Posted by: graemebird | March 16, 2009

Atrocious Mistake With Neoclassical Thinking/Strategic Areas Of Total Capitalism Are GOOD.

There is a lack of vision in neoclassical circles which seems to suggest that we cannot get one slave to jump the fence out of the plantation prior to all the slaves being able to leave at once. Our thief-economists who pose as pro-free-enterprisers, have a completely unrealistic and two-dimensional view of resource allocation. Wonderful wonderful man that Milton Friedman was, and great economist and freedom fighter that he became, it does appear that he shared this view of matters.

One place where this comes up is with the idea of free trade zones. Now if there was some reason to have a free trade zone thats a marvellous thing. There may need to be some sort of way of mitigating some of the land value windfall thats involved with that…… But there are examples, such as where environmentalists have destroyed an area, by setting it up for massive damage during the next bush-fire…. where no-one surely would resent the setting up of free trade zones in lieu of all but the initial expensive aid to the area.

And there could be other reasons why some town or other being made a tax-exempt zone could be seen as just and fine and no-one would resent the land-value windfall either.

But neoclassicals have a strange flatland way of looking at matters. And they would think that this is all distortion.

Well how about by industry? That we have had our energy industry horribly hampered for the last 30 or 40 years does not move these people. Taking energy-production out of the tax system would be a distortion for these guys.

Suppose we cut off all the funds to education? So thats one industry suddenly starved of funds. Taking the people who work in education, child-minding and training companies out of the tax system…….. well thats a distortion in the view of neoclassicals I’ve talked to. Regardless of this policy mix replacing all the government money for us… so that the rest of the community would be ahead, and in now what will be a very difficult time for the industry. Doesn’t matter in the view of these anti-economists….. DISTORTION is what they would say.

The medical industry? Swap funding the medical expenses of working age people who are not permanently unable to work as a result of their current ailment……… replace this funding with this tax-exemption scenario……No good. Distortion in their view.

Well how about fish-farming. You see its clear that homo-sapien is still a hunter-gatherer with regards to fish. A high-tech hunter-gatherer, but a hunter-gatherer nonetheless. And there is a crisis of overfishing. So its clear now that we have to crowd out the hunter-gathering with animal-husbandry if we don’t want to do ecological damage.

Distortion they say. Not interested.

What about building small towns up so that we can deal with nuclear war. Bring on low-paid workers from overseas on 3 year visas. Don’t let them leave the small town and solve the refugee problem that way. Build up the town and don’t cop the blowback from not being able to integrate foreigners. Then if any big area is nuked or intimidated we have all this extra capacity in the small towns to go to while our lads destroy the opposing regime?

No good. Distortion.

It doesn’t matter what you say they believe that all industries and regions must be equally enslaved. But this is not true. Its bad economics.

Here is a post from my shadow-site. That hopefully will help you get to a beginning understanding of what I’m talking about here. And the total wrongheadedness of the neoclassical economics as it relates to this subject:

“Humphreys, this is what you have to work on. You have to work on getting away from static-equilibrium pricing and production decisions….. and you have to bring in TIME AND THE FLOW OF CAPITAL INVESTMENT into your thinking.

The thing is this.

In a functioning market each firm must keep investing to reduce recurring costs. If an industry is more profitable it has greater return on the capital invested. If the industry is a functioning industry, that will lead to a greater flow of capital investment to that industry, which will make prices fall faster in that industry until such time as the return on capital is normalised with the rest of the economy.

Now you no doubt already new this. But it is this TIME AND CAPITAL FLOW way of looking at things that must replace the Frank Knight static-equilibrium models.

It is this failure to put time and capital flow front and centre in the neoclassicals thinking that makes them wrong on my tax exemption business. They think it would be a distortion and I cannot count on my fingers the number of people that seem to think that government persecution must be equalized regardless of context.

Nothing bad will happen if nationwide fish-farming, farming itself, the production of body armour, education and training businesses, the medical industry, energy production, ……..

….Nothing bad is going to happen if these activities are taken right out of the tax system, with none of the firms paying taxes and none of the people working in those firms paying taxes. This is no distortion. Nor will it be some fundamental crony rippof. All that will happen is that the capital investment will flow to these areas until they are overcapitalised and therefore their output is cheap and they are the lowest cost producers.

This business about a distortion is a neoclassical myth. As heroic a character as Milton was the fact is he shared this myth. He didn’t understand this side of things all that well.

So vouchers are OUT!!!!!!! We cannot go in for vouchers. Its not even a close substitute for taking education, child-minding and training right out of the tax system and cut off all the funds right at the same time.

Vouchers are simply no substitute and will make the industry a NON-FUNCTIONING industry in that with vouchers there will be no reason to believe that the capital flow will keep moving to these areas until the prices came down. Just because Milton was a good guy, doesn’t mean he was right about everything.”

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