Christmas Eve -- "The Nativity" and Economics

My thoughts turn to current political-economic affairs after watching “The Nativity” – where taxes and choice are featured dramatically in this revered story.

Taxes are by definition compulsory and oppressive. In contrast, profit-based businesses and other organizations and individuals that either supply or encourage the sale of products or services are subject to choice, not compulsion. Taxes are compulsory means which conflict with individual choice.

Using other people’s money, even to "do good," introduces the hazards of conflicts of interest of third-parties (politicians, bureaucrats, intermediaries, etc.) whose interests may not be aligned with the first party (with excess to impart) or the second party (with needs to fill).

Third parties have a fiduciary responsibility, and enticements to violate trust in pursuit of self-interest are sufficiently intense that avoiding even the appearance of impropriety is crucial to protecting the interests of 1st and 2nd parties.

Profit-based businesses and other organizations and individuals that provide products and services without compulsory means, sharing rewards equitably, and imparting of their excess to those in need for prices voluntarily and willingly paid are economically productive participants in a free market economic system.

Private profit-based businesses have immense potential for good, as needs are identified and filled for mutual benefit, at prices paid by willing buyers and received by willing sellers. As soon as taxes are introduced, the pricing mechanism is distorted as the tax either makes the price higher than the buyer would have preferred, or forces the seller to sell for a price lower than the seller would have preferred.

Taxes are typically justified to make expenditures for the public good. The value of the public goods depends upon usage by consuming members of the public. Since usage varies according to circumstances, the cost of public goods is invariably distorted for particular individuals whose usage deviates significantly from the mean.

The alternatives to taxes include usage fees, as in park fees, toll bridges, toll roads, or the voluntary choice of private benefactors who voluntarily gift specific items of infrastructure for the public good, or fund projects for promotion. The immense danger of taxes is the tendency to increase the size government and the oppressiveness of compulsory dominion.

The laws of supply and demand and free market competition work to achieve optimum pricing over time. If the supply is too low in relation to demand, resultant prices will be higher until supply is increased or demand is reduced. If the price is “too high,” actual volume transacted will either be artificially low as demand is voluntarily unfilled or competition will add to supply to meet demand and prices will lower accordingly. If the supply is too high in relation to demand, prices will be lower to reduce supply.

Free market pricing of supply in relation to demand is superior to any other approach to pricing. Pricing set or affected by any third party will necessarily be less efficient, less fair, and less precise than pricing set by and between two voluntarily agreeing mutually benefited parties, one selling and one buying.

Providers, producers, or sellers do what they do to meet their needs by producing profit, which is simply income remaining after all costs and expenses. They need that income as a quantity of medium of exchange to acquire other things they need.

The incentive to produce profit or income is sometimes erroneously called “greed.” The incentive begins with justifiable need or desire in the pursuit of self-reliance. It can become greed or avarice in the extreme.

Efforts to share incentives for the general good and betterment of all participants work to minimize individual avarice.