[ExI] The Dogs of Immortality

[Fred C. Moulton]

On Sun, 2008-07-20 at 19:17 +1000, Stathis Papaioannou wrote:
> 2008/7/20 Fred C. Moulton <moulton at moulton.com>:
> 
> > When one is looking at aggregate economic data sets one needs to be
> > careful.  In particular when looking at growth percentages one needs to
> > factor in many factors including demographics changes.  Also countries
> > which are starting from a very low base can experience rapid growth
> > percentages.  While it possible to use these aggregate economic data
> > sets to understand the impact of tax policies, regulations and other
> > factors one needs to be cautious.
> 
> Yes, but I was rebutting the claim that lower GDP growth in European
> countries compared to the US is due to differences in taxation and
> Government spending. 

I was not addressing my remarks just to you; rather I was addressing
what I felt was a general weakness of the entire discussion.

> The notion that all a country has to do to become
> wealthy is eliminate taxes strikes me as ridiculous. 

The topic of wealth creation is complex and nuanced.  Tax policy is just
one factor and there are many others such as demographics that need
consideration.  The discussion is even more complex when trying to
compare developing countries to more established economies.  For example
Hernando de Soto has done work looking at the informal economy, property
rights, taxes and regulations in many developing countries.  His work
demonstrates some of the complexities involved in this area.

> Wouldn't there be
> obvious examples of this desirable result in the history of the world?
> Some megalomaniac dictator, perhaps, if people are too stupid to vote
> for it themselves?

It is very difficult to country to country comparisons unless you are
able to hold other factors constant.  Doing comparisons of a country's
economy before and after a major tax rate change is possible in theory
however it is difficult in practice.  One difficulty is the lag in the
results of a tax rate change.  If the tax rate goes up and it less
profitable for some economic activity the impact may not be felt
immediately since there may be contracts and other longer term factors
in place which buffer the impact of the tax policy.

In the late 1980s many people considered Ireland as not doing very well
however during the 1990s and most of the 2000s (small dip in 2001-2003)
many people consider Ireland as doing well.  It is often argued that the
tax rate cuts in Ireland let to the economic expansion however any such
argument should take into account other factors.

So my point is that we all need to be more nuanced and sophisticated in
our discussion of issues such as tax rates, health care and the role of
the free markets.  Several times in the past I have almost joined in on
some of the these topics but restrained myself because I could not think
of a civil way to respond to what I considered trivial, silly and often
wrong arguments.  And it was even more distressing because many of these
arguments were supposedly in support of positions similar to my own.

Fred