New Finance Measures

Don Boudreaux often takes an extreme position on various economic proposals, but couples his views with a very logical, sensible construct which demands evaluation. He has done so again with this Letter. Don is correct in his assessment that giving an Oil tax to the Government to spend stands as a very expensive externality. The Tax revenues raised would be quickly spent by Vote-hungry legislators, and to functionally no one’s actual economic value. One should not couple Politics and Economics, as both face great liability with rare gain.

Tim Worstall presents the real Problem of ‘Pay-as-you-go’ funding of Pensions, which can be extended to Health Care. We need to achieve a reducing Population, or face an ever-escalating Cost of either. He suggests raising the retirement level to keep people working through extension of Worklife. This has decreasing marginal returns, and effectively increases the total Health Care Cost dramatically–run a Study and prove that to yourselves. Increasing Taxation for Pensions or Health Care or delaying benefits function very unreliably in an economic sense, as externalities will absorb residual benefits from either Plan. A more reliable economic model need to be adopted.

The common sense approach dictates both adoption of a Gas Tax, and directing increased Revenues to both Pensions and Health Care; this would tie Pensions and Health Care into a integral connection with the economy. The greatest practicality exists for applying the Gas Tax to the other main economic problem, provisioning each with a partial Solution. A Dollar per gallon tax on Fuel, with like Charge per ton of Coal appears sound with devotion to Pension and Health Care funding; but there need be added restriction, to wit, all Funds need be directed to private investment for the future, absolutely no Treasuries to be purchased with the Revenues. The ideal situation is the creation of a Social Security bank, which cannot extend Loans to Anyone other than fellow Banks; the Fed restricted from lending to member banks until all Social Security bank revenues have been absorbed. The entire Issue of Interest rate levels enter the Picture at this point, with Monetarist Protests on loss of Interest rate manipulation; but a mandated 4.25% extension rate would stabilize Interest rates, and the Fed has shown little ability to control the level of Investment through Interest rate changes. lgl