Thursday, April 16, 2009

tax heaven

Freudian slip - I mean tax haven. It seems that the G20, as part as their plan to save the world from total financial meltdown, is cracking down on tax havens, as the tax revenues are needed in this time of hardships and some claim that "culture of banking secrecy had worsened problems in the global economy". Is this a slippery slope which will reduce freedom? Unlikely, for to paraphrase the UK stance "tax avoidance may comply with the letter of the law but not with its spirit." No wait, never mind.

Is the stationary bandit learning to walk?

But I must agree with this crackdown, for several reasons I will list below. Before reading further: take a minute or so to consider - is this crackdown good or bad? Why?

An informal poll taken on this blog indicates good idea (1 vote) is overwhelmed by bad (3) and evil (2), with nobody saying "who cares?" (0). Small sample size, and not a random sample either, but interesting. My first reaction was between "evil" and "bad", but I further considered and arrived at "good" - here is why.

If someone is a citizen of nation X they are bound by the rules of nation X. Most free countries (all of OECD nations?) allow you to give up your citizenship - if you don't want to pay for the benefits of citizenship, and you are ultrarich, then perhaps you should give up your passport and rights and get citizenship in whatever country you are parking your cash in. They will likely be happy to take you in. Most nations like people with money, and people with lots of cash are the only ones who really do have the freedom to walk away. They also have some power to change things - if they are forced to feel the pain that others feel they may take more of an interest in changing their nations for good. This "walk" argument is somewhat weak and overused, but here both the consequences (positive change in laws) and the current situation (often active law breaking) suggests it is legitimate to make.

Also on the pro side, we will perhaps see
hypocrites like Bono and many other "left wing" proponents get their just deserts and have to pay taxes for the programs they petition governments for - instead of their current situation of tax avoidance and simultaneous pleading for people and governments to help the needy. Shake some of your pocket change out Bono. This is a small, but entertaining, benefit.

In the narrow sense this, the tax haven crackdown, will reduce freedom - but of (mostly) the most free people in the world. In addition, the "loss of freedom" comes from a process of anarchy (international relationships is one of anarchy) and one of voluntary behaviour that does not use force (tax havens are "merely" excluded from benificial trade if they do not conform - standard free market stuff), and, to repeat, if the ultrarich people and companies are forced (by their nations) to pay outrageous taxes in their countries they will either (1) start pushing to change them, or (2) walk, both of which will tend to improve tax structures and freedom.

I do not (sadly) know any strong libertarians, but I suspect they will find it hard to argue against this crackdown - they may think that taxes are a moral evil, but anarchy and noncoericive methods are behind the crackdown, and if they are consequentualists they will have to consider the force for positive reform that will occur - unintentionally this move could reduce tax rates.

So start cracking away G20!

Efficiency? Is it meaningful?

Robin Hanson, arguing for efficiency versus liberty in economic policy: "Each person's dollar value of a deal is (minus) the compensation he or she would need to become indifferent to (i.e, not care to choose) this deal plus compensation package, relative to the status quo. This says how much he wants the outcomes produced by this deal (and may or may not agree with what he says he wants). The sum of such dollar values says how efficient, or good, is the deal; if it is positive, the deal is good; else it is bad. "

Does this not make a key implicit assumption, that is most likely not true?

That is, doesn't this simply assumes that each person will have valuations that are comparible - such as ones that are close together? If 10000 people have a dollar value pro, and one person $9999 anti this summation would say do this. But a buck is almost nothing, money is not a linear scalable - for example, a penny is nothing, most people do not even bother to pick them up, but $100 is something. A buck versus $9999 valuation is a huge difference, one that is lost in this summation process. One can say, yeah but we can set things up so that there is a cash transfer so the guy valuing at $9999 will get paid. Then one asks in retort: how about hold outs? Those who are indifferent can simple misvalue, also - as it is difficult to place value - a "multidimensional measure" - on a single index (money), so isn't the whole process somewhat ineffective for complex issues (where one would want to use this)? And how about close to unbound valuations (i.e. very personally felt issues)? Especially when they are opposite?

Valuations will be highly personal and difficult to accuratly price and extreamly nonlinear - so comparisions will only be meaningful if values are close together, were we can assume (more correctly) that, say your $80 valuation and my $95 valuation can be contrasted. A linear summing process on one metric seems a downright silly thing to do on something that is highly nonlinear, multifaceted, and different for each participant (and potential participant) involved.

The basic liberty vs. efficiency argument comes down to this: distributed free choice, or aggragated bound choice. Not having aggragated bound choice may limit what is possible - but given that some minority will most likely always be bound by an "efficient" outcome (otherwise what are we arguing? If not bound, then this is simply a way to pick among different "liberty" choices, and Hanson is simply saying - "here is one metric to help us compare": who doesn't agree with this? After all, we can ignore the metric, or take it into account - if cheap to do, why not? Information is good.) that they don't like picking the efficiency approach is picking to hurt a few for the many.

I look forward to more postings (and possible release of the taped version) regarding the debate: the questions of choice & exchange & interactions is what makes me interested in economics. Without further information I can't say too much on this, but as it sits I can't tell how serious Robin Hanson takes efficiency.

To me the question is a deep & difficult one - how do we make aggragate decisions? A simple linear summing of a single index seems useless for any important issue. Efficiency arguments are useful at the margin, for selecting choices that are similiar and where participants have similar tastes - here they can be effective in finding better solutions, added up this can offer a lot of wealth and value. Beyond that, i.e. for anything we actually care deeply about in life, they are not so useful.

Liberty as a policy is also limited, but in trying to pick "just one" it would be the more valuable as a starting point. If Hanson disagrees with this, would he not think that debate and discussion - which assumes honest actors whos choice and understanding can be influenced- is not as meaningful as simply polling people? After all, debate and discussion is based on, for me at least, a liberty perspective - we are looking for understanding and treat our "opponents" as intelligent free agents who can change our minds (or the audiences). We do not force the issue by taking a poll and saying "yes, efficient outcome says that 52% agree that liberty is the winner so that is... wait a minute, what does this mean?!!".

By entering the debate format, didn't Robin automatically lose? Didn't his action suggest he actually does believe in liberty? ...of course this assumes that debate is related to liberty, which perhaps Robin does not agree with?

Tuesday, April 14, 2009

Economics & Math

"People who go into economics, in modern times, tend to be people who are good at math but didn't want to be engineers or physicists, and if you have that talent, what do you do? You go into economics. You can't get a Ph.D. without going through an intensively mathematical program. That's the hurdle you have to pass. It's kind of like a hazing to get into the profession."
-- Robert Shiller