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Do We Actually Need Taxes? - YouTube
Channel: Economics Explained
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in this world nothing is certain except
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death and taxes neither one is a
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particularly pleasant topic but taxes
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are arguably the lesser evil so let's
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focus on them taxes are an unfortunate
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reality for most people living and
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working in the modern world we pay them
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every year we complain about them and
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then we try to forget about them until
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next year your taxes are also one of the
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most important elements of any economy
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around the world societies can grow from
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effective taxation and crumble without
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it taxes are what fund our roads and
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schools and parks our military emergency
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services Social Welfare and everything
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else in between these services are
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structural elements of modern society we
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wouldn't have these without taxes and
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without them we would have chaos so do
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we need taxes well not necessarily they
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serve an important purpose sure but
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there are other systems that could
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theoretically achieve the same thing any
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alternatives that exist - one of the
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most important factors in our economies
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are worth exploring even if some of them
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are a bit out there you are watching an
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economics explained video made possible
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by our patrons on patreon if you enjoy
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these videos please consider liking and
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subscribing
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before we start trying to prove Ben
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Franklin wrong it is important to truly
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understand what it is that taxes achieve
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and why we pay them
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taxes are what a government uses to
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raise revenue to fund its expenditures
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if a government does not raise enough
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taxes to fund these expenditures it does
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what anybody else would do take on debt
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temporarily to live above its means this
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is the massively oversimplified cycle of
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government fiscal policy in our modern
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economies and it should make sense to
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everyone if we stop paying taxes the
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government either has to stop paying for
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services that keep society going or it
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takes on more and more debt until it
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ends up going bankrupt so this is why
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taxes are levied simple enough but there
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is more nuance to this argument certain
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economics schools of thought not to
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mention political ideologies advocate
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for raising fewer tax dollars and
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spending less money their opposition
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will argue that raising more tax dollars
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and spending more money is the way to go
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both of these sides will argue that
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their way is the right way to deliver
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the most overall prosperity to an
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economy they can't both be right right
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well in a sense they can so remember
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this for later
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in either case taxes will still exist so
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now it's important to ask why do people
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pay their taxes some people have made
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the argument that taxes are like paying
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a subscription to modern society but
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let's be honest it's not out of some of
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civic duty to keep your nation going or
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even because you think you will benefit
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from government programs I mean come on
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let's be honest the real reason is that
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if you don't pay your taxes you go to
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prison as far as motivation goes this is
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about as much as most people need so
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let's look at the alternatives
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the United Arab Emirates Qatar Monaco
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Brunei these are all examples of
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national economies that operate without
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the need for income taxes in fact prior
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to 1913 the USA did not have federal
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income taxes so this gives us an easy
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answer to the question of do we need
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taxes to which these countries would
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answer a resounding no but this all
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comes with one big asterisks or rather
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two big asterixis the first is that
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these countries do have taxes they just
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don't have income taxes when we explore
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the economy of Monaco which is a nation
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famous for being a tax haven we found
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that a majority of the government's
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revenue still came from taxation in the
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case of Monaco this was a value-added
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tax or a sales tax this is ideal for
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these tourist nations because it
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generates government revenue from people
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just visiting the country rather than
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income taxes which require people to
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work in the country alternative taxes
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are a common feature for a lot of
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countries and they have a lot of
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advantages take Singapore for example it
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still has income taxes but they are
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incredibly low what it does instead is
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levy taxes on things that require
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government expenditure cars are the best
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example here roads and highways and
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traffic lights and bridges and tunnels
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are all funded by taxes apart from the
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few toll roads these are expensive and
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not everyone gets the same use out of
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them someone who works from home and
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walks everywhere in a normal country is
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still going out to pay the roads through
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their income taxes even if they never
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use them in Singapore though they
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wouldn't really need to income taxes are
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low but instead the government raises
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the money it needs by taxing the bejesus
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out of people that actually own cars
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depending on the type of car buying and
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registering a vehicle in Singapore can
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easily cost five times as much as it
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does in the United States
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this gives the Singaporean government
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the revenue it needs to pay for these
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public goods
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if you
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don't need or want to drive a car no
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worries you don't need to pay in many
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ways this is a really really fair system
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you get what you pay for beyond this it
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helps ease congestion in this tiny
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nation because not many people are going
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to drive given how expensive it is
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however this system is not without its
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problems when a car costs as much as a
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house many people are not going to be
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able to afford it for some people
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driving is just a necessity they might
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be in an industry that requires driving
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and they might have disabilities that
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require easy transport or they might
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live in a remote area with no easy
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access to public transportation remember
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this for later because that is very very
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important the arguments back and forth
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for this type of taxation are
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fascinating you could make a video about
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it no look we did but Singapore still
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has taxes so it might be fascinating but
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it's irrelevant instead let's look at
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that second big asterisk the other
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countries that get away without charging
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taxes have some alternative form of
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revenue more often than not its natural
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resources by substituting tax revenue
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with oil revenue these countries can
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still provide all of the amenities one
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would expect in a regular old tax paying
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country even places like Alaska do not
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need to charge state taxes in fact they
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go beyond this and disperse a share of
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this oil revenue amongst its residents
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of the state so you could call this
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negative taxes or social welfare it
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depends on your flavour of politics I
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suppose the problem here of course is
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that a country needs natural resources
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to substitute tax revenue with natural
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resource revenue another big problem is
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that this kind of is taxation in theory
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the natural resources of most countries
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belong to the people of that country
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taking away natural resources to sell is
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no different from taking away cash in
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both instances a government is taking an
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asset away from the people to pay for
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public expenditures of course people
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will feel direct taxation a lot more
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than natural resource sell-offs but it
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is still important to consider for the
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of our question here so maybe the
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problem here is the assumption that
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governments need revenue at all you have
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probably asked this question as a kid
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why does the government not just print
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money to pay for everything it needs now
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we tend to scoff at this question just
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say cuz inflation which is not incorrect
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but it's not the whole story
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in reality there is not much stopping a
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government like the u.s. conjuring cash
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into existence to pay for everything it
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needs logistically this is what it
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already does if Uncle Sam needs to write
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a check he does so by snapping his
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fingers and hey presto there's some
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money if you did this indefinitely you
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would eventually introduce more and more
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and more money into the economy cash is
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an asset like any other it's value is
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determined by supply and demand
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the only reason this gets confusing is
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that we normally Express the value of an
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item as a nominal cash value outside of
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this if you have more money being pumped
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into the economy it will cause inflation
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because the supply Rises although it
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will do it slowly what a country like
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this would need is a way to drive up
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demand for the currency to ensure that
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it stays in line with this increased
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supply the easiest way for a government
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to ensure that there is a consistent
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demand for its currency is to force the
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citizens of the nation to deliver a
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portion of this currency back to them at
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the end of every year as taxes this
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whole system of taxation and money
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creation is called modern monetary
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theory subscribers to this theory will
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argue that in theory a government
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especially a government like the United
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States can just keep on printing money
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so long as they can find a way to ensure
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that people still demand the currency
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they can create this money to pay for
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your roads schools and whatever else you
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want actually maintaining that demand
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without taxation is the hard part and of
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course if not done properly you're going
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to get hyperinflation hyperinflation
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is straight-up not a good time so
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eventually this type of system is Bauer
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to become unstable hopefully that isn't
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a huge surprise to too many people okay
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so this is all not looking so great for
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our do we need taxes question but so far
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we have held on to the assumption that
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we actually need government expenditure
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or for that matter government's at all
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what would happen if we let go of all of
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these assumptions anarcho-capitalism is
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an economic theory that advocates for
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the complete elimination of government
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influence in an economy in such a system
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everything is privately owned there are
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no public roads schools parks or
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hospitals there aren't even things like
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Social Welfare or emergency services the
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idea of such a system is that private
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enterprise would replace these publicly
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provided goods and the profit motive
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would encourage these services to become
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more competitive and therefore deliver a
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greater net value to society sounds kind
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of good right well the first thing it
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does is eliminate taxes if there are no
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governments there are no governments to
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raise taxes so mission accomplished I
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guess beyond this it must be recognized
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that there are some legitimate
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advantages to such a system an
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individual would only ever have to pay
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for something that they actually wanted
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or needed and they could be relatively
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confident that they could be getting a
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good price for their purchase so long as
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there is still competition in this
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market there are actually examples of
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society like this scattered throughout
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history the most prominent of which were
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medieval European Free Cities these were
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places operated by merchants and were
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ultimately run purely for the profits of
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the individuals making them up the whole
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idea of purely unrestrained capitalism
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has some really interesting thought
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experiments the first is that of
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disabilities in a purely capitalistic
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society someone who is born with or
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develops a disability is going to be
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less productive and therefore less
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economically valuable as an individual
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it sounds horrible but it's true in
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extreme cases they may not be able to
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make enough money to feed or clothe
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themselves so they would just
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died a huge assumptive leap here is that
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even the most hardcore free-market
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economists would see this as a negative
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outcome so what are the alternatives
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well insurance Social Security is kind
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of like the price we pay to ensure that
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if we lose our job or get sick or
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injured that we won't starve an
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insurance company could provide this
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same service you could insure yourself
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against getting injured or developing an
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illness or even having a child that
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requires constant care what's more is
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that you could tailor this cover if you
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are an incredibly wealthy person and you
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lose your job today you are just not
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going to be able to support your
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lifestyle on Social Security checks so
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even though you contributed more in
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taxes throughout your good years you are
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going to be the same as everyone else in
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your bad years in our hypothetical
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anarcho-capitalist society this kind of
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person would likely pay a higher
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insurance premium but in return if they
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lost their job they could have elected
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for policy that provides them with a
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higher payout figure beyond that if you
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are happy to take the risk you could
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just not pay the premiums and save the
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extra money or really hope that you
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don't find yourself out of work the same
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kind of private sector switcheroo can be
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done with almost anything that a modern
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government provides this is similar in
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many ways to the specific expense
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allocation we saw in Singapore earlier
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just dialed all the way up to the
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extreme private everything toll roads
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private schools private hospital
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everything is for sale
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this all starts to run into some
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problems though with indiscriminate
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Goods this is a street lamp they cost
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about two thousand dollars on average to
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erect and they consume about $100 per
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year in electricity to keep going beyond
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that there are maintenance costs and a
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few other incidental expenses all in
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they are not a cheap item chances are
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most of us take street lamps completely
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for granted but they do serve a really
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important purpose they illuminate
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otherwise dark streets providing safety
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to cars and pedestrians navigating the
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area at night but it would be really
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hard to provide a street lamp in
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purely profit-driven society you can't
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really stop someone from basking in the
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light of a street lamp and because of
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that it's hard to charge someone money
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to provide this service why would I pay
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for something if you can't stop me
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taking it for free because there is no
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profit motive there is no product which
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means that this society may have to go
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without the service that provides a
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direct tangible benefit the same thing
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is true on a larger scale with things
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like emergency services and military
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protection a private military may be
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employed to protect the assets of an
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individual in an area but in doing so
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they are indirectly protecting the
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assets of everybody else in that area
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therefore by the same logic nobody would
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want to foot the bill to pay for it and
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it would not be provided this gets even
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worse when you consider the other type
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of indiscriminate good the bad type just
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the same as there is no way to prevent
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an individual basking in the light of a
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street lamp there is no way for an
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individual to prevent themselves been
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impacted by negative externalities in
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this type of society people are driven
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by profits exclusively many profit
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generating industries produce a lot of
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pollution in a world like ours with
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regulatory bodies there is some level of
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control around this we limit where
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factories and power stations can be set
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up and also control what kind of
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pollution they can leak out into the
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environment
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if these regulatory bodies didn't exist
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well then it would potentially be down
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to private militaries to regulate and
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enforce these types of externalities
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very quickly you arrive at an outcome
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where rich people just declare war on
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things to get their way which is a real
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dicey reality to be living in a solution
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to all of this is to set up communities
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that address the problems of these
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indiscriminate goods
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it's hypothetically possible that a
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company could establish an area where
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people could live separately from
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negative externalities and P provided
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with things like street lamps residents
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of this city would have to pay a
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subscription but they get the benefit of
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having a lot of this stuff sorted out by
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default this is also a way to ensure
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that everyone is chipping in for a
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military which would keep this area safe
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and so
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you are and in the event that someone
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didn't pay their subscription they would
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also be responsible for forcibly
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removing them from the area but if you
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haven't realized by now this company is
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basically just a government with taxes
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with more steps anarcho-capitalism is an
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amazing theory to explore but most of
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the time you manage to work your way
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back to the status quo the truth is that
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most products and services are best
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delivered by corporations with a profit
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motive the same way that there are
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products and services best delivered by
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governments simply looking to retain
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power the exact place to draw the line
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between businesses and government
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services is the real debate but it
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almost certainly does not lie at either
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extreme of scale this is one of those
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things that I'm expecting some pushback
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on there are passionate advocates for a
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totally free market so I put it on you
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how would you structure the economy of a
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perfect society the best answer will get
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featured in the next video on this
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subject and if the answer is really
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fantastic we will explore this
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hypothetical country just like one of
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our normal country videos over on our
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second channel so leave your comments in
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the comments section below guys nobody
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enjoys paying taxes and that's not
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because it's money out of your wallet a
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lot of people really enjoy spending
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money people don't enjoy paying taxes
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because it's money out of their pockets
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going towards something they wouldn't
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have otherwise spent their money on tax
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dollars often aren't going to directly
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improve the quality of life of the
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people paying them but they do
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materially improve Society so long as it
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is agreed that there are items that
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would not be provided by private
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businesses in a competitive market and
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that those items do have value we will
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need a collective organization to supply
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those goods the most prominent
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collective organizations we have in the
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world are governments and the best tool
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these governments have available to them
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to raise revenue is taxes there are
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alternatives but they have their
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limitations do we need tax as much as we
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do well no maybe not are there better
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taxes to levy in smarter ways almost
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definitely but do we need taxes
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well they are the worst possible
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solution
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apart from all of the alternatives hi
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guys thanks for watching if you enjoyed
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this video please consider liking and
[1134]
subscribing this video and every other
[1136]
video on the channel are made possible
[1138]
by our amazing patrons over on patreon
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so a huge thank you to the team over
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there make sure to tune in to our do we
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need taxes Q&A session over on the
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second channel for what I'm sure will be
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a very heated debate on a very
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interesting subject
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