Just to clarify: I never meant a pollution tax on consumers. I meant a pollution tax on producers. I don't think it's possible to monitor every single car for the pollution they make, but it is feasible to monitor factories.
For the consumption tax under consumption problem, I don't really think it exists. After all, investment either responds to immediate demand or responds to future demand. A consumption tax would reduce immediate demand, but will encourage savings for future demand. In the end, the long term benefits are usually better than the short term costs. The notion of under consumption itself, is in my opinion, utterly implausible. When a person saves money, he will do so for either future consumption or simply to hoard money. If he is simply saving to hoard money, then a liquidity trap might occur. However, all that hoarded money is going to be invested by someone (the banking system facilitates this), and the investment will either gain profit (benefiting the economy) or not. If the investment indeed failed, then the investor and the savor loses money (although the saver might not notice), and thus the failed investment actually constitutes as consumption (which, in all its forms, is the mere destruction of resources). There can be made a case that there isn't enough investment of the saved money, but I find this assertion without evidence. Asia has the highest savings rate in the world, and yet there isn't a liquidity trap or a decline in consumption. Also, note that income taxes in Asia are very low compared to the US, which is one of the reasons there is a high savings rate. A low income tax, however, also encourages investment because firms may keep more of their profits. Given that a low income tax both encourages savings and investment, I find it hard to believe a low income tax and a consumption tax might create a liquidity trap or a decline in consumption. After all, if there are excess production of a certain good, prices will plummet for that good, discouraging further investment of it and encouraging consumption for it. Thus a general glut (too much investment on a certain good with not enough consumption for said good) can only occur if the supply side of said good is heavily subsidized or if the demand side of said good is isolated from the true market price, both which requires government intervention to actually happen. So, unless all sectors in the US economy is in a general glut there can be no significant under consumption. Seriously, stop with the under consumption stuff.
And for those who accuse me of being socialist, please, I'm advocating the destruction of the income tax here. Sure, the land tax might be socialist, but hell, no one actually creates land. You can only own what you create, whether it is services or goods, but what you don't own what you did not create. I can't own a parcel of land just because I built a fence around it. I own the fence, sure, but not the land.
Edit: No, the US is not in a general glut. This is mostly because most investment isn't even in production (I'm not sure whether or not this is a bad thing) but on services and high-tech research.
And to clarify my position on demand in a rather simplistic manner: In order to buy something in the market, you need money. In order to make money, you have to sell something. Thus, you have to produce, sell then consume. Production thus drives it's own consumption (although I admit that money itself has a value derived from the demand of legal tender, and this might shift the equation to the money accumulation part). Marginal utility also kicks in here to prevent general gluts from occurring: The more there is of something, the less it is valued. Thus, if we have an over investment of, let's say, action figures, then each purchase of action figures will be cheaper. The people who purchase action figures now have more money to spend on other goods, thus increasing net consumption. Or, those people will save the money for future consumption in banks, where the money will be used for investment.
edited 11th Dec '11 7:54:36 AM by greedyspectator