Apple is a bad guy. 1%ers are bad guys. Other people pay too little tax. Money is the root of evil. Stories of how wealth and its accumulation harm us all are on an ever-growing list. Is there a problem, or are people envious, or are the political promise-makers running out of resources?
The system needs to work or there may not be enough money for everything. The risk of harm to the system seems to be politically driven. It might not work out.
The alternatives to the current system, socialism and its variants, have defects that are hidden behind the facade of justice.
People assume that wealth will exist, but do not specifically indicate where it will come from and why. How do you create wealth without incentives? The risk and effort are still there.
There is no failure mechanism that automatically reallocates capital to more productive ventures. There cannot be small failures, because they will be hidden. The result will be that only the failures that cannot be hidden will come to light. All catastrophic.
We could come here by accident or maybe by carelessness. I would like to think that the required stupidity level is not attainable.
When governments tinker with money, (inflation, exchange rates) they automatically tinker with the value creating part of the economy. When they tinker with the economy, (preferences, regulations, tax) they automatically tinker with money. There are consequences.
How much are things worth and in what should I invest my savings become impossible questions when the signals become ambiguous. Inflation makes things counter-intuitive. The citizens and the businesses are left in confusion and it is more deadly to be confused than it is to be wrong. You can stop being wrong.
Governments tinker because they want change immediately. Many people, including those in the government, do not understand money and its source. Fuzzy ideas of justice preempt logic.
There is no “Tinkering With The Economy For Dummies” reference book to guide them.
It has always been that way. John Maynard Keynes seems to have scoped out this problem more than 80 years ago.
But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.
(From Essays in Persuasion 1930)
Strange that governments like some of Keynesian thought while failing to understand the “blundered in the control of” and “do not understand the workings” parts.
The current plan is to create scapegoats to cover up the muddle. That is political and intended to deflect attention. It is not an answer.
Capitalism is imperfect. We can fault wealth creators for some things but not everything that is presently fashionable.
For example tax avoidance. The rich and the corporations pay neither too little nor too much tax. Tax is artificial. It is an arithmetic question and you pay what comes out the end of the calculation. There is no right amount, only a formula. If you want some other answer you need to change the arithmetic and that too will have consequences.
Taxes are merely a choice of methods available to governments to acquire the money they need to carry out their mandate. If there is not enough money to pay for the mandate, then it would be safer to reduce the spending rather than tinkering with the system of wealth building. Frugality has less bias towards blunder.
Tax is not an effective methodology to implement social change and to use it so has risks. You cannot be sure ahead of time how the change will affect the “delicate machine.”
Another tinker, regulation, looks easy but it is harder to estimate the risks and results. Bailouts and handouts and grants are even more difficult than that to estimate.
All of these distort the wealth building system in ways that are difficult or impossible to assess beforehand. It is especially difficult when many of them are imposed at the same time. The law of unintended consequence rules.
Capitalism creates value and money stores value. They are intertwined, and that means capitalism going out of favor is an important risk. If it does, the money will disappear soon thereafter.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. email@example.com