2008-01-29

Fascist traffic fines in Finland

Several Nordic countries appear to have a traffic fine system that scales with the victim's income. Finland, however, has no upper bound and calculates fines automatically based on your previous year's taxes, and the result are huge fines for people with high last year's incomes:The Finns generally seem content with this state of affairs. Many consider it fair that those with high incomes should pay proportionally higher fines. The intent of fines is to discourage people from breaking the law, and high income individuals are not discouraged if the fines are low compared to their income. Making fines proportional to income, with no cap, addresses that problem.

So why is the system fascist?

In an ideal world, road behaviors that are truly dangerous, behaviors that are forbidden, and behaviors that are punished, would all be the same thing.

But they are not:


In the real world, people get fined for behaviors that are forbidden, but not dangerous.

In the real world, it is not possible for road engineers to match traffic regulations with actual conditions everywhere, all of time. So they overdo it. They overdo it big time:
  • It may be dangerous to drive fast through a certain neighborhood during daytime, but it might not be dangerous to drive by at a speed of 40 mph at three in the morning. Yet, the sign doesn't know what time it is, so a 30 mph speed limit will still apply at three in the morning.
  • A stretch of the road may be dangerous in certain weather conditions, but not on a clear sunny day. Yet, a speed limit will be in place regardless of the weather, because the sign can't know that it hasn't been snowing.
  • Sometimes a stretch of the road is perfectly safe, such as from the last house in a settlement to the sign that indicates the end of settlement. But signs are expensive, so there will be a low speed limit on the whole stretch of the road up to the sign - even if the road is safe, straight, clear, and tempting.
  • Sometimes a speed limit is simply unjustified. The road engineers reduce the speed limit in an effort to reduce accidents - but it has no such effect, and everyone just has to drive slower for no reason.
There are more cases like that, and in almost all of these situations, when do you expect to see a cop trying to gauge how fast you're driving?
  1. In situations when the speed limit is really there for a reason - when almost everyone adheres to it; when there are hardly any mad drivers who break it?
  2. Or, in situations when the speed limit is there for no apparent reason whatsoever, and people are tempted to break it, because really, how stupid do you feel driving 30 mph on a straight, wide, clear, dry stretch of road?
It is one thing to drive recklessly, but quite another to make a judgement call to ignore a sign when it is clearly intended for a different time or for a different place. In most cases when people are fined, they are fined without having really threatened anyone. Fines proportional to income may make sense when the offense was something truly dangerous. But it is outrageous when you have to pay the value of a house for essentially driving into a speed trap.

2008-01-28

The law of unintended consequences

The Freakonomics blog recently carried this article with three fascinating examples of do-gooder laws harming the very people (or animals) that they were intended to help.

They followed up a few days later bringing attention to Alex Tabarrok's insight that this is what generally happens when brute and simple systems (such as politics) try to govern intricate and complex systems (such as the economy), and fail to do so wisely. Arrogance prevents people from understanding that it is rather difficult to regulate a complex system wisely; meanwhile, naive humanitarianism on the side of those helping, and a selfish false sense of entitlement on the side of those affected, prevents people from seeing that, many times, what seems like a dire problem is in fact a good and necessary change taking place.

A classic example of do-gooder laws resulting in harm is rent control. Rents in a certain environment grow high because of economic pressures. Poor people complain that rents are too high. The government imposes an upper limit on rents. With this limit in place, it stops making economic sense for landowners to rent apartments, so they start evicting tenants in order to repurpose the buildings for other uses that pay more. The government responds by prohibiting landowners from evicting tenants. Landowners respond by ceasing to maintain apartment buildings to keep their costs down. Tenants now complain that buildings are not being maintained. The government forces landowners to maintain buildings, driving up their costs while still limiting income from rents, for some possibly resulting in a net loss. Landowners resort to bribery or "accidental" fires which happen to destroy the buildings so that they can be rebuilt for shops rather than apartments, or for non-rent-controlled high-end apartments rather than rent-controlled low-end apartments.

And so on.

There's thousands of years of history that shows that there are systems which function best if left alone, and with which it is stupid to meddle. But most people don't pay attention, and vote for politicians who will meddle regardless.

2008-01-13

France to track "happines" instead of economic progress

France's economy sucks, so Sarkozy proposes to measure national happiness instead. The problem is, it has already been measured, and it, too, sucks. The level of "happiness" in France is at the bottom of the "less happy" range, precisely because of the lack of opportunity provided by the bureaucratically restrained economy.

But Sarkozy has recruited like-minded people to perform a study especially for him, and surely they will deliver pleasing results.

2008-01-12

Iceland reduces taxes to collect more

Look at this graph.


Over the past 20 years, Iceland has reduced its corporate income tax rate from 45% down to 18%. This graph shows how tax revenue has risen, dramatically so, with every decrease of the tax rate.

This is an example of the Laffer curve effect. When taxes are high, people are (1) less motivated to produce, and (2) to the extent they do produce, they are motivated to hide income to avoid taxation.

When taxes are low, people are (1) more motivated to produce, and (2) have less incentive to expend effort trying to avoid taxation, as it becomes easier and cheaper to just pay the tax.

Illegality is what makes prostitution harmful

Wow. In Chicago, where prostitution is illegal:
  • Roughly 3 percent of tricks performed by independent prostitutes are freebies given to police to avoid arrest.
  • In fact, prostitutes get officially arrested only every 450 tricks or so, meaning that "a prostitute is more likely to have sex with a police officer than to get officially arrested by one."
  • When counting freebies given to gang members, prostitutes do about 1 in 20 tricks to protect their trade.

    Looking at this as a form of tax, it is in fact a very low tax. 1 in 20 tricks equals 5% of income. Consider what the government would take.
  • Customers pay substantially more if they don't have to use a condom, and apparently, condoms are used only 20% of the time.
Radley compares this to Nevada, where he writes that:
  • prostitution is legal;
  • condom use is 100 percent;
  • there's no "protection sex" for the police or gang members; and
  • there hasn't been a single case of HIV since 1988.
Wow.

2008-01-11

Programming needs Real Men

The Journal of Defense Software Engineering has an article about how the field of programming has become all too wimpy, and is in need of Real Men. (My phrasing, not theirs.) They praise the virtues of C, C++, Lisp, and Ada, as languages that teach different kinds of mental discipline, which knowledge (of the machine, of contracts, of concurrency, and of abstraction) is what makes programmers able to approach tough tasks.

I would tend to agree. Rats can run in a maze, but they can't make one. You ain't a programmer until you become able to build some mazes. At the very least, we need such Real Men to maintain and support our existing mazes, let alone to develop sophisticated new ones.

If you don't want to learn what your ancestors knew, you're just going to have to learn it for yourself on another level, all from the beginning. It certainly seems like that's what some people are doing today.

Taxation in pictures: Why FairTax makes sense

The New York Times made some coverage of the FairTax proposal recently. The coverage was done in a way typical of mass media trying to be "unbiased": they vaguely describe the topic being covered, and quote some people who are in favor, quote some people who are against. The arguments in favor or against are not really explained, and it is left up to the reader to perform their own research, or walk away from the issue with lingering doubts.

People who are in favor of FairTax generally say that the proposal has been designed by competent economists, and has been verified and endorsed by many more. They say that the calculations behind the proposal have been verified many times, and that the people who refute the proposal either haven't taken the time to understand it, or have vested interest in the current, horrendously complex, tax system.

People who are against FairTax generally quote some other economist who calls it "unworkable" or "a swindle" without bothering to explain why.

However, there is an easy way to comprehend why the FairTax makes sense. All it takes is a picture.

Taxation in the US


The following diagram illustrates taxation in the American economy.


When you buy a $100 product, you observe being directly taxed only by the state, assuming there's a local sales tax. What you don't observe, however, is that the remaining $90 you are paying for the product has a lot of other tax built in.

How much tax in total?

Over the past 15 years, total US government receipts - federal, state and local - have summed up to about 33% of GDP (OECD, 'Tax&Non-TaxReceipts').

According to the US GPO, based on data for the year 2000, "total Federal spending accounts for 20% of the gross domestic product, while total state and local spending account for 12%".

The federal government collects a large majority of its revenue through the personal income tax (10-35%), corporate income tax (35-39%), social security (12.4%), and payroll tax (2.9%). The states get some of their revenue from the federal government, while collecting the rest through sales taxes (0-10%) and piggybacking on the federal income tax (0-10%).

Current federal budget deficits are about $480 billion, about 3.8% of GDP. This means that the federal government spends about 20% of GDP, but collects only about 16.2% in taxes. A majority of the remaining 3.8% is borrowed from the private sector, while a minority is taken from the economy as an invisible tax, by the government simply printing the money.

You don't see these taxes when you buy a product in a retail store. But out of every $100 you spend for a product, some $29 on average are taken by the government, at some point or another in the process of the product's production. Some $16 are taken by the federal government, and some $12 are taken by the states.

Due to special interests and their lobbying, there are numerous exceptions, and the effective tax level is different for every individual product and service.

The fact that they collect this money at so many different points, and using such a complex tax code with so many special cases and exceptions, imposes a large compliance burden nationwide. The Tax Foundation estimated that this burden was $265 billion in 2005 - about 2% of GDP. This likely means that the US would experience an immediate one-time GDP growth spurt of 2% if income taxation was eliminated, just from not having to comply with the income tax alone.

There would almost certainly be another, permanent 2% or so increase in annual growth because the government would stop taxing investment to spend it on consumption.

Taxation in the EU


If you think the US has it bad, look at the following diagram for Europe.


So you thought the US rescued Europe from fascism in WWII, eh?

No such luck.

To understand, take a minute to meditate on this quote from The Big Book of Fascism by our friend Benito Mussolini:
Anti-individualistic, the fascist conception of life stresses the importance of the State and accepts the individual only insofar as his interests coincide with those of the State, which stands for the conscience and the universal will of man as a historic entity.... The fascist conception of the State is all-embracing; outside of it no human or spiritual values can exist, much less have value.... Fascism is therefore opposed to that form of democracy which equates a nation to the majority, lowering it to the level of the largest number.... We are free to believe that this is the century of authority, a century tending to the 'right', a Fascist century. If the nineteenth century was the century of the individual (liberalism implies individualism) we are free to believe that this is the 'collective' century, and therefore the century of the State.
And so it is across Europe today. Just compare this sentiment to the diagram you see above. The State is everywhere.

In addition to the personal and corporate income tax, payroll tax, and social security taxes which are present in the United States, most EU countries impose the Value Added Tax, which performs essentially the service of a sales tax. The difference, as you can see from the diagram above, is that the VAT is much more convoluted, raising compliance costs across the EU and opening opportunities for scamsters to abuse the system, forcing the EU to lash back at them by raiding and closing otherwise perfectly good offshore banks.

Additionally, EU personal and corporate tax levels are higher than in the United States, bringing total government receipts of Euro area countries to a whopping 45% of GDP. Mussolini would be pleased.

The FairTax


Finally, here is the diagram for the FairTax proposal.


Simple, eh? Instead of collecting taxes bit by bit, at every conceivable point where there is any kind of financial transaction, the FairTax government would focus its collection in a single place: where the consumer purchases a product or a service.

The FairTax rate of 23% is calculated to replace only federal taxes. Various US states have different approaches to taxation, and it is up to them to keep their existing systems or change to an additional sales tax on top of the FairTax.

However, if you recall that US federal taxes collect about 16.2% of gross domestic product (the remaining 3.8% is borrowed or printed), it should be apparent how a 23% FairTax rate is enough.

With a federal government that taxes about 16.2% of what the people of the United States produce; and with US consumption at 86% of GDP; a 23% consumption tax works out to 23% x 86% = 20%. Subtract the FairTax prebate - a sum of about $480 billion, or again about 3.8% of GDP - and the result is 16.2%, exactly the amount collected by current federal taxes.

For a more involved FairTax rate calculation, check out Taxing Sales Under the FairTax: What Rate Works? on the FairTax website. And see also the FairTax FAQ.

UPDATE 2008-01-13: Previously forgot to show how the FairTax prebate and the existing federal budget deficit factor into the calculation. The deficit and the prebate are about the same amount ($480 billion) and cancel each other out. FairTax collects 20% of GDP before the prebate, and 16.2% after the prebate. But existing federal taxes also collect 16.2%, even though government spending is 20%. FairTax is intended to replace existing federal taxes, not increase them to cover the deficit.

2008-01-10

The world's cheapest car: growth in purchasing power

Despite the world having been gripped, for the past 75 years, in the throes of fascism, which has hobbled the free markets and substantially decreased our rates of growth, we appear to have managed a good 7-10 fold increase in the purchasing power of an average person. Ronald Bailey posts a comparison between the world's newest cheapest car, the Tata Nano, costing $2,500, and:
  • a 1909 Ford Model T, which would cost $18,000 today in inflation-adjusted dollars;
  • a 1961 VW Beatle, which today would cost $10,500; and
  • a 1985 Zastava Yugo, which today would cost $7,500.
Believe me. Anything Tata Motors makes must be better than the Yugo.

2008-01-09

Big government as the law of the strongest

Robin Hanson notes insightfully:
As I noted a year ago, inequality discussions focus almost entirely on the smallest (#6) of these eight kinds of inequality:
  1. Inequality across species
  2. Inequality between actual and possible humans
  3. Inequality across the eras of human history
  4. Non-income inequality, such as of popularity, respect, beauty, sex, kids, political influence
  5. Income inequality between the nations of a world
  6. Income inequality between the families of a nation
  7. Income inequality between the siblings of a family
  8. Income inequality between the days of a person's life
Humans clearly do not have a generic aversion to inequality; our concern is very selective. I suspect our distant ancestors often formed coalitions that complained about inequality of transferable assets, as a way to coordinate a veiled threat to take those assets if they were not offered freely. So we care mostly about income inequality within a nation that is correlated with existing political coalitions, since we can threaten to use coalition politics to transfer income within a nation between such groups.
In effect, Robin is making a cunning observation that the reason why people are trying to "reduce inequality" might have less to do with naive humanitarianism - which is compassion not linked to common sense - and might have more to do with veiled self-interest; with benefiting themselves - with the law of the strongest.

Some people (here's one) are certainly naive humanitarianists in that they support income redistribution even when they themselves suffer from it.

The proper response to that seems to be education - at an early enough age. If only we can educate these people about the evils of compassion not backed by strong responsibility, they could learn that it is imprudent to support policies that give without requiring a return.

But such people do not represent the majority of voters. It actually seems plausible that the majority of voters - those who benefit in the short run from income redistribution - are far more cunning, and support it for entirely selfish reasons.

These people, too, might be convinced to an extent, but in this case education can only focus on the strong long term benefits of not stealing from the future. Then, even if we convince them not to steal from that which should have been used for investment - i.e. not to tax people's income; even if they hear that message perfectly, we will not be able to make them support dismantling their pensions, social security programmes, and other aspects of big government.

At best, we can convince them to steal less damagingly. By convincing them to support a sales tax instead of an income tax, we might possibly succeed in making them steal from that which would otherwise be consumed, rather than from that which would otherwise be invested.

But this is the theoretical maximum we can expect. As long as we have democracies where every vote counts equally, the majority will not stop taking from the successful minority, because it makes no sense for them to stop. They are in the majority. The successful are in the minority. It is the law of the strongest.

2008-01-07

Private law in early Iceland

Rocks sent a link to this fascinating article on private law creation and enforcement in 10th-12th century Iceland:
I have described the legislative and judicial branches of "government" but have omitted the executive. So did the Icelanders. The function of the courts was to deliver verdicts on cases brought to them. That done, the court was finished. If the verdict went against the defendant, it was up to him to pay the assigned punishment--almost always a fine. If he did not, the plaintiff could go to court again and have the defendant declared an outlaw. The killer of an outlaw could not himself be prosecuted for the act; in addition, anyone who gave shelter to an outlaw could be prosecuted for doing so.

Prosecution was up to the victim (or his survivors). If they and the offender agreed on a settlement, the matter was settled.
Killing was made up for by a fine. For murder a man could be outlawed, even if he was willing to pay a fine instead. In our system, the difference between murder and killing (manslaughter) depends on intent; for the Icelanders it depended on something more easily judged. After killing a man, one was obliged to announce the fact immediately; as one law code puts it: "The slayer shall not ride past any three houses, on the day he committed the deed, without avowing the deed, unless the kinsmen of the slain man, or enemies of the slayer lived there, who would put his life in danger." A man who tried to hide the body, or otherwise conceal his responsibility, was guilty of murder.
One obvious objection to a system of private enforcement is that the poor (or weak) would be defenseless. The Icelandic system dealt with this problem by giving the victim a property right--the right to be reimbursed by the criminal--and making that right transferable. The victim could turn over his case to someone else, either gratis or in return for a consideration. A man who did not have sufficient resources to prosecute a case or enforce a verdict could sell it to another who did and who expected to make a profit in both money and reputation by winning the case and collecting the fine. This meant that an attack on even the poorest victim could lead to eventual punishment.

A second objection is that the rich (or powerful) could commit crimes with impunity, since nobody would be able to enforce judgment against them. Where power is sufficiently concentrated this might be true; this was one of the problems which led to the eventual breakdown of the Icelandic legal system in the thirteenth century. But so long as power was reasonably dispersed, as it seems to have been for the first two centuries after the system was established, this was a less serious problem. A man who refused to pay his fines was outlawed and would probably not be supported by as many of his friends as the plaintiff seeking to enforce judgment, since in case of violent conflict his defenders would find themselves legally in the wrong. If the lawbreaker defended himself by force, every injury inflicted on the partisans of the other side would result in another suit, and every refusal to pay another fine would pull more people into the coalition against him.

2008-01-06

Art = entertainment

David J. Balan posted this on Overcoming Bias:
Say a band puts out a debut album which is deemed by critics to have a great deal of artistic merit, and which a small number of hard-core fans love. For their second album, the band puts out some crap that appeals to the lowest common denominator and makes a ton of money, but which retains its artistic pretensions (the latter point is important; the argument below doesn't work if the band isn't pretending that the second album is art too). Fans of the first album accuse the band of "going commercial" or "selling out." In effect, they claim (and at least affect to believe) that they are not merely disappointed that they didn't get their preferred album, but rather that the band has done something that is in some meaningful sense a betrayal. Does this position have any merit, or is it just sour grapes from a bunch of snobs whose preferences lost out in the marketplace fair and square?
A commenter replies:
This is a great post.
Eliezer - money has nothing to do with it. The original fans gave the band much more than money.

Ugh... "much more than money".

Just what is that, and how does it pay for my daily bread and my beachfront condo?

The word "art" used to have meaning back when it meant "stuff skillfully produced to elicit a strong sensory effect". Back in those days, your goal was to produce a picture that could be mistaken for a real scene, and that achievement was called art.

Then came cameras, and that put an end to that.

Nowadays, what used to be called art is called entertainment. Because we are in an age where most people have leisure time to enjoy the entertainment/art, entertainment/art is big business. The kind of entertainment/art being produced is the one that's most economic to produce, and what's most economic to produce is what most people like. Because most people are dumb schticks, most entertainment/art is dumb and does not completely satisfy a sophisticated person's senses.

Because the sophisticated person is not satisfied, he starts insulting entertainment as being different from art. But entertainment and art are one and the same; what the snobby guy considers art, is the same thing as what he considers entertainment, except aimed at people with more complex tastes.

What is going on here with "fan betrayal", then, is essentially a group of fans finding an artist who produces something to their taste. Being starved of satisfaction for their hungry complex tastes, they hug the artist like an infatuated person in love. The artist likes it, but the number of these fans is few, and his desires are bigger. So for his next album, he produces art intended for a wider audience. The new art has a wider appeal, but it is not any more to the taste of the few fans with complex tastes. They thought their appetite would at last be satisfied, but alas, they are betrayed! And they are made to go hungry again, a long time to pass until the next time someone will take mercy and produce some entertainment that will actually satisfy their tastes.

The "betrayal" that these people feel is the same thing as the "betrayal" of someone with whom you went out on a date, and after a pleasant night or two they inform you that they simply do not see a future for the two of you together. That's not betrayal. It is disappointment.

No one should be required to produce entertainment especially for you, just because you got sophisticated taste.

2008-01-05

My predictions for the U.S. presidential election 2008

Here's my fairly safe prediction of America's election year 2008.

The Republicans this year face a predicament, which is that they are fairly sure to lose the final runoff if they nominate a candidate that represents the status quo. Instead, they have the choice of nominating either (1) someone who stands to deflate the federal government balloon, or (2) someone who would merely reduce some of the damage the federal government does.

If they go this route, the Republicans will choose the one they think is likelier to win the presidency.

The Democrats, meanwhile, will be flipping the coin between two candidates, both obviously in favor of a big strong federal government: one dishonest and evil one, and one apparently more honest, but unusual one.

With the mainstream media being controlled entirely by people with vested interest in the way things are, and with the internet not yet being strong enough to influence a majority of voters, it is likely that:
  • if the Republicans nominate a candidate promoting any real change, the mainstream media will favor the Democratic candidate, who won't;
  • and if the Republicans nominate a candidate promoting no real change, the voters, looking for relief after the Republican incompetence of the past two terms, will vote Democratic.
The overall match is therefore likely to be won by a Democratic candidate.

In the next four years, therefore, the USA will likely have either its first woman, or its first non-white male, as lead tyrant.

In subsequent elections, perhaps as soon as by 2012, the internet will have grown strong enough to surpass the mass outlets as the medium with the most influence on voters. The disinformation and illusion which the mass media spoonfeed to people will keep losing its grip. More people will start to change their minds as they get access to information. There will be more and more phenomena like Ron Paul; each time, such phenomena will be able to get stronger; and eventually, reason might prevail and, once after a long while, all this power might go to someone selfless and sensible enough to finally deflate it.