Convenient Lies, Economics Version


  1. Isn't it odd how modern "conservative ideology" in America is increasingly delusional, and how in every instance where they promote delusions, the delusions are convenient for the super-wealthy?

    Perhaps it is not a coincidence. Perhaps the whole package of what passes for "libertarian" ideas gets put together at places called "think tanks". These are places that "think" what they are told to think by people who can afford to pay them. They aren't research institutions at all. They are fact factories. Liars for hire.

    They could hardly be more brazen. The thing they are calling "liberty" is actually subservience.

    Suddenly, thanks to recent efforts by people like Garry Trudeau, Elizabeth Warren, Peter Gleick and many other heroes, the disinformation industry is finally in the spotlight. It is faced with trying to think of reasons we should continue to tolerate its influence. Why the influence of money in politics should dominate. That is their least favorite topic. They will try desperately to divert attention. The more frantic their squealing, the closer we are getting to the root of the problem.

  2. Anyone can call themselves whatever they want, all gooey-eyed and fawning over Ayn Rand and Atlas Shrugged. For example. Rand wasn't quite so sure, though.

    "Q: What do you think of the Libertarian Party? [FHF: “A Nation’s Unity,” 1972]

    Ayn Rand: I’d rather vote for Bob Hope, the Marx Brothers, or Jerry Lewis. I don’t think they’re as funny as Professor Hospers and the Libertarian Party.
    Q: Why don’t you approve of the Libertarians, thousands of whom are loyal readers of your works? [FHF: “The Age of Mediocrity,” 1981]

    AR: Because Libertarians are a monstrous, disgusting bunch of people: they plagiarize my ideas when that fits their purpose, and they denounce me in a more vicious manner than any communist publication, when that fits their purpose. They are lower than any pragmatists, and what they hold against Objectivism is morality. They’d like to have an amoral political program.

    Q: The Libertarians are providing intermediate steps toward your goals. Why don’t you support them? [Ibid., 1981]

    AR: Please don’t tell me they’re pursuing my goals. I have not asked for, nor do I accept, the help of intellectual cranks."

  3. I recently purchased and read Laurence Lessig's new Kindle single: "One Way Forward": - on how to solve the problem of money in politics. But I'm not sure I agree that he's really found the root of the problem...

  4. I think he goes into greater detail in his other, longer, recently published book Republic Lost

    I have not read it yet so can't comment on it yet, but it is probably worth a read. It is always worth listening to Lessig, even if you don't always agree.

  5. It's hard to know where to start and I'm on a very tight schedule. But I'll at least mention "Lie #2." I can't call Reich a liar since I haven't seen the debates he's claiming to have had with people who were only to respond that "government gets in the way" but I can assure you that there are plenty of people who can do better.

    Be that as it may, Reich engages in a classic straw man argument. "How can getting rid of teachers, social workers, firefighters, and police officers create more jobs? Fewer people rebuilding roads, building highways, building schools, etc. How can this create more jobs?"

    First, I don't hear arguments for laying off those categories. One hears about eliminating various categories of administrators, secretaries to the second assistant deputy secretary, etc. I happen to be in Washington, DC with my wife. We walked by the Orville Wright Building, a part of the Department of Transportation. There are two buildings in a row, each occupying a square block. My wife asked me "what are all those offices for?" Um....

    Keep in mind that I'm a pilot and deal with the FAA, and we're in the construction "space" and I deal with road building, runway building, rail construction, etc. and yet I couldn't answer. But I suppose they are for people with jobs, so he's got that going for him.

    In California, there's a pitched battle between engineers employed by Caltrans and the Caltrans bureaucracy over allowing private firms to do engineering on Caltrans projects (I have no dog in this fight - we don't do structural engineering design). Why do the bureaucrats want to do this? It saves money. Why the Caltrans engineers fight it is pretty obvious, but the there would be more roadbuilding done if less was spent on engineering.

    Governor Brown closed the California Redevelopment Agency as a budget balancing measure. Much less building will take place. But was he willing to fight the SEIU, the Prison Guards Union, etc. on wages and benefits? No.

    Finally, government employees do not build roads, highways, and schools. They fund such building in many (but not all) cases but provide such arcane hoops (have you ever seen the FARs - the Federal Acquisition Regulations?) that costs are huge. More could be built with less money with a reduction in administrative requirements. More money would be available for teachers with less administrators, consultants, etc. This is what conservatives have in mind, though it is true that, in many cases, government gets in the way.

    Many of Reich's other arguments are specious as well, but I have work to do. I will say that, in 2009, the top 5% in adjusted gross income (the threshold was $154,643) paid 58.66% of the nation's income tax. The bottom 50% (below $32,396) paid 2.25%. The top 1% (starting at $343,927) paid 36.73%. I believe that the 5% and the 1% are justified in thinking that they're doing their part.

    But Reich was clearly saying what the audience wanted to hear.

  6. Hmm. A few thoughts that don't line up to a big point in response.

    The public sector is enormously less efficient than the private sector, especially in America where the private sector is particularly agile and the government is particularly hamstrung. But there's nevertheless things that the public sector won't do, since there's no payoff in it. Environmental science is one of those things. And they need to get done.

    Regulation is one of those things. In a country that is obsessed by documents (the Bible, the Constitution) there is a tendency of legislatures to overspecify and bureaucracies consequently to do too much butt-covering. In countries where power is actually delegated to bureaucrats and their positions are respected (France comes to mind, as does Quebec) more room for intelligent decisions is left. Of course, this leaves more room for bad bureaucrats to do harm, as well as for good ones to do well. It works best in a healthy, close-knit and homogeneous culture.

    As to Jerry being in thrall to unions, no doubt. I bet this is like Obama on carbon legislation. With less orneriness on the right, he wouldn't have to capitulate to every whim of the left and every constituency they represent.

    But if you think the squeeze isn't on for teachers, firefighters and cops, you should pay more mind to what is happening in Wisconsin. And in Texas for that matter, except that here there aren't any unions here that to the ALEC mind need crushing.

    I don't know about your statistics. It's clear that the proportion of income made by the top 5% is increasing; as the bottom 80% have been stagnant. And it's clear that top marginal tax rates have plummeted. But possibly the percentage paid in that bracket has not dropped because they make so much larger a fraction of the income.

    Finally, I fully acknowledge that there is wasteful employment in the public sector. Most scientists who work "at" Argonne in theoretical and computational positions rarely show up, because of the constant buzz of "support" staff. We had a mail delivery guy who literally had Tourette's. No joking here. He would mutter imprecations as he walked down the hallway, take a deep breath, interrupt your work, silently hand you your mail (mostly useless since anything important was in email), leave the room, and immediately start muttering again.

    This person could NEVER hold a job in the private sector. The government, however, made a good faith effort to match him with a sort of a job he could do, giving him a modicum of dignity and a salary, and extracting a sort of attention tax on hundreds of Ph.D.'s daily. Is this good or bad? The liberal in me says it is at least not ALL bad. The work he does is marginal and unnecessary. But if you fire him and give that money back to the top taxpayers, that won't create another job for him or anyone else.

    In any case, it seems to be your point that lie #2 is a straw man - that nobody wants to cut employment in useful sectors of the government. I don't think that's true, but if it were, so what? SUrely we can dig up some nut case who does. Are you not agreeing with Reich that such a person is wrong?

  7. Yes, a person with such an opinion would be wrong, in my opinion of course. I don't see how that's relevant to the policy discussion. As I've mentioned before, I'm no doctrinaire libertarian (lower case "l" is intentional). I'm also not a social Darwinist and don't advocate a society in which those who can't make it in the private sector are left to starve. I even see a use, in some cases, for Unions though dealing with them has given me fodder for stories of egregious waste that people do not believe (literally) when I tell them. I'm not in favor of abandonment of the EPA, the Department of Education (well, possibly that), the Department of Energy, etc. I am in favor of government funding of basic research and even participating in seeding private sector implementation of new technologies, Solyndra notwithstanding. Yet, I am a conservative who sees huge benefit in shrinking government. Make me King and I'll demonstrate how.

    But Reich wasn't talking about regulation, he was talking about shrinking government=firing police, teachers, firefighters, etc. and claiming no conservative economist could describe a theory of how shrinking government would creat jobs. I don't believe it.

    As to the statistics, they come straight from the IRS.

  8. "I will say that, in 2009, the top 5% in adjusted gross income (the threshold was $154,643) paid 58.66% of the nation’s income tax. The bottom 50% (below $32,396) paid 2.25%. The top 1% (starting at $343,927) paid 36.73%. I believe that the 5% and the 1% are justified in thinking that they’re doing their part."

    Rob, that's AGI, which is not total taxable income. Middle Class Political Economist has a post on the subject:

    The Top 1% Pays... and Other Tax Myths

  9. @ J Bowers

    Yes, I've read that article (or similar - don't remember if it was that precise one). But I note that it doesn't say that the contention is untrue as stated. And really, the argument that "yes, but these figures don't count TOTAL income" seems to imply that the complaint is that those who make far more of their income from, for example, long-term capital gains are screwing the unfortunate 1% and 5% in adjusted gross income. Disclaimer: this would mean that I am being so screwed. Yet I don't feel that way.

    Long term capital gains are taxed at a lower rate because, in principle (whether in reality is a different matter and worthy of discussion), this encourages investment in productive assets thus encouraging growth (whether this is desirable or even possible is, again, a different matter and worthy if discussion), job creation, etc. This is, as I'm sure you know, known as a "tax expenditure," I.e., using the tax system to "purchase" some desired outcome.

    Including the social security cap in that argument is misleading. Income taxes are to fund general government operations, Treasury debt, etc. Social Security taxes are to fund (wait for it) Social Security payments (supposedly). Tossing them in to the discussion of the top X% in AGI pay Y% of income taxes is hiding the pea.

    Frankly, for tax policy I'd be in favor of a value added tax structure and Pigovian taxes on externalities.

  10. "Long term capital gains are taxed at a lower rate because, in principle,... this encourages investment in productive assets thus encouraging growth... job creation, etc."

    I've yet to see any evidence that that happens in practice. Tax rates are historically low, and rich people do not create jobs: customers within a healthy economy create jobs by buying whatever the rich peoples' companies are selling. Rich people retaining more money just means the money sits in the bank; they do not buy 2,000 extra cars or create 10,000 jobs.

  11. If the rich leave it in the bank (or money market, or T-bills, etc.) the interest is taxed as income. It's only the income derived from the turning over of long-term assets and so-called"qualified dividends" that get the favorable treatment. The dividends, of course, come from corporate income that has already been taxed in some form.

  12. “I will say that, in 2009, the top 5% in adjusted gross income (the threshold was $154,643) paid 58.66% of the nation’s income tax. The bottom 50% (below $32,396) paid 2.25%. The top 1% (starting at $343,927) paid 36.73%. I believe that the 5% and the 1% are justified in thinking that they’re doing their part.”

    As the incomes of the wealthiest grow relative to the middle class, it is important to lower their tax rates (or raise middle class taxes) because it is the only fair thing to do; otherwise they will shoulder an increasingly unfair portion of the tax burden.

    Do you agree or disagree with that statement? If you disagree, then the statistics you give are irrelevant to the issue. (Of course views about fairness are quite subjective and there are certainly people who think that taxing everyone the same amount is the fair way to do it.)

    "Long term capital gains are taxed at a lower rate because, in principle (whether in reality is a different matter and worthy of discussion), this encourages investment in productive assets thus encouraging growth (whether this is desirable or even possible is, again, a different matter and worthy if discussion), job creation, etc."

    My view is that it is not desirable, at least not currently, as our economy has not recently been constrained by money for capital and we're scraping the bottom of the barrel for places to invest. I've written more about why I believe that here, the crucial part being that money to spend on the product of capital is as important a constraint as money for capital, as only the former can make an investment in a productive asset pencil out, and that is constrained mainly by middle class incomes.

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