economic ideas

[Saturday Fever]

I'll preface by saying that I'm not going to argumentative but objective about this idea. I'd like for it to be torn apart, even destroyed, so that I can review and amend this idea.

I don't know what I'd call this idea, but I'd probably say it isn't an isolationist idea, as isolation is not the key to any issue, let alone an economic issue. I'll try to examine this idea mostly from a local point of view, and expand it as ideas become more firm.

The name of the city for this idea will be "WBBVille". In WBBVille, companies are not forced to use other resources within WBBVille. It is simply encouraged, and taxes will be raised if resources are used outside of WBBVille, when said resources are accesible within WBBVille.

Comany A, wishes to expand their voice and data capabilities by integrating their voice and data networks. More simply put, they would like for their voice services to use the same network their data services use. Not an uncommon desire among many companies these days. The benefits of this would be the ability to reduce the costs of voice services between Comapny A's facilities, as well as creating the ability for Company A to manage their voice and data services more centrally (one group as opposed to 2 or more).

Company B offers services to implement this system and is in WBBVille. Company C also offers identical services, for comparable fees, but is not located within the geographical boundaries of WBBVille. This would create the following scenario under my idea.

Company B and Company C make similar bids for this project. Company A is, of course, free to choose either company to fulfill this need. However, Company C's fee would be taxed locally (by the city of WBBVille) at a rate of let's say 20% on top of their fees. So if the bid from both companies came out to a nice even number of $100,000, Company A would have to come up with $100,000. But if they chose to use Company C's services, they would owe the city of WBBVille $20,000 in "commerce taxes", in addition to any standard taxes that may exist, since they have elected to use the resources of a non-local firm. Should they elect to use the resources of Company B, who is local to WBBVille, only the standard taxes would be required. Let's say for the sake of argument that the standard local taxes are only 3%. However, this could apply to anything.

If Joe Brokenpipes needs plumbing done, he is free to choose any plumber he likes. If he elects to use a plumber located outside of the geographical boundaries of WBBVille, there would again be the 20% "commerce tax" tacked onto his bill. Should he choose a plumber located within WBBVille, the "commerce tax" would not be necessary.

The idea here is that money in WBBVille would be encouraged to be spent in WBBVille, to benefit the growth and advancement of WBBVille.

There may be details you want to know that I haven't included here. Ask if you're curious or point out any type of flaws you see. Anything is welcome. As I said, I will not approach anything argumentatively, only objectively. The combination of thoughts should, I hope, help create a much more solid idea.

Thanks.

[GonePostal]

Your "commerce tax" has already been invented, it's called tariffs.

[Tiare]

It's a fine plan! It does however lower the productivity and revenue of both WBBville and outside WBBville.

To determine how it lowers the revenue and growth and productivity of all parties involved, create 4 scenarios (I personally use only 2 products and 2 countries for exemplary/simplicity purposes: beer and pizza)

1- WBBville is better at producing both beer and pizza than worldatlargeville.

2- WBBville is better at producing only beer and worldatlargeville is better at producing pizza.

3- opposite of situation 2.

4- worldatlargeville is better at producing everything than WBBville.

Remember, prices fluctuate based on natural resource and labor availability and demand curves. It is assumed that everyone needs both beer and pizza. It is assumed that everyone can produce both beer and pizza.

I shouldn't have entered this discussion. It will take forever to explain. Bottom line, by lifting trade restrictions, you will have more beer and more pizza which is what you really want. This is true if both parties restrict trade or if only one party restricts trade.

PM if you want details or post here. I graduated as an economist with international trade and governmental contracts as my emphasis.

[Praetorian]

just play simcity and youll be able to put your theories on the test.

[Paul Stagg]

The end result is the government artificially raising prices of goods.

By about 20%.

It is the government using force (tax collection) to determine who it's citizens do business with. Your scenario is basically a tariff system.

Supply/demand operate inclusive of taxes. Ergo, if the price of something is x, and the tax is y, the actual price on a demand curve is x+y.

That said, if demand in WBBville supports a price of 100K for a good, then that's what they'll pay for it, regardless of taxation. A company outside of WBBville will simply have to pay a 20% premium to sell, which limits the choice of those in WBBville, as they may not be willing to pay the tax, which is a bad thing.

[Saturday Fever]

I see where you're both going. But if resources exist in WBBVille, the plan hopes to encourage people from WBBVille to buy within WBBVille. Should the resources not be available locally, the tax would, of course, be waived in favor of outside resources.

Any ideas for revision on this?

[Paul Stagg]

Drop the tax, and allow the people in WBBville to decide on their own.

Why punish them?

Company x makes a superior product to company y. Company y is in WBBville, company x is in Kansas.

The consumer (because ultimately, that's who pays the tax) has to spend 20% more than they otherwise would in order to purchase a superior product.

That's coersion.

[Tiare]

There were two really interesting studies on this subject that I read a while ago. The DoD did one of them on anchor chain and a private group did one on the textiles industry.

The DoD study showed that it was imperative to put tarrifs on imported anchor chain because if we did not, then less expensive imported anchor chain would eliminate the militarily necessary anchor chain industry in the US.

The textiles import protection paper showed quite convincingly that by removing all tarrifs that were protecting the US textiles industry we could subsidize all US textile workers at a rate of 125% of their current wages and still have lower overall costs for textile goods (i.e. the government could directly tax the sales of all textiles, take that tax and use it to pay the former textile industry employees 125% of their wages, and you would still pay less at the store for clothes than you do now).

I suppose the DoD would object to removing the textiles industry because it would create a direct threat to the soverienty of the US military (which is true, because they would not have the ability to buy domestically produced uniforms, blankets, sheets, tents etc).

[Paul Stagg]

The market, not the DoD, determines what is 'necessary'. Government intervention slows innovation. By protecting these industries, there is no incentive to develop alternatives.

[gino]

There are a million things wrong with that plan on many levels. Some are obvious, while others are not obvious, but still show-stoppers. I don't have time to go into all of my thoughts on this, but here are a few.

What organization would be put in place to monitor all of this, and how many millions would it cost WBBVille?

What are the particular product attributes? Company B vs C product quality and overall product price elasticity. Also, if one comany is "better" at producing a product and charging the same, they are making more gross margin dollars than their competition and may be making a superior product. If the price elasticity is high and the product is viewed as a commodity, the taxed company will drop their prices and take a margin hit to level the playing field again...back to square 1, and nobody wins.

There is a difference between imposing extra costs(i.e. - as noted, "tarriffs) to give a business a competitive advantage OR to keep an industry afloat. Creating a competitive advantage is usually not good, while *reasonably* protecting an industry sometimes IS good. Your situation is giving a business a competitive advantage. Prior to the imposed tax, company C is NOT undercutting prices to make it impossible for B to legitimately compete.

A successfull economy encourages competition among businesses, choice and consumer awareness.

The producer should always be busy finding ways of maximizing minimal resources:

-finding low cost production bases
-developing efficient ways of using resources
-making labor forces more flexible
-replacing production methods with technology

Your scenario doesn't reward productivity, efficiency, etc.

The consumer wants lower prices and more choice, while the producer wants increased market share, better margins and more profits - completely opposed goals for each, but the delicate balance of not letting one override the other is what makes economies successfull.