Taxing Times in Australia (and Elsewhere)

Following the surprise victory of the increasingly conservative Liberal-National coalition at the 2019 Australian federal election, one of their first orders of business was to implement their promised income tax reforms. This seemed a little odd as the LNP's tax policy provided excessive benefits that it would provide for the very well off. But the great joy of democracy is people get the government that they voted for, whether by informed, uninformed, or a misinformed public vote. At least the income tax cuts were one the few transparent policies, even if they were promised in the budget prior to the actual campaign. As a piece of electioneering, it was clever; little for the poor, larger tax cuts for the middle, and little for the rich in stage one, but by stage three the wealthiest ($180K per annum) would receive $8640 per annum extra, whilst the poorest (under $30K per annum) would receive a paltry $255 per annum.

Immediately after the election however, there was a snag. Either due to a stunning level of incompetence or a cunning level of plausible deniability, it was announced that they would not be implemented in the current financial year. When the tax package reached parliament, the opposition Labor Party was unable to get any amendments in the House of Representatives considered by the government, who has a majority. Rather than face the unpalatable prospect of having to be seen voting down middle-income tax-cuts, Labor opted to pass the package in full in the HoR to seek amendments in the Senate, where the government doesn't have a majority. That aspect was tactically reasonable at least, although it didn't work - the government was able to pass the package with the support the Centre Alliance and independent Lambie. The support of the Centre Alliance is unsurprising, being milquetoast centrists, who only occupy that position due to a complete lack of coherent ideology. Lambie's support was primarily due to a lack of intelligence; effectively bribed with the offer of $150m in relief for public housing debts, the loss in Commonwealth public revenue is five hundred times greater for the Stage Three proposals.

Rugby, Religion, and Charities

For the past several weeks there has been an argument in Australian politics, following the sacking of Israel Folau by Rugby Australia. Israel has in the past said there is no room for homophobia in rugby, but recently has had his contract revoked by RA that after a social media post that gays (along with drunks, atheists, all the usual suspects) were going to hell. Odd to be calling attention to the Old Testament verses when one has worked on the Sabbath and is covered in tatoos.

Israel has appealed to the Fair Work Commission on the basis of freedom of religious expression. Rugby Australia has argued that it has a duty of care to provide a workplace that is safe and respectful. Despite owning several properties, Folau initiated a GoFundMe campaign, which seemed a bit odd given that he has a massive property portfolio. It raised several hundred thousand dollars before being shut down as a breach of the terms of service.

Cryptocurrencies: A Bubble Economy with The Art of the Steal

Paper notes and metal coins are annoying and inconvenient, and we have the Internet now and digital cash is obviously a useful idea. The solution the developed world has mostly come to is just using our banks – you have an account, and you can move money to other people’s accounts, via debit card, credit card, PayPal or whatever. The central authority means it's sensibly regulated, errors and thefts can be reversed and so on. It’s also a smooth transition from paper money – the same thing, but you can do new things with it.

The alternative to this state of affairs is cyptocurrencies. "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution" (Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, 2008). Despite the good intentions of the creators of cryptocurrencies, the field is replete with scams and scammers. The technology is used as an excuse to make outlandish near-magical claims. It has turned out in practice to be a magnet for enthusiastic amateurs with stars in their eyes and con artists to prey upon them, with outcomes both hilarious and horrifying.

Taxing the Truth

If Australia's 2019 Federal election campaign will be remembered by economic historians for anything, it will probably be over a fascinating debate over taxation policy. The governing LNP coalition, after a six-year stint which has witnessed three leadership spills and three different prime ministers, announced a budget just before the election which would include tax cuts, and a promise to return the budge to surplus, which itself is a bit of a sticking point since they have managed to double the net debt in that period. In contrast, the opposition Labor Party has come out with a strong redistributive program, including significant funding for public transport infrastructure, subsidised childcare for low-income earners, extra public school funding, and renewable energy funding, etc. Interestingly, Labor also has announced a budget surplus that's more than twice what the Coalition has promised.

The Ideal Determination of Government

Following from a previous sketch on the ideal size of government [1] the following is an attempt to describe some formative directions towards an ideal determination of government. This exploration is, in part, directly influenced by the previous essay, but also by debates over confederate, federal, and unity forms of governance and the notion of representation, influences from various voting systems, especially proportional representation in election and governance, social choice theory and Arrow's Impossibility Theorem, plus previous reviews of deliberative democracy [2]. Of course, engaging in the questions of what is the ideal determination of government is worth starting from the other direction and specifying what determines the worst government type, a kakistocracy [3], rule by the less competent and less scrupulous. Note that this is not describing the actions, but the process that has led to such a government.

The Ideal Size of Governments

What is the optimal size of government? This is an issue which has interested political scientists, economists, psychologists, anthropologists and more for many years. For some anarchists the ideal size of government is zero; in contrast, the totalitarian perspective argues for a society where the State controls all [1]. It is argued that anarchists sometimes err in a conflation between government and the state [2]. A contemporary quirk is that most contemporary "anarcho-socialist" perspectives argue for the abolition of the state yet for democratic governance of social property, in contrast to the "anarcho-capitalist" perspective, which argues for the abolition of democratic governance of social property in favour of numerous private states.

Starting from an examination of the need for governments of different scope, the following looks at some of the major theories concerning the optimal size of different types of governance, heavily informed from public economic theory. In doing so, it is hoped to overcome some of the shortcomings of theories of this sort, but also to provide some steps towards resolving what are often well-meaning, but extremely flawed, perspectives in political theory and voluntary association.

Dead Fish in the Basin

Basin Map from the ABCIt cannot be stated more bluntly; in the dry land of Australia, the Murray-Darling Basin is the single most important area of inland water volume in the country. It is the single most important water source to both native faunae and to agriculture. But this summer, it became a major political issue as hundreds of thousands of native fish died and animals were trapped as water sources dried up. The outrage across the country was fast and furious, as it came on the back of years of ongoing complaints of how the Basin has been managed.

The leader of National Party, and Deputy Prime Minister, Michael McCormack argued that it was just an unfortunate result of a drought which is part of being in Australia. This said, at the same time, calling the drought "unprecedented". To that extent he is correct; the five warmest years on record have occurred since 2014, and this is from a government whose inaction on climate change is seemingly indifferent. A Federal government report also lay blame directly on the climatic conditions.

Radical Centrism vs. Milquetoast Centrism

The Essence of Conservatism and of Progressivism

The essence of conservatism is its recognition of the importance of stability, security, and social order. It views revolution and insurrection as bad because these things disrupt social order. During revolutions, people die; and human lives are irreplaceable. The insecurity and instability of revolution disturbs the peace, causes anxiety, and brings suffering and death to many people. Thus, conservatives have very strict criteria for justifying revolution, and they hold that democratic reform is usually preferable to revolution. In a monarchical despotism, revolution may be the only option, but in a democratic society we must consider revolution as a last resort. Conservatism also emphasizes the imperfectability of human nature. Humans are fallible and corruptible. Therefore, we need checks and balances on power. No one individual or faction should ever be given too much unchecked power. Furthermore, conservatism recognizes that existing institutions are the result of social evolution. They reflect the wisdom of our ancestors and, therefore, may contain purposes and functions that are quite needed but not readily apparent to us. We must tread lightly when overhauling existing institutions. Before we engage in any major reform, we must seriously examine what we are overhauling—we must try to determine what the purpose is and what the consequences of overturning it will be. Sometimes it is best to be cautious about overturning existing institutions too quickly, since they may actually serve a necessary function that we are simply unaware of.

The essence of progressivism is the recognition of socioeconomic injustices and the desire to change them. Progressives desire more egalitarian (equalitarian) arrangements because they believe that such arrangements will lead to a happier and more prosperous society. They believe that all people ought to be guaranteed a certain minimum standard of living, so long as this does not deprive others of this same standard. Often, progressives have favored revolution as a means of bringing about these desired social changes. Progressivism recognizes that many human vices stem from social and economic conditions. If you are raised in a society where greed is rewarded and altruism is shunned, then you will be inclined towards vice rather than virtue. If you are so poor that theft has become a mean of survival, then being a law-abiding citizen is not a reasonable path for you. If you are so destitute that you turn to drugs and alcohol as a means of escaping the harsh realities of life, or if you are so oppressed that you turn to drugs and alcohol, then vice is not your fault as much as the fault of the society into which you were born. Thus, social and economic reform is a necessary prerequisite for making better and more virtuous citizens. Progressives also recognize that certain institutions were created in order to advance the cause of certain privileged groups, and some institutions even emerged as a result of ignorance and prejudice. The institution of slavery is such an institution. Such unjust institutions really need to be overturned immediately. (Note that I am using the term “progressive” in a general and loose sense, rather than referring to American Progressivism, which is actually a conservative form of progressivism.)

Self-Refuting Economic Conservatism

Money is debt, an IOU. Money is created primarily in two ways (1) government creates it by spending it into existence or (2) banks create it through the credit market by lending it into existence. Government and the central bank have four main monetary policy tools for regulating the supply of money: (1) government spending [expand money supply], (2) taxation [contract money supply], (3) adjust CRR, affecting how much money is lent into existence by changing how much banks are allowed to lend, (4) adjust interest rates, affecting how much money is lent into existence by creating an incentive/disincentive to taking out loans.

Money ought to be a stable medium of exchange and a store of value. It ought not to fluctuate in value very much. The value of a dollar is 1 out of the total money supply, where the total money supply equals the total monetized wealth of the nation (usually measured in GDP). If the money supply stays the same, the value of the dollar will fluctuate with any change in GDP. If the economy is growing and the money supply does not expand, you will have deflation. Money will become more scarce, people won’t be able to buy up all the products on the market, and you’ll end up with a recession. If the economy shrinks and GDP decreases, while money supply remains constant, inflation will occur and the dollar will lose some of its value. If GDP grows and the monetary authorities increase the money supply exactly in proportion to the expansion, then the increase in supply will merely keep the value exactly the same. If GDP goes down, then the monetary authorities would need to contract the money supply to keep the dollar’s value at the same level. They can do this by raising interest rates, raising the required CRR, by increasing taxes, or through any combination of the three.

Towards A Comprehensive Business Cycle Theory

This post is by no means going to be comprehensive. I am certainly not up to the task of developing a comprehensive theory of the business cycle. That task must be left up to someone else. I just want to point out some of what is right about various theories of the business cycle and how many existing business cycle theories are actually complementary. Recessions do not have a single cause. There are many different factors at play. Various thinkers have focused on various aspects of booms and busts but no one has really zoomed out and taken an aerial photo of the whole thing. I believe that we need to integrate the insights of various economic theorists into one single comprehensive business cycle theory.

Here is a brief outline of some of what I think various economists have gotten right:


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