Integral Economics. Part 1: Understanding our Economic Institutions

http://integrallife.com/node/24425

Ken Wilber's take on saving the world through cross-cultural communication

http://www.odemagazine.com/doc/62/ken-wilber-communication/3

Clash of Liberals, Conservatives and Libertarians: A Different View

http://check-your-premises.blogspot.com/2009/03/clash-of-liberals-conservatives-and.html

Republican Economic Philosophy

http://en.wikipedia.org/wiki/Republican_Party_(United_States)

The Rise and Fall of Prosperity in Argentina

http://www.georgeblair.net/students/IB%2005%2020th%20Century/Argentina%20Before%20Peron1.pdf

Americans' Tax Burden Near Historic Low

In the April 16, 2009 Washington Post article "Americans' Tax Burden Near Historic Low," Lori Montgomery says the effective tax rate in the U.S. is barely above its 2003 all-time low.

As thousands of anti-tax protesters rallied across the nation yesterday and the president promised tax cuts for most, new data showed that the federal income tax burden is already hovering near its lowest level in three decades for all but the wealthiest Americans.

The nonpartisan Congressional Budget Office estimates that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.

Middle-class families -- to whom President Obama has delivered even more tax relief since he took office in January -- have fared especially well, according to the CBO. The middle fifth of taxpayers, who earned an average of $60,700 per household in 2006, paid just 3 percent in federal income tax that year, down from a high of 8.3 percent in 1981.

With federal income taxes so low for so many families, a majority of those surveyed by Gallup last week said the amount of federal income taxes they pay is either "too low" or "about right," compared with 46 percent who said their tax bills are "too high" -- one of the most positive assessments of the federal tax burden since Gallup began asking the question in 1956.

Gallup analysts said the poll results may also reflect confidence in Obama's pledge not to raise taxes on families making less than $250,000 a year, a vow he repeated yesterday in a tax-day speech at the Old Executive Office Building. Obama presented nine taxpayers who he said were better off because of tax breaks enacted in the recent economic stimulus package, including a tax credit for working families worth up to $800 this year.

"We start from the simple premise that we should reduce the tax burden on working people, while helping Americans go to college, own a home, raise a family, start a business and save for retirement," Obama said. "Those goals are the foundation of the American dream, and they are the focus of my tax policy."

Still, thousands of protesters marked the day federal income taxes were due by attending hundreds of "tea parties" from Florida to Hawaii, organizers said. The rallies were promoted by FreedomWorks, a conservative nonprofit group led by Richard K. Armey, a lobbyist and Texas Republican who once served as House majority leader.

In a pre-rally telephone interview from Atlanta, where he was preparing to speak on the steps of the statehouse, Armey conceded that "the federal tax rate right now is at a good level." But, he said, "there are very few people who believe Obama will be content to leave it at that."

Armey said the real target of the protesters' ire is not the current tax rate but the much higher one that will be needed to pay for trillions of dollars in financial-sector bailouts; the stimulus package, which is projected to add nearly $800 billion to the federal debt over the next 10 years; and Obama's ambitious health-care and education initiatives, which are projected to raise the debt by trillions of dollars more.

"There's no way he can do the spending he does and cut taxes for most people," Armey said. "People know that spending inevitably means more taxes."

The White House stuck to its own low-tax message yesterday, as Obama repeated his "clear promise that families that earn less than $250,000 will not see their taxes increase by a single dime." Asked whether Obama is confident that he can stick to that pledge throughout his administration, press secretary Robert Gibbs told reporters: "He is. He is. He is."

To add heft to that promise, the White House released a lengthy list of tax breaks included in the stimulus package to benefit college students, car buyers, first-time home buyers, families with children, poor people and others -- all told, about 120 million households.

Overlooked was one big drawback for the nation's finances: More people are likely to pay no income taxes at all.

According to the most recent IRS statistics, about 45 million households -- a third of all filers -- owed no federal income tax after taking their credits and deductions in 2006. This year, with the profusion of new credits in the stimulus package, about 65 million households -- or 43 percent of all filers -- are likely to owe no income taxes, according to a new analysis by the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution.

Of course, even filers who have no income tax liability still pay federal taxes, due in large part to the payroll tax, which funds federal insurance programs like Social Security. According to the CBO, taxpayers shelled out an average of 7.5 percent of their earnings in payroll taxes in 2006.

But if the recession lingers and Congress and the White House consider another economic stimulus package, that tax could temporarily disappear, as well. Economists say one of the first items that should be considered is a payroll-tax holiday.

Tax Tea Parties Misstate U.S. Tax Burden

Lies, distortions, and offensive signs seem to be a common component of tax tea party rallies. At least one conservative Republican is trying to set the record straight.Photo courtesy of Jesse Russell in Madison, WI.

In his April 10, 2009 Forbes editorial "Tax Tea Party Time?," Conservative columnist Bruce Bartlett questions the presumption by tax tea party advocates that U.S. taxes are excessively high. Taxes are necessary to fund the government services expected by citizens. Current federal tax revenues are the lowest since 1950 when measured as a share of overall income.

According to Bartlett:

Next week is April 15, the day when most Americans have to file their federal income tax returns. To protest the allegedly high level of taxation in the United States, various right-wing groups are organizing tea parties around the country in the spirit of the Boston Tea Party of 1773.

The irony of these protests is that federal revenues as a share of the gross domestic product will be lower this year than any year since 1950. According to the Congressional Budget Office, the federal government will take only 15.5% of GDP in taxes this year, compared to 17.7% last year, 18.8% in 2007 and 20.9% in 2000.

The truth is that the U.S. is a relatively low-tax country no matter how you slice the data. The following tables illustrate this fact by comparing the U.S. to other members of the Organization for Economic Cooperation and Development, a Paris-based research organization.

As Table 1 shows, total taxation (federal, state and local) amounted to 28% of the GDP in the U.S. in 2006. Only four of the 30 OECD countries had a lower tax ratio. Taxes averaged 35.9% for the OECD as a whole and 38% in Europe. Citizens of Denmark and Sweden paid very close to 50% of their total income in taxes.

Table 1: Total Taxes as a Share of GDP, 2006

Denmark 49.1
Sweden 49.1
Belgium 44.5
France 44.2
Norway 43.9
Finland 43.5
Italy 42.1
Austria 41.7
Iceland 41.5
Netherlands 39.3
U.K. 37.1
Hungary 37.1
Czech Rep. 36.9
N.Z. 36.7
Spain 36.6
Luxembourg 35.9
Portugal 35.7
Germany 35.6
Poland 33.5
Canada 33.3
Ireland 31.9
Greece 31.3
Australia 30.6
Slovak Rep. 29.8
Switzerland 29.6
U.S. 28.0
Japan 27.9
Korea 26.8
Turkey 24.5
Mexico 20.6

Source: OECD


There's a stronger case for the U.S. being a high tax country when looking at the top statutory tax rate on labor income. The OECD calculated the U.S. rate at 41.4% in 2007. As Table 2 shows, this put America right in the middle of the distribution despite a reduction in the top rate from 46.7% in 2000. The reason is that 19 OECD countries have reduced their top rate since 2000; only 3 have increased it.

Of course, the top rate applies only to those with very high incomes. According to the OECD, one would need to make almost 9 times the average worker's wage to pay the top rate in the U.S. In most OECD countries one hits the top rate at an income barely above that of the average worker, which puts workers in other countries in much higher tax brackets than those in the U.S.

Table 2: Top Statutory Income Tax Rate, 2007/2000

Denmark 59.7/59.7
Sweden 56.5/55.4
Belgium 53.5/63.9
Netherlands 52.0/60.0
Finland 50.5/55.2
Austria 50.0/45.0
Japan 50.0/50.0
France 47.8/53.3
Germany 47.5/53.8
Australia 46.5/48.5
Canada 46.4/46.4
Italy 44.9/46.4
Spain 43.0/48.0
Switzerland 42.1/43.2
Portugal 42.0/35.0
U.S. 41.4/46.7
Ireland 41.0/44.0
Greece 40.0/45.0
Norway 40.0/47.5
Poland 40.0/40.0
U.K. 40.0/40.0
N.Z. 39.0/39.0
Luxembourg 38.9/47.1
Korea 38.5/44.0
Hungary 36.0/40.0
Iceland 35.7/45.4
Turkey 35.6/35.6
Czech Rep. 32.0/32.0
Mexico 28.0/40.0
Slovak Rep. 19.0/35.0

Source: OECD


Table 3 presents effective tax rates for an average one-earner couple with two children. It shows American workers paying 11.8% of their income in taxes in 2007. Only five countries had lower tax rates. The average for all OECD countries was 21%--almost twice the rate paid by American workers.

One may wonder how working people manage to pay so much in taxes in other countries. The answer is that they get a lot back from the government in other ways. For example, most other countries have a broad system of family allowances that come in the form of cash payments to virtually all families regardless of income.

Table 3: Personal Income Tax Rate on an Average Worker, 2007

Hungary 38.7
Denmark 35.8
Austria 31.8
Netherlands 31.7
Belgium 30.6
Turkey 30.3
Finland 30.1
Sweden 27.6
Norway 27.1
Greece 26.5
U.K. 25.4
Poland 24.7
Germany 23.9
Australia 23.4
France 21.9
N.Z. 21.5
Italy 20.4
Canada 16.9
Switzerland 16.5
Japan 16.3
Luxembourg 15.3
Portugal 14.8
Iceland 14.4
Spain 12.4
U.S. 11.8
Czech Rep. 10.8
Slovak Rep. 9.7
Korea 9.5
Ireland 5.9
Mexico 5.2

Source: OECD


When these cash payments are deducted from taxes, the effect is to substantially reduce the effective tax rate in almost every OECD country. As Table 4 shows, in many cases the impact of cash allowances is dramatic. The effective tax rate falls to just 2.8% from 21.5% in New Zealand, and in Ireland workers get back more than 200% of their tax payments.

Another way that workers in other countries benefit is in having almost all of their basic health care expenses covered by the government. According to the OECD, 19 of its 30 member countries cover 100% of health care costs, and another eight cover more than 89% of costs. Of the three remaining countries, Turkey covers two-thirds of health expenses, and Mexico pays for half.

In the U.S., however, the government covered only 27.4% of health costs in 2006. And almost all of that went either to the elderly in the form of Medicare or the poor in the form of Medicaid. The American average worker either had to pay for his own insurance in the form of deductions from his pay or go without.

In 2008, employer-provided health insurance reduced the cash wages of American workers by 7.9%, according to the Bureau of Labor Statistics. If businesses didn't have to pay for health insurance, they could afford to pay their workers 7.9% more and be no worse off. If workers paid 7.9% more of their income in taxes to pay for national health insurance, they would also be no worse off.

To a large extent, this is exactly what happens in other countries. Workers see the higher taxes they pay the same way Americans view the deduction from their pay for health insurance--not as money down a rat hole, but as the payment for a tangible benefit.

This isn't necessarily an argument for national health insurance. There are lots of reasons why it may be preferable to maintain the largely private health system we have in America. No one thinks it would be a good idea to pay higher taxes in return for having the federal government provide us with food. Variety and quality would undoubtedly suffer a great deal. The same would be true if the federal government took over the provision of health care.

The point is that one can't look just at the taxes people pay here or elsewhere without looking at what they get in return. It doesn't automatically follow that the places with the lowest taxes are the best places to live and work. This is obvious when we think about where to buy a house. We always look at the quality of local schools as a major factor and are willing to pay higher property taxes in return for good schools. The same is true at the national level as well. Higher taxes may pay for services that people value and thus are not as burdensome as they might appear at first glance.

Table 4: Income Tax Rate Less Cash Transfers, 2007

Turkey 30.3
Denmark 29.3
Netherlands 26.9
Greece 26.5
Poland 24.7
Hungary 24.4
Germany 23.9
Finland 22.9
Belgium 22.4
Norway 21.5
U.K. 20.6
Austria 19.8
Sweden 19.8
France 17.5
Japan 13.9
Italy 12.5
Spain 12.4
U.S. 11.8
Canada 10.6
Portugal 10.3
Australia 10.0
Korea 9.5
Switzerland 9.3
Iceland 6.7
Mexico 5.2
Slovak Rep. 4.4
N.Z. 2.8
Luxembourg 2.8
Czech Rep. -6.3
Ireland -12.0

Source: OECD

Another offensive sign at a tax tea party rally:
"The American Taxpayers Are The Jews For Obama's Oven" reads one sign in Chicago--Tony Ramao.


Bruce Bartlett was part of two Republican presidential administrations. He served as a domestic policy adviser to President Ronald Reagan and served as a treasury official under President George H.W. Bush.

U.S. Banking Crisis explained in 59 minutes

Ira Glass and his guests explain the U.S. banking crisis in this episode of This American Life.

The Big Takeover: Rolling Stone

Matt Taibbi wrote a colorful explanation of the cause of the global economic crisis.  If you don´t mind foul language, you may find it insightful:

http://www.rollingstone.com/politics/story/26793903/the_big_takeover/print

Increased Use of Cameras to Enforce Traffic Laws

People express outrage at the increased use of cameras to enforce traffic laws in Get the Feeling You´re Being Watched? in an March 27, 2009 article from the Wall Street Journal.

Taxing the Rich—Foods, That Is

Taxing the Rich -- Foods, That Is

Efforts to impose tobacco-style "obesity taxes" on some snacks and drinks have companies scramgling.  Business Week, February 12, 2009.

Charlatans and Cranks

"Fad diets are popular because they promise amazing results with minimal effort. Many people want to lose weight but are not eager to pay the price of eating fewer calories and exercising more regularly. These people are convinced all too easily by the reassuring words of some self-proclaimed expert selling a miraculous product. The want to believe that this new, easy-to-follow diet really will work.

"Fad economics is also popular, for much the same reason. Anyone can adopt the title 'economist' and claim discovery of some easy fix to the economy's troubles. These fads often tempt politicians, who are eager to find easy and novel solutions to hard and persistent problems. Some fads come from charlatans who use crazy theories to gain the limelight and promote their own interests. Others come from cranks who believe that their theories really are true.

"An example of fad economics occurred in 1980, when a small group of economists advised presidential candidate Ronald Reagan that an across-the-board cut in income tax rates would raise tax revenue. They argued that if people could keep a higher fraction of their income, people would work harder to earn more income. Even though tax rates would be lower, income would rise by so much, they claimed, that tax revenue would rise. Almost all professional economists, including most of those who supported Reagan's proposal to cut taxes, viewed this outcome as far too optimistic. Lower tax rates might encourage people to work harder, and this extra effort would offset the direct effects of lower tax rates to some extent. But there was no credible evidence that work effort would rise by enough to cause tax revenues to rise in the face of lower tax rates. George Bush, also a presidential candidate in 1980, agreed with most of the professional economists: He called this idea 'voodoo economics.' Nonetheless, the argument was appealing to Reagan, and it shaped the 1980 presidential campaign and the economic policies of the 1980s.

"People on fad diets put their health at risk but rarely achieve the permanent weight loss they desire. Similarly, when politicians rely on the advice of charlatans and cranks, they rarely get the desirable results they anticipate. After Reagan's election, Congress passed the cut in tax rates that Reagan advocated, but the tax cut did not cause tax revenue to rise. Instead, tax revenue fell, as most economists predicted it would, and the U.S. federal government began a long period of deficit spending, leading to the largest peacetime increase in the government debt in history.

"Fads can make the experts seem less united than they actually are. It would be wrong to conclude that professional nutritionists are in disarray simply because fad diets are so popular. In fact, nutritionists have agreed on the basics of weight loss - exercise and a balanced low-fat diet - for many years. Similarly, when the economics profession appears in disarray, you should ask whether the disagreement is real or manufactured. It may be that some snake-oil salesman is trying to sell a miracle cure for what ails the economy."

-- N. Gregory Mankiw. Principles of Economics. Fort Worth: The Dryden Press, 1997, pp. 29-30.

Mankiw served as the chairman of President Bush's Council of Economic Advisers from 2003 to 2005.

Mankiws also has a July 2, 2007 blog entry entitled On Charlatans and Cranks.

What Would Keynes Have Done?

The New York Times - November 30, 2008 - Economic View
What Would Keynes Have Done?
By N. GREGORY MANKIW

IF you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront.

According to Keynes, the root cause of economic downturns is insufficient aggregate demand. When the total demand for goods and services declines, businesses throughout the economy see their sales fall off. Lower sales induce firms to cut back production and to lay off workers. Rising unemployment and declining profits further depress demand, leading to a feedback loop with a very unhappy ending.

The situation reverses, Keynesian theory says, only when some event or policy increases aggregate demand. The problem right now is that it is hard to see where that demand might come from.

The economy’s output of goods and services is traditionally divided into four components: consumption, investment, net exports and government purchases. Any expansion in demand has to come from one of these four. But in each case, strong forces are working to keep spending down.

CONSUMPTION The Conference Board reports that consumer confidence is near its record low. It is easy to understand why consumers are so scared. House values have declined, 401(k) balances have shrunk and unemployment is up. For many people, the sense of economic uncertainty is greater than they’ve ever experienced. When it comes to discretionary purchases, like a new home, a car, or a washing machine, wait-and-see is the most rational course.

A bit more saving is not entirely unwelcome. Many economists have long lamented the United States saving rate, which is low by international and historical standards.

For the overall economy, however, a recession is not the best time for households to start saving. Keynesian theory suggests a “paradox of thrift.” If all households try to save more, a short-run result could be lower aggregate demand and thus lower national income. Reduced incomes, in turn, could prevent households from reaching their new saving goals.

INVESTMENT In normal times, a fall in consumption could be met by an increase in investment, which includes spending by businesses on plant and equipment and by households on new homes. But several factors are keeping investment spending at bay.

The most obvious is the state of the housing market. Over the past three years, residential investment has fallen 42 percent. With house prices continuing to decline, increased building of new homes is not likely to be a source of robust demand over the next few years.

Business investment has lately been stronger than residential investment, but it is unlikely to pick up the slack in the near future. With the stock market down, interest rates on corporate bonds up and the banking system teetering on the edge, financing new business projects will not be easy.

NET EXPORTS Not long ago, it looked as if the rest of the world would save the United States economy from a deep downturn. From March 2004 to March 2008, the dollar fell 19 percent against an average of other major currencies. By increasing the price of foreign goods in the United States and reducing the price of American goods abroad, this depreciation discouraged imports and bolstered exports. Over the last three years, real net exports have increased by about $250 billion.

In the coming months, however, the situation may well go into reverse. As the United States financial crisis has spread to the rest of the world, fast-moving international capital has been looking for a safe haven. Ironically, that haven is the United States. Since March, the dollar has appreciated 19 percent, a move that will put a crimp in the export boom.

GOVERNMENT PURCHASES That leaves the government as the demander of last resort. Calls for increased infrastructure spending fit well with Keynesian theory. In principle, every dollar spent by the government could cause national income to increase by more than a dollar if it leads to a more vibrant economy and stimulates spending by consumers and companies. By all reports, that is precisely the plan that the incoming Obama administration has in mind.

The fly in the ointment — or perhaps it is more an elephant — is the long-term fiscal picture. Increased government spending may be a good short-run fix, but it would add to the budget deficit. The baby boomers are now starting to retire and claim Social Security and Medicare benefits. Any increase in the national debt will make fulfilling those unfunded promises harder in coming years.

Keynesian economists often dismiss these long-run concerns when the economy has short-run problems. “In the long run we are all dead,” Keynes famously quipped.

The longer-term problem we now face, however, may be more serious than any that Keynes ever envisioned. Passing a larger national debt to the next generation may look attractive to those without children. (Keynes himself was childless.) But the rest of us cannot feel much comfort knowing that, in the long run, when we are dead, our children and grandchildren will be dealing with our fiscal legacy.

So what is to be done? Many economists still hope the Federal Reserve will save the day.

In normal times, the Fed can bolster aggregate demand by reducing interest rates. Lower interest rates encourage households and companies to borrow and spend. They also bolster equity values and, by encouraging international capital to look elsewhere, reduce the value of the dollar in foreign-exchange markets. Spending on consumption, investment and net exports all increase.

But these are not normal times. The Fed has already cut the federal funds rate to 1 percent, close to its lower bound of zero. Some fear that our central bank is almost out of ammunition.

Fortunately, the Fed has a few secret weapons. It can set a target for longer-term interest rates. It can commit itself to keeping interest rates low for a sustained period. Most important, it can try to manage expectations and assure markets that it will do whatever it takes to avoid prolonged deflation. The Fed’s decision last week to start buying mortgage debt shows its willingness to act creatively.

It is hard to say how successful monetary and fiscal policy will be in avoiding a deep downturn. But as events unfold, you can be sure that policymakers in the Fed and Treasury will be looking at them through a Keynesian lens.

In 1936, Keynes wrote, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist.” In 2008, no defunct economist is more prominent than Keynes himself.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President Bush and advised Mitt Romney in his campaign for the Republican presidential nomination.

http://www.nytimes.com/2008/11/30/business/economy/30view.html

Our enormously productive economy...

"Our enormously productive economy... demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfaction, our ego satisfaction, in consumption... we need things consumed, burned up, replaced and discarded at an ever-accelerating rate."
"Price Competition in 1955", Victor Lebow". 2008-07-28. http://www.scribd.com/doc/965920/LebowArticle.

"... more than 50% of our [ U.S. ] federal tax money is now going to the military, ..."
"Of the 100 largest economies on earth now, 51 are corporations."
"We [The U.S.] has 5% of the world’s population but we’re consuming 30% of the world’s resources and creating 30% of the world’s waste."
"80% of the planet’s original forests are gone."
"In the Amazon alone, we’re losing 2000 trees a minute."
"Each of us in the U.S. is targeted with more than 3,000 advertisements a day."
"Each of us in the United States makes 4 1/2 pounds [2.04 kg] of garbage a day."
"Dioxin is the most toxic man made substance known to science. And incinerators are the number one source of dioxin."

Economics Overview

Economics Overview

Economics is the study of how scarce resources are allocated to satisfy seemingly unlimited needs and wants.

Economic resources are the things used to attempt to satisfy human needs and wants through the production and distribution of produce goods and services.

Economic resources can be divided into three broad categories:
(1) labor (human effort),
(2) capital (things that are man-made that make labor more productive), and
(3) natural resources.


Labor
(a) blue-collar workers
(b) white-collar workers

Capital
(a) physical capital (machines, tools, …)
(b) human capital (education)
(c) technology (new knowledge and discoveries)
(d) financial capital (money used to buy physical capital, human capital, and technology).
Financial capital does not make labor more productive. Yet it is needed in order to purchase the physical capital, human capital, and technology that increase productivity.

Natural Resources
land
minerals
water
animals
plants


Economic Systems of Allocation

(1) Tradition (i.e., custom)
(2) Command (i.e., government)
(3) Markets (i.e., trade)

Every economy uses a combination of these three systems.

Systems of allocation are typically based on two criteria:
(1) efficiency (Is society obtaining the most products from its resources?)
(2) equity (Is the distribution of products fair?)

People frequently disagree about what is fair.


Markets are very efficient. Thus many people profess the desirability of “free markets” and “free trade.” (Business leaders, especially favor reducing or eliminating government regulation of markets, because regulation tend to reduce profits. Profit is revenues minus expenses.)

But when markets are allowed to operate freely, they produce some socially undesirable outcomes. (Markets are selfish and mean.)

Markets create too much of some things (pollution, poverty, and market power) and too little of other things [national defense, police and fire protection, education (schools and libraries), public health and disease prevention, roads and highways, etc.]

Consequently, we choose to have the government tax us and use the revenues to provide government services. (Government is not evil.)

Pollution in the St. John´s River in Jacksonville, Florida.
Pollution in the Cuyahoga River in Cleveland, Ohio.




If a society wants to have more goods and services, it needs to acquire more resources or become more efficient in their allocation. Markets tend to be more efficient at the allocation of resources than the government or tradition systems. Yet, markets are not perfect. There are many market failures in which the market does not provide the socially desirable outcome. Free markets create too much Free (i.e., unregulated) markets create too little capital. Consequently, most people agree government is needed to provide things that