-Caveat Lector-
At 08:16 PM 12/6/98 -0500, M. A. Johnson wrote:
>Several major turning points mark the reversal of this [Constitutional
>enumerated powers] ethic. The first was the passage in 1913 of the
>Sixteenth Amendment, which permitted a federal income tax. This was
>the first major tax that was not levied on a proportional or uniform
>basis. Hence, it allowed Congress a political free ride: It could
>provide government benefits to many by imposing a disproportionately
>heavy tax burden on the wealthy. ...
> -- Stephen Moore, _Between Power and Liberty_
But that's not the way it works. If you look at the ratio between people's
disposable income (what's left after paying for necessities like food,
clothing, and shelter) and the income tax they pay, the wealthy have a far
lower RELATIVE tax burden. Besides, most of the non-working rich use tax
shelters to almost totally avoid paying income tax.
>There is NOTHING in the nature of a free-market economy to cause
>such an event. The popular explanations of depression as caused
>by 'over-production', 'under-consumption', monopolies, labor-saving
>devices, maldistribution, excessive accumulations of wealth, etc.,
>have been exploded as fallacies many times. (refer to _Capitalism
>the Creator_ by Carl Snyder, The Macmillan Company 1940)
Since this was written after 1929, it's hard to believe that this guy
didn't know what an Asset Price Bubble is. To understand capitalism, you
have to understand mob behavior. Assets such as stocks, property, and
beanie babies are priced based on what other investors are willing to pay.
The problem is, investors act like a herd of cows. Where one goes, the
rest follow. When asset values start to move up, investors begin paying
more and more for assets, reinforcing each others' increasingly irrational
exuberance. Eventually though, one of the herd is spooked by the total
disconnection between asset prices and real worth, and the rest stampede,
causing asset prices to plummet. This tends to have numerous collateral
effects which if extreme enough can cause a depression. Some of these
effects include lack of consumer spending due to loss of consumer
confidence, constraint on business growth due to lack of investment capital
and lack of demand, and bank failures due to failure of loans based on
unrealistically valued asset prices. This has been seen time and time
again, most recently in numerous countries in Asia.
Government regulation attempts to put limits on the collateral damage that
can occur, for instance by keeping banks out of investment banking and
limiting how they value collateral. Increasingly there is a call to limit
asset price inflation along with the already regulated wage and consumer
goods price inflations. This is because economists are beginning to wake
up to the hazards caused by Asset Price Bubbles, especially as electronic
trading and lack of capital flow controls cause money to move in and out of
markets at incomprehensible rates.
Even Adam Smith understood the need for "the invisible hand of government"
in controlling capitalism. If you look at the economic history of the US,
you'll see that in the 19th century the booms and busts tended to be equal
in length. Since the "Great Depression", booms have gotten longer and
busts shorter, as government regulation has become increasingly
sophisticated in preventing the economy from overheating in booms and
crashing in busts.
You don't have to take my word for it, just read the article by George
Soros posted to this list a few days ago. I think his billions suggest
some understanding of capitalism (FWIW, he seems to be a wolf compared to
other investors). I also recommend reading The Economist magazine. As
Noam Chomsky likes to point out, business magazines tend to give a slightly
less filtered version of the news, as sophisticated investors demand to
know what's really going on in the world. You still have to read between
the lines, but the gaps aren't quite as large.
Che
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