Sunday, November 18, 2012

Worst US Mistake of the 20th Century?



Beardsley admitted in 1946 that taxes for revenue are obsolete, right AFTER he'd been duped into designing the useless & regressive Social Security tax-withholding scheme.

Probably the worst mistake of the 20th century?

One of the most evil and destructive 'gangsters' in US history?

Or just a banker slow to adjust Situational Awareness?  A decade late and a paradigm short?


8 comments:

Matt Franko said...

Looks like a textbook inability to discern contradiction on Ruml's part here Roger...

ie Ruml writes this right after designing a system that violates his assertion here... he cant see the contradiction...

Your bringing up Ruml here is an 'appeal to authority'...

Since this person (Ruml) that is placed "in authority" is a manifest moron in this regard, this probably wont go anywhere...

rsp,

Matt Franko said...

Same with previous appeals to Greenspan or Bernanke which seems some are starting to understand lately...

If you appeal to a moron, it's going to fail eventually...

rsp,

paul meli said...

"If you appeal to a moron, it's going to fail eventually…"

Right Matt,

If one "appeals to authority" as to whether or not one can fly, the bottom of tall buildings may be littered with splattered bodies.

Ours will not be among them.

beowulf said...

Roger, you're sort of missing the context. One, he was Chairman of the New York Fed. That's basically a figurehead job (Herman Cain, after all, was once Chairman of the Kansas City Fed), the NY Fed is run by its President. Ruml's day job was Treasurer and then Chairman of Macy's. Remember too, Uncle Sam was overclocking the economy to fight WWII (unemployment reached 1.2% in 1944, GDP grew 28% that year) and was doing everything Congress would authorize to keep prices stable (excess profits taxes, rationing, wage/price controls but NOT high interest rates). Perhaps a consumption tax, like the progressive spending tax that Bill Vickrey and his Treasury officemate Milton Friedman advocated would have been better, but income tax withholding was a fairly effective anti-inflation tool.

The mechanics of a withholding tax weren't new, Social Security taxes had been withheld for a few years, the trouble Ruml overcame was that up until 1943, taxes for Year X were due on Year X + 1. By switching to income tax withholding, taxpayers would be on the hook for 1942 taxes and 1943 taxes at the same time. Ruml figured out how to sidestep that problem rather neatly.

Ruml's solution was to forgive the last year's taxes and move to a system of current collection. The flow of money into the Treasury would remain largely unchanged. "As far as the Treasury and income were concerned, things would move along just the same as time moves on under daylight saving," he said. Of course, the government would be sacrificing a year's worth of uncollected tax revenues, but Ruml insisted that the asset loss would only show up when examining the books on "Judgement Day."
http://www.taxhistory.org/thp/readings.nsf/ArtWeb/9A29924C03AB9E1E85256DFE005981F9?OpenDocument

Matt Franko said...

Ruml:

"If federal taxes are insufficient or of the wrong kind, the purchasing power in the hands of the public is likely to be greater than the output of goods and services with which this purchasing demand can be satisfied. If the demand becomes too great, the result will be a rise in prices, and there will be no proportionate increase in the quantity of things for sale. "

This is nonsense. He's basically claiming we cant buy the same goods we produce and are compensated for ex post without causing a price increase...

We should not be appealing to this person's authority....

beowulf said...

"This is nonsense. He's basically claiming we cant buy the same goods we produce and are compensated for ex post without causing a price increase..."

He's talking about the consequences of letting aggregate demand outrun aggregate supply. There's nothing out of paradigm with Ruml's assertion that taxes function to regulate aggregate demand and limit demand-pull inflation.

Roger Erickson said...

Thanks for the update on context, Beowulf. That adds to the picture.

Matt Franko said...

beo,

It's the governments willingness to pay the higher posted prices that facilitates the price increases.

If the govt refused to pay the higher prices, the system would not have the $NFA available to let any demand side led price increases "stick"....

We cant be led into thinking that we cannot "allow ourselves" to purchase all that we can produce without causing problems ... that is where the NAIRU falsehood comes in....

rsp,