At first glance, the question “why do we pay taxes?” seems straightforward. Mainstream economic textbooks offer a clear answer: governments collect taxes to (1) correct market failures, (2) promote equity, and (3) stabilize the economy [1].
But that explanation is what governments claim to do, not necessarily what they achieve. In practice, governments often fail to meet these lofty objectives. In fact, government failures are frequently larger and more damaging than market failures they are meant to solve.
Recently, I’ve been questioning a lot about the decisions I’ve made in life. Without a doubt, some things I’ve written online have had an impact—temporary or permanent—on my (future) career and life overall. My genuine search for answers to fundamental puzzles in money, banking, and interest rates has led some to label my economic views as “heterodox,” a term I only heard from a friend two weeks ago on a train from Semarang to Jakarta. At this point, I still can’t be certain that my current answers to these puzzles—reflected in everything I’ve said or written—are correct. My views are constantly evolving as I meet new people, read new books, and crunch new data. This is probably the hardest part of learning social sciences.
Confidence is often based on perception and expectation, while competence is the actual reality or fundamentals. I truly believe that competence should be prioritized, as genuine confidence is a natural byproduct of true competence—not the other way around. However, the relationship between confidence and competence is more complicated due to their reflexive nature.
Reflexivity
Confidence and competence are reflexive, meaning they influence and reinforce each other. Competence stimulates confidence, and confidence can further motivate us to improve our competence, creating a positive feedback loop. However, this reflexive relationship implies that confidence might—perhaps more often than not—grow faster than competence, creating a large gap between perception and reality.