBER's business-cycle chronology, casts doubt on the double-dip scenario. Double-dippers argue that the economy contracts in primary and secondary movements with a period of growth in between. (Imagine the letter â Å“Wâ ? on a chart, which partisans have called the â Å“Dubya pattern.â ?) However, if you examine industrial production during recent recessions you will find the opposite: largely sequential declines and troughs near coincident to NBER turning points. Industrial production peaked in mid-2000, suggesting recession. But its growth in early 2002 suggested a double-dip was unlikely.*

Partisans embraced the double-dip to attack tax cuts. Nonpartisan economists who grabbed onto the idea likely lacked a familiarity with capital-based cyclical analysis.* IMF economist Stefan E. Oppers, who gets it right, penned a helpful 2002 introduction that cited â Å“capital-basedâ ? ideas. Against Keynes, capital-based economists argue that â Å“intervention by the monetary authorities [is] the ultimate source of recession.â ? *(One way to appreciate capital-based analysis outside the classroom is to work in the American Heartland where â Å“heavy industriesâ ? produce durable goods like motor vehicles.)

*Capital-based analysis was a central argument for great cyclical theorists like Friedrich Hayek, who was cited in Oppers paper. In the thinking of economists like Hayek, the seeds of recession are sown when monetary authorities mistakenly set short rates below the natural, or market, interest rate during an expansion, causing malinvestments that appear first in heavy industries. This capital-based analysis is endogenous, where exogenous theories rely on factors like the external shocks of an oil-price hike or negative geopolitical events such as those in hot spots like the Middle East.* Double-dip theorists hang out in the latter camp.

Arguments about exogenous versus endogenous cyclical theories are a sort of inside baseball to economists. But as the economy continues to expand the double-dip scenario is a reminder that seemingly obscure economic debates can sometimes be hijacked for other purposes â â€ like talking down tax cuts.

â â€ Greg Kaza is executive director of the Arkansas Policy Foundation, an economic research organization based in Little Rock. 

  	
http://www.nationalreview.com/nrof_comment/kaza200502180852.asp


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## a_majoor (20 Feb 2005)

Right-wing statists will concede that government does a disastrous job of curing poverty, "running" the economy and producing health care and education. They have a harder time coming to grips with built-in government incompetence when it comes to providing common defence, or even worse, invading and occupying other countries. Left-wing statists like to mock the missile defence shield as an unworkable boondoggle, but believe a benevolent government with all the "right" information can somehow manage global climate change.* Both sides would do well to understand the perverse incentives created in a command economic system and look instead to decentralized markets and voluntary cooperation to produce the goods they desire.*


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