In my emerging view, Americans have a high standard of living because things are cheap here. Putting sin goods (alcohol and tobacco) and rent to one side, NYC is cheaper than Toronto, London, Sydney and Hong Kong.
Economists, bless them, would destroy this.
You see, taxes are distorting. And any increase in a particular tax is more distorting than the last. Since taxes are necessary, how does one minimize the distortion?
Keep the rates low but have lots of taxes is the answer. Low rate, broad base.
Now, I’m not sure why things are cheap here, but let’s say I’m convinced it’s due to low consumption taxes (fuel, VAT, etc). Add in high income taxes and the quick answer for most efficient tax at this margin is: ‘on stuff we buy’
The prospect of this worries me a bit:
There’s an amazing swarm of low-paid workers who get paid in cash and can live cheaply (in apartments with a dozen other people, probably). These workers supply inexpensive services to everyone here: delivery, shoe-shines, restaurant service. Luxuries for the well off, to be sure. Is that so bad?
The services in New York are incredibly diverse. And I worry that a consumption tax will destroy this part of the economy. In econ-speak, I’d say that economists are horribly underestimating the deadweight loss.
I’d also say that this underground economy breathes life into a city that, in my opinion, is shockingly controlled and regulated.
Perhaps taxes must be raised, as they all say. If so, I’ll get fewer shoe shines and no more deliveries. Goodness knows what happens to those who once supplied those services. As I said: deadweight loss.
Maybe the kind of low-level service economy I’m witnessing here is a relic. If so, I’m thrilled to have seen it.
As we move toward a mild socialism (I don’t mean that in the pejorative), this kind of fly-by-night service economy will be crushed.
Not Unreasonable 