Design your own income tax system!

Political calculations has this interesting tool, wherein you can simulate your own flat tax. I managed to invoke collections of 6.2% of GDP using a 15% rate. Progressivity is maintained by a flat tax credit to every one. If only Wash DC wanted a simple, transparent system like this instead of the 72,000 pages of crap that is the IRS code today!

A retarded viewpoint on economics

In response to a status update of mine on Apple going to $1000 per share which reads:

OTOH, if Obama ran Apple, it would have been a trillion dollars in debt. And would have wanted to borrow more money to eliminate the debt. Plus, we would have to buy the IPad to actually know that it sucked.

..one enlightened soul commented:

...but maybe the people producing them would't need nets outside of the factories to prevent workers from suicide...maybe they'd have a right to form union... maybe the workers wouldn't have to work 20 hour shifts on normal basis, and more than 30 hour shifts when business is good... If Obama ran Apple, maybe Apple would appear to possess human dignity.

...and

 Well, I'm talking about how 'success' is measured as in what the bottom line says. Frankly, the bottom line is determining how we do everything in this world. Personally, I don't think it should. Maybe I don't know as much as you about economics, but I do know that there are plenty of economics out there who don't share your opinons.

A perfect case against educational subsidies for studying the arts.

Freedom and the hunger games

The Independent Blog has a great post on the underlying theme of the smash hit, The Hunger Games. This should remind us why we should all be fearful of the government taking our freedoms away, little by little, all in the interest if the "public good".  Remember, "Liberty is not the means to a higher political end. It is itself the highest political end." - Lord Acton

Why (some) liberals are wrong about Walmart (among other things)

A lot of people I know criticise Walmart for its so-called evil influence on society (as opposed to places like Safeway that sell exactly the same products, at a higher price). This is my attempt to address some of these falsities that can be broadly divided in the following manner:

1) Walmart's quality is bad:
Irrelevant. Even assuming that is true, it is a free market. If Walmart's quality to price ratio were not adequate for the consumers (including me-- I literally live in Walmart), it would not be the biggest retailer in the world. Clearly, consumers choose Walmart. Are you really going to tell these millions that their choice in products is wrong and you know what is best for them better than they do?

2) Walmart is bad for suppliers: Another argument is that since Walmart is so huge, it can pressure suppliers and squeeze their profit margins, to their detriment. Well, I don't know how contracts work in socialist and crony capitalist hell holes, but in America, all such supply transactions are voluntary. Hence, such deals take place only if they benefit both Walmart and the suppliers adequately. If any suppliers feel that the profit margins are not adequate, they can simply refuse to deal with Walmart. If no suppliers agree to deal with Walmart, then the giant would be forced to increase the price it pays to its suppliers. The very fact that these deals continue to exist, and the fact that suppliers clamor for such contracts with Walmart even now, points to mutually beneficial relationships. Please stop telling these willing suppliers that the profit margins they are OK with are too low.

3) Walmart does not pay its workers enough: How do you define "enough"? If its workers were indeed worth more than what Walmart pays them, why can they not leave the job and get a job that pays what they are worth? Again, the worker-Walmart employment relationship is based on a voluntary contract that is mutually beneficial to both. The truth is, a fair salary is determined by the free market, and is equal to the amount of value a worker adds to the economy and not what a liberal feels it should be. As a corollary, if Walmart did not exist, what would these people do? Safeway (or Whole foods, or any organic mumbo jumbo store) cannot hire them, since if they could, they would have done so already.

4) Walmart leads to local businesses being shut down: So? Why is it OK for some people in the local economy to benefit from rent seeking behavior, by pricing their products at above-efficient levels, but its not OK for consumers in the same local economy to benefit from lower prices? What makes businesses (which are nothing but a certain category of people) special? Again, some argue that the level of service that such businesses provide cannot be matched by Walmart, so these businesses should not shut. My counterpoint is that if society actually valued these "elevated services" so highly, they would continue to buy from the local businesses, despite Walmart's lower prices. The fact that they don't makes the level of service an irrelevant point, despite, again, the "feelings" of the bleeding heart liberals.

Rationality is precious. I suggest all people use it.

The meaning of a free society

This is also my entry to a capitalism conference scheduled to be held this summer at Clemson University, SC:

"Man is not free unless government is limited. There's a clear cause and effect here that is as neat and predictable as a law of physics: As government expands, liberty contracts."
- Ronald Reagan

Different people have different interpretations of freedom. Some deem it as the right to do whatever one wants, whether self-destructive or otherwise, while others interpret allow the word to encompass the perverse incentive of income security, leaving the beneficiary “free” to pursue their “dreams”, however economically unproductive or socially unappreciated they may be.

While the constitutions of many countries guarantee freedom to their citizens, without a consistent interpretation the word would have no meaning. In my opinion, a free society begins and ends with the concept of self-ownership, implying rightful jurisdiction over one’s physical existence, allowing it to act under the control of the mind. As a corollary, this also means total ownership of the consequences of any such action and the restriction of said action up to where the same freedom begins for another person. For example, freedom cannot include the right to enslave someone, since freedom, by definition, is the right to not be enslaved.

My life experiences have been within the context of two societies that ostensibly claim to be free in their foundations, India and the US. While I was brought up to believe that India was a free society, I now feel that  the existence of the word ‘socialist’ in its constitution has led to the meaning of freedom being usurped. Faced with blatantly left wing governments since its foundation, Indians have been conditioned to believe that freedom means cheap food and gas and “rights” to education and medical care, of course at the expense of the evil industrialist. I, now, understand that such rights can only be provided by the government by laying claims on the labors of those that actually produce such goods. As Ayn Rand said, the smallest minority is the individual. Without freedom for the individual entrepreneur to do what he chooses with the fruits of his own capital, we cannot have a truly free society.

The United States is, obviously, head and shoulders over India in terms of freedom, thanks to its stress on the individual. Individuality was bolstered after Reagan’s coming, after decades of slow decline over the Kennedy and Carter administrations. Recently, however, in the panic emanating from the recent recession, capitalism and individualism are under attack again. People forget that when money and industry seem to have obtained a grip on government, it is government that has gotten too big so as to give the wealthy an incentive to try and influence politics. While the economic crisis is undoubtedly a pity, it is but a natural result of government meddling in financial markets, apparently to bring to fruition the noble goal of “increasing home ownership”. This has all but been disregarded, “greed” being blamed instead. Mortgage bailouts and nationalization of losses are merely examples of the government allowing entities to avoid ownership of the consequences of their bad financial decisions—antithesis of a free society, since such public largesse has to be financed by expropriation of the results of good decisions taken by others.

In short, while a free society cannot exists without political freedom, a.k.a. democracy, economic freedom is, perhaps, even more important. The John Galts, and indeed Eddie Willers, of society should be allowed to use their physical and mental capital in any way as they deem fit, while at the same time, retaining the results of such deployment, whether good or bad.

Why capitalism has not failed, or an excellent post by Tim Ambler

Over at the Adam Smith Institute blog, Dr. Tim Ambler makes an excellent defense of capitalism and accurately blames the current crisis on the unholy alliance between large governments and businesses being forced to sleep with them to grow big. Some of the pertinent extracts are as follows:

One of yesterday’s headlines, “Davos elite confronts capitalism crisis”, reflects the widespread view that the financial crisis shows that capitalism has failed and “we need another economic model”.
The anti-capitalists see making money from other people’s needs as wicked. Business should be there to help people, they say. Of course, communism was seen as good because profiteering was illegal, but that was a main reason for its collapse: it removed the profit incentive.
The middle, Davos, ground is that making profits in moderation is acceptable provided it takes place within the “stakeholder” context. In other words, business should not be preoccupied by making money for its shareholders but should also take care of suppliers, customers, employees and society as a whole. A corporation should only be given a licence to trade if it meets these wider responsibilities. Profit is still basically reprehensible but is accepted as necessary to meet these social goals. The hysteria generated by NHS reform suggests this view is widespread.

As usual, though, and I quote:

The pious folk who believe this rubbish have forgotten, if they ever knew, that profits provide everyone’s income whether it be in employment in the private sector, or via taxes in the public sector, or through their investments. Cash flow needs to be positive and marketing provides the cash flow. It’s actually quite simple: make money and do not be distracted by corporate responsibility. Making money makes everything else possible. The alternative is that we continue to decline. 

Rubbish indeed. One such "pious" commentor on the site responds:

Companies should be regulated enough to make sure they also serve the people not just themselves, especially when companies grow large and become arrogant and reckless with other people's money and lives.     

Aren't the threat of losing productive employees and paying customers to a competing firm that provides better work conditions and a "socially responsible" product, if that is what society actually wants-- as opposed to a liberal's wet dream for what a company "should" produce-- regulations enough? And isn't the fact that such a scenario does not exist in a country like China merely argument for the case that Ambler makes-- that government does not lead to individuals being better off as compared to a truly free market?

The economics of textbooks, or one reason why healthcare in the US is so expensive

A friend of mine, Jelena, gave me the idea for this post. As graduate students and most American students are wont to do, I try my best to buy used books when I can to save precious currency for other, more valuable things. The advent of Ebay and Half.com is a blessing for us, reducing information asymmetry and transaction costs, thereby leading to lower prices (Case in point: my dynamics book. List price $100+, price I paid: $35, including shipping).

So, today, I met Jelena, an undergrad econ student, while walking to the library. She was carrying a plastic bag full of books for the semester ahead of her. After the usual New Year pleasantries, she happened to mention that her books for 3 classes cost her $500. Aiming to educate this helpless student, obviously new to the American way, I attempted to enlighten her on the benefits of online textbook purchases. She proceeded to tell me that she was well aware of this exotic means of transaction, but her government (read the taxpayers of Montenegro) was paying for her education and books, as a result of which she proceeded to buy brand new, amazingly expensive versions of the texts. (As an aside, what a sweet deal! For her, anyway.)

When people spend somebody else's money, they are less likely to account for the efficacy of their purchases. The same goes for consumers of healthcare (and government, but that's another topic). In the US, most insured do not face the full cost of their treatment, leading them to purchase the most exotic and expensive services, as well as an inefficiently higher amount of even basic services, driving up prices for the entire economy. This is just one piece of America's healthcare puzzle.