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IMO, property taxes should be abolished. The value of your home has nothing to do with the amount of city resources you use, nor with your level of wealth or poverty. Instead property taxes should be replaced with a poll tax. All adults living in the city of Toronto would pay the same rate, with a lesser rate for those under 18, with perhaps some reduction for seniors. The poll tax would be based on taking the total city expenses divided by the number of residents.
Aren't seniors and kids consuming more resources than adults? Also, this does not discourage people from wasting resources. A user fee or value added tax system is far more efficient and fair. Unfortunately, it's perceived as regressive and is political suicidal in a socialist country. I doubt even Rob Ford has the stomach for that.
In the Efficient Society, Joseph Heath, an economic philosopher at U of T, dissects how privatization and/or accounting for user fees often end up costing far more than if a service were simply handled by an indiscriminate public sector paid through straightforward taxation. He uses the case of tylenol in an American versus a Canadian hospital; in a Canadian hospital, the government just buys tylenol "by the truckload" at a very cost competitive price and doesn't bother accounting for each individual pill administered to each individual patient. In the United States, a bean counter at each private insurer is needed to keep track of each and every little pill used so that he/she knows just who to stick the bill to. On the surface, this seems more efficient because there isn't the likelihood of wasting pills. Analyzed much more thoroughly, however, the cost of wasting pills is far lower than the cost of paying some guy to count the pills and make sure they aren't wasted. To some degree, this explains why the American healthcare system employs 1.5 million more people than would be needed under a Canadian system (this is extremely inefficient) and why American governments spends more on healthcare than Canadian governments despite our universal coverage.
So maybe this "socialist" system has something going for it economically, after all.
Tylenol is a bad example. It's a monopoly.
The government's job is to keep competition open and keep some order in the market. That's all. Whether health care is expensive or no is for the market to decide.
You're missing the point. Tylenol is just a metonym for a generic pain reliever. The point of the argument is that the US private system requires accounting of a commodity (whatever the brand of acetominophen you use) and the Canadian one doesn't. This introduces an inefficiency.
This sentence contradicts itself. If the free market is as efficient as you say, what is the need for a government to interfere and introduce regulation? Isn't that rather 'socialist'?
If the government does not interfere at all, then yes, the market is efficient.
However, the government does control something. Border, military, police, etc... Therefore, the government needs to adjust their policies in these areas to keep the market efficient. For example, the government controls immigration. They need to make sure that the right immigrants are moving in to create competition or the labour market would suffer. Another example would be law enforcement.
In an efficient market, supply and demand will tend toward equilibrium through price fluctuations. It works easily enough: if a good like shoes is in demand, the price of shoes will go up and producers will respond by making more shoes until the price goes down. If there are too many shoes than what the market demands, prices will be cut, leading to greater demand until the price stabilizes. In other words, an efficient market will take a good in high demand and, through price signalling, generate demand; it will take a good that is oversupplied and similarly generate demand.
So, maybe a naturally efficient market works for goods like shoes. What about assets like stocks? If a stock price is high and in demand, will a company issue more stock the same way a shoe company might produce more shoes, stimulating greater demand? Of course not. The company will let the stock price go higher. After all, a high, and growing stock price leads even more investors to buy the stock. Conversely, if a stock price is low and losing value, investors will dump their shares and flee, sending the price even lower. While a low, and falling price for shoes might encourage people to go out there and shop for shoes, it is very unlikely that anyone will be encouraged to buy shares in a company whose stock price is falling through the floor.
So, left to its own devices, a free market is actually quite inefficent. This is especially true when we consider that such a large proportion of our wealth is put into stock and asset speculation (compared to, say, buying shoes). However, the movement of asset and stock prices seems to defy the idea of a perfectly efficient marketplace generating perfectly balanced supply and demand. Come to think of it, the free market seems to generate the wild speculations and price explosions that characterize booms and the hemmhoraging of investor confidence and bank runs characterized by busts.
Okay, you're going to have to use all of your economics knowledge to explain to me how the government's need to hire border patrol and police (why is all government spending except for the police and military unacceptable to you libertarians? Anyway, I digress) is somehow related to a need to control immigration policy (landed immigrants do not usually get hired in those areas; certainly not in defense) and how that necessarily interferes with the establishment of free and efficient markets (take into account what I said about the market being very inherently inefficient in terms of asset prices, etc.).
The stock market is perfectly efficient in the long run. Boom and bust cycles are the market's way to adjust to temporary inefficiency. Just like there are boom and bust cycles in shoe prices. The world is not a static place, technologies changes, demand changes, new resources are discovered. Once imbalance occurs, the market will adjust itself to return to efficiency. The government thought they had the boom and bust cycle under control and the great recession was the market's payback. The US housing market is simply returning to equilibrium.
I don't know what you are talking about in your last paragraph. Military and police keep illegal immigrants out and let legal immigrants in. The newly arrived immigrants (legal or illegal) then impact the labour market. No, I do not advocate a large military or police. Just enough to do the job. In Canada's case, we should have a much smaller military.
No. In a classical economic world of market efficiency, the lower the price, the higher the demand. In the real world of assets and non-renewable commodities, the lower the price, the lower the demand. This is not a trend toward stability, this is careening toward a crash. When a crash does happen, it is always the state that comes to the rescue; to pull the economy out of what could be a permanently depressed state. Most recently it happened with the stimulus; Reagan's rescuing of failed Savings and Loan companies in the late 80s, or all the Keynesian policies of the Depression coupled with the 2nd world war (state intervention if there ever was one) in the Depression.
You also seem to forget that the modern economy and its quality of life attributes are a direct consequence of government intervention in market affairs. This takes many forms whether it is the creation of central banks that dictate monetary policy, or state entreprises to stimulate consumption among groups who might be shut out of the wealth creation process (eg. CMHC, Fannie Mae in the US, etc.) or our legal system which regulates trade and determines how wealth and property is allocated. No effective central government = no modern economy. Show me a country you would want to live in that doesn't have a central bank - something that would not be needed if free markets were perfectly capable of managing themselves. If government truly was the problem, and if state interference was nothing more than an obstacle to a well-humming free market, then countries in sub-Saharan Africa where government is almost non-existent would be economic dynamos instead of places that are actually declining in economic development and quality of life.
In the grander scheme of understanding out $1 trillion economy, this is peanuts. For starters, the military and police are hardly the extensions of the state that have the most bearing on whether immigrants come or go. They would only be in control of immigration if we were being inundated with Tamil-like boat refugees that do not apply for residency/asylum through the usual diplomatic channels. Secondly, the impact of 200,000 immigrants on a labour market of 18 million (or ~1% of the total) is relatively minor, especially considering that many of those immigrants are children and many of those immigrants actually come to invest in Canada and actually create jobs that didn't exist in the first place.
Of course I understand that communist economies failed because the market was too complex for bureaucrats to centrally plan. That is one ideological extreme. The other extreme is your position: that there is no need for government intervention because the perfectly efficient market will tend toward stability. Again, the complete inability of any country with a weak central government to get an economy going, or even develop in the modern sense, shows that this is just as tenable as communism.
That's another point about the market we fundamentally disagree. While you say "the market was too complex for bureaucrats to centrally plan", you still believe the market can be controlled by regulations. That's because although you say the market is inherently inefficient, you still believe it follows very simple patterns and is predictable. The price of the shoe drops, the demand goes up. The price of the stock drops, the demand goes down. Unfortunately, the market does not work that way, at least not in the short term.
Take weather for example. When computers first came by, people were very optimistic that long term weather forecast can be achieved. After all, if it's just a matter of complexity as you suggested, powerful computers can take everything into consideration and predict the weather 20 days in advance. However, all efforts failed because weather is inherently chaotic. "The flap of a butterfly’s wings in Brazil can set off a tornado in Texas".
The market is also inherently chaotic and is unpredictable in the short term. While the market is efficient in the long term, it almost always overshoot equilibrium while trying to achieve efficiency. That's not a defect of the market, rather it's a feature.
Since equilibrium itself is impossible to pinpoint, the market swings until the conditions are right. And since the conditions constantly change, the swings never stop. Keynes believed that we can predict where the equilibrium is and work towards it. Unfortunately, he was mistaken and we paid the price for it.
However, since it implies that governments would bail out any banks that complied yet still fails, it creates moral hazards. Banks will follow regulations and then ignore risks, causing far bigger crashes. Social policies almost always creates moral hazards as well.
A government that maintain laissez-faire economy does not equal to a weak government. The British empire wasn't weak, neither was the US government. While Chinese government is still labeled as communist, it can be argued that they have less developed regulations than ours. (Not necessarily less regulations, only the regulations are constantly ignored by local governments and businesses).
Now, I don't believe in abolishing of the government. It can be argued that every government was created by the market to maintain some form of order. I am also not against all regulations. Since the market is efficient in the long run, generic regulations still has their uses. More importantly, the government is essentially a huge corporation which have the resources to undertake long term projects, although it's wrong most of the time but we can afford some waste at this stage. All I am saying is that we need to be aware of moral hazards and wastes. Government regulations can only subtly influence the market, they can't dictate the market. I didn't say abolish all taxes, I said taxes should be minimized and charged at the consumption level. The government should also avoid introducing social policies lightly. Good intentions do not guarantee good policies.
Taken in the aggregate, the market is quite complex, but individual purchasing decisions - say one person's choice to buy or sell an asset based on declining or increasing price - is fairly straightforward and predictable. It is a pretty general observation that if the price of an asset rises, people will be motivated to buy or hold that asset as it increases in value, driving demand and further increasing the price of that asset. It is true that the millions of assets and transactions add indecipherable complexity to the market, but the options people have when they carry out transactions are rather finite: buy, sell, hold. This is different from "chaos" which is a random scattering of infinite stochastic events. At least with complexity "trends" can emerge; when everybody sells stocks in a panic, the aggregate value of the stock market goes down (has it ever done anything else in such a situation?). So, your chaos theory doesn't quite hold here and, in any case, a "chaotic" market doesn't give us any more confidence about why we should leave everything to the whim of an unregulated free market.
While this seems like a pretty plausible theory, it has yet to be tested in the real world, so, for now, it remains just a theory. The reason why this will never be tested is because it would be political suicide to let an economy sink into the mires of an economic depression that could last for decades before the market "stabilized" to some elusive, unproven equilibrium. People have real wealth tied in assets and are already intolerant of 2 consecutive quarters of zero growth (ie. a recession). I agree that society should learn to accept the uncertainty of the world - including the economic world - but at what cost? Wiping out the fortunes of billions to prove an ontological point?
Okay, here we agree. However, I think that the role of the government should be to temper these wild swings so that they aren't devastating. I refer back to my earlier point about how the government had to prime the market in nearly all times of crisis. The only depression I can think of that was bailed out by a non-governmental group was when J.P. Morgan and J.D. Rockefeller worked together to avert the panic of 1907 by infusing Wall street with their own cash. Even the richest billionaires and companies would have trouble doing something like that today.
Moreover, government initiatives can stimulate consumption (for example, CMHC, the GI bill and Fannie Mae in the US after the war) and Central Banks have done a pretty good job controlling the money supply to avoid high rates of inflation or deflation. To take the argument further, if the market were perfectly efficient, there would be no need for a central bank, or no long-term inflation or deflation, either (if prices reach some stable, perfect state).
That is true, but I would argue that without government-backed deposits, there would be a smaller pool of potential investors. In the long run, I think it is a risk that I'm willing to take. The social policy discussion is your own libertarian sidepoint about social engineering that doesn't belong in a discussion of economics.
Commerce thrived in Britain in part due to their laws and regulations that supported up fair and transparent business practices. This is important, and this is not to be confused with less government. The American economy expanded at its greatest extent during a period of great protectionism and, I would argue, so did the British and the current Asian economies (try buying a foreign car in an Asian country that isn't subject to a 300% tarrif!)
And I should end this by saying that I don't think the market is inherently inefficient; on the contrary, I think that the market is very suitable at allocating resources very efficiently in many cases - certainly better than the government when it comes to a lot of goods and services. However, there is a definite place for the government both in managing resource allocation and in controlling the economy to a certain extent. This is where you and I differ.
So just let people's lives swing violently because a few people screwed up? Many people, Americans especially, have had entire years essentially taken away from them through this recent recession, and that's all okay?The stock market is perfectly efficient in the long run. Boom and bust cycles are the market's way to adjust to temporary inefficiency. Just like there are boom and bust cycles in shoe prices. The world is not a static place, technologies changes, demand changes, new resources are discovered. Once imbalance occurs, the market will adjust itself to return to efficiency. The government thought they had the boom and bust cycle under control and the great recession was the market's payback. The US housing market is simply returning to equilibrium.
Actually, not really. Most communist economies failed because they weren't actually communist, but dictatorships under a communist mask. It's not that the task was too big to centrally plan, it's that the government for the most part didn't give a flying toss about their people. Not that I think communism is the best course of action, but Soviet Russia and Maoist China were certainly not "communist" countries in any real sense.Of course I understand that communist economies failed because the market was too complex for bureaucrats to centrally plan. That is one ideological extreme. The other extreme is your position: that there is no need for government intervention because the perfectly efficient market will tend toward stability. Again, the complete inability of any country with a weak central government to get an economy going, or even develop in the modern sense, shows that this is just as tenable as communism.
