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[orange]

Your response seems fair with regards to "general financial" transactions.  My response was to a discussion of capital gains and my layman's understanding of capital gains.

Also, why is my opinion bull?  Did I claim it as fact?  It is my conjecture at a possible side effect of increasing taxation on capital gains.

Capital gains has historically been much higher in the US during some periods of high economic growth, back when the financial sector didn't dwarf the rest of the economy. The two are intrinsically linked.

I hope that increased capital gains will have a reduction on activity in the financial system, because currently there is far more useless shuffling of money going on there beyond efficient allocation of capital investment in production. Many of the 'commodities' traded these days have only the most tenuous link to reality - derivatives so esoteric few of those actually trading them even understand them properly [disclaim: nor do I claim to, but that's what some people in the business say]

I think we are in agreement that capital gains tax would slow investment and slow overall economic growth.  Which is why I was confused by the statement that it was/is bull.

I think our disagreement is on whether or not it is a good thing.

Another pretty good speigel article -

In the 1970s, capital gains tax was 40 percent, and the highest income tax bracket paid a rate of 70 percent. Under George W. Bush, these rates dropped to 15 percent and 35 percent, respectively. For example, it emerged a few weeks ago that legendary investor Warren Buffett earned $63 million last year but was only required to pay 17 percent in taxes.

[image removed]

As for myself I'm not anti-capitalist, I'm more anti-corporate. An economy made up to a far greater extent of co-operatives and partnerships would be far more healthy and stable imo.

Rephrasing the statement about Warren Buffeet, he was required to only pay $10.71 million last year.

Comparisons with a European country are interesting, they always make me consider some of the other differences between the United States and various European.   Also, the disparity between the richest Germany and the poorest German may be less than that of the richest American and poorest American, but what about the disparity between the richest German and the poorest Romanian?  Because the study is comparing the the Richest Californian with the poorest Mississippian.

What happens when partnerships and cooperatives grow & become corporations?  What about those activities that are challenging for partnerships and cooperatives (like building large airplanes)?

[Borza]

Some co-operatives are pretty large and successful already in some places. e.g. the Mondragon federation of cooperatives employs 84k people with a revenue of just under 15b euros, the John Lewis Partnership has 68k employees and a revenue of £6.7b.


We are in agreement that capital gains tax would slow financial sector activity, but I don't expect this will affect useful investment or overall economic growth. Much of what the financial sector does is entirely without worth or benefit to anyone besides themselves.


And no the study isn't comparing the very richest individuals with the poorest individuals, it's comparing upper and lower percentiles - please read it more carefully.

[Z.Sinraali]

Okay, I think I'm getting a better picture of what you mean when you talk about capitalism now, Dex, thanks for putting up with my Socratic silliness. I'll stop asking questions for a minute and lay out what I think it means for capitalism to 'work.' One, Schumpeter's creative destruction functions with a low level of impairment, with some degree of exception for public goods and goods with positive externalities, thus leading to a general rise in human well-being. Second, it creates lots of economic surplus, which again makes everybody better off.

So when I ask what it means for capitalism to work, I guess what I'm really asking for is an account of the way you think capitalism benefits humanity. (And thanks for helping me figure that out.) You seem to have expressed your answer already, as in, "These individuals have built successful, society changing companies, and transformed existing industries when they enter them." Which is largely the same as what I just said about creative destruction. We just happen to disagree on the best means for enabling those benefits to happen, which is partly factual and partly simple value judgements.

Your examples of monopolies, and especially the rewording, are good points. I would, however, point out that in the modern era, it's much harder to maintain a monopoly precisely because of the government's ability and willingness to prosecute anti-competitive practices, and not so much because of any intrinsic features of capitalism. (Also technological progress, which might have an easier time affecting a capitalistic market but is not in and of itself capitalist.) We saw that in Microsoft's case in the 1990s. (Do you happen to know any good investigative pieces or even books on that ULA thing? That sounds like it'd be really interesting to study the history of.)

And now to get to the point where we really disagree, so I'll go ahead and quote:

Capitalism, raw capitalism, allows for people to take high risk and be highly rewarded.   By placing security nets (bail outs) the risk is lowered / shared by others.  It is a trait of it, not necessarily whether it is working or not.   It is not working if higher reward does not have higher risk or if low risk allows for a higher reward than a higher risk activity.

You are absolutely right, bailouts lead to socialized risk. It's that moral hazard thing, which is definitely, in and of itself, bad. But (always a but) that chance of damaging other parts of the economy that I brought up earlier is also a form of socializing risk. Just like the practice of originating a sketchy loan and then turning around and repackaging and selling it (with the partly-incompetent, partly-unethical help of ratings agencies saying it's just as good as US treasury securities). Or releasing toxins into the environment during your firm's production process.

Point is, there are lots of ways that a purely laissez-faire system allows risk to be socialized, even without government intervention. So my next question is this, do you support (in the abstract) government action to prevent these risks from being socialized? (In economics, we call it a negative externality, or a cost borne by a third party who doesn't benefit from a transaction.)

At the end of the day, we have to answer the question: Which is higher, the cost of allowing firms to fail and harm innocent (more or less) third parties, or the cost of allowing them to think they'll get a government bailout when they blow it? Some of that can be answered by good social science, but some of it too is a value judgement that we're unlikely to ever agree on.

[orange]

And no the study isn't comparing the very richest individuals with the poorest individuals, it's comparing upper and lower percentiles - please read it more carefully.

Comparisons with a European country are interesting, they always make me consider some of the other differences between the United States and various European.   Also, the disparity between the richest Germans and the poorest Germans may be less than that of the richest Americans and poorest Americans, but what about the disparity between the richest Germans and the poorest Romanians?  Because the study allows for comparisons between the the Richest Californians with the poorest Mississippians.

There I adjusted my statement (in bold) so that it is plural and responds to percentages instead of individuals.   The US has more than 3 times as many people as Germany spread over significantly more territory.

Z.Sinraali, I will respond to your questions in time.

[Borza]

Germany isn't exactly a homogeneous country you know, there are still massive East/West disparities even 20+ years post-reunification...

[orange]

Germany isn't exactly a homogeneous country you know, there are still massive East/West disparities even 20+ years post-reunification...

Agreed, but Germany (and most European countries individually) is (are) significantly more homogeneous than the United States.

I would, however, point out that in the modern era, it's much harder to maintain a monopoly precisely because of the government's ability and willingness to prosecute anti-competitive practices, and not so much because of any intrinsic features of capitalism. ... (Do you happen to know any good investigative pieces or even books on that ULA thing? That sounds like it'd be really interesting to study the history of.)

I doubt there has been much in the way of investigative pieces or books with regards to the Space Launch market.  In 2006, a nascent SpaceX brought suite against Boeing & Lockheed Martin for forming ULA (link).   Today, the US Government launches any large scale satellites with ULA.  The wikipedia article is probably the best starting point.

The government's ability and willingness to prosecute anti-competitive practices is not universal, as the ULA example shows (the US government currently only launches with American companies and is barred from launching on foreign launchers by law, hence a monopoly).  It could be argued that Boeing has a monopoly in the US when it comes to large scale commercial airplanes, luckily the government does not buy fleets of those.  Thus Boeing has a few international competitors (which it operates at an arguable disadvantage against*).

Also, monopolies are why I have an issue with unions.  Strong unions create a monopoly on manpower and can result in the same ills that come with a monopoly in any industry.  Many locales protect unions and their monopoly on manpower.

And now to get to the point where we really disagree, so I'll go ahead and quote:

Capitalism, raw capitalism, allows for people to take high risk and be highly rewarded.   By placing security nets (bail outs) the risk is lowered / shared by others.  It is a trait of it, not necessarily whether it is working or not.   It is not working if higher reward does not have higher risk or if low risk allows for a higher reward than a higher risk activity.

You are absolutely right, bailouts lead to socialized risk. It's that moral hazard thing, which is definitely, in and of itself, bad. But (always a but) that chance of damaging other parts of the economy that I brought up earlier is also a form of socializing risk. Just like the practice of originating a sketchy loan and then turning around and repackaging and selling it (with the partly-incompetent, partly-unethical help of ratings agencies saying it's just as good as US treasury securities). Or releasing toxins into the environment during your firm's production process.

Point is, there are lots of ways that a purely laissez-faire system allows risk to be socialized, even without government intervention. So my next question is this, do you support (in the abstract) government action to prevent these risks from being socialized? (In economics, we call it a negative externality, or a cost borne by a third party who doesn't benefit from a transaction.)

In the abstract, I do not support government action, especially on the scale of 300+ million people.  Whether or not it is to prevent risks from being socialized or maintenance of local/regional infrastructure.

Maybe it has not come across, but I am very much in favor of small government.  But I am also very much in favor of local governance.  When a distant capital dictates, it does so without an understanding of local conditions and creates general solutions which can make some situations actually worse.

At the end of the day, we have to answer the question: Which is higher, the cost of allowing firms to fail and harm innocent (more or less) third parties, or the cost of allowing them to think they'll get a government bailout when they blow it? Some of that can be answered by good social science, but some of it too is a value judgement that we're unlikely to ever agree on.

You are correct, it is a value judgement.

In general, I do not think anyone knows better than I what is best for me (or for you).  Whether it is a god or some politician, they do not know what is best for the individual or a group of individuals.

I think there are ways to encourage desired behavior and discourage undesirable behavior besides government action.

Sharing information and developing positions among citizens is critical and the internet is great for doing so.  If anything comes out of Occupy, I hope it is a willingness to discuss both government and corporate behavior among citizens/customers.

I want to see a push for action at lower levels of governance - what can your city or town do to help with unemployment or the environment or whatever issue it is?

The central government should enable us to do things that no one community can do, like establishing rules & guidelines to integrate local/regional infrastructure (FAA rules for flying) into a national network or establishing a navigation & timing network (GPS Constellation).  The central government should not have to worry about the conditions of every bridge across the nation, a general solution just does not work there (made up example: like every State gets X dollars for road work when the roads in Arizona only need to be repaved very decade, while in Michigan they require annual maintenance).

[Borza]

Germany isn't exactly a homogeneous country you know, there are still massive East/West disparities even 20+ years post-reunification...

Agreed, but Germany (and most European countries individually) is (are) significantly more homogeneous than the United States.

A poor reason to dismiss the comparison imo - particularly when the comparison is about equality.
Just after reunification the difference between the poorest East German and richest West German was far greater than anything found between different parts of the US. The fact that this disparity has been greatly reduced only reinforces the suggestion that their economic system is not promoting inequality to the extent that the American one is.

[Gottii]

Germany isn't exactly a homogeneous country you know, there are still massive East/West disparities even 20+ years post-reunification...

Agreed, but Germany (and most European countries individually) is (are) significantly more homogeneous than the United States.

A poor reason to dismiss the comparison imo - particularly when the comparison is about equality.
Just after reunification the difference between the poorest East German and richest West German was far greater than anything found between different parts of the US. The fact that this disparity has been greatly reduced only reinforces the suggestion that their economic system is not promoting inequality to the extent that the American one is.

To be blunt, ask the Turks how integrated they feel into German society. 

[orange]

Germany isn't exactly a homogeneous country you know, there are still massive East/West disparities even 20+ years post-reunification...

Agreed, but Germany (and most European countries individually) is (are) significantly more homogeneous than the United States.

A poor reason to dismiss the comparison imo - particularly when the comparison is about equality.
Just after reunification the difference between the poorest East German and richest West German was far greater than anything found between different parts of the US. The fact that this disparity has been greatly reduced only reinforces the suggestion that their economic system is not promoting inequality to the extent that the American one is.

No, I do not dismiss the comparison, I think the comparison is unfair given the size of the US population and disparities in various economic environments.    Different States have different laws (potentially extremely different) with regards to labor, business, etc.  I have provided examples elsewhere in this thread where businesses are moving production to what is traditionally less well-off parts of the nation in order to take advantage of local laws (free to work, ie do not have to join an union) and conditions (cheaper labor).

Lastly, I question the accuracy of the data for Germany.  The United States conducts routine census which "include citizens, non-citizen legal residents, non-citizen long-term visitors and illegal immigrants."  Does the German data include migrate works and illegal immigrants?

[Desiderya]

Integration is a problem that can't be blamed on only one side, and especially way more complex to discuss it in a few sentences.

Since I live there I'll just add that there are a lot of perfectly 'integrated' foreigners here, but also a lot that are staying in their own circles, having problems with the language barrier and would be in need of more help. However, there are also those who don't want to take up what's being offered.

Also I'm agreeing with Borza on his last point.

About the data: I don't think they count illegal immigrants, where there are not that many around, since they are kind of washing ashore in the mediterranean countries and germany is not that restricted regarding immigrants. They should include immigrant workers, since we have a fairly happy bureaucracy going on there. About the homogenity of Germany: While there are differences they are by no means as major as in the US. However, businesses will happily make use of the eastern european states for cheap labor or some of the local tax havens. So that's actually kind of worse.

[Z.Sinraali]

Dex: Your original argument was that a capitalistic system will tend to break up or lessen the market power of monopolies, so while your point that government does not universally prosecute anti-competitive practices is valid, ULA doesn't help the original argument because it hasn't been broken up. You could try to tell me that it hasn't been broken up because the government has interfered with the natural process of the markets, but how do you intend to prove that counterfactual? Microsoft's anti-competitive activities, your other example, were stopped, but government action played a significant role in that case. (As did technological progress, but again that's not an intrinsic feature of capitalism.)

As for unions, they tend to differ from monopolies in a few important ways. One, they don't set the price or quantity singlehandedly. In a textbook monopoly, there is a single seller and many buyers. The buyers have no market power. However, any given labor union sells their labor to a single buyer. (Sometimes more than one, but each contract is negotiated separately, and they can't really say "If you don't hire this guy we'll sell his labor to your competition.") Think of it like the health insurance market: Paradoxically, higher market concentration in insurance markets can reduce the cost to consumers because they can better bargain with similarly-concentrated health care providers.

Second, except in the widely-banned closed shop, there really aren't any barriers to entry for someone wishing to sell their labor to a given corporation. Depending on local labor law, they may be required to join the union once they've been hired, but as above the end result is a reduction in the union's ability to set the quantity of labor supplied.

Anyways, my last question for now is this: Besides ideological preference, how do you justify approving of some forms of risk-socialization while disapproving of others?

[orange]

Dex: Your original argument was that a capitalistic system will tend to break up or lessen the market power of monopolies, so while your point that government does not universally prosecute anti-competitive practices is valid, ULA doesn't help the original argument because it hasn't been broken up. You could try to tell me that it hasn't been broken up because the government has interfered with the natural process of the markets, but how do you intend to prove that counterfactual? Microsoft's anti-competitive activities, your other example, were stopped, but government action played a significant role in that case. (As did technological progress, but again that's not an intrinsic feature of capitalism.)

To support my original point, ULA's market monopoly (in my opinion) is in the process of being broken despite a lack of government action and even support for the monopoly.  Market forces (cost of launching stuff) has driven someone (SpaceX) to develop an alternative within the market.

Anyways, my last question for now is this: Besides ideological preference, how do you justify approving of some forms of risk-socialization while disapproving of others?

I do not have an answer at this time.

[Kiki Truzhari]

meanwhile, in Iceland...

[kalaratiri]

meanwhile, in Iceland...

http://grapevine.is/Features/ReadArticle/A-Deconstruction-of-Icelands-Ongoing-Revolution

[Desiderya]

Meh, I wanted to link that article.