Is it possible and plausible to have a government involve itself in some sector of the market, make a profit, and run without taxes? I am thinking of banking in particular, or insurance, two area where I think the most money could be made without excessive output of resources.
I mean, here in the US the government already nudges the Fed, insures deposits, and has the power to close banks in a crisis. Admittedly this isn’t total control, but it is almost like bank owners get all the perks of a bank without the risk. Hell, just give the money to the government and cut our taxes.
Any reason why this wouldn’t work?
(note: I don’t want to know about why you think it is a good or bad idea, I did put this in GQ for some economic analysis-- thanks :))
I’d think the government is busy enough trying to run the country without it having to make money as well. That would be like asking Microsoft or GM or GE to run the US.
If you mean a government without income tax that would make more sense. Some states like WA don’t have income tax but makes it money on sales tax, etc. Some states with a lot of income like Alaska even gives “dividends”. Now that reminds me, I think Brunei and Saudi Arabia and some of the other oil rich states may be governments without any type of taxes.
The U.S. Federal Government got most of its income from tariffs for most of its early history. Tariffs are a form of tax, though.
The Soviet Union got the vast majority of its income from profits of the industries it owned. A very limited amount of private property and private enterprise was permitted, and I suspect they were taxed, but I don’t know for sure.
Well, to show my economics background, it all depends on how you want to define taxes. However, let me take the broadest sense and take taxes as government fees. So.
No. All you’re doing is shifting the implicit burden around. Insofar as taxes represent the costs of government, you will either pay them directly or indirectly.
(Unless of course you manage to entirely externalize your fees on others, in which case it’s simply a matter of others paying your costs/taxes)
Government ownership of an industry is going to displace private activity as you know. It is axiomatic (and empiriclaly supportable) that where an activity is profitiable in a general sense, it is best to have the private sector do it to achieve higher efficiencies and thus higher overall wealth creation.
Insofar as government ownership of say the banking sector would lead to lower overall wealth for the economy, one can certainly treat this conceptually as a broad, untargetted tax.
I.e. no free lunches.
This is precisely one of the problems of the rentier states like Saudi Arabia and others. Government ownership/control of the petrol industry has been like an unbounded tax on that sector (all caveats re diff. country policies etc.) although much of that tax is externalized. Nonetheless, problems of lost efficiency have cropped up in the 30 odd years since most OPEC countries nationalized and now you see a gradual de-nationalization process.
Now, as to your characterization of the Fed… ERL, are you ever going to learn not to make the fallacy of the excluded middle. The world is not black and white.
Banks do indeed carry risk. Certainly that risk is mitigated by governmental intervention. No free lunch there, there are imposed reserve requirements (like an implicit tax) various restrictions on operations etc. Non-obvious but quite large in re limiting possible high-return (=high risk) operations. Why? Because the integrity of the financial markets has large, very very very very large positive externalities vis-a-vis the rest of the economy. Just start doing business in a region where the financial markets have larger risk, even unbounded risk. (Oh fuck just try doing business in such countries.)
That extra risk gets passed through the rest of the economy in higher borrowing and transaction costs, lowering overall efficiency and thus overall wealth.
Thus, while yes taxes are a burden on the economy in a sense, insofar as they pay for necessary services and create conditions in which markets can operate properly, they are a necessary cost of doing business. See the whole discussion in public goods and the like. And I am sure the Game Theory cite I recc’d has some things about gaming of provisioning.
Now, this analysis of course does not say that any specific set of spending and taxes are in fact supportable through a purely economic analysis. However, it is a caution against the simple-minded ideologues view of Tax Bad, Guvmit Bad etc.
Well, I’ve just been particularly motivated lately to find some way out of taxation (even if it is in my own head, and not matter-of-fact) because the tax burden I currently possess is larger, literally, than I can afford. I have no idea how I am going to pay for all my taxes this coming year. I still owe from last year.
And it just started pissing me off, and I thought: what the hell, I pay the bank to keep my money (in the form of transaction fees and no-interest checking, nevermind less-than-inflation savings accounts), I pay the government to take my money, surely these two groups can get together and leave me the hell out of it. I am going to have a bank account anyway, and the banks are going to make money anyway, and the government wants money, and it seems simple enough (yes, simple, I know C ;)).
It also seems intuitve that if banks are one of the primary means of wealth-creation then the government would be able to better control the economy by eliminating the middle-man, so to speak.
Well, the banks make money off of having my money available, and then they charge me for the privilege of allowing them to do that. Surely that profit would be better suited providing for the very entity which is responsible for having an economy in the first place. After all, if we took the profit out of banking it isn’t like we cripple any industry. The same loans are available. The same number of people have jobs, etc.
Banking itself is a paper industry whose only purpose, AFAIK, is to store and create wealth. do banks not make that much of a profit?n Would it damage the economy to have a for-profit government in insurance or banking? AMI underestimating the forces at work in banking in general?
So many questions!
I understand that:
The same amount of goods and services must be paid for; and,
we are only truly shifting money around by any solution like I propose
But that is fine. I already pay to have my money in a bank. I would rather the government have that money which I already pay than to pay for keeping my money in the bank and having the government insure the banks, guide the banks, etc etc.
Nationalize them, I say!
Can we really not line up baking pofits with tax request to eliminate, at least, income tax? Or even: eliminate income tax on all persons under $1,000,000 and all income over one million gets a flat 20% rate or something not-so-unreasonable?
Damn, I hate paying taxes when the money is right there for someone and I can’t afford it.
To be brutally honest, then your problem is over-consumption. One knows one’s tax bill, one can have appropriate withholding or set asides or not. Cost of doing business.
This rather contradicts what you say below, but banks are not primary means of wealth creation. They are among the primary means of wealth creation facilitation, but financial transactions themselves do not create wealth, per se.
Well, look at this more closely. You sound like you don’t have high balances, yes? Or if you do you keep them in highly liquid on-demand accounts. From the bank POV they are restrained from working with such funds because the chance of you withdrawing them is fairly high. Ergo, they are restrained in their options on placing those funds in higher yielding instruments/investments/loans etc.
So, in a highly competitive market where margins are being pushed and time sensitivity is rising, they are making you pay for the priviledge of high liquidity.
Don’t like it? Well, I don’t either but that’s the free market. Of course, it may be there are positive externalities for providing lower cost bank services to the little guys. (And there are as one can see when one compares with the fairly un-banked 3rd world) In that case it may be sensible to force banks to provide in some form such services with the costs being born by larger holders. This, AFAIR, is done to an extent.
ERL: You need to go back to your micro textbook. Or perhaps a Trade Theory text or something along those lines. None of the above are true. I don’t feel like pointing out why, but I think you can walk yourself through it by thinking about how loans are funded etc.
See above, not create wealth (in real economic terms), facilitate its creation.
Very important function. Liquidity, efficient transfer of resources, above all capital between functions, raising of capital. All these things are fundamental to a well-functioning free market.
Bloody hell man, how can you be a free-marketeer? See, this is what I meant about not getting your economics from ideologues.
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do banks not make that much of a profit?n Would it damage the economy to have a for-profit government in insurance or banking? AMI underestimating the forces at work in banking in general?
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Irrelevant per se, yes – see the 3rd World, e.g. Egypt --, and yes.
You are paying for different things. You know that, stop a second and think it through. This observation is rather like saying “Well, I already pay for water service, can’t the elec. company just take that instead.”
Flat rates are ludicrously stupid. But that is a GD topic insofar as I know someone will bound in with some economically illiterate argument to the contrary. And frankly I don’t feel like bothering to argue the issue.
But in re your first question, see my prior post in re lost wealth due to inefficincies. By any measure, I am certain that the costs imposed on society, above all over the long term, will far exceed the gains.
Collounsbury–you have stated twice that the banking system does not create wealth, but facilitates its creation.
I was taught that banks do in fact create wealth. The total amount of money lent out by a lending institution greatly exceeds the total of its deposits. Hence the historic problem of runs on the bank, need for deposit insurance, Fed nudges to raise or lower the out-to-in ratio, etc. The overhang amount is wealth that has been created, rather literally, by the institution. It is “money to spend” for the loanee, and increases the amount of wealth circulating in the economy just as if it were currency rolling off the printing press.
No? Or have I got my definitions crossed? I know some people take the position that “real” wealth is to be equated with the actual material product itself (minus products consumed, including labor costs)…so any money-generating activities becomes “facilitation” rather than “creation” by definition. But that’s a little slippery–most people consider a person “wealthy” if he/she has a lot of money in the bank.
They create money. Money is not wealth per se, goods and stuff you can use, even immaterial stuff that you can use to create other stuff is wealth. Money is a symbolic representation of that wealth. Creating more money simply creates more units of symbolic representation of wealth.
Now that can be wealth facilitating insofar as a certain degree of liquidity is very helpful for smooth transactions which are key components of efficiency, but in and of itself it is not creating wealth, in the economic sense.
Think about inflation and government printing money. Same thing. The confusion of wealth in money often gets folks into trouble, as per governments printing money to pay the bills.
Classic confusion of money and wealth, see above. I know its non-intuitive and I probably have not well-explained it but then I’m not an academic – wait maybe then I should be?
Not some people, economists and those trained in economics. It’s not just material product, its creation of value and the ability to create more things of value.
Well it is non-intuitive but analytically rigorous. Back in Cairo I had bank accounts with lots and lots of zeros. Was I wealthy? I had lots of money. Well, for Cairo I was legitimately wealthy but the point is wealth and money are not the same thing. See Wiemar Germany circa 1929ish.
No too much runs on the tax payer , and everything would be paid for as you use it , depending on your usage of services it maybe a good thing or a bad thing.Ie in UK to gain from your tax you need to have 2-3 children.
But I would prefer the British Socialist capitalistic way of things , taxes are a little on the high side but if i get ill I am guarenteed a hospital bed somewhere and even if my medicine costs $5000000000 I only have to pay $9 for each prescription
Civil Servants and politicians are notoriously bad at allocating resources efficiently. So letting them run businesses would simply make those businesses less profitable than they would otherwise be. You’re better off with competition + taxes.
(geepee: the UK’s terrible health care system is an excellent example. People in other developed countries get much better quality health care because there is more private sector involvement.)
It is possible for a government to live off royalties. Several oil-producing nations have no tax at all, yet have provided a wide range of government and public services, especially when OPEC has had the rest of us by the gonads. I think Saudi, Qatar, Brunei are examples. And doesn’t Alaska give out a tax rebate at times?
Socialism (which is what the OP is suggesting) is one of those ideas that sounds great in theory but rarely works in practice. It would be a bad idea for the government to try to finance itself by running businesses for profit. Consider banks as an example.
Suppose the American government decided to open a bank and use the profits to generate revenue. Compare the expenses of Chase Manhattan with the American Government Bank. Presumedly both banks would provide similar banking services. Both would have similar banking expenses. But the American Government Bank, unlike Chase Manhattan, would have additional expenses like building roads, operating the federal park system, financing the Coast Guard, buying new furniture for the White House, etc. The American Government Bank would have to raise their service charges to pay for all these additional expenses. Customers would then choose to use Chase Manhattan instead because they provide the same services for a cheaper price. The American Government Bank loses all its customers and goes out of business.
One alternative would be for the the United States government to use its legal power and prohibit any private business from competing with its governemnt owned businesses. In that case, the American Government Bank could prosper while charging rates high enough to pay for government services because there would be no Chase Manhattan. But the downside of this is that everyone would have no choice except to pay higher banking fees. The government might not call this taxation, but it would be the equivalent none the less.
Hmm hospital care depends on where you live mostly the quality that is , its just that it seems better that even if you have no medical insurance you will get care emergency or otherwise
If you have an urgent need of an op you can always pay privately in another country , or take out health insurance .But the baseline amount of care being care for everybody is alright. I’m not well informed to discuss this but i hear that no medical insurance in the US = no care unless it is some sort of emergency and they scrape you off the pavement.
Many people talk about eliminating taxes, and just paying for things ourselves. BUT…wouldn’t we still be spending the same amount? I mean, we’d have to pay for things that were already taken care of?
And I don’t think wages would go be better, either. Think about it-if an employer knows that people will work for 4.50 AFTER taxes, why should they pay them the full 5 something or whatever? Maybe they MIGHT, but I don’t necessarily think it would work.
First, Guin, yes you’re absolutely right, wages do price in taxes. And yes, eliminating taxes talk usually utterly abstracts away from how to provide basic services. The speaker usually has little clue as to how the tax bill is actually apportioned.
Secundo, OPEC does not have the developed world by the gonads. Saudi Arabia to an extent does as the only major world producer with significant shut-in capacity that can be quickly brought on-line, but most of OPEC is operating right up near capacity. They have also learned that oil demand is price elastic in the medium term while their demand for capital is perhaps less-elastic. OPEC has a degree of market power but nowhere near what mythology gives it. Indeed their collective financial condition is none-too-striking.
I’ll leave the health care thing alone as it strikes me that “better” health care is hard to objectively define when comparing developed countries. A matter of GD.
So then, before this heads into GD or something, we are saying that there is no way for a government to run at a profit in some industry as a method of reducing or eliminating taxes? That is the core question, I just tossed banks out there.
It just occurred to me that there is a good example of a government trying to make its revenues from engaging in an economic activity rather than raising direct taxes. Hong Kong. The government is the only landowner. The resulting economic distortions are too lengthy and hideous to go into here.
No, that’s not at all what was said. There are many ways for a government to run a profit. Rather, it is a question of comparative efficiency. If a government entity can run the industry at a profit it goes without saying that a private industry (all things held constant) could do so more efficiently, thus creating more long term wealth.
It is more efficient to keep government in the business of providing services which can not be provided economically (such as universal services, e.g. education or perhaps basic health care with private supplements) as well as guaranteeing markets and using taxes to fund this.
He who pays the piper calls the tune. Yes, you can raise money other ways (like selling a natural resource such as oil), but as long as there is government, if you want it to be your government, you have to pay for it. You get what you pay for.
