Back in the 1700s, income taxes were rare, yet more countries were adopting such revenue generating schemes. Adam Smith minced no words in attacking such “absurd and destructive” taxes. In a section of The Wealth of Nations titled “Taxes upon the Wages of Labour,” Adam Smith wonders why countries institute such income taxes:
Absurd and destructive as such taxes are, however, they take place in many countries.
Just a decade later, the Founding Fathers recognized that limits needed to be placed on government. One such limit would be to make it more difficult for government to raise our taxes. In Federalist #21, Alexander Hamilton argued that a consumption tax would effectively limit the size of government:
It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty, that, “in political arithmetic, two and two do not always make four.” If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.
We have seen how the income tax has accomplished the growth of government that duties were unable to do previously. I return to this chart of the size of government excluding defense dating back to 1910. Remember, the income tax amendment to the Constitution was ratified in 1913.
Click on image to zoom in:
Seeing the growth of government since the income tax appeared a century ago, Smith and Hamilton were correct in their assessments. Based on the above quotes and their other writings, Adam Smith and Alexander Hamilton would support a switch to a consumption tax, more commonly called a sales tax today or the proposed Fair Tax.
Posted in Books, Economics, Government spending, History, Quotes, Taxes
Tagged adam smith, alexander hamilton, Consumption tax, Fair tax, federalist papers, Federalist Party, Government, income tax, Sales Tax, Tax, taxes, Wealth of Nations
Polybius on the evolution and de-evolution of political systems:
Monarchy first changes into its vicious allied form, tyranny; and next, the abolishment of both gives birth to aristocracy. Aristocracy by its very nature degenerates into oligarchy; and when the commons inflamed by anger take vengeance on this government for its unjust rule, democracy comes into being; and in due course the licence and lawlessness of this form of government produces mob-rule to complete the series. [The Histories 6.4.7-13]
Polybius describes how democracies kill themselves:
And hence when by their foolish thirst for reputation they have created among the masses an appetite for gifts and the habit of receiving them, democracy in its turn is abolished and changes into a rule of force and violence. For the people, having grown accustomed to feed at the expense of others and to depend for their livelihood on the property of others, as soon as they find a leader who is enterprising but is excluded from the houses of office by his penury, institute the rule of violence; and now uniting their forces massacre, banish, and plunder, until they degenerate again into perfect savages and find once more a master and monarch. [The Histories 6.9.7-9]
Polybius on checks and balances in government:
The constitution should remain for long in a state of equilibrium like a well-trimmed boat, kingship being guarded from arrogance by the fear of the commons, who were given a sufficient share in the government, and the commons on the other hand not venturing to treat the kings with contempt from fear of the elders, who being selected from the best citizens would be sure all of them to be always on the side of justice; so that that part of the state which was weakest owing to its subservience to traditional custom, acquired power and weight by the support and influence of the elders. [The Histories 6.10.6-10]
Polybius on how the Roman Republic created its “best of all existing constitutions” through trial and error:
The Romans while they have arrived at the same final result as regards their form of government, have not reached it by any process of reasoning, but by the discipline of many struggles and troubles, and always choosing the best by the light of the experience gained in disaster have thus reached…the best of all existing constitutions. [The Histories 6.10.13-14]
Polybius on the success of the Roman Republic’s system of checks and balances:
Such being the power that each part has of hampering the others or co-operating with them, their union is adequate to all emergencies, so that it is impossible to find a better political system than this… For when one part having grown out of proportion to the others aims at supremacy and tends to become too predominant, it is evident that…none of the three is absolute, but the purpose of the one can be counterworked and thwarted by the others, none of them will excessively outgrow the others or treat them with contempt. All in fact remains in statu quo, on the one hand, because any aggressive impulse is sure to be checked and from the outset each estate stands in dread of being interfered with by the others… [The Histories 6.18]
Posted in Books, Constitution, History, Quotes
Tagged Aristocracy, Checks and Balances, constitution, democracy, Direct democracy, Form of government, Oligarchy, Politics, Polybius, Quotes, Roman Republic, Rome, Separation of powers, United States
The EU and IMF had hoped that bailing out Ireland would end the sovereign debt crisis or at least forestall it for the time being. As I explained previously:
I don’t see how this changes anything. It may stave off immediate default, but Ireland is simply borrowing more money, exactly what got it into this mess in the first place. This simply buys them time to get their house in order, but will they?
I then compare the bailout to Dr. Evil:
These bailouts, loans, and austerity measures in Greece, Spain, Portugal, and Ireland are “an easily escapable situation involving an overly elaborate and exotic death.” Instead of eliminating the deficit immediately, they have convoluted plans to reduce it over a five-year period. Will these plans work? Nobody knows. But that’s okay because “we’ll just assume it all went to plan.”
It only took a few days to prove that I am correct. Marketwatch reports:
European government bond markets were in turmoil Tuesday, as Portuguese and Spanish yields followed Irish yields sharply higher on growing doubts about the ability of politicians to contain the euro zone’s sovereign-debt crisis.
Rising bond yields underline fears that the debt crisis, which has already forced Greece and Ireland to seek bailouts, will spread to other high-deficit countries, potentially shutting them out of credit markets.
The yield premium demanded by investors to hold Portuguese 10-year bonds versus German bunds widened to 4.34 percentage points from around 4.08 percentage points Monday.
The spread between Spanish and German yields widened to 2.32 percentage points, exceeding the spread of 2.27 percentage points seen earlier this month.
How could the EU and IMF really be so stupid to believe their bailout would work. They thought their bailout of Greece and 750 billion Euro backstop would end the crisis once and for all. That failed, but they didn’t let that stop them from making the same mistake again.
It is often said that insanity is “doing the same thing over and over again and expecting different results.” Supposedly, Einstein said as much.
This leaves us with three options:
- The EU and IMF are stupid.
- The EU and IMF are insane.
- The EU and IMF have some ulterior motive.
Which do you think it is?
Posted in big government, Deficits, Economics, Sovereign debt crisis
Tagged 2010 European sovereign debt crisis, Bailout, Deficit, economics, European Union, greece, International Monetary Fund, Ireland, portugal, spain
According to this article:
Lenihan said Ireland needed less than euro100 billion ($140 billion) to use as a credit line for its state-backed banks, which are losing deposits and struggling to borrow funds on open markets.
Ireland has been brought to the brink of bankruptcy by its fateful 2008 decision to insure its banks against all losses — a bill that is swelling beyond euro50 billion ($69 billion) and driving Ireland’s deficit into uncharted territory.
To put this in perspective, Ireland has approximately 4.5 million citizens. So Irish banks have already lost about $15,333 per person and Ireland will be receiving a credit line of up to $31,111 per person.
<Sarcasm> Good thing the EU and IMF do not actually have to produce and sell any goods to provide these funds. God bless the power of printing money out of thin air and dropping it from helicopters. If the EU, IMF, and Federal Reserve didn’t have these powers, we’d be seeing a financial crisis the likes of which we have not seen in generation. <End Sarcasm>
We always joke about our government fiddling while Rome burns. But in this case, the government is actually doing something. Too bad it is the wrong something. Instead of throwing water on the fire, they are putting piles of paper money onto the fire. And as we learned from the Weimar Republic, paper money burns just as well as firewood, but is much cheaper.
“The reign of liberty cannot be established without morality, nor morality without beliefs.”
“Since religion has lost its sway over men’s soul, the most obvious boundary between good and evil has been overthrown; in the realm of morality, everything seems doubtful and uncertain: kings and nations go forward at random and no one can say where the natural limits of despotism and the boundaries of license are to be found.”
“When a nation’s religion is destroyed, doubt takes a grip upon the highest areas of intelligence, partially paralyzing all the others. Each man gets used to having only confused and vacillating ideas on matters which have the greatest interest for himself and his fellows. He puts up a poor defense of his opinions or abandons them and, as he despairs of ever resolving by himself the greatest problems presented by human destiny, he beats a cowardly retreat into not thinking at all.”
*Quotes from Tocqueville’s Democracy in America