Re: Bush busts Social Security with massive deficits

From: Mark Monson (m_monson_at_ztech.com)
Date: 10/06/04 

Date: Wed, 6 Oct 2004 08:34:13 -0400

"Igor" <jjweatherby@houston.rr.com> wrote in message
news:MvB8d.22030$VB3.14928@fe2.texas.rr.com...
> The Trucker wrote:
>
> > Igor wrote:
> >
> >
> >>The Trucker wrote:
> >>
> >>
> >>
> >>>>Returns to
> >>>>capital are dimishing and capital reaches a steady state in the long run
> >>>>in which taxes do not effect.
> >>>
> >>>
> >>>More assertion and nothing else.
> >>>
> >>>
> >>>
> >>>>We can't get much more return from
> >>>>physical capital.
> >>>
> >>>
> >>See Caldor '54 for the data that show all of these statements are not
> >>assertion. Alternatively you could look Prente and Presscot 1998 for
> >>another study of the stylized facts about economic growth.
> >
> >
> > Appeal to authority is not debate. The readers of this thread are not
> > going to spend a lot of time reading economics texts because they do
> > not have the time. Lets use some rationale, reason and logic. The
> > statement "We can't get much more return from physical capital" seems
> > to ignore the fact that new versions of "physical capital" are better
> > and more productive.
>
> No it does not that. That is why we get a growth rate above zero. Think
> of it this way. If you own a business and are increasing capital would
> expect productivity to increase if you bought a machine and had no one
> to use it? As capital increases faster than workers it is spread out
> across more workers. It is more likely it sits idle. Quality is
> controled for in a different way than increasing the amount of capital.
> Capital can not make someone more productive if it is sitting ideal. The
> more machines you have for a unit of labor, the more machines will sit
> idle. Idle times add nothing to productivity.
>
> I suppose we can escape that by separating
> > technological advance and innovation from the classification of
> > "physical capital" and that might actually be OK. But this statement
> > about the steady state of capital in consideration of diminishing
> > returns and the notion that tax mechanisms cannot improve the speed
> > with which "physical capital" is developed and used seems totally
> > bogus.
> >
>
> It can improve the speed at which capital is developed the point
> increasing capital has dimishing returns. When you are already highly
> capital intensitive as the US is, it is hard to expand capital and make
> it productive. I assume you are truck driver by your name, so let me
> give a clearer example. Would owning two trucks allow to double the
> number of loads you deliver? I would doubt so. Yes one truck could be
> used while you get the tires changed or the other truck fixed but you
> still only can use one truck at a time. There comes a point to where
> increasing capital gives little to productivity. Simply because there
> are not enough people to use it effectively.

Yet many workers are idle. What they mainly lack is access to land so they can use
capital effectively.

Land is not being exploited to full potential because many owners underutilize land
or leave land idle in expectation of price appreciation. Land Value Taxation
removes the incentive for land banking and thus causes land to be used efficiently,
increasing demand for both labor and capital.

MM

>
> Oh the technological side we could get growth. The drawback of Solow is
> '56 is precisely that assumes technological growth to be constant. More
> modern models of R&D deal with this better. However just adding capital
> does not automatically mean you are adding better capital. That is why
> tax breaks for corporate research would be a better policy than income
> tax breaks. These subsidize a productive effort that may not have
> diminishing returns. If diminishing returns exist they hit somewhat
> latter. I can't so for sure if they exist. There is an entire literature
> dealing with the possibility price indexes that not accounting for
> quality has understated our growth for quite sometime. Unless the price
> index problem is fixed I can not say anything about diminishing returns
> with certainity.

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