### Re: Median Wages

```--- Cyril Morong wrote:
If real median wages have fallen, especially over a
long time, why would that be?

The geoclassical explanation (Henry George, Nicolaus
Tideman, Mason Gaffney, Harry Gunnison Brown) is that
rising land rent (and thus the price of land) has
absorbed most of the gains from greater productivity.

Fred Foldvary
Santa Clara University

```

### Re: paid parking a market failure?

```--- Robert A. Book [EMAIL PROTECTED]
at a time X1, they price goes up to \$Y per minute,
and everybody whose car is on the lot at that time
pays \$Y per minute until either they leave, or the
price goes down at time X2?

Yes.  In congestion pricing, every agent in the
congested space pays the same amount at that time.

And that all of
X1, X2, and Y are

For analysis, let us assume this, to show what the
efficient price is with certainty.

Part of the problem here is that the number of
spaces has to be an integer.  This means that the
marginal consumer, the marginal value, etc., are
(strictly speaking) undefined.

We can determine the efficient price if the number of
spaces is a continous variable, then relax the premise
to integers and see if there is any significant
difference.  The real world has integers: the next
apple, the next pencil.  If we rule out integers, we
can't analyze the real world.

These concepts require continuity.

Then economic theory does not apply to the real world.

When the lot is full, the price is high enough
that nobody wants to pay for a space

Nobody extra.
If we assume that people have diverse subjective
values for parking places, and so the demand curve
slopes down, then those who paid for a space have a
positive consumer surplus.  If all have identical an
marginal willingness to pay, then the price is such
that all are indifferent between parking or not, so
the lot fills up with those whose coin toss is park.

Are you assuming that
(a) the space stays empty for a while and everybody
still in the lot pays zero for that time,

Yes, so long as there is an empty space.

or (b) that the price drops a bit, and
somebody else immediately takes that space?

After the peak time, demand falls, and parkers will
leave spaces empty unless the price drops.  It does
not matter whether new cars replace previous parkers
or the old ones stay.

If you do this, I expect you will find that the
price is sometimes zero (at periods of low demand),

If it is a private lot, and parkers are willing to pay
more than zero, there being no free alternative, why
would the lot owner not charge a positive price?

Fred Foldvary

```

### Re: paid parking a market failure?

```--- Ricardo Gambirasio [EMAIL PROTECTED] wrote:
I fail to see what's so special about parking.

Parking as such is indeed not a special case.
It only illustrates the general case.

also in software,

I don't see how software, etc., are similar.
With software, shoes, etc., I pay for actual use and
also for their availability.

In the case of parking, if a city government provides
it, nobody is paying for empty spaces.
The availableness of street parking increases the
productivity of the area and increases the rentals
charged to tenants.  People pay for empty street
spaces as higher land rent or land prices.

If city-provided street parking is not congested, what
is the efficient price for parking, zero or greater
than zero?

I guess a tougher question would be:
where isn't there this kind of market failure?

Are you saying there is, or is not, market failure?

I can't see how that is any more of a waste

I don't claim it is a waste of space.
The question is whether charging for parking space
when  there is no congestion, is efficient.

problem is: where do
we find such a government?

It seems to me that is a separate question.

Fred

```

### Re: paid parking a market failure?

``` I seem to recall learning that rather than
demonstrating an inefficiency, the
presence of inventories represents a form of
insurance against uncertainty in
demand.
David Levenstam

Right, but suppose that the parking lot is an evenly
rotating economy, and the parking use is the same day
after day.  The parking lot is full at particular
times and not full other times.  There is no
uncertainty.  It is known how many cars will park at
particular times. Unlike produced goods, the number of
parking places is fixed.

Now, is it efficient to charge for a parking place
when the lot is not full?

Fred Foldvary

```

### Re: paid parking a market failure?

```Robert A. Book [EMAIL PROTECTED] wrote:

I think the problem is, that idea that marginal cost
pricing is optimal is in some sense related to the
assuming that marginal cost is rising at the optimal
point.

But suppose the marginal cost curve at that point is
horizontal.  Does marginal cost pricing cease to
exist?

Recall that many authors define the
supply curve as the upward-sloping portion of the
marginal cost curve.

MC rises because MP falls.
MP falls because in the short run, one factor is
fixed.
But MC can be zero.
Textbooks also have an illustration of the Nash
equilibrium for a duopoly of water provision, where
the MC of water is zero.  In perfect competition, the
price of water is zero.  In monopoly, revenue is
profit, and is maximized where MR is zero, where
MR=MC=0.

what is the optimal (i.e.,
surplus-maximizing) price when MC is decreasing
everywhere?
-- he said it has
to be long-run average cost and that it's not
really an interesting problem.

He was wrong.  A hotel elevator has a zero MC for
another user.  The hotel prices the use at MC.
Shuttles are often user-priced at zero.  A restaurant
bathroom is usually priced at zero (but not always).
Drinking fountains have no charge.  Lots of services
are priced at zero.

Fred Foldvary

```

### Re: paid parking a market failure?

```--- Xianhang Zhang [EMAIL PROTECTED] wrote:

This would be true if it were possible to charge
different people different prices for parking based
on congestion.

It is possible, and is done in practice.
Many parking lots charge more during peak times than
in other times.  There is predictability, because the
typical usage does not vary much.

cost of admitting an extra person is NOT zero
because it requires you to drop prices which means
you lose the revenue from all the other
parkers/theatre goers.

I don't follow this.  Why does charging zero at some
times require a drop in price when the lot is full?

Fred Foldvary

```

### Re: paid parking a market failure?

```--- Robert A. Book [EMAIL PROTECTED]
5 cars come at 1pm and SIX cars at 2pm.

During that time, charge just high enough so that all
who want to park, can.  The last car in does get a
space, if he is willing to pay.

between.  But there's another possible outcome --
everyone races to be
the 9th to arrive and get the last free space.

Everybody knows the price will go up at a particular
time.  Every car there will pay the price.  The spaces
are no longer free.

I think you are
(inadvertently) assuming that there is some
non-price way of allocating spaces taht is superior
to an allocation with prices.

No, that is not a correct inference.

Is the marginal consumer the last to get a
space, or the first to be turned away?

It is the next one to get a space.  Nobody gets turned
away, because when the lot is full, there is a
positive price.

Fred Foldvary

```

### paid parking a market failure?

```1. Is it the case that if the government offers street
parking, given that the marginal cost of one more
parked car is zero, the efficient charge is zero when
uncongested and when congested, a charge just high
enough to eliminate congestion?

2.  If the answer to #1 is yes, then is it the case
that if a private parking lot charges for parking at a
time when the lot is never congested, this is socially
inefficient, and a market failure?

3.  Is cases #2 any different from a move theater
charging admission when there are still seats
available, the MC of one more viewer being zero?

4. Is it a correct proposition that government-owned
parking should use marginal-cost pricing, but private
parking may charge the average cost, without this
being labeled socially inefficient?  If so, why the
difference?  If not, is it socially efficient for
government to own all parking lots and charge MC?

Fred Foldvary

```

### Re: Katrina and the Evacuation: Market Failure?

``` The government (local, State, and
Federal)appropriated responsibility for the
Mississippi River levy system, the drainage systems,
the pumping  systems, the road ways, and the bridges,
but  apparently, they left it to the market to provide
the service of evacuating the poor and the infirm.
--- Michael Giesbrecht

Why do you think so?

The federal government is being blamed for not
sufficiently preparing and executing evacuations.
This implies the general belief that this too is the
responsibility of government.  Governments have
appropriated the means of evacuation, such as
highways, public transit, and military resources.

is this an example of market failure?

No.  The market is not operating in transportation and
in emergency services, as it has been pre-empted by
government.  Only when the highways, public transit,
and emergency services are voluntarized would the
market be culpable.

Today, everybody expects the cavalry that trots to the
rescue to be governmental.

Fred Foldvary

```

### Re: Katrina and the Evacuation of the Poor and Infirm: Market Failure?

```--- Jeffrey Rous [EMAIL PROTECTED] wrote:
I recently saw a table of murder rates through time
(maybe in Freakonomics) and, through that measure,
it  appears that we are living in a relatively low
homocide era.

Right, if you don't count the holocaust, Gulag deaths,
China mass murders, Cambodia slaughters, Rwanda
genocide, etc.

Fred Foldvary

```

### Re: Interest rates and housing

``` Are you saying that there's a
real cycle of real estate
that takes 18 years from (from peak to peak or from
peak to trough?)?
David

That is the usual cycle, although there are
exceptions.

That
seems different from your initial contention that
the current bubble has been
caused by monetary growth.

My contention is that there are two causes, monetary
and real (including fiscal), and the causes are
complementary.  The timing of the cycle is inherent in
the nature of the real estate market for rentals and
construction.

then do you
predict a collapse of real estate prices based on
monetary or real factors, or both?

Both

Fred

```

### Re: Interest rates and housing

``` If the real estate cycle is based on government
expansion of money,
David

It is based on that and also on fiscal policy and the
inherent nature of real estate rentals and
construction.

why has it been the
same under three or four
different monetary systems?

It does not matter much to the economy why there is a
monetary expansion. In the 1830s the expansion was
caused by the state control of banks, including the
prohibition of branch banking, and with banks having
to buy state bonds, and excessively issuing currency.
The effect was similar to today's expansion of money
by the Fed.  It's essentially the Austrian-school
business cycle, with the higher-order capital goods
consisting of real estate construction.

See my paper referenced in the cycle table for further
explanation.

Fred

```

### Re: Interest rates and housing

``` If government has caused a real estate price
bubble by artificially
lowering interest rates, how can it have an 18-year
cycle,
David

Because real estate construction takes years, and
recovery from a downturn takes years.
An exception is an inflationary boom that is not a
real  economic recovery, such as the stagflation of
the 1970s. That's why there was a real estate peak in
1979.

Why does the money go
into residential real estate and not into stocks or
automobiles or other assets?

The money goes into all real estate, not just
residential.  Of course it also goes into stocks, as
with the tech boom of the 1990s, followed by the
downturn of 2001, which was not caused by real estate.
But the real-estate boom prevented the 2001
recession from becoming major.  The big depressions
have all followed real estate booms.

Fred

```

### Re: libertarian paternalism

```--- Edi Grgeta [EMAIL PROTECTED] wrote:
I am trying to decide whether it is moral for a designer to impose his
benevolent will through menu design by exploiting imperfections in how
people choose.

It is not an imposition, because the user is not forced to choose one of
the options, since another option is to exit the menu.

For example, if the designer thinks that option B is best, and people
presented with options ABC (in that order) choose A, but presented with
options BAC (in that order) choose B, then is it moral to select the
options order BAC rather than ABC or a random menu? No freedom is lost.

It is not immoral, since there is no coercion.

One situation where this question comes up is in designing 401k plans.

What exactly is the moral issue?

Fred Foldvary

```

### Re: lotteries and elections

``` On Tue, 7 Sep 2004, Fred Foldvary wrote:
Of course one has a right to complain, but what is meant is that by not
casting a ballot, one has voted to let the others decide, so if you

... You're offering a fixed coin here.  Heads I don't vote and I
can't complain because I wasn't part of the process; tails I vote and I
can't complain because I accepted the democrated process.
Eric Crampton

No. The system forces us to vote; not casting a ballot is voting to let the
others decide.  Casting a ballot not in favor of the establishment parties
implies one does not approve of the established process and parties.

others decide regardless of
whether/how you vote.

The issue is your decision, not what others do.

By refusing to vote, you deny them that legitimacy.

Refusing to vote puts one in the same set as those who are apathetic, and
the latter are the majority of non-voters.  The clear signal of disapproval
is to cast a ballot in opposition to the establishment.

Fred Foldvary

```

### Re: lotteries and elections

```--- Aschwin de Wolf [EMAIL PROTECTED] wrote:
It may be more accurate to say that at the moment of casting a ballot the
rest of the country has sovereignty over me...

No, because at that moment, I express my will as to who shall govern.
Nobody is forcing me to choose whom to vote for.
Every other voter is sovereign also.
It is only after casting the ballots that I find that the majority have
voted to deny my sovereignty until the next election.

if a
citizen doesn't vote he has no right to bitch about illegal wars or tax
n'spend.

Of course one has a right to complain, but what is meant is that by not
casting a ballot, one has voted to let the others decide, so if you later

Fred Foldvary

```

### Re: lotteries and elections

```--- [EMAIL PROTECTED] wrote:
What other
reasons might people vote besides believing they can influence the
outcome?

At the moment of casting a ballot, I feel like a sovereign human being.
That is my only opportunity to be a sovereign rather than a subject of the
state.  That's worth the small time cost of casting the ballot.

Fred Foldvary

```

### Re: Private urban green space

```--- Sampo Syreeni [EMAIL PROTECTED] wrote:
... libertarians are
sure hostile to the public goods scene, because there the emphasis is on
things that *need* to be solved publicly.

Public goods means collective goods, used simultaneously by some group.
This is a completely different meaning from public as in public sector.
Collective goods can be provided by private firms or by government.
Solved publicly is ambiguous because it can mean solved by a group or
solved by government officials.

Fred Foldvary

```

### Re: Private urban green space

```--- Jeffrey Rous [EMAIL PROTECTED] wrote:
I do think that a lot of times, economists are hostile the the idea
of a public good like a park if there is some way to make the good
excludable (fenced parks in London, country clubs, etc.).
-Jeff

Economists are not hostile to public goods.
Public goods are facts to which economists apply theory like any
phenomenon.
Fred Foldvary

```

### Re: Private urban green space

``` today I had a discussion with a friend about urban planing and the
necessity of public provision of urban green space (parks etc.). Do you
know cases of private provision of urban green space and in that case,
how do they make money out of it.
Steffen

Many residential associations provide green space, as do land trusts and
proprietary communities such as Walt Disney World.
See my book * Public Goods and Private Communities *,
chapters on Arden Village, the Reston Association and Walt Disney World.
Fred Foldvary

```

### Re: [armchair] Re: spamonomics

``` Fraud is not part of the market.
Fred Foldvary

--- Ron Baty [EMAIL PROTECTED] wrote:
Fraud should not be part of the market but always has been and will
likely continue to be part of any realistic market

A pure market consists of voluntary economic acts, and theft, including
fraud, has involuntary victims, so fraud is outside the pure free market.

You are really saying that there will always be attacks on property rights;
but these are violations of rather than part of a pure market.

In a free market economy how would you eliminate fraud without
limiting the free market or changing human nature?

Of course no policy can eliminate fraud; rather, optimal policy seeks to
minimize the net social cost of fraud.

And is it not the presence of fraud, using a broad definition, that
enhances the effect of reputation in market exchanges.

I don't see why that would be the case.

Fred Foldvary

```

### Re: spamonomics

```--- Christopher Auld [EMAIL PROTECTED] wrote:
Followed closely by offers from extremely respectable officials in
Nigeria who will give me hundreds of thousands of dollars merely for
sending them my chequing account information.
One can see how the first three products are highly complementary,
but I don't see how the third relates.

The complementarity is the belief in magic, that one can create something
out of nothing, getting rich without work effort or getting something for
your body beyond the natural possibilities frontier.

This ultimately comes from parents teaching children that there is magic,
e.g. Santa Claus and the tooth fairy.  If parents would keep it real with
children, children would be less likely to belive in getting something for
nothing or something beyond the possibility frontier.

Fred Foldvary

```

### Re: increases money supply over time?

```Fred Foldvary Wrote:
The Fed buys bond and in effect pays with a check.

john hull [EMAIL PROTECTED] wrote:
To buy back bonds, it must have sold them at
some time in the past.

No.  The Fed does not buy the bonds back.  They buy bonds in the market,
just as any buyer would.  If you buy bonds, that does not imply that you
sold them previously.

I don't know anything about blue lines,

Some emails in this list in HTML have a blue line at the left.
When I reply, that verkakte blue line is still there.
I turned it off in this reply by using plain text rather than HTML.

Fred Foldvary

```

### The blue line

```

You're at the bar with your buddies, and BillGates walks in through the door. Obviously the distribution of wealth hasbecome more unequal. But do you really feel worse off?---
I'd like to know how the annoying blue line at the left gets put into email,
why one would inset it,
and whether onecan removeit in replying.
Fred Foldvary
```

### Re: Too many choices

```--- [EMAIL PROTECTED] wrote:
He says that as the number of choices we have grows (for products) we
become less happy,

Is he just guessing, or is there evidence for this?

that it is too hard to know which toothpaste, for example, to buy.

That seems ridiculous.  People tend to settle on one brand and stick to it.

All of this affluence and choices has made us less happy.

Another conclusion from thin air?
Could it not be something like less satisfactory relationships, or worry

It seems that as we become freer to
pursue and do whatever we want, we get less and less happy.

What data makes it seem so?

What do list members think of this?

Where's the evidence?

If people are too affluent, could they give some
of their money away and become happier?

This is in fact what many of them do.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: why aren't we smarter?

```--- [EMAIL PROTECTED] wrote:
American Jews tested below average on Army intelligence tests conducted
around the turn of the last century (1900)

I suspect this was not a pure IQ test but had a bias towards education, and
at that time, American Jews, especially recent immigrants, many not have
been so well educated, and now they are.

I do wonder about the meaning of IQ tests. I test out in the top 1% of
the IQ distribution but have been singularly unsuccessful.  Although it's
anedotal, I know many other unsuccesful high IQ people as well.  Clearly
high IQ and success don't automatically go hand in hand.
David Levenstam

Success in what?  Many high-IQ persons do not have wealth as their highest
goal.  Also, chance falls equally on the high and low IQs.
Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Why is a dollar today worth more than a dollar tomorrow?

```--- John Morrow [EMAIL PROTECTED] wrote:
By the way, there have been times and places where the measured real
interest rate was essentially zero; I think this happened in Japan in
the 1990s.

So the question is, why at the zero rate was there not greater demand to
borrow?  The answer may well be that the expected future inflation and real
interest rates were highly uncertain, and the transaction costs of getting
and exiting from a loan were high, and there was a high level of risk
aversion.  What counts is not just the cost of borrowing but also the
expected return on the borrowings, and if business conditions are bad, then
the demand for loanable funds may be low because of uncertain earnings or
asset appreciation.  The inflation part of the nominal interest has to be
paid in actual dollars, and so high rates of inflation may well deter
demand.  A low real rate of interest induces more borrowing, other things
equal, but with higher inflation and greater business uncertatainty, other
things may not be equal.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### tax credit for housing?

```--- Tigger [EMAIL PROTECTED] wrote:
I support an alternate way for the gov't to support housebuying:
50% tax credit on house payments (interest and principle), with
some lifetime maximum (\$2, 3, 400 000?).
Tom

This tax-credit subsidy will add to demand and further increase the price
of housing, which then requires a bigger credit.  The credit reduces tax
revenue, and so for a given budget, other taxes get increased, so the
result is further distortion of prices and a greater excess burden on the
economy.  This treats the symptom rather than cure the cause.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Why is a dollar today worth more than a dollar tomorrow?

```--- Marko Paunovic [EMAIL PROTECTED] wrote:
OK. Then, as long as the expected profit from building a factory is
higher than zero, I would not lend the money at zero interest rate.

If at a zero rate of interest, the quantity of savings exceeds the quantity
of borrowings, savers would earn zero interest.  Borrowers would just pay
lender would earn a wage for engaging in the lending business, but the pure
interest rate would be zero.  The reason the interest rate is positive is
that at a zero rate, the quantity of funds demanded for loans exceeds the
quantity of loanable funds from savings, so this scarcity drives up the
rate just as with other prices.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Real wages constant since 1964?!

``` If you measure wages in desk calculators instead of dollars, I'm sure
they've gone up substantially!  ;-)
--Robert

And if you measure wages in units of a real-estate price index, they have
gone down substantially!
Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Real wages constant since 1964?!

```--- john hull [EMAIL PROTECTED] wrote:
Why are we better off today?
(Better products  two wage households would be a
start, I guess.)

Better products, yes, but not necessarily two-wage households.

If the price of housing goes up substantially, a spouse may be induced to
work for wages, but after paying for the increased cost of real estate,
extra taxes, and child care, the family may not be better off.

When the wife goes to work for money wages, it looks like the GDP has gone
up, but she is substituting commercial child care for her home child care
that does not show up in GDP, so the per-capita increase in GDP is
exagerated.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Why is a dollar today worth more than a dollar tomorrow?

``` On 2003-12-05, john hull uttered:
For some reason, I can't get it straight in my head why the risk-free
rate of interest would be higher than zero.

The easiest example I know of is, would you be happy saving all of your
income for the next year, without receiving a formidable compensation?
Sampo Syreeni, aka decoy - mailto:[EMAIL PROTECTED], tel:+358-50-5756111

That does not explain it, because many folks would save SOME of their
income even if the interest rate were zero.
Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Why is a dollar today worth more than a dollar tomorrow?

```--- Marko Paunovic [EMAIL PROTECTED] wrote:

In a risk-free
world I can't fail.

Risk-free interest is quite different from a risk-free world.
We need to assume the usual risky world, but a loan that is sure to be
repaid and with the interest sure to be paid, which US treasury bonds
currently come close to.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Inflation-Free Currency

```--- john hull [EMAIL PROTECTED] wrote:
Some sources of info claim that
currencies can be made to be resistant/immune to
inflation.

Yes, if the unit of account is an hour of unskilled labor or a commodity.

If we use an
Hours model, then the currency is worth 1 hour of
(anybody's) labor _or_ \$10 in terms of real dollars.
Next year, it is worth one hour or \$9.70, let's say,
in real dollars.  So if the value in dollars is
declared by fiat, then it needs to be changed

The local currency unit is still the hour, so it does not matter how hours
exchange with dollars or euros.  They are trading an hour of labor for a
pound of carrots regardless of the exchange rates with fiat money.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Why is local currency good or bad or neither?

```--- Sampo Syreeni [EMAIL PROTECTED] wrote:
On 2003-10-30, Fred Foldvary uttered:
So basically this is a response to credit constraints.

Another reason people may be inclined to use local currencies is that the
narrow circulation and informal accounting usually associated with them
make it difficult to collect taxes on the associated transactions. At
least in some cases we can analyse local currencies as instances of tax
evasion.

So why not just use federal paper dollars for that?

Another common reason why local currencies are used is unemployment. When
people are unable to earn a living on the open market, they'll have to
rely on friends and neighbours for help, which easily leads to reciprocal
trade in services. That can easily spread and give rise to a new, local
currency when bilateral trade no longer suffices. From this perspective
local currencies can also be a means to circumvent labor market
rigidities.

Again, why not just use federal cash?

What I can't fathom is
why these people engage in indirect trade, use what is essentially money
and even compete, but still think that it's somehow more neighbourly or
human to do all this in an alternative currency.

What is more neighbourly is the local organization and the relationships it
fosters.  The use of LETS or local currencies is incidental to this.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: financial leverage

```--- Tyl [EMAIL PROTECTED] wrote:
I don't see how bond
would be a loser if interest rates goes higher since I
will locking in a bond that yields a higher coupon rate
than the borrowed rate.

If you can borrow money at a lower interest rate than what the bonds pay,
and you hold the bonds until maturity, then yes, you will have a profit if
the inflation rate has not risen to offset the after-tax gain.  If the
interest you pay on your borrowed funds is tax-deductible but the interest
you receive is not taxable, so much the better.
Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Why is local currency good or bad or neither?

```--- Burns, Erik [EMAIL PROTECTED] wrote:
and also of e-gold (which is still around:
www.e-gold.com), all of which use tokens rather than dollars (which are
tokens too).

Gold is not a token.  Gold is a real commodity.  Tokens are substances of
little intrinsic value which can be exchanged for something of real value,
like a ticket to a movie, or like fiat paper money.  What we call coins
today are really tokens rather than true coining of precious metal.

these always seemed to me to be ADDING a step to transactions
rather than making them easier.

What step does it add to exchange in terms of gold ounces rather than
dollars?  It is a step to translate from dollars to gold, but if you reckon
in terms of gold ounces, then the extra step is to translate to dollars.

and the argument that e-gold solves the fiat
money problem is, to me, false because you're stuck with gold's value
being determined by a market that's priced in ... dollars.

The fiat problem is the arbitrary inflating of the amount of currency,
which does not take place with gold.  Gold's value is relative to
everything else, not just dollars.  Those who had their money as gold
during the past couple of years are not crying.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Why is local currency good or bad or neither?

``` People also often suffer from a confusion between income and money.
They tend to think of the two as synonymous, that anything not received
in money isn't income and therefore isn't taxable.

Precisely. If we drop the distinction, we can for instance easily see
that
all sex is actually prostitution of one kind or another.
Sampo Syreeni, aka decoy - mailto:[EMAIL PROTECTED], tel:+358-50-5756111

No, prostitution is sex in exchange for money or goods, when there is no
emotional or relational benefit from it.  If one obtains psychic income
from sex, one has not really prostituted oneself.
Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: gold rush

``` What do you feel is the main reason why there has been such a steep rise
in the price of gold in recent times?
Chris Macrae

One reason is that Chinese residents are now able to buy gold, where it was
formerly more restricted.  Also, I have read that the government of China
is buying gold.  Also, the price of gold was depressed for so long that
once demand rose, others took note and bought.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: intellectual property

```--- Barney Hamish [EMAIL PROTECTED] wrote:
How does the market decide that the _thought_ creation belongs to the
creator as you state?

The publisher includes a contract with the book that states that the seller
agrees not to copy the book, and not to transfer it to anyone unless the
next owner also agrees not to sell the book.  It would be like a covenant
that goes with the book.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: immigration's effect on per capita GDP

```--- Steve Miller [EMAIL PROTECTED] wrote:
The  overwhelming
majority of illegal immigrants do not have libertarians views (to put it
mildly). Are they also more inclined to break other laws?
Such as drug laws??

Almost everybody is willing to break the law, whether they are here legally
or not, whether libertarian or not.  Just observe at an uncrowded freeway;
many, often most, drivers are going faster than the legal limit.

If people think a law is not sensible and the likelihood of enforcement is
low, they will violate the law.  That's what happens when many laws in fact
do not make much sense.

The police themselves tolerate technical law violations.  They usually
don't ticket drivers who are driving slightly past the speed limit.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: immigration: net gain or net drain?

```--- Bryan Caplan [EMAIL PROTECTED] wrote:
All it claims is that immigrants reduce wages.
But this is by definition balanced by the extra surplus enjoyed by
employers.

If the surplus is general to the economy, then is it not the case that in
industries with competitive markets for labor and capital goods, and with
substantial competition in the goods markets, providers of labor and
capital goods earn their marginal products and firms have zero economic
profits, so the surplus goes to land rent?  If so then it is not employers
qua firms who get the surplus, but the landowners.  Firms which rent their
premises would get no surplus from being employers.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Horses and Subsistence Farming

``` The issue is marginal productivity, not average productivity.  The
subsistence scenario is one where the supply curve of laborers is low and
fat.  The demand curve may rise to great heights, but eventually if falls
down to meet such a low supply curve.
Robin Hanson  [EMAIL PROTECTED]  http://hanson.gmu.edu

Even when horses increase marginal productivity, that may not lift farmers
above subsistence.  If they don't own the land, they pay rent to a
landlord, who might be able to absorb the wealth above the subsistence
level, if there is no free land available of that quality.  Every farmer
gets a horse, but that is to achieve, rather than rise above, subsistence.
Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: California Recall

```--- [EMAIL PROTECTED] wrote:
I'd wager
\$10 that Davis will be recalled--and then win reelection.
David

Does the recall law permit the incumbent to be on the ballot for the new
governor if he loses the recall?
Fred

=
[EMAIL PROTECTED]

```

### Re: California Recall

```--- fabio guillermo rojas [EMAIL PROTECTED] wrote:
It seems that optimal strategy for Democrats is to choose one candidate
and pay off the others not to run, and hope the GOP vote is split.
Fabio

If Governor Davis is recalled, the election for the next California
governor will be won by a plurality.  With many candidates on the ballot, a
well-organized group can win the plurality even if they have a small total
portion of the vote.  So far, the Democrats do not want to put up a major
candidate because that would increase the vote to recall the incumbent.  So
the optimal strategy for the Democrats would be for Davis to win the recall
election, thus they are avoiding providing an attractive Democrat
alternative.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: California Recall

```Schwartzeneger will not run, so Riordan, a Republican 2002 primary-election
candidate, will run, and is most likely to win the plurality race.
Negative ads knocked him off the general election in 2002, but will not
work so easily this time.

What's the predicted outcome?
Fabio

=
[EMAIL PROTECTED]

```

### Re: Absolute vs. relative income level

``` i think there is a at least partial contradiction between the hypothesis
of diminishing marginal return of income and the hypothesis that people
care about consuming more than their neighbors or about earning more than
their neighbors (Frank: Luxury Fever). If the latter is true than the
Steffen

If the latter is true, it too can be subject to diminishing marginal
returns.  So where is the contradiction?
Fred Foldvasry

=
[EMAIL PROTECTED]

```

### Re: Absolute vs. relative income level

```--- Tigger [EMAIL PROTECTED] wrote:

Fred ( Alpius) are acting dense.

Density is efficient.  With greater density, we get more mass per volume,
thus a more efficient use of space.

A desire to earn more than the neighbors seems to say that at a level
equal to the neighbor, the next dollar has a (much?) greater return than
the prior few dollars--obviously contradicting the diminishing.

This does not contradict diminishing marginal utility.  DMU proposes that
for a given good, after some amount, extra amounts yield ever diminishing
extra utility.
For a different good, marginal utility starts all over again.  I get
diminishing marginal utility from consuming more and more apple, but if I
switch to organge, my marginal utility can go up.

The good of beating one's neighbor is a different good than that goods
obtained for incomes up to that of the neighbor.

If a particular threshold of income is needed in order to get utility from
a good (i.e. having more than the neighbor), marginal utility theory is not
contradicted but simply does not apply.  The maximization of utility from a
mix of goods implies that the goods are obtainable.  Once one achieves the
threshold and can then obtain the good, marginal utility kicks in.  One
gets more of the new good until its marginal utility per cost is equal to
that of anything else.  The implication is that after the threshold, one
would strive to get more income until extra neighbor-beating has the same
utility as extra other goods or extra leisure.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: calculating the irrational in economics

``` Calculating the Irrational in Economics
By STEPHEN J. DUBNER

the average investor is hardly the superrational homo
economicus that mainstream economists depict.

Who depicts it?  What's the difference between superrational and
rational.

behaviorists are essentially calling for an end to economics as we know
it.

A good reason to be wary.
Most revolutions are just spin.

The point is that too many options
can flummox a consumer.

So what?

Standard economics would argue that people are
better off with more options.

Where does standard economics argue this?
This sounds like straw.

But behavioral economics argues that people
behave less like mathematical models than like - well, people.

No doubt many mathematical models are unrealistic.
But their purpose is not to be realistic.

Among the behaviorists, there is the common sentiment that
economics has been ruined by math.

Others say this also.

Richard H. Thaler. His paper, written with the legal scholar Cass R.
Sunstein, was called Libertarian Paternalism Is Not an Oxymoron.
Mr. Thaler has concluded that too many people, no matter how
educated or vigilant, are poor planners, inconsistent savers and
haphazard investors.
His solution: public and private institutions should gently
steer individuals toward more enlightened choices. That is, they must be
saved from themselves.

Mr. Thaler's most concrete idea is Save More Tomorrow (SMarT), a
savings plan whereby employees pledge a share of their future salary
increases to a retirement account.

That's a good idea, but it does not overturn economics.

an automatic asset
reallocation to keep an employee from holding more than 20 percent of his
portfolio in company stock.

Better yet, use modern portfolio theory and invest only in index funds.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: some people are optimizers

```--- Wei Dai [EMAIL PROTECTED] wrote:
and also often act directly against
the interest of their genes (e.g., deciding not to have children) when
they apply more rational decision processes.

Why is deciding not to have children against the interest of the genes?

Genes also induce people to want happiness, and children are very costly,
at least in modern society.  So the net benefit of children may well be
less than alternatives.  Note also that modern parents stop at one or two
children, rather than many, and is that too against the interest of the
genes?  Human genes endow people with the intelligence to choose not to
have children when the cost and risk are high.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: socialism historical?

``` So what label would you use?
Fabio

I would avoid using the labels capitalism and socialism.

Substitutes for capitalism:

1) private enterprise
2) free market; free enterprise; pure market
3) market economy
4) interventionism
5) mixed economy

Substitutes for socialism:

1) forced redistribution
2) command economy
3) government ownership
4) worker cooperatives; worker ownership of capital
5) forced collectivism

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: socialism historical?

```--- [EMAIL PROTECTED] wrote:
You seem to confuse the concept of subordinating the individual to
a greater human collective to subordinating the individual to the will of
the tyrant.

But does not the practice of the subordination of the individual to the
collective go back to ancient times, indeed to pre-historical tribal
practice and belief?
Fred Foldvary

=
[EMAIL PROTECTED]

```

### labor supply

```  labor supply elasticity is near-zero...
Prof. Bryan Caplan

Does this take into account when workers can choose to work overtime, take
more or less vacation, retire earlier or later, have a second household
worker employed or not, have a second job or not, take time off without pay
or not?

Does this take into account that workers may migrate or change their
commute destination?

Also, if labor has a fixed supply, does this include the premium for human
capital?

Fred Foldvary

=
[EMAIL PROTECTED]

```

### socialism historical?

```--- [EMAIL PROTECTED] wrote:
government money, as it predates socialism, probably doesn't rightly
fall under the category of socialism.

Does the meaning of socialism include a time frame, so that a policy that
is socialist after that time is not socialist before that time?

What is socialism, what year does it take effect, and why is the time
element involved?

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Health insurance for kids

``` Now I work for the state of Texas and my policy is set up similarly.
Adding my wife costs \$150 per month and adding any number of children
costs \$120 per month. And her policy at a law firm is also structured the
same way.
How can this be rational?
-Jeffrey Rous

Find out whether the insurance company has laid down this policy or whether
the employer is subsidizing the extra children.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### RE: decreasing voter rates, a simple theory

``` use scientific sampling to select 1200 representative voters
~Alypius

The foundation of the republic is the sovereignty of the citizens, which is

That could be preserved by a system in which a voter may volunteer to
delegate his vote to the sample set, just as shareholders of a corporation
may delegate to proxies.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: charity and time preference

```--- Wei Dai [EMAIL PROTECTED] wrote:
a donor
should give all of his contributions to one charity, and not spread
them among several. The logic is almost exactly the same.

Likewise, a parent with several children should confine his spending to one
child and let the rest die off.  The logic is exactly the same.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: charity and time preference

```--- Wei Dai [EMAIL PROTECTED] wrote:
... surely one should either borrow
money to do a life time worth of giving right away, or save and do all
charity in one's will, or otherwise concentrate all charity giving to a
single moment in time.

That should generalize to raising children; when one's child is born, one
should borrow enough money to create a fund that will pay for all the
child's expenses until his age of maturity, rather than pay for the child's
expenses every year out of one's income.  Yet nobody does this!

Fred Foldvary

=
[EMAIL PROTECTED]

```

``` excellent case could be made for either requiring the spectrum to be used
for anything *but* television (best), or making television a government
monopoly:
~Alypius

That reflects your personal preferences, but what is the moral
justification for imposing your anti-TV personal values?
Fred

=
[EMAIL PROTECTED]

```

### Re: charity and time preference

```--- Wei Dai [EMAIL PROTECTED] wrote:
By holding on to my money, I'm actually increasing
the present value of the gift from the perspective of the recipient.
Can anyone find a flaw in this argument?

If the discount rate used for present value equals the interest rate of the
investment, then the amount of funds today equals the present value.

Some charities have an urgent need at the present, such as earthquake aid
or feeeding people in a famine.  If one gives later, it would be too late.

Fred Foldvary

=
[EMAIL PROTECTED]

```

```--- Wei Dai [EMAIL PROTECTED] wrote:
for television may be worth as much as \$400 billion in an auction. How
are the 15% of households who still watch TV over the air able to prevent
this spectrum from being sold for another use?

They should not be able to.  The spectrum should be auctioned to the
highest bidders who pay for a leasehold franchise good for several years,
after which it is again put up for leasehold bid.  The annual rent would go
to the US Treasury.  With a 10% return, that would be about \$40 billion.

Today, the spectrum holders have a license from the federal government at
no charge.  But the spectrum legally belongs to the people.  So the
spectrum holders are receiving an implicit subsidy.

The spectrum leaseholders should be free of any content restrictions (other
than the usual laws about fraud).  That would create a market for the
highest and best social use of the spectrum.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Charity

```--- Jason DeBacker [EMAIL PROTECTED] wrote:
Why don't more people give more money to charity?

- The history of charitable money getting into the wrong
hands has scared people from donating.

Yes, and also the fact that in many charities, most, even up to 80
percent or more, of the donations go to fundraising and expenses.

- There is some kind of market failure.

But we don't have a pure market, so there may be government failure mixed
into this.

- People really don't care about helping someone else, but

But there is a great deal of charity giving as well as much volunteer time.
Social entrepreneurs can stir up sympathy for a cause.

There is also a great lack of information about the various charity
options.  For example, my favorite charity is the Pygmy Fund, which is
helping the Pygmy people in the Congo (Zaire) to survive amidst the war and
disease in the area.  It is a small organization that hardly anyone knows
about.  I donate to it because I know the head man (Jean-Pierre Hallet) and
am confident that all of my donation is going to the cause rather than to
fundraising and plush offices.

It seems to me there is an entrepreneurial opportunity to provide a
comprehensive Guide to Charities that would list them and their expenses.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Timing of Mother vs. Lover Flowers

``` Also Mother's day always falls on a Sunday which reduces delivery
options (not to zero but fewer options are available on Sunday) and
raises the attractiveness of sending flowers to arrive on the Friday or
Saturday prior.
Alex

If someone personally cuts some flowers from a garden (with permission) and
puts them in a vase one already has, in the general American culture, who
would likely think that this is a thoughtful gift because of the personal
effort, and who would likely think the giver was being cheap?

a) mother
b) wife
c) exclusive girlfriend
d) non-exclusive girlfriend

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Is a non-optimizing organism evolutionarily viable?

```--- john hull [EMAIL PROTECTED] wrote:
Is an organism that routinely fails to optimize
evolutionarily viable?

Human beings, for example?
Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Theory of Perverse Government Tangents

``` 3) To make it appear that the overseer is pursuing a remedy rather than
simply criticizing, the overseer institutes new procedures that in no
real way improve the root concern,
Walt Warnick

But why does he get away with this?
There must be a permissive and supportive superstructure providing funds
and supporting the outcome?

THAT is the real source of the problem.
Your overseer is just exploiting the system.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### RE: Rational Paranoia? A strange idea...

``` What is paranoia? The typical example is the leftist who believes
that the FBI is out to get them, or is behind every wrong in the world.
Fabio

The former is paranoia; the latter is not.  The latter is a conspiracy
proposition.

Unusual beliefs are paranoid if they do not permit an individual to
cooperate with most others in a game of imperfect information.

That does not capture the meaning of paranoid, since others could fit that
also, and it seems to me that paranoid people might well be willing to
cooperate; they just have different assumptions about social reality.

It seems to me that paranoia is a belief, not a behavior.  It can lead to
particular behaviors, but paranoia by itself is not sufficient to cause any
particular behavior.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### RE: Questions about the stagflation episode...

```--- Grey Thomas [EMAIL PROTECTED] wrote:
First off, if macro is at all close to a science,
there should be near unanimity, among macro experts,

Is there unanimity among anthropologists and biologists and physicists and
medical researchers?

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Questions about the stagflation episode...

```   Also, almost all the profession
will now also agree that ... a large fraction of what
we call business cycles are the natural responses of an economy to real
shocks.
Alex

Would that fraction include the downturn that followed the 1990s
techno-boom, the recession having begun before the Sept. 11 shock?

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Advise to Journalists: keep it real!

```--- Alex Tabarrok [EMAIL PROTECTED] wrote:
I will be giving a 15-20 minute talk to a bunch of journalists and
proto-journalists ( most of them are editors of student university
newspapers) about what economics has to offer journalism.  I am
interested in the suggestions of list members as to what the most
important lessons economics has to teach.  I have a number of thoughts
myself, of course, including

I tell students that the most important lesson economics teaches is to
understand the reality beneath the superficial happenings and appearances
of economic activity.  I tell students that the motto of economics is keep
it real.  That gets a good response.

This is why economics uses economic profit, opportunity cost, real
interest, real GDP, etc., rather than nominal and accounting data, and why
what is unseen has to be understood along with that is seen, and the total
and long-run effect along with the immediate and local effect.  Tell the
journalists to keep it real.  Economics discovers and analyzes the
implicit realities.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: are real estate markets competitive?

```--- [EMAIL PROTECTED] wrote:
Federal, state and local land regulations often discourage
the conversion of currently-farmed land for other purposes, like
indstrial or high-density residential use.  The number of people engaged in
full-time farming has continued to decline, and virtually nobody not
engaged in farming or from a farming family enters farming.  There's thus
little additional demand for farming land,

But don't the billions of dollars of farm subsidies benefit some farmers,
making their land more valuable?
When farmers are grandfathered into price supports, does this run with the
land or with the farmer?

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Bubblemania

``` How does one figure out discount for things
like earthquakes, terrorism or other disasters?
Fabio

Where the probabilities are unknown, there is uncertainty rather than
insurable risk, and such chances are like many other uncertainties that
entrepreneurship necessarily deals with.
One either confronts or disregards the uncertainty.  People could escape
the threat of terrorism by moving to New Zealand, but few seek that option.
I live in California where earthquakes can strike, and choose not to move
out.  So there are worse things than these possible disasters.
People prefer a low chance of disaster than the sure trauma of changing
locations and affiliations.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: are real estate markets competitive?

```--- john hull [EMAIL PROTECTED] wrote:
In most localities is seems that real
estate markets are pretty heterogeneous in terms of
both land characteristics and extant buildings,

Actually, the land is quite homogenous.  Your neighbor's land is not much
different from your's, unless one of you lives in a corner lot.

the markets might often be pretty thin,
especially outside of urban areas.

In cities, they seem to be thick enough, as I see listings of many
properties sold every week.

real estate markets aren't competitive, in the
economic sense of the word?

In the sense of rivalry, there is plenty of competition in cities.
Maybe not in some rural areas.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### RE: Lester's extreme compatibility thesis

```--- Gil Guillory [EMAIL PROTECTED] wrote:
... I think there's something to
Hoppe's and von Kuehnelt-Leddihn's arguments that monarchy is superior
to democracy with regard to this general problem of what we might
euphemistically call the externalities of war.

Does World War I and its initiation by the monarchies of Germany, Austria,
Turkey, the UK and Russia, fit this?
Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Neutral taxation?

```--- Birgir Runolfsson [EMAIL PROTECTED] wrote:
But that makes the player indifferent between playing
for the team that values him at \$1,000,000 and the one that values him at
\$ 100,001, and therfore there is no certainty that the resource (player)
will be allocated to its most valued use.

If the tax is \$899,999, this implies that the player was already getting
paid \$1 million.  The tax will not make the player leave.
Another team will not offer \$100,001 because the premise was that the next
best opportunity was \$100,000.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### neutral taxation

```Economic rent is a payment not need to put a factor into its most
productive use.  But use is relative.

from team A at \$1 million, team B at \$800 thousand, and team C at \$500
thousand.  The higher the offer, the better the team.  If he did not play
basketball, his best opportunity would be working as a model at \$100
thousand.

The economic rent paid by team A relative to team B is \$200 thousand, and A
need not offer more than \$801K if it knows the offer from B.  But if A is
paid \$1 million, the economic rent of him playing basketball at all is
still \$899,999.

If the economic rent is to be taxed, there are two cases:
1) The government knows that the basketball economic rent is \$899,999, and
that amount is taxed.  The player plays for A in order to pay the tax.
2) The government does not know the economic rent among the basketball
teams, but it does know that the next best opportunity if he does not play
basketball is \$100,000.  The government taxes the income above \$100,000 at,
say, 90 percent, providing an incentive for the player to accept the best
offer, but still taking most of the economic rent.

In both cases, the player plays for A, so the tax did not affect his
choice.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: neutral taxation

```--- Birgir Runolfsson [EMAIL PROTECTED] wrote:

there is no certainty that the player
will end up playing for the team that values his services the most.
He will be indifferent between playing for any team valuing him at
more than \$20.

Given a tax on economic rent of 90%, with income above \$100,000 being
economic rent,
with a team that offers him \$1 million, his net is 100,000+.1*900,000=
\$190,000.   With a team that offers him \$210,000, his net is 100,000 +
.1*110,000 = 111,000.  Why would he be indifferent between \$190,000
and \$111,000?

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: neutral taxation

```--- Eric Crampton [EMAIL PROTECTED] wrote:
On Sat, 18 Jan 2003, Fred Foldvary wrote:

2) The government does not know the economic rent among the basketball
teams, but it does know that the next best opportunity if he does not
play basketball is \$100,000.  The government taxes the income above
\$100,000 at, say, 90 percent, providing an incentive for the player to
accept the best offer, but still taking most of the economic rent.

Ummm...wouldn't we rather quickly see teams stop offering wages above
\$100K and offering in-kind benefits instead?

Not if the benefits are taxed the same as wages.
The issue is whether there is a neutral tax, and I concocted an example of
one.  The example premise is that income above \$100K is taxed at 90%, and
in-kind benefits are income.  This is an example for illustration, and
bringing in other data changes the premise.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Neutral taxation?

``` [Tax neutrality] would be one that would not impact any person or
group more than any other person or group.  I.e., there would be no
redistributive effects from the taxation.
Dan

I don't think that type of neutrality is possible.
Suppose there is a poll tax, where everyone pays the same amount, and the
funds are used to provide a collective good.  Since utility is subjective
and differs among persons, the value of the good would differ among the
persons.  Thus there would be an implicit redistribution from those who
don't highly value the good to those who do.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Neutral taxation? with respect to what?

```--- [EMAIL PROTECTED] wrote:
By neutral I actually thought you mean one that wouldn't prejudice
people's economic behavior.
By that definition I can't imagine any neutral tax.

Why can you not imagine that a tax on economic rent is neutral?

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: Neutral taxation?

```--- Susan Hogarth [EMAIL PROTECTED] wrote:
A tax on economic rent is neutral, since by definition, economic rent
is income not necessary in order to put a factor to its most productive
use.

I don't understand this. Could you expand it a bit, please?
Susan Hogarth

Suppose a basketball star gets \$1 million per year.  If he did not play
basketball, the next best opportunity would be to be a model earning
\$100,000 per year.  So he would play basketball for \$100,001.  The rest of
his income comes from his personal monopoly, and is not needed to get him
to play basketball.  This is economic rent, a surplus.  The economic rent
could be taxed, and he would still play basketball.

Most of the rent of land is economic rent.  By land I mean natural
resources, including the space around the earth.  So buildings and
improvements are excluded from land, including the preparation of the soil
or surface.  Since land is here by nature and cannot be created nor moved,
the supply is fixed.  Unlike labor, land does not seek leisure.  So to put
a plot of land to its most productive use, the title holder need only
retain a small fraction of the rent (say 10 to 20 percent), and the rest is
economic rent.  That rent can be taxed without any reduction in the amount
of land or any diminution of its productivity.  If the landlord had already
been charging the maximum rent the market can bear, the tax on rent cannot
be passed on to tenants, so it is neutral with respect to economic action.

Fred Foldvary

=
[EMAIL PROTECTED]

```

### Re: National sales tax (was: Re: Neutral taxation?)

```--- Susan Hogarth [EMAIL PROTECTED] wrote:
Has there *ever* been
an instance where one type of tax has entirely replaced another, or even
replaced in some 'revenue-neutral' fashion for even a few years, the tax
it is proposed to 'replace'?

Yes, prior to the Civil War, the US government several times enacted a
direct tax on real estate and slaves.  That helped to finance the War of
1812.  As the Constitution required, it was paid in proportion to
population (enumeration).

Congress attempted such a direct tax in 1861, but now the western states
objected.  Their per-capita wealth was much lower than that of the richer
northeastern states.  So Lincoln pushed through the first income tax.  The
direct tax on real estate was never again implemented.

With the passage of the 16th Amendment, Congress could now enact a tax on
land rent without regard to population.  Indeed, the Articles of
Confederation authorized taxes from the states based on their land value.
But now, this physiocratic concept has been forgotten and is no longer
understood.

It is still sound economics.  Milton Friedman has called the tax on land
value or rent the least worst of all taxes.  Adam Smith said so too.

Fred Foldvary

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### Re: May not be combined with other offers

```--- Bob Steinke [EMAIL PROTECTED] wrote:
However, giving cash in our society is gauche.

You are not really giving cash, but you want the benefits of giving cash,
so create a fancy home-made gift certificate good for reimbursement for the
internet service, with a brief explanation of why this is a greater
benefit.
The certificate avoids the outre' cash, and when your friend hands you the
certificate, at that moment it is a redemption and not a cash gift, as the
gift was previously made by the certificate.  It is not really cash,
because you personalize it in the form of a certificate.

Fred Foldvary

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### Re: questions about dividend tax cut

```--- Jacob W Braestrup [EMAIL PROTECTED] wrote:
an income is a certain payment at a certain date, subject to a
formal or informal contract,

That is income from an accounting view, but not from the economic
perspective.  Economic income has no regard for contracts.  In economics,
income equals consumption plus the change in net worth during some time.

while a capital gain is uncertain and not guaranteed to be positive.

The ex-ante uncertainty is irrelevant.  Dividends are also uncertain
ex-ante.  For income, we take some time period, such as a year, and
calculate the change in actual net worth.  If the change in net worth is
negative, it gets subtracted from consumption.  It is possible for income
to be negative.

Fred Foldvary

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### RE: Neutral taxation?

``` I suppose there *could* be a neutral tax, but what would be the point?
It would be something like taking five dollars from everyone and giving
them back five dollars worth of 'services'.
Susan Hogarth

The whole point is to provide collective services.
If you join a club and pay dues to get some services, do you then complain
that you paid money and got services?

Fred Foldvary

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### RE: Neutral taxation

```
--- Susan Hogarth [EMAIL PROTECTED] wrote:
I would tend to agree with
Larry Sechrest here -- viz., there are no neutral taxes.  (Sechrest's
position is laid out in his Rand, Anarchy, and Taxes in _The Journal
of Ayn Rand Studies_ 1(2).)

Do any of you agree?

I suppose there *could* be a neutral tax, but what would be the point?
It would be something like taking five dollars from everyone and giving
them back five dollars worth of 'services'.

Hmm, I guess that's truly not possible, though. Yes, I agree :)

Susan Hogarth
Triangle Beagle Rescue of NC
www.tribeagles.org [EMAIL PROTECTED]

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### RE: Neutral taxation?

```--- Grey Thomas [EMAIL PROTECTED] wrote:
My own preferences are more towards a flat(er) tax, with a large (poverty
level) deduction, and rates tending down (to zero?); a land tax, split
between local, state, and federal (1/3 each? 50-25-25?); and ever
increasing taxes on pollution.

Given a tax on land value and on pollution, plus user fees, why would we
also need a flat tax on income?  It seems to me the former would be
sufficient.
Fred Foldvary

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### Re: Neutral taxation?

```--- [EMAIL PROTECTED] wrote:
I can't imagine any tax that would be neutral

A tax on economic rent is neutral, since by definition, economic rent is
income not necessary in order to put a factor to its most productive use.

Fred Foldvary

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### RE: Neutral taxation?

``` Given democracy, one (adult) person, one vote, a strong case can be made
for a neutral poll tax.
Tom Grey

The poll tax is what got Maggie Thatcher thrown out of office in the UK.

The problem is that different people benefit differently from government
services, and so the poll tax is not well correlated with benefits.

The poll tax also amounts to forced labor.  The poll tax is how the
colonial governments in Africa got the natives to work in the fields.

So the poll tax is not really neutral:
1) it is not related to benefits, hence it subsidizes some and penalizes
others.
2) it forces workers to work extra to pay the tax in order to get some
amount of net income.

Fred Foldvary

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### Re: Neutral taxation?

```--- [EMAIL PROTECTED] wrote:
A tax on economic rent is neutral, since by definition, economic rent
is income not necessary in order to put a factor to its most
productive use.
Fred Foldvary

I'm not sure if I'm following this, but it sounds like you're saying
that it's okay to tax non-productive income because that's bad.

I'm surprised that it sounds like this, because I see nothing in my
statement that implies it.  From what do you infer a bad?

That sounds
very much again like a Progressive notion of taxation,

Do you mean progressive as in the tax rate increasing with income?
The rationale for taxing rent has nothing to do with this, and the tax rate
would be flat.

Incidentally, you talked earlier about taxing land value rather than rent

Taxing land rent is the same as taxing land value.
The price or value of land is based on the expected future rent.
The simplified formula is: p = r / i, where
p is the price of land, r the annual unchanging rent, and i the real
interest rate.  Given a tax rate t based on p, the equation is
p = r / (i+t).  The fraction f of rent taxed is thus
f = t/(i+t)
So for example if i=.05 and t=.20, the tax rate is 20% of the price of
land, and the percent of rent taxed = .20/.25 or 80%.

which might, as sometimes happens with existing real
estate taxes, force the owner to sell his or her land just to pay the
tax.  That seems like one of the greatest wrongs of all.

If that happens, the title holder is underusing his land.
Otherwise, it would fetch a market rental higher than the tax on the rent.
If the user holds idle land, then it is socially efficient for him to
transfer the site to someone who puts it to a more optimal use.

Fred Foldvary

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### Re: Neutral taxation?

``` I find some appeal in the notion of
having to pay some small poll tax in order to vote.
David B. Levenstam

If there is no penalty in not paying the poll tax, and it is required for
voting, then it is not really a poll tax but a tax on voting.
Since the probability of my vote being decisive in large elections is
epsilon, I would be very happy to have a voting tax and avoid voting.
I just wonder how many people would pay the price of voting.
Fred Foldvary

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### Re: Taxes direct and indirect

```--- [EMAIL PROTECTED] wrote:
I read the The Debate on the
Constitution and discovered that direct taxes seemed to be one of those
phrases that everybody thought he understood, but that in fact nobody
could actually define.

The distinction goes back to the French Physiocrat economists of the 1700s.
In Physiocracy, there is a net product that comes from nature, which we
now call an economic rent.  A tax on the net product, or rent, is direct.
Other factors, such as labor, do not have a net product, and a tax on these
is ultimately shifted to rent.

John Locke wrote along these lines also, so this proposition was thought of
also in the UK.  Locke wrote that all taxes are ultimately shifted to rent,
and are therefore indirectly on rent.  Consider a worker earning a
substistance wage.  If that wage is taxed, the worker goes below
subsistence, so the employer will increase the gross wage to leave the net
wage the same.  This reduces his profitability, so he bids less to use
land, and rent falls.  So the wage tax is indirectly on rent.

Thus, by this view, a tax on rent is direct, and all other taxes are
indirectly on rent.  This distinction between indirect and direct taxes
drifted to America and into the constitutional convention, where it was
only vaguely understood, which is why some thought it involved taxes on

Interestingly, when the US Supreme Court knocked down the federal income
tax in 1894 as violating the direct/indirect distinction, they referred to
Physiocratic doctrine.

Fred Foldvary

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### Re: questions about dividend tax cut

``` why the dividend tax, instead of the corporate income tax, is
being proposed for a cut?

If there are zero taxes on corporate profits, but taxes on dividends, then
the incentive is to retain earnings rather than pay dividends, and the
shareholders get the profits tax-free until the shares are sold for capital
gains.  The shares might never be sold, but passed on to heirs.

For tax fairness, given the income tax, all income should be taxed equally,
and for efficiency, the tax system should minimize the impact on decisions.
So it is better to tax corporate profits and then credit that against tax
liabilities of dividend income.  To achieve neutrality, unrealized gains
should be taxed annually, and then we can forget about capital gains.

That being said, the income tax is inherently unjust, complex, and
burdensome, but that is another story.

Fred Foldvary

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### RE: going on about 'statists' -- what tax policy works best?

``` Help please -- is there a good tract on Austrian tax policy, ordering or
ranking various taxes?
Tom Grey

Probably not, but a good book on tax policy and the effects of current
taxes is:
The Losses of Nations, ed. Fred Harrison, 1998, Othila Press,
ISBN 1 901647 15 3

Fred Foldvary

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### Re: Taxes direct and indirect

``` It's been a while since I read Pollock, but I don't recall
anything like what you're describing.
David Levenstam

See:
http://www.geocities.com/antitaxprotestor/harvard.html

From Pollock v. Farmers':
All the acts passed levying direct taxes confined them practically to a
direct levy on land. True, in some of these acts a tax on slaves was
included, but this inclusion, as has been said by this court, was probably
based upon the theory that these were in some respects taxable along with
the land,...

Fred Foldvary

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### Re: Tax cuts and US citizen responses

``` Can anyone explain why ordinary Americans are not objecting to tax cuts
(such as dividend tax cuts) that will only favour the top percentiles of
the wealthy ?
Koushik

Dividend tax cuts also favor retired folk whose income comes from dividends
and interest.

Some ordinary Americans also recognize the unfairness of taxing corporate
profits twice.  They also favor that corporations will borrow less and be
less vulnerable to a collapse.  They also think that paying more dividends
will make give the shareholder more of the profits and make the company
less vulnerable to looting by the directors and executives.  Some believe
that lower marginal tax rates will lead to more investment.

Fred Foldvary

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### Taxes direct and indirect, was: Dividend Tax cut

``` In the 1796 Hylton case the Supreme Court accepted Hamilton's view that
the only direct taxes are the poll tax (a tax on heads, not on voting),
and taxes on real property and slaves constituted direct taxes.  Taxes on
other items were indirect.  (They didn't use the current distinction that
economists often use of direct taxes refering to taxes which the taxpayer
pays directly to the government.)
David Levensam

Hamilton was incorrect, as was the Supreme Court.
There is no logical reason why if a tax on a slave is direct, a tax on a
horse is not also direct.  If a tax on a house is direct, why not on a
carriage?  It seems to me that the Supreme Court reasoned illogically that
since the 1790s tax on carriages was not proportioned by population, it was
thus indirect.

I can see the 18th century argument that only a tax on land is direct, as
all other taxes ultimately get shifted to rent (cf. John Locke on
taxation).  But once a tax on slaves and on buildings is designed as
direct, then so too must be taxes on a horse and carriage or any other
property.

Fred Foldvary

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### Re: questions about dividend tax cut

```--- john hull [EMAIL PROTECTED] wrote:
If the price of a stock is the PV of the dividend
stream into the future, then should there merely be a
one time jump in the value of a stock as a result?

No.
There is also a supply-side effect from cutting the marginal tax rate, from
less uncertainty about the company as it shifts to less debt and more
equity, as well as more investor confidence when the profits are sent to
the shareholders rather than retained by possibly theiving executives.

Fred Foldvary

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### Re: questions about dividend tax cut

```--- Wei Dai [EMAIL PROTECTED] wrote:
Cutting taxes on dividends while keeping taxes on capital gains seems to
provide a perverse incentive for companies to retain as little profits as
possible, leading to a higher rate of corporate bankruptcy in the future.

My recollection from reading about it is that the proposal does indeed cut
the tax on capital gains to the extent it is due to retained earnings, as
the attempt is neutrality with repect to paying dividends or not.  However,
to truly do capital gains right, it needs to be indexed for inflation.

Fred Foldvary

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### Re: Accountancy vs Entrepreneurship

```--- Francois-Rene Rideau [EMAIL PROTECTED] wrote:
What is the right technical name for what I call accounting cost?

These are often called explicit costs in contrast to implicit costs.
Fred Foldvary

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### Re: Babynomics

```--- fabio guillermo rojas [EMAIL PROTECTED] wrote:
By that logic, animals are economic
actors - animals seem to choose their actions.

To some degree, to the degree that choice is involved, some animals are
economic actors.
However, most animals seem to be controlled by genetic programming
(instince), so choice is not involved, but the genetic behavior does indeed
adhere to economizing, otherwise the species would not survive.  The
fittest are also the economizing.

when do humans start to engage in *sophisticated* economic behaviors not
found in animals? For example, at what age are children able to
understand the concept of interest?

In terms of discounting the future, or what?

At what age do children understand that exchange can make you better off?

When they understand that theft will not.

Fred Foldvary

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