Jim's Blog

If the government taxes 0% of GDP, it will not get any money.  If it attempts to tax 100% of GDP it will not get any money either, since there will be no above ground wealth.  So somewhere between 0% and 100% is the tax that maximizes revenue.

Genghis Kahn and Raffles believed that the tax that maximizes revenue is quite low, close to 0%.  Today’s politician’s believe it is quite high, somewhere close to 100%.  I suppose that in a society with elaborate bookkeeping and large organizations, the maximum would be higher, so they could both be right about the respective societies that they ruled.

When the mandarins told Kublai Khan that he could not rule China from horseback, they were telling him that a bureaucracy, an elaborate apparatus of rule, can efficiently extract higher taxes than a gang of horsemen – that the revenue maximizing tax collected by a large and expensive bureaucracy is markedly higher than the revenue maximizing tax collected by horsemen, that bureaucrats and regulations are, for the ruler, a good investment.

But, on the other hand, naturally bureaucrats would say that.  Maybe Kublai Khan would have had more net revenue, and thus been able to support a larger army, if he had gone right on ruling the empire from horseback.  When the Mongols adopted bureaucracy, they ran out of puff.   Perhaps bureaucracy, regulation, and high taxes is not a good investment for the ruler.  This is the Mencius Moldbug argument: that economically efficient, rational, revenue maximizing absolute despots would be better than what we have got.   It might well be true, though actual, rather than theoretical, absolute despots have a tendency to irrationality.

So we need empirical data.  The Bush tax cuts were advocated on the basis that they would increase revenue.   Some people say they reduced revenue, others say they increased revenue.  This depends on how you measure things.  If you want to prove that the Bush tax cuts increased revenues, you look at revenue raised from people who had been highly taxed before the tax cuts, in which case it looks very much that the tax cuts increased revenue.  If you look at total revenue,looks like they reduced revenue, perhaps because a lot of people who had formerly paid some income tax, now paid no income tax.  Overall, the experience of the Bush tax cuts suggests that taxes on the rich in the US are well above the Laffer maximum, taxes on the poor are well below the Laffer maximum.  So if the government has to have more money, it has to do what European governments do:  Tax the working poor.

Consistent with this theory, more expensive governments, high welfare governments, tend to tax the poor.  Their redistribution is more progressive than the US, but their taxation is a lot less progressive than the US, suggesting that attempting to tax the rich more than they are taxed already just does not pay, suggests that as taxes hit the Laffer limit, and the state needs more money, it has no alternative but to tax everyone, including the working poor, at the Laffer limit – thus tax everyone who works in the above ground economy at much the same rate.

One such expensive government is the Greek government.  Facing financial crisis, it raised taxes, across the board, taxing everyone more, rich and poor alike, with the result that:

Compared with the first two months of 2010, revenues declined this year by 9.2 percent

This suggests that Greece is well and truly on the wrong side of the Laffer maximum.

Now obviously a rational self interested despot would only wish to tax at the Laffer maximum. Since taxes are universally unpopular, one might suppose a democracy would tax at well below the Laffer maximum – but clearly, at least some democracies are taxing above the Laffer maximum, and all democracies are taxing rather close to the Laffer maximum.

While a rational self interested despot would only wish to tax at the Laffer maximum, a rational self interested bureaucrat might well wish to tax far, far above the Laffer maximum,  since that maximizes the power of the mandarins relative to the power of the men on horseback. If Kublai Khan had taxed at lower rate, his power would have depended more on horsemen and less on mandarins, regardless of whether higher taxes or lower taxes are revenue maximizing.

A mandarin is more concerned with relative power than absolute revenue, and would be quite happy if the private sector and non government middle class was completely annihilated, even if meant some substantial reduction in his own standard of living.  Indeed, during the Allende regime Vuskovic made this argument explicitly, arguing that the regime should continue to socialize enterprises despite the fact that socialization immediately resulted in the enterprise losing money and producing fewer goods at higher prices, that to defeat the enemies of the regime it was necessary to destroy their power base, which was the private sector regardless of the economic consequences – that whether enterprises were socialized or destroyed, either result consolidated the power of the regime.  Allende’s socialism was exceptionally destructive because it was concerned with transferring goodies from enemies of the regime (the private sector) to supporters of the regime (government sector unions) without paying much attention to the fact that once upon a time these goodies had been used to create wealth.  Vuskovic and Allende employed Maxist rhetoric, class struggle rhetoric, but were in fact representing government as an interest group.  Their “land to the peasants program” did not transfer land to the peasants, but to administrators from the cities who had good university degrees but no experience in producing anything, and the boys who deployed the violence that implemented the land program were city boys from the universities, not local peasants.  If you are a politician dependent upon support from big government, the elite universities, and big government unions, your policies are going to resemble those of Allende and Vuskovic, whether or not you accept Marxist ideology and Marxist rhetoric.

As I have said before, the Bush/Obama regime strongly resembles the Freis/Allende regime, and history seems to be repeating itself, on a considerably larger scale.

Although the Allende regime had much rhetoric about peasants and workers, it was a regime of the new class, just like today’s Washington.  The peasants and workers never showed up except as astroturf.    The people who showed up for Allende at riots were pretty much the same people as today show up for the Democrats in the Wisconsin troubles – unionists rolled out by big government unions, many of them paid for showing up, and students studying to become members of the new class on class assignment. The violence that preceded the overthrow of the Allende regime was a bourgeois revolt against the new class, the violence was private middle class versus new class, which revolt was appeased by a military regime which imposed major concessions on the new class, in favor of the private sector middle class.

So, in the light of that analogy, what is the solution?  Britain and Europe are, I think, too far gone, and for them, like Chile, the only solution is military despotism, which will, perhaps, in time re-evolve into monarchy, but the American middle class remembers its revolutionary origins, and this time might well carry revolt all the way through, violently reimposing a constitution that forbids the Federal government to do anything much except defense and interstate transport.

Mencius has argued that the only way you can root out the New Class is something like denazification, which he argues that only something like a military despotism or foreign occupation could implement.  Getting rid of the New Class is more like getting termites out of your house, than getting a burglar out of  your house.  It will require a great deal of dispersed and detailed violence, which violence Mencius envisages being applied by something like the military police, or the Waffen SS.

But, contrary to Mencius, we have seen in the war with Islam that the private sector is a lot more efficient at producing dispersed and detailed violence, so the best solution would somewhat resemble anarcho capitalism.  Even a military despotism is going to have to delegate the application of violence more broadly than it can fully control, and in Latin America, the path to victory usually did involve delegating a lot of violence to militias and vigilantes.  Military despots are just bureaucrats with guns.  The bureaucracy gets in the way of the efficient and detailed application of violence.

Observe that as California collapses, the ever growing taxes and regulation only afflict the law abiding, only afflict the demographic categories  that vote republican.  But if Spanish speakers are free from taxes and regulation, why not everyone?  If the laws are enforced in such a partisan fashion, everyone should resist.

Under the old US constitution, around 2000 or so, in order for the bureaucrats to spend money on something the house of representatives, the senate, and the president, had to agreed to spend money.  Thus in order to do stuff, politicians had to pass a budget, and bureaucrats had to spend within that budget.  Passing the budget was power, and politicians were eager to work on the budget, each one wanted a budget, so he could get his own fingerprints on it, for the budget dispensed money, and money is power.  Back in the day, you would have found it hard to stop politicians from budgeting even if you held bayonets against their throats.

The new rules that have gradually taken effect are that bureaucrats may spend money unless the house of representatives, the senate, and the president agree to refuse to spend money – kind of like a family where the kid can appeal to daddy, then mommy, then grandma, and the least restrictive parent wins.  And if daddy stuck to “No!” not withstanding being overruled by Grandma, a most horrible screaming would ensue.

This renders budgets irrelevant, so no one has much interest in passing them.  Budgets have been an empty ritual for a decade or so, and now you just cannot get politicians to bother to show up for the meaningless  ritual commemorating a political system that has passed away

The new rules necessarily lead to crisis and financial collapse, so unless republicans grow a pair, pass a budget, and insist that no spending be done except as authorized in the budget, the US is pretty much doomed.

Of course, such insistence would probably require calling out the militia and involve extensive fighting in the streets.  All the mass media, probably including Fox news, would protest that a return to the constitution as it was around 2000 or so is a return to the dark ages, and equivalent to the rise of Hitler, so the Republicans understandably lack enthusiasm.

If you look at the federal register, you will observe that it used to consist of rules, prefabricated quarrels.  Everything went in there assuming that someone was going to be told what to do, and would try to find some way around it, so it was necessary to pin down precisely what they were to be told to do, so they could not weasel out between the commas.  Now there are no rules.  The federal register continues to grow at about one hundred thousand pages a year, but no one cares what  is in it.  Bureaucrats exercise discretion, case by case, and the federal register records meaningless makework performed by low level bureaucrats.    So now, there are no rules, and no budgets, no constraints.  It is somewhat surprising that they continue to pretend to have a federal register, when they have stopped pretending to have a budget.  Regulators continue to ritualistically make rules, not because anyone cares about what the rules say, or because the rules say much of anything, but because rule making signals they are paying attention to certain activities.

As a result the federal government is a string made of sand.  Lacking all discipline, it necessarily lacks all cohesion.  Today, there are neither rules nor budgets.

The way a government works, the way that a government can exist, is that you have a bunch of elite males (women tend to be largely irrelevant to the process) who settle their internal disputes by means short of violence, and then present a united front to outsiders.  The insiders are then stronger than any one outsider, or any natural group of outsiders, and can use violence unopposed, hence the saying that government is a monopoly of legitimate violence.  Any one outsider, or small group of outsiders, any small group of subjects of the state, faces the entire elite united, the entire apparatus of the state.  So he loses, and losing, his resistance is seen a illegitimate.

Political correctness undermines the cohesion of the politically correct, and the lack of a budget or rules are a manifestation of this lack of cohesion.  Lack of a real budget eventually leads to hyperinflationary currency collapse.  Hyperinflationary currency collapse is usually followed by regime change, not because the collapse undermines legitimacy and provokes revolution, though it tends to do so, but because it is a manifestation of lack of cohesion and discipline.  If the elite cannot hold themselves to a budget, neither can they resist revolution.  Regime change and hyperinflation are not caused by each other, but by lack of cohesion and discipline.

Financial collapse is probably a decade or two  off, though it could happen as early as 2012. As long as every bureaucrat has a no limits credit card, can probably buy off trouble and buy up unity.  Thus revolutionary change is likely to follow, rather than provoke, financial collapse and hyperinflation.

Of course, regime change does not mean the regime will get better.  It could easily get worse.  However, in the coming armed struggle, people who believe in revolutionary change will have an advantage, so it is going to be patriots versus communists, and the patriots are better shots.

Suppose the patriots win?  What then?  One solution would be to revert the electoral system so that only heads of taxpaying households vote.  A better solution would be to revert the constitution, so that the only permitted activities of the federal government are war, interstate transport, and the post office – and the federal government has no authority to collect income tax.  States could do all the stuff the federal government does today, but because of interstate competition, probably will not.

But governments will slither out of any constraints – a more realistic good outcome is a chain of wars and crises that destroys the capacity of the government to do very much.

The Bush-Obama regime  in the US resembles the Freis-Allende regime.  Freis was a supposed right winger, but his solution for dealing with the left was, like Bush the younger, to move far, far left, in an effort to hog the center – but of course the center simply moved far, far left, resulting in the election of far leftist Allende by a rather thin plurality, just as Bush the Younger’s swerve left led to the election of Obama.

Obama, like Allende, plays at being good cop, with the supposed revolutionary far left being the bad cop – but the good cop and bad cop are quite visibly in cahoots.

Allende, like Obama, ran gigantic deficits in an effort to buy up legitimacy, which gained him quite a lot of support, but not quite enough.  Pretty soon the money ran out,  whereupon Allende ceased to woo support by playing father Christmas, and instead revealed the iron fist – proceeded to apply old fashioned Marxist methods.

The US government however, has more financial credit than Allende had.  How much more, no one knows, though we shall soon run into the limits, at which point Obama, or his designated bad cops, will reveal the iron fist.

Perhaps the Cloward Piven strategy will succeed, leading to transnational socialist dictatorship.   The Cloward Piven strategy is that once the money runs out, transnational socialists should blame deregulation and capitalism and apply the iron fist.

I think it unlikely that this strategy will succeed.  The socialists are most likely going to get shot.  That does not, however, necessarily mean that things will get better.  We might find ourselves with national socialism, rather than transnational socialism, for once the shooting starts the multiculturalists will be revealed to be weak, and to be revealed as weak while in power is apt to be fatal.  Once the $#!% hits the fan, subsequent events are likely to be surprising and unpredictable.  One good thing is that if the army splits into factions after the pay runs out and logistics collapse, all the guys training troops in acceptance of homosexuality and so on and so forth will be in the tranzi faction, but all the troops that have seen battle will be in other factions.

There will be hyperinflation in the next couple of decades, possibly within the next few years, possibly as early as 2012.  The signal for the start of hyperinflation will be empty shelves in the shops, as it was in Allende’s Chile.  Following hyperinflation, probably violence, and probably regime change.  After that, my crystal ball grows cloudy.