Sunday, February 26, 2012

Time, Taxes and American Freedoms

Basic economics is about the choices we make in relation to the scarce resources available from which we can choose.

Earnings represent the value others place on what we do. The amount of time we spend doing what we do creating that value is often, but not always, an important factor when determining value.

Government tax receipts frequently represent how much time has been spent working to pay for the government we've chosen to support. The more government services we demand, the more time we need to spend paying for those services, and the fewer government services we require, the less time we need to spend paying for those desired government services. At least that's the way it should work.

Accordingly, the time we are required to spend working to earn the taxes we pay can only be properly determined after we have chosen the level and value of the government services we've chosen. Of course, that's not even remotely close to how our "public servants" do things today.

Instead the politicians debate how much the relatively few fat cats should pay. And they all agree not to even mention the need to either reduce expenditures or tax the non-fat cats more, since the non-fat cats represent the bulk of the voters.

And since nobody, fat cats or non-fat cats, likes to pay taxes, and since all politicians want to get as many votes as possible, our nation's financial problems continue to worsen.

In any event, whatever the fat cats are required to pay won't be nearly enough to offset the expenditures made by our wasteful vote soliciting politicians. There won't even be an honest attempt to equate government spending to tax receipts.

As a result, the tax debate is pretty much a road leading to nowhere, except for votes, since no serious attempt is made to pay for the cost of government.

And there is zero doubt that the government we're being provided would not be the government we'd choose if we were to pay for it in full. So the politicians just pretend to be serious, and we the people wink and let things be. But things keep getting worse, and the day of reckoning comes ever closer.

But that's a problem for future generations and not for us. Right? This is all quite asinine.

So why don't we first decide what government services we want to purchase, and how much of our individual freedoms, including time spent, we're willing to forfeit to pay for the government of our choice?

In other words, taxes are all about the time taken from us to pay for government services rendered. We exchange our time, aka earnings, for the government services we select. At least that's how it should work.

Now let's switch gears and let our American style optimism show through.

The book "Abundance: The Future Is Better Than You Think" by Diamandis and Kotler is reviewed in Defying the Doomsayers.

When predicting the future, here's the book's prescription, "The best way to predict the future is to create it yourself." To which I reply, "Well said!"

Stated another way, in a free society, we can decide what to do with our time. That means we're in charge of how much or little knowledge we acquire, as well as how much our talent is developed, what entrepreneurial efforts we choose to undertake, what we learn from our numerous experiences, successes and failures, and so on.

The book highlights the staggering pace of change unfolding throughout the world in terms of information. And the authors conclude that the fact that information and knowledge are expanding exponentially is a very good thing for the future of humankind.

Consider this excerpt about the proliferation of information:

"If every image made and every word written from the earliest stirring of civilization to the year 2003 were converted to digital information, the total would come to five exabytes. An exabyte is one quintillion bytes, or one billion gigabytes—or just think of it as the number one followed by 18 zeros. That's a lot of digital data, but it's nothing compared with what happened from 2003 through 2010: We created five exabytes of digital information every two days. Get ready for what's coming: By next year, we'll be producing five exabytes every 10 minutes. How much information is that? The total for 2010 of 912 exabytes is the equivalent of 18 times the amount of information contained in all the books ever written. The world is not just changing, and the change is not just accelerating; the rate of the acceleration of change is itself accelerating."

What's it all potentially mean to us? And why is it such a good thing? Let's talk income inequality, poverty and the future:

"Given all the talk nowadays about income inequality, the authors' discussion of poverty is especially instructive. The number of people in the world living in absolute poverty has fallen by more than half since the 1950s. At the current rate of decline it will reach zero by around 2035. Groceries today cost 13 times less than 150 years ago in inflation-adjusted dollars. In short, the standard of living has improved: 95% of Americans now living below the poverty line have not only electricity and running water but also Internet access, a refrigerator and a television—luxuries that Andrew Carnegie's millions couldn't have bought at any price a century ago."

As our basic material needs are sated, freedom takes over on humankind's list of wants. Consider what's happening in China today.

Plan B for China's Wealthy: Moving to the US., Europe relates the story of people's yearning for freedom. Here's an example from Beijing:

"This time last year, Shi Kang considered himself a happy man.

Writing 15 novels had made him a millionaire. He owned a luxury apartment and a new silver Mercedes. He was so content with his carefree life in Beijing that he never even traveled overseas.

Today, a year later, Mr. Shi is considering emigrating to the U.S. (and offers his reasons) "Things are real there, . . . Here you don't know what to believe. . . . I like China a lot. But if I have kids, I wouldn't necessarily want them to live in China."

With a fortune of at least $1.6 million, Mr. Shi is part of the wealthy elite that benefited most from the Communist Party's brand of capitalism. He is riding the crest of arguably the biggest economic expansion in history.

And yet, while the party touts the economic success of the "Chinese model," many of its poster children are heading for the exits. They are in search of things money can't buy in China: Cleaner air, safer food, better education for their children. Some also express concern about government corruption and the safety of their assets.

The movement represents the fraying of an unwritten social contract between the Communist Party and China's citizens that has held the nation together through wrenching changes since Deng Xiaoping launched market reforms in 1978: The rulers deliver economic growth; the ruled make few political demands. The underlying message seems to be that after three decades of rising prosperity, wealthier Chinese are either looking beyond their economic gains, or taking them for granted, and now crave improvements in their quality of life."

Summing Up

The attainment of economic growth and personal security create a desire for more individual freedoms. That's always the case.

After the basic needs of security, food, shelter and clothing are met, quality of life considerations become of increasingly greater importance.

In that regard, the message is straightforward and simple.

We each have a limited amount of time to pursue our goals. Those goals will include, but not be limited to, education, family, financial security, hobbies, knowledge, community service and happiness.

Time is scarce. Accordingly, time spent working to pay taxes results in less freedom.

That's because taxes subtract from individual freedom and choice to do other things with our time and/or money.

Therefore, choosing more government equates to choosing less freedom.

On the other hand, having more freedom affords us the opportunity to gain more knowledge.

Increased knowledge contributes to our material prosperity and an improved quality of life, leading to even greater freedom.

Government should be restricted to as small a role in our lives as possible.

That way we can each choose how to spend our time and energy, thereby living life to its fullest.

Thanks. Bob.

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