Is Ron Paul Crazy? Part IV

After a nearly 15 month hiatus I am finally ready to conclude my series on Ron Paul. I felt the break was necessary so I could take the time to fully understand Austrian Business Cycle Theory.

Parts I - III dealt with the gold standard, fractional-reserve, and central banking. I will now conclude the analysis of Ron Paul's policies by laying out Austrian Business Cycle Theory. This is important as it is relevant to current affairs, more specifically, the recent rise in food and oil prices.

Austrian Business Cycle Theory tells us that any increase in credit money will lead to a boom that must be followed by a bust as the credit money is contracted, so long as the credit money is invested in capital goods. The increase in credit money, or inflation, leads to many investments during the boom that are later revealed to be malinvestments during the bust. The theory is clear; if we wish to avoid the bust, we must not allow the boom.

Are Tax Credits Subsidies?

Recently, Ron Paul published an article titled “How Should Government Treat Energy Producers?”

http://lewrockwell.com/paul/paul749.html

In discussing the tax code he makes the following claim (emphasis mine), "with tax credits and deductions, industries, business, and individuals simply get to keep more of the money they have earned." He uses this to justify his support for tax credits and that, “Removing tax credits is nothing more than a tax increase.” It should be noted that is the same position Murray Rothbard held in his essay “The Case Against the Flat Tax”.

http://mises.org/rothbard/flattax.pdf

I emphasized “they have earned” above because that is the crucial question. If a credit or deduction allows an individual (to use the terms “industries” and “business” is redundant as they are in fact made up of individuals) to retain his own income then this is indeed a good thing (from a libertarian point of view). It takes the form of Sam steals from Paul to give back to Paul. If, however, the credit or deduction is the income of someone else then this is a subsidy and a distribution of wealth that takes the form Sam steals from Paul to give to Peter.