He currently serves as the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution at Stanford University. He is also a research associate of the National Bureau of Economic Research and an adjunct scholar of the Cato Institute.
Professor Cochrane has written articles on the benefits of replacing the income tax with a consumption tax.
Last week was the 250th anniversary of the Wealth of Nations. For the Hoover “weekly rants” I looked up what must be the top two Smith quotes:
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.
Looking at it again, I particularly like the second sentence. That proves the point, we all understand what motivates butchers, bakers, and brewers.
Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. …By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”
(my emphasis). Though intending only private gain, the butcher, baker, and brewer (and even the banker) promotes the interest of society, and does so far more effectively than with philanthropy and other intentional measures.
The Smith quotes attract my attention for their moral vision as well.
To this day, the ethics of the Bay Area hold that making money is a grubby business. Billionaires can only earn some forgiveness for their evil wealth accumulation by their philanthropy. After you’ve made your grubby money, do something good for society by giving it away. Mackenzie Scott is the saint, Jeff Bezos the sinner. Even the Stanford Business School is apologetic about making money.
Those ethics are still rooted in the view that one person can only get wealthy by taking things from another. For thousands of years, that was not a bad approximation. Roman emperors did not gain half the income of the empire by inventing iPhones.
But Smith points out that this is exactly backward. The billionaire who invents a personal computer, an iPhone, or Walmart and then Amazon’s logistics, creates hundreds of billions of value for the rest of us. He or she keeps a tiny fraction. And that fraction is usually left reinvested in the company, churning out more products and employment.
Here is where he or she contributes to society, far more than in billionaires’ usually ham-handed efforts at Philanthropy. (They should buy more art, and less political doo-goodism.)
We celebrate Smith for his foundation of economics as a cause-and-effect discipline. Want greater national prosperity? Here’s what works: Economic freedom, under the rule of property rights and law, and disciplined by the competition that freedom engenders.
And wow did it work. Note the log scale. Average income is up a factor of 20 from Smith’s time.
And GDP is a vast understatement of the benefits (consumer surplus) of growth. Lifespan and child mortality alone make the point. From thousands of years of misery, just a little economic freedom has brought us wonders. Even Smith’s Britain was full of restrictions on who could be in what business, what price they could charge, and so on. And the imperfect freedom we have now gives one hope that even more freedom can provoke additional wonders.
I generally stick to the practical case, not the moral case. We do not have to argue freedom vs. prosperity. We are lucky that the cause and effect is devastatingly true. But the moral case for freedom adds to its practical case. And underlies it as well. Societies that genuinely believe all wealthy people are evil, and the act of running a profitable company reprehensible, that instead prize redistribution especially of other people’s money, will not long allow economic freedom to prosper.
Freedom is also the only “ism”, the only vision for the economic organization of society, that is not in the end predicated on violently taking from A and giving it to B.
This year is also the 250th anniversary of the Declaration of Independence. Our country’s founders shared a similar vision: rather than build a country around the hope that people and especially politicians would act benevolently, in a way they have not done for the last hundred thousand years or so, instead design a political system that channels self-interest to decent public outcome, as Smith points out that a free economic system does. That worked out pretty well too.
If we can keep it.
CONCLUSION
We can “keep it” if we move toward giving freedom back to the people.
THE FAIRTAX IS THE ANSWER.
The FAIRtax Act (H.R. 25) is more than just a proposal for a retail sales tax; it is a fundamental restructuring of the federal fiscal structure. Unlike other excise taxes which normally are applied to specific products and in different percentage amounts, the FAIRtax applies a 23% rate to all new retail products and retail services.
The FAIRtax is a national retail sales tax on new retail goods and retail services which provides a family credit so that all purchases up to the poverty level for each family are not taxed. There is no withholding from your paycheck, and YOU NEVER HAVE TO FILE A TAX RETURN TELLING THE GOVERNMENT HOW MUCH YOU EARNED AND HOW MUCH YOU SPENT, AND YOU’LL NEVER BE HARASSED BY THE IRS EVER AGAIN.
Many of you have labored tirelessly for freedom from the federal income tax and the IRS. You deserve a great deal of credit for your efforts to educate the American people on the need to fund the American government in a way that is good for America and returns freedom to the American people.
It is imperative, though, that we don’t replace the current income tax and the IRS with an alternative system that can still be manipulated by the Ruling Elite. We must let Congress and the President know that the best way to replace the income tax and the IRS is with the FAIRtax.
Make no mistake about it. The FAIRtax is a grave threat to the Ruling Elites. It will strip them of their power and their ability to control us though the tax system. Their opposition to the FAIRtax will be fierce and unrelenting. And don’t think for an instant that they won’t use half-truths, deception and downright lies in their desperate attempt to hang on to their power.
However, with the support of this President, we can finally eliminate the income tax and the IRS!!!
Of course, the best course of action is to not only repeal the income tax and abolish the IRS but to repeal the 16th Amendment as well so no future administration can ever shackle the American people with an income tax again.
We must come together and ensure that real tax reform, the FAIRtax, is not subverted by the Elites in D.C.
This will take the diligent efforts of all of us. We need your financial assistance, and we need your grass roots assistance.
If you have contacts that will allow us to get more information to President Trump about the FAIRtax please let us know.
Please email us at info@fairtax.org and we will give you some options on how you can best help us.
At a minimum, please call your Congressional representative and ask if he or she supports the FAIRtax. If so, thank him/her for their support and suggest they become a cosponsor of HR-25 if they’re not one already. If not, ask why not. If your representative claims to be unfamiliar with the FAIRtax, offer to have someone come to their office and explain it to them.
Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.
THE SOLUTION—PASS THE FAIRTAX!
Why would D.C. pass the FAIRtax and give up this almost unlimited source of donations? The only way that they will is if the rest of us demand it!
Isn’t it time to end this ludicrous tax collection system and the IRS?
HELP BRING ABOUT REAL TAX REFORM AND STOP FUTURE IRS ABUSES
By contributing (investing) $10.40 per month, you help provide a financial base to AFFT. If you can make larger contributions (investments), these will be used not for salaries, as we are all volunteers, but for the needed updates to our economic studies which will be vital for all future years.
Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.