Tag Archives: taxes

Free Markets Need Rules?

It may seem to be a contradiction to describe something as free when it is bound by rules.  That is the case with free markets.  They exist only when specific rules are obeyed.  The banning of anti-competitive behavior exemplifies those rules.  When those rules are broken a free market becomes something else.

When left to their own devices, free markets self destruct. To understand why, focus your attention on how resources are redistributed in free markets.  Then a way to save free markets from themselves can be conceived.

Successful free market participants are rewarded with more resources than their competitors for their efforts.  (A buyer gets something that another buyer can not afford to buy.  And a seller makes a sale instead of another seller.)  The most successful competitors get extra resources.  Ideally these extra resources are used to increase supplies of whatever they offer.  This is supposed to happen until the price of these supplies become too low for less efficient competitors to stay in business.  This can conceivably lead to a monopoly.

That situation would be ideal if it does not afford the winner an opportunity to change the market’s rules and artificially inflate their advantage.  A monopoly’s, (or cartel’s), influence over the market’s rules is proportional to their share of the market.  The rules inevitably are changed to favor established sellers and become anti-competitive.  That violates free market rules.  A manipulated market is not free.

Free markets are worth preserving.  They bring as many sellers together with as many consumers as practicably possible.  Free markets most dependably give consumers what they demand until rules that protect established sellers happens.  Then the free market is subverted and becomes something else.  Rules defining free markets also need to help preserve them.

It is too bad that what makes free markets so desirable also gives successful participants an incentive to become domineering.  An equally impartial dis-incentive is needed for balance.  It is obvious that this dis-incentive needs to punish participants that begin to dominate a free market.

A free market rule that imposes a progressive tax on the value of market share can provide a plain and impartial method to preserve the market’s competition and innovation.  It can also provide an equitable source of government funding.  The tax could be scaled so that it diminishes the incentive of established market participants to gain market share until they have around 33% of market share.  Then that incentive can be completely canceled out.

The target of 33% can be optimized to maximize tax revenue.  Potential revenue for this kind of tax is only limited by the health and growth of the market.  That gives regulators a strong incentive to do what is really best for the market.

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Rupert Murdoch is Complacent

Rupert Murdoch says that the middle class should not get any help from the government.  Apparently he believes that only the financiers and some poor people should get government help.  This post by spintwisted explains why Rupert Murdoch deserves the same criticism he gives to the middle class.

That has inspired me to write my next post about mechanisms that create social and economic stability.  It will be coming soon.

Doomed Economy

This is why, in plain english, the big corporate bailout plan is not going to work:

The economy won’t recover until consumers start buying again.  And that won’t happen until they are out of debt and have saved enough money to begin reestablishing their credit.  So the question is how can the government help us get to that point.

The approach favored by Congress and the Bush administration hopes that an elite group of financiers will distrubute our taxes to corporations .  The selected corporations are then supposed to figure how to sell things such as loans and merchandise to other corporations and regular consumers.

The risk with this approach is that a lot of tax dollars will be spent trying to sell consumers things they neither need or want.  And this economic shock will probably change consumer’s behavior in unexpected ways.  In other words, the chances that financiers will choose the wrong corporations that have chosen the wrong product to sell are very significant.  In fact, the function of financiers under these circumstances is similar to the function of Soviet bureaucrats planning the old Russian economy.  We can expect the kinds of results that all those planned economies gave with this top-down bailout for our economy.

A better approach would give consumers the power to direct our tax dollars to businesses both small and large that offer efficiently produced products wanted by consumers.  And while consumers figure out how to spend that money, it will be deposited in their bank accounts.  Entreprenuers and viable businesses will go to those revitalized banks with their lists of potential new customers and be offered loans.  The risk of wasting tax dollars on pointless ventures will be minimized when compared to the current plan.