Are the very wealthy paying their share?

[Kuciwalker]

You assume it comes back to US investors through US companies (or otherwise gets declared as income to US authorities).

Yes, because other than actually going abroad and spending those returns there, it's not clear to me how they would use the money at all.

To clarify, I don't know very much about the specific implementation of the corporate income tax; I just assume it has mechanisms to defend against the sort of regulatory arbitrage I can come up with easily.

[Kuciwalker]

I think blindly having faith in the free market to help those in the worst cases just doesn't cut it.

This isn't blind faith, and it is not a case of believing the market is best. This policy is clearly inferior to a massive government transfer regime. Unfortunately, the kind and scale of international transfer payments needed will never happen. We have many decades of evidence that trade with developed nations causes dramatic improvements in quality of life in developing nations.

btw, I forgot the one other incredibly important policy: open immigration. Immigration works even better than free trade for improving human welfare.

Capital has no real desire to move into these areas it seems, other than to evade higher taxes and minimum wage laws elsewhere (also due to immigration restrictions, they can't just ship in cheap labor, they have to move to it).

Really? Minimum wage laws are really the only reason factories move to China? You think if we abolished the minimum wage, there would be a hundred million more manufacturing jobs in the US paying a dollar a day? Where exactly are all of these US workers that would be employed at those wages, but for the minimum wage laws?

Even with those motivations, capital still doesn't move into most of these locations, or can do so in a way that's ultimately harmful for the local community. When a corporation is able to lock in rates for land use and labor in highly inflationary local economies, the value they provide the local population decreases over time and can go negative. They are exporting the raw materials, product of labor, and most of the capital from those activities, and leaving the local population with what (at one time) was a slightly higher wage than a subsistence existence.

That doesn't make any sense. How do you export the capital of a factory in a developing country? Do you just put it in a box? Are the new wages only 'slightly' hire than what they were earning as subsistence farmers? Don't you think the local population is better off with higher wages?

Oh, and what raw materials is China exporting again? Are there any? I'm pretty sure China is a massive net importer of raw materials.

btw, what is wrong with exporting raw materials? The Aussies and Canadians make tons of money off of it, and they seem to have things pretty good.

Probably someday there will be unionization and minimum wage laws that can help fix this, but with capital having such a huge labor pool at those rates (close to half the world population) there isn't much that can be done to really increase the standard of living.

Why do you think living standards aren't increasing in developing nations? Have you been living under a rock for fifty years?

[Kuciwalker]

Aeson: http://www.google.com/publicdata?ds=...gdp+per+capita

[Aeson]

This isn't blind faith, and it is not a case of believing the market is best. This policy is clearly inferior to a massive government transfer regime. Unfortunately, the kind and scale of international transfer payments needed will never happen.

I actually think business can do it better than government. And that it's more likely that it will do so. (I don't think either case is impossible.)

We have many decades of evidence that trade with developed nations causes dramatic improvements in quality of life in developing nations.

We also have many decades of evidence that there are a huge number of people simply left out of the equation (and some even stomped on by it).

btw, I forgot the one other incredibly important policy: open immigration. Immigration works even better than free trade for improving human welfare.

I agree on this point

Really? Minimum wage laws are really the only reason factories move to China? You think if we abolished the minimum wage, there would be a hundred million more manufacturing jobs in the US paying a dollar a day? Where exactly are all of these US workers that would be employed at those wages, but for the minimum wage laws?

I didn't say it was the only reason. I specifically mentioned taxes and immigration restrictions as other reasons corporations have moved operations. There are surely other reasons as well (proximity to natural resources or trade routes, among others).

And yes, if the locations which these corporations are located were to try to raise minimum wage laws or unionize, those corporations would probably just relocate again. (At the point where the increased costs exceeded the cost of relocating. Which is why gradually it can still be done. Which is why I said "someday" it may raise these people up.)

That doesn't make any sense. How do you export the capital of a factory in a developing country? Do you just put it in a box?

I'm talking about the profits. Little to any of it actually stays in these local economies. It goes to foreigners, the product of the work goes to foreigners... the people here go home to live in shanties and even their wages are essentially one and done, exported. (Not necessarily entire countries, though it would hold true in large part sometimes even then. I'm talking about local economies.)

Are the new wages only 'slightly' hire than what they were earning as subsistence farmers? Don't you think the local population is better off with higher wages?

I went into this in more depth already. At the time a business moves in, they often lock everything in. Wages, land usage rates, and the like. Sometimes due to corruption, sometimes just taking advantage of people who don't understand the legal issues. When this happens, inflation means that the corporation is getting a better deal over time, and the workers a worse deal over time. I also went into how exporting the product of land and labor leads to inflation.

Oh, and what raw materials is China exporting again? Are there any? I'm pretty sure China is a massive net importer of raw materials.

They are exporting goods. In the case of China, they are getting a good share of the profits from those goods. I was talking about locations where the raw materials or goods, and the profits, are exported from the local economy, with at most a short stint for a small percentage of it going to wages (and then flowing out very quickly).

Simply giving an example of an area that does not fit those criteria hardly is not terribly useful for discussion unless you want to pretend that it's the same everywhere?

btw, what is wrong with exporting raw materials? The Aussies and Canadians make tons of money off of it, and they seem to have things pretty good.

I said exporting exporting the product of land and labor, as well as the capital resulting from the productivity. It's much different than the Aussies and Canadians who are exporting the product of land and labor and getting the profits in return for them.

Why do you think living standards aren't increasing in developing nations? Have you been living under a rock for fifty years?

I didn't say standards of living haven't increased for anyone. I am talking about specific places, of which there are still a huge number, where standards of living are not increasing or actually waning even though business is free enough to move there. Business just doesn't go everywhere, and doesn't pay more than it has to. Which at the present time means a lot of people are left out, or essentially paid subsistence+1 (at the time it was locked in...).

It's not a very good solution for roughly half the world's population. That will change slowly (though perhaps not be able to keep up with population growth, at least for a while longer).

Sorry, but I can't "rah rah rah, free market is so awesome" when it's failed so completely (because we've failed so completely). It's obviously not "extremely effective", even if you believe that it's more effective than the alternatives. (Which is a justifiable, though certainly debatable view.)

[KrazyHorse]

I'm talking about the profits. Little to any of it actually stays in these local economies. It goes to foreigners, the product of the work goes to foreigners...

And laborers get the product of their labor in money. What's the problem?

[KrazyHorse]

Business just doesn't go everywhere, and doesn't pay more than it has to. Which at the present time means a lot of people are left out, or essentially paid subsistence+1 (at the time it was locked in...).

What are you talking about "at the time it was locked in"? Are you under the impression that workers cannot leave their jobs in most 3rd world countries, and that the owner hold them under some kind of long-term contract signed decades ago? If not, what is this supposed to mean?

[KrazyHorse]

Sorry, but I can't "rah rah rah, free market is so awesome" when it's failed so completely

Are you under some kind of drug-induced hallucination?

What happened in China and India when they began to allow foreigners in and break down competitive barriers (even though they still have very closed economies by the standards of the West)?

I don't see any failure of the market. I see the last 20 years as having more people lift themselves out of poverty faster than at any time in history. Those two countries have, between them, 2.5 billion people. That's almost half of the developing world right there, that in the space of a single generation has gone from being desperately poor to not-so-desperately poor. And they've done it through their own hard work, exchanging their (at first) very cheap labor for money wages...

[KrazyHorse]

The vast majority of people have been barely doing anything other than starving for tens of thousands of years, and we consider it a failure of the free (well, really "freer") market that for 90% of the people that have tried it for the last 20 years it has provided them with more wealth, health, education and opportunity than they or their ancestors have ever had?

[Aeson]

What are you talking about "at the time it was locked in"? Are you under the impression that workers cannot leave their jobs in most 3rd world countries, and that the owner hold them under some kind of long-term contract signed decades ago? If not, what is this supposed to mean?

Decades long lease from the government or some descendant of a Spanish hacienda (or other colonial construct). Sometimes more. Land values increase how many times over? The end of the lease is just a formality because of corruption.

Workers try to unionize, leaders get mysteriously offed. Decades later the descendants (some of them) get a payoff to hush it up. Sure, it's all good now, and obviously stuff like that doesn't happen at all anymore because people are now perfect angels and corruption doesn't exist...

The longer it goes, the less they can leave their jobs. Where would they go? Starve? All the land is owned now by outsiders because someone stole it ages ago, sold it for peanuts, or just got tricked out of it. Other countries won't let them in. So yes, they "vote" to stay and eek out a living because there is no other option. They go home to the same type of shacks they were living in before, only now they're closer together. (They do however have third hand cell phones sometimes (a good development which may end it all))

To me it's a tragedy we could avoid and will hopefully soon fix.

(I can't go into specifics for what I've seen or heard of here. Defamation laws and all.)

And laborers get the product of their labor in money. What's the problem?

My problem is in cases where the workers are living in the same shacks they did 50 years ago, only now more closely together.

My problem is also with people like you who pretend the product of their labor is really returned, rather than they are taken advantage of because there are no other options. They are worth more than P120/day. Anyone who can't get more many times more value out of them than that is an utter failure. Anyone who does and lets them live in miserable conditions is even more of a failure as a human being.

My problem is I only have a very little (capital and human capital) with which to address this, and am not terribly well suited for it either... and all I get is mocked for what I try to do.

Not every case fits the above... but enough of them do that I can't support the status quo as a good option, even if it's better than some options.

The vast majority of people have been barely doing anything other than starving for tens of thousands of years, and we consider it a failure of the free (well, really "freer") market that for 90% of the people that have tried it for the last 20 years it has provided them with more wealth, health, education and opportunity than they or their ancestors have ever had?

Yes, because we could have done so much more. We choose shiny toys and let people live in squalor simply because of lines on maps, color of skin, economic theory, or whatever other stupid justification we make for it. That's a huge failure in my book, even if it's less so than some other cases.

[Dauphin]

Yes, because other than actually going abroad and spending those returns there, it's not clear to me how they would use the money at all.

To clarify, I don't know very much about the specific implementation of the corporate income tax; I just assume it has mechanisms to defend against the sort of regulatory arbitrage I can come up with easily.

Hmmm. Some assumptions have a nasty habit of being unfounded.

The point I was making was that the higher rates of tax in the US (or other nations) cause investors to base their investments in countries with a more beneficial tax regime. This can be superficially exampled by commenting that if it wasn't for secrecy and a reduced tax burden why would offshore funds exist? i.e. If US, amongst other, investors didn't benefit from doing so, why invest there. The underlying investments themselves are not based in these jurisdictions - investments into Cayman is clearly not an investment into the local economy, investments in Mauritius are commonly actually into India (etc).

On the flip side of the coin, why not invest directly in the country that you want to invest in. Why go via an intermediary low local tax, high secrecy jurisdiction. There are clearly advantages in obsfuscating your returns and tax burdens, else it wouldn't be done this way.

If you are only considering bog standard Company A invests overseas and gets foreign remittances that are subject to corporation tax in the US, then I can probably understand your view. Things aren't that simple though. (Forgive me if I am making a strawman - I'm just trying to get a sense of where you are coming from - I've been working a lot on Cayman and Gibraltan companies recently and I have a bit of an idée fixe)

[Dauphin]

To bring it back to gribblers original question. Transfer pricing (so as to avoid tax) can be a *****.

[Kuciwalker]

Dauphin: we are, in this instance, considering what effect (if any) corporate tax rates have on the location of real investment. My understanding is that if I invested in a factory in India (by purchasing shares in a US corporation that built a factory there) then any money I eventually received from that investment would at some point have been subject to the corporate income tax.

[Dauphin]

Ok. I understand what you mean then. In a simple scenario that would be true. My issue would be that that ignores what often happens to avoid tax (double taxation regimes, transfer pricing, interposing investment and holding companies etc).

[Dauphin]

An example article on how to avoid tax without moving your business in any real sense. Although I am loathe to use the Mail (so please ignore the emotiveness of it). And some of it's assertions are wrong, but you get the idea.

http://www.dailymail.co.uk/news/article-1339026/Britains-biggest-firms-moving-offshore-denying-UK-exchequer-100s-millions.html

[Kuciwalker]

Ok. I understand what you mean then. In a simple scenario that would be true. My issue would be that that ignores what often happens to avoid tax (double taxation regimes, transfer pricing, interposing investment and holding companies etc).

Sure, people have ways of avoiding some or all of the tax. None of those are arguments for the tax, which I claimed (in #277) as an anti-growth policy.