What is "Economics"....and what are "markets"?

There are a bunch of topics here, so bear with me...

Markets are an invention. A bloody good one.

Markets really arose when people started living in cities and having lots of different things to trade. They're also something that can only really happen with regulation - state regulation. A "market" means that I give you money and you give me product. It means that I don't hit you over the head and take what I want....and you don't give me something other than I paid for. That's a market and that's enforced by the state.

Similarly, markets cannot exist without state permission. There is no market in baby meat (or I certainly hope not...). Illegal markets do exist, but really only for small high value items (drugs, rhino horn, etc). But any normal market can only exist with permission. And every market has rules. A great example from the US was that you can make all sorts of toasters; expensive ones, cheap ones, 2-slice toasters or 8-slice toasters...but you cannot make a toaster that goes on fire every second slice. That's illegal.

Beyond that, markets vary widely, but the fundamental "market" that everything came from is the street market. People bring goods to the market and they sell them at the market. It's public, it's open, and it mostly clears every day. It's the original reality behind the word.

There are other kinds of market and they're often studied at business school. Markets where you have to make a huge investment up front and then live on small airlines. Or where markets have very non-linear returns to slightly better products....typical and disturbing on the internet. Or markets where network effects are important. Or markets where the idea of the "natural monopoly" arises. Or markets where no-one seems to have a clue what the product exploding mortgage-backed securities in 2008.

The main point is that regulation and free markets are not antithetical ideas. They're complementary ideas. You can't have a really free market without regulation - and generally without transparency and some incentive to "clear" fairly often.

And if you don't have any regulation on a market it'll probably start looking more and more like the "hit me over the head" style of exchange...and that's not a market. On the other hand, over-regulating a market is a bad idea as it reduces choice, reduces innovation and reduces competition.

What's the right level of regulation? That depends. And that's one of the reasons why watching most political debates on markets is so frustrating. Fixed ideological positions at either end of the spectrum are equally stupid.

Now, while markets vary, they're a fantastic way of getting people to supply what there's demand for, and for getting demand to pay for supply. Other schemes have been tried - central state planning among them - and so far nothing has come close to the messy efficiency of markets. Where there are markets, people become better off really quickly.

There's an important point here. Free markets and "capitalism" aren't the same thing. Capitalism is a comparatively new thing and it's tricky. The end game of unrestricted capitalism is that someone ends up owning everything. And that's bad. But at the same time providing popular goods and services means that whoever's doing that will get more money than people providing unpopular goods and services. At what point does the accumulation of wealth become a problem? More on that below...but it's related to how your state does politics.

What is Taxation for?

Taxation funds the state.

The state provides services that "everyone" needs. Things like defense and law-and-order. And, increasingly, other things too. Planning. Cuurrency. Education services. Health services. All these need money. That's what tax is for. It's for funding what the people decide the state should provide. The state should then make sure it provides those services as efficiently as possible. The point is the public services, not the public servants.

Tax can also be for "social" purposes. To discourage behaviour. To encourage behaviour. To prevent society becoming too unequal. These are social or political purposes. These purposes are trickier. Is it right to use "social engineering". It depends. But at least let's discuss these things honestly.

Income tax, tax "progressivity", etc

Income tax "progressivity" is an interesting idea and an interesting word. "Progressive" has so many meanings. Socially "progressive" is not the same as "the harder you work the more tax you'll pay". Taxing people more on the basis that they're earning money and are therefore "rich" is just incorrect. Someone who has lots of money can earn nothing and be richer than someone who has no money but is working 3 jobs. Income tax "progressivity" suits the political left, who want to punish the "rich". And it suits the political right, who want to protect their actual wealth.

Should income tax be progressive? Yeah, probably a little. Ireland's system is punitive. Particularly when so many people are spending after-tax income to pay huge sums of money to asset owners who can hide their income.

How should tax revenues be spent?

As efficiently as possible.

Mis-spending tax money is theft.


Someone's going to ask about CETA at some here's where I'm at....

  • I don't have a lot of background in international trade law, but I've been reading contracts for 30 years. The text of CETA is in plain English. Read it.

  • While there are potentially a few "theoretically possible" issues, I haven't been pointed to any "likely to ever happen" issues nor any that would "survive politically for more than a wet weekend" issues.

  • Hearing that people had "issues" with CETA, I started asking people questions - often on twitter.

  • Generally a few things would happen.....

    • People would ask me to read someone else's opinion on it. Often no-one that would seem likely to have a credible view - or any more credible than mine.

    • I'd end up asking if the person (including various Green TDs) had read the text, and if so what their specific problem was.

    • Often, they hadn't actually read the text of CETA (section 8, read's easy and short) and they couldn't or certainly wouldn't tell me what their specific problem with it was.

    • I would usually also end up being insulted and on a few occasions accused of being a "blueshirt". Ehm, no.

    • From what I can see, any issues around the CETA text are theoretical constitutional issues....not practical ones.

    • Tell me if I'm wrong. But read it first.