So, reading some of Rothbard’s critique, it would appear that Rothbard himself contradicts Wenzel. In the interview Wenzel claimed that “increased costs to the consumer entice him to buy less, leaving extra inventory for the producer, meaning he’ll have to lower his prices”. It’s possible I’m reading this wrong, but it sounds to me like Wenzel’s idol says the exact opposite:
“There will therefore be no shift by Jones in favor of savings-and-investment due to a consumption tax. In fact […] there will be a shift in favor of consumption because a diminished amount of money will shift the taxpayer’s time preference rate in the direction of consumption. Hence, paradoxically, a pure tax on consumption will and up taxing savings more than consumption!”
Sounds like Wenzel doesn’t know what he’s talking about, according to his godsource.
Granted, I haven’t read Rothbard’s entire critique yet (it’s pretty long), but on the surface I just fail to see why the hell it matters in the first place. Claiming that a sales tax “is really just borne by the producer” sounds like nothing more than a tautology…a way of looking at the world. I remember reading Rothbard’s explanation of the exact same concept in MES and thinking the same thing…wondering what he was talking about and where he was supposed to be going with all that.
Not only that, but the backbone of Rothbard’s whole “taxes can’t be shifted forward to consumers” rests on the supposition that the only option the retailer has is to raise prices on those items sold. He says that:
“Prices, at all times, tend to be set at the maximum net revenue point for each seller. If the sellers can simply pass the 20 percent increase in costs onto the consumers, why did they have to wait until a sales tax to raise prices? Prices are already at highest net income levels for each firm. Any increase in cost, therefore, will have to be absorbed by the firm; it cannot be passed forward to the consumers.”
I however see no reason these retailers could not (or would not) simply begin charging for something they previously gave away for free. This is precisely what we’re seeing in the banking industry right now. All sorts of new fees are popping up in direct response to Dodd-Frank (which is essentially the same as an excise tax). The latest I can think of is the new $5 monthly fee for using your debit card. This is the retailer’s way of shifting new costs forward to the consumer…precisely what Rothbard argues cannot be done.
Getting back to Wenzel though…As mentioned earlier, he made note on his blog that Bob Murphy got in the mix and made a post on his own blog concerning the consumption tax…which of course Wenzel sensationally titled “Murphy Atttacks Rothbard on His Consumption Tax View”. So of course Murphy had to come back with his own clarification and explain that [surprise surprise] Wenzel claimed Murphy was saying something he in fact wasn’t…
“What I was getting at in my post—and yes here I did explicitly disagree with Rothbard on one particular point—is that Rothbard somewhere challenged the standard supply-side critique of an income tax, on the grounds that it “discourages savings.”[…] That is the argument from Rothbard I was criticizing. In response, Wenzel didn’t get that distinction, and instead thinks I was attacking the claim about consumption taxes being shifted onto productive factors (the claim I specifically said I would have to think about).”
Well well well, whatya know, Wenzel puts words in someone’s mouth so that he can make them out to be foolish. Never saw that one coming. And in fact, I’m obviously not the only one who recognizes Wenzel’s MO, as Murphy closes out the post with:
Are you Wenzel fans sure you want to go with him on this one? Now a consumption tax doesn’t hurt the consumer at all? So retired people (who no longer work), who have all their assets in gold bonds or actual cash* (so they won’t be hurt by declining corporate earnings or land rents) will be unaffected if Cain institutes a 9%, or for that matter a 99%, national sales tax? Do you Wenzel fans really think that can possibly be correct? If so, Cain should incorporate that into his schtick.
(NOTE: I am NOT here saying that Rothbard said a consumption tax doesn’t hurt consumers at all. As I said all along, I need to go study that argument again, because there are a lot of moving parts. I’m saying that Wenzel’s quick reaction to my post, implies such an absurdity.)
- EDIT: I originally had “gold” as the asset, but changed it to “bonds or actual cash” because the retired people would get hit with the national sales tax (perhaps) when selling off their gold holdings. Now I’m waiting for a new Wenzel post: “Murphy says holding US fiat dollars a better investment than gold!!”
Ain’t life grand.