Myth 9: An income tax cut helps everyone; not only the taxpayer but also the government will benefit, since tax revenues will rise when the rate is cut.
"This is the so-called "Laffer curve," set forth by California economist Arthur Laffer. It was advanced as a means of allowing politicians to square the circle; to come out for tax cuts, keeping spending at the current level, and balance the budget all at the same time. In that way, the public would enjoy its tax cut, be happy at the balanced budget, and still receive the same level of subsidies from the government.
It is true that if tax rates are 99%, and they are cut to 95%, tax revenue will go up. But there is no reason to assume such simple connections at any other time. In fact, this relationship works much better for a local excise tax than for a national income tax. A few years ago, the government of the District of Columbia decided to procure some revenue by sharply raising the District’s gasoline tax. But, then, drivers could simply nip over the border to Virginia or Maryland and fill up at a much cheaper price. D.C. gasoline tax revenues fell, and much to the chagrin and confusion of D.C. bureaucrats, they had to repeal the tax.
But this is not likely to happen with the income tax. People are not going to stop working or leave the country because of a relatively small tax hike, or do the reverse because of a tax cut.
There are some other problems with the Laffer curve. The amount of time it is supposed to take for the Laffer effect to work is never specified. But still more important: Laffer assumes that what all of us want is to maximize tax revenue to the government. If—a big if—we are really at the upper half of the Laffer Curve, we should then all want to set tax rates at that “optimum” point. But why? Why should it be the objective of every one of us to maximize government revenue? To push to the maximum, in short, the share of private product that gets siphoned off to the activities of government? I should think we would be more interested in minimizing government revenue by pushing tax rates far, far below whatever the Laffer Optimum might happen to be.”
Rothbard,[…] describes how, in his economic treatise Man, Economy, and State, he took care to revise precisely this Misesian doctrine:
"[Most important was a thorough revision of the very first eight pages of the work—the pages which state the original axioms upon which the entire work is based.] The revision purged the original formulation of its definite philosophical pessimism, of the idea that human beings are constantly in a state of dissatisfaction and that man could only be happy in a state of inactive rest, such as in Paradise. Such a philosophical view is contrary to the nature state of man, which is at its happiest precisely when it is engaged in productive activity. The revised part eliminates the philosophical pessimism from praxeology." (Correspondence quoted in Stromberg 2005, xl [Intro to MES])
Accordingly, Rothbard [citation] acknowledges the possibility of “satisfaction in the labor itself,” and so grounds the “disutility of labor” not in labor’s being inherently distasteful, but in the fact that “labor always involves the forgoing of leisure,” which is also a value—though not pace Mises, the ultimate value. The fact that leisure has value for us explains why we prefer to economize on labor, thus allowing Rothbard to draw all the essential conclusions for which Mises thought he needed the mistaken Nirvana premise.
I have argued that the features of Misesian praxeology that Rand found most objectionable—its aprioristic methodology, its value-subjectivism, and its claims about motivational psychology—can be reinterpreted in ways that make them congenial to Rand’s philosophical principles while still preserving the essential points that Mises was seeking to make. Hence there is no reason for those of a Randian philosophical bent to deprive themselves of the powerful methodological instrument developed by Mises and his fellow Austrians: praxeology, the a priori science of human action”.
— Roderick T. Long, “Praxeology: Who Needs It”, p12 was written for the Journal of Ayn Rand Studies but essentially attempts to clear the language up regarding the ‘differences’. Anyway the part about Mises and “felt-uneasiness” condition is enlightening. If you’re dealing with objectivist’s who aren’t fans of praxeology/Mises formulation this would be the text to refer to.
"Intellectual curiosity has a habit of breaking through, however, especially among college and graduate students. As a result, the Austrian School has flourished over the last two decades, despite severe institutional obstacles.
In fact, the number of Austrians has grown so large, and the discussion so broad, that differences of opinion and branches of thought have arisen, in some cases developing into genuine clashes of thought. Yet they have all been conflated and jammed together by non-Austrians and even by some within the school, giving rise to a great deal of intellectual confusion, lack of clarity, and outright error.
The good side of these developing disputes is that each side has clarified and sharpened its underlying premises and world-view. It has indeed become evident in recent years that there are three very different and clashing paradigms within Austrian economics: the original Misesian or praxeological paradigm, to which the present author adheres; the Hayekian paradigm, stressing “knowledge” and “discovery” rather than the praxeological “action” and “choice,” and whose leading exponent now is Professor Israel Kirzner; and the nihilistic view of the late Ludwig Lachmann, an institutionalist antitheory approach taken from the English “subjectivist”-Keynesian G.L.S. Shackle.”
- AEN: Since then, you have been the strongest defender of the Austrian method, praxeology, since Rothbard.
- HOPPE: Independently, I had concluded that economic laws were a priori and discoverable through deduction. Then I stumbled on Mises’s Human Action. That was the first time I found someone who had the same view; not only that, he had already worked out the entire system. From that point on, I was a Misesian.
- Mises took the idea of synthetic a priori–the idea that there are true statements about reality, derived from axioms and logic, that do not need to be tested–from Immanuel Kant. But Mises added an extremely important insight; Kantian mental categories can be understood as ultimately grounded in categories of action. With this, Mises bridged the gulf in Kantianism that separates mental from physical; what we think from the outside, physical world.
- If you start with the concept of action, you immediately realize that action involves a subject and an object. Action means; I do something with something in order to reach certain goals. That implies a theory of casuality, which had been a sticking point in Kantianism and remains so in positivism. There were hints of this in Kant, but nothing as explicit as you find it in Mises.
Because there is no rational economic calculation taking place, politics rushes in to fill the vacuum. In politics, failure is success. The worse any government bureaucracy performs, as a rule, the more money it gets. All government bureaucracies have powerful incentives to grow, regardless of whether or not such growth actually serves the public.
Every bureaucrat is inherently an empire builder, because that is how he advances in his career. The route to promotion in managing a bigger and better-paying bureaucracy is to prove that one can “manage” a large number of people. And since there are no profits or shareholders in government, bureaucrats “profit” personally by spending taxpayers’ dollars lavishly on perquisites—a large staff, travel, office space, etc.
Thus, there are built-in incentives to maximize the number of subordinate bureaucrats, regardless of what this may mean for public service. Cost maximization characterizes all government bureaucracies, as opposed to cost minimization in private, competitive markets. Not to mention the notoriously shoddy quality of all government ‘services.’
- The problem of rights violating rights protectors [1:22]
- Differentiating law and ethics [10:47]
- Three core legal theory modules [18:35]
- The full range of responses to aggression [33:56]
- Consistently rights-protecting legal institutions [39:12]
- Who wins and loses from misplaced complexity? [46:36]
There are several questions at the end of the presentation. As usual the above was brilliant. A listing of more timestamps are available in the video description. The paper I mentioned in the introduction which is the basis of the talk is available here along with some choice excerpts. This is the most cutting edge article on Austro-Libertarianism that exists today.
"The truth is inherently practical, and in recognizing an idea as true (or false), a scholar cannot but want it to be implemented (or eradicated) immediately. For this reason, in addition to pursuing his scholarly ambitions, Menger served as personal tutor to the Austrian Crown Prince Rudolf, and as an appointed life-member of the Austrian House of Lords (Herrenhaus). Similarly, Böhm-Bawerk served three times as Austrian minister of finance, and was a lifetime member of the Herrenhaus.
Likewise, Mises was the nationally prominent chief economist of the Vienna Chamber of Commerce and advisor to many prominent figures during Austria’s first Republic, and later, in the U.S., he served as advisor to the National Association of Manufacturers and numerous other organizations. Only Mises went even further. Just as he was the first economic system-builder, so was he the first to give the Austrian activism systematic expression by associating Austrian economics with radical-liberal-libertarian-political reform (as laid out in his Liberalism of 1927).
Only Rothbard, who likewise served in many advisory functions and as founder and academic director of several educational organizations, accomplished something comparable.”
— Hans-Hermann Hoppe, MNR: Economics Science, & Liberty
"Economics can only tell us that a boom engendered by credit expansion will not last. It cannot tell us after what amount of credit expansion the slump will start or when this event will occur. All that economists and other people say about these quantitative and calendar problems partakes of neither economics nor any other science. What they say in the attempt to anticipate future events makes use of specific "understanding," the same method which is practiced by everybody in all dealings with his fellow man.
Specific “understanding” has the same logical character as that which characterizes all anticipation’s of future events in human affairs?anticipation’s concerning the course of Russia’s foreign policy, religious and racial conditions in India or Algeria, ladies’ fashions in 1960, the political divisions in the U.S. Senate in 1970; and even such anticipation’s as the future marital relations between Mr. X and his wife, or the success in life of a boy who has just celebrated his tenth birthday.
There are people who assert that psychology may provide some help in such prognostications. However that may be, it is not our task to examine this problem. We have merely to establish the fact that forecasts about the course of economic affairs cannot be considered scientific.”
In his monumental Human Action, the 1949 treatise that contained his final rebuttal to his Socialist critics, Mises emphasized the sterility of the mathematical approach:
"The mathematical economists…formulate equations and draw curves which are supposed to describe reality. In fact they describe only a hypothetical and unrealizable state of affairs, in no way similar to the catallactic problems in question. They substitute algebraic symbols for the determinate terms of money as used in economic calculation and believe that this procedure renders their reasoning more scientific…
In the imaginary construction of the evenly rotating economy all factors of production are employed in such a way that each of them renders the most valuable service…It is, of course, possible to describe this imaginary state of the allocation of resources in differential equations and to visualize it graphically in curves. But such devices do not assert anything about the market process. They merely mark out an imaginary situation in which the market process would cease to operate…
Both the logical and the mathematical economists assert that human action ultimately aims at the establishment of such a state of equilibrium and would reach it if all further changes in data were to cease. But the logical economist knows much more than that. He shows how the activities of enterprising men, the promoters and speculators, eager to profit from discrepancies in the price structure, tend toward eradicating such discrepancies and thereby also toward blotting out the sources of entrepreneurial profit and loss…The mathematical description of various states of equilibrium is mere play. The problem is the analysis of the market process…
The problems of process analysis, i.e., the only economic problems that matter, defy any mathematical approach.”
— Ludwig von Mises, Human Action, pp. 353-56.
Even in the days before perestroika, socialism was never a monolith. Within the Communist countries, the spectrum of socialism ranged from the quasi-market, quasi-syndicalist system of Yugoslavia to the centralized totalitarianism of neighboring Albania. One time I asked Professor von Mises, the great expert on the economics of socialism, at what point on this spectrum of statism would he designate a country as “socialist” or not. At that time, I wasn’t sure that any definite criterion existed to make that sort of clear-cut judgement.
And so I was pleasantly surprised at the clarity and decisiveness of Mises’s answer. “A stock market,” he answered promptly. “A stock market is crucial to the existence of capitalism and private property. For it means that there is a functioning market in the exchange of private titles to the means of production. There can be no genuine private ownership of capital without a stock market: there can be no true socialism if such a market is allowed to exist.”
- AEN: Was Mises better than the classical liberals on the question of the state?
- HOPPE: Mises thought it was necessary to have an institution that suppresses those people who cannot behave appropriately in society, people who are a danger because they steal and murder. He calls this institution government.
- But he has a unique idea of how government should work. To check its power, every group and every individual, if possible, must have the right to secede from the territory of the state. He called this the right of self determination, not of nations as the League of Nations said, but of villages, districts, and groups of any size. In Liberalism and Nation, State, and Economy, he elevates secession to a central principle of classical liberalism. If it were possible to grant this right of self-determination to every individual person, he says, it would have to be done. Thus the democratic state becomes, for Mises, a voluntary organization.
- AEN: Yet you have been a strong critic of democracy.
- HOPPE: Yes, as that term is usually understood. But under Mises's unique definition of democracy, the term means self rule or self government in its most literal sense. All organizations in society, including government, should be the result of voluntary interactions.
- In a sense you can say that Mises was a near anarchist. If he stopped short of affirming the right of individual secession, it was only because of what he regarded as technical grounds. In modern democracy, we exalt the method of majority rule as the means of electing the rulers of a compulsory monopoly of taxation.
- Mises frequently made an analogy between voting and the marketplace. But he was quite aware that voting in the marketplace means voting with your own property. The weight of your vote is in accord with your value productivity. In the political arena, you do not vote with your property; you vote concerning the property of everyone, including your own. People do not have votes according to their value productivity.
- AEN: Yet Mises attacks anarchism in no uncertain terms.
- HOPPE: His targets here are left-utopians. He attacks their theory that man is good enough not to need an organized defense against the enemies of civilization. But this is not what the private-property anarchist believes. Of course, murderers and thieves exist. There needs to be an institution that keeps these people at bay. Mises calls this institution government, while people who want no state at all point out that all essential defensive services can be better performed by firms in the market. We can call these firms government if we want to.
- AEN: The strongest evidence against Mises as a radical anti-statist is the passage in Human Action that endorses conscription.
- HOPPE: This passage is very peculiar. It, and the several paragraphs that precede it and the one that follows it, is not in the first edition. It makes its first appearance in the 1963 edition. It comes out of the blue, and has no foundation in his overall thinking. To me, this addition appears completely ad hoc.
- You just have to remind yourself about his general position on government. Every group and, if it can be technically done, every individual, can secede from the government. Accordingly, conscription, in this sense, is completely illegitimate. If you read the 1949 edition of Human Action, there is nothing at all that would seem to lead to these particular funny conclusions.
- AEN: Perhaps the Cold War explains it.
- HOPPE: But the likelihood that he would make a statement like this is the greatest in prior editions. In 1940, he was in Switzerland, surrounded by Nazi forces. In 1949, he had just seen the old Europe smashed by war and imperialism; what better time to endorse the draft so it could be used to stop this type of thing in the future? But he did not. Why, then, does he do this in 1963? There is no major war going on. Vietnam was in its early stages. The Cold War is not at a peak, and the Soviet Union was in its post-Stalinist period. These passages cry out for explanation.
"…When borrowing insights from multiple fields, it is important to work to keep the fields distinct in terms of methods, data, validity criteria, and applicability. Yet trying to keep fields distinct is not the same as avoiding relevant insights that could emerge from any one of them. Case in point, the above psychological research can help us remove extraneous implications from past attempts to formulate universalizable praxeological descriptions of the ultimate ends of action (leaving aside whether any such characterization at all is required for the purposes of praxeology).
The distinction between praxeology and psychology should be clearly maintained. One is logical and universal in method, while the other is empirical and interpretive. The particular action recommendations of a given ethical system are likewise yet another separate matter. Psychology says, “we observe, notice, and hypothesize.” Praxeology says, “it is/must be so by definition.” Ethics says, “one should act this way rather than that way.”
In this context, it is helpful to turn to Long’s clarification of the nature of “rationality” as used in praxeology, including which claims praxeology can legitimately make. When a praxeologist claims that all action is rational, it is a claim that actors employ means to the attainment of ends, by definition. However, an ethicist’s or psychologist’s definition of “rational” must specify some narrower distinctions or be meaningless for their purposes as non-praxeologists. Those wearing psychologist or philosopher hats might well be interested in whether people deceive themselves in their judgments or make poor judgments, but such distinctions must be left behind when donning the praxeologist’s peculiar, and historically speaking brand-new, style of hat. Long writes:
In a sense, then, it is true that agents always act rationally; but the only sense of this claim to which Mises is [praxeologists are] entitled is that agents always act, not necessarily in a manner appropriate to their situation in all the ways they actually see it, or even in the most justified of the ways they actually see it, but rather in a manner appropriate to their situation in the way of actually seeing it that is constitutive of their action. (309–310).
This third praxeological formulation finally leaves no room for distinctions among various “rational” (as contrasted with “irrational”) qualities of particular actions, as judged by any narrower ethical or psychological criterion. Instead, the meaning of “rationality” for praxeologists (to the extent it is useful at all in that role), is a universal-definitional one. As such, it is most likely of no use to psychologists or ethicists who would naturally require some narrower and more qualified definitions to work with.
This third formulation helps refine the dividing lines between psychological interpretation, ethical advice and judgment (“this is rational, that is not”), and universalizable statements about the nature of action as such. Only the third formulation is undeniable for all cases of action without any need for further inquiry into specifics of motivation, thought processes, or value scales. Only the third statement is/must be so in every case as a logical implication of what the concept of action itself means. The rest is up to the other fields…”