Re: What if and Why of Zero Taxation

["Schulte-baeuminghaus" <schulte.baeuminghaus@xxxxxxxxx>]

Sven,

    It may be that "There is no scientific study" suggesting a correlation
between high interest rates and investment; but, in the practical world, it
may be dangerous for the potential investor and others to assume that there
is not one - except to hang on to your money and collect fat interest
payments on it.
Perhaps you are saying that there is not a mathematical formula that
perfectly fits the case and that may be true. I cannot comment usefully on
that. However, that may suggest a problem for the mathematicians more than
for those who want to make profitable investments.
You may be interested in some meditations on the subject by Benjamin
Franklin getting on towards 300 years ago. You may not find it convincing
but you will probably find it entertaining.
In the light of your just published study, you might wish to spell out a
little what you mean by "the foundation of any welfare state - or even
welfare system - is
full employment, not taxes."
If , by that, you mean that a key objective of a "welfare state or even
welfare system" is full employment, then it would be difficult to disagree.
As far back as the end of WW2, governments were producing "White Papers on
Full Employment" which were really white papers on their proposed welfare
systems. That was a natural reaction to the miseries of high unemployment
levels during the 1930s.
As for taxes, full employment will usually mean that, ceteris paribus, taxes
will be lower. However, other things are not very often equal. What does
seem likely is that, if you have high interest rates and that causes high
unemployment, you might have to consider, as one of the options, raising
taxes in order to provide the necessary unemployment relief.
However, it's a pretty lousy option, I would have thought, in most
circumstances.
Rather your better course would seem to be to get your interest rates down,
your investment up, unemployment down, income and growth on the rise and a
sufficiently happy economic prospect to think about cutting taxes to improve
things still further.
A world without either interest rates - infinite access to funds for
everyone - or taxes would probably be an ideal world in many ways; but it
seems to be a world that, so far, we haven't been able to contrive.


James Cumes
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There is no Science, the Study of which is more useful and commendable than
the Knowledge of the true In terest of one's Country; and perhaps there is
no Kind of Learning more abstruse and intricate, more difficult to acquire
in any Degree of Perfection than This, and there fore none more generally
neglected. Hence it is, that we every Day find Men in Conversation
contending warmly on some Point in Politicks, which, altho' it may nearly
concern them both, neither of them understand any more than they do each
other.

Thus much by way of Apology for this present Enquiry into the Nature and
Necessity o/ a Paper Currency. And if any Thing I shall say, may be a Means
of fixing a Subject that is now the chief Concern of my Countrymen, in a
clearer Light, I shall have the Satisfaction of thinking my Time and Pains
well employed.

To proceed, then,

There is a certain proportionate Quantity of Money requisite to carry on the
Trade of a Country freely and currently; More than which would be of no
Advantage in Trade, and Less, if much less, exceedingly detrimental to it.

This leads us to the following general Considerations.

First, A great Want of Money in any Trading Country, occasions Interest to
be at a very high Rate. And here it may be observed, that it is impossible
by any Laws to restrain Men from giving and receiving exhorbitant In terest,
where Money is suitably scarce: For he that wants Money will find out Ways
to give 10 per cent when he cannot have it for less, altho' the Law forbids
to take more than 6 per cent. Now the Interest of Money being high is
prejudicial to a Country several Ways: It makes Land bear a low Price,
because few Men will lay out their Money in Land, when they can make a much
greater Profit by lending it out upon Interest: And much less will Men be
inclined to venture their Money at Sea, when they can, without Risque or
Hazard, have a great and certain Profit by keeping it at home; thus Trade is
discouraged. And if in two Neighbouring Countries the Traders of one, by
Reason of a greater Plenty of Money, can borrow it to trade with at a lower
Rate than the Traders of the other, they will infallibly have the Advantage,
and get the great est Part of that Trade into their own Hands; For he that
trades with Money he hath borrowed at 8 or io per cent cannot hold Market
with him that borrows his Money at 6 or 4. On the contrary, A plentiful
Currency will occasion Interest to be low: And this will be an Inducement to
many to lay out their Money in Lands, rather than put it out to Use, by
which means Land will begin to rise in Value and bear a better Price: And at
the same Time it will tend to enliven Trade exceedingly, because People will
find more Profit in employing their Money that Way than in Usury; and many
that understand Business very well, but have not a Stock sufficient of their
own, will be encouraged to borrow Money; to trade with, when they can have
it at a moderate Interest

----- Original Message -----
From: <larson@xxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>; Schulte-baeuminghaus
<schulte.baeuminghaus@xxxxxxxxx>
Cc: <VOW@xxxxxxxxxx>; <pkt@xxxxxxxxxxxxxxxx>
Sent: Friday, January 25, 2002 9:41 PM
Subject: Re: What if and Why of Zero Taxation


> Quoting Schulte-baeuminghaus <schulte.baeuminghaus@xxxxxxxxx>:
>
> > Investment - private and public - but not casino-type speculation -
> > makes a
> > community rich, if the aggregate investment is kept high; it makes the
> > community poor if it stays low.
> > If private investment begins to lag a bit, make sure interest rates are
> > kept
> > low but ALSO GET IN THERE WITH PUBLIC INVESTMENT.
>
> I agree that investment should be high, but this has nothing to do with
> interest rates. There is no scientific study anywhere - and I've looked
for a
> while now - that proves ANY kind of correlation between investments and
> interest rates. The I=I(r) is one of the most persistent macroeconomic
myths in
> our world. The correct one is of course I=I(AD), with appropriate
periodicity
> in denotations.
>
> As to taxes, I agree with the idea of zero taxation. In fact, my just-out
> book "Uncertainty, Macroeconomic Stability and the Welfare State" is an
entire
> argument that the foundation of any welfare state - or even welfare
system - is
> full employment, not taxes. In view of this Europe is amazingly persistent
in
> going the wrong way, a trend accentuated by the idea of an EU tax layer on
top
> of the three existing ones.
>
> /srl
>
> --
> Sven R Larson
> PhD; Assistant professor of economics
> Department of Social Sciences, Bldg. 22.2
> Roskilde University
> Pb 260
> DK-4000 Roskilde
> Telephone: (+45) 4674 2910