Now, on to economics....
First, I learned more about economics in college and after, for example, getting clear the idea that there is no "just price" for goods and services, only exchange value. Although there might be situations where fraud or coercion enter in, most exchanges are voluntary and represent a fair assessment of what the value of the objects are to the parties involved, which will differ according to circumstance. From that, I came to realize that there could not be a "just price" for labor, either. Barring fraud or coercion, there was just a negotiated price that was inherently fair. This totally dissolved the conceptual support for the idea that workers are naturally exploited and executive salaries are inherently unfair.
Furthermore, I came to understand the idea of capital investment better: capital was attracted to the prospect of higher returns, with the assumption of greater risk. That is the basis upon which the economy develops. Without the greater potential for rewards, the risk would not be assumed. Therefore, returns are the cost of attracting capital, and are inherently fair, and one should only regulate against fraud and coercion, and in order to increase confidence in the stability of the market. Without a free market in capital, it is likely that resources would be misallocated.
I also watched a series called "Free to Choose" on PBS, even as I was reading around economics textbooks and other material. It was put together by Milton Friedman. In it, he makes an excellent case for the Great Depression to be a failure of government, not a systemic failure of capitalism, because the Federal Reserve did not move quickly to solve the liquidity crisis created by the initial wave of bank failures, and things snowballed. He also makes an excellent case that most regulatory agencies end up becoming tools of the affected industry, and suppress competition through cartelization. There were other things as well, I mention only two that especially impressed me.
Finally, I was persuaded that Laffer had something in talking about the disincentive and distorting character of the tax code. Obviously, if the marginal dollar is going to be taxed at 90%, there is little incentive to pursue it, at the expense of one's free time and other resources. Obviously, if capital gains are going to be taxed at the rate of income, it reduces the incentive to re- allocate capital from less attractive areas to more attractive areas, and thus leads to inefficiency in investing. Obviously, if there are tax advantages to marginal investments, it skews investment.
Thus, I became generally comfortable with the idea of tax reform and the decrease of regulation, as an antidote to the stagflation of the Carter years. I thought that, in the end, the argument favoring economic growth, and the notion that a rising tide lifts all boats, was correct...... |
