September 20, 2003
From the desk of Jane Galt:Separate but equal
Dan Drezner has a great post on income inequality, in which he challenges Paul Krugman's assertion that rising income inequality is destroying a once great nation.
I'm possibly more sympathetic than Mr Drezner to the argument that many of today's rich don't quite earn their money; the heights of CEO pay at companies like GE and IBM represent, in my opinion, a serious breakdown in corporate governance. (Bill Gates, on the other hand, whatever you think of him, got his money from taking a lot of stock when the company was young and it wasn't worth much.) But this seems to me to be a problem of corporate governance, not social cohesion, and I am skeptical of the ability to solve it via Krugman's magic cure-all for society's ills, the progressive income tax. And regulation, the other oft-proposed solution -- well, I would argue that regulation may be more a source of the problem than the solution. The SEC forms a marvelous barrier to entry that allows a handful of banks to tacitly collude in setting transaction prices at levels approaching the morally repugnant, which in was provided the incentive and the funding for abuses of the equity research function. It also encourages shareholders to totally ignore what is happening at the companies they own because the government is supposed to be on the job. And I don't see how you keep the SEC and similar bodies from being pets of the institutions they regulate, when guess where you have to get the guys to run the SEC?
But I digress. On the subject of inequality, I turn again to Mr Easterbrook's The Progress Paradox, which argues that the increase in inequality (and most of the increase in people without health insurance) is due to immigration. Citing data from the Center for Immigration Studies, he says that we could nearly eliminate inequality if we just shut down immigration. If we do not want to do that, however, a steady influx of uneducated foreigners with a weak social network is going to drag down our statistics.
Mr Krugman's obsession with inequality has an odd quality of unthinking nostalgia for a supposedly hard-headed economist. He has located the golden age of society in a time when the poverty rate was 22%, an entire class of people were stratified into the bottom of the income distribution because of the color of their skin, and the middle class family he claims had the ticket to the material good life had drastically fewer possessions: one car, homes half the size of now, perhaps a third as many clothes, no dishwasher, very possibly no dryer. One hates to play the gender card, but I note that many of the missing material goods were made up by coolie labor on Mom's part; those days might not seem so close to perfection if Mr Krugman thought of spending his days darning socks and poaching eggs. This is relevant because another convincing explanation for increasing income inequality is working women: men higher up the income distribution are likely to be married to women who are also high-earners, which tends to make income variation more extreme.
But ultimately I imagine that those days seem perfect to Mr Krugman because back then he was a child, unworried about mortgages or grocery bills. I feel very similarly about the carefree days of the 1980's. But I don't think that Mr Krugman's fond memories of his childhood years are a very good basis for our tax policy.
Posted by Jane Galt at September 20, 2003 7:56 AM | TrackBack | Technorati inbound linksI realize you don't like Krugman, but do you honestly think that he is simply engaging in "unthinking" nostalgia? I know it would be *nice* to think that, but it seems pretty unlikely for a guy as smart as him, doesn't it?
Who knows, maybe he's actually done quite a bit of reading and thinking about it? Wouldn't that be something?
Perhaps he has. But he never says why the fifties and sixties were so good; he just states, a priori, that the middle class was better off them. Which seems to defy everything we know about the era.
I doubt Kevin did it deliberately, but his post comes across as "Paul Krugman does the thinking so we don't have to!"
Kev, Megan listed several reasons why the 1960s were not the Golden Age that Krugman asserts they are. The evidence suggests that this is unthinking nostalgia, since he doesn't explain why we should prefer the 60s to the present. If Krugman has done "quite a bit of reading and thinking about it", then we need him (or you) to explain why the 60s were so great, rather than simply assert it.
On a separate note, my understanding is that the income equality numbers are pre-tax. Why then is the usual solution to the inequality problem a more progressive tax? I realize that a steep enough tax will discourage work by higher earners (or encourage them to hide income, either way reducing their pre-tax income), but that's not something we want to encourage, is it? Seems to me there's a bit of a double-standard on the reporting of this stat.
Krugman is at war with himself. In his brain, he knows the lower middle class, and even the poor, are better off now than they have ever been. What do you think would happen if $25,000/year earners were told they would have to swap the 3 year old Honda Civic they bought used for a brand new 1969 Ford Maverick? Think they'd trade their Samsung 32" T.V. that was purchased for 25 hours work for the 19" RCA that cost 50 hours work? In his heart, however, Krugman has the soul of central planner, even though he intellectually knows, far better than most, the futility of such dreams. On the other hand, if he has any good ideas to give shareholders more oversight over corporate managers, I'd be happy to poach them.
I'm of Prof. Krugman's generation, more or less (GSB '68).
I knew the '50s and '60s.
Megan has it exactly right.
The only people who are concerned with income inequality are Eurotrash like Paul Krugman. Almost every American knows there are no barriers to becoming rich other than lack of talent and lack of ambition. They don’t want Krugman-barriers thrown in the way of realizing their dreams.
Besides attacking income inequality does nothing but make every one poor and bureaucrats and politicians rich. Look at Europe where the middle class would love to have the lifestyle our poor people have. The bureaucrats there have an unbelievable amount of luxurious perks. Perks that would make any American CEO blush with shame.
Our problem is inequality of skills not income. And the left has bitterly fought all attempts to reform our educational system so that kids in the inner city could learn needed skills.
I'm willing to be corrected on this, but I don't recall Krugman ever extolling the virtues of the 50s and 60s. He does think income inequality is too high these days, but that hardly translates into a longing for Eisenhower, does it? After all, I happen to like Mozart more than Celine Dion. That doesn't mean I wish I had lived in the 18th century.
Really, folks, Krugman is hardly some far left radical, he's a pretty mainstream liberal economist. And he almost certainly doesn't think the middle class was better off in the 50s, he just thinks that it would be nice if the middle class had shared more in the tremendous prosperity of the past 20 years. If you disagree, and think it's wonderful that practically all of the GDP growth of the period has gone to the top 20%, you really ought to explain why.
On the other hand, Krugman sure does hate Bush, I'll give you that.
A couple of specific points:
PJ: Higher taxes don't cause people to work less. At least, the research indicates that they don't. They might at very high levels, but not at the kind of levels we have in America. And you might consider that we had very high top marginal rates in the 50s and 60s, and I don't recall a lack of work ethic back then. In fact, the economy did pretty well in those decades, didn't it?
Jake: If you think there are *no* barriers to becoming rich other than talent and ambition, you are living in a dreamworld.
Kevin, speaking from experience in my family, and Jake is right. There is no barriers other then what we make for ourselves. My Family, (and as I age, I find more families with the same experience) has, in each generation, started out dirt poor, worked insanely hard to start and have their own buisness, and become repected among their community/industry. In my family, however, there is a knack for losing the fortune and all accured assets before it can be passed for the next generation.
With My Italian Grandmother (the dressmaker), it was a mobbed up alcholic husband who would squander weekly payroll on the horses and bookies.
With my GrandFather (on the other side, who was a decorated veteran and respected engineer for Grumman) it was a series of bad health experiences. With my father, the builder, it was a rather messy divorce and mental problems that killed his rather successful first buisness. Now he's on the verge of breaking the Plateau in the second one, but now his second marriage is very strained.
Every time, its gotten a bit worse (being homeless, unemployed, almost committed), but the bloodline starts anew, and builds itself back up. If there were natural barriers, this family would have been dead 60 years ago.
Kevin, I am personally too cheap to pay the NYT to read his stuff (it ain't easy being in those bottom quintiles!), but I've seen it several places, including, I believe, his big piece on inequality.
It may be that he had quantitative reasons for the statements I recollect, but the problem was he didn't give any; he just stated that people were better off because they were less unequal. That they were less unequal I believe (although I think that several things, including effective taxation rates, make the effect seem larger), but he offers no reason to believe that the middle class was actually better off, other than in a status sense, and I think you're going to have a hard time selling inequality remedies on the basis of the fact that inequality makes folks feel bad about themselves.
And Kevin, while I am second to none in my abhorrence of supply-side dogma, higher tax rates do, in fact, cause people to work less. While labor is very inelastic, it is not, as you suggest, perfectly so. And the elasticity is highest at the high income levels that liberals want to raise taxes upon. Since the progression is non-linear, a tax that would provide the kind of social spending your average left liberal would like, applied only to, say, the top 1%, would have significant effects on income from people choosing to work less, people shifting income to tax preferred forms, and increased activity in the grey or black economy. Especially if we take Krugman at his word and try to close the budget deficit while making social security and medicare solvent at current benefit levels.
Really, folks, Krugman is hardly some far left radical, he's a pretty mainstream liberal economist. And he almost certainly doesn't think the middle class was better off in the 50s, he just thinks that it would be nice if the middle class had shared more in the tremendous prosperity of the past 20 years. If you disagree, and think it's wonderful that practically all of the GDP growth of the period has gone to the top 20%, you really ought to explain why.
Well, personally, I find the statistics hard to believe. I think the problems with the CPI and the problems with static income analyses lead us to erroneously see "all of the GDP growth" of the past 20 years going to the top quintile.
Kevin, are you contradicting yourself? If the middle class is better off now than the 50s, how did that happen if all the GDP growth went to the top 20% in income? Are you making a distinction between "20 years past" and the 50s? I wouldn't want to argue that the middle class was better off in the 1970s than the 1950s, and that there have been no improvements since, but that's what it sounds like you're saying.
Yeah, Krugman used to be pretty (leftist) mainstream, but I don't think that's true any more. Maybe he's letting his hatred of Bush get the upper hand, or maybe he's had some epiphany. Either way, I think he's definitely heading for the fringe. (He's not alone; I see Teddy Kennedy is claiming the Administration is secretly spending almost $2 billion per month to bribe other countries to help us in Iraq. Pity it's not working.)
PJ: Higher taxes don't cause people to work less. At least, the research indicates that they don't. They might at very high levels, but not at the kind of levels we have in America. And you might consider that we had very high top marginal rates in the 50s and 60s, and I don't recall a lack of work ethic back then. In fact, the economy did pretty well in those decades, didn't it?
Well, there are several effects here. If the government suddenly takes 10% more of my income, I might work 11% more to get my disposable income back up to where it was. But higher income taxes mean it makes more sense (for example) for me to take a week off and paint my own house rather than pay someone else to do it. With my house painting skills, trust me, this is a loss for the economy. (Income taxes just add transaction costs to any labor purchase.)
Another side effect, noticeable here in the 1950s and in Europe today, is companies shift pay from "income" to (untaxed) perks. If my tax rate is 75%, a big raise may not convince me to change companies. But offer me a secretary, or a company car, or the chance to go to conventions in Hawaii in January... The income distribution in a more progressive tax system will look more equal, but the numbers are distorted.
jake you lost me on "Look at Europe where the middle class would love to have the lifestyle our poor people have."
seriously, have you been there?
oh, wait, how about East Oakland?
in terms of industrialized nations, poor people in the US have essentially no healthcare, no police protection and really crappy education. go take a look at life expectency data and ask yourself if you would rather live in Compton or some middle class suburb of Madrid.
I think you've read Ann Rand a few too many times and haven't been hanging out with any poor people in this country.
I suppose Krugman is arguing for a tighter income distribution, even if it means that people are, on average, worse off.
This thread and Mr. Krugman's brain-dead babblings about the good old days reminds me of some of Ayn Rand's old articles, where she would reprint the claims of socialists and other enemies of capitalism that capitalism drastically reduced the fortunes of the poor when it came along--after which she would simply point out exactly what the conditions were for the poor before the Industrial Revolution (hint: they weren't better, particularly since a lot of the children who were working in those factories and creating such an uproar in the enlightened classes would simply have died in infancy in earlier times). As always, the Left waxes nostalgic about a time that never was, in order to obtain power to inflict on the public in the future things that no sane person should *want* to see.
"Really, folks, Krugman is hardly some far left radical, he's a pretty mainstream liberal economist."
"Pay no attention to the Lefty behind the Curtain! I AM THE GREAT AND POWERFUL KRUG! FEAR ME AND KEEP READING MY COLUMN!!!"
*snicker*
"I suppose Krugman is arguing for a tighter income distribution, even if it means that people are, on average, worse off."
I suspect that most lefties would in their heart of hearts be happier in a society where everyone made x dollars than in one where the lowest quintile made 1.1x dollars on average and the higher ones made a lot more. Of course, admitting this out loud would get them ridiculed and they know it, so they don't say so, but if you read between the lines of what they advocate, it's there.
M. Scott:
Let's do a little thought experiment:
Liberal's perfect world: Everyone makes exactly $50,000 a year.
Your world:
Bill Gates makes $10,000,000 a year. 210 people make $7381 a year. That works out to...let me see...$55,000.04 per person. Hmmm...this is nearly exactly 1.1x the liberal's perfect world (such a coincidence!) This is better?
Read Mr. Eiland's example again. The /lowest/ quintile makes 1.1x on average. Presumably Bill Gates is not in the lowest quintile.
There's just too much here to deal with here. You guys all seem to want to read between the lines about what liberals "really want." Why not just listen to what we actually say?
Maybe the liberals you know are all a pack of ravenous socialists, but most liberals I know are not yelling for a vast expansion of entitlements. They just think that we should honestly fund the ones we have, and not pretend that we can keep cutting taxes and everything will be hunky dory. Like it or not, SS and Medicare are popular programs with broad support, and that means taxes need to fall in line with projected outlays. Reagan understood this and supported SS reform, including tax hikes. Why can't we?
And then there's national healthcare. I happen to think that's inevitable, but in any case I don't quite understand the objection. Considering how divorced healthcare is from market forces today, and how fast costs are rising, it's frankly hard to see how a national program could actually do much worse than what we've got.
As for higher taxes, there are loads of theories about why higher taxes should cause people to work either more or less, and then there's actual empirical evidence. And the evidence is that it doesn't have any effect. I don't pretend to know why, but that's what the evidence says.
Of course, those studies are not for the very rich, but do you have some cites for your contention on that, Jane? Frankly, I'd be very very surprised, though willing to be convinced. Do you really think Dick Grasso would have worked half as hard if he'd been paid only $70 million? It just doesn't make any sense.
Plus, as I already mentioned, we had high top rates in the 50s and 60s and it didn't seem to affect the work ethic then. Why do you think it would do so now?
"Presumably Bill Gates is not in the lowest quintile."
Just wishful thinking on Adam's part, I'm sure--that and a lack of reading comprehension skills that is not a particularly complimentary indicator regarding the modern educational system.
Martin Feldstein has done the leading work on income elasticity among the wealthy. Can I have a cite for this empirical data on the 0 elasticity of labor at 35% effective tax rates?
"Maybe the liberals you know are all a pack of ravenous socialists, but most liberals I know are not yelling for a vast expansion of entitlements."
[next paragraph]
"And then there's national healthcare. I happen to think that's inevitable, but in any case I don't quite understand the objection. Considering how divorced healthcare is from market forces today, and how fast costs are rising, it's frankly hard to see how a national program could actually do much worse than what we've got."
Hmmm. Well, I *suppose* you're not yelling, Kevin--maybe you're just whispering very emphatically.
"Plus, as I already mentioned, we had high top rates in the 50s and 60s and it didn't seem to affect the work ethic then. Why do you think it would do so now?"
You know, Kevin--I've never been particularly wedded to the Laffer curve reasoning for lowering taxes either. I simply concluded a long time ago that a tax rate from all levels of government that results in the government keeping more of an individual's income than he or she receives (except in times of genuine national emergency) is objectively thievery (anything below that is amenable to give and take, IMO). Of course, since the ethics of the Democratic Party on the matter of taxation have been indistinguishable from those of Willie Sutton since the days of FDR, I suspect that this idea would not concern you greatly, and would provoke a Dan Fieldingesque "what's your point?" if put to any Democratic candidate for national office.
Kevin Drum:
I disagree with >50% of what you post on your blog and the current items under discussion are no exception. But considering that (speaking loosely from what I perceive to be your vantagepoint) your pet chicken just got checked into a hospital staffed by wolves, many kudos to you and yours for staying with the follow-up conversation.
Jane:
Kevin, I am personally too cheap to pay the NYT to read his stuff (it ain't easy being in those bottom quintiles!), but I've seen it several places, including, I believe, his big piece on inequality.
You can find most (all?) of Krugman's stuff at
The Unofficial Paul Krugman Archive
www.pkarchive.org
The new Paul Krugman website
www.wws.princeton.edu/~pkrugman
The Official Paul Krugman Web Page
web.mit.edu/krugman/www
=======
Kevin:
Considering how divorced healthcare is from market forces today, and how fast costs are rising,
These two things are not unconnected. The doctors I've seen arguing for nationized health care seem to want a system in which they can pretend that health care is free, which won't help matters.
Plus, as I already mentioned, we had high top rates in the 50s and 60s and it didn't seem to affect the work ethic then. Why do you think it would do so now?
A lot of income was in untaxed forms, such as fringe benefits and various loopholes. Raise marginal rates and that'll happen again.
(I wrote this for the topic "Monopsony" but then
glanced down and saw "Separate but equal" which
seems appropriate, except this has nothing to do
with Paul Krugman.
I'll put it both places.)
I'm not an economist, although I've been casually
struggling to understand the subject for some
time. It seems to me intuitively that measures
like raising the minimum wage are inherently
self-defeating.
Instead it seems to me that those who are concerned
for the poor and middle-class might more profitably
exercise their intellect by looking at how our
economy is organized, in particular where the money
is going.
There is great variation in human ability. I can
easily for example believe that one person might
be fifty times more effective at doing some task
than another, but if we look at our real economy
it seems to be saying there are some people that
are a thousand times more productive than others
or even ten-thousand.
But how can that be? Are such real disparities
in human ability really possible? (I'm comparing
here intact human beings. I'm not including those
that can't do anything. If we were to start from
zero, any multiple would be reasonable.)
No I think there is something strange going on
here. And that strangeness is monopoly or situations
like monopoly.
I don't have an original message here. It's already
been said. But somehow the message isn't being
understood.
If we allow a producer of something people value
to bar others from engaging in that activity then
not only are the opportunities of everyone else reduced
(this is one activity less that they can engage in)
but the producer is likely to become rich, that is
be valued at an extraordinarily high multiple
compared to others. What drives that concentration
of wealth isn't actually what the producer makes but
what he prevents others from doing.
So on top of everything else the monopoly actually
impoverishes society overall because of lost production.
It's my sense that behind nearly every extraordinary
concentration of wealth lies a monopoly or something
akin to monopoly either now or in the past. This hurts
people in general because of the cumulative mass of
opportunities, of potential occupations, that they
have lost.
The incremental opportunity cost of any one monopoly
on any one person is likely to be small, but the
cumulative weight of many will be large.
Now some may be asking what this has to do with
minimum wage or the lower stratum of the working
population. The connection is that monopoly makes
these workers unwanted. The larger the proportion
of the economy locked in monopoly the more every
one else has to crowd into the sectors still open
which means a surplus of labor which means low
wages.
If we could somehow wipe out monopolies and related
things with a wand, there would be a suck upward
for most of the population because there would be
so many new possible occupations from which they
were previously barred. In many cases people would
need to learn, to grow, in order to take advantage
of the new openings, and the young would be better
positioned than the old and it would take much
time for the new economy to fully unfold.
Unfortunately there is no such wand and monopolies
and related things in particular are often hard to
identify and further take many forms and may be hard
conceptually to specifically legislate against.
So if monopolies make a difficult target, is there
a proxy that can be legislated against instead?
Yes, and that is simple "largeness."
Monopolies are harmful proportional to their size
and legislating against largeness would more or
less knock out the monopolies. The problem is that
not all large institutions are monopolies, there
are certain activities that seem to demand largeness.
My belief is that we would gain more by
getting rid of monopoly than we would lose from
penalties on large companies. I also wonder if we
might discover with time that constellations of
small enterprises would first meet and then surpass the
output of the large institutions they replace.
Anyway the practical, simple remedy that this
boils down to is taxing enterprises on their
gross sales within the U.S. and at a progressively
increasing rate dependent on their gross sales,
with entities having sales below a cutoff having
no tax at all.
Would anybody be able to recommend a text book on the workings of market-makers/specialists, jitneys and exchanges? I am interested in questions such as how we ensure competition in bid-ask quotes? What are the quantitative measures of an "orderly market" that specialists are supposed to provide? Where is the paper trail that can be audited to ensure after-the-fact "best efforts" trade execution? What are the practical -- not political -- arguments for human brokers? What is the pseudo-code algorithm for brokering software? I took the CFA program in 2000,01,02, but there was remarkably little in it on these matters.
"Really, folks, Krugman is hardly some far left radical, he's a pretty mainstream liberal economist."
~~~
You must still thinking of the pre-2000 Krumgan. That was the Krugman who in 1999 said:
"I do not think of myself as an all-purpose pundit. I remember once (during the air phase of the Gulf War) seeing John Kenneth Galbraith making pronouncements on TV about the military situation, and telling friends that if I ever start pontificating in public about a technical subject I don't understand, they should gag me."
But they didn't. And now the new & improved Krugman is punditing relentlessly about the Iraqi war and countless other things he doesn't understand -- sales taxes, diplomacy, how bottled water fits in the Army's forced hydration program, etc. -- and saying things such as ...
* "There is no center right" in American politics.
* The "extreme right" -- which is all that exists -- is composed of Jacobin and 1930s-German style "revolutionaries", which is why reasonable people can't deal with them.
* The extreme right is engaged in "a conspiracy here, albeit one whose organization and goals are pretty much out in the open." ;-)
* Current fiscal policy, yes, really could create for the US an Argentina-style financial crisis. (Even DeLong shot that one down).
* That the Bush tax cuts, contrary to common wisdom, *created* the future SS/Medicare shortfall -- "the present value of the revenue that will be lost because of the Bush tax cuts ... would have been more than enough to 'top up' Social Security and Medicare, allowing them to operate without benefit cuts for the next 75 years"
"More than enough"? So there was *more* than enough revenue coming in to fund SS and Medicare for 75 years before the Bush tax cuts?? What other economist in the world would say that?
* And, "It's odd that the better things get if you are rich or a fundamentalist Christian, the more angry they get" ... *even while* saying that he himself has gotten angrier and angrier over the last three years as he has risen in prestige and income as a Times pundit and tenured Princeton academic. Although in his case, that's a virtue! ;-)
And on, and on, it's endless.
I mean, c'mon, do these things sound like a "mainstream liberal" in action (unless the mainstream of liberalism has diverted pretty far left?)
Really, if Grover Norquist was going around saying that that Paul Krugman was leading dangerous and "revolutionary" liberals in a "conspiracy, albeit one whose organization and goals are pretty much out in the open", how much fun would liberals be having laughing at him, and asking about whatever caused him to lose his mind so?
The best foundation for our tax policies is one that reflects current realities. Yes, things were more carefree in the 1980's. It's shocking to me now just how different everything was back then. Back in the days of NO Internet, and Big Hair, Atari, ALF, Heavy Metal, and the legendary Larry Bird. Sure, there is income inequality, but that was just as much, if not more, the case back in the "carefree" good old days. One thing that we had going then, which we are adrift without, was the great leadership of Ronald Reagan.
The problem here is, not one of us has any more a clue than the politicians do as how to fix any of this. Republicans say The Market will fix everything, but they are engaged in social engineering all the same. The Democrats, of course, by and large advocate a socialist welfare state. They certainly are becoming more akin to Western European Socialist governments. Bush cut taxes, very slightly, but he is spending up a storm. This, after he urges "fiscal restraint." But, what are We The People to do?
Until a third, or even fourth, fifth, etc., party can be formed, the entire nation is going to continue to be screwed over by greedy, complacent Republicans and Democrats. It's the 21st Century, let's start moving forward here...
It's hard to know where to start deconstructing this loopy post & thread.
The progressive income tax is characterized as being Krugman's "magic cure-all." If you wish to so simplify Krugman's analysis that is your right. But I think it might be more fair to characterize anti-immigrant measures as the magic cure-all. For what social ill has this cure-all not been trotted out?
And true to form Megan comes through. "But I digress, on inequality I turn to Mr. Easterbrooks..."
And I very much doubt that Krugman worries very much about paying the grocery bills. It seems to me that he's a bit more worried about how we, the U.S. taxpayers, are going to pay the profligate bills being run up by a unified Repubican wing-nut government.
anyone that reads this blog wouldn't think that mean was arguing against immigration, just highlighting how the data that kruggie uses is bs
love to see mark throwing his bolshiness around.. do a dean spam mark, come on... we haven't seen those for a few days
i used to love paul when he worked at slate... he was good on the numbers, literate, funny, and good enough that i didn't really mind the socialist rumblings... then he started at the nyt... "grew in office" and became a raving loon... this seems to be a common thing... most bloggers of libertarian or conservative ilk (including national review) have a "wtf happened to paul" column or quote...
as for kevin... people really do just say screw it and not bother working as much or as hard... why do you think that it is customary for goldman sachs partners to retire in their mid forties, after being a member of the partnership for 8 years on average (i guess its now MDs and being at that level... but the partner usage is clearer to non finance geeks)? they're making millions a year, and quit because they just want to live
lawyers and executives work less, take more vacation, etc... increase taxes and you'll see a lot less devotion to the job... along with an increase in perks, tax shelters, yada yada yada
as to why we wonder about your real goals... when you're for taking more of other people's money for a "good cause" and constantly inventing new uses for the money, some people wonder where it ends... and we fear that the destination is france, if not the old ussr
and hold the bs about france being a "great place"... the massive unemployment, very low labour participation, a lot less material wealth, very little flexibility or mobility... and a government situation that is essentially hostile to new business, combined with asset taxes... ugh
Given the tremendous changes in the people who make up the various quintiles of income, a discussion of income inequality is pointless to begin with.
I have to laugh at liberals who try to claim that the poor have barriers holding them down when the barriers are those things run by liberals (e.g. the education system).
Kevin -- the 50s, 60s and 70s were famous for high paid execs finding inefficient ways to use corporate perks as rewards rather than taking their "pay" in taxable cash. The Reagan tax cuts produced all kinds of better, more efficient corporate behavior as execs/owners chose to take the cash and got rid of the fancy jets, etc. This included additional tax receipts that liberal economists never predicted.
You have to be purposefully blind not to acknowledge the many efficiencies which resulted from those lower tax rates.
http://www.amazon.com/exec/obidos/tg/detail/-/0465090974/qid=1064220523/sr=1-1/ref=sr_1_1/104-4436581-0610333?v=glance&s=books
Link is to 'The Way We Never Were' a book I think supports Jane's point.
Most arguments fussing about income inequality are grounde in a nonsensical worldview in which wealth is a fixed constant. As if there was a major market for silicon wafers before there was a semiconductor industry. In the real world the only constant is the bottom: a buck naked human without so much as a rock with a sharp edge to call their own. In those conditions the other buck naked human over there who has found a rock with a nice cutting edge is enjoying an immense advantage in wealth over the first guy, provided that the second human has figured out why that sharp rock is useful.
It only goes up from there. Every instance where human ingenuity has wrought something new and useful or just attractive, often from the seemingly useless, has raised the ceiling on how wealthy it is possible to be. Along the way desirable things that would a few generations earlier have been beyond the means of the world's richest are commonplace in the homes of those regarded as impoverished. In his lifetime Howard Hughes couldn't trade his entire fortune for a nice 36" TV, a set of surround speakers, a DVD player and a starter library of Hollywood blockbusters but any middle-class guy today can pick that up for under a grand at a local store. Living in the era that has the better toys (or medical treatments) is something you just can't buy.
Are some people outrageously overcompensated for their work? I think so but I need a lot of context in each case to judge and there would still be the question of who is being affected. I may feel somebody is paid vastly more than they're worth but am I making more than a moral judgement? Do I actually have a stake in whether the business in question is doing something that doesn't reeive my approval? Is it any of my damn business?
I very agree with Jane's last paragraph. When I was a child I knew we were far from wealthy but it wasn't until my late teens that I understood enough to appreciate just how dire things had often been for my parents.
Yes, you can make people quit if you put too many taxes and other economic drains in their path. My brother-in-law has done very well in the business he created from nothing and employs a fair number of people. The lawmakers of California, in their quest to magically make everyone middle-class, is trying to obligate him to provide an absurd level of benefits to his most menial employees while tripling the annual tax on his fleet of work vehicles because the people in Sacramento can't balance their checkbooks.
This is somebody who done everything right, played by the rules, and for his reward is now being treated as a bottomless well to give free goodies to those who have done little to deserve it. He has considered calling it quits and retiring in his forties. With good investing he and his family would still enjoy a very comfortable lifestyle but a few dozen people, most of them Latino and US citizens, would be out of work. The market gap would be filled by competitors avoiding those expenses by using illegal immigrant labor as peasant wages. Big win for those former employees who played by the rules, huh?
Kevin, you're in for a deep shock if you don't think health care can get worse with increased government meddling. To quote Bill Cosby, "Worse is listening. It's just waiting for you to say, 'This can't get any worse' and strike." I've lost track of the number of foreign citizens I've met while they were visiting relatives in the US on 'medical vaations' to get diagnostics or surgery performed immediately rather than waiting several months back home.
Boban, do you mean anti-immigrant or anti illegal immigrant? There is a hugely important difference there and the lefties here in California have been very conspicuously refusing to include that critical word in hopes of painting those who believe in a nation having some say in who enters as racist hatemongers.
Great thread -- but prolly too much for Kevin; he gets more support on his own (often great)CalPundit blog.
Krugman's gone loony.
Don't forget that Hostile Takeovers--they were replacing annual large bonuses to questionable execus with a single larger payout to a succesful raider. The "free(er) market" was keeping exec pay in check, which is why they got Congress to protect them more, and got more Poison Pill & Golden Parachutes, etc.
Bill Gates DESERVES much more than managers. But any top exec who has layoffs or downsizing, and gets a big bonus, doesn't deserve it.
There should be a tax surchange on corps who pay execs for failure. Also a min. corp tax on size, even if the big corp "loses" money that year.
But the real tax-spend problem is that big-hearted liberals like Kevin know that solving problems needs money, so they want a system to TAKE other people's money (to solve problems). Historically ALL such systems are captured by the powerful to divert riches to the rich & powerful.
When will big-gov't spend-liberals learn this lesson, rather than insisting on repeating it?
Krugman's particularly hypocritical about SS -- a broken system that has always been unsustainable. The Chile system of requried 10% saving, which remains your own, heritable, property, is the best pension system in the world right now.
I notice that Jane resorts to Randian vague-assertions-about-what-other-people-said rather than actually quoting anything. That makes it much easier to demonize opponents.
And the silly Jim Glass does quote Krugman, but provides no analysis of why those quotes establish Krugman to be in some part of the political spectrum or another. He just expects all you individualists to conform to his Limbotic stylings and nod yes.
As to whether progressive taxes actually reduce work done by the wealthy, you may want to check the book "Does Atlas Shrug?" from Harvard University Press. I glanced through it, and the results were inconclusive. But if we buy the simplistic microeconomic models that are argued here, we'd expect it to be glaringly obvious.
Must I be the first conservative to jump to Mr. Krugman's defense?
Kevin is right -- Mr. Krugman should not be subject to such sneering disrespect, and basic decency is not the only, nor even the main reason for my reapproachment of those who would disdain the great man.
Mr. Krugman is neither loony, consumed with Bush-hatred, nor pining for an idyllic childhood. He is just wrong in his conclusions. When an informed, intelligent and gifted thinker such is Mr. Krugman is wrong, he still teaches us much, in that we must determine WHY he is wrong. Taking cheap shots is the lazy way out.
I would posit that Mr. Krugman is wrong because the worldview (often identified as liberal, or of the left) that underlies his reasoning is imperfect in such a way that it proves inadequate as a model of reality in this field. To advance such a hypothesis is hubris to the highest degree, I understand, and beg forgiveness. Yet such a theory brings no great discredit to Mr. Krugman.
Almost all respected thinkers have had similar experiences -- As an example, didn't Lord Kelvin go on record as being sceptical about radio? It is only with historical precedents as these that I, a lowly blog commenter might humbly advance the theory that Mr. Krugman, a superlative human, yet still only human, might also be prone to error in these matters.
Snarky remarks in a blog's comment thread are easy. Far more difficult is focused analysis with the aim of correcting errors in an opus resultant of talents far above one's own.
One of the things that fans of Krugman-style arguments are going to have to do, if they want their concerns to gain any traction, is come up with a coherent account of what motivates the rich. At present they seem to be saying that the rich are so indifferent to money that taxing their marginal income at confiscatory rates will have no effect on their effort, and at the same time so desirous of money that they're bankrolling a conspiracy to get government to give them more of it.
If Lord Kelvin were alive today and continuing to decry radio as impossible, he'd be regarded as a loony. Krugman is in a similar position. He continues to hold the same positions long after they've been disproven or found wanting.
Kevin, I think it is important to draw a distinction between the Krugman of pre-2000 and what he presents now....Essentially, the conflict is between a New Republic sort of political economic view and (Krug version 2.0?) what he has assumed as his new personna--essentially a rabid partisan...a sidney blumenthal with the ability to discuss money supply. I know this as a financial journo who could previously rely upon him for complelling, iconoclastic takes on I-rates and GDP....he is now, broadly put, dysfunctional, at least from the perspective of having anything to say as an economist that can't be immediatly "fisked" as a talking point from the liberal left. His hatred of Bush/the GOP has afffected his work product tremendously. An economist should be able to discern trends and patterns, construct a take on spending or investment behaviors, with a modicum of distance and independance. He completely lacks this now.
Put another way--Larry Kudlow, Brian Wesbury certainly retain truly broad econ followings because they are frequently incisive, if not right. They are partisan certainly, but retain credibility.
Re: elasticity of work output...i.e. the susceptibility of workers to cut back on work in high marginal tax rate years...anecdotally, this is clearly demonstrated on Wall Street. Trading floors were wholly empty by 4.30 pm in the 50s-70s, research and banking were gone by 6, maybe 6.30 most days. The tax rate was high, north of 50% for many Street denizens, with upper marginal rates nearing 70%--albeit loopholes galore.
The early 80s rollback of these rates, as well as with the advent of floating commissions, has compeltely revolutionized the industry...resulting, in a sense, in more work for much more pay. To say nothing of the relative democratizaton of the Street culturally. ANd dont even mention the incentives given to innovate financially that this presented to the STreet's customers.....ethics scandals aside.....
I meant anti-immigrant. Xenophobic pandering not too infrequently hides behind distinctions without a difference. You know, "We don't hate the gay sinner, just the sin..... and we aren't anti-immigrant, just anti-illegal immigrant."
The hardest working and cleanest living people in this country are ILLEGAL immigrants. Most of them do things like build your houses, take care of your kids, or take care of your garden.
It's a real surprise for me to see thoughtless slander of immigrant labor on a supposably free market blog like this one.
I don't know about my house, boban, as it was built in the '50's, but I would rather tend my own garden and raise my own children than break the law. I use either American citizens or legal immigrants, and specify to contractors that I will not tolerate illegal labor.
Actually, legal immigrants, or guest workers are the cleanest living, as they are not breaking the law to enter the country.
I would prefer for the law to change and allow more deserving persons in, as I agree with you that many who can't enter legally would be welcome additions.
Which kind of comes around to the original point. If my kid was sick, and the only doctor able to treat him was an illegal immigrant, I would bust the law in the second. But for tending a garden or to reduce the amount I pay for childcare, Nope.
Xenophobic? I respectfully beg to differ.
boban wrote:
I meant anti-immigrant. Xenophobic pandering not too infrequently hides behind distinctions without a difference. You know, "We don't hate the gay sinner, just the sin..... and we aren't anti-immigrant, just anti-illegal immigrant."
Actually there the distinction between hating the sin versus hating the sinner and being opposed to illegal immigration versus being opposed to immigration in general make for some pretty significant differences. Of course that some may find it easier to make smears like “xenophobic pandering” rather than trying to debate those differences does not negate them.
The hardest working and cleanest living people in this country are ILLEGAL immigrants. Most of them do things like build your houses, take care of your kids, or take care of your garden.
And some of them do things like deal drugs to school children, crash jets into buildings, and go on sniper sprees. Which probably why it is a good idea to avoid such blanket proclamations as calling illegal aliens “the hardest working and cleanest living people” or “the laziest and dirtiest living people.” Neither is particularly helpful or accurate.
It's a real surprise for me to see thoughtless slander of immigrant labor on a supposably free market blog like this one.
No one has made any such thoughtless slander. However since illegal immigration carries a number of ramifications beyond just the impact on the labor supply (e.g. the use of social services, public safety, problems of assimilation, crime, national security concerns, etc.), it is perfectly valid for proponents of a free market to question immigration policy and its impacts.
I look forward to seeing your free market defense of restricting immigration!
And if one considers the role of incentives, which surely the denizens of Galts gulch do insticitively, it is easy to see why illegal immigrants would work hard(er) and live clean(er)lives. Their incentives are so aligned.
I look forward to seeing your free market defense of restricting immigration!
I look forward to your explanation for trying to connect those two items in the first place. Keep in mind as you answer that only a few fringe elements of the free-market wing advocate anarchy; the rest recognize that government has at least some greater or lesser degree of a regulatory role in order to prevent anarchy or any conditions that could conceivably lead to it.
Regarding the second, I'm largely ambivalent to illegal immigration as long as it does not become a significant problem, but this --
And if one considers the role of incentives, which surely the denizens of Galts gulch do insticitively, it is easy to see why illegal immigrants would work hard(er) and live clean(er)lives. Their incentives are so aligned.
-- looks suspiciously like a subjective value judgement. It is just as reasonable to say that since an illegal immigrant has nothing to lose, seeing as how he or she cannot legally possess property and is used to hiding things anyway (like his/her status as an illegal alien), he or she might just as easily turn to criminal activity for the sake of gain.
I'm not willing to assert which is more likely; I don't have any evidence beyond anecdotes, split about 50/50 between those outcomes, natch. Unless you've got a study or some such to support that your claim is stronger on average than the alternative I supplied, the claim has not been established.
TrollMouse -- I've not yet seen an economics textbook that assumes anything other than that labor is free to move where it chooses.
I will also give you a two word hint as to why illegal immigrants work harder and live cleaner lives than does your average Joe -- opportunity cost. Sketching out the rest of the argument will be your homework for the day.
It's just a question since I've no sources to cite, but most of the studies I've read about income inequality in the workforce seem to focus on unionized industries. (GE, Energy companies, Car companies etc) How exactly does illegal immigration play into this? Not too many illegals in the Teamsters or UAW.
"But he never says why the fifties and sixties were so good; he just states, a priori, that the middle class was better off then. Which seems to defy everything we know about the era."
I think he **does** say why the fifties and sixties were better: it's because incomes were more equal. He thinks equality of income is an important part of the overall well-being of "society," even if the society has less total income.
He thinks that equality of income is important because he thinks it keeps society "cohesive":
"Social cohesion has been steadily eroding for 20 years now."
http://web.mit.edu/newsoffice/tt/1999/feb03/krugman.html
(Note: It's interesting that this quote traces the decline of society to the Reagan Administration. Paul Krugman seems to do that alot. ;-))
TrollMouse --
Slurs already? Your argument must be weak indeed. But very well, I am TrollMouse...and you are BubbleMan. Now that we have name calling out of the way, on to mascots. Mine is a 400-pound rodent that lives under a bridge. You have your choice of a large balloon filled with hot air or foamy mass of soap suds. Now that we have mascots out of the way, let us proceed to the substance:
I've not yet seen an economics textbook that assumes anything other than that labor is free to move where it chooses.
No doubt. And how many of these economics texts also go in-depth on political-economy, which is what your unlimited immigration case study requires? Most academics in the field consider it a sufficiently distinct issue to make it a different field of study.
I will also give you a two word hint as to why illegal immigrants work harder and live cleaner lives than does your average Joe -- opportunity cost. Sketching out the rest of the argument will be your homework for the day.
I could sketch it out, and presumably in the process forget that you didn't answer my question. But at any rate, whatever you meant by opportunity cost, I could say that the opportunity cost of living a clean, hard-working life is not engaging in a potentially FAR more profitable life of crime. Of course, the latter's greater rewards carry greater risks, but that doesn't tell me much since that's also one of my incentives to live clean which apparently differentiates me not from an illegal immigrant -- and around the mulberry bush we go.
As I see it you have not answered my question, but my very large rodent ears are ready to hear you again, if this time you wish to actually accept my challenge for an establishment of your claim.
If we're so eager to have rich people work harder, why did we just cut the tax on dividends which, Karl Rove to the contrary notwithstanding, go overwhelmingly to rich people?
Doesn't this reduce their incentive to work?
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