Extortion by the State

The Laffer curve is about how much imposition or other types of trouble people are willing to tolerate from their fellows. Arthur Laffer, an economics professor at the University of Southern California, is supposed to have drawn a bell shaped graph on a napkin once to show that up to the peak point of it people are likely to put up with the burden of taxation. The peak isn’t the same for everyone, but everyone does have such a peak.

 

Economist Arthur Laffer as a young man, next to the curve that bears his name. Laffer was an economics advisor to Ronald Reagan, who cut taxes due to his advice, which resulted in economic growth rates that had not been seen in a very long time (and haven’t been seen again since). It is worth noting that the first few years of the Reagan era were the only period in our entire lifetime when the number of government regulations actually declined (as measured by the Federal Register). During the entire rest of our time on this planet, the Leviathan State has grown inexorably. Laffer’s idea can be extended to other areas of statism.

Photo credit: AP

 

In particular, then, the Laffer Curve concerns taxation, a form of extortion, which government uses to obtain funds to operate its undertakings. Reminiscent of how organized crime groups, such as the Mafia, operate, the government threatens heavy fines and jail so those being threatened hand over funds. Since, however, many governments, unlike the Mafia, can be voted out of office, the severity of the extortion has to be gauged with the possibility of eventual electoral resistance in mind.

This is no easy task and can often go awry. Yet in most countries tax revolts are relatively rare since few people wish to risk losing their forms of life just so as to retaliate against the powerful forces of the state. This, again, is similar to Mafia type extortion, in which the victim is given some benefits in order to be placated—e.g., protection from vandalism (the bulk of it initiated by the gangsters themselves).

 

government and the mafiaThe difference between government and the mafia. The basic idea was first explained by Lysander Spooner, who noted that a highway man would at least not pretend that his robbery was intended to be “good for you”. He would moreover actually leave you alone once the deed was done, instead of sticking with you every step of the way to tell you what you must or mustn’t do. Of course there are other differences between the mafia and government as well, such as the size of the respective organizations and the fact that the mafia actually turns a profit. If the mafia were to take over from government we would likely have half the corruption and twice the fun at a fraction of the cost.

 

Now the Laffer Curve is extendable into much more than the sphere of taxation-extortion. Any sort of government intrusion is subject to its insight. Censorship comes to mind—a certain amount of it will not be widely resisted. Government regulation, all of it a violation of the prohibition of prior restraint—is also subject to it since it is taken to be more trouble at times to resist than to comply with it.

Indeed, statism as such is subject to the Laffer Curve analysis—in most societies it is not significantly enough resisted for it to subside, let alone disappear. People subjected to statist measures of any sort simply will not mount effective resistance because to do so may involve greater losses than gains and they are, after all, often able to circumvent it reasonably successfully by using their own intelligence or hiring expert help in the form of specialist (like CPAs each April) in various branches of intrusive law.

 

The Cost of Resistance

Finally, the Laffer Curve is useful, also, to explain why there is not enough political resistance to statism and why only a small percentage of the population bothers to mount any, especially in advanced, developed countries where people live quite well, and where mounting resistance is quite costly, relatively speaking — that is, the possibility of success is small while the cost of the revolt is considerable.

In undeveloped countries the situation is different, which helps explain why so often it is in such countries that we see rebellion and revolt against prevailing authorities and why there is frequent regime change in many of them. Put bluntly, the bulk of the population has little to lose from rising up against the state. That is not so in most developed countries.

The small percentage of citizens who will insist on making an issue out of nearly any measure of statism in developed countries will not manage to achieve regime change, of course, but it will keep the idea of it alive. Yet this itself can contribute to the ineffectuality of such marginal efforts, since the rest of the population may perceive the small resistance as sufficient and proceed without giving it any aid or even much attention.

 

Jean_Froissart,_Chroniques,_154v,_12148_btv1b8438605hf336,_cropThe peasant’s revolt of 1381, also known as Wat Tyler’s rebellion; Richard II meets with the rebels (from a safe distance). Interestingly, the medieval feudal State was far less rapacious in terms of its tax impositions than the modern democratic State. Usually rulers had to fear for their heads as soon as they tried to coerce more than 10% in taxes out of the population. This is precisely what happened in this case, as the country was faced with having to pay for the 100 year war with France, shortly after the plague of 1340 had left a trail of death and devastation. The authorities’ attempt to collect unpaid toll taxes in Brentwood proved the trigger foe the revolt.

Image credit: Jean Froissart

 

Is there a remedy or is this normal? In a sense it is normal—most people will put up with some trouble from others. They will accept a certain amount of intrusive noise from neighbors, being bumped on the sidewalk as they hurry to some destination, even some fender bender type auto accidents, let alone insults and humiliation. Minor thefts or assaults are rarely reported to the authorities.

However, what is not normal is becoming habituated to such tolerance for invasiveness from others. Most of us fear the consequences of such habituation — just as we fear being habituated to anything that harms us in the long run.

If it becomes evident enough, via education or the example from other regions of the world, that statism even in small increments has bad overall consequences, that things could turn out measurably better without it, the peak of the Laffer Curve may become more easily reached for the bulk of the people and the level of tolerance of statism could diminish considerably.

 

statism-blkAs Murray Rothbard noted: “[…] it is the State that is the common enemy of mankind”

 

Image captions by PT

 

Dr. Tibor R. Machan has recently been appointed senior fellow at the Heartland Institute (Arlington Heights, IL) and has worked as a Hoover Institution research fellow, is Professor Emeritus, Department of Philosophy, Auburn University, Alabama, and has held the R. C. Hoiles Endowed Chair in Business Ethics and Free Enterprise at the Argyros School of Business & Economics, Chapman University from 1997 to 2014. Smuggled out of Hungary in 1953, Machan spent three years in Munich and then came to USA and became an academic philosopher after four years in US Air Force. His memoir, The Man Without a Hobby (2006) tells it all.

 

 

 

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18 Responses to “Revisiting and Expanding the Laffer Curve”

  • therooster:

    A sovereign and decentralized debt-free currency provides the precursor and structural power platform for the eventual emergence of participatory democracy where the electorate will eventually form policy and the elected officials will perform the will of the electorate.

    This is not to say that we should focus on the goal of participatory democracy, but the process at hand , which includes the institution of market gold as a debt-free currency to support a balancing shift in socioeconomic power.

  • Tibor Machan:

    No type of government has “stood the test of time.” All types have fallen at some point. Longevity is no test. Whether a system can exist without inherent, structural injustice is what matters. Ones that come close have laws that aren’t coercive, merely defensive and retaliatory.

  • therooster:

    “Crooks constantly invent new ways of encroaching other people’s property rights. ”

    Yes, but if your reference is to the elite, these crooks can only derive this kind of power and influence based on their position within formal structure and that structure, much to their leverage , is based on hierarchy.

    A poor bum on the street may have all the vile traits of any crook but without position that allows for the leverage of power to act on greed or whatever he/she may lust for, the effect on you and me is virtually impotent.

    We won’t change human nature, directly, but we can change structure and the ability to do so has only made itself available since the digital age of information where we can reconfigure how power flows. I hope nobody was thinking we can raise functional children within a totally dysfunctional household ? Highly doubtful, IMO.

    Structure is the guiding influence for how power is governed and how it flows. It is not so different from the principle of the shape of a prism on the basis of how the shape governs how the light flows through and we are in very bad shape. We have been in a supply driven paradigm of hierarchy since the “apple was shoved in our faces”. The road back to providence was been long but we are in the home stretch, IMO.

    Gold as a currency and the decentralized structure that it can afford and support is a major pillar for socioeconomic structural change. Hierarchy sucks.

    • VB:

      No, my reference is to everybody. There are crooks in all parts of the society and they all come up with new ways to rob the rest of the society, all the time.

      The ways are different, yes. A military subcontractor can embezzle billions from the government. A Bitcoin scammer can scam some middle-class nobody across the world for a few thousand. But the essence is the same. You need a government structure to protect the society from this kind of mischief. In fact, the vast prevalence of scams in the crypto-currency world is directly related to the near-complete lack of regulations for it.

      Gold is not a currency. Building a crypto-currency network on the top of it will just increase the opportunities for scams.

  • therooster:

    VB … Now you’re getting to the nitty gritty on the issue of power and how power is governed. It’s a matter of structure and we have a socioeconomic structure that is hierarchical. The apex is a dangerous place and one that temps human tendencies like moths to a light. I fully agree with your basis assessment.

    We need to create a “rounder word” which is an over-simplification for a holographic world.

    There’s no better place to start than the framework of the currency system. Debt based currency has to have a point of control such as an apex (or centralization) because the “efficiency” of debt currency is in the “whole set of books” where there is no sovereign value in the aggregate figures. This is not the case for an asset such as gold or silver, which can allow us to shift from an environment of co-dependency/abuse to inter-dependency of a much more symbiotic nature. It’s a process, not an event. It cannot be by the laws of man but only by the laws of an organic market that are governed, in this case, by the laws of weights and measures. The real-time relationship between the USD (measure) and bullion (weight) have arrived at this very place in real-time.

    We have been supply-driven since “the apple was shoved in our faces”. Hierarchy sucks ! This issue can only be overcome if we have the ability that comes from the capability/incapability axiom. This has only materialized within the digital information age.

    You cannot pour new wine into old wineskins. – Jesus Christ

  • Crysangle:

    The state has only one purpose , and that is to vindicate its own existence .

    Therefore the more it becomes apparent as a reality , the less purpose it has .

    As it loses its purpose , so does it lose those who have subscribed to it .

    • VB:

      Not being an anarchist, I believe that the state actually has two valid purposes – to protect the national borders and to enforce the property rights. I do not believe that these two goals can be achieved on a sufficiently large scale (e.g., beyond a small group of people) without some form of organized government.

      The problem arises from the fact that as soon as you have organized government (i.e., some group of people who have a certain power over the rest of the population), it starts attracting those who enjoy power and once they get in there, their only goal becomes indeed validating their existence and acquiring even more power over others.

      I don’t know how to solve this problem. Checks and balances can be built into the constitution – but a sufficiently motivated government can change and subvert the constitution.

      • Crysangle:

        The statement I made is deceptively simple :

        Your two purposes vindicate the existence of a state , hence the state vindicates its own existence with them. If it cannot vindicate its own existence it has no purpose , hence its sole purpose is to vindicate its own existence .

        The more this state becomes apparent (borders guarded , property registered – check) , the less purpose it has (its purpose is completed) .

        Because it has no more purpose , it is of no more interest to people (they merely pay for guards and a central registry) , and so it loses them (or their attention – as it should be) .

        …………….

        Now you may introduce the corrupt side of your state to the same equation, as an unwelcome extension , and you will find it fits , but in a very different way .

        The interesting point in all of this is understanding the initiative as either an absolute necessity or an improvised ideal used to manipulate , and it is there that it becomes subjective and open to argument . Even the necessity of property rights vs. no necessity of those is subjective and rests on ideals . In practice property rights tends to win due to incentive , hence productivity and strength , hence also ability to wield force and to organize to do so , defensively or aggressively.

        I say tends to win – it may lead to catastrophe and certainly has led to many wars and much destruction , whereas your hunter gatherer population will tend to be continuously self limiting without placing a total burden on the system it inhabits . There are arguments that justify both , but while one of those societies lays claim to everything that is , it should be aware that it is denying the other its freedoms of use of .

        The Spanish once laid claim to the world’s oceans , all of them … other nations did not respect the claim , and so it was dropped as non viable . In fact most property and resources we recognize were simply stolen from others at some point in time and then established as ‘ours’ .

        So is your state only an attempted justification at some social ideal restricted to certain adherents (nationals for example) based on establishing a false sentiment of ownership , or is it a fairly won evolution that has redesigned itself into the fairest system known so far ?

        You tell me .

        • VB:

          The problem is that these two goals cannot be achieved-and-be-done-with-them. Crooks constantly invent new ways of encroaching other people’s property rights. New technologies arise all the time, requiring new laws and regulations.

          The problems occur from the seeming impossibility of striking a reasonable balance. Clearly, you need some government to pass laws that make it illegal for something newly invented to encroach your property rights.

          For instance, consider drones. Clearly, someone’s drone that is hovering in my backyard, spying me through my window, is encroaching my property rights. But where exactly do we put a line? Is a plane flying over my house or a satellite above it encroaching my property rights too? Obviously not. We need some new regulations that tell the society what is permitted and what is not, in respect to people’s property rights. It doesn’t really matter which branch of government (legislative or judicial) decides it – SOME form of government is constantly needed, because such issues arise all the time.

          But, then, once government has such power, it starts attracting bureaucrats who love this kind of power and they start coming up with new laws and regulations just to show that they are “doing something”, making everyone’s life hell in the process.

          Where do you stop? How do you stop? I don’t know, and obviously nobody else does, because no proper libertarian form of government has stood the test of time. It always gets subverted eventually.

          • Crysangle:

            To start at the end , I don’t think that libertarian asks for government , at least not in the form we understand nowadays , so you could say governance always ends up imposing .

            As a philosophy , if ‘libertarianism’ is a natural tendency of humankind , it will stand the test of time , it will reappear continuously as a chosen direction or wished for reality . Most people are libertarian to some extent, to my view – they wish to be left to their own fruition , to share it and hopefully participate in that of others . They wish to do so freely . We do not carry books of law with us to consult with , simply showing respect for others and being careful not to harm them will do .

            That brings me back to the start of the comment . We would have to study social evolution , natural history , culture , religion and more to understand how societies and their governance has evolved . The social structures of mankind are very diverse , they tend to originate out of necessity . In a competitive world folly is unacceptable . Modern western forms of governance have evolved in a climate of dominance of man’s most basic needs , which has left the possibility of a certain engineering of society to take place … when allowed . This is one reason economic difficulty often spells political chaos , once the slack is no longer available then the subject will turn on the waste and error applied to him, and no ideology will satiate that in itself , but only try to redirect the anger to appease the subjects loss.

            So you could say, if there are to be property rights , that a whole world of law and governance need then exist to protect them. A further world of law is then needed to protect people from those laws also , and to protect those that implement those laws … and so on . What you end up with is a central authority establishing itself perpetually and the individual reliant on it , eventually incapable of reasoning by himself . The idea is to create a civil society , very good … but who keeps the white collar civil when with a few words he may change or corrupt the destiny of many and not be held accountable ?

            We have only ourselves to blame , really , for expecting others to handle our affairs for us . If we step back in time though , the rules were much simpler and obvious … no stealing , no killing … respect.

            So if you have a community that establishes property rights , establishes freedom as a right , establishes a right to privacy , and I could list the most important rights in a paragraph only , do you then need to govern those ? If a drone keeps bothering someone in their garden , the local community has a meeting and decides it infringes a right and go and have a word with its owner , and if they cannot locate him it becomes a local mystery and plans are hatched to bring down the drone , etc. .

            The way modern governance works though is to try to foresee every detail of eventuality and legislate a bureaucracy to deal with it from a central level , a central level being already stranger to local community . Finding they can legislate and govern through politics , the nation is eyed up and power shifts from local community to central governance . The whole framework becomes disconnected and opaque eventually and that society will either flourish in the niches left available in disregard , or will fall into an extreme central monopoly , or will simply fail by degeneration .

            I don’t think there is a particular answer to all of this , I think that it is all as fluid as life itself and that you can do no more than find and live your own truth , while allowing others to live theirs . Hopefully we set a good example .

            • VB:

              Obviously, we understand different things under “libertarianism”. What you describe is what I call “anarchism”. An anarchist thinks that government is evil and must not be allowed to exist. A libertarian agrees that government is evil but points out that it is a NECESSARY evil (because it has the two vital functions I mentioned above) and should be restricted to the absolute minimum.

              The idea that all rules should be decided peacefully in local communities is nice but fails in practice. Every time the central government of a country has failed irreparably apart, total political and economic chaos has ensued and in many cases the country has been invaded by an aggressor.

              I do understand why libertarian societies fail – I just don’t know how it can be avoided. They fail because people get “fat and lazy” and stop being interested in politics (since the government is small and non-intrusive, so there are no incentives to change it) and the power-hungry bureaucrats take over, slowly.

              Somebody said once that the price of freedom is eternal vigilance. That’s very true but nobody can be vigilant all the time without eventually slipping up or going crazy.

              • Crysangle:

                9/10 is local community and voluntary association, that is what works. When you start restricting its freedom or offering false answers without being able to be made responsible for them, is destructive to local community. A local community need not be your town, it may be associates working globally.

                You must ask why central governments fail. I think you will find it is because they lack representation and are somehow disconnected from various realities. Over involvement in the lives of others is no answer. The answer starts at ground level, people’s morals, values, consideration.

                As far as I understand, libertarianism is designed as a defense of those

                https://en.m.wikipedia.org/wiki/Libertarianism

                An anarchist does not have any opinion of government hierarchy, but I am sure as a person he does not like being mistreated by another in its name.

                • Crysangle:

                  When we talk of government, we understand that it exists under law. It is subscription to national constitutional law that enables and allows government to be formed.
                  A government, and the legal authorities it protects, may then adjust law according to process.
                  What you call bureaucracy, is no less than part of government, extended by its management under law, extended by new law, extended by a fiscal management that attributes the public’s physical resources to it.
                  So the bureacracy is government, I will not distinguish between the mind that orders and the hand that acts.
                  People have two hands, in some societies they cut off the hand that offends, very crude but effective.
                  Government is a body with many minds and many more hands. To blame the hand of bureaucracy is pointless. You must reach to that which authorizes and allows an unnacceptable framework, and then change it.
                  That would not be government, but the base law that grants it power.

                  Power is corrupting, it works to increase itself, as government works to increase loyalty to itself and its own authority.

                  It does that by drawing from the comparatively meek individual in an assimilative process.

                  Unfortunately/fortunately one person cannot assimilate the life of another fully. Even by destroying the other he will not achieve that objective.

                  There will always therefore be a limit to effectiveness of governance. The question is whether it is a variable voluntary limit, or a destructive limit achieved by the misdirection of force.

                  At the very least, law should strictly limit the resources available to government, and that would include the ability to misuse a position of monetary authority, as well as fiscal limits.

                  Let beggars be beggars, we would all be better off for the clarity of it.

                • VB:

                  Oh, yes, I do understand why central governments fail and I do agree with you – they tend to acquire more and more power, become more and more intrusive, and eventually reach the breaking point of the population’s tolerance.

                  I am just saying that your ideal of “local communities” is not realistic, either. Without a central government it always fails pray to local predators or to an external enemy.

                  Clearly, what is needed is some kind of balance in the middle – small central government, limited to its essential functions. But so far nobody has managed to keep this balance. The bureaucrats always manage to subvert is eventually.

          • Mark Humphrey:

            “Where do you stop? How do you stop? I don’t know, and obviously nobody else does, because no proper libertarian form of government has stood the test of time. It always gets subverted eventually.”

            The reason limited government always gets subverted eventually is because of the neglect of philosophy. There is a reason that many people are not persuaded by economics and appeals to rational ethics: they don’t respect reason when applied to ultimate issues. They believe what they’ve been taught, namely that philosophy is unrealistic, impractical and a waste of time. When people accept such views uncritically, as most do, they become skeptics by default and collectivists as an extension of their basic mistrust of reason.

            This issue has everything to do with our drift into authoritarianism. Philosophical skeptics mistrust reason, so they tend to view individual thinking as unimportant, and so they tend to dismiss the importance of individual moral agency. So skepticism accords logically with collectivism.

            • therooster:

              Mark … I have to agree with your comments. Much of what we experience in an “organized” society can be traced back to habits and the structure that helps to form those habits. People can be like cats when they are confronted with change.

              I find that much of the discussion about alternative currencies to fiat, those developed in the private sector, are quite misunderstood. I think there is an underlying fear that they could be a “takeover” of fiat currency, rather than looking at is an addition based on market choice where choices are a good thing.

              Nice touch.

  • therooster:

    Wonderful, but did he factor in the concept of purging debt by making the value of commodity money variable based on the need for market liquidity, thus empowering the market. New set of rules !

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