Taxes and Nodal Failure

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A couple of months ago, I wrote an intelligence paper here at Bagram which talked about the idea of Cascading Failure and Nodal Failure. Cascading Failure is when a “node”, such as a computer node fails, and thus other nodes have to pick up the traffic within the network, which in some cases overstresses that following node, which collapses and so on. Soon, the whole system collapses. I used this model to show that a complex network can appear fine one day, but can quickly disintegrate if the proper nodes are destroyed. As such, if certain nodes within a terrorist or insurgent network are destroyed, the entire opposition force can be rendered relatively ineffective in quick order.

More recently, I began reading a book called: Washington’s General. It’s about Washington’s right hand man, Nathanael Greene. It goes into detail about how England’s tax increases on molasses–The Sugar Act– hurt the economy and really riled up the folks of Rhode Island. A similar thing had happened in Boston, with tea of course, and there was also the Stamp Act.

In exploring how networks and “nodes” contribute to the makeup of modern society, I came up with a hypothesis concerning a government’s ability to levy taxes in primitive and modern cultures. Primitive cultures, since they do not have as much access to modern communication and transportation, are not as networked as first world cultures. So they tend to rely on a very few, locally produced commodities to generate revenue and jobs. More networked areas can take advantage of commodities produced in other areas by trading and buying and selling in a much more efficient manner than non-networked areas. The networking acts as a safety net: If one industry collapses, networked areas can still buy things of value from other areas, and than sell them for profit to other areas of the world that need those products that they can’t produce enough of on their own.

So, when Britain enacted the Sugar Act, it really hurt Rhode Island, which drew almost all of its industry from molasses and Sugar for Rum. Had the Rhode Island “node” collapsed, it would have put more strain on other colonies, since they could not trade for molasses and sugar. And so on.

In our modern day America, goods and services are almost universally available via technological networking, but there are areas that suffer greatly, such as when paper mills shut down in the north-east, or when the auto industry took a dive in Detroit. But mostly, tax hardship on goods is spread evenly across the nation, kind of like a mutual fund which protects against the failure of a single company. This allows the government to collect more taxes without destroying the system.

The point of my hypothesis is that while we are trying to build a stable government in Afghanistan, we must realize that one of the crucial things a government must do is to collect taxes. But Afghanistan is not very networked. So taxes on local commodities may result in great hardship on the places that produce those commodities. Until Afghanistan is more networked, it will the government will continue to struggle in collecting revenue, and risks driving people to the insurgency if they up taxes on certain products without considering results.

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2 thoughts on “Taxes and Nodal Failure

    Royce said:
    November 7, 2010 at 5:26 pm

    Very interesting essay and an excellent premise. I presume that the complete paper went to higher authorities and this is merely an introduction to larger work. Nevertheless, this is an interesting starting point for a broader strategy in Afghanistan. It seems clear from this distant point that while our efforts may be making some headway they are painfully slow and their success is far from assured. The government there is quite corrupt but this is endemic to the area so the problem seems to me that relying on the government is not very worthwhile. Contact with the tribal leaders doesn’t appear to be a winning strategy and in view of your nodal theory you open the door (at least to me) for a reworking of our strategy there. What ever the winning strategy is it doesn’t appear to be military but rather more economic strategy. A well done and thought provoking paper — I would have liked to have read the entire piece.

    Amos Volante said:
    November 9, 2010 at 4:28 pm

    This is a good analysis. The problem is sensing when to adjust a tax rate, which all civilized societies suffer from.

    A few miscalculations can hurt badly.

    Even worse if they are intentional or malicious, such as England did to the colonies.

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