In Maclean’s, Stephen Gordon explains why the only kind of tax hikes that seem in any way “popular” are particularly bad if implemented:
Magical thinking might be smart politics, but it’s not very good economics. Here are the two most popular themes:
- Higher corporate income taxes. From a political marketing point of view, the appeal of increasing corporate income tax (CIT) rates is obvious: “Hey, I’m not a corporation, so it’s no skin off my nose.” But the economics of CIT rates are very dodgy indeed: higher CIT rates are the most costly way of generating revenue and are most harmful to economic growth. It also turns out that workers and consumers are the ones who ultimately bear the burden of higher CIT rates. (If you start taxing corporate profits, shareholders will eventually move their money to jurisdictions with more competitive rates, reducing the availability of investment capital. In the long-run, that results in lower output and weaker labour demand. More on that here.) But even if you were willing to pay these costs, higher CIT rates don’t generate much in the way of new revenues.
- Increased taxes on high earners. While there may be good reasons for wanting to use the personal income tax system to counter recent trends in the concentration of income, policymakers should be under no illusions about how much new revenue taxing the rich will bring in. There simply aren’t that many high earners to tax, and they have access to expert tax planning advice: there is overwhelming evidence showing that those with high incomes can and will respond to higher tax rates by reporting lower taxable income.
Rather in keeping with the sentiments expressed in today’s Quote of the Day post, Emma Griffin explains why the workers generally thought of the industrial revolution as a very good thing indeed:
Writers and academics often show an interesting ambivalence about industrialization. Today, they regard it as a blessing, the single-most-effective way to lift people out of poverty. But in thinking about Britain’s Industrial Revolution, they have tended to reach the opposite conclusion: The rise of the factory, they argue, caused the end of more “natural” working hours, introduced more exploitative employment patterns and dehumanized the experience of labor. It robbed workers of their autonomy and dignity.
Yet if we turn to the writing of laborers themselves, we find that they didn’t share the historians’ gloomy assessment. Starting in the early 19th century, working people in Britain began to write autobiographies and memoirs in ever greater numbers. Men (and occasionally women) who worked in factories and mines, as shoemakers and carpenters, and on the land, penned their stories, and inevitably touched on the large part of their life devoted to labor. In the process, they produced a remarkable account of the Industrial Revolution from the perspective of those who felt its effects firsthand — one that looks very different from the standard historical narrative.
[. . .]
Higher levels of employment also helped change the balance of power between master and laborer. So long as jobs remained scarce, workers, by necessity, obeyed their employers. The price of dissent or disobedience was unemployment. With more jobs, such subservience became less and less necessary. In the booming new industrial towns, workers could, and did, walk out on employers over relatively minor matters, confident that finding more work wouldn’t be difficult. One autobiographer left his position simply because he “grew sick” of the work; another because he didn’t want to “beg pardon” after a falling out with his master; another objected to wasting his precious Sunday mornings at his master’s religious services; and another quit when his master refused to let him take his tea breaks off the premises. All working relationships are defined by a disparity in power between master and servant. But that inequality is rendered more palatable if we’re well remunerated for our services and can leave at will.
The way in which working people described the upheavals of this period provides us with a powerful reminder of the transformative effect of industrialization and of its capacity to improve living standards, even for the poor. Generations of historians have dwelled on the loss of old working patterns and presumed that the introduction of more intensive ones was detrimental to workers’ welfare. But these developments weren’t viewed in such a sinister light at the time. Industrialization promised full employment, and for those used to scraping together a living from the land, this was very good news indeed.
Oxfam is publicly blaming and shaming the top 1% of income-earners for their evil money-grubbing ways that deprive the worst-off and make poverty worse in developing countries. Simon Cooke explains why they’re wonderfully, gloriously wrong:
“Concentration of resources in the hands of the top 1% depresses economic activity and makes life harder for everyone else — particularly those at the bottom of the economic ladder.”
And that top 1% isn’t you and me we’re led to believe — it’s those evil billionaire capitalists who are stealing the very bread from the mouths of the starving children. Let’s leave aside the fact that poverty is largely unrelated to inequality — people do not become rich by making others poor, however often Oxfam want to pretend that this is so. Instead let’s remind ourselves who the 1% are in terms of world development and poverty:
The truth is that the entry level income for the world’s top 1% of earners is:
That’s it, in real money not a great deal more than £20,000 a year gets you into the 1% club — sits you among the world’s filthy rich, among those to blame for all the sins and evil of the world. Capitalist scum.
Most of you reading this blog are in the top 1% sucking up all those resources — depriving the poor in Africa and elsewhere of the chance to grow, to get out of poverty.
Except you’re not. Sit back, put a smile on you face — punch the air with joy. You and me — capitalists both — have sat getting a little richer for thirteen years while a billion folk have escaped absolute poverty. All the international trade, all those businesses and those business folk filling the posh seats in aeroplanes flitting across the world — they’ve done that, they’ve lifted those people out of poverty.
Oxfam are wrong. Neoliberalism is making all the world richer. Even the UN celebrates that neoliberal success:
“For the first time since records on poverty began, the number of people living in extreme poverty has fallen in every developing region, including sub-Saharan Africa. Preliminary estimates indicate that the proportion of people living on less than $1.25 per day fell in 2010 to less than half the 1990 rate…”
This is what capitalism does. Isn’t it wonderful.
P.J. O’Rourke offers some mild congratulations to President Obama for a few accomplishments during his first term, then explains why the way he won his second term is a bad thing both for the United States and for the rest of the world:
You sent a message to America in your re-election campaign. Therefore you sent a message to the world. The message is that we live in a zero-sum universe.
There is a fixed amount of good things. Life is a pizza. If some people have too many slices, other people have to eat the pizza box. You had no answer to Mitt Romney’s argument for more pizza parlors baking more pizzas. The solution to our problems, you said, is redistribution of the pizzas we’ve got — with low-cost, government-subsidized pepperoni somehow materializing as the result of higher taxes on pizza-parlor owners.
In this zero-sum universe there is only so much happiness. The idea is that if we wipe the smile off the faces of people with prosperous businesses and successful careers, that will make the rest of us grin.
There is only so much money. The people who have money are hogging it. The way for the rest of us to get money is to turn the hogs into bacon.
Mr. President, your entire campaign platform was redistribution. Take from the rich and give to the . . . Well, actually, you didn’t mention the poor. What you talked and talked about was the middle class, something most well-off Americans consider themselves to be members of. So your plan is to take from the more rich and the more or less rich and give to the less rich, more or less. It is as if Robin Hood stole treasure from the Sheriff of Nottingham and bestowed it on the Deputy Sheriff.
But never mind. The evil of zero-sum thinking and redistributive politics has nothing to do with which things are taken or to whom those things are given or what the sum of zero things is supposed to be. The evil lies in denying people the right, the means, and, indeed, the duty to make more things.
Matt Ridley on an interesting paper from Jesse Ausubel and Iddo Wernick of Rockefeller University, and Paul Waggoner of the Connecticut Agricultural Experiment Station:
Globally, the production of a given quantity of crop requires 65% less land than it did in 1961, thanks to fertilizers, tractors, pesticides, better varieties and other factors. Even corrected for different kinds of crops, the acreage required is falling at 2% a year.
In the U.S., the total corn yield and the total corn acreage tracked each other in lock step between 1870 and 1940-there was no change in average yield per acre. But between 1940 and 2010, corn production almost quintupled, while the acreage devoted to growing corn fell slightly. Similar divergences appeared later in other countries. Indian wheat production increased fivefold after 1970, while wheat acreage crept up by less than 1.5 times. Chinese corn production rose sevenfold over the same period while corn acreage merely doubled.
Yet the amount of farmland in the world was still rising until recently. The reason is that increased farm productivity has been matched by rising demand for food, driven by population growth and swelling affluence. But the effects of these trends are waning.
[. . .]
Even with these cautious assumptions, the researchers find that over the next 50 years people are likely to release from farming a land area “1½ times the size of Egypt, 2½ times the size of France, or 10 Iowas, and possibly multiples of this amount.”
Indeed, the authors find that this retreat from the land would have already begun but for one factor so lunatic that they cannot imagine it will not be reversed soon: biofuels. If the world had not decided to subsidize the growing of energy crops on 3.4% of arable land, then absolute declines in the acreage of arable land “would have begun during the last decade.” The prospect of “the restoration of vast acreages of Nature” is enticing for nature lovers.
In Gregg Easterbrook‘s weekly NFL column, he often discusses non-football topics like this one:
A decade ago — perhaps as recently as five years ago — analysts and educators feared a “digital divide” in which the affluent have access to advancing electronics and the disadvantaged do not, granting the affluent yet another edge in life’s contest. But what if the reverse has happened?
[. . .]
That made this article striking, with research showing children from disadvantaged families now waste more time with video games and on the Internet than do children from affluent homes. Publicly subsidized programs to provide computers and Internet to the disadvantaged were rationalized as tools for education. How are they actually used? The article quotes Vicky Rideout, author of a study on the subject, saying, “Despite the educational potential of computers, the reality is that their use for education or meaningful content creation is minuscule compared to their use for pure entertainment.”
Video games are a really tempting way to avoid studying. If they had been around when I was a teen, there’s no way I would have read so many books or spent three or four hours after school each day at the high school, doing extracurriculars and sports. I might instead have wasted my time with electronics.
Girls and women are taking over college admissions; 57 percent of undergraduate students at four-year colleges are female. There are many reasons, and surely one is that teen girls waste less time on video games than teen boys do. If disadvantaged teen boys are wasting more time than affluent teen boys, that makes the picture worse.
Conservative commentators often “harrumph” about rising living standards for the disadvantaged, many of whom now have air conditioning, laptops and other items once associated with affluence. It’s good that living standards are rising, and it’s good that the digital divide is disappearing. The spread of computers and Internet service into disadvantaged homes creates equity in access to the information and services available on the Web. But society needs to be aware of the downsides of electronics. Those computer and software gifts being opened this holiday season might, especially for teen boys, backfire.
Malnutrition used to be one of the biggest problems facing the planet: except in the west, starvation was rarely more than a bad harvest away. Today, except in sub-Saharan Africa, that’s been replaced by obesity as a worldwide problem:
Here’s a good news story that warmed the cockles of my heart as I wolfed down my breakfast of chocolate croissant with extra-large latte — obesity is now more of a problem than starvation. As we report:
With the exception of sub-Saharan Africa, eating too much is now a more serious risk to the health of populations than eating poorly, found the Global Burden of Disease study, published in a special edition of The Lancet.
Across the world, there has been significant success in tackling malnutrition, with deaths down two-thirds since 1990 to less than a million by 2010.
But increasing prosperity has led to expanding waistlines in countries from Colombia to Kazakhstan, as people eat more and get less everyday exercise.
[. . .]
Likewise the fact that humanity can not only feed billions of people, but feed them well enough to give many of them Type-2 diabetes, shouldn’t be considered a worry but, after the Moon landings, perhaps humanity’s greatest achievement yet. Yes, we’re all stuffing ourselves silly, but we evolved in an environment where food was scarce and fats were vital to our survival. The very fact that, despite numerous doomsayers, we continue to overcome our problems, is something we should be celebrating.
Tim Worstall at the Adam Smith Insitute blog:
Almost at random from my RSS feed two little bits of information that tell of the quite astonishing economic changes going on around us at present. The first, that the world is now pretty much wired:
According to new figures published by the International Telecommunications Union on Thursday, the global population has purchased 6 billion cellphone subscriptions.
Note that this is not phones, this is actual subscriptions. It’s not quite everyone because there are 7 billion humans and there’s always the occasional Italain with two phones, one for the wife and one for the mistress. But in a manner that has never before been true almost all of the population of the planet are in theory at least able to speak to any one other member of that population. The second:
The most recent CTIA data, obtained by All Things D, shows that US carriers handled 1.16 trillion megabytes of data between July 2011 and June 2012, up 104 percent from the 568 billion megabytes used between July 2010 and June 2011.
Within that explosive growth of basic communications we’re also seeing the smartphone sector boom. Indeed, I’ve seen figures that suggest that over half of new activations are now smartphones, capable of fully interacting with the internet.
One matter to point to is how fast this all is. It really is only 30 odd years: from mobile telephony being the preserve of the rich with a car battery to power it to something that the rural peasant of India or China is more likely to own than not. Trickle down economics might have a bad reputation but trickle down technology certainly seems to work.
If you haven’t encountered a journalist or an activist going on about the Gini Coefficient, you certainly will soon, as it’s become a common tool to promote certain kinds of political or economic action. It is also useful for pushing certain agendas because while the numbers appear to show one thing clearly (the relative income inequality of a population), it hides nearly as much as it reveals:
The figures they use for a comparison are here. Looking at those you might think, well, if the US is at 0.475, Sweden is at 0.23 (yes, the number of 23.0 for Sweden is the same as 0.23 in this sense) then given that a lower number indicates less inequality then Sweden is a less unequal place than the US. You would of course be correct in your assumption: but not because of these numbers.
For the US number is before taxes and before benefits. The Swedish number is after all taxes and all benefits. So, the US number is what we call “market income”, or before all the things we do to shift money around from rich to poor and the Swedish number (in, fact, the numbers for all other countries) are after all the things we do to reduce inequality.
[. . .]
The US is reporting market inequality, before the effects of taxes and benefits, the Europeans are reporting the inequality after the effect of taxes and benefits.
[. . .]
Which brings us to the 300 million people in the US. Is it really fair to be comparing income inequality among 300 million people with inequality among the 9 million of Sweden? Quite possibly a more interesting comparison would be between the 300 million of the US and the 500 million of the European Union. Or the smaller number in the EU 15, thus leaving out the ex-communist states with their own special problems. Not that it matters all that much as the two numbers for the Gini are the same: 0.3*. Note again that this is post tax and post benefit. On this measure the US is at 0.38. So, yes, the US is indeed more unequal than Europe. But by a lot smaller margin than people generally recognise: or than by he numbers that are generally bandied about.
Which brings us to the second point. Even here the US number is (marginally) over-stated. For even in the post-tax and post-benefit numbers the US is still an outlier in the statistical methods used. In looking at inequality, poverty, in the US we include the cash that poor people are given to alleviate their poverty. But we do not include the things that people are given in kind: the Medicaid, SNAP, Section 8 and so on. It’s possible (I’m not sure I’m afraid) that we don’t include the EITC either. We certainly don’t in the poverty statistics but might in the inequality. All of the other countries do include the effects of such policies. Largely because they don’t offer benefits in kind they just give the poor more money and tell them to buy it themselves. This obviously turns up in figures of how much money the poor have.
A post at his blog looks at an economic concept that is becoming familiar to more of us than ever before (even in the middle of a long-term economic crisis):
There’s a concept in economics called the diminishing marginal utility of money. Loosely put: if you give a £20 bill to a homeless dude, it will make his day — it’s worth a bunch of hot meals or a hostel bed for a few nights. If you give £20 to an average wage earner, it’s nice but not a game-changer: it’s worth a couple of cinema tickets or a round of drinks at the pub. And if you give £20 to a billionaire they probably won’t know what to do with it — they have employees to carry the money around for them, and anyway, they earn more in the time it takes to open their wallet and stash the bill than the £20 note is worth. They’re losing money by taking it!
Money. The more of it you’ve got, the less useful any additional increment becomes. And you don’t have to be a millionaire to get a handle for this.
These days, I’m in the weird position where almost all the stuff I would want to buy with any additional income is either stuff I can simply buy right now … or it isn’t available at any price.
How so? Dan Amira explains:
Obama is not proposing that families making up to $250,000 a year keep their tax cuts while families making more than that don’t. He’s proposing that every family keep their tax cuts on their first $250,000 of taxable income (which is not the same as “income” or “earnings,” by the way).
That includes families with taxable income of $260,000, $1 million, $5 billion, $3 trillion, or whatever Jay-Z and Beyonce make in a year. Everyone would continue to pay a lower tax rate on their first $250,000 of taxable income under Obama’s plan. To report that Obama only wants to maintain tax cuts for families making less than $250,000 is simply false.
[. . .]
Normally, a president would want to publicize that he’s trying to cut taxes for everyone in the country. But Obama actually has an incentive this time to downplay the number of Americans who would benefit from his tax plan. His proposal is, at its heart, a political maneuver meant to force Mitt Romney to defend tax cuts for the wealthy. It’s more effective, then, for it to be seen as a cut solely for the middle class. The reality is that Obama’s proposal would also keep Warren Buffett’s taxes lower, if only a little bit.
H/T to Iowahawk for the link.
Broadly speaking, wealth can be accumulated in two distinctly different ways. It can be earned through hard work, innovation, and competition, or it can be extracted from the public by use of coercive methods, corruption, and misappropriation:
Whatever the true extent of the Mubarak family fortune, it stands in stark contrast to the lot of most Egyptians. Gross domestic product per capita in Egypt is a mere $2,500. In western Europe and North America GDP per capita is about $40,000, yet the capacities of Egypt’s intellectual and entrepreneurial elite are the rival of any state in the world.
The real damage imposed by men such as Mr Mubarak is not the money they might have stolen. The tragedy is that the system that enables them to steal it destroys opportunities for others to generate wealth — not only for themselves but for the whole population.
The price of requiring a potential Mark Zuckerberg or Mr Gates to pay a $100 bribe to each of 10 officials before he can establish his new business is not the $1,000 creamed off by corrupt bureaucrats. It is the far greater one of lost businesses that never came into being because the licensing process that makes such corruption possible was not navigated. In the meantime, people who might be successful entrepreneurs choose instead to seek political power. If business is endlessly frustrating and politics endlessly rewarding, the career choice for able and enterprising people is obvious.
Institutions are the key influence on economic prosperity — West Germany did not outperform East Germany because of its excellent monetary policies. And, as Daron Acemoglou and James Robinson point out in their book, Why Nations Fail, a critical feature of successful economic institutions is that they limit the scope for what these authors call “extractive activity” — others have described it as predation or rent-seeking — which appropriates the wealth created by other people.