Small Property Versus Big Government

Mish Shedlock is quoting Hussman on inflation/deflation debate:

To clarify once again - I emphatically do not anticipate inflationary pressures until the second half of this decade. As I've repeatedly emphasized, the primary driver of inflation - historically and across countries - has been growth in government spending for purposes that do not expand the productive capacity of the economy.

Perzactly!  I am reading a very good book on 1970's California anti-tax revolt led by Howard Jarvis that resulted in proposition 13, and a tremendous cut back on property taxes.

The writer's thesis is the small property owners anti-tax initiative was hijacked so that big business got the lions share of the benefit of the tax cuts.  The copyright is 1990 so it does not have the experience of the last 20 years to draw upon, but it tells an interesting story that would very much benefit the Tea Party folk today.  I'll give story away:  you too will fail to reform the system.

The story is clearly laid out, and the author's thesis is "the political processes affect, and sometimes completely alter, the redistributive program of a movement."  In essence, The Man could care less, and will use his government office to frustrate you.  The powers that be will hijack your movement, and use it to please themselves.  Please note that Dick Armey is in charge of the Teaparty movement.  The fix is in.

Back to the 1970's... the government was printing money wildly and the inflation was showing up in home prices.  County assessors in California were shifting from personal assessing to computer-based assessments.  (Here the author makes another observation:  an assessor deciding on his own may take a bribe to lower an assessment, but he will also pity the unemployed worker and lower the assessment there too. A computer can't do either. Score one for corruption.)

As the property values skyrocketed, based on comparable sales (a ludicrous way to establish property values) people who bought $20,000 homes at 6% taxes, found they were soon enough living in $100,000 homes, at 6% taxes.  From $1200 to $6000 in taxes, when one's income only went up from $11,000 to $12,000 in the same period.

The author, Clarence Y. H. Lo,  makes an interesting observation:  although the media and government (well, that is the same thing) portrayed the activists, homeowners and small business people, as wanting to change the system, in fact the activists wanted to keep things the way they were, they wanted to put limits on tax increases. It was the government that was changing things, by destroying home ownership and small business through rapidly rising taxes.

The small guy thought he won the fight.  And would have, if the powers that be did not simply raise fees and assessments on anything and everything else, to make up the loss (and more) from property taxes.  The size and scope of government kept growing, it did not miss a beat.

The author sees big business gaining most of the benefit from proposition 13, as opposed to the small business and property owners.  There is a fundamental error in the thinking though: businesses do not pay taxes.  The customers pay the taxes.  All taxes are ultimately borne by the consumer. It is impossible in theory and practice to tax a business. At best you can make a business an unpaid tax collector, but even that cost they will pass on to the consumer.

What the author does not observe, nor almost no one else asks, is what is the vast amounts of new money, collected in these tax rises, what is the money used for?  Well, it is used to vastly expand government hiring,  jack up salaries of government workers to the point they take home double what private industry does, promise them gold plated pensions to get their votes at re-election time,  launder massive sums through "public works" projects... gold plate camping grounds and college campuses, in short spend the increase on the unnecessary and based on the unsustainable.  What the author did not see 20 years ago we see today: California is bankrupt, not from a lack of taxes collected, but what it is spent on.  Which takes us back to Hussman's quote:

the primary driver of inflation - historically and across countries - has been growth in government spending for purposes that do not expand the productive capacity of the economy.

Perzactly!  If any reform contemplated today does not include reducing both the number of people working for government, plus cutting taxes by the amount collected to support them, say going back to at least 1990 levels, we will see no improvement.  This would require that the social security numbers of the riffed government workers were put in a database to be consulted before hiring anyone for govt work, and it would be a criminal offense for them to take another government job,  on both sides of the application (employer and employee.)  Noting short will do the trick.

In a book printed by Cal Berkeley Press, redistribution would be an important point.  The premise is redistribution is a fundamental government task.  Again, this is nonsense. Redistribution is a market function.  The freer the market, the better the redistribution of goods and services.  People forget the Jim Crow laws were laws, that is enforced by government.  Going against government, Martin Luther King got no where.  Appealing to businesses, he made progress.  The government maintains the status quo for the powers that be, such as with the Jim Crow laws.  It is up to business and activists to set things right.

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