Tuesday, March 17, 2015

Race To The Bottom

I just heard that the U.K. is going to cut taxes on oil exploration firms to encourage the find of more oil.  OIL  They are having a hard time because of world overproduction of oil. So they want to find more?????? Really?

Taxes have been under attack for decades. (Think Thatcher and Reagan's revolution....Tea Party)

Taxes have been under attack with the promise that lower taxes will stimulate investment and create jobs.
JOBS   JOBS   JOBS.  It has been all about creating jobs. Where are the jobs.

This is the infamous "supply side" theory. Well it works.... to a point. And then not so much.

The problem lately is that the price of goods continues to sag. Not a problem for a consumer with a job and money to spend, but a problem that makes the profits for producers more difficult. And who invests in plants and equipment with prices of the product declining?  Only those who recieve some bribe, like a tax cut. And what is the effect of more production? Why, it is more declining prices, of  course.

And technology. What is the point of technology? Answer: to reduce labor costs. That has always been the point of technology as it applies to industry. In the medical field it is different only because there has been someone to pay for the use of the technology. Think CT, MRI, PET, CABG, noninvasive surgery, etc.  What was the point of employer provided health insurance in the U.S. during and after WWII? Answer: to reduce the need for wage increases. Look what the wide availability of insurance did for medical science and discovery. The customers were there with money.

What was the point of the globalization of trade? Answer: to reduce labor costs. And the result is that prices for goods have come down, inflation is nonexistent. This all after a period of time when the central banks of the world came to the conclusion that they could create wealth by encouraging borrowing. With the help of the banks lending created consumer demand, and propped up prices of goods and paper goods, meaning the shares of producing companies. (Stocks are paper money) Wealth has become concentrated to a historic extent. Technology has made control of production easier for the few in control and directs profits to the fewest.

But the problem of unemployment persists, and it leads to popular discontent when it is noticeable. So now central banks in collusion with national governments (Japan, China, etc) are intentionally manipulating their domestic currencies with the aim of stimulating exports. This has been happening for some years. In the case of China is worked wonders until lately. But the economic sphere adjusts, and is always looking for a "better" way to make a profit, and that is often a shift to purely financial products that do little to put people to work.

It seems that governments around the world are afraid of the consequences of the lack of employment. But the world population continues to grow even as technologic progress can provide more goods with less labor input. But the answer continues to be to cut the taxes of the producers so they can produce more. And prices decline more, and the producers work for more bribes by bribing the political actors. The people feel further abandoned and discontented.

The answer is never to raise taxes on the rich, create common goods with the labor of the unemployed, or to give workers more for their labor so they can afford more, raising the prices of goods with demand for more labor. The answer is never to distribute the money that has accumulated at the top of the economic food chain through changes to the social system. Oh, no! That would stop investment in plants and equipment! What investment?

What if domestic (U.S.) taxes were made more progressive, ie, they went up as income went up, combined with limitations and or tariffs on imports, to increase domestic production of goods. The first country to do this would have an advantage, particularly the country that had the worlds predominant currency. Would the U.S. dollar go down versus the other currencies of the world in that scenario? It seems the answer is yes. Prices rise domestically, wages rise domestically, debts decline relatively, as interest rates rise to more normal levels. And real wages show a rise around the world. Bad for business, but a redistribution of wealth worldwide. And a rising domestic currency (apart from the US, where food is cheap already) makes local food cheaper, allowing locals to invest in more than their next meal. China would be forced to rely more on their own domestic consumption as would the world. The "invisible hand" is only benevolent when labor and people are mobile and/or the currency market is allowed to function independently. That is not a fact of the world social situation and is not likely to change anytime soon, except for the very rich.

As an item of interest. The British Empire started to decline at the same time the British abandoned trade barriers.

Perhaps we need a paradigm change. Democratic groups do not tend to have dramatic change without the drama. Alas!


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