Economic PCT

CSGnet Archive CSG1997
1

[From Rick Marken (970602.0850 PDT)]

As part of my continuing efforts to provoke a conversation on
economics from a PCT perspective, I submit for your consideration
a letter I wrote to the LA Times (too late, it turns out; the
replies to the Horowitz' column appeared in the paper on the same
day that I finally mailed off this little letter). The letter was a
response to a column by David Horowitz. THe column seemed to
embody every popular misconception about how the economy works.

In his column, Horowitz assumes, as economic fact, that capital
investment drives economic development, that people will build
businesses only if they have the incentive of possibly getting
filthy rich and that wealth redistribution is wrong because
you are taking from people who earned it (and use it to produce
jobs) and giving to people who will just throw it away on food
and other necessities.

Here's the letter I wrote:

David Horowitz (Column Right, May 27) argues that "wealth
redistribution" via a "confiscatory" capital gains tax is a social
injustice because it hurts the rich who are "busily producing jobs
and opportunities for others" through capital investment. Ignoring
the silliness of calling a tax levied by democratically elected
representatives "confiscatory", it should be noted that the record
of US economic activity over the last 100 years shows no evidence
of a relationship between level of capital investment (which has
been virtually constant at 20% of GNP every year) and rate of
economic growth (which has varied considerably during the same period).

While capital investment is necessary for economic growth,
increasing the amount of money available for such investment has
clearly never led to any change in the amount actually invested. So the
result of a capital gains tax cut will simply be to make the rich
richer. As Horowitz suggests, there is nothing necesssarily "unjust"
about this (how one feels about it depends on one's own values, of
course), but there is no need to make it appear that making the
rich richer will be good for the economy in general; it will just be
good for the rich.

···

-------------------------------

Due to space limitations, I refrained from pointing out that,
contrary to Horowitz' claims, wealth redistribution was probably
the best way to make the economy grow (by reducing leakage) and
to make this a more civil society (by increasing the collective
standard of living).

Best

Rick

--

Richard S. Marken Phone or Fax: 310 474-0313
Life Learning Associates e-mail: marken@leonardo.net
http://www.leonardo.net/Marken

2

[From Bruce Gregory (970602.1245 EDT)]

Rick Marken (970602.0850 PDT)

David Horowitz (Column Right, May 27) argues that "wealth
redistribution" via a "confiscatory" capital gains tax is a social
injustice because it hurts the rich who are "busily producing jobs
and opportunities for others" through capital investment. Ignoring
the silliness of calling a tax levied by democratically elected
representatives "confiscatory", it should be noted that the record
of US economic activity over the last 100 years shows no evidence
of a relationship between level of capital investment (which has
been virtually constant at 20% of GNP every year) and rate of
economic growth (which has varied considerably during the same period).

I would add that business people are fond of evoking the image
of today's "competitive world economy." There is, therefore, no
reason to believe that any savings of the rich will be
converted into investment in this country. If return on capital
is higher in Southeast Asia, that is where the investment is
likely to go, enabling the folks there to better compete with
the U.S. in the world market...

Bruce

3

[From Bill Powers (970602.1042 MDT)]

Rick Marken (970602.0850 PDT)]

As part of my continuing efforts to provoke a conversation on
economics from a PCT perspective, I submit for your consideration
a letter I wrote to the LA Times ...
As Horowitz suggests, there is nothing necesssarily "unjust"
about this* (how one feels about it depends on one's own values, of
course), but there is no need to make it appear that making the
rich richer will be good for the economy in general; it will just be
good for the rich.

*wealth concentration

It's interesting how the conventional wisdom selects part of the circular
flow of macroeconomics while ignoring the rest. If we taxed the rich and
simply gave the money to the poor, what would the poor do with it? They
would immediately spend it all. And where would the money they spend go?
Right back to the producers of goods and services! If you go _all the way_
around the loop, redistribution amounts to taxing some of the rich and
giving the money to others of the rich -- taking it, say, from the owners
of Tiffany's and giving it to the owners of Walmart. In this process, the
market shifts: the money is to be made in downscale goods instead of
upscale goods, so people who want to be rich simply change the business
they're in (if workers can be required to retrain to adapt to a changing
economy, presumably owners can be required to do the same).

Unfortunately, the downscale goods are now all being made in China. So
taxing the rich and giving the money to the poor would just create a huge
amount of leakage from the U.S. economy. Great for China, not so great for
the U.S.

I think a PCT approach to this problem has to start a lot further back.
Every society I've ever heard of has ended up with a few rich people
running things and a lot of poor people operating the machinery. The power
and wealth just seem to flow naturally to people who can organize other
people into enterprises. I don't understand how this works, not in any
useful way. This is a job for Kent McClelland and his sociological
colleagues. Maybe what we need to do is start building some economic models
based on PCT -- a huge "Crowd" program with immensely more detail in it. I
seem to be in a fallow period just now, waiting for something to drag me
into action again -- maybe that sort of modeling will be it. But right now
my intellectual activity seems to consist of re-reading Tony Hillerman.

Best (yawn),

Bill P.

4

[From Rick Marken (970602.1250 PDT)]

Bill Powers (970602.1042 MDT) --

If you go _all the way_ around the loop, redistribution amounts
to taxing some of the rich and giving the money to others of the
rich -- taking it, say, from the owners of Tiffany's and giving
it to the owners of Walmart.

I agree that we need a model to see how various approaches to wealth
redistribution would influence an economy made up of millions of
control systems. But your "shifting money from rich to rich" scenario
doesn't seem all that bad to me. The rich doing the wealth "shifting"
would not have that much wealth to "shift" while there is
redistribition. Since the rich (whether they are Tiffany's or
Walmart) have less, there is less leakage. The lack of leakage
(and increased demand from the aggregate consumer) requires
increased production which places still more purchasing power
into the hands of those who didn't have it before.

Unfortunately, the downscale goods are now all being made in
China. So taxing the rich and giving the money to the poor
would just create a huge amount of leakage from the U.S. economy.

Yes. I'm afraid people will just have to agree to stop doing this;-) If
people want to produce products using labor in other countries
they will just have to limit themselves to selling those products
(and spending the profits) in the countries where they are produced.
Once people see the results of our economic models I'm sure they
will understand the wisdom of this policy;-)

Best

Rick

···

--

Richard S. Marken Phone or Fax: 310 474-0313
Life Learning Associates e-mail: marken@leonardo.net
http://www.leonardo.net/Marken

5

[From Bruce Gregory (970602.1620 EDT)]

Rick Marken (970602.1250 PDT)

Once people see the results of our economic models I'm sure they
will understand the wisdom of this policy;-)

I should think that goes without saying...:wink:

Bruce

6

[From Bruce Gregory (970605.1700 EDT)]

In the July issue of the MIT Technology Review there is a brief
piece about Drazen Prelec of the MIT Sloan School of Management.
He argues that there is a "kind of 'moral tax' that we incur
when we pay for something. When you purchase any good, your
enjoyment is reduced by the psychological cost of paying for
it." Prelec says that this moral tax is not considered in any
economic model. It leads to differences where conventional
economics can see none. For example, the majority of people say
they would rather prepay for a vacation and to buy large
appliances on credit. Economically, this makes little sense, but
apparently we don't mind paying for something as long as we are
benefiting from it, but don't like to pay for things (like
vacations) after they are "gone". Sounds like there might be
grist here for Rick's PCT mill....

Bruce