Tuesday, November 22, 2005

Libertarianism on the UK Virtual Economy

The Virtual Economy model has been online for quite a while. I remember playing with this years ago. Since we now have a libertarian blog, I thought I'd give a go at it once again and show you the results. I try to apply as much capitalism as I can. Here are my choices for each category (in the advanced model) :

* Income tax : as low as the model permits, with the highest brackets. That means 6%, 10% and 22%.
* Income tax allowances : as high as the model permits.
* Macroeconomy : Unfortunately, the model does not allow for stabilization of the monetary supply or controlled deflation, so I choose "keep inflation at base level". I halve spending on health care, education and defense (assuming that the first two will be covered by private systems and charter systems, and the latter reduced to self-defense).
* National Insurance : as low as the model permits, with the lowest brackets.
* Indirect taxes : abolish duties on beer, spirits, wine. VAT abolished. No change to petrol, tobacco, fuel tax and car tax.
* Benefits : all children-related benefits are reduced as much as the model permits. Working tax credit is maximized. Pension stays the same (it's not the old people's fault if they lived in a crappy system). Tax credits withdrawal rate is set at 10% (to maximize the number of families who have access to the credits - the lower the %, the less the credit tapers off as you go in higher incomes).

Aaaand... run model !

And you get great results. For one thing, all the family scenarios save more money except for the two unemployed parents one, from 1k more (in low-income families) to 47k more (in the case of two employed parents making 100k a year). As predicted, poor families benefit greatly from the abolition of the sales tax, while rich families benefit greatly from the abolition of the income tax.

The government also benefits greatly from this change - tremendous growth and lower spending means more money :

Image hosted by Photobucket.com

Unfortunately, because of the stunning growth we're stuck with murderous inflation :

Image hosted by Photobucket.com

But the GDP per capita skyrockets, even adjusting for inflation, which seems to indicate that this inflation is probably entirely caused by the rise in salaries coupled with a growing monetary supply :

Image hosted by Photobucket.com

And we're going to need major immigration to fill out all these new jobs, otherwise the economy is gonna stagnate pretty fast :

Image hosted by Photobucket.com

All in all, I think this would be a rather rude shock treatment, and that progressively introducing free market measures would probably be better. But I think living in such a society would be pretty good, all things considered.


J. S. Buchanan said...


I have found your blog to be intellectually stimulating. Feel free to stick a link in my guestbook (www.jaeford.com).

Aaron Kinney said...

Hey Franc that is a pretty cool simulator. And yes I think you did a good job on it.

Of course like you said, although those changes are generally god, the simulator makes them happen "suddenly" and would cause quite a shock to the system. But its not a "bad" shock.

I guess the lesson is that if a libertarian government came into power in a developed nation, they would have to implement their changes gradually, but still as quickly as safely possible.

The benefits would be great. Why dont more governments take such measures anyway? Dont they wanna be rich and prosperous?

The American mixed ecomony has been pissing me off alot as of late. I wish America would get closer to its "capitalist" roots again and ditch all this welfare and socialist bullshit.

Niels said...

> Why dont more governments take such measures anyway? <

It's in their interest to keep the people repressed and dependent. Also similar to federal banking, many people suffer and a few get extremely rich. To understand the behaviour of politicians is to ask what is in the best interest of the particular political party (or cross-interests between parties, big business, judiciary, big media).

And here is what I think is the big difference between libertarianism and democracy: in democracy there is a ton of power to be abused _legally_.