What is “Value-Economics” and Why Does It Matter?

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by Daryl Acumen

Value Economics is a term I coined to describe a new way of thinking about taxation as it relates to a national economy.  Originally it was going to be the subject of a doctoral dissertation I hoped to write in graduate school (around the year 2004), but I never finished school so I wasn’t able to conclude my research or write the work.  I’ll try to get it all down here so that someone with the education can pick up where I left off.

The Basics:

  1. Government is not the prime mover in an economy, but is instead simply another player like a corporation or an individual.
  2. Government provides services and charges economic participants for those services.  The fees are called “taxes“.
  3. Government services have value.
  4. The value of government services (which can be positive or negative in aggregate terms) can be quantified.
  5. When the values of all government services are added together, you arrive at an aggregate value of government.
  6. The aggregate value of government can be expressed as a percentage of total national economic output (usually GDP).
  7. The government value percentage expressed as a percentage of GDP tends to equate to what I call an “Equilibrium Tax Rate” which is basically the value of government to each individual economic participant.
  8. Government is a monopoly and has the power to charge a price for it’s services which is higher than the Equilibrium Tax Rate.
  9. The difference between what government charges for it’s services and the equilibrium tax rate is called the tax value gap.
  10. If the tax value gap is positive it will create an economic drag on the economy
  11. The economic drag caused by a positive tax value gap is material and quantifiable.
  12. If the tax value gap is sufficiently large, the resulting economic drag can reduce economic output enough to reduce the total amount of revenue received by the government relative to the amount it would have received at the Equilibrium Tax Rate.  In short: Tax rates higher than the Equilibrium Tax Rate tend to produce lower revenues.

The basics above are all technical and provable with training in econometric analysis, but there is more.  My theory is that market participants, both individuals and corporations, make value economic calculations themselves, either consciously or subconsciously, and change their behavior based on their conclusions.

Because the 21st century economy will be dominated by services and information, thus making corporations and the workforce more mobile, market players will begin migrating to cities, states, even countries that provided the highest value for the tax price charged.  I theorized that this migration would continue until the most active innovators had clustered together in areas that provided the greatest value for every tax dollar, starving low value locations of talent and opportunities for growth.

My migration theory is not as far fetched as it seems on the surface.  It was exactly this kind of migration that made the United States (the great melting pot) the economic superpower and center of innovation it is today.  It was no accident that the atomic bomb was first developed by the United States for example or that Silicon Valley became the world center of computer innovation.  The world’s smartest people have for centuries migrated to the United States to pursue their economic dreams free of undue burdens because of millions of little calculations about the value of such burdens relative to the benefits provided.

If you follow the migration theory (now observation) to it’s logical conclusion, you will understand that the new Superpowers in the 21st century will be those countries that provide a relatively high level of value relative to the tax rates they charge citizens and resident corporations.  Conversely, the new economic “third world” will be those countries that cling to high tax rates in spite of the fact that the services provided do not justify the price.

The above is a new way of understanding the tax debate and at the time I thought it was revolutionary!  In my arrogant twenty-something mind I even imagined that I’d win a Nobel prize for my work proving it all.

Unfortunately time has passed and the window of opportunity has closed.  The migrations I predicted in my theory have already begun and I don’t think you can win a prize for observing existing phenomenon any more than you can get paid for picking lottery numbers that have already been announced.  Instead of going to Norway and getting a medal, I’ve decided to settle for enlightening my friends about what is happening today globally and why.  Hopefully I’ll at least get a beer or two for my insight.