Xerographica said:
Socialism failed because of the knowledge problem and the incentive problem. Why wouldn't allowing taxpayers to directly allocate their taxes solve both problems?
Just for a refresher, the primary reason socialism fails is due to the inability to perform economic calculations within the means of production. Keep this in mind throughout this post.
Xerographica said:
In terms of a socialist system where taxpayers could directly allocate their taxes... What economic calculations need to be made? You work for a government organization...which pays you $50,000 a year...and you have to pay $50,000 a year in taxes.
You are making the same false assumptions that virtually every socialist proponent makes.
How does the entity determine your salary?
How does the entity determine prices? This feeds into your other post…
Xerographica said:
With 150 million taxpayers vs 538 congresspeople...the knowledge problem would be adequately addressed...so what about the incentive problem? … So we can see that employees of government organizations would have an incentive to produce given that their jobs would depend on their productivity.
Why would we assume this? You have shown that individuals would be able to give
more money to those agencies which they feel are underfunded but you do not suggest how the
minimum rate of taxation is determined nor do you suggest how taxes are divided among agencies. How does this work? Come tax day do we fill out a form saying how much of our taxes go to which agencies? What if we are not happy with
any of the agencies; do we pay no tax?
Xerographica said:
Since there's 100% ownership of the means of production...spending your money is the same thing as paying taxes.
Here is where I think the major hang-up occurs. It seems to me that you are saying that when people purchase goods on the market a portion of the price goes towards the producer which is the government. Correct? The problem is that this does nothing to solve the problem of tax distribution. How is purchasing a watermelon from Wal-Mart.gov any different than buying one from Safeway.gov?
When the means of production are privately owned
and engaged in competition with one another your decision of which company to shop at makes an enormous difference. When the two entities are simply the same company in different makeup then the money goes to the same bank account and there is no competition. Without competition the division of labor is meaningless and economic calculation becomes impossible. More on that in a second.
Xerographica said:
Here's another challenge...imagine what wars we would have avoided if in 1922 Mises had declared that there was a third solution.
I thought this looked familiar. I suggested to you that Mises correctly identified that A1B2
and A1B1 economies are unsustainable but I didn’t really give much in the way of explanation so I don’t blame you for ignoring me. The reason Mises discounted an A1B1 economy is because it is essentially impossible. I believe it was in
Socialism that he went into much detail about the
why of it all. Essentially, we come full circle back to economic calculation.
So here we go…
Every individual has an infinite number of wants but only a finite amount of time and resources in which to satisfy these wants. Therefore, we all must make qualitative decisions about what is most desirable versus what we are willing to live without. This means that we attempt to maximize the “profit” in each and every transaction.
Today’s modern market economy demands that the wants of
other people be satisfied first in order to gain the means necessary to fulfill your own selfish desires. As such, there is a strong incentive to
discover and produce those items which will make the satisfaction of wants and needs more economical for society
in general. By performing these actions
before anyone else within the market, an individual has the ability to reap large benefits for himself. Thus the selfish motivator.
When the means to production is nationalized the incentive to innovate is greatly reduced. Since the “profits” of the operation are distributed among the people as a whole, there is very little incentive for an employee to work harder than is necessary to keep his job. This particular aspect experiences very few differences within private ownership companies as well. However, the exact
opposite is experienced within the owners and management of the various companies.
If the company is privately owned, the individuals in charge have a very direct and personal motivation to provide services for consumers in a more economical manner than the competition. If the company is publicly owned, the profits reaped from innovation and expansion have very little effect on the positions of management because the profits go to the entire governmental structure. Even with this in mind, these are all ancillary to the problem of economic calculation itself.
When the means of production are owned en masse, the ability to set prices in a meaningful manner is eliminated. For instance, the manager of an iron mine cannot make a unilateral decision to increase or decrease ore production without the tacit approval of the owners. Since the owners of the mine are the people as a whole, they must devise a method of determining production output. Initially they could set the production output to the latest free market price levels but this would not last long. Why? Because there would be no competitive action within the market continually adjusting prices to supply and demand.
Supposing someone determined that the world needed a new type of widget, how would he go about producing this new item? Since the means of production is collectively owned, his idea would be instantaneously nationalized and a bureaucracy or some form of leadership would create a new company to produce these widgets. The first issue is what does the inventor gain from this? Since the production is collectively owned he gains no royalties, no corporate shares, no dividends, no payoff. He is essentially no better off than before.
The second issue is who determines whether or not this idea is practical and ought to be pursued? In the free market, an entrepreneur stakes his
own money and reputation with the hopes that his product will be successful and he will
directly benefit from the pursuit. Within socialist society, not only are the
profits collectivized – and thus the incentive reduced – but the
risks are collectivized which tends to increase the rate of failure and loss.
But the most fundamental issue is the reallocation of capital. Even supposing that someone decided to invent a widget at no personal gain and even if the venture was approved and success was guaranteed, how is the reallocation of production goods accomplished? Assuming this widget is composed primarily of iron, where does this iron come from? The initial investment for the widget company perhaps could come from a government coffer designed specifically for this purpose (but where would it obtain its funds?) but it can be assumed that all of the available iron on the market is already being utilized by other functions. Would it be more efficient to outbid other companies for the use of iron? How high could the company bid iron until the venture ceased to be profitable? How high could
other companies bid iron until they had to reduce costs? These cannot be answered since there is no competition; without competition there can be no economic calculation; without economic calculation there can be no economic activity.
Xerographica said:
If you get a chance I'd be interested to hear your thoughts on these three compromises.
The most glaring question I see initially is who determines the “proper” level of taxation?
Compromise A: Of all the choices available to me, I would choose A. This at least allows a small amount of competition between the non-profit sector and the public sector. However, this still leaves a lot of questions unanswered. Why can I only give tax money to non-profit companies? Is this an implicit acknowledgment of the inability of government organizations to derive a profit? How is this tax amount determined? Is this the only method of funding for government entities?
Compromise B: The only difference between this option and A is the lack of competition. While the various agencies will certainly have to compete for tax money between the various entities, they do not have to worry about direct competition to their specific activities.
Compromise C: This option lacks all competition and is only marginally better than our current system.