What's the deal with universities‽‽‽‽‽‽‽‽‽‽‽‽
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it's bad, especially for the libertarian position
You have that backwards.
Because the only alternative is to enforce businesses operating at economic efficiency.
If you do so with incentives, then those incentives become "rent", which is counter productive.
Otherwise, you're left with regulation, at which point a libertarian is going to disagree.
You said it yourself. Rational thought says that if a business can't earn rent, it shouldn't exist.
You've created a paradox.
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Yes, the libertarian position is disconnected from the neo-classical economic theory it claims to espouse and also untenable.
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So if I get this right, you are arguing from an ideal.
And boomzilla is arguing from reality.Because you make certain concessions when you argue from reality.
Like promoting a system that's actually tenable.
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Now @Captain, as a business owner you have increased risk, and you have increased expenses. Buttuming that you are a successful business owner, that increased risk and increased expense translate into increased returns. How is that an inordinate benefit from public goods?
Let's go through it again.
You have a business that operates in perfect competition, ideally in a global market. I think we all agree this is the neo-classical/libertarian ideal. At this point, you earn no profit, by definition. Let's assume that your binding constraint to growth is labor costs (i.e., anything but electricity)
Now Mr. Big Bad Government comes to town and builds a nuclear power plant. The extra electricity lowers your costs by 5%. No bank will loan you more capital just to bring you back to earning the risk-free rate (the investment has to earn more than the loan's interest rate, or else it can't pay for itself). So you're "stuck" making the same amount of widgets as before, only it costs 95% as much. You now make 1.0526 times what you made before. That 5.26% is free money, entirely unrelated to anything you have done, do, or can do. In this position, you wouldn't even pay for more electricity, because your production frontier is bound by labor costs.
Now, consider another source of rent, from the same infrastructure. Your business was "competitive", but only in a small, regional market. Lots of other people are willing to enter the industry, but their electricity costs are 20% of their cost of capital and 15% of their operating costs. Their business is unviable. In short, the whole small, regional market is earning rent from infrastructure, since the lower costs in the regional market excludes other businesses from entering the market. Both of these effects are significant, if distinct, sources of economic rent.
This is why governments subsidize industries like farming, where perfect competition actually does (or could, since wheat is wheat is wheat) exist. No bank would lend farmers money to pay for tractors if the best the tractors could do was earn the risk-free interest rate. The bank might as well buy risk-free bonds and not take any risk in the first place.
Also: the claim that infrastructure is a public good is a red herring. Businesses are not public goods (in fact, good brands are highly scarce), and it is business owners that get paid rent for owning businesses.
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I have been arguing from reality, using the neo-classical language a libertarian should know. It is a reality that infrastructure creates distributional advantages for the business owning class that it does not for the consumer class. For the ideal of libertarianism to work, its basic tenets would have to be satisfied (like competitive markets, but fat chance there. No business, including mine, wants them)
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Now Mr. Big Bad Government comes to town and builds a nuclear power plant. The extra electricity lowers your costs by 5%. No bank will loan you more capital just to bring you back to earning the risk-free rate (the investment has to earn more than the loan's interest rate, or else it can't pay for itself). So you're "stuck" making the same amount of widgets as before, only it costs 95% as much. You now make 1.0526 times what you made before. That 5.26% is free money, entirely unrelated to anything you have done, do, or can do. In this position, you wouldn't even pay for more electricity, because your production frontier is bound by labor costs.
Your scenario is inaccurate, for a couple reasons.
First, building a nuclear power plant in an area will not automatically lower electrical costs. The government will need to recoup the costs for operating the plant, and they aren't going to just do it through taxes. In fact, in some areas, new power plants may actually mean an increase in rates to help pay for the new plant.
Second, your 5.26% earnings increase is based on some arbitrary assumption about how power consumption relates to this fictional company's net profits. In fact, it looks like you just took 1 and divided by 0.95, so I'm guessing that you were working off the assumption that the power bill was the only expense (aka, 100% operating costs) and it was roughly equivalent to 50% of the company's revenue. More realistically, the power bill is probably a fraction of the company's expenses, and the company is likely operating with less than a 50% profit margin. In all a 5% reduction in the power bill probably results in a <1% change in net profitability.
Now, consider another source of rent, from the same infrastructure. Your business was "competitive", but only in a small, regional market. Lots of other people are willing to enter the industry, but their electricity costs are 20% of their cost of capital and 15% of their operating costs. Their business is unviable. In short, the whole small, regional market is earning rent from infrastructure, since the lower costs in the regional market excludes other businesses from entering the market. Both of these effects are significant, if distinct, sources of economic rent.
If the other businesses in the regional market are only spending 15% of their operating costs on electricity, then they're kicking your ass. After all, I've shown that your fictional company was spending 100% of its operating costs on electricity.
the claim that infrastructure is a public good is a red herring.
Roads, sewer, public utilities aren't public goods? Or are you saying they aren't infrastructure now?Businesses are not public goods
No one ever claimed such a thing.
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A minute technical argument? Economic rent is the basis for modern business management.
So? That doesn't mean it makes sense to talk about "excess benefit" from public goods.
Hint: If a business doesn't earn rent, it earns the competitive market price. And, by definition, this means it earns no marginal profit. And, by definition, it means the owner was better off buying risk-free bonds.
So? That's not the only thing that the public goods are doing. Those public goods aren't the only things that taxes are paying for.
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You guys seem to be arguing different things.
@Captain seems to be arguing whether or not subgroups get advantages through the tax system.
@boomzilla seems to be arguing whether this is fair.
I'm saying that it's not right to say that a particular advantage is excess when all you're looking at is one tiny aspect of it. And, BTW, ignoring the costs. If you're going to say that's excessive, then there must be something more. Either you're really too myopic to see the context or you're making an argument based on fairness.
I'm willing to concede that he's wrong by being too myopic instead of whining about fairness.
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But the fact that businesses earn rent means that businesses are not operating at the point of economic efficiency. Unfair or not, it's bad, especially for the libertarian position.
No, that's not what I argued at all. I was arguing with your use of "inordinate" and "excess."
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Also: the claim that infrastructure is a public good is a red herring
How so?
Businesses are not public goods (in fact, good brands are highly scarce), and it is business owners that get paid rent for owning businesses.
Your'e the only one making a claim about businesses being public goods.
No bank would lend farmers money to pay for tractors if the best the tractors could do was earn the risk-free interest rate.
You're way too focused on risk-free interest rates and the theories of economics as they play out on paper.
It is a reality that infrastructure creates distributional advantages for the business owning class that it does not for the consumer class.
ZOMG, different people do different things. None of this makes the case that any of this is excess, unless this is the only thing it does and if we assume that we're all contributing to them equally.
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in perfect competition
At this point, you earn no profit
At which point, you don't exist.
No bank would lend farmers money to pay for tractors if the best the tractors could do was earn the risk-free interest rate
Except that the farmer won't be paying the interest rate forever, he might decide to take a loss for a few years to offset the fact that he's losing money on the tractor for the first five years.
Then the bank can actually ask for more than the risk-free rate.
The only way this wouldn't happen is if the farmer never overcome the extra interest throughout their lifetime. Except that someone may be willing to take a loss so their children benefit. Then you have to consider the possibility that the interest rate is so high that they never would overcome the loss. At which point competition comes in to bring that back down.
Unless the market is saturated, like in California houses, and the loanee is paying only interest on the loan, like an idiot.
Not to mention that people make calculation mistakes, and there could be a farmer that doesn't realize he's taking a loss.
You've made the situation too ideal.
Economic theories are only models. Real life does not work that way.
In real life, people get credit cards and live outside their means. In real life, people buy houses on variable rates they can't afford and end up foreclosing.
In real life, markets dry up, and people move, and shit happens.
A economic model, or any scientific model, is only good for making predictions, and never actually explains the true reality. The universe has a way of shitting on models.
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A economic model, or any scientific model, is only good for making predictions, and never actually explains the true reality. The universe has a way of shitting on models.
I object to "economics" being labelled as a science.
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I object to "economics" being labelled as a science.
I think it's OK if you include the proper adjective: dismal.
