newsflash from australia: one in six families is solely dependent on welfare for sustenance.

many of those claiming disability pensions could quite easily appear on the unemloyment lists, but a sympathetic doctor or psychologist sees them migrate to the less troublesome benefit.

we don’t need any more fiddling at the edges here, just a cut on taxes. not cut and paste.

the introduction of the goods-and-services tax should be a lesson to all tax-tinkerers. like michael jackson and the scalpel, every time you touch it the sheer horribleness increases.

Fundamentalist wrote “Don’t post a link to Kevin Carson and expect me to take you seriously”.

I only referred to his post in passing, so people could see his comments. The main reference is to someting he found; I present it so people can assess it for themselves. It isn’t KC’s work.

Fundamentalist also wrote ‘I agree that the bottom quintiles have faired poorly in the past decade, but not the past 30 years. There are a lot of reasons for inequality in wages that are natural to mankind, such as IQ, education, age, location. If you care to know the truth about inequality you need to read a little book “On the Gap Between the Rich and the Poor” by Young Back Choi. It’s available at the Institute for Economic Research web site. I’m interested in removing inequality caused by the state. Inflation is one of them.’

Which implies, Fundamentalist doesn’t agree with the data presented and/or the inferences drawn. Fair enough, if there’s more to that disagreement than “my mind is made up, do not confuse me with the facts” – if he has a reason for it. Not if it’s just prejudice.

Fundamentalist quotes me, “Here in Australia, GST (VAT by another name) is currently set at 10%. With the Swales approach, that percentage would go up, but the tax breaks would come in at the same time as well”, then misunderstands: “That’s what I said would happen. The tax on someone must go up in order to pay for the tax break to someone else because socialist governments never reduce their spending.”

That is not what he said would happen. He said taxes would go up, but that quotation only refers to a percentage used in intermediate calculations. That percentage is not the tax, because you still have to take off the tax breaks before you get the tax. And, as I pointed out, the tax total does not go up; if you wanted to you could put in adjustments so that no sector or even single payer paid more (though it’s not worth the bother, because the total tax take soon drops).

Fundamentalist is also mistaken about “There is another economic law that Swales chooses to ignore: you get more of what you subsidize. The demand for Swales tax breaks could become so huge as to bankrupt the state, though that’s not a bad idea, either.”

Kim Swales does not ignore it, it is actually what he is aiming at. The effect Fundamentalist describes in the second sentence is what would happen if you overdid it, rather than just setting the tax breaks at a level to offset unemployment benefits. He is right about the effect if you overdo it, wrong in thinking that the Swales approach seeks to set overdone levels like that.

Stanley Pinchak misreports: “Kim Swales even said so much [i.e., Newson's comments] in her proposal to the EC”.

This clearly shows that Stanley Pinchak has not looked properly at the references I gave but only cherry picked. Kim Swales is a man,

Stanley Pinchak accuses me of a material omission: ‘I quote again, since Mr. Lawrence kindly ignored it. “Indeed, in some simulations reported in Table 2 increased employment in low income groups occurs partly at the expense of lower employment and real wages for higher-wage sectors of the labour force. At the very least, policy makers should be aware of these possible distributional implications.” Certainly sounds like subsidization is going to reduce the incentive for productive output, like all socialist schemes.’

No, as Stanley Pinchak would have seen if he had bothered to read further. The modelling indicates that as well as unemployment falling, GDP would go up. The incentive is actually to get people into the workplace where they would at least produce something, as opposed to being sidelined, receiving unemployment benefits, and not producing anything. That is a gain, The issue brought out in that passage actually relates to what happens to people who are currently gaining from the distortions, once they lose their free ride. I’m sure they would have something to say about it – but if they complain that they got everything fairly, that only means that they didn’t make the state distortion, it doesn’t mean that they got it from a free market. Even crooked roulette games set up some winners.

Stanley Pinchak misunderstands: “But hey, its reverse Pigovian, so it has to work out right?”

He’s got that back to front. We don’t say “Pigovian” and stand back expecting an improvement, we ask “does this improve things?”, and as, when and if we – separately – find it does, we can safely call it Pigovian. That is, we only use the word “Pigovian” when separate checks show there is a net gain.

Stanley Pinchak yet again misunderstands: “I can say the magic words and subsidies will go up but overall tax take will remain neutral. Sure, but only at the expense of total economic output. This scheme, like all distribution schemes encourages the productive class to become part of the net subsidized class. Way to go team intervention.”

He didn’t bother to check, he just came out with his standard answer regardless. Economic output goes up – don’t take my word for it, check it, using my reasoning or Kim Swales’s or something completely independent. But do not counter-accuse that it goes down without showing some reasoning behind that, something other than the circularity of “subsidies always make things worse”. Not when they offset some other distortion, they don’t (I have already suggested a literature search if you don’t believe that). As it happens, this scheme encourages those who are already in a subsidised group (from the present unemployment benefits distortion) to start being more constructive (net subsidies go down and distortion goes down).