Tax incentives for construction market failure?

[room305]

If the economy of the time wasn't a free market, what exactly was it?

The UK in the 19th century was probably one of the purest forms of free markets that has ever existed.

That's a bold and inaccurate statement unless you consider government supported racial and gender-based slavery to be somehow consistent with free market principles.

The usual definition of a laissez-faire economy, is where the state has a role in arbitrating a civil law system - tort, property, contract etc. but abstains from intervening in the market to regulate price, supply, or demand.

This is hardly compatible with a system in which the UK government prevented 90% of the population of Ireland from even purchasing land.

You mentioned nothing about representative democracy in your original point. It's not clear how the political organisation of a country would have any impact on the economic point you were making (apart from the obvious, that a democratic government would be forced to intervene in the "free market" to prevent or resolve a crisis: but that kind of negates the point you were making about free markets).

I don't see how free markets, or a system of laissez-faire capitalism is compatible with any other political system than democracy hence the intuitive leap.

Remember I said free markets not anarchy.

 

[diarmuidc]

This is just not true, and it does not promote useful debate when such a polarised view is adopted.

Why is room305's view polarised? I though it was the most sensible and obvious statement in the whole thread.

 

[MOB]

Hi Diarmuidc,
The view expressed was indeed a polar view. It may be that Room305's views are not quite as black and white as the comment with which I took issue, which was:

"I don't consider government intervention in the market place ever to be effective or necessary............ "

This ignores the obvious point that every time that a government:

1. Taxes anything at all, be it sale of alcohol or tobacco, income from labour, income from investments, a property transaction or anything else
2. Subsidises or supports anything, be it the provision of roads, healthcare, education, Irish language programming, fire services,
3. Regulates the manner in which any transactions may be conducted, be it banks insurers, landlords, employers, airlines etc.

then, in every such case the government is in one form or another intervening in the market place. This is, in fact, one of the roles of government.

A viewpoint which states that there should never be any government intervention in the marketplace is obviously a polarised viewpoint; one which, in my opinion, does not add usefully to a debate about the role of government. At the other end of the spectrum would be the equally polarised viewpoint that we should have a centrally planned economy and that there is no place for individual enterprise, a view which is of course utterly discredited but which held some sway in the not so distant past.

The area for useful and informative debate is smack in the middle of the grey areas where we get to ask questions like 'is this too much state intervention?' or 'is this an area where more state intervention would be appropriate?' or ' is this the right sort of state intervention?'

 

[room305]

This ignores the obvious point that every time that a government:

1. Taxes anything at all, be it sale of alcohol or tobacco, income from labour, income from investments, a property transaction or anything else
2. Subsidises or supports anything, be it the provision of roads, healthcare, education, Irish language programming, fire services,
3. Regulates the manner in which any transactions may be conducted, be it banks insurers, landlords, employers, airlines etc.

Government intervention in the marketplace refers specifically to government attempts to control the supply, demand or price of a commodity, good or service. This can be done through taxation, excessive regulation, or some other means but always with the aim of forcing the market to align with the government's view of what the "correct" price for a good or service is.

In a free market, all participants can respond to the price signals, which should (in theory at least) lead to greater efficiency over time. It's not so much that the market will automatically determine the most efficient price but that the effects of government intervention are unknowable and the risks therefore incalculable.

1. Yes, tax is to a certain extent intervening in the market place. However, by applying a taxation policy similar to a Fair Tax or Flat Tax, such intervention can be neutralised or greatly reduced. This is indeed the polar opposite of the view that says market participants should always be bullied into behaving in a certain way through taxation policy.

2. Yes subsidies for anything are an intervention in the market place, that's why they should all be eliminated. I've never seen them work effectively anywhere but I'd be delighted to hear of any good examples you may have.

3. Regulation is not necessarily intervention. Especially when you consider some of the industries you mention are self-regulated (i.e. private sector regulation). However, excessive regulation certainly is. Most people in favour of free markets are not against regulation per se, just government regulation. Especially if it is excessive as it usually only serves as a barrier to block new entrants to the market (e.g. the pub trade).

then, in every such case the government is in one form or another intervening in the market place. This is, in fact, one of the roles of government.

A viewpoint which states that there should never be any government intervention in the marketplace is obviously a polarised viewpoint; one which, in my opinion, does not add usefully to a debate about the role of government.

Are you saying the role of government in the economy should never be debated? Isn't that a little undemocratic?

At the other end of the spectrum would be the equally polarised viewpoint that we should have a centrally planned economy and that there is no place for individual enterprise, a view which is of course utterly discredited but which held some sway in the not so distant past.

The area for useful and informative debate is smack in the middle of the grey areas where we get to ask questions like 'is this too much state intervention?' or 'is this an area where more state
intervention would be appropriate?' or ' is this the right sort of state intervention?'

I find this whole stance quite curious. Just because my own philosophy is for non-interventionist government, this shouldn't leave me unable to contribute to a discussion on whether or not the government should intervene in the housing market at this juncture. Would you be similarly dismissive of contributions by Rainyday or others who adopt a more left leaning stance?

Unless you believe the state should always intervene in the market (which as you pointed out is a centrally planned economy), it surely follows that the state should on occasion decline to intervene in the market. In which case, why only solicit arguments only from those who will argue that state intervention is necessary?

EDIT: Removed line mentioning MOB as confusing free market capitalism with anarchism

 

[MOB]

Hi Room305

"it surely follows that the state should on occasion decline to intervene in the market."

Agreed. The words 'on occasion' are of course what allow us to agree. This is a wholly different proposition from saying that the state should on every occasion decline to intervene in the market.

"Government intervention in the marketplace refers specifically to government attempts to control the supply, demand or price of a commodity, good or service. "

Nope - can't agree. This is too narrow a definition of intervention - and I think it tends to focus on the intention behind government action rather than the effects of government action. (btw I hope this is not going to turn into a 'words mean what I say they mean' discussion.) This describes many government interventions in markets but certainly not all. Many government interventions in the marketplace are merely an incidental result of goverment action. For example some interventions are simply about raising revenue - the market distortion is an inevitable result (and an accepted cost of government doing its business), but not the actual intention. Of course, with some taxes, such as that on cigarettes, the market interference is an actual goal. Some interventions in the market are simply about maintaining state sector employment for historic political reasons.

"Are you saying the role of government in the economy should never be debated? "

Nope - clearly not. I am simply saying that a viewpoint that goverment should create absolutely no interference in any market is an extreme view, as is one which suggests that the government should control every market.

"this shouldn't leave me unable to contribute to a discussion on whether or not the government should intervene in the housing market at this juncture. "

It doesn't. Of course, the government currently intervenes in the housing market in all sorts of ways, by charging VAT, by charging stamp duty, by exempting certain transactions from stamp duty, by charging different rates of stamp duty for different transactions and so on. I suppose that a position which states that the government should not intervene in the housing market at this juncture might easily be re-phrased as saying that the current amount of government intervention in the housing market is just right.

"Would you be similarly dismissive of contributions by Rainyday or others who adopt a more left leaning stance?"

Yes - if Rainyday (or anybody else) adopted the position that government should intervene in every market. In fairness, I don't think I have been dismissive; a touch blunt perhaps; sorry if it irritated.

 

[webtax]

Yesterday's Sunday Business Post

‘‘Consideration will be given to the selective application of new tax incentive measures in areas of evident market failure, particularly with National Spatial Strategy gateways and hubs.”

- Do ye think this is market failure?????

Not market failure, but government failure to implement a successful regional strategy (aer lingus at shannon being the latest example). Would be in favour of tax incentives if they were going towards setting up new businesses or research... but is the government seriously suggesting that in worsening economic times tax payers in the large cities with massive house prices should provide tax subsidies to people in rural towns who have far cheaper housing already? And let not forget that the tax breaks from S23 etc. go straight into the developers pocket when they inflate prices to reflect the tax break.

Although it is a predictable response of this government to economic problems: lets build more houses.