Tag: Fundamentals

The principle is simple.

Wages and taxes must cover the cost of maintainence and replacement of capital plus any negative externalities.

Maintainence of capital, as horrible as the phrase sounds, includes workers. They must have a wage sufficient to eat well, live in a healthy place, buy entertainment, and have children. That is maintainence of “human capital.”

Taxes must be at a level sufficient to replace society’s capital base. That includes running schools, roads, courts, and all of that.

Businesses which put particular wear on specific portions of capital should be charged extra taxes. Are you degrading “natural capital” by polluting or drawing down water or timber reserves? You need to pay the replacement cost. Are you putting more stress on roads than normal businesses? You pay for that as well.

Prices should run on the same principle. Charging less than the cost of operating plus the replacement cost of capital and the price of any externalities mean the company is underpricing its goods.

“But it’s a free market.”

Free markets work when, and only when, full costs are priced in. If you charge less than the full price, you undercut those business that are charging full cost, driving them out of business. Because they were actually paying the freight for their business and you aren’t, you are free-loading, a parasite.

Competitive markets require more than the above to exist, but these are some of the requirements. One can deliberately choose, as a society, to subsidize an important sector (perhaps renewables, perhaps education), but the actual costs still need to be known and covered by society.

If you see a business or government which isn’t covering the cost of replacing its capital, whether human, natural, or otherwise, you see a business or government which is parasitical on the past, on people, or on the environment.

You will virtually always wind up paying the price anyway. But paying on the back end is far more expensive.

Corporations and people usually get rich by offloading their capital costs…by not paying them. For an example of this, look into the history and practices of Walmart, which did not, and does not, even pay its employees enough to feed themselves, and whose business practices wiped out the downtowns of most of small-town America.

The Waltons are rich precisely because they downloaded their costs onto other people and pocketed the difference.

A good society does not allow this to be done without democratic determination, and makes it as transparent as possible. If something is being subsidized, it should be known, and those who are receiving the subsidy should not be allowed to get rich off it. Want to get rich?  Great, do it in an unsubsidized business. You’re welcome to “do well” in a subsidized one, but not to become a billionaire.

This stuff is fundamental. It was well understood by the New Deal Liberals who ran World War II (no war rich!), and the post-war economy. They didn’t always live up to it, but they did know it. We seem to have forgotten.