Friday, January 07, 2011

Currently, both the EU and the USA are against the free market principle

In terms of microeconomic point of view, the common currency is beneficial to trade between companies across the border.

Nonetheless, the common currency does not imply the free market. The beneficiality of introducing a common currency in the EU is that the trade frequency between countries in the EU is significantly higher than the USA. However, the labour mobility rate between countries in the EU is significantly lower than the US counterpart.

It is not fully proven yet whether a common currency leads the economy to have a high trade frequency and the labour mobility across the border or these factors require introducing a common currency.

If the statement "Free market demands common currency" is valid, it should be that both the trade frequency and the labour mobility have been high before a common currency is introduced, and then a common currency should be introduced afterward. However, if the reason to introduce the common currency is to "expect" the trade frequency and the labour mobility to become high after introducing the currency, the aspect does not fulfill the natural mechanism of the free market. Under the free market, needs induce the supply; expectations are not necessarily relevant to induce the supply.

Under the current European situation, although the aggregate level of trade frequency across the border is high there are a few countries which do not fulfill the condition such as Ireland and Greece. Furthermore, there is a huge barrier of introducing a common currency under the free market principle which is the labour mobility. If the EU situation is that the free market demands the Euro, the labour mobilty should have been much higher than what the EU has got.



All in all, I would like to strongly put emphasis on the statement that both the EU and the USA do not hold their own single currency used among their own states or countries inside them due to the free-marketism.

For example, as a matter of fact, the USA should abandon the single currency system and her federal government interaction into her market if she wants a free market! The US market has a significantly lower trade frequency across the borders between her countries than the EU and Asian economic regions. The current US situation craves for the strong federal planned economic intervention in order to stick these individual states with being the United States of America!!



In order to accomplish to estabilish a free market system, abolition of nation states is necessary in order to allow all individual regions to become free from any planned economic intevention. Overall, nationalism and unionism never go well together with a free market! "Anarch-Capitalism" is only the answer to support free market!!

Wednesday, January 05, 2011

Land tax is both fair and progressive

Income tax is progressive i.e. an effective tax collecting method if we consider about the marginal propensity to consume and save.

But, it has a high risk to disturb "equity" (synonym of fairness).
It discourages the wealth accumulation by hard working and penalises those who bring an income and/or a talent into that economic region.

The most effective tax is on "land"! Land is a common good and its externality such as pollution and over-population is high contiguous to the others.

Furthermore, land based tax is effective to control the business cycle more than income tax.

Income earners may earn their income in a particular region and spend and invest it in outside this region. Therefore, the effect of income tax is contigent to areas which are not accountable to controlling a business cycle of a particular region.

In addition, the means of production of income is a combination their working effort and a reward from investment. Income tax simply means to penalise working effort and investment. Therefore, income tax has a risk to stagnate the economic productivity.

By contrast, if some one uses a land, it simply means s/he utilises the value of this land. People can utilise to live in a household on it, earn income in the firm on it, and invest into a property on it. These activities also contain working effort and beneficiality of investment. However, unlike income tax, people utilise land to do these activities. These activities can cause pollution, over-population, and business cycle overhear or slump. Furthermore, the means of land tax is hardly contiguous because it directly burdens taxes on the land where the economic activity is derived from. All in all, the land tax accounts on the "equity" of utlising and costing it. Thus, it fulfils the condition of "equity" i.e. fairness.

In addition, land tax can be not only fair but also progressive. High income earners are more able to buy and keep the land with a high value and/or high costs than the rest. Then, land tax is able to tax in proportion to the marginal propensity to saving (In terms of the absolute income hypothesis, consumption of permanent items such as households and lands and investment are considered as a part of saving).












P.S.
I support abolition of taxes on consumption such as sales tax and VAT.

As long as the price elasticity of demand is low, it is a fair indirect taxation because individuals pay as they use.
It is regressive but fairer than the inflation tax (High inflation)

Nonetheless, tax on consumption stagnates economic active level because it harms not only on consumers but also producers. If the price elastiicity of demand is high, then the penalty on producers is much higher than on consumers. Therefore, it is NOT FAIR because it pernalises those who increase the sum of utility among individuals!

Tax on consumption is highly contiguous to those who are not accountable to pay the tax. As we know this tax is not able to control over business cycle and burdens those from outside the economic regions where this taxation exists. Therefore, it disturbs the business cycle and causes moral hazard of taxation (Those who are not responsible for the tax also pay tax!).

Corporations which have a high volume of export gain a high volume of tax rebate. This fact discourages small businesses, creates a barrier for new firms to get into the market, and reduces the internal aggregate demand.