How Government Policy Ignores the True Cost of Technical Change
02 December 2016 | Pago Pago, American Samoa
Martin Farris has succinctly stated the problem. It is that federal "policy fails to link the true cost of [technical changes and other] advancements [in the economy] to them [or those who create the technical advancement or change]. Thus companies adopt them and reap the benefits, while the costs are transferred to the taxpayer. If the technology was taxed sufficiently to raise the funds to pay for the additional costs of retraining, unemployment, welfare, etc. the picture would be much different. Ditto for offshoring jobs."
People are only recognizing the accounting costs of technical change and major adjustments in the economy, but not the true economic costs which are often much greater. Externalities abound in the US economy. People operate to take advantage of them. The government is too oblivious and thinks only of accounting costs in shaping its tax policies.
Consider company A which invents a technical change which displaces six workers and permits the same amount of work to be done. Company A then licenses its device to 99 other companies. The nominal accounting costs involved are the development costs, licensing fees and the like, but the true economic costs include additionally the costs of interim support and retraining of the six hundred workers displaced. Those costs are shoved on the government and derivatively the taxpayer, but all the real gains accrue to company A and its licensees. We have the privatization of all the benefits and socialization of most of the true losses or costs.
We need tax policies which recognize and tax accordingly based on true economic cost rather than accounting costs. Indeed, we might learn that some technical changes are, under this view, not economically worthwhile and should not be pursued. We need faster and smarter government.