Candidates Seek Small Change
Tectonic change is what we need
January 1, 2008
Fred Foldvary, Ph.D.
Economist

A parrot could be a presidential candidate if one taught it to screech “change.” It would cry “change, change, change!” all day, and that would amount to the substance of most of the campaigns for the Democratic and Republican presidential nominations.

The problem is that the world needs big changes, and the most popular candidates are only offering small change. The Democratic candidates seek to change medical services by increasing the role of government, such as making the state a monopsony, the single buyer of medical services. But the US medical system is already half socialized, and is corrupted by massive fraud. The candidates do not seek the radical change of liberalizing and decriminalizing medicine, but just the small change of increasing the role of the corrupted government policies.

Another small change sought by the Democratic candidates is to slightly reduce global warming by ever more restrictive command-and-control regulations and pollution permits, which is basically more of the same, instead of the big change of the green tax shift, replacing regulations and permit trading with taxes or charges on pollution and other environmental destruction.

As to Iraq, most Democratic candidates seek to gradually withdraw some troops but keep an American military presence in Iraq during the next presidential term: small change. Few of them seek the big change of dismantling America’s global military bases and interventions.

The Democratic candidate who seeks the biggest change is Dennis Kucinich. Perhaps for this reason, Kucinich, like Ron Paul, has been excluded from some candidates’ debates. The issues Kucinich emphasizes are withdrawal from Iraq, the abolition of nuclear weapons, a medical monopsony (single payer), withdrawal from NAFTA and the World Trade Organization, higher taxes on top incomes, decriminalizing marijuana, signing the Kyoto environmental treaty, and forcing taxpayers to finance political campaigns.

In my judgment, some of these changes, such as higher wage taxes, are for the worse, and most of these are really extensions of the status-quo, thus not so radical, but to his credit, Kucinich does not trumpet “change” but shows it by the substance of his policy proposals. If the Democrat voters really wanted major change, they would be supporting Kucinich, yet the most popular candidates are Clinton and Obama, whose campaigns are based on the word “change” but have much less of the substance. Evidently, the voters like the word “change” but don’t really want too much of it.

On the Republican side, Mike Huckabee seeks a seemingly big change in taxation. He would abolish federal income taxes and replace them with national sales tax on new goods. The advocates of a national sales tax say the tax rate would be about a third of the price of goods, but measured against the pre-tax price, the total sales tax rate would have to be about 50 percent to replace all income taxes. The abolition of federal income taxes would also cause the states to eliminate their income taxes and replace them with increased sales taxes. The combined federal and sales tax rate would have to be 50 percent to provide the current level of government revenue, which is about 1/3 of total income. So if you buy a car that costs $20,000 to produce, you would pay $30,000 with tax. A new house that costs $100,000, excluding the land, would cost $150,000 with tax.

Folks would have to borrow extra money to pay the sales tax and pay extra income. Since used goods would be excluded, there would be a huge tax on the sale of a new house but not an old house. But then the price of old houses would rise in proportion to the after-tax price of new houses, so old houses too would be pricier. Land is never new, so it would not be sales taxed at all, a bonus for owners of vacant and underused lots. Why land should be heavily subsidized while new construction severely penalized is a puzzle the “fair tax” hucksters have not explained. With a 50% tax on medical services, insurance rates would zoom up, but this would not be so bad for the rich, who would fly to Thailand for their major medical operations. Indeed, the rich would go to Canada and Mexico to buy goods, and sneak them into the country. The poor would buy goods tax-free from the backs of vans. Theft would greatly increase, as there would be a huge demand for tax free stolen goods - since once stolen and resold, they are used goods!

The result would be a greater excess burden than with current income taxes, and the promotion of a huge underground economy that evades the tax. The advocates call it a “fair tax,” but never explain why it is fair to subsidize landowners and to punish consumption. And they don’t seem to understand that when we stifle consumption, we truncate production. If folks have to pay much more for cars, fewer cars will be produced. Why is this difficult to understand? So really, a national sales tax seems big but is ridiculously small change compared to the really big green tax shift of replacing income and sales taxes with beneficial levies on pollution and land value.

The presidential candidate advocating the most radical change is Ron Paul, a philosophical libertarian in the Republican Party. He would eliminate federal income taxes and radically reduce government spending rather than inflict the economy with huge transaction taxes. Ron Paul seeks to confine government to its true Constitutional functions. That would be a huge change. Ron Paul also seeks a big change in monetary policy, replacing the government’s money monopoly and central monetary planning with a competitive market in money and banking.

Ron Paul’s foreign policy change is also big. He would cease the American imperialism that began with the Spanish-American war of 1898, ending the US policy of intervention in foreign affairs. Ron Paul would also end the war on drug users, abolishing federal prohibition on drugs, thus greatly reducing the prison population and concentrating law enforcement on crimes with real victims. Like Kucinich, Paul does not parrot “change, change!” but shows it by his policy positions.

The truly biggest change would be a pure free market, in which all peaceful and honest activity is unrestricted and untaxed, and government levies are on pollution and land value. The tapping of land rent for public revenue has no excess burden and prevents the subsidy of land by taking back the value generated by beneficial public works and civic services. But no Republican or Democratic candidate is advocating this really tectonic change. So in the end, the changes all the candidates seek fall short of truly earth-shaking shifts.

In my judgment, the Free Earth party platform has the most fundamental policies needed to truly change the world for the best. But it is unknown and has hardly any members. So do folks really want to change the world? Evidently, people want to be parrots who squawk “change,” but who reject is reality.

Find Out More.
Inside information on economics, society, nature, and technology.
Fred Foldvary, Ph.D.
Economist

FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.