Summary of Philosophy of Economics - and Solutions

Presentation to The Melbourne Philosophy Forum, June 28, 2009 (I think)

Summary of Philosophy of Economics

A philosophy of economics approaches the subject at a meta-level, integrating the discipline with being in general (ontology), the way that we know things (epistemology), and rational procedures (logic).

Normative Economics

Political Economy; who owns what and why? what do they get from this ownership?

Economic Class Source of Income Receipt of Income
Landlord Land Rent
Capitalist Capital Interest
Worker Labour Wages

Individuals and legal persons may belong to multiple economic classes simulataneously; the proportion of their income

Public Finance and Private Activity: where do governments get their money from? how do they spend it? who decides this? Socialism is the public ownership of a income, enterprise, activity or factor of production; capitalism is the private ownership of the same.

If any good or service which in not in fixed supply is taxed, in any way whatsoever, it acts as a disincentive to produce that good or service.

The public sector should make up for this loss in trades through expenditure in public goods that produce positive externalities and reduce negative externalties.

Advantages of Competition and Equality; The Logic of Behaviour

Market types range from perfectly competitive to monopoly. A perfectly competitive market has many buyers and sellers, no entry or exit barriers, perfect information among all participants, no transaction costs, and homogenous products. A monopoly is characterised by a lack of economic competition either for the good in question or for substitute goods (an oligopoly is where are few producers of a good or service; this is highly prone of collusion and cartel). In a monopoly or an oligopoly a firm can sell goods and services above the equilibrium price. Lack of competition in a market creates a downward sloping demand curve for a monopolist or oligopolist; although they will lose some business by raising prices, they will not lose it all, and it may be more profitable in most situations to sell at a higher price.

A Five Point Plan for a Better Economy

The total Australian economy in 2006 values is $922 billion. The first five proposals will provide an additional $347 billion to the economy in 2006 values; a 37% increase.

1) Reduce taxes on capital investment and labour (preferably to zero) and increase taxes on resource use (preferably to 100%).

A tax on any produced good or service reduces the incentive to provide such good or service. The lack of a tax on a resource encourages monopolisation, as it is in fixed supply. Rent then becomes a private extraction of site-value, rather than a community fund from which it gained its original value. Governments which do not derive income from site value must therefore place onerous taxes on labour and capital instead, increasing their price of goods and reducing the buying power of wages. Our fiscal system which encourages a monopolistic landlord class suppressed economic activity by an esitimated $253 billion in 2006. This is the single bggest improvement that can be implemented to the Australian economy.

Bryan Kavanagh, Unlocking the Riches of Oz

Terry Dwyer, The Taxable Capacity of Australian Land and Resources

Public Revenue Without Taxation, Land Values Research Group, 2008

2) Abolish the States and Implement Regional Governments

Australia is a federation of States and the individual Australian States are unitary because the local governments have no Constitutional status; they exist only because State governments allow them to. Existing State governments may have served Australia well at the time of original Federation, but are now an onerous problem on the future of the country due to poor scaling effects. Estimates indicate that abolishing the states and passing much of the existing services to the Federal government could achieved an estimated average of five to ten percent in the private and public sectors that is, in 2002 values, $15-$30 billion in the public sector and $25-$50 billion in the private, or $40-$80 billion overall.

Mark Drummond, PhD Thesis
Costing Constitutional Change: Estimates of the Financial Benefits of New States, Regional Governments, Unification and Related Reforms

3) Abolish "Intellectual Property" in Public Research

"Intellectual Property" is a term which conflates trademarks, patents and copyrights, represents temporary monopoly rights for producers of such goods, arguably to offset the high marginal cost in original product but low marginal costs in replication. This monopoly has been consistently expanded in time and scope since its introduction. In research a substantial proportion of costs are spent on purchasing or avoding existing monopoly rights and in replication of existing research. In computer science in particular, "closed source" acts as a deadweight to improvement in the technology. Assuring that all publically-funded research is licensed under General Public License will save an estimated $13 billion in reseach costs alone, not included the additional benefits from open development.

Figures derived from Professor Michael Froomkin's analysis of US replicated research costs see:

4) Adopt a Defensive defense force

Australia spends approximately 2.4% of its GDP on military expenditure (CIA World Factbook), or 22 billion (2006 values). Standing armies, inevitably, become instruments of invasive wars which consistently require expensive technologies to maintain a competitive advantage. An alternative is armed citizenry; a trained, voluntary and well-regulated democratic and federal force. Historically such organisations show that their capacity, local knowledge and morale in resistance and defense is exceptional; but their ability to wage an aggressive war is hopeless - and this is a virtue. Moving towards a defense force, rather than "forward defense" and with a similar percentage GDP figure of New Zealand would amount to a saving of $11 billion per annum (2006 figures).

Stephen Halbook, "Swiss and the Nazis: How the Alpine Republic Survived in the Shadow of the Third Reich", 2006

5) Abolish 'Victimless Crimes'

A victimless crime refers to infractions of criminal law without any evidence of an individual (except, perhaps, the perpetrator) that has suffered damages. Victimless crimes include self-regarding or consensual other-regarding acts which have been deemed as illegal; examples can include some sexual practises (e.g., homosexuality), voluntary euthanasia, personal drug use etc. In the United States, some 350,000 are jailed for victimless crimes, $50 billion is spent on punishing such people and some $150 billion is lost in tax revenue. Estimation based on the above (modified by population and the Australian legal code), a $10 billion saving for abolishing victimless crimes.

Peter McWilliams, Ain't Nobody's Business If You Do: The Absurdity of Consensual Crimes in Our Free Country, 1996