But what should we do? That's the question.Indeed it is. It's a monstrously complicated question, and because of that I put off answering it. But I'm going to take a crack at it here.
Part 1: The quality metric
Let us begin by taking note of an important fact: policy questions like this do not not and cannot possibly have an objectively correct answer. The reason for this is that people can legitimately disagree on what a good outcome for an economic policy looks like. There are myriad ways of measuring macroeconomic outcomes: total wealth. Mean wealth per capita. Median wealth per capita. Life expectancy. Different quality metrics lead to different policy conclusions. And there is no such thing as the One True Metric.
On the other hand, if you're going to claim to be rational, then you must be explicit about what your quality metric is, otherwise there is nothing against which to measure the success or failure of policy decisions. I think this explicitness is manifestly missing from most discussions of economic policy in the U.S. and this is the root cause of much of the intractable disagreements. If you don't agree on what a good outcome looks like, then of course you are not going to agree on policy.
So I'm going to start by describing what looks like a good outcome to me. Of course, this is only (and can only be) my opinion. I think the world would be a better place if more people adopted this point of view, but of course I would think that. I am, by logical necessity, more than a little biased in this regard.
I don't think that any simple statistic is a good measure of economic outcome. I think we need to be much more nuanced than that. Some of the usual suspects (like GDP) make not entirely unreasonable proxies for what we really ought to care about, but none of them are what we really ought to be caring about at root.
It is easy to illustrate this with an example: suppose some of the more extreme elements of the Republican party manage to sway policy to the point where they are able to re-legalize negro slavery in some of the Southern states. And suppose they source all of their slaves from Central African Republic (or Malawi, depending on who you ask) the poorest country on earth by GDP per capita. They pay a fair market price for them, enough money that all the usual macroeconomic indicators in the C.A.R. go up. (In fact, imagine that the C.A.R. is completely revitalized by the influx of capital from the slave trade.) And suppose that the ROI on imported slaves in the U.S. beats the stock market (that's not asking much nowadays). Let us suppose even that government regulations require a certain minimal level of human treatment and health care for slaves, rather like we currently do for livestock, and this leaves the slaves strictly better off than they would have been back in the C.A.R. So by every conceivable economic measure, importing slaves from the C.A.R. is a net win for everyone including the slaves.
Does that mean that slavery might be justifiable as an economic policy? Slavery has become so unfashionable nowadays that I have probably caused offense in certain circles simply by asking this question. But it was not that long ago — less than 200 years — that people fought and died to defend slavery on its merits as an economic policy. (Of course, many fought and died to defend it on political, social, and religious grounds as well, but that's beside the point.) The last Confederate veteran only died in 1959. At least some of the Confederate mindset is alive and well today.
This is not an academic question. The face of slavery has changed considerably since 1861, but it is actually alive and well today, even in the U.S. One could argue that slavery is bad because it ultimately does not maximize economic growth (or something like that), but that would be missing the point rather badly, which is: slavery would be bad even if that were not the case. Even if slavery did lead to undeniable across-the-board economic benefits, it would still be bad. (Note that one clue to this is the fact that in order to make the slavery story hold up you need a source of desperately poor people for whom slavery is potentially a step up.)
The badness of slavery cannot and must not be justified in purely economic terms, at least not as long as there are desperately poor people on earth. There is something else in play here, perhaps more than one something. There are myriad non-economic factors that one can mix into one's quality metric: Human rights. Fairness. Happiness.
My economic quality metric derives from my core belief that we should try to maximize the number of ideas in the universe. Because at the moment the primary habitat of ideas (as far as we know) are human brains, it follows that we should strive to maximize the number of human brains. But brains by themselves are not enough. In order to support a robust ecosystem of ideas, brains have to exist in an environment where they are capable of learning, of thinking about things, and, most importantly, of generating new ideas.
Slavery is not such an environment, which is why slavery is bad. Schools, universities and libraries (and national parks) are such environments, which is why they — and the social and economic structures that give rise to them — are good.
Part 2: Wealth disparities
I'm a big fan of democracy, capitalism, and free markets. But I am not a fan of these things for their own sakes. I am a fan because these things tend to bring about good outcomes according to my quality metric. Free market capitalism, for example, creates wealth more effectively than any other system we humans have been able to come up with. All else being equal, more wealth is better than less because it gives you more options. But wealth is not (by my quality metric) an end in itself, it is a means to (what should be) the end: the creation of a world where ideas can thrive.
Now, an awful lot of our wealth gets deployed in what I consider to be constructive ways. For example, we humans live longer and healthier lives than ever before, and that's a good thing because (you're going to start recognizing this theme after a while) long-lived healthy humans generally have more and better ideas than short-lived sick ones do. Famines are mostly a thing of the past: a good thing. We have cars and airplanes and the internet, which allow humans and their brains and their ideas to travel and intermingle in ways that would not otherwise be possible. All good things.
We also have peace. I know it's hard to tell from watching the evening news, but we are actually living in the most peaceful era in human history. There is reason to believe that one of the reasons for this is the spread of democracy. No two democracies have ever gone to war with each other. And peace is good because... well, you can fill in the blank here.
It is easy, then, to fall into the following rhetorical trap: democracy, capitalism, and free markets (which I'll start abbreviating DCFM) are all Good Things. But wealth disparities are an inevitable result of DCFM. Therefore, wealth disparities must also be a good thing (or at least not a bad thing, or at least a thing that we need to be willing to put up with in order to enjoy the fruits of DCFM.)
That this reasoning is fallacious is easy to see. It would apply equally well to, say, pollution, which is also an inevitable result of DCFM (unless we choose to do something about it). Just because something is a result of DCFM doesn't necessarily mean it's a good thing.
I believe that extreme wealth disparities are more like pollution than they are like libraries and universities. Why? Because extreme wealth disparities do not help to foster a robust ecosystem of diverse ideas.
We already live in a world where the concentration of wealth is snuffing out ideas. Yes, anyone can write an publish new ideas and put them out on the internet for everyone to see (just as I am doing right now). But as a practical matter, the vast majority of people are getting their input from a smaller and smaller number of sources. 90% of the media in the U.S. is controlled by six companies. In 1983 that number was 50.
This is not yet a catastrophe. Six is still better than one. But the trend is very worrisome.
What makes it even more worrisome is the positive-feedback effects that make wealth disparities more and more difficult to dislodge the larger they become. Wealth is power if one chooses to wield it that way. So, for example, I have Comcast internet. I hate Comcast. They are the worst company ever. And yet I do business with them. Why? Because I have no choice. Why do I have no choice? Because Comcast uses the money they get from me to hire lobbyists to influence state and local politics to make it all but impossible for effective competition to enter the market. And it's not just Comcast; the other big players do it too.
So are wealth disparities bad? Yes and no. They are indeed an inevitable by-product of DCFM, which on balance do vastly more good than harm. But, like pollution, if you get too much wealth disparity it can undermine a lot of the good the DCFM does and so, like pollution, I think we ought to try to do something about it. Also like pollution, I don't think it makes any sense to try to eliminate it entirely. But I do think that it's time for some emission controls, and that we can put them in place without killing the golden goose.
Part 3: Policy recommendations
The first step to any recovery is admitting you have a problem. The first step to addressing extreme wealth disparities is deciding that they are a problem. I've presented an argument here that they are indeed a problem with respect to some quality metric. Moreover, I've actually told you what that quality metric is. I think any discussion of this issue needs to start with those simple steps.
If you accept that wealth disparity is a problem then the solution is actually pretty straightforward: the economic equivalent of a catalytic converter is a progressive tax structure, which we currently don't have. At the moment we have a regressive structure that takes a smaller percentage of Warren Buffet's income than his secretary's. The main culprits are payroll and sales taxes, and the carried-interest loophole. So I'd eliminate those and adjust marginal rates on regular income taxes to be revenue-neutral but more progressive, i.e. I'd raise the top marginal rates. (I would also eliminate the mortgage interest deduction. It does nothing but distort the housing market. But I'd do it very gradually, over 30 years or so, so as not to shock the system.)
I would also impose a (very small) per-transaction tax on stock markets in order to discourage high-speed trading. The extra liquidity that HST provides is nowhere near worth the market distortions that HST gamesmanship introduces. I would happily wait two or three seconds longer for my trades to execute if it meant that there wasn't a quant shaving a few basis points off every transaction. I'd use the proceeds from this tax to fund basic research and education.
I would limit the ability of for-profit corporations to lobby politicians. I would get around Citizens United by passing an amendment to the dictionary act of 1871 stipulating that a for-profit corporation is not a "person" for the purposes of ascribing Constitutional rights to it.
I don't know if that would solve the problem, but I think it would be a step in the right direction. At the very least, I think it would be an experiment worth conducting.
Since my comment prompted this post, I want to emphasize that I agree with a great deal of what you say here. In particular, I agree that there is no One True Quality Metric.
ReplyDeleteHowever, I draw a somewhat different conclusion from that than you do. In one of your previous posts (can't find the particular one right now), you said something to the effect of: a free society is one in which people who have fundamentally different quality metrics can still cooperate and trade to their mutual benefit. So it seems to me that, rather than picking one particular quality metric (even if it's one that you find attractive--I do too, btw) and trying to work out a policy based on it, what we ought to do is accept the fact that there is no one quality metric that a policy can be based on, and work out the consequences of that.
This procedure also seems to me to be better even from the standpoint of your chosen quality metric. After all, quality metrics are ideas! And having a society in which people with fundamentally different quality metrics can cooperate and trade to their mutual benefit seems to me to be a great way to allow different ideas a fair chance at flourishing. But picking one metric and saying, this is the one we're going to base public policy on, undermines that objective.
So what does all of the above say about wealth disparity? First of all, I am a bit surprised that none of your suggested remedies (even leaving aside the above comments about quality metrics) really breaks the feedback loop between concentration of wealth and concentration of political power. The closest you come is to "limit" the ability of corporations to lobby politicians. I would go further; I would eliminate the ability of corporations to lobby politicians. Corporations don't vote. The only entities that should be allowed to attempt any kind of influence over politicians--whether it be campaign contributions, lobbying efforts, or whatever--are voters. Even the excuse that, well, voters need to organize into lobbying corporations in order to get their voices heard, is no longer valid in the age of the Internet.
With regard to your other suggested remedies, while it does seem that many wealthy people (such as Warren Buffet and yourself) are quite willing to pay more taxes, the problem is that doing so just gives their money to the government, which has an extremely bad track record at making good use of it. The obvious thing for wealthy people to do if they want to reduce the effects of wealth disparity is to figure out ways of distributing it themselves--start a charitable foundation, for example (as Bill Gates has). You will do a better job of figuring out good uses for your wealth than the government will.
Also, you mention that the mortgage interest deduction distorts the housing market. While I certainly agree, and would support ending the deduction on that basis (even though I benefit from it), I think it is just the tip of the iceberg as far as distortion of markets goes. The biggest market distortion the government makes is printing money; every time the Fed prints more money, they are effectively transferring wealth from ordinary people to bankers and other players in the financial industry. Not only that, but they are doing it by stealth, deep down in the heart of the financial system, where it is difficult for anyone to see the effects. Like any good magic trick, the trick is over before the audience even realizes that it has begun.
So if you really want to break the feedback loop between wealth disparity and political power, I think an essential part of that has to be ending the Federal Reserve's ability to print money, and imposing strict controls on how, if at all, the government can change the money supply.
@Ron: Interesting piece, thanks for writing. Your slavery is a curious case, where you propose that it's a better life even for the slaves. I doubt that's possible in the real world, but if it somehow were true, I become much more confused about the value of slavery.
ReplyDeleteI've of course read your ideaism before. Intriguing, although I'm not convinced. One objection that just occurred to me (prompted by your slavery example): reduction of suffering often has value to people. Maybe you could cause more ideas by somehow making more humans suffer. (Or, at least, making a lot more humans, who happen to suffer greatly.) I'm not sure that I approve of societal movements in that direction. It reminds me a bit of Jeremy Bentham's famous argument against animal vivisection a couple centuries ago: "The question is not, Can they reason? nor, Can they talk? but, Can they suffer?" Whether animals can host ideas, is not my moral sense of their only value. Reducing their suffering seems to be a fundamental good as well.
On wealth disparities, you propose that they are like pollution, an unfortunate byproduct of capitalism that one would try to minimize. But your argument against it, rather than discussing examples of individual income inequality, unfortunately seem to offer only corporate monopolies. I completely agree that monopolies are one of the (few!) well-known failure modes of a capitalist free market ... but I'm left wondering how this relates at all to CEOs receiving wages that are 100x that of the janitors in their companies.
As for policy, I hope you'll admit that US marginal income tax rates are already very progressive. The fact that there are "loopholes" which allow some (not all) wealthy people to avoid direct income taxes, is certainly worth looking at. But you leave the impression here that the primary tax structure, which accounts for the majority of government income, is not progressive. I don't think that's supported by the data about who pays what fraction of their income in taxation. (I also don't think that HST causes market distortions, but that's a quibble, so I won't strongly argue the point.)
@Peter Donis: "every time the Fed prints more money, they are effectively transferring wealth from ordinary people to bankers and other players in the financial industry"
ReplyDeleteThat's completely false. A low, stable, predictable rate of inflation, does not at all transfer wealth from ordinary people to the financial industry. I challenge you to support your claim.
"imposing strict controls on how, if at all, the government can change the money supply."
You must have a fascinating proposal for your ideal monetary policy. What is it? What do you propose is the unit of account? What is the medium of exchange? Do you still want fiat currency as money? If so, what is your proposal for what should happen to the money supply?
I have to be honest: I sincerely doubt you'll be able to come up with something better for the economy (and ordinary folks!) than the US's current monetary system. Although, if you want a hint, a fiat money supply automatically controlled by a monetary policy of NGDPLT would be better than allowing Fed governors to have their current discretion. But I suspect that wasn't what you had in mind. :-)
@Peter:
ReplyDelete> In one of your previous posts (can't find the particular one right now), you said something to the effect of: a free society is one in which people who have fundamentally different quality metrics can still cooperate and trade to their mutual benefit.
http://blog.rongarret.info/2011/08/lottery-economy.html
And you really ought to re-read the whole thing. The white magic of trade only gets you so far. It doesn't help manage externalities (or monopolies).
> doing so just gives their money to the government, which has an extremely bad track record at making good use of it.
I disagree. The government actually has a very good track record when it comes to fundamental research and education, which are the two things that I've advocated spending the money on.
> I would go further; I would eliminate the ability of corporations to lobby politicians.
Yeah, I thought about that.
I think it's important to distinguish between for-profit and not-for-profit. I really don't think that prohibiting not-for-profits to lobby would be a good idea. The whole point of many not-for-profits is to effect political change of one sort or another, and I think that's a good thing. That's the kind of banding together that I think is perfectly fine. It's when you mix in the profit motive that things tend to go non-linear.
But even then I don't think shutting off all lobbying is a good idea. The government sometimes does bone-headed things, and when they do sometimes corporations can help stop those bone-headed things. (A good current example: the government wants to force companies to install cryptographic back doors, and some companies are trying to stop them from doing that. I'm with the companies on this one.)
> ending the Federal Reserve's ability to print money
https://goo.gl/tQ1g2i
@Don:
ReplyDelete> Maybe you could cause more ideas by somehow making more humans suffer. (Or, at least, making a lot more humans, who happen to suffer greatly.)
It depends on what you mean by "greatly". For example, the existential angst experienced by many in their youth seems to be conducive to writing good poetry. Competitive pressure can be very painful, but can also motivate people to be more creative, as long as you don't over-do it. So there's an idea-istic argument to be made that some kinds of suffering ought not to be eliminated. But it seems unlikely that you could ever show that, for example, you get better ideas out of people by torturing them.
> But your argument against it, rather than discussing examples of individual income inequality, unfortunately seem to offer only corporate monopolies.
Good point. I guess I need to write yet another follow-up. But for now I'll just mention Marissa Meyer, who was paid $36M for her first six months at Yahoo, as a current counter-example to the proposition that CEOs are worth what they're paid.
> As for policy, I hope you'll admit that US marginal income tax rates are already very progressive.
Yes, marginal *income* tax rates (on *wages*) are progressive (I would not say "very"). But income tax on wages is not the only tax there is. Payroll taxes are regressive. Sales taxes are regressive. Preferential treatment of capital gains tends to be regressive because low-income people tend not to have capital gains.
@Ron: "Marissa Meyer, who was paid $36M for her first six months at Yahoo, as a current counter-example to the proposition that CEOs are worth what they're paid."
ReplyDeleteBut that's not the point under debate. We can argue whether Meyer was "worth" what she was paid. But companies are free to make mistakes. The beauty of capitalism is the constant churn. Those organizations that make poor decisions, eventually go bankrupt. Maybe Meyer is/was overpaid; it doesn't really matter.
The point we were discussing, is whether society as a whole suffers because someone like Meyer acquires much more wealth than the average person. We're looking for specific harm from income inequality. Just observing that there exists income inequality isn't enough. Even observing that the inequality may sometimes be "undeserved" isn't enough. (Perhaps there are regular lottery winners, randomly chosen, who get blessed with far more wealth than the average person. You still need to argue that the resulting inequality is harmful.)
"But income tax on wages is not the only tax there is."
Agreed. Total tax burden is the important thing. But even there, you need to start with some basic facts. E.g., "The highest quintile in total earned 55.9% of all income. It paid ... 68.9% of all federal taxes", " "Net Federal Taxes" are essentially zero for half the population (remember Romney's "49%"?). Even with payroll taxes, the average (not marginal!) tax rates are clearly progressive.
You may want to argue that taxes should be even more progressive, which is your right. But I think it's highly misleading to write "...a progressive tax structure, which we currently don't have", as you did in your original post. I think that claim is essentially just false.
@Don: "A low, stable, predictable rate of inflation, does not at all transfer wealth from ordinary people to the financial industry."
ReplyDeleteYou left out a key qualifier: a predictable rate of inflation that is equally distributed among all parties does not transfer wealth. But when the government prints money, it does not distribute it equally to everyone; it gives it preferentially to certain parties. I agree that you won't find many economists who will admit that this latter case does transfer wealth (since Austrian economists are rare); but that doesn't change the fact that it does.
The reasoning is simple: the purchasing power of a given amount of money is not an absolute; it depends on what fraction of the total money outstanding that given amount of money is. If the government prints money and gives it to certain parties but not others, that increases the fraction of the total money outstanding that is possessed by the parties who receive the money, and decreases that fraction for everyone else. That is equivalent to transferring purchasing power, i.e., wealth, to the parties who get the printed money, from the parties who don't.
"You must have a fascinating proposal for your ideal monetary policy. What is it?"
I don't have a single proposal, just a suggested ground rule, based on the above reasoning: if the money supply changes, the change has to be implemented in a way that does not change anyone's purchasing power. That means the fraction of the total money outstanding that is possessed by all parties must be the same before and after the change in the money supply.
Such a rule would not rule out changes in the money supply, pegged for example to some index of economic growth. (I personally think such changes are less necessary than many economists do; but provided the change meets my ground rule above, I wouldn't object to it.) But it would rule out printing money in order to favor certain economic activities or actors over others, which is what the government currently does.
"What do you propose is the unit of account? What is the medium of exchange? Do you still want fiat currency as money?"
None of these things would have to change from what we have now.
"I have to be honest: I sincerely doubt you'll be able to come up with something better for the economy (and ordinary folks!) than the US's current monetary system."
Really? You think the US government is so good at picking which economic actions and actors to favor that its preferential printing of money always does the economy good? That seems like an extremely strong claim, which I would need to see very strong justification for.
@Ron: Yes, that was the post I was thinking of.
ReplyDelete"The white magic of trade only gets you so far. It doesn't help manage externalities (or monopolies)."
I agree as regard externalities; they are unavoidable. However, I'm not convinced the government can do better, on net, at "managing" them than the market. An ideal government that targeted the right things might; but I have yet to see a government that is anywhere near ideal.
Btw, it's worth asking what the right things are to target to manage externalities. To me, the lesson here is from Coase's Theorem, which says that the key issue is transaction costs. Finding ways to lower transaction costs so that people can find mutually beneficial trades that reduce or eliminate externalities would be a great thing for an ideal government to focus on. But I don't see that happening.
As far as monopolies are concerned, David Friedman's Price Theory has some good references to studies of this issue. Their basic conclusion is that, historically, monopolies have only been a problem when they are propped up by the government; when the government leaves things alone, monopolies either get out-competed or are forced to sell at competitive prices in order to keep themselves from being out-competed. The story of the evil monopolist driving all its competitors out of business and then raising prices is basically a myth.
One thing these analyses do leave out, as far as I can see, is network effects--the sort of thing that keeps Microsoft and Windows on top of the market. Unfortunately, I'm not sure I see how the government can help with those, because the problem doesn't show up in prices--Windows PCs are actually pretty cheap and getting cheaper. The only thing I could see the government doing would be to stop using Windows itself--switch all government computers to Linux, for example. This would make me personally very happy since I'm a Linux geek :-), but I don't see it happening any time soon.
"The government actually has a very good track record when it comes to fundamental research and education, which are the two things that I've advocated spending the money on."
I agree with respect to fundamental research. I don't agree with respect to education, but I think that discussion probably belongs in a separate post.
"I think it's important to distinguish between for-profit and not-for-profit."
Fair point (but see below). The obvious loophole is ways that the "non-profit" definition can be gamed; but the hoops you have to jump through to get designated as a non-profit, at least in the US, are pretty stringent, as far as I can see.
"I don't think shutting off all lobbying is a good idea."
I didn't say shut off all lobbying. I said shut off all lobbying that's not by voters. Your point about non-profits is a fair one; I could see allowing voters to band together in a non-profit (such as the Electronic Frontier Foundation, since you mentioned cryptography as an area in which the government is basically clueless) in order to lobby. But that would still be a very different thing from for-profit corporations lobbying.
@Peter Donis: "But when the government prints money, it does not distribute it equally to everyone; it gives it preferentially to certain parties."
ReplyDeleteUnfortunately, you've made a critical, critical error ... which invalidates your entire argument. When the Fed "prints money" it doesn't "give" it to ANYONE. What actually happens, is that the Fed BUYS (Treasury bonds) on the open market, for market prices. That is such a different action, that all your feared consequences don't come to pass.
"that increases the fraction of the total money outstanding that is possessed by the parties who receive the money, and decreases that fraction for everyone else."
If they gave parties money, that's indeed what would happen. Since instead they buy assets for market prices, the parties who "receive" the money don't at all find that they have any particular advantage over anyone else, in terms of the fraction of total money that they control.
" if the money supply changes, the change has to be implemented in a way that ... means the fraction of the total money outstanding that is possessed by all parties must be the same before and after the change in the money supply."
How wonderful! I agree. And, fortunately, that's exactly how the Fed actually implements monetary policy. So your problem is already solved.
@Don: "When the Fed 'prints money' it doesn't 'give' it to ANYONE. What actually happens, is that the Fed BUYS (Treasury bonds) on the open market, for market prices. That is such a different action, that all your feared consequences don't come to pass."
ReplyDeleteI understand that that's what the government and mainstream economists say, and what they would like us all to think, but that doesn't make it true. In its open market operations, the Fed is using freshly printed money to buy certain things and not others--it's paying banks for T-bills, but it's not paying my salary, for example--so it's still preferential treatment and it still effectively redistributes purchasing power and therefore wealth. To truly print money in a non-preferential fashion, the Fed would need to use freshly printed money to buy a proportional amount of everything that is on sale in the entire economy, at market prices.
Also, open market operations such as you describe are not the only way the Fed prints money. Another way is "quantitative easing", which is printing money and giving it to banks when the banks want to lend it out in a mortgage. That is still preferential treatment and it still...you get the idea.
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ReplyDelete@Peter: you are aware that you can delete comments that you've written, yes?
ReplyDelete@Peter Donis: "I understand that that's what the government and mainstream economists say"
ReplyDeleteOK, so you realize that essentially every trained professional economist agrees with me. It's OK for you to disagree, but I sure hope you have an airtight argument. There's obviously going to be a very strong prior that you are wrong.
"the Fed is using freshly printed money to buy certain things and not others--it's paying banks for T-bills, but it's not paying my salary, for example"
What matters is whether the volume of purchases is a sufficiently large fraction of the entire market, that the purchases themselves change the market price of the item. The US Treasury market is the largest (in value) and most liquid market on earth. Fed purchases have little (direct) effect on the price of Treasuries.
If you think that even buying a single Treasury bond (with new money) somehow "redistributes purchasing power", then you're going to have to explain just exactly how you think that happens, in great detail.
""quantitative easing", which is printing money and giving it to banks when the banks want to lend it out in a mortgage"
No, QE also is not "giving" any money away. QE is a purchase of mortgage derivatives (MBSes = mortgage backed securities). Again, on the open market, and again, for market prices.
(During the recession, the Fed also purchased some "toxic assets" from banks, as part of the TARP attempt to save the banking sector. It is unfortunate that the single institution of the US Federal Reserve has the dual responsibilities of both monetary policy, and also banking regulation, when in truth the two subjects have very little to do with each other. TARP was not an aspect of monetary policy. I -- and you likely agree -- disagree with the Fed's banking decisions to bail out various "too big to fail" financial institutions.)
"Let's take a simple example with three players"
I think this is a great idea. I highly encourage you to attempt to construct a single concrete example. I think your difficulty (so far) in demonstrating what you expected to show, might be a useful sign that your informal economic model isn't quite correct.
@Ron: "you are aware that you can delete comments that you've written, yes?"
ReplyDeleteI am now. :-) I'll defer further posting until I've had more time to work things through in detail.
@Don: "The US Treasury market is the largest (in value) and most liquid market on earth. Fed purchases have little (direct) effect on the price of Treasuries."
ReplyDeleteJust a quick comment on this (still deferring more details on a concrete example): the whole point of the Fed buying T-bills is to affect their price, since their price determines their interest rate, and the Fed is using open market operations to try to drive interest rates to whatever their current target is. So I don't think we can use an idealized model in which the Fed's purchases don't affect the prices of the items they're purchasing, since that idealizes away the primary purpose of the Fed making the purchases in the first place.
@Don: "I -- and you likely agree -- disagree with the Fed's banking decisions to bail out various 'too big to fail' financial institutions."
ReplyDeleteYes, I definitely agree.
@Peter Donis: "the whole point of the Fed buying T-bills is to affect their price, since their price determines their interest rate, and the Fed is using open market operations to try to drive interest rates to whatever their current target is"
ReplyDeleteNo, that's not correct, and it misunderstands both the monetary policy transmission mechanism, and also the interest rate target.
The point of T-bill purchases is to enlarge the money supply. A consequence of a bigger money supply, is (often) a lower interest rate (at least, in the short term).
The interest rate target is the Fed funds rate, which is the interest rate that banks charge each other for overnight loans. It isn't the Treasury bond rate.
The effect of this "easier money" on the price or interest rate of T-bills, can be much more complicated, depending on what else is going on in the economy. But for sure, the purpose of OMOs is not to directly affect the price (or interest rate) of Treasury bonds.
@Don: Yes, you're right, I misdescribed the Fed's open market operations.
ReplyDeleteI'm still not sure those operations have negligible effect on T-bill prices, however. A quick check seems to show that the US monetary base is about $4 trillion, of which at least half has been created since the crash of 2008, and the total of outstanding marketable US Treasury securities is about $13 trillion, of which bills and notes, which I think are the ones affected by the Fed's OMOs, are about $10 trillion. It seems to me that creating $2 trillion of money by purchasing T-bills in a $10 trillion market should have a more than negligible effect on T-bill prices.
The Treasury security figures are from the December 2015 report here:
https://www.treasurydirect.gov/govt/reports/pd/mspd/2015/opds122015.prn
@Peter Donis: Yes, you're right. From about 1985 to 2008, the monetary base rose very slowly and steadily, from about $200B to about $900B. In a $10T market for Treasuries, the month-to-month OMOs during that period were basically noise in the T-bill market.
ReplyDeleteBut the monetary base skyrocketed after 2008, and yes, maybe about half of that new money was created via purchases of Treasury bonds. You are correct, that volumes in the last few years have started to be significant enough, that they might begin to be directly affecting the T-bill market. This is an unfortunate and unwanted side-effect of the current scale of monetary policy.
My main point, in my previous comment, is that having OMOs affect the Treasury market directly, is not the monetary policy purpose of OMOs. To the extent that the purchases do affect prices in the T-bill market, that means that monetary policy is less efficient and more economically distorting than it used to be.
(The primary monetary policy transmission mechanism -- the "hot potato effect" from the larger money supply -- affects all economic transactions essentially simultaneously, by raising overall velocity, and so doesn't distort any particular industry.)
You could use an editor. That whole first part about slavery was just bizarre; I think you just had a bunch of slavery trivia you wanted to get out. [plus propagate false memes about Republicans; Abraham Lincoln, anyone? anyone?]
ReplyDeleteSince you brought it up, let me tie it back to some of your other philosophical ramblings.
1. Could a poor person sell themselves into slavery? The person could do what they want with the money (keep it, give it to family, whatever -- if the price of slaves drops in the future, one could buy oneself back and turn a profit).
1a) if not, how is this ethically different from selling their organs? Isn't it better than selling your organs? One is staying alive by trading future (and uncertain) annual income for a lump sum of the net present value.
1b) Is taking the NPV of your life income as a lump sum for being a slave materially different from going into huge debt, to pay for a college education, such that one has to work for an entire lifetime to pay back the debt?
1c) The U.S. military has a program in which they will pay medical school tuition on return for several years of military service after graduation. Are those doctors slaves while they are serving in the military?
2. Given that women can abort their pregnancies, isn't this a reduction in total possible memes?
2a) Would it therefore be ethical to create a market for continuation of their pregnancies?
2a1) As a buyer of the pregnancy, One would own it, and upon birth, the baby is one's property. One could add the baby to his family.
2a2) As the buyer, though, would it be ethical to make the baby my slave instead? The baby benefits by living (priceless). If effect, the buyer has paid the lump sum for their life's work prior to birth.
Otherwise, the policy recommendations for the second half can be summarized as 1) raise taxes, 2) limit free speech.
[as an aside - "non-profit" company - are you shitting me? "Non-profit" companies are rolling in dough and generously pay their executives.]
How about some commentary on:
1) human agency - people can make choices that affect their wealth.
2) I would really like your thoughts on this one - as it is never mentioned in discussions of public policy: half of the population is stupid. That human agency in #1, it's impaired for total dumbshits. How should public policy be shaped such that stupid people have fewer pathways to screw up their lives and end up in poverty.
3) Moral decisions having negative economic impacts. Single mothers and their children are not a viable economic unit. Should public policy push marriage as a poverty reducing and meme increasing?
4) Economic value of one's labor. Highly skilled and educated professions will create more economic value than lower skilled service jobs. They'll also create more memes - should we tax them less?
5) what about when the robots take over?
6) Policies related to the well-known market failures of capitalism. One is perfect competition. Farmers are price-takers and therefore very much at risk of going bankrupt. But we need farmers - they grow the food we eat; in addition, we always want that food to have excess supply (falling short to demand is very, very bad).
Eh, that's enough for now. I'll leave you with these immortal (infamous?) words:
1. Property is freedom.
2. Property is theft.
3. Property is ridiculous.
@Publius:
ReplyDelete> You could use an editor.
Are you volunteering?
> Could a poor person sell themselves into slavery?
Of course they *could*, but what I think you meant to ask is: would this be moral for society to allow this. My answer is no. Explaining why is left as an exercise.
> how is this ethically different from selling their organs?
I'm not sure it is. Have I ever said that it's moral to sell organs? (I may have, I don't recall. If I did, I'm sure I restricted it to things like kidneys where you can lose one and not suffer any ill effects.)
> Are those doctors slaves while they are serving in the military?
No. Slaves are property. They can be bought and sold. Soldiers can't.
What's your point?
> Given that women can abort their pregnancies, isn't this a reduction in total possible memes?
A fair question, and probably deserving of its own post. You have to weigh the loss of a potential brain (I stress "potential" because a fetus does not yet have a working brain) against the damage done to an already developed brain by forcing a woman to bear a child against her will. You also have to weigh what kind of upbringing an unwanted child is likely to have. It's a very tough call, and one that ought to be left up to the mother to make.
> Would it therefore be ethical to create a market for continuation of their pregnancies?
Sure. Anything that makes women decide not to have abortions of their own free will I'm all for. Abortions are not a good thing (but sometimes they are the lesser of two evils).
> As a buyer of the pregnancy, One would own it, and upon birth, the baby is one's property. One could add the baby to his family.
Well, no. As the "buyer" of a pregnancy you would become the child's parent, with all the rights and responsibilities that entails. If you treat that child as a slave that would be child abuse, no different than if you did it to your biological child.
> 1) raise taxes
Yes.
> 2) limit free speech.
For for-profit corporations, yes.
> "Non-profit" companies are rolling in dough and generously pay their executives.
That's true. They nonetheless have to adhere to certain behavioral constraints that for-profit companies don't.
> people can make choices that affect their wealth.
That's true, of course. But luck has a lot to do with it too. You don't get to choose your parents.
> How should public policy be shaped such that stupid people have fewer pathways to screw up their lives and end up in poverty.
Another full post. But I think there should be a minimal social safety net. No one should be hungry or on the street no matter how stupid they are.
> Single mothers and their children are not a viable economic unit.
Says who? Madonna, Sandra Bullock and Reese Witherspoon are all single moms. They seem pretty economically viable to me.
> what about when the robots take over?
That is a really great question! Way to complicated for a comment; definitely a post of its own.
@Don: "There's obviously going to be a very strong prior that you are wrong."
ReplyDeleteThis is probably a whole other discussion, but I can't resist commenting that how strong the prior is depends on how much predictive power the professionals have. If I were to claim that relativity is wrong, for example, there would indeed be a very, very, very strong prior that I was the one who was wrong, because relativity has proven predictive power to many decimal places in thousands of experiments. But the predictive power of economics is much, much worse, so the prior that economics is right and the person questioning it wrong is correspondingly weaker.
("Predictive power" might be too narrow a term--what I'm actually getting at is something more like the ratio of predictive power to complexity of the theory. But again, that's probably a whole other discussion.)
@Peter: except that you don't have to rely on economists to evaluate theories about the Fed. You have access to first-hand data: The Fed has been in place since 1913, but the disproportionate distribution of economic gains to the already-wealthy only started in 1980 or so. That fact alone makes it extremely unlikely that the Fed had anything to do with it.
ReplyDelete@Peter Donis: "the prior that economics is right and the person questioning it wrong is correspondingly weaker."
ReplyDeleteSure, sure. Granted. The confidence in economics is not at the level of the confidence in relativity.
That said, when the vast majority of world-class professionals who have devoted their careers to studying the subject, agree on the answer to some of the fundamental questions, then if you propose to challenge that answer, it would be ... a substantial surprise, if your challenge was correct. And especially if you think it is something simple or easy or trivial. It's highly unlikely that the field as a whole made a silly mistake.
Einstein was working on one tiny little problem (speed of light apparently constant). His solution was to reform the entire conception of time and space, for all of physics, everywhere. This is not, in general, a good strategy. He needs a very very strong argument for why his solution to his tiny problem, requires that centuries of work from thousands of other people need to be overturned. Turns out he was right, with relativity. But it was correct to require a very high bar of evidence before accepting his new ideas.
Carl Sagan: "But the fact that some geniuses were laughed at does not imply that all who are laughed at are geniuses. They laughed at Columbus, they laughed at Fulton, they laughed at the Wright brothers. But they also laughed at Bozo the Clown."
Scott Sumner: "I'm not a big fan of physics vs. economics debates. ... Without the physical sciences we are back in the Stone Age. Without sound economic policy we are North Korea. ... Physicists can predict well when the problems are ultra-simple, like a rocket to the moon. Ditto for economics. Applied physics does horribly when asked to predict the weather, earthquakes, tsunamis, and other complex events. That's the sort of applied physics that would be valuable -- going to the moon was a waste of money."
@Ron: "The Fed has been in place since 1913, but the disproportionate distribution of economic gains to the already-wealthy only started in 1980 or so. That fact alone makes it extremely unlikely that the Fed had anything to do with it."
ReplyDeleteThat's a really good point, and I basically agree.
That said, if I wanted to generate an argument on the other side, I might observe that the Fed has operated in a number of very different styles over the century. Roughly speaking, there was a gold standard until the 1960's. Then the launch of fiat currency wound up with a decade of stagflation in the 1970's. Then the Fed began to understand that it could control inflation, and after Paul Volcker crushed inflation, the Great Moderation (with low, stable, predictable inflation) began from the early 1980's until the Great Recession in 2008.
I don't offhand know an argument about how this might tie into income inequality (and whether that would be a good or bad thing), but I'll admit that at a high level it certainly looks a bit suspicious. The Fed after about 1980 was a very different institution than the one(s) from 1913-1980. If that's when inequality started changing, maybe there's some connection (that I can't see for myself, to be fair).
@Don: Well, looks like we're having at least some of that whole other discussion here. :-)
ReplyDelete"when the vast majority of world-class professionals who have devoted their careers to studying the subject, agree on the answer to some of the fundamental questions"
Which fundamental questions? I don't know that "the vast majority" of economists agree with the general policy of letting central banks manipulate the money supply. I'm not even sure "the vast majority" of them agree that manipulating the money supply does not redistribute wealth. The "fundamental questions" that they all agree on, as far as I can tell, are things like the law of supply and demand--broadly speaking, microeconomics, not macroeconomics.
If you said the vast majority of Keynesian economists agree on the "fundamental questions" of macroeconomics, I would probably agree with that. But not all economists are Keynesian economists.
"He needs a very very strong argument for why his solution to his tiny problem, requires that centuries of work from thousands of other people need to be overturned."
Probably getting off topic, but that's not what Einstein did. His work did not invalidate any of the actual results or predictions that had been done before. It only put them on a different conceptual foundation. And he also showed that, given that new conceptual foundation, the old theory appeared as a limiting case, so all of its predictions within the domain of validity of that limiting case were still correct, and its concepts were still valid approximations within that domain.
"it was correct to require a very high bar of evidence before accepting his new ideas."
Actually, there wasn't a very high bar, if you mean new evidence--evidence that had not been collected before he published his theory. In the case of special relativity, the evidence that he used to argue for its correctness had existed for decades (much of it amounting to the observation that Maxwell's Equations are Lorentz invariant, not Galilean invariant). New evidence didn't really start to come along until the 1920s and 30s, when experiments with subatomic particles at speeds approaching the speed of light became common. But by then everyone had already accepted the theory, at least in a practical sense--nobody tried to design accelerators based on Newtonian physics.
In the case of general relativity, the key piece of evidence that Einstein used as a "sanity check" on his calculations while he was developing the theory was the perihelion precession of Mercury, which had been known since the mid 1800s. The first new piece of evidence was the bending of light by the Sun, ostensibly observed during the eclipse expeditions organized by Eddington in (IIRC) 1919. But later analysis showed that his claim of confirmation of Einstein's prediction was not supported by his actual data; his measurements were not accurate enough. (Later, more accurate experiments have amply confirmed Einstein's prediction of course--but by that time, again, everyone had already accepted the theory.)
The major reason why relativity (both special and general) was accepted by physicists--in the sense of them adopting it and using it to build models and make predictions--seems to me to be conceptual unification: SR unified mechanics and electrodynamics, and GR unified SR and gravity. But again, this is probably getting off topic; it just happens to be a favorite area of mine. :-)
"Applied physics does horribly when asked to predict the weather, earthquakes, tsunamis, and other complex events."
So does applied economics when asked to predict complex events. The difference, ISTM, is that the domains where simple economic models are sufficient for practical needs are much more limited than the domains where simple physical models are sufficient.
@Peter Donis: I agree that there is a lot of politics in macroeconomics. And it's unfortunate that there are different "schools" of macroeconomics, rather than just a unified field of the subject. That said, you're presenting it as though macro isn't even a field of academic study at all. That goes too far. Go to any major university, any economics department (or business school), head to the intro class on Macro 101. What textbook do they use in the class? What assertions and claims does the textbook make about macro? Are there fundamentals, that are generally agreed upon by the vast majority of the field? Non-political, pure statements of objective fact, well supported by evidence?
ReplyDeleteWhether a central bank "should" manipulate the money supply, is a policy question. There are tradeoffs to any policy choice. The point of (objective, accepted) macro, is to tell you what the tradeoffs are.
Does "inflation" redistribute wealth from creditors to debtors (as some "internet Austrians" claim)? No. Does a central bank buying Treasury bills on the open market with new money, redistribute wealth in society? No, Cantillon Effects, if they exist at all, are minor. Does international trade enrich both nations? Yes. Do protectionist policies enrich the domestic nation? No. Do Mercantilist policies of keeping goods and gold and silver inside a nation enrich it? No. Is long-run inflation a function of the money supply? Yes. Can central banks successfully target and control inflation (with fiat currency)? Yes. Is there, in general, a short-term tradeoff (Phillips curve) between unemployment and inflation? Yes, monetary easing tends to lower unemployment and raise inflation; monetary tightening does the reverse.
Economies are complex, and all of these have tiny exceptions. (Paul Krugman won a Nobel prize for exploring some odd cases when international trade is not a win-win.) But it is important to understand the simplest, high-level, basic structure of macro, before you look into exceptions.
As for Einstein, I think you're underestimating the genius of his contribution, say from 1900-1905. The calculations (from Lorentz) were already there. It's a completely different thing, to reconceptualize space and time. And the "high bar" I'm talking about is not new experimental evidence (which, as you say, was mostly already known). It was, exactly as you say, that "the old theory appeared as a limiting case".
If you were a physicist in 1900, and you were considering an approach to solve the "constant speed of light" problem, and the direction you wanted to head was to remove fixed space and fold time into space ... the chance that your work would result in a theory that, as a limiting case winds up exactly matching centuries of well-confirmed work by people who had all used a structure of fixed space and separate linear time ... is close to zero. Einstein's "limiting case" had to match complex areas of physics that he didn't even know well. He couldn't possibly be aware of all the results in all of physics, that he was going to have to be compatible with.
It worked out, in Einstein's case. But there's a good reason why dozens of brilliant other physicists, having access to the same data for decades, didn't pursue that particular path. It doesn't appear promising, when you first embark on it.
@Don: "As for Einstein, I think you're underestimating the genius of his contribution, say from 1900-1905."
ReplyDeleteThat certainly wasn't my intent. :-) I was misinterpreting your statement about a "high bar" of evidence. You've cleared that up by saying that what you meant was precisely that the old theory had to appear as a limiting case of the new one. I agree that there certainly was a "high bar" in that sense, since the old theory (Newtonian mechanics) accounted for a mountain of data and had been making accurate predictions in its domain for at least a century.
I actually think Einstein's genius was even greater in the period 1907-1915 than 1900-1905, i.e., in coming up with GR vs. coming up with SR. In SR he at least had calculations that, as you say, already existed, plus the huge pointer of Maxwell's Equations being Lorentz invariant. In GR he had basically nothing: it was completely unexplored territory. It was obvious to him that Newtonian gravity was inconsistent with SR, but that was it.
@Don: "you're presenting it as though macro isn't even a field of academic study at all."
ReplyDeleteThat wasn't my intent either. It's certainly a field of academic study. I am less sanguine about its predictive power than you appear to be; but the best thing I can do about that at this point is to, as you say, dig into the details of the field.
@Don: One other comment: it's not just that there is politics in macroeconomics. Economics has a sort of self-fulfilling aspect to it that physics, for example, does not have. We can't make a spaceship go where we want it to just by convincing enough people that that's where it should go. But we can, at least sometimes, fix economic problems simply by getting enough people to believe that what we are doing will fix them, if that causes them to change their behavior in the right way.
ReplyDelete@Peter Donis: "I actually think Einstein's genius was even greater ... in coming up with GR vs. coming up with SR."
ReplyDeleteI agree with you, and would actually say it's even greater than that! As I said before, SR was an unlikely win, and I think there's a good argument that contemporary physicists "shouldn't" have been looking, where Einstein looked. He didn't particularly need to be in a rush. If it had taken him another 5 years, and SR came out in 1910 instead of 1905, he still would have shocked the world even at the later date.
But think about a world-class theoretical physicist in 1906. OK, you're taken by surprise by SR in 1905. You didn't expect that incredible discovery. You weren't looking in that area. But SR is pretty easy to understand. A little high school algebra, a little physics, and you're basically an expert in a month. The top 50 physicists in the world were (or should have been) a SR expert by 1906.
But GR takes another decade. Not only that, but Einstein used the same philosophical approaches, that he did for SR. Focus on invariants, do a lot of thought experiments, take the math literally as a description of reality. Yeah, ok, the math is a lot harder (not algebra any more.) But from 1905-1915, surely it was a worldwide race.
And yet somehow, Einstein's the one who gets the next huge accomplishment again. No longer laboring in secret, no longer using a bizarre approach that nobody else is trying. He's in an open, world-wide competition for the next obvious extension of relativity ... and Einstein gets it again, before everyone else. That's really incredible. How can there not be some young energetic hot-shot newly-minted Ph.D. in 1905, who buries himself in SR and then races to beat Einstein in figuring out GR? (It's like Apple surprising people with the iPhone, but then also beating tablet makers to the iPad. It's very hard to win again, when you no longer have surprise.)
(Einstein also tries it a third time, with QM, for the next 40 years, and fails. Sometimes the fruit is in that direction, and sometimes it isn't.)
"But we can, at least sometimes, fix economic problems simply by getting enough people to believe that what we are doing will fix them, if that causes them to change their behavior in the right way."
I agree again! In fact, for monetary policy, I would claim that "expectations" causes something like 90% of the economic changes, and the direct effect of "concrete actions" is only something like 10%. If you're interested in this subject, I often refer people to Nick Rowe's classic concrete steppes post, where he makes analogies with daylight savings, switching what side of the road you drive on, and Chuck Norris beating people up at a party. Of course, expectations need to be about something, and with monetary policy they are about changes in the money supply. But once you have the threat, the outcome comes more from the credible communication, than from the specific "actions" taken.
@Don: "How can there not be some young energetic hot-shot newly-minted Ph.D. in 1905, who buries himself in SR and then races to beat Einstein in figuring out GR?"
ReplyDeleteGood question. AFAIK the only other physicist who was seriously trying for a relativistic theory of gravity was Nordstrom; but the theory he came up with didn't predict bending of light by gravitating bodies, which Einstein had already convinced himself had to occur based on the equivalence principle. It seems like nobody really wanted to tackle the problem. Did they just think it was too hard? Or that it wasn't interesting enough? That seems incredible today, in hindsight, but there was a lot of other stuff going on in physics during those years (the beginnings of quantum theory, Rutherford's discovery of the atomic nucleus, Perrin's direct evidence for the existence of atoms and molecules, etc.).
A Moral Puzzle ... Left Puzzling
ReplyDelete> how is this ethically different from selling their organs?
I'm not sure it is. Have I ever said that it's moral to sell organs? (I may have, I don't recall. If I did, I'm sure I restricted it to things like kidneys where you can lose one and not suffer any ill effects.)
Well, no, you never did say it was moral to sell organs. However, you left us with a Moral Puzzle. In the last episode, we learned that John, in need of a heart transplant, travelled to Malawi to offer the neer-do-well Achmed $15,000 for his heart. I don't see it in the original post, but I seem to recall that, at some point, you were going to weigh in with your solution, plus even more vexing and moral puzzles and paradoxes.
Now, if you conclude the John-Achmed transaction is ethical, then wouldn't Achmed simply selling himself into slavery be even more ethical?
> Are those doctors slaves while they are serving in the military?
No. Slaves are property. They can be bought and sold. Soldiers can't.
A mere legal detail. One could lease the soldiers for the remaining period of their enlistment. They have to go where ordered; the least with the U.S. military would specify this.
> As a buyer of the pregnancy, One would own it, and upon birth, the baby is one's property. One could add the baby to his family.
Well, no. As the "buyer" of a pregnancy you would become the child's parent, with all the rights and responsibilities that entails. If you treat that child as a slave that would be child abuse, no different than if you did it to your biological child.
So it's ethical to kill the child before birth, but unethical to enslave it after birth? Why would this be? The first outcome sounds worse.
> Single mothers and their children are not a viable economic unit.
Says who? Madonna, Sandra Bullock and Reese Witherspoon are all single moms. They seem pretty economically viable to me.
Ah, a great example of thinking like an engineer. Engineers cut down to the fastest solution path - so if one can think of a single counter-example to a proposition, then the proposition is false. This saves a lot of time writing lengthy manuscripts.
But you're not in engineering class, you're in math class. You have more to prove.
So far you have:
single mother already wealthy + children --> viable economic unit
Now you have to prove:
poor single mother + children --> ???
or if you prefer the B-->A direction:
viable economic unit --> poor single mother + children
A Government Reform Proposal
What do you think of requiring that all government contracts with labor unions have to be approved by voters?
@Publius:
ReplyDelete> you were going to weigh in with your solution
I'm not sure I have a solution. But shooting from the hip, I'd say that it's moral to sell a kidney (provided you have two healthy ones to begin with) but not to sell a heart. But it's a tough call. I can imagine scenarios where I'd consider selling a heart to be moral (e.g. a serial murderer sentenced to death sells his heart and donates the proceeds to charity). And getting someone to sell a kidney by, for example, putting under economic duress seems wrong too.
> > No. Slaves are property. They can be bought and sold. Soldiers can't.
> A mere legal detail.
Except that this "mere legal detail" is the defining characteristic of slavery.
> One could lease the soldiers for the remaining period of their enlistment. They have to go where ordered;
No, that's not true. Soldiers only have to obey *lawful* orders.
> So it's ethical to kill the child before birth, but unethical to enslave it after birth? Why would this be? The first outcome sounds worse.
Because after birth there are options that allow the child to live without being a burden on the mother. Before birth that is not the case.
> This saves a lot of time writing lengthy manuscripts.
Yep. Cutting through the bullshit is definitely a time saver.
> poor single mother + children --> ???
The operative word here is "poor", not "single mother." You would have the exact same situation is you had a poor married couple + children.
(And why is it always the single mothers who get picked on? What about the poor single fathers?)
> What do you think of requiring that all government contracts with labor unions have to be approved by voters?
Sounds like a lot of overhead. Holding an election is not a trivial process. There's a reason the U.S. is a republic and not a democracy.
> Even with payroll taxes, the average (not marginal!) tax rates are clearly progressive.
ReplyDeleteNo. That figure is misleading because it doesn't take into account the lower rate on capital gains and carried interest.
Ron,
ReplyDeleteYou are very well spoken but still manage to include demagoguery in your supposedly factual observations: tax rates on qualified dividends (equivalent to capital gains as compensation for the capital resource) are lower because these funds are taxed twice: once at the corporate level, once at the receiving level. Try to do that with wages paid by businesses! Once you include the double taxation you'll see that this compensation is, on average, taxed higher.
You should also include the effects of inflation on capital compensation: inflation is a windfall for governments and debtors.
Finally, you completely ignore the problems of government itself, its sheer size, politicians, influence buying etc. As your experience with Lisp proves, the private sector is MUCH smarter than the government.
@Unknown:
ReplyDeleteWhat you say is true for dividends (and that really is a problem that ought to be fixed) but not for actual long term capital gains and income that can be structured to look like long term capital gains but really isn't, like carried interest and ISOs. Furthermore, if you're going to compare apples and apples on the double-taxation question then you also have to include the employer portion of the payroll tax in the effective tax rates paid on wages.
Bottom line is that once you get to a level of wealth it's not hard to structure your affairs so that all your income is either deferred or taxed at the 20% cap gains rate. (This year I am paying income tax for the first time in ten years, and that's not because my income over that period was zero.)
> the private sector is MUCH smarter than the government
That may be, but we still need some mechanism for collective action in some domains, like managing economic externalities. There is no way to accomplish that without ending up either with something that walks and quacks like a government, or looking like Somalia.