Dynamic Systems

Original Post by Blue Collar:

Higher income, higher taxes. Basically, fifteen blue states fund the federal government ... at least to the extent of anything not returned to the states.

Perhaps we should approve, or disapprove, of war on the method of one vote per paying state.

Taxation without representation sucks.

Taxation with representation sucks too.

I question that representation offered to one generation is representation offered to all future generations, but that's another debate.

The principal problem with big government and both political parties which support it is one inherent to all dynamic systems.

In smaller dynamic systems – say personal income – the simple act of either adjusting either income or spending can have a dramatic effect of the life style of a family.  However, assuming all things remain equal, this becomes less and less true – especially on the income side – as wealth grows.  This is the basis for people having an abundance with which they choose to invest.

The act of successful investing creates a more complex dynamic personal income system by introducing a new use for or ability to generate income.  I say it is more complex because – discounting static investors – it will generate its own list of sometimes exacting demands on personal time.

However, on the spending side of personal life style there comes a point of diminishing returns ... where being cheap or self sufficient actually means taking time away from the act of generating income in excess of what is being saved.

Now about much more complex dynamic systems.

When a system is sufficiently large the point of diminishing returns becomes an issue on both the funding side and the spending side.

The basis for the much derided Supply Side paradigm – or a "demand side" tax cut like the tax rebate of a few years ago – is based on the cumulative effects of innumerable simple dynamic systems having more money to spend or invest.  This idea arises from the realization that government cost are an expense to Persons which is beyond their control.

With a flat tax there is no point of diminishing returns for personal income with respect to government cost; however, a progressive tax structure with a complex array of deduction opportunities creates different levels of diminishing returns for income at the same time as these artificially reward certain spending or debt habits by allowing Persons to shelter income in accordance to a list of approved of expendatures: all of which add to the complexity of personal dynamic systems.

The so-called "fair tax" of a uniform sales tax is anything but.  A sales tax – even one that makes ample exemptions for necessities – places the burden for the support of government of those who do not either contol their abundant spending or cannot make any more economies ... in effect, placing government in the unwholesome position of needing to discourage investment and wealth building in favor or living for today.

Still, it remains true that the cost of government – however it is assessed – will be a major contributing limit of personal incomes.  The bigger and more expensive the government the bigger the limit.

Now about government spending: when a government body is small like that of a town or a small city it is usually the case that the dynamic system in question is still one which can achieve linear or near-linear results from more spending vs less spending.  Yet there is a limit to how efficiently any system can deal with "more" ... the point of diminishing returns when spending twice as much results in only getting (for example) half again the results.

This is one of the chief defects of the progressive experiment, the inability to recognize that even when all things remain equal (a VERY rare occurance) the ability to spend efficiently is ultimately limited.  This is even more true as any bureaucratic organization expands to meet the demands of spending all that money – the very definition of things NOT remaining equal.

Consider accounting for a moment.  With a small business or family income it is very possible to account for all incomes and expenses with only limited effort.  Add a progressive tax code and complex deduction scheme and this becomes less prudent ... resulting in the financial need to have someone do the work for you.

Aside: the chief reason a flax tax will never happen outright is the almost immediate recession that would occur as millions of personal tax prepairers and CPAs found themselves unemployed or underemployed ... this is a form of a diminishing return brought about by complexity.  The only way to safely achieve a flat tax would be with a scheme of progressively flatter taxes.

Beyond the level of personal income or small business the need for better accounting gives rise to whole accounting departments.  Because of the need for accountability, big business generally recognizes a limit to how much any one accountant can reliably handle ... an amount that decreases as accountability or complexity increases.  This is a form of diminishing return on the mere ability to account for money earned and spent, but it is also a diminishing return on monies earned in the first place as more and more goes to pay for the accounting department.

Beyond the level of business accounting there lay the domain of government accounting.  If business accounting is chiefly characterized by the need to know where everything is coming from or going to, then shouldn't the same be true of government?

Yet in practice this is not the case.  The chief pastime of government is to spend money according to the dictates of elected officials.  The chief pastime of elected officials is getting themselves reelected ... mainly through spending money.  Accountability in government is at the ballot box and not at the accountant's office.

The end result is that larger and huge governments actually demonstrate an inability to account for their means with the further end result being that spending efficiency sometimes goes straight down the toilet.  Not to be too indelicate about it: if Congress had the accounting ethics of Enron or WorldCom that would be a remarkable IMPROVEMENT.

But they don't and we're screwed as a result.

So Blue Collar, back to your proposition about the blue states.

Would it be wise to allow more representation – or more effective representation – to those who are (even more than those red states sucking on the teat) enablers of this manifest waste and fraud that is the federal government?