Asymmetrical Information

You're far too kind to Gladwell. Has there ever been a more obvious, less helpful concept that caught on as much as the "tipping point"?

And now the man who writes Blink thinks you're not thinking deeply enouhg? The real problem is he didn't bother to read you slowly enough.

Jane

Love your blog! and thanks for your honest post. I personally learned a lot in this debate.

Cri de coeur? hadn't heard that for a while?

Best,

I think Mr. Gladwell finesses the point when he merely cites Bloom and Canning on the tax rate issue. Of course the paper they wrote found that the tax issue didn't explain all of the growth! That's why it was publishable! The question is whether that finding is correct, for which you should look at data and analysis from outside Bloom and Canning's paper, or introduce your own. Jane does this. Gladwell is not yet on the record.

I don't know what's more depressing: that someone actually says the stuff Gladwell does, or that people still follow at his beck and call despite that?

You gotta love his whole "I quoted, like, experts. That means I win." attitude. I will give him that much.

As he's gotten richer and more celebrated, rational criticism has increasingly tended to drive Mr. Gladwell into a snit. One of the funnier examples was when he wrote a 1,000 word response on his website to Judge Richard Posner and myself expressing doubts about one of Gladwell's claims in "Blink."

Posner in The New Republic and me in VDARE.com had both scoffed at Gladwell's theory that the reason "car salesmen quote higher prices to otherwise identical black shoppers is because of unconscious discrimination. They don't realize what they are doing. But buried prejudices are changing their responses in the moment."

Posner and I had pointed out that auto dealers aren't tragic victims of their own hidden bigotry. Instead, they are relying on their years of experience at milking different kinds of customers for the highest possible price.

Thus, they make higher offers to blacks and women because they've found they can often manipulate them into paying more.

Gladwell sniffed: "Sailer and Poser [sic] have a very low opinion of car salesmen."

Now, that's a killer comeback!

http://www.vdare.com/Sailer/060205_gladwell.htm

Larry asks:

"Has there ever been a more obvious, less helpful concept that caught on as much as the "tipping point"?"

Yes. It's called "Blink."

Gladwell's message in "Blink" is:

- Go with your gut reactions, but only when they are right.

- And even when your gut reactions are factually correct, ignore them when they are politically incorrect.

http://www.vdare.com/sailer/050130_blink.htm

I don't wish to pile on, nor do I think anyone will read this, once the flames start. But it appears to me that most "business advice" (including "Blink") primarily consists of: "Don't screw up"

Indeed.

If Gladwell (or most other business writers for that matter) were to write about how, say, to make a fortune in the stock market, his formulaic approach would no doubt start by taking a piece of ancient advice that everybody has heard, but that nobody (including Gladwell) has any idea how to execute consistently, such as: "Buy low, sell high."

Then Gladwell would dream up a new buzzphrase that means the same thing but uses that trendiest element in grammar, the present participle—as in his recent mantras "The Tipping Point" and "Thin-Slicing”. Buy low, sell high could be Gladwellized into "Investing Down, Divesting Up ©™®"

Gladwell would pad his book with inspiring but contradictory anecdotes about people who got rich following this amazing strategy. Finally, he would cash in big by giving speeches at $40k a pop on how you too should employ the power of Investing Down, Divesting Up ©™®.

It's not that Gladwell is unique in selling out for piles of money, it's just that he once had potential to do better work than what he is now doing.

Buck up Jane, arguments to authority are always a last resort. The more high-handed the retort the more likely you struck a nerve, ceteris paribus.

"Then Gladwell would dream up a new buzzphrase..."

If doing what (and fans prefer) The Gladwell is doing is so simpleminded then perhaps it is only Steve's late night grumblings that prevent him from a similar success.

Interesting reply, that makes me rather feel that Gladwell has been completely discredited. Gladwell's reply, not Jane's. Jane was completely obsequious to the little snit.

Analysis of Gladwell's piece -

Gladwell introduction - Ironically, his statement about "a reaction not being an argument" applies more to his own response than to Jane's post.

Gladwell Point 1 - Appeal to experts, denial of personal responsibility - they convinced him so he's not responsible for his opinion - then inaccurate personal denigration of Jane in order to appeal to status. Only after all this we get one sentence of semi-argument.

Gladwell Point 2 - Snide denial that Gladwell is responsible for what he actually wrote, appeal to experts and status - "it's a *complex* model, you see - Then three more lines of data.

Gladwell followup - more snide asides.

A More Authoritative Statement

Gladwell's reply could have been stated more succinctly and accurately by eliminating the first point in favor of an introduction, and adding one line of summary. That would have made him look more like a journalist and less like a priss.

1. Bloom's and Canning's actual paper is more complex than my [Gladwell's] article suggested.

2.In the "Celtic Tiger" paper, they construct a complex mathematical model to try and tease out the various factors that led to the Celtic miracle. They think that the opening up of Ireland's economy in the 1970's was very important. But the data, they argue, also suggest that the country's demographic transition played an important role as well.

3. I [Gladwell] find their argument convincing.

Three points: 1) the dependency ratio factor ought not to push Ireland to be *richer* than the other European nations. There are plenty of European countries where the mommies don't have many kids. 2) the most prominent growth channel for the dependency ratio to matter is by changing the quantity/quality trade-off when it comes to investing in children. This comes from the Becker model and is also shows up regularly in the literature on Africa, and yes it does seem to matter. But of course it implies quite long (15 years and up) time lags. 3) Is it not possible to decompose how much of Ireland's growth comes from new FDI? (I believe a lot did, though without pretending expertise.) That won't much be affected by the dependency ratio.

>> But to my mind, there's a difference between having more children, and having more old people. Old people are much, much more expensive than kids are; most of them insist on ordering from the adults menu and having their own house instead of sharing a room with their brother.

There is a +0.7 correlation between per capita GDP and percentage of people over the age of 65 for 163 countries in the world. There is also a -0.73 correlation between per capita GDP and percentage of people under the age of 15. And, finally, there is a -0.66 correlation between per capita GDP and the fraction of people that are either either less than 15 or more than 65.

So, countries with lots of children appear to be doing less well than those with fewer ones.

"So, countries with lots of children appear to be doing less well than those with fewer ones."

Because it is still the trend in the modern era for smarter people to have fewer children, excepting Ireland and more patriarchal segments of the U.S.

David Boies (Al Gore's lawyer in 2000), or any other guy with his I.Q., wouldn't be hurt if his family of six children doubled to twelve.

So, countries with lots of children appear to be doing less well than those with fewer ones.

Surely there's no causation here. The statistics you cite mostly arise out of the fact that, in rich countries, people live to old alge and tend to have fewer children. Wealth enables and encourages the kind of demographic breakdown exhibited in rich countries. The demographic breakdown (lots of old people, few kids) doesn't cause the wealth.

It seems quite possible that an influx of women into the workforce following a dropoff in birth rates might do little for growth, if many of these new female workers have few job skills and minimal work experience.

Dienekes,

Correlation does not equal causation. It is not a likely event to live past 65 in a poor country.

"This was probably not a good career move."

On the plus side, he doesn't seem to know your actual name or your profession. Unless...you don't suppose...he *does* know but found it easier to be dismissive of 'some random blogger in her PJs' ;)

But I really don't want to join the piloing on of Gladwell. I think there's a lot of value in both 'The Tipping Point' and 'Blink', and this piece on drug costs, for example, was excellent:

http://www.gladwell.com/2004/2004_10_25_a_drugs.html

Maybe you could send him a pint of Ben & Jerry's...

I'd look at speed. Ireland's first two generations of independence - dismal years - served largely to show that Britain had been subsidising her before independence. And then suddenly there was rapid change - was it plausible that that came from a slow effect, like puting a knot in it, or from sudden change, like a drop in tax rates? The latter sounds likelier.

This blog post suggests that you've slightly misunderstood Malcolm Gladwell's first point in his reply. In making the journalist/expert distinction, Gladwell wasn't backing off from agreeing with the argument. He readily admits that he was convinced by Bloom & Canning, and his article reflects this. He was simply pointing out that it wasn't his argument. Gladwell's point is that your calling it 'Gladwell's argument' is misleading and trivializing, because the argument has a more-informed source than Gladwell.

"Buck up Jane, arguments to authority are always a last resort. The more high-handed the retort the more likely you struck a nerve, ceteris paribus."

JG, your take the "jounalists" should Underwrite, the views they express, is, to me, Spot On.

That Gladwell takes the: "I'm just the messenger"-escape hatch, shows, exactly, how callow and shallow he is.

BTW, I also agree that both, Gladwell & his vaunted "experts", are tragically mistaken in their propounded thesis. Which, in essence, is no more insightful than observing: "Farmers can gain weight by eating their seed(corn)."

Let’s cut this childish nonsense shall we?

There is nothing new about dependency ratios, if that’s what Gladwell thinks. Economist of course understand the importance of this (see for example Kuznets work about growth in early 20th century, there is of course much more).

There is a very simple way to get rid of dependency ratios problem. Just measure GDP/population of working age. This is the people who work and produce.
Let’s see what happens when using OECD data.

I will use the US as the norm (the technological front), and present data for Sweden and Ireland.

First let’s get to the chase. Irelands economy did not take of before the late 90s. The rate of growth 1979-1989 was the same as the other countries, weather you use GDP per capita or GDP per working age person.

Now let’s compare Irish GDP per capita with the US. In 1970 the Irish GDP per capita was 46% of the US. By 1979 a slight increase to 49%, in 1987 still 49%. So Ireland did not do very well in this period (since they were poor we should expect them to catch up). But something happened around 1987, the Irish economy took of, and in 2004 the Irish GDP per capita was 90% of the US one!

Sweden in comparison fell from 89% of the US norm in 1970 to 76% in 2004.

So using the US as the norm, here is economic development 1989-2004:

1987-2004 Ireland goes from 49% of the US to 90% of the US.

But surely we are ignoring dependency ratios! What happens if we take them into account?

The US and Swedish working force population ratios have been more or less constant, around 65% from 1979-2004. The Irish figure has changed, from 58% in 1970 (that is to say the working force population was 58% of the entire population) to 61% 1989 and finally 68% in 2004.

So what happens if we only look at GDP/working age person?

The Swedish development is exactly the same using either measure. And 1987-2004 Ireland goes from 54% of the US to 89% of the US in GDP per person in working age.

Wait a minute! TAKING INTO ACCOUNT the change in working force population the Irish economy still grows dramatically more than any other western nation, reducing a gap of -46% to the US to -11%.
Including dependency ratio does effect the calculation. Without it the bridge is instead
-51% to -10%.

In another word the dependency ratios explain between 20-25% of the narrowing of the Irish-US gap (and even less of the narrowing of the Irish-Europe gap). The rest has to be saught, if you are not a left-wing fanatic, in Irelands unique leize-faire economic policy (the growth in GNI is slower, for both per capita and per working force, but GDP measures productivity better. The difference is because foreigners have invested in Ireland and take I believe about 1/10th of their economy in capital returns)

It took me about 20 minutes to do this calculation, for free. Why didn’t Mr. Gladwell do a similar exercise and covey to the reader how small the effect was? By giving a quantitative sense to the reader there would not be any risk that people get the impression population was the driving force of Ireland’s growth (rather than a small part). Furthermore it is much more probable that the change in dependency ratio is a effect of the growth (that also feeds back through more working age people), not the cause of it.

Trying to explain away Irelands success by ignoring economic fundamentals (yes, including tax cuts and labor market deregulation) is part of what I like to call Euro-Excuserosis. Of course Gladwells liberal and economically illiterate readers prefer to think Ireland grew out of poverty because of birth control. Learning that the main cause was letting go of socialism would of course be too much to ask for “intellectual” New Yorker readers.

Ps.

“Bloom and Canning are two exceedingly prestigious economists at Harvard, who are considered world experts in the field of demography and economic”.

Ooh.

I often disagree with Jane Galt, have stopped reading this blog for that reason. But just about in any argument between Jane and Mr. Gladwell, I would put a lot of money on Jane. The better blogs are in general far superior to journalists intellectually, since the audience is more demanding (in so many ways...) and the writers usually have better training (often being real experts in their day jobs on the topic they are blogging about).

Mr Gladwell says that he is not making these claims; experts are. As a journalist, when I get behind a paper the way Mr Gladwell got behind this one, I feel that I am asserting its conclusions, not merely repeating what someone else said. I feel my readers aren't paying for a synopsis of what other people say; they're paying for my best judgement about who is right.

+1 to "Mindles H. Dreck"

I wish I could blog something that would evoke such a detailed response from someone of Malcolm Gladwell's prominence.

Jane,

What flavor of Ben & Jerry's?

Jane, I think you got "Gladwelled."

Re: MQ. Yeah, I've stopped reading this blog too. I'm totally over it. I'm not even posting comments on it anymore.

Sheessh.

Why can't he just admit his Jane addiction. She's compelling even when you don't agree with her.

As for Malcolm, everytime he posts about this, he comes off as more of a twit. (Have you seen today's post?) I admit to liking some of his earlier stuff, but by the time Blink came out, I no longer found him very interesting -- for all the reasons that have been mentioned by others.

Jane, on the other hand, often confirms why I started reading her in the first place.

>> Correlation does not equal causation. It is not a likely event to live past 65 in a poor country.

Per capita income depends on the average income of productive individuals and the fraction of productive individuals in the population. The latter depends quite clearly on the percentage of children and elderly in the population, hence there is a clear causation between the population of dependents and per capita income. If, in two societies, the active adults are exactly as productive, the one with the larger number of dependents will exhibit a lower per capita income.

The dependency of per capita income on the dependency ratio is actually a theorem which can be logically deduced from the definition of these terms. The data simply confirm that the dependency is significant.

To put what I wrote in a simple way:

In 1987 Ireland had a GDP per capita that was 49% of the US. If this year they suddenly jumped to their 2004 demographic, with the same productivity, their GDP per capita would become 55% of the US. In fact last year it was 90% of the US.

Demography is not much of the Celtic Tigar’s story, the dependency ration explains roughly 15% of the catch-up Ireland experienced. Even if we use the even lower 1970 figure for share of Irish population aged 16-65 demography still only accounts for 20% of the narrowing of the gap to the US.

The rest? Since Ireland has gone through the probably most dramatic leissez fair reform in the west since post WWII Germany the obvious answer is rightwing politics.

Economics aside... great entry title. ;)

Dienekes,

Yes, given the condition that active adults are equally productive in two societies, then the per capita GDP will depend on the dependency ratio. However, the implication of your first comment was that higher GDP/capita was caused by having more people 65+, or having fewer people 15 and under. I don't doubt the correlations since they are exactly what one would expect- people live longer in richer societies, and people have fewer children in richer societies due to the higher opportunity costs and due to the shift in dependency from the young to the old.

Bloom and Canning are two exceedingly prestigious economists at Harvard, who are considered world experts in the field of demography and economics.
...
It's world experts v. blogger
...
they construct a complex mathematical model

Gladwell,
Say it ain't so.

I just gotta laugh at your repeated, and I might add, pathetic 'appeals to authority'.

@Sailer,
You, on the other hand, keep on rockin'!

"The dependency of per capita income on the dependency ratio is actually a theorem which can be logically deduced from the definition of these terms."

This does not in any way imply practical significance. Yes, changes in the demographic variables mathematically "cause" changes in per capita GDP. What kind of economic "story" does this tell? Well, none, actually. It's just an equation, it doesn't say anything about what actually happens in the world. There are real decisions, actions, and events that are driving these changes and this little bit of math gives us no insight into them.

In the real world, the independent variables in these equations are not actually controllable. They are themselves emergent results of the choices of millions of people. It is not insightful in any way to say that changing "the population of dependents" causes changes in "per capita income" because "the population of dependents" is not something that anyone chooses.

>> However, the implication of your first comment was that higher GDP/capita was caused by having more people 65+, or having fewer people 15 and under.

Observable GDP/capita is not caused by any single factor. However, it is partially caused by demographic structure. By "caused" I mean that if we change the variable "dependency ratio" then we expect to immediately and predictably change the variable "GDP per capita".

Incidentally, as I have mentioned in my blog, the reduction in per capita income is not caused only directly from the smaller fraction of active individuals: an even smaller fraction of individuals can really be active, since a substantial part of them, especially young mothers, spend a lot of time in activities of little economic value.

For example, imagine a toy society in which active individuals produce 100 units. If one society has 50% dependents, and another 25% dependents, then we expect the per capita income of the first one to be 50 and of the second one to be 75. But, the first society also has lots of individuals who do not produce a lot because they take care of the dependent population. If, say, 2 dependents use up the resources of an active individual, then the "real" active fraction in the first population will be 25%, and 62.5% in the second one, and the corresponding per capita income will of course be 25 and 62.5. Thus, even though individuals produce exactly the same in both societies, demographic factors cause one to exhibit 2.5 more per capita GDP than the other.

Cmon, Ireland won the first relay in the race to the bottom. In a decade or two Albania(where the tax rate will be ~1%) will win the final relay. Then the race to the BOTTOM will be over--forever.

It's arithmetically inevitable that dependency ratios will play some role in a country's per capita income, but there is so vastly much inequality in the world between nations at present (economic historian David Landes of Harvard estimated the difference between Switzerland and Mozambique as 400 to 1 in the late 1990s) that differences in the number of people per worker in the denominator are swamped by differences in the productivity of the worker in the numerator.

Gladwell cited his economists as claiming that dependency ratios explain away much of the difference between Asia and Africa, but a simple reality check proves that's silly.

If you go down to Wal-Mart or Costco and pick out the most sophisticated product made in China, you'd probably find, say, a laptop computer. And if you picked out the most sophisticated product in the store made in West Africa, you'd probably find, say, a shirt. That the worker's income from making the shirt has to be spread over more dependents than the worker's income from making the laptop computer is, indeed, a problem for the African shirt-maker's family's well-being relative to the Chinese laptop maker's family's well-being, as Gladwell points out, but it's hardly the main problem. The big problem is that while China is now internationally competitive in the same products that Japan was competitive in during the 1990s, West African countries are now competitive only in the same manufactured products that England was globally competitive in during the 1770s.

Go Jane! Go girl with the substantive arguments! (even if you did misattribute to me once upon a time, I forgive you).

What I am most interested in after all of this is if you could tell us the uptick in your average daily hit rate thanks to Mr Gladwell. In fact, for the devil in the details, a daily time course from the day before you blogged on Mr Gladwell, to, say, a month from now (let's see how "sticky" you are.... to use that old nugget worked nicely into Tipping Point]

The scientist in me would want a year's data, but we can't both correct for the Labour Day return of the Northern Hemisphere from outdoors to their PCs, and for the baseline growth in your readers, but.... this is not a published study claiming a direct correlation without attribution to contributary variables, just a little data that would utterly amuse me (and I dare say many others here).

The US underwent a fairly susbstantial drop in the dependency ration when the Baby Boomers left home. If a growth surge ensued, it was well-concealed.

Dienekes, I understand your theorem, but it treats productivity within one society as a constant, and I think that it is a variable, which depends on family size among other things. I know of many people in high-paid, high-stress jobs that dream about changing to a simpler career. Some Americans actually do take a massive pay cut to change to a more pleasant job. Someone who has to save up to put his kids through Harvard can't do that, but childless couples and singles just have to cut back on their toys.

At the other end, when our dependency ratio climbs too high because the Baby Boomers are retiring, I expect that many of them will find their 401K's losing value just when they (and everyone else) needs to sell stock to finance their retirement - and some will decide to keep on working rather to try to live on less.

So, I agree that dependency ratio does affect the GDP/capita, but there is also an inverse relationship between the dependency ratio and productivity that will reduce the effect.

Jane, I like your blog but Gladwells got you here.

Jane

How great is this debate? You had me at "unspecified endogeneity"...Mr. Gladwell's response reads like a whining appeal to authority.

What most journalists seem to have conveniently tossed into the Amnesia Bin is that we, the readers, DO pay "for a synopsis of what other people say", and NOT for your "best judgement about who is right". See, I don't think most journalists are truly qualified to pass such judgements and are, therefore, being most irresponsible presenting their lay opinion as some sort of Biblical Judgement.

I am not arguing that you are one of those journalists, just that most journalists are (to quote a friend who worked as a journalist for Forbes many years ago) "people who know a little bit of nothing about everything".

Of course, the kind of hubris we see in Mr. Gladwell stems from his having spent so much time around truly knowledgeable people, that he has actually mistaken himself for one of them, nay, their better, since he somehow (in his mind) achieved their greatness without their decades of hard work and their fancy-shmansy degrees.

Truly great journalists do not persuade you, they merely educate you enough to let you form your own opinion.

Lee: Why would the race to the bottom be over at 1%, or even at 0%? In the US, it's common for local governments to effectively subsidize companies considering moving in. This makes economic sense locally both because money still comes into the area (employee salaries, construction work, etc.), and because the cost of the subsidy can often be partially covered by use of federal grants of one kind or another. It makes sense politically, because raising everyone's taxes by a small amount is hard to see, but posing in front of the new factory that employs 400 people in your town of 10,000 is easy to see.

albatross -

While I realize you weren't arguing for it, I've always been troubled by the type of subsidizaiton you talk about because it's often not applied fairly. The subsidy usually has to be negotiated for, as opposed to it being given according to all businesses based on a predetermined standard.

Is it really healthy for a person's influence with the government to be the greatest factor in this subsidization process?

cactus makes perfect.

What is the problem with a race to the bottom in corporate tax rates that turns into a race to the top in per capita GDP?

Sounds like a healthy development to me. How does it make any sense whatsoever to tax someone up the yin yang for the dastardly deed of creating jobs and organically bidding up the price of labor?

I'm sorry if anyone has already mentioned this, but the best evidence I've seen suggests that the dependency ratio argument seems to have causality reversed. Higher growth leads to fewer children (at least in modern economies that don't view children as labor or a pension plan). Basically, as cold and heartless as it sounds, growth drives up the opportunity cost of child rearing. In the race between Junior and Jaguar, Jaguar takes some marginal share of prospective parents.

>> So, I agree that dependency ratio does affect the GDP/capita, but there is also an inverse relationship between the dependency ratio and productivity that will reduce the effect.

I am not sure why you think this would reduce the effect. I do not think that people with high incomes tend to have more children than people with lower incomes. People with many children usually don't do the very lucrative jobs that require long hours and suspending starting a family until they've acquired lots of qualifications.

I disagree that the dependency ratio is caused by growth. Rather, religiosity, access to contraceptives, as well as housing costs are what affects parents' decisions about how many children they will have.

«What is the problem with a race to the bottom in corporate tax rates that turns into a race to the top in per capita GDP?»

The problem with that is the cleverly disingenuous hidden assumption that if everybody does that that then everybody would benefit.

The Irelands and Bermudas of this planet make money by undercutting the USA and other economies and getting a bit of much larger savings to corporations. This works for them because they are small, and a bit of a big saving is lots of money for them, not many people in that «per capita».

But if every country did the same, bye bye Ireland and Bermuda.

There is another amusing bit of intellectual dishonesty hidden inside «race to the top in per capita GDP»: it just happens that for countries like Ireland and Bermuda there is an unusually large difference between GDP and GNP, a ''technicality'' that astute dissemblers evidently like to exploit.

It is amusing watching people try to deny that the success the Irish have had has anything at all to do with their business friendly environment.

Blissex,

Obviously, if Ireland and Bermuda are competing "unfairly" by undercutting the rest of the world, then the rest of the world should, perhaps, become more competitive with them?

Yancey Ward--that is exactly what I meant by "RACE TO THE BOTTOM. Don't you get it!?

Blissex,

Re; "The problem with that is the... assumption that if everybody does that that then everybody would benefit."

Time is a factor. In any free transaction, only the parties to the transaction benefit directly. But because new wealth in the form of free time is also created in the transaction, and because this new wealth can be and often is reinvested, society as a whole does stand a good chance of benefitting in time. I do understand that this takes patience, and that those who feel deprived today are unlikely to be patient, but this is the mechanism by which true progress (as opposed to simple redistibution) is achieved. A demonstration to the impatient that they are the beneficiaries of the free traders of the past is unsatisfying, I'm sure. But their feeling are irrelevant to sound public policy.

lee,

And exactly what bottom has Ireland raced to? Their lives appear to have greatly improved, at least according the Irish.

And exactly what bottom has Ireland raced to?
Yancy-
The question (which I don't claim to know the answer to) is; would Irish eyes still be smiling just as much if the rest of Europe really was more 'competitive' in terms of income taxes? Do we have a prisoner's diellema here where Ireland's success in dropping tax rates depends on the rest of Europe not having done the same? Or could all of Europe drop their income tax rate to 1% and repeat Ireland's success?

The people you're arguing with are not claiming "Ireland is doing poorly." You're not addressing your opponent's argument by saying Ireland has improved. They're inquiring as to costs and benefits of this model if applied on a Europe-wide scale.

Ryan,

But I am addressing their argument. What hell-hole has Ireland become by having its business friendly environment? My opponent's position, such as I can divine it, is that the business friendly environment has not only no beneficial effect but a detrimental one. We should be witnessing the ill effects of Ireland's policies in Ireland itself, should we not?

Making argument that Ireland is benefitting by the wrong-headed policies of other European countries seems to concede the point to me.

Yancey, you obviously don’t understand the concept of a “race to the bottom.” Here’s an analogy. Suppose all the guys want to go out with Harriet, and Harriet likes guys with fancy cars. If only one guy, call him Joe Ireland, buys a fancy car, then Harriet will go out with him. That’s good for Joe Ireland but bad for all the other guys. But suppose all the guys buy fancy cars. Then Harriet will go out with the best looking guy, but all the others will have to pay for their fancy cars anyhow. Under that situation, nobody (except Harriet) is better off than if none of them bought fancy cars (because in that case she would have gone out with the best looking guy anyhow). Cutting the corporate income tax is like buying a fancy car. It benefits you if you’re the only one that does it (or, to stretch the analogy, one of relatively few that do it), but if everyone does it, then corporations will just locate in the best location (the best looking guy), which is the same as if nobody does it. There is nothing fundamentally right about buying a fancy car, or cutting the corporate income tax; it just gives you a competitive advantage.

knzn: That's assuming there's actually a downside to eliminating the corporate income tax. As far as I can tell, most government spending is wasted anyway, so cutting taxes and killing off a few departments looks to me like a win-win for most people - but it's a loser for the politicians, who have less money to buy votes with.

knzn,

Oh, I certainly understand what a race to the bottom is, but it is very clear that you and others do not. In your analogy the car buyers eventually spend themselves into debt, but only one of them gets Harriet, and unless Harriet is really, really stupid, she goes with guy who behaved the least foolishly.

I am just asking those who claim that Ireland is behaving foolishly to show me the ill effects of this foolishness. So far, no one on this thread, or any other that I have read, has done so.

So do you care to take whack at the question?

Yancey, the race to the bottom argument does not imply that Ireland is behaving foolishly, only that it is behaving uncooperatively (which in general is what one would expect from a sovereign nation anyhow). Maybe my previous analogy doesn’t work, so let’s try something else. How about a literal version of Ryan “prisoner’s dilemma” but with multiple prisoners, involved in some kind of conspiracy. If one prisoner confesses, he can pretty much get off scot-free, because his testimony is critical. If a few of them confess, they get light sentences. If they all confess, they get heavy sentences, but not as heavy as if they didn’t confess. Ireland is confessing. That’s the smart thing to do, because, no matter what everyone else does, you’re better off. A small country without any prized resources is always better off cutting the corporate income tax. But the world isn’t necessarily better off if everyone cuts their corporate income tax.

But the world isn’t necessarily better off if everyone cuts their corporate income tax.

If the tax cut helps promote growth in business activities, and does not merely cause a shift in where business is done, then yes -- it can be good for all parties who participate.

Methinks we're perilously close to the pie-chart fallacy here.

«If the tax cut helps promote growth in business activities, and does not merely cause a shift in where business is done, then yes -- it can be good for all parties who participate.»

That is insufficient; it must also be the case that the increase in borrowing or the decrease in spending following the tax cut be smaller than the benefits of the tax cut.

Also, even if there is a net «promote growth in business activities» it matter greatly who benefits from the growth in business activities. The purpose of government is not solely to promote growth in business activities, it is also to provide public goods. It so happens that «promote growth in business activities» is the purpose of business :-).

«free lance beauty socialists could give the rest of America a big boost in net happiness with every jar of acid they toss. All right, so we're not going to do this. But why is this so much more horrifying than the idea of taking the fruits of people's labours»

I think there are a few other examples of intellectual dishonesty in this comparison (other than the malicious assumption that DeLong argument is an any way similar to «boost in net happiness with every jar of acid they toss» that is):

* Making beautiful people scarily ugly is gratuitous malice; some degree of redistribution benefits the recipients materially.

* The degree of damage to the victim of some degree of redistribution is infinitely smaller than a painful scarification of someone's body. There is a huge difference between turning a beauty into a monster through torture, and turning someone earning $1,000,000 a year into someone earning $700,000 a year with a 1040.

* While beauty is something that people have or have not, the «fruits of someones's labor» can never be entirely ascribed to the laborer: as a rule profitable labor involves taking advantage of social, governmental, corporate support. How much of what one produces is solely the fruit of their efforts is a very debatable subject.

As to the latter point, for example in effect the state is at least a minor and often a senior partner in any venture because it provides most of the infrastructure needed for that venture. To the point that well organized, funded, robust states tend to be much more business friendly than weak, poor, failed states, and same for the civil society on which the state is based.

Sorry, my previous comment («I think there are a few other examples») was mistakenly posted in the wrong window. I have copied it to the right page:

http://JaneGalt.net/cgi-bin/MT/mt-comments.cgi?entry_id=9434#110379

knzn: Prisoner's dilemma analogy doesn't work here either. Ireland committed no crime.

However, the bureaucrats in the EU may decide they did, using the unfair, uncooperative, too competitive meme, and slap them back down where they belong, then birthrates might go back up again 'cuz dependency ain't so bad. The check gets bigger with each rugrat.

Now THAT would be a positive development. /sarcasm

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«Obviously, if Ireland and Bermuda are competing "unfairly" by undercutting the rest of the world, then the rest of the world should, perhaps, become more competitive with them?»

This is a rather misleading and dishonest misquote, because I never used the word "unfairly", and neither did anybody else until yourself used it (just done a search through the comment page). Where did you quote "unfairly" from?

As to undercutting, that is a standard and legitimate business practice, and my point was solely that while it can benefit one small country, it does not necessarily have benefits for it or others if everybody does it. If you believe otherwise, prove it.

But your argument seems to me that if a low rate of corporate tax benefits Ireland and Bermuda then it would benefit everybody else is so much disingenuous handwaving.

Disingenuos because the benefit is attributed to the level of corporate tax, and not to its difference with that of other countries, and handwaving because you state as «obviously» that there would be the same benefit if everybody had the same corporate tax rates.

To me if the corporate tax rate has had an effect on Irish prosperity, that is not because the rate of corporate tax is low, but because it is lower than in other countries, thus encouraging corporations in other countries to launder their profits in Ireland (leaving a small proportion of them there), which is mostly an accounting trick (as made obvious by the large difference between GDP and GNP).

I think that the thing that would most terrify the Irish government would be other countries reducing their corporate tax rates, because then foreign companies would no longer have much of an incentive to launder profits via their Irish subsidiaries.