Sunday, April 20, 2014
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

More on notion of prophets and losses

sowell column sig

By
From page A9 | February 17, 2013 | Leave Comment

People on both sides of tax issues often speak of such things as a “$300 billion tax increase” or a “$500 billion tax decrease.” That is fine if they are looking back at something that has already happened. But it can be sheer nonsense if they are talking about a proposed increase or decrease in the tax rate.

The government can only raise or lower the tax rate. Whether the actual tax revenues that the government will collect as a result will go up or down is a matter of prophecy. And these prophecies have been far too wrong far too often to base national policies on them.

When Congress was considering raising the capital gains tax rate from 20 percent to 28 percent in 1986, the Congressional Budget Office advised Congress that this would increase the revenue received from that tax. But the Congressional Budget Office was wrong, not simply about the amount of the tax revenue increase, but about the fact that the capital gains tax revenue actually fell.

There was nothing unique about this example of tax rates and tax revenues moving in opposite directions from each other – and also in opposite directions from the predictions of the Congressional Budget Office. Reductions of the capital gains tax rates in 1978, 1997 and 2003 all led to increased revenues from that tax.

The Congressional Budget Office is by no means the only government agency whose prophecies have been grossly unreliable. Anyone who looks at the history of the Federal Reserve System will find many painful examples of wrong prophecies that led to policies with bad consequences for the whole economy.

In a worldwide context, during the 20th century economic central planning by governments – prophecy at the grandest level – led to so many bad consequences, in countries around the world, that even most socialist and communist governments abandoned central planning by the end of that century.

The failures of governmental prophecies in so many different contexts cannot be blamed on stupidity. Most of the people who made these prophecies were far more educated than the average person, had far more information at their fingertips and probably had higher IQs as well.

Their intellectual superiority to others may well have given them the confidence to venture into areas where no human being has what it takes to make prophecies that lead to policies overriding the plans and actions of millions of other human beings.

As John Stuart Mill said, back in the 19th century, “even if a government were superior in intelligence and knowledge to any single individual in the nation, it must be inferior to all the individuals of the nation taken together.”

People competing with each other, and being forced to make mutual accommodations with each other in the marketplace, are operating in a trial-and-error process.

Human beings are going to make errors in any kind of economic or political system. The question is: Which kind of system punishes errors more quickly, and more effectively, in terms of forcing errors to be corrected?

A market economy with many competitors has incentives and constraints that are the opposite of those in a government monopoly.

Anyone familiar with the economic history of businesses knows that their mistakes have been common and large. But red ink on the bottom line lets them know that they are going to have to shape up or shut down.

Government agencies face no such constraint. The Federal Reserve can keep making the same mistakes in the next hundred years that it made in its first hundred years. Or it can make new and bigger mistakes.

Nor is the Federal Reserve unique. The same thing applies to the Congressional Budget Office and to government agencies on down to the local DMV.

Elected politicians not only can keep making the same mistakes, they have every incentive to deny that they made a mistake in the first place since such an admission can end their careers.

That is why these prophets can lead to our losses.

Thomas Sowell is an author, economist and senior fellow at the Hoover Institution, Stanford University.

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

Bay Area makes growth plans

By Barry Eberling | From Page: A1, 1 Comment

 
Supervisor candidates vary on Plan Bay Area

By Barry Eberling | From Page: A1, 14 Comments | Gallery

Earth Day means cleanup Day for Suisun City

By Susan Hiland | From Page: A1, 5 Comments | Gallery

 
Hop to it: Couple lights up home, yard for Easter

By Amy Maginnis-Honey | From Page: C1

Ranking the best Bay Area athletes

By Brad Stanhope | From Page: A2

 
The Edge hosts Easter egg hunt

By Adrienne Harris | From Page: A3

Alooma Temple keeps children in mind

By Adrienne Harris | From Page: A3 | Gallery

 
Fairfield author to speak at women’s expo

By Susan Hiland | From Page: A3

Piano scholarship competition set in Vallejo

By Susan Hiland | From Page: A3

 
The resurrection has changed the lives of Christians

By Perry W. Polk | From Page: C3

 
Armijo graduate completes basic training

By Nick DeCicco | From Page: C4

 
Understanding your health insurance

By Morgan Westfall | From Page: D4, 1 Comment

 
Record Store Day a commercial hit

By Adrienne Harris | From Page: A5 | Gallery

Easter egg hunt brings out the smiles

By Susan Hiland | From Page: A5, 2 Comments | Gallery

 
Dutch Bros. joins Fairfield coffee corridor

By Barry Eberling | From Page: B7, 6 Comments | Gallery

City sets plan to dispose of property assets

By Brian Miller and Karl Dumas | From Page: B7, 1 Comment

 
Fairfield police log: April 17, 2014

By Susan Hiland | From Page: A12

Suisun City police log: April 17, 2014

By Susan Hiland | From Page: A12

 
.

US / World

Counties tell Brown they need money for his law

By The Associated Press | From Page: A1, 1 Comment

 
San Francisco probe leading to entrapment claims

By The Associated Press | From Page: A6

Exhibit recreates Warhol’s 1964 World’s Fair mural

By The Associated Press | From Page: A10

 
NASA’s space station Robonaut finally getting legs

By The Associated Press | From Page: A10 | Gallery

Ohio couple married 70 years die 15 hours apart

By The Associated Press | From Page: A11 | Gallery

 
Documents detail another delayed GM recall

By The Associated Press | From Page: A11, 1 Comment

At barricades, Ukraine insurgents await Easter

By The Associated Press | From Page: A13

 
Official: 3 bodies retrieved from inside ferry

By The Associated Press | From Page: A13 | Gallery

13th body pulled from snow in Everest avalanche

By The Associated Press | From Page: A13

 
Costa Rican a celebrity after certified miracle

By The Associated Press | From Page: A14 | Gallery

.

Opinion

Government … for the government?

By Bill James | From Page: A8, 9 Comments

 
Editorial Cartoons for April 20, 2014

By Daily Republic Syndicated Content | From Page: A8

Question of the week: Will Flight 370 be found?

By Daily Republic | From Page: A8

 
Neighborhood speeders don’t get it

By Letter to the Editor | From Page: A8, 7 Comments

 
Why would a person do this?

By Letter to the Editor | From Page: A8, 3 Comments

Sound off for April 20, 2014

By Daily Republic | From Page: A8, 1 Comment

 
Jeb Bush, love, and today’s GOP

By Ruben Navarrette | From Page: A9, 1 Comment

 
 
.

Living

Today in History for April 20, 2014

By The Associated Press | From Page: A2

 
Community Calendar: April 20, 2014

By Susan Hiland | From Page: A2

Bill Nye says he underestimated debate’s impact

By The Associated Press | From Page: C3, 10 Comments

 
Book details lives of cloistered nuns

By The Associated Press | From Page: C3

Horoscopes for April 20, 2014

By Holiday Mathis | From Page: D4

 
Pete spends weekends at my house but he never invites me to his

By Kathy Mitchell and Marcy Sugar | From Page: D4

.

Entertainment

Flea of Red Hot Chili Peppers has book deal

By The Associated Press | From Page: C2

 
Tartt, Goodwin finalists for Carnegie medals

By The Associated Press | From Page: C2

New book on fracking illuminates pros, cons

By The Associated Press | From Page: C2

 
PUBLISHERS WEEKLY BEST-SELLERS

By The Associated Press | From Page: C2

TVGrid

By Daily Republic Syndicated Content | From Page: B11

 
.

Sports

A’s score 3 in 9th, rally past Astros 4-3

By The Associated Press | From Page: B1 | Gallery

 
Warriors beat Clippers 109-105 in playoff opener

By The Associated Press | From Page: B1 | Gallery

 
Kings, Sharks look to put Game 1 in past

By The Associated Press | From Page: B1 | Gallery

Stults, Padres hand Giants third straight loss

By The Associated Press | From Page: B1

 
Hawks take 1-0 lead by rolling past Pacers 101-93

By The Associated Press | From Page: B2

Calathes suspension a reminder of supplement risk

By The Associated Press | From Page: B2

 
Raptors GM Ujiri uses profanity about Brooklyn

By The Associated Press | From Page: B2

Williams scores 24 as Nets beat Raptors 94-87

By The Associated Press | From Page: B2 | Gallery

 
Durant leads Thunder past Grizzlies 100-86

By The Associated Press | From Page: B2

Federer beats injured Djokovic to reach final

By The Associated Press | From Page: B3 | Gallery

 
Indians set two new school records for track

By Daily Republic staff | From Page: B4

Wie shoots 67, wins LPGA LOTTE Championship

By The Associated Press | From Page: B4

 
Rapids, Earthquakes play to scoreless tie

By The Associated Press | From Page: B4

Travis Bowl Highlights

By Daily Republic | From Page: B4

 
Jimenez leads Langer by 1 shot in Greater Gwinnett

By The Associated Press | From Page: B4

Stars Recreation bowling results

By Daily Republic | From Page: B4

 
Donald shoots 66, takes lead at RBC Heritage

By The Associated Press | From Page: B4

Big names among prospective Buffalo Bills buyers

By The Associated Press | From Page: B4

 
Award-winning archery champ shoots with his teeth

By The Associated Press | From Page: B6 | Gallery

Survivors keep busy as Boston Marathon approaches

By The Associated Press | From Page: B6

 
.

Business

Why high oil prices are actually good for airlines

By The Associated Press | From Page: B7

 
US delays review of contentious Keystone pipeline

By The Associated Press | From Page: B7

Subscription sample boxes shake up beauty routines

By The Associated Press | From Page: B8

 
Girls from modest families get lift in technology

By The Associated Press | From Page: B12

Haunted house part of San Antonio apartment lofts

By The Associated Press | From Page: B13

 
Recalls this week: lanterns, exercise devices

By The Associated Press | From Page: B13

Review: Siri-like Cortana fills Windows phone gap

By The Associated Press | From Page: B14

 
.

Obituaries

Sealwyn Shirley Brucefield Shepherd Malkiewicz

By Nancy Green | From Page: A4

 
Margaret Elizabeth Silva

By Susan Hiland | From Page: A4

Lloyd G. Hoffmeister

By Nancy Green | From Page: A4

 
Ramon Isidro

By Adrienne Harris | From Page: A4

Rogelio Tinoco-Zamudio

By Susan Hiland | From Page: A4

 
James Leroy Barbour

By Nancy Green | From Page: A4

William Paul Wehrly

By Nancy Green | From Page: A4

 
.

Comics