Tax on Gold is a Tax on Money

Mark Finchem wants to eliminate the state capital gains tax on gold coins. Article.
Finchem's argument is as follows:

1. The establishment of the Federal Reserve System in 1913 gave it the power to control the size of the money supply in the form of either printed federal reserve notes or bank ledger entries.
2. The FRS seeks to increase the supply of money by about 2 or 3% per annum, believing that this must be good for the economy.
3. Economics tells us that when the supply of something increases, its price goes down.
4. When the price of money goes down, people experience a decrease in the purchasing power of their money.
5. Ownership of gold, whose price can't be controlled by the FRS, is a way of maintaining one's purchasing power.
6. The state capital gains tax, when applied to gold, prevents Arizonans from using this valuable tool to preserve the purchasing power of their savings.

According to the article, Rep. Ken Clark, D-Phoenix, claimed that "people buy gold coins in hopes of making a  profit." This is not necessarily true. People may buy gold simply to try to protect the purchasing power of their savings from the intended bad consequences of the Federal Reserve System.

Gas Tax Hike

     In a democracy, interest groups can pressure the government to build roads and then attempt to shift the cost of maintaining the roads onto the taxpayers. How does one know how many roads the taxpayers actually want to pay for? Answer: there's no way of knowing. The only way of knowing for sure whether or not a product is demanded is to put it on the market and see if anyone buys it. If the government has the power to force taxpayers to pay for its products, there is no way of knowing if the taxpayer actually wants them.
     HCR 2011 wants to raise the state gasoline tax by $0.10. Article.
Reasons given are as follows:

1. Arizona roads are in bad condition due to lack of funding.
2. Truckers lose over $500,000,000 per year in congestion delays.
3. Rural roads are the fifth most deadly in the nation, due to poor condition.
4. As cars and trucks become more fuel-efficient, a gasoline tax provides less and less revenue.
5. The current fuel tax of $0.18 per gallon was set in 1991. $0.18 no longer buys what it did in 1991 (due to inflation of the money supply by the federal government).
6. Road maintenance funds are diverted to other state programs.
7. Arizona's current gas tax is only 58% of the national average.

     My comments:
     Item 1. Obviously, the current system isn't working.
     Item 2. Since the roads aren't operated as a business, the owner of the road (it could be argued that there isn't any) has no incentive to provide a competitive road service. Not that trucking is necessarily a competitive means of moving freight were the railroads allowed to be run profitably.
     Item 3. Deplorable, and typical of government-provided services.
     Item 4. Obviously, payment for road services should be on the basis of actual use, not purchase of fuel.
     Item 5. Adjusting to inflation is a challenge for all businesses. For a long-term solution, my suggestion would be to legalize gold and silver as money.
     Item 6. This is particularly troubling. If current gas tax funds aren't able to find their way to the road maintenance account, why would anyone expect that a new tax will change the situation?
     Item 7. Don't know why this is relevant. Are other states providing the road services their taxpayers want? If so, how do we know that? What is the average income in other states, and should that be taken into account when calculating what amount of gas tax is appropriate for Arizonans? Also, in light of No. 6, it seems to me that the less money in the hands of government, the better.

     The state has proved itself incapable of managing the roads. The only sane method of providing maintenance fees for public roads is via tolls and users' fees combined with (for example) privatization (for larger highways) and co-operative ownership (for smaller and access roads).
     If roads were run by their owners on a profit basis or as member-maintained co-ops, then we would have an answer to the question of which roads should actually exist, and the roads would be maintained to the degree that users demanded.

Dental Lobby Has Sharp Fangs

     More bad news in Arizona.
     One area of the U.S. economy that has long been almost completely corporativized (regulated by the government) is dental services. Dental services in the U.S. are monopolized by an organization called the American Dental Association, which has been successful in having licensing laws passed in all the state legislatures. These laws have had the effect of restricting supply of dental services, thus boosting price.
     Recently, some legislators tried to introduce a bill to the Arizona state legislature that would have permitted dental therapists to offer some services that presently only dentists are legally allowed to offer. Their position was that the high price of dental services results in many people being unable to afford them and that the licensing of dental therapists would alleviate this problem.
     Unfortunately, the House Appropriations Committee of Reference voted 8-1 against the bill. The sole yea voter was Nancy Barto (R-Phoenix). Aside from Regina Cobb (R-Kingman), who is actually a dentist, the names of the other nay voters are unknown.
   

Caution When Boldness is Required

     The new Pinal County sheriff and county attorney are said to be "cautious" about the use of RICO funds collected by the county. While campaigning for the job, Sheriff Lamb had criticized the former sheriff's handling of the funds, which is believed to have been a factor in Lamb's victory over the former sheriff's chosen successor.
     If that's so, then it seems to me that Sheriff Lamb could afford to be a little less cautious and a little more righteous.
     RICO laws have been a scandalous infringement of Americans' property rights ever since they were first cooked up in 1970 as a tactic in the misguided War on Drugs which has been a useless and expensive policy that has been a factor in our increasing national impoverishment.
     Under the RICO laws, property may be seized by law enforcement officials if either they or an informant alleges that the owner violated a law. Nothing has to be proven in a court of law; an allegation or a suspicion is sufficient legal grounds for a RICO seizure. Since most people would agree that having your property seized is a form of punishment, it follows that RICO sanctions punishment without trial. Surely, this is a very serious regression in the quality of our justice system.
     In the interests of justice, such laws ought to be repealed, or at least not enforced.

The Only Fair Safe Space is a Private Safe Space

     Arizona has come up in the news and not in a good way. Well, what else do I blog about except bad news?
     I choose to critique the article in Reason Magazine as they usually have the best analyses and to find a flaw in a Reason writer's argument would be quite a rare thing. This time, however, I think something more needs to be said.
     A bill, HB 2120, has been introduced in the Arizona House of Representatives by Republican (are there any other kind in Arizona?) representatives Thorpe and Finchem (who I voted for). By the terms of the bill, "courses, classes, events, or activities" that
1. promote the overthrow of the U.S. government
2. promote division, resentment, or social justice toward a race, gender, religion, political affiliation
    social class, or other class of people
3. are designed primarily for pupils of a particular ethnic group
4. advocate solidarity or isolation based on ethnicity, race, gender, religion, or social class
5. violate state or federal civil rights laws
6. negatively target specific nationalities or countries
are to be prohibited in school districts and community colleges and universities subject to the authority of the state (of Arizona).
   
     The author of the Reason article opined that

". . . allowing authorities to legislate what is and what isn't acceptable speech on campus—especially public campuses which are required to respect the First Amendment—is a terrible idea and inevitably comes back to harm whichever party the speech restrictions were designed to protect. The authors of HB-2120 might think they're taking a stand against P.C. culture run amok, but all they're really doing is legitimizing the concept of hiding from challenging ideas rather than confronting them." 

     In other words, schools and universities are supposed to be arenas where competing ideas are debated, and may the best idea win! Perhaps that is what people have in mind when they assert that the state should not have control over educational content:

"The Arizona school boards association said it opposes Thorpe’s bill because the state should not have control over school content. 'It should be up to each district what kind of curriculum should be approved,' said spokeswoman Heidi Vega."

    I don't really have a dog in this fight. The two sides each have their own idea about what should happen (what content should be taught) on public property (the schools). My position is that it's impossible to decide fairly how public property should be used.
     The concept of ownership gives one a solid basis for deciding questions of how to resolve conflict over scarce resources. Ownership entails the following property rights: enjoyment, occupation, possession, rental, sale or other form of alienation, use, or even destruction of a property, and the right to exclude others from the exercise of aforesaid rights.
     All property, including "public" property, belongs to the persons who determine who gets to exercise the property rights. The theory of public property in a democracy entails the idea that public property will be used in a way determined by the majority of the voters. But what if two powerful political factions disagree about how certain public property is to be used? Then the goal of the concept of ownership---to resolve conflicts over scarce resources---is defeated. And indeed, that's what we're witnessing in the fight over what content should be taught in Arizona public schools.
     I think everyone has the right to advocate whatever ideas or theories they believe in, no matter how mistaken I think they are. However, people should not have the right to steal other peoples' money (taxation) and then use that money to erect facilities where their ideas and theories will be propounded at taxpayer expense.
     Therefore, the only just solution to the problem of what content will be taught in schools is that the schools be privatized. One can't complain about what people do on their own property!

Corporate Welfare in Casa Grande

    Lucid motors is planning to build a new electric car manufacturing plant in Casa Grande.

"The future of Casa Grande looks brighter now with Lucid developing 500 acres near Thornton and Peters roads, according to Casa Grande Mayor Bob Jackson. He sees the company’s arrival as a catalyst that will propel Casa Grande into being a leader in technology and advanced manufacturing. There will not be any delays in this development on behalf of the city, Jackson promised, as he expressed a desire to speedily move the project forward."

     I'm so glad to hear the the municpal government won't stand in the way of honest and potentially lucrative economic development. Governments don't always behave rationally or morally.

"Pinal County offered performance-based incentives to attract Lucid to build in Arizona."

     Now, why does Pinal County have to pay Lucid to bu ild a factory in Casa Grande? Is there something wrong with Pinal County that companies have to be paid to build factories here?

"County Manager Greg Stanley said he could not discuss what types of incentives were offered, except to say they were tied to Lucid pledging to create a certain number of jobs."

     Ok, so jobs will be created. All other things being equal, that's a good thing, I think.

The county will be assembling and buying the land, parts of it owned by Saint Holdings LLC, then selling it to Lucid."

     Now, why doesn't Lucid just buy or lease it themselves? Why does the county have to get involved in the deal?

"There is only one problem with the deal — the taxpayers of Arizona are expected to pay for the purchase of the land and contribute a significant amount of money to help it get the factory built and operational. When and if everything goes as planned, the factory is expected to create 2,000 jobs in an area where many are unemployed or underemployed."

 "The land itself will cost $31.8 million. Financing the purchase over 30 years will add another $41.6 million, but Pinal County spokesperson Joe Pyritz says the plan is to lease the land after it is purchased (presumably to Lucid Motors, although the county is not allowed to say so for the record) and then sell it at the end of 5 years. That arrangement would cap the total cost of the deal at $35 million. The sale price is expected to equal the total outlay made by the county for principal and interest."

"However, first someone has to actually buy the land. County supervisors will meet in January to consider how to do that. The leading proposal is to finance the purchase by raising property taxes or imposing a countywide sales tax surcharge. Pyritz says if the supervisors decide on a tax increase, the new tax would only cover the land deal and would end once the tax funding reimburses the county for the purchase cost."

     Oh-oh. Governments don't have any money of their own. The only way they can get money is by taxation. It's their only business plan!

 "Lucid Motors will be eligible for up to $46.5 million in various subsidies offered by the state through the Arizona Commerce Authority over the next five years. Those subsidies will be coupled with certain performance targets" 

"Susan Marie, spokeswoman for the Arizona Commerce Authority is quick to point out that the total amount is far less than the $335 million in tax credits promised to Faraday Future or the $1.3 billion in similar credits promised to Tesla Motors by the state of Nevada."

     Oh-oh. If we don't hurry up and jump on this deal, some other state (or some other county) will steal it away from us! Taxpayers in other locales aren't as dull as I am, probably.
     However, there are always two sides to every story. Could it be possible that paying Lucid to build a factory in Casa Grande with state and county taxpayers' money has a downside?
     First of all, let's sum up the upside. Cui bono? Lucid shareholders will certainly gain from this deal. Lucid management and workers will become employed, which is nothing but an upside for them. The county increases its tax base. No downside for them. Casa Grande businesses may or may not benefit, depending on where and how the Lucid employees spend their money. For sure, the economy will grow, there would logically be an effect on property prices (more taxes for the county), but it's impossible to predict who specifically will benefit and to what degree.
     On the other hand, it's doubtful, for example, that residents of areas far removed from Casa Grande (as many parts of Pinal County are) would benefit much, if at all.
     The downside of what should otherwise be a win-win situation is that taxpayers, both in Pinal County in particular and Arizona in general, will be forced to subsidize the establishment of the Lucid plant.

     "The project involves a significant amount of corporate welfare. Besides the Pinal land deal, Lucid Motors will attempt to collect up to $46.5 million over the next five years in various subsidies offered by the state through the Arizona Commerce Authority."

"The five Pinal County supervisors will discuss the possible land purchase and how it will be funded on January 4 at their regular meeting in Florence. The goal is to a produce a resolution of intent for the agreement, to be voted on no later than January 19."

"'The supervisors will likely consider either a property- or sales-tax hike to pay for the land,' Pyritz says. If they decide on a tax increase, he says, the new tax would only cover the land deal and would end once the tax funding reimburses the county for the purchase cost."

"'We won't make or lose money' on the deal, Pyritz says."

     No, the county will make money, in the long run, if tax revenues increase. And by the way, is the county planning to reimburse the taxpayers for their interest-free loan to the county and Lucid after the five years are up? Nothing has been said about that! Could it be that the county will end up keeping the money? Could it be the tax will remain in place, even after the deal with Lucid has been settled?

Summary:
The new factory will create 2,000 new jobs, which means the economy will grow.
    1. But capital extracted from state and county taxpayers will mean decreased purchases of the products of other producers.
    2. The jobs created will be in Casa Grande. Benefits for Western Pinal residents and property owners? Probably, some (we can't be sure who) will be net gainers. For other parts of the county? Doubtful.
     3. Economic stimulus created by the participation of government constitutes malinvestment (defined as investment that would not have occurred in a free market) and all other things being equal, has to be liquidated in the long run. If government wants to do something to improve the economy, they can remove legal barriers to development by repealing laws that discourage business.
     4. No mention is made of paying back taxpayers for their interest-free loan to the county (and indirectly to Lucid) or of abolishing the tax after the loan to Lucid is repaid.

     Government/business alliances are not a just way to foster development. If Lucid can't obtain the necessary funds to build their factory by consensual means, that is a good indicator that it shouldn't be built.
     The involvement of the county as an economic actor is troubling. Governments, if they serve any purpose at all, are meant to provide a very limited range of functions. A government is not a business and can't be run like one. Financing economic development is for capitalists and entrepreneurs, not county supervisors who have no capital except what they can squeeze out of the taxpayer.
   

Minimum wage raised in Arizona

Last November, the voters of Arizona, in all their wisdom, voted to raise the minimum wage from $8.05 to $10.00 in January and to $12.00 per hour by 2020.
Below, I recapitulate various arguments pro-minimum wage and either refute them or ask a question that may be hard for the proponent to answer.

1. The minimum wage will help the poorest wage earners to earn a living.

     All other factors held constant, a worker's remuneration is determined by demand for his or her labor service (including its level of productivity) and supply of the type of labor service he or she provides. Additionally, demand for a specific type of labor depends on the amount of capital available to be invested in that particular economic sector (production = labor + capital + land [resources]). If a worker decides that he or she will not work for less than an amount greater than the market determines for labor in a particular sector, that minimum-wage laborer will tend to be unemployed.
     And if the price of an entire market segment's product increases, demand will decrease. This means that the marginally profitable producers will no longer be able to make profits and will no longer be viable on the market. Hence, the jobs of workers at these marginal producers will disappear. This is a short-run effect.
     There may be some producers that continue to produce at reduced profitability. However, as capital wears out, new investment will be competing with other investments for ROI. If enactment of the minimum wage has made the sector in question less profitable, and the ROI less attractive, then investment may not be available (and all other factors held constant, definitely won't be available) for replacing worn-out physical capital, and the producers will become non-viable over time and minimum wage jobs will disappear gradually (long-run effect).
     Finally, if the cost of implementation of automation doesn't prevent a competitive ROI, minimum wage jobs may disappear, even though production continues.
     Bottom line: not only will minimum wage not help anyone to earn a living, it will actually reduce employment.
   
2. Minimum wage legislation will help the poorest wage earners and although it may result in higher prices, will not result in less employment if demand in the market is inelastic.

     But, if demand is inelastic, why have producers not already raised prices?

3. Raising the minimum wage may reduce turnover in labor costs, and therefore result in small or no increase in prices of the product.

     If offering more wages could reduce costs on the whole, why would producers not already have done so?

4. Minimum wage workers are such a small proportion of a producer's costs that the increase is too small to make any difference.

     There is no such thing as "too small to make any difference." It's often observed that smaller producers with smaller profit margins will feel the effects in the short term and minimum wage hikes will equal "get big or get out."
     Can big business survive minimum wage hikes more easily than small business? Can their economies of scale provide a profit margin that enables them to stay afloat in spite of the minimum wage? Perhaps, but they're already charging as little as they possibly can to avoid losing market share to competitors. And if they could've charged more, they already would've done so. So there shouldn't be a lot of room to maneuver as far as prices go.
     And when investment becomes necessary to replace capital used in conducting business, profitability (ROI) will be a factor in determining whether or not capital maintenance costs can be covered. Depending on what other economic factors are at work, consumers may change their demand schedules, but the bottom line is that the minimum wage causes the economy to shrink and some marginal producers, not necessarily only small ones and not necessarily only ones directly affected by the minimum wage, must go out of business.

5. Empirical studies have shown that minimum wage legislation either doesn't cause or causes only insignificant unemployment.

     And there are empirical studies that suggest the opposite. My problem is with "empirical studies" per se.
     Constructing a general law on the basis of specific data is a logical error. Even from the point of view of creating a testable hypothesis in the "social sciences," I fail to see the usefulness of "empirical studies," as there is no way to scientifically test unique historical data.

6. Think of it this way: You’re running a McDonald’s selling 1,000 hamburgers a day. You make, say, 75 cents on each Big Mac costing $3.99. Will you raise its price by a nickel to $4.04 in order to make up for an increase in the minimum wage? That would be silly, because $4.04 is not an attractive number, and you’d lose too many sales as a consequence. Rather, you’d be satisfied with a lower profit margin on a Big Mac of 70 cents. But you notice that the Big Mac Meal is selling for $5.69; that gives you the opportunity to raise its price to the next attractive number of $5.75 in order to make up for the increased cost of labor. Will the demand for Big Mac Meals decline? It is doubtful that customers will even notice that tiny increase in price. 

     Customers may or may not notice the price increase, but not noticing a price increase doesn't prevent their money from not being able to buy as much as before the minimum wage hike. Bottom line: fewer Big Macs will be purchased therefore fewer will be produced and sold = unemployment. What if customers change their demand schedules and are willing to re-allocate money from other expense categories to Big Macs? According to Paul Krugman and other economists, this shouldn't be possible, because if they'd been willing to pay more, they already would've been charged more. But let's suppose that everyone's demand schedule changed abruptly and magically and everyone was now willing to pay a nickel more. The money that is re-allocated to Big Macs has to come out of some other expenditure category, meaning that some other economic sector will experience less business and therefore require less labor. Unemployment rears its head again in whack-a-mole fashion.
     What the minimum wage does is make the entire economy less efficient, i.e., more input to produce the same output. Another word for that is impoverishment. 

7. Decently paid workers tend to do a better job.

     "Decently-paid" and "better" are subjective preferences and so are inarguable. However, it should be noted that the relevant opinion with regards to "decently-paid" is the opinion of the worker who accepts or rejects a job. Of course, workers would always like to be paid more for their labor, just as employers would always like to pay less. The actual price of labor however, is determined by the market, not by the worker or the employer. If a worker accepts a job at a certain rate of pay, that constitutes objective evidence (a demonstrated preference) as to the worker's evaluation of pay and other working conditions. As to what constitutes adequate job performance, the only relevant opinion is that of the employer who continues to employ a worker, which action constitutes objective evidence (a demonstrated preference) of his evaluation of the worker's performance. 

8. Those against raising the minimum wage often argue that it will hurt young people the most and that they “need the experience” of working at the minimum wage. But notice that the youth unemployment rate in Germany is 7.8 percent, and in Switzerland, it is 8.5 percent. In contrast, youth unemployment is 15.5 percent in the U.S., even though the U.S.’s minimum wage (using Purchasing Power Parities exchange rates) is below that of these Germany’s and Switzerland’s $10 and $9.20 an hour respectively. In other words, both have higher minimum wages, but much lower youth unemployment rates. Their overall unemployment rate  is also lower: 4.5 percent and 3.4 percent, respectively. The minimum wage makes no difference on unemployment.

     The minimum wage is not the only or even overriding factor that affects the economics of employment. Both Germany and Switzerland, for example, are experiencing a labor shortage. Under such circumstances, one would expect unemployment to be less and the cost of labor to be higher, which would mean that a higher minimum wage might cause little or no unemployment (if a minimum wage is set low relative to the market wage, it has no economic effect). The relevant question is what would Swiss and German youth unemployment look like without a minimum wage? Unless the minimum wage is lower than the value of labor, it's probably causing unemployment.

9. Paying someone less than a living wage is immoral, and businesses that can't survive without doing so shouldn't be in business.

     I don't know what moral principle is involved in the paying of wages, but forcing a particular version of morality on the citizenry should not be a function of government. 
     Furthermore, the proponent of a minimum wage law wants to use the power of the state to prevent consensual exchanges (of labor for money), which is unjust.

"The Minimum Wage"

To make a horse drink
It is foolish to try;
It’s fully as hard
To make customers buy:

So, when prices are raised
By law or decree,
That sales will fall off
Is as sure as can be;

And if minimum wages
By commission are set
Above what the worker
Would naturally get,

Those worth the money
Alone will be hired,
While the lowest-grade labor
Will surely be fired,

And the jobless will sit
And wonder all day
Just what they have gained
From the high legal pay.

~Wilford King