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Ersatz Liberals (Part II)

Ersatz Liberals (Part II) Economy Near Us (LV)

In my last communication, I have identified some issues based on which I would illustrate the weaknesses of those I called the ersatz liberals. I want to now add another issue, so I shall examine, below, five cases that are on the table of current political debate: a) a flat tax rate; b) tax adjustments; c) prices increases; d) social responsibility and solidarity on the part of the large companies; e) inter-dependencies between the private sector and the public sector. 

  1. The flat tax rate 

Some debates touched on the problem of replacing the current flat tax rate (on personal income and corporative profit) with a progressive one. I do not want to examine here the pertinence of the suggestion, and the power of the arguments brought either by supporters or by opponents of the non-proportional tax regime into those debates, but I would notice that (almost) all participants confuse the flat tax rate with the small tax rate. Always (with, of course, the adequate thresholds, including Laffer’s curve, etc.) a smaller tax rate is liable to encourage both the expansion of the tax base and the voluntary compliance to pay the taxes, both phenomena leading to an increase in public fiscal revenues. Consequently, my ersatz liberals scream that, by removing the flat tax rate, the budgetary revenues will be reduced – but, for example, if the average of a progressive tax rate is smaller than the current flat tax rate (of course, not quite in such a simplistic way, since it must consider also the structures involved), it is (very) possible that the budget revenues will increase. I never saw a study on the impact of a flat tax rate (no matter its level) on budgetary revenues, although economists (even liberals) should be interested in such an issue. 

  1. Tax adjustments 

Another casus belli inside the governmental coalition is the tax adjustment per se, no matter whether it regards also removing the flat tax rate. The main rejection of this proposal, as administered by the ersatz liberals, is based on the so-called expectations/anticipations of stability within the business environment (including the business plans). As for point (1) above, these liberals remember, partially, what they learned from standard university manuals, namely that there is a background of business environment anchored to the stability of the fiscal system and its procedures. But a question arises here: if a change of that fiscal system and procedures has the potential to better adapt it to the new economic and social realities (as currently happens, in the context of Russia-Ukraine war), to bring more advantage exactly to the business environment, why should such an opportunity be lost only for the sake of the (apodictic) indications of manuals to keep (perhaps at any price) the stability? Of course, the anticipation of change is provided for sufficiently by the imperative/legal condition of the announcement of change with at least six months prior notice of the implementation of changes. 

  1. Price increases 

There are many ersatz liberals (some of them very vocal) who are completely relaxed with regards to the impetuous increase of (almost) all prices in the economy. Their (liberal, they believe) argument is that the prices increase because the demand and supply involved lead to such an increase. I would remind them that demand-supply ratios lead to the natural price (roughly, the equilibrium price), so it is expected to see a fluctuation of the prices in the form of an oscillation, not an irreversible increase. If we do not see that oscillation, this (almost certainly) means that the market structure is too far from its… liberal establishment – namely, the economic freedom is compromised by a ‘market arrest’ phenomena as: a) collusion of producers/distributors (see the case of fuel prices); b) the speculation of scarcity (see the case of food prices); c) adjudication of the windfall profit that happens to occur in the market. I remind the ersatz liberals that the most famous advocate of liberalism (Adam Smith) thought the natural price as the… fair price (i.e., that price which provides the deserved and sustainable income for each production factor involved). Although the managers of NAFA (National Agency for Fiscal Administration) and the Competition Council are more concerned with deciphering the wishes of their bosses in advance, so as not to be removed from office, than to defend the freedom of the market, in fact they should be the main watchmen for this freedom to remain in its functional and ethical limits (of course, by administrative intervention). Perhaps the ersatz liberals have not yet learned, but the market’s freedom is the brother of the market’s fairness. 

  1. Social responsibility and the solidarity on the part of the large companies 

The large companies had always to gain, not only from the economies of scale, but also based on their own merits (in research, management, etc.), generated exactly by their size. Somehow, not (only) from social responsibility they should in solidarity manifest and act with the Government in critical situations (as the current one), but also in order to keep the potential of the economy to provide them, further, with the normative and economic conditions to continue to gain. A well-known principle of fiscality (Nota bene: the only one that functions, by the way) says that he should pay more who has the capacity to pay more. This should not suggest directly and necessarily the progressive tax regime, but only a free understanding of someone to decide/accept to participate in the sweeping of his own yard, especially if one intends to continue to work and gain inside that yard. Although the concept of social responsibility is controversial enough (from a theoretical and logical point of view), perhaps the economic interest in the long term is a sufficient cause to discuss (locally, punctually, and temporarily, of course) such a behaviour of win-win finality in the general economic cooperation game played between the state and the large companies. 

  1. Interdependencies between the private sector and the public sector 

Ersatz liberals display another instance of amnesia concerning the (almost) general position of the parents of liberalism (including of the closest to libertarianism among them) according to which the market freedom is possible only within a normative framework that provides, defends, and restores (if it is the case) that market freedom. I have showed elsewhere the natural slip of the societal organization to economic (and social) insularities, including monopoly/monopsony, in a ‘complete’ (or even too large) de-regulation as some liberals, who remained at the ersatz stage, claim. In fact, I would examine a more specific issue: the idea that the public sector is fed by the private sector. The fact that a part of the taxes paid to the public budget is used to provide (simply, as counter-part) the public services and, in the other part, to provide the public goods (the so-called positive externalities) is not of my interest in the here and now – I would examine the suggestion that the public servants do not pay taxes, since their gross salary includes the taxes due to the state. Really? The amount of salary is established as the deserved remuneration for the activity concerned – and this activity is sized based on the public goods and public services needed in the society. The fact that the gross salary (that includes the taxes due) is paid by the public budget and, then, the same due taxes on personal income is paid back to the same public budget is a simple accounting coincidence, not at all an economic one. Of course, the issue of the size of the budgetary/public sector (to not be confused with the state sector, which contains also the private sector of the state) is another question (see my previous communication on the obese state, under this heading). 

A mischievous remark 

If someone has an irrepressible desire to see, as an eyewitness, a genuine ersatz liberal, the best chance to see them in their natural state is to follow our discombobulating TV analysts.




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