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OK, let's bump this discussion up another notch. Let's assume that at some point in the future this present age will pass away and the Evil that has ruled this world will be chained in The Bottomless Pit. The Millennium will be ushered in, as foretold in prophesy. Let's speculate on what the Millennial economy will look like.
How will/should it be?
Quoting: TheTymeBeing You have not described what man will be in this future world. If men are angels and if an economic system is needed to transact business, then ANY economic system will work fine.
But in the present world men are not angels, so the best economic system is one that best promotes fairness and productivity.
To you question earlirt about government rewarding banks for their misconduct, as toy have seen, banks have not changed their ways. So the answer is yes, we do get more of the behavior we subsidize and less of what we punish (tax).
You introduced a hypothetical. Here is another
A man researches for years and discovers a drug that CURES diabetes. He sells his new miracle drug and his income is beyond the limit and taxes take all over his limit. This man has the potential to develop a drug that CURES cancer. Why should he? Why should he labor for another long period of time, ruin his own health, deprive his family of his company for no gain?
Who would be enjoying Ipads if Steve Jobs had no monetary incentive to invent it? He already had billions. But 10s of thousands of folks would be deprived the pleasure of the new machine.
I bet you answer is they should work for the good of humanity. Well, maybe they would, but what if they wouldn't?