Comments (21)

• Allen Young

  12/27/06am I much prefer to read about bloated, harmful, pandering federal SPENDING. The reason we have federal taxes. Address the "problem" directly.
  Allen Young

  Published: December 27, 2006 7:38 AM

• billwald

  All the production in the world will not help the people who can't deal with cash money and can't plan ahead.

  (How does my computer know how to complete the security code number? Are there a limited number of secret numbers?)

  Published: December 27, 2006 12:39 PM

• Michael A. Clem

  As Hazlitt hinted at, the real problem, even if a good formula could be found, is that *politicians* would be enacting it and would face political pressure to tinker with it, making it thoroughly as useless or harmful as most other government programs. "Philosopher-statesmen" are as rare as philosopher-kings.

  Published: December 27, 2006 12:58 PM

• kanthony

  A number of really salient ideas advocated in the post – but I wonders if Mr. Hazlitt appreciates Prof Friedman's goal of pragmatic improvement. Prof Friedman never suggested that the NIT would provide a poverty panacea, but merely simpler and more transparent alternative to the complex and wasteful system of welfare handouts in existence today.

  It certainly has obvious short comings, but would indeed prove less costly then our current system – and would certainly be simpler to administrate. Whether or not the subsidies would be increase over time is a political matter that can’t adequately be answered without invoking some brand of clairvoyance. In a political climate where such policies were actually adopted, one might imagine an electorate with the fortitude and intelligence to continue the process of dismantling the existing network inefficient and ineffective federal handouts.

  As Voltaire accurately observes – perfection can indeed be the adversary of the good – or in this case improvement.
  

  Published: December 27, 2006 12:59 PM

• Paul Marks

  Of course even Milton Friedman testified AGAINST President Nixon's plan (before Congress). Because instead of being instead of the various Welfare State programs (Social Security, Medicare, Medicaid and so on) the "negative income tax" was to be ON TOP OF THEM - hardly what Milton Friedman had in mind.

  Of course the "negative income tax" is government spending (it is a welfare scheme by another name). In Britain a similar scheme to President Nixon's is called "tax credits" - people who do not pay any income tax still get "tax credits" (introduced by Mr Gordon Brown).

  So instead of work making people independent of government, people can get a job and still be given government handouts. In America I believe the "earned income tax credit" is sometimes greater than the amount that people actually pay in income tax (in which case it is also a disguised welfare scheme).

  It is an old idea. In 1795 in the village of Speenhamland the magistrates started to hand out money (from the local property tax payers) to poor people who were work - this system spread over most of England and south Wales.

  By 1834 (when the system of wage subsidy was finally abolished) small farmers and businessmen were being bankrupted in order to subsidize the wages of workers on larger farms. Of course the larger farmers paid property tax also - so they had to keep their wages down.

  The whole stucture was a total mess (just as "tax credits" are in Britain now).

  People who deny enconomic law say they are "empirical" they "learn from history". But this is not true, they learn nothing - otherwise they would not keep making the same mistakes.

  If taxes on the poor are too high - then cut (or abolish) these taxes - do not set up complex schemes and employ lots of new administrators.

  "But people can not plan ahead" - and they will never learn to while the state "takes care of them".

  The level of human conduct is not static - the more government gets involved the more the moral capital of people (their capacity for true "self government") will decline. As will familes, communities, mutual aid and civil interaction of all types.

  In the end the Welfare State creates an underclass. Not genetic - environmental, their own learned experiences and those of their parents and those people they know.

  Published: December 27, 2006 2:12 PM

• Michael A. Clem

  Tax credits are indeed an old idea. In the U.S., low income workers with children can get more back than they pay in with the Earned Income Credit.
  

  Published: December 27, 2006 3:27 PM

• KOLIAN

  BEGFEFWEU

  Gerald Ford Remembered for His 'Calm and Steady' Hand

  Published: December 27, 2006 7:05 PM

• YHGFH

  GFWEWEDQWE

  Gerald Ford Remembered for His 'Calm and Steady' Hand

  Published: December 27, 2006 7:07 PM

• Sam

  This article kills off the other myth that 'welfare should be replaced by charity'. Whilst charity would be seen as better at the top end of town because only Socialistic minded people get give their OWN money to the poor, at the bottom end of town the result is still the same: something for nothing.

  Published: December 27, 2006 7:35 PM

• Joshua Katz

  What strikes me most about this article is the numbers involved, considering that it wasn't written all that long ago. Good thing Greenspan was such an inflation hawk and goldbug!

  Published: December 27, 2006 9:27 PM

• Marco Saba

  There is a simple question here: in a fiat money system, how the Austrians intends to redistribute the seigniorage?

  Published: December 27, 2006 10:20 PM

• Mark Brabson

  Marco Saba:

  As an Austrian my goal is the total destruction and oblivion of fiat money and central banking. My goal is the introduction of a 100% commodity money system, a 100% reserve banking system and the total separation of the monetary and banking systems and state. The issue of seigniorage would, of course, become moot.

  Published: December 27, 2006 11:07 PM

• Abhilash Kushwaha

  I am not an economist. Infact this was the first post where I ever heard of negative income tax. However, I feel that the numbers in the examples just don't add up.

  You say "An orthodox relief program would pay the jobless head of a family, say, $60 a week. If he then started to earn something, he would be paid simply the difference between that amount and $60. Under the NIT principle a man who was earning nothing would also receive a relief payment of $60 a week. But if he then earned $30 a week on his own he would still get a $45 payment (reduced by only $1 for every $2 earnings), bringing his total income to $75 a week."

  According to me under the NIT principle if he earned $30 a week on his own he would still get a $15 (half of the difference) payment from the government. So his total income would be $45 and not $75.

  So there is no anamoly. Anytime a person earns more than $60 he gets nothing from the government. Anytime he earns less than $60 he would be just that much close to $60. So earning $58 a month would get him $1 from the government for a total salary of $59.

  Published: December 28, 2006 4:25 PM

• D. Saul Weiner

  Hazlitt, Friedman, and everyone else seem to ignore an important danger of an NIT type approach to helping the working poor. Would not the initiation of a negative income tax (all other things being equal) serve to drive down the wages offered to employees at the lower end of the pay scale? After all, if higher wages are to be offset by smaller tax credits, a lower wage becomes more palatable for the worker in such a position.

  Published: December 29, 2006 10:22 AM

• Wild Pegasus

  Tax credits are indeed an old idea. In the U.S., low income workers with children can get more back than they pay in with the Earned Income Credit.

  Are they getting back more than they pay in when all taxes are considered? Certainly, the EITC refunds more income tax than they pay, but what about the costs of tarriffs, regulation, corporate income tax, subsidies, etc.?

  - Josh

  Published: December 30, 2006 12:28 PM

• Diane Pagen

  "The only real cure for poverty is production." This statement has a serious flaw in that it assumes that all production gives the producer access to the means to survival--income. Much work, in fact the bulk of all productive labor is unpaid, worldwide, with women doing the bulk of it. Caring for children, caring for elderly family members, producing food, even teaching and caring for children who are not their own in lands ravished by illnesses such as AIDS. It cannot be disputed that without unpaid labor, there would be no consumers, and no market production. The world's most productive capitalists have relied heavily on the unpaid productive labor of their spouses as key in their own paid market success. The value of unpaid production in Australia has been measured as having a dollar value eleven times as large as Australia's entire annual GNP. Poverty is mostly a condition of women and their dependents, because income is withheld from them in spite of their production. A productive CEO, or doctor, or restauranteur reaps financial riches--a productive mother reaps none. A slacker in any paid profession will reap more income than the most productive and capable of unpaid parents. This snag in the mainstream economic solutions to poverty must be acknowledged and rectified before successes will occur. I welcome discussion of this factor, which has not yet been raised in the comments here.

  Published: July 22, 2008 4:11 PM

• rtr

  Diane Pagen: "This statement has a serious flaw in that it assumes that all production gives the producer access to the means to survival--income."

  There's your error. You don't eat fiat dollar bills for nourishment, or even gold coins for that matter. No production whatsoever is undertaken to make one worse off than before the production is undertaken. Production is only undertaken because it alleviates poverty, no matter what form. Individuals will satisfy their most urgent desires before they satisfy their lesser urgent desires. This is subjectively ranked preferences which differ for all individuals, and is the only reason any trade occurs (because two different people subjectively value the exact same thing differently, one lesser, one greater).

  You may feel that Picasso would have been better off being forced to work as a slave harvesting crops to increase food production rather than painting, and Picasso may have felt you would be better off throwing midgets down a bowling alley to raise money for the Nazi Party rather than trying to help children with AIDS. But in a free market you can both do whatever it is you want to do, whatever maximizes your own individual subjective wealth.

  Diane Pagen: "Much work, in fact the bulk of all productive labor is unpaid, worldwide, with women doing the bulk of it."

  That statement is false. Labor pays for itself. Absolutely nobody undertakes any labor of any form unless it is by definition making them better off than not undertaking that labor. People will only trade labor to others, called employment, or working a job, if what is received in return is valued more than anything they could have earned through productive labor of any other form, either working for others or working for oneself, or even not working at all, and instead relaxing or sleeping. Charity is just as much an economic choice action of subjective valuation as all other actions which are chosen.

  Diane Pagen: "It cannot be disputed that without unpaid labor, there would be no consumers, and no market production"

  That's completely false. There is absolutely no such thing as "unpaid labor". If you mow your own lawn, your payment is a mowed lawn. If you flip burgers at McDonald's for an hour, your payment is the wage you receive from flipping those burgers for that hour. If you go to medical school, become a doctor, and travel to Africa to give free medical care to children in poverty, your payment is the subjective valuation feelings of goodness you have accomplished from helping others. If you take the time and effort to learn about economics by reading threads on mises.org your payment is economics knowledge.

  Consumers will exist by the acts of all consumption. Market production will exist by the acts of all production. The division of labor exists by specialization and trade. If we all became farmers growing different crops for trade, who would be the doctors? You can do whatever you can and want in a free market and do with those earnings whatever you please (we assume you are hard at work, inspired by Ron Paul, becoming a medical doctor for the purposes of alleviating sickness for poor children).

  Diane Pagen: "The world's most productive capitalists have relied heavily on the unpaid productive labor of their spouses as key in their own paid market success. The value of unpaid production in Australia has been measured as having a dollar value eleven times as large as Australia's entire annual GNP."

  In a free market you are free to make any and all trade arrangements you wish. Any stay at home spouse (regardless of gender) can trade their production for their work away for the wages of their spouse, and they often do, in one form or another! :P But no labor is ever unpaid. It wouldn't otherwise occur, ever, if it was unpaid, if it didn't by definition make the person doing the labor better off.

  Diane Pagen: "Poverty is mostly a condition of women and their dependents, because income is withheld from them in spite of their production. A productive CEO, or doctor, or restauranteur reaps financial riches--a productive mother reaps none"

  Again, false. Unless you are claiming women are being forced by slave master overseers to perform work they do not wish to undertake, nothing whatsoever is being withheld from their production (and in fact production which is remunerated by money is not generally subject to government taxation). And household work has been lessened and alleviated through capital investment and technological advances to increase productivity. For instance, people can use washing machines rather than banging clothes with a stick in the river. Of course, then somebody has to specialize in producing washing machines to trade for the surplus production output of other producing different things. Washing machines are earning income, *both* for the people who produce them and for the people who use them!

  Diane Pagen: "A slacker in any paid profession will reap more income than the most productive and capable of unpaid parents. This snag in the mainstream economic solutions to poverty must be acknowledged and rectified before successes will occur"

  Income is *subjective*. You will only wash the dishes first before doing the laundry only if the income of clean dishes is more valuable than the income of clean clothes. Whether the income which could have otherwise been earned by working for someone else outside of a home is worth more than the income which is earned by taking care of household matters within a home is purely a subjective valuation preference. And as you claim, "the value of unpaid production in Australia has been measured as having a dollar value eleven times as large as Australia's entire annual GNP." Well no wonder that is a choice preference which is being undertaken! You yourself claim it is *eleven* times more marginally produdtive, eleven times more valuable, than any work which could have otherwise been undertaken outside of the house.

  All spouses who choose to stay at home to take care of children and household work are earning more than they would by doing other work outside of the house by definition of exhibited preferential choice. When you go to the grocery store to buy food, do you lose money, are you worse off from that trade transaction? Of course not. You are by definition better off trading that money for that food. If you weren't, you wouldn't trade money for that food in the first place. And likewise the grocery store is better off from you trading them money for their food.

  Actions, choices, are *preferences* of subjective valuation. Plant a rose bush and your income from that production maintenance is the sight and smell of subjectively valued roses.

  Published: July 22, 2008 7:20 PM

• Connie

  I was told in college, by a professor in a statistics class, of a 'negative income tax' experiment performed quietly by the US Government in a small isolated town sometime prior to 1991. The professor claimed that a negative income tax system was instituted and resulted in the divorce rate skyrocketing. This would imply, among other things, that what Diane Pagen says is true. I have been unable to find to find any solid reference to the experiment in question, but I am not surprised in that it is something that, purportedly, the government wanted stifled. I would appreciate any information anyone has about the experiment.

  Published: August 10, 2008 9:34 AM

• Connie

  I was told in college, by a professor in a statistics class, of a 'negative income tax' experiment performed quietly by the US Government in a small isolated town sometime prior to 1991. The professor claimed that a negative income tax system was instituted and resulted in the divorce rate skyrocketing. This would imply, among other things, that what Diane Pagen says is true. I have been unable to find any solid reference to the experiment in question, but I am not surprised in that it is something that, purportedly, the government wanted stifled. I would appreciate any information anyone has about the experiment.

  Published: August 10, 2008 9:36 AM

• regeya

  "There's your error. You don't eat fiat dollar bills for nourishment, or even gold coins for that matter."

  No, but if you have a small village in the middle of nowhere, someone's given you the opportunity to make money for growing rapeseed for biofuels, and in exchange they give you fiat dollars, I would be willing to say that someone will take those "worthless slips of paper" for the service of digging a new well.

  I just had to throw in a jibe about fiat.

  You've also hit the nail on the head on how we ended up with stifling trade unions: We had stifling labor practices. Yep, you're right; nobody will stand around at a steel mill for 12 hours, if there is no ROI, if they owned their property and could go home and grow enough food for the family. Nobody would work at the same steel mill under grueling conditions if all they could afford to do is buy stale bread which would feed the family.

  I see all sorts of ideology online, and anarcho-capitalism is but one of them. There won't be a perfect system, and the one which minimizes human suffering will likely be one in the middle of all those ideologies.

  Published: November 28, 2008 6:19 PM

• vestigial

  The NIT and divorce connection was referred to in Super Crunchers, by Ian Ayers, as the result of a 1966 study by Heather Ross. She was the first person to do a large scale social experiment, and it was called "New Jersey Income Maintenance Experiment". She found that NIT's did not increase unemployment, but did increase divorce. The book doesn't give a logical reason for this, and I'm searching for it online right now (that's how I ran into this site)

  happy travels

  Published: November 30, 2008 9:46 PM