Chump Index

We are one nation. If a particular region is doing well we expect that region to help the rest of the nation. If oil & gas revenues are flowing in a particular region then we as a nation (partially) share in that bounty. Later when the oil & gas runs dry the rest of the nation reciprocates.

That’s the share-the-wealth concept behind municipal grants.

I earlier proposed a confederated tax scheme where states collect Federal taxes on behalf of their residents using alternate taxes. Individuals calculate their Federal taxes using the Federal tax code and the state pays the tax on behalf of their residents using, for example, a tax on oil & gas revenues.

Begs the question as to the appropriate Federal tax code under a confederated tax scheme. How should we collect Federal taxes so as to more equitably share-the-wealth, promoting the ‘one nation’ ideal?

The data may surprise you.

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Market-Based Budgets

We arrived at a prison camp in Italy after capture and each received a Red Cross food parcel. At once exchanges, already established, multiplied in volume. Starting with simple direct barter, such as a non‑smoker giving a smoker friend his cigarettes in exchange for chocolate, more complex exchanges soon appeared.

Stories circulated of a priest who started off round the camp with a tin of cheese and five cigarettes and returned to his bed with a complete parcel in addition to his original cheese and cigarettes.

It’s a bit of a puzzle how a priest, presumably an honest agent, can engage in trade and end up with more of not just one foodstuff by trading for it, but more of everything. How did he manage this through voluntary exchange? In fact, he managed to make everyone he traded with better off. – Munger on Middlemen 

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Cut Their Throats

The Gross Federal Debt is now over 100% of GDP. This has only happened once before, during WWII. We outgrew it after WWII because we were the only game in town. Now we’re in peacetime.

Federal tax revenues in the U.S. have stayed at an amazingly constant 18% of GDP in good times and bad, war and peace, low and high inflation; under Republicans, Democrats, tax reforms, tax cuts and tax increases. For 70 years.

It’s not unreasonable to believe that attempts to raise taxes above 20% of GDP will be counter-productive. Tax revenues drop instead of rise.

That’s the limit to the Federal rolling debt scam (i.e., issuing new debt to pay the interest on the old). When interest payments on the Federal debt exceed ~20% of GDP we enter into an unstoppable debt escalation: one that can never be paid down. Mathematically. Default or inflation are the only options.

Today we’re at 2.6%. Whew!

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Bolivia

The revolutionary and controversial Popular Participation Law – LPP (1994) was the most successful part of the neo-liberal reform strategy of President Gonzalo Sánchez de Lozada in Bolivia.

It decentralized government in a radical way, in a sincere way. It was a sharp break from the past. It doubled transfers to 20% of national revenues from the central government to municipalities. But much more importantly the allocation mechanism across municipalities switched from a highly idiosyncratic method to simple per capita calculation. No strings attached.

So a small town with a thousand people got 155,000 bolivianos the first year. La Paz with a million people got 155,000,000 bolivianos, and that was that. And the transparency and simplicity of that transfer led to genuine political reform.

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My Kids’ Future

Heard a scary story the other day. Davies 30:00 

When interest rates rise back to their accustomed levels all tax revenues will soon be needed just to pay the interest on today’s $16 trillion Federal debt. No money left over for Social Security, Defense, Medicare, Medicaid, etc.

This is a direct result of a rolling debt scam run by the Feds: issuing new loans to pay the principle and interest on old loans. Folks in the private sector go to jail for this. The reason these Ponzi schemes are illegal for anyone but the politicians is the music eventually stops and many are left without chairs. That would be your kids and mine.

Here’s how to unravel this mess. For good.

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