Today's tax code makes no distinction between income above $373,000 and income above, say, $5 million. Both are taxed at 35 percent.That is a legacy of the tax changes of the early 1990s, when far less of the nation's income went to millionaires. Today, you can make a good argument for a new, higher tax bracket on the very largest incomes. In the past, the economist Thomas Piketty says, higher marginal tax rates tended to hold down salaries and bonuses, because executives had less incentive to angle for multimillion-dollar pay.
Do these ideas stem in part from anger and bitterness? Of course they do. How can you not be a little angry and bitter about the role that huge, unjustified pay played in causing the worst recession in a generation?
In fact, that's sort of the point. Given the damage that's been caused by our decidedly unmeritocratic system of paying executives, the most irrational course of all would be the status quo.
I'm not angry and bitter; I'm about as mad as I am at the prospect of people who bought homes they can't really afford getting a bailout while I continue renting--which is to say, not very. Life is rather too short to spend it getting angry at remote strangers.
I also note, just as an aside, that the definition of "very rich" seems increasingly to be set at "just above the level a top-notch journalist in a two-earner couple could be expected to pull down".
That said, I don't see why brackets top out at a relatively low level of income. Indeed, I don't see why we have tax brackets. They're inefficient, and a lot of them have pernicious marginal effects on those near the ceiling. Why not a continuously scaling function from negative (EITC) to some maximum? These days, people use either printed tax tables or tax software to prepare their taxes; this shouldn't present an undue hardship. Obviously, with my preference for less government, I would recenter the scale so that people making $250,000 a year pay relatively less, and those making $10 million pay relatively more, in order to make the proposal revenue neutral. But the basic concept seems bipartisan.
Is David Leonhardt a member of JournoList (i.e., Where left-leaning bloggers and pundits compare notes)? Because your former colleague (and JournoList member) Matt Yglesias made the same argument for more, higher tax brackets recently.
David Friedman (son of Milton Friedman, and a professor at a law school currently) said years ago that he thought that most people's sense of "as much income as anyone could possibly need" is set at about twice what they personally make. They can envision all the things they would spend their earnings on if they didn't have taxes, rent, insurance, food, transportation, utilities, and such practical needs using them up; beyond that their imaginations run out, so they can't really feel that confiscatory taxes on higher incomes would deprive anyone of anything important. I think he had a point.
The irony is that what the average American egalitarian incensed with high CEO pay earns and lives on is way more than twice what the average human being earns and lives on . . . and there are lots of people all over the world who can't imagine how any American could possibly need all that money.
So... Megan's an angry renter?
While his current argument should be discussed on its merits or lack thereof, here's a smear from David Leonhardt from a couple years ago.
Stoddard makes an interesting point. It's likely that someone who makes half as much as Leonhardt does would think Leonhardt gets "huge, unjustified pay" and would like to see him in a higher federal bracket. It really is relative.
Oh, Megan. How I cry for thee each night. Get a grip.
Do you really understand what is going on? Clearly not since you put those who have acted responsibly (30 yr. 6.25% mortgage) with those who haven't. I live in DC. I've been unemployed for 7 months. I can't get a job at CVS nonetheless in my field because of this mess. And yet I'm an assh*** because I bought my house 4 years ago without thinking about fraud and market conditions. Well, pat on the back for you for being so right. Ooops. No. You said you couldn't afford it. Well, still, props for not making the mistake we all did.
Instead of standing on your soapbox I challenge you to do something you aren't doing. Be a journalist. Go out. Interview those of us in Foreclosure or in the market. For the last few months I've been taking care of my Grandparents in Phoenix and, finally, I realized why people hate journalists. Do you have any idea of what is going on? Coming back to DC I remarked at how few For Sale signs were out compared to Phoenix. My realtor said, "Don't be fooled. We have as many Foreclosures, but the developer's aren't being as responsible. They are just letting them go to auction rather than trying to do the right thing and sell them." Get a clue. Get a job. Or - just get out there and see what is going on. Ugh. No wonder I've decided to move out of DC once and for all.
Did you go by the ages-old 10-20% down payment, yearly mortgage at about 1/3 your net income with 4-6 months expenses in savings?
If not, quit whining about fraud and market conditions. If so, welcome to an imperfect world.
Instead of crying in your beer, I challenge you to tell us all why you're entitled to the housing you want at the terms you want it. Mother nature will be amused.
Every time I get caught with a dead hooker and a kilo of smack, I tell the cops the same thing - it was Veronica's fault for enticing me. Her in her lipstick and leopard-print mini. The Blue Meanies never seem to buy it, though.
Megan, how much of a role did executive pay really play in the crisis? Any at all? Let me ask it this way, if execs had their pay capped at 500k (and let's assume no drop if in talent for those spots), wouldn't we be in exactly the same spot that we're at now?
Here is one question I'd like to hear peoples thoughts on: You have four 35yo accountants from the same school. One makes 45k, one makes 90k, one makes 150k, and one makes 440k. Why is that?
Does it impact this discussion.
The sliding scale is a nonstarter because it would partially eliminate the ability of politicians to (a) tinker with brackets for fun and profit and (b) demagogue by raising taxes on the rich (only)
Actually, what would probably happen over time is the sliding scale would become more and more bifurcated through the political process and would eventually resemble the current brackets we have now.
So, what would the top bracket be? I have no real problem with the concept if it's 40% or so. I have serious objections if it's 90%. That sort of thing causes a brain drain, or at least a huge move to offshore tax havens. Which means the government (and the businesses formerly patronized by the now-expat rich) don't get anything.
Governments can only do confiscatory taxation of assets, the kind you do to break up large concentrations of wealth, if the property can't be moved. Land, for example. But if you're talking about financial assets or human capital, forget it.
This touches on something I've been wondering about.
It seems like the the main outrage is that we have to bail out a bunch of rich investors and creditors (and prominent in the news at least, managers) in order to save our financial system. It sucks to be over a barrel like that.
But won't that same bunch, very broadly speaking, be the ones paying most of the higher taxes necessary to fund the bailout in the first place? Given that we're going to have to credibly show our creditors how we plan to pay them back anyway, now might be a politically good moment to announce some new higher tax brackets and specifically connect them to the bailout(s).
Out of curiosity, is that "just above the level a top-notch journalist in a two-earner couple could be expected to pull down" that you mention the $373,000 that he refers to or the $5M that he refers to?
Either way, it is an excellent observation and a good post overall.
This string is surreal. Assuming that the federal rates are raised to 39.6% (plus 1.4% medicare tax)a high earner in a high tax state like NY or Calif will be paying well north of 50% in income taxes. While some of those might be deductible the deductions are limited in those high tax states by the alternative minimum tax. Now add in the possibility that there will be some uncapping of social security taxes. Depending on how high it goes, the rate could be over 60%. this of course doesn't include property taxes and sales taxes, and gas taxes etc. That means that somone works for 60% of the year for free. Call me a capitalist pig but that seems outrageous to me.
I frankly don't care if somone earns $10,000,000 if that is what the market will bear, regardless of someone's determination of what that person's "needs" are. Since when are we in the USA effectively redistributing propertyon a massive way on the basis of each according to his or her needs?
A differnet issue: were the decks stacked by hand picked boards so that the market was in effect skewed so that there was no meaningful check on pay, parachutes etc.? That requires analysis and possibly regulation but not confiscation.
Good post.
A scaling function for income tax rates is long overdue. But will Congress yet accept enacting an eqation into law? Or ahs nobody tried? Getting the frist equation into British law a generation ago was surprisingly easy.
From a practical point of view, a continuous function of tax rate vs income makes more sense than the tax levels we have today, depending, of course, what you pick at the endpoints. What say all of you?
How does making tax rates more graduated reduce the disincentives at the margin? It might reduce obvious and sever discontinuities, but at the cost inflicting ugly marginal rates at all income levels.
$50,000 x .20 = $10,000
$51,000 x .21 = $10,719
Marginal rate = 71% on the extra $1,000
$50,000 x .2000 = $10,000
$50,010 x .2001 = $10,007
Marginal rate = 70% on the extra $10
jmo, I know these guys and gals. Assuming they all got equal grades in university, the one making $440K is a cpa and partner at a regional firm. He (in this case) worked his ass off, had little social life, but has a good "bedside manner" and is a rainmaker at his firm. The gal at $150K is also a cpa but doesn't want the partnership track and all that stress but still works hard enough to bitch about not enough time for her family. The guy at $90K does enough to get by doing simple audit assignments and personal taxes. His real passion is playing drums in the kind of band you find playing at a Holiday Inn on the interstate. The gal making $45K took considerable time off to have kids and has a checkered employment history because previous employers could not accomodate tax filing deadlines with her need to watch Johnny and Suzie play soccer.
I thought most of Congress entered politics under the assumption that there would be no math. Good luck getting them to sign anything more complicated than a linear function into law.
I do, in principle, support a radical simplification of the income+capital gains taxes, nuking most deductions and replacing step functions with differentiable ones. (Except I'm against a flat tax. The code should be progressive to some extent.)
Does anyone writing/reading this blog actually think when you "go into a higher tax bracket" that the higher tax rate gets applied to all your earnings? That's what it looks like reading the post and comments.
Or maybe I need another cup of coffee.
My 40% is based in NOT uncapping Social Security taxes. If Obama pulls that one, he loses me for life on every other issue there is. Besides, that doesn't address the difference between the person at $350K and the one at $5 million.
People who live in New York and California have to decide what to do about the state tax rates. I wouldn't be caught dead in either place, so that isn't my battle.
What's the objection to tax brackets? Because the highest rate in each bracket applies only to the portion of the taxpayer's income above the point at which the bracket starts, the bracket system already provides for taxes that increase (as a percentage of taxable income) as the taxpayer's income increases, even if the taxpayer remains "in the same bracket." So, even though a taxpayer with income of $400,000 is in the same bracket as one with an income of $600,000, the latter pays more, as a percentage of income, than the former. What is the supposed "inefficiency" of brackets?
I've been a tax lawyer for most of my adult life, and I've never seen a proposal in the tax literature to replace the bracket system. This absence is not caused by a shortage of "progressives" writing about tax policy. There are, of course, lots of people who argue about what the brackets should be, but that's a different matter.
This policy is manifestly not bipartisan. I think you mean "acceptable to intellectuals on both the American Right and American Left". What is bipartisan is obviously an immensely Byzantine tax code that allows congress critters to pander to rent seekers.
7YOCDTD:
That's not how marginal tax rates work, whether they be stepped or smoothly varying. Tax due is an integral, not a simple product.
I agree with others so far - the step functions have no real purpose now, when most people use either tables or tax preparation software (although the tables would mean that there were many small steps, wouldn't they? I guess the many small steps would approximate a smooth function closely enough, in this case).
What would really help is getting rid of most deductions, but that's what the politicians would truly object to. When I worked in Hong Kong, calculating my taxes was so easy - I sent in basically a postcard confirming the income that had been reported by my employer. But then, as a US citizen working abroad, I also had to pay US taxes, and that calculation meant huge dead-weight costs. Don't we all have better uses for our time?
Creech - excellent description of why incomes can vary so much given the same overall occupation and training.
@Mr. Gunn
Surprising as it seems, it looks like Ms. McArdle is one of those people who think when you jump up a bracket, you can actually end up with less money in your pocket.
I used to think it was only very unsophisticated people who thought this, but then we had that whole mortgage interest deduction thread, and even when the arithmetic was spelled out, people were very stubborn about clinging to the idea that MID was a HUGE(!!!!) subsidy.
Or maybe I need another cup of coffee.
As for the question of what the "right" tax rate is, there is a tension between perceived fairness and our standard of living. I put perceived in italics because that's all it is, a perception of fairness. Fairness is not possible to achieve objectively because fairness, like beauty, is in the eye of the beholder. Worse, what any one of us perceives as fair changes from one moment to the next and is almost always based on hindsight. This makes spending too much effort on trying to achieve perfect tax equity a fool's errand. The best we can hope for is a rough equity where the rules are known in advance and applied evenly.
Balanced against perceived fairness are the goals of efficiency and not distorting economic decisions. These goals affect our standard of living. The more efficient our tax system is, the less we need spend on the dead weight of complying with and administering the law. The less the tax law distorts our economic decisions, the better our economy will be at creating jobs and producing the mix of goods and services we desire. Unlike the goal of perceived fairness, its fairly easy to determine whether a proposed change in the law will increase efficiency or will distort economic decisions. Since the mid-1980s, our tax law has become more complex (less efficient) and has been larded with ever more tax incentives and punishments (more distortive), but few would argue that it's become more fair despite all these changes.
creech,
Exactly! But, why should they have different tax rates? Just because you make a choice to do the bare minimum or spend time on your hobbies or with your children, doesn't mean you have any less of an obligation to help pay for the roads, medicare, defense, etc.
Currently a lot of the high personal income earners would have been corporations if the tax rates were not where they are now. Raising rates significantly would move a significant number of Sub S, etc., filers into blue corporations. The percentage of total US personal income for high earners will drop. This will serve to flatten the earnings curve to make the populists believe they were effective. Now the earnings shows up as corporate profits - no Medicare of SS taxes and the income is extracted as perks or capital gains.
"A differnet issue: were the decks stacked by hand picked boards so that the market was in effect skewed so that there was no meaningful check on pay, parachutes etc.? That requires analysis and possibly regulation but not confiscation."
It may be worth revisiting Warren Buffett's criteria for selecting board members:
The person at $5, $20 or $100 mil is most likely not making most of that in salary. It is salary that attracts the nastiest taxes - yet it is highly salaried employees who tend to work the hardest, while the risk-taking rich pay capital gains taxes and the idle rich pay no taxes on their muni bonds interest (see e.g. noted liberal Tereza Heinz Kerry)
It is the guy or gal making between $200 and $400k in a high stress job (doctor, lawyer, cpa, junior banker), living in a very high cost / high tax place like NY, San Fran or DC that gets clobbered - partly because he is an easy target in that he has to live there to make that salary, partly because he cannot radically structure his income to dodge and partly because there are quite a few of him. The truly rich aren't all that numerous and they have a lot more structuring options to dodge in a barely-legal manner.
It' not just the brackets. The whole idea of progressive income taxes subverts the principle of equal treatment under law.
Fixing the problems arising from the unintended consequences of the progressive income tax will give rise to new unintended consequences that will in turn need to be fixed as well.
It seems that people forget Social Security and Medicare are flat (in the case of Social Security, regressive) taxes. So in reality, the progressive taxation system really only covers defense, infrastructure, and the other social welfare programs. Of that, the majority is defense related. So the real argument of progressive taxation is whether wealthy people benefit more from national defense than poorer ones.
focusing on income tax pay scales misses the boat, for the ultra rich, much of their real income comes from capital gains.
Should capital gains be treated like income?
Seven Years,
When you say,
"$50,000 x .20 = $10,000
$51,000 x .21 = $10,719"
that is not how marginal tax rates work. People always talk about "higher tax brackets" as if the higher percentage applied to ALL their income, rather than to the slice of their income that was above the threshold; but the IRS has never done it that way (I have a copy of the very first income tax form, as printed the year after the income tax amendment passed, and what I say was already true back then). The calculation would be
$50,000 x .20 = $10,000
$1,000 extra x .21 = $210
$10,000 + $210 = $10,210
Mind you, I'm a solidly unregenerate libertarian; my wish list starts with a flat tax, goes on to abolition of income tax, and ends with replacement of all taxes with donations and user fees. But I don't argue against the IRS by misrepresenting how they do things.
Can it be that Tony Comstock is right, and Megan does not understand how the income tax works?
I shudder to imagine, and yet what other explanation is there for the "pernicious marginal effects" line?
Someone help me out, please
It seems that people forget Social Security and Medicare are flat (in the case of Social Security, regressive) taxes.
Federal taxes overall are highly progressive; the negative effective income tax rates at low incomes (due to grants such as the EITC) offsets the Social Security tax. See the CBO data on this. And the benefits of Social Security are progressive in any case.
What I find interesting is no one has mentioned a flat rate income tax. It has lots of advantages-simplicity, treats all form of income the same, including capital gains, isn't subject to political jiggering like tax credits or deductions. And can be made revenue neutral.
Oh, I realized, NO political jiggering. That's why there is no support for it.
Mike
"And the benefits of Social Security are progressive in any case."
Yet another tax fact that many people seem to be willfully ignorant of.
No, step functions have marginal effects even when they don't reduce your income. If you know that once you hit $250K of income, you now only have to give up 50% of your gross in order to consume extra leisure, rather than 60%, you may make decisions about how hard to work or what job to take. This is particularly true because money has declining marginal utility.
Some of the other steps built into the tax code, like the loss of stimulus checks and student loan deductions, have larger marginal effects, but even a small jump matters to some people on the margin.
jmo, I think the slogan "From each according to his needs, to each according to his ability" sums up most libertarians' views on the subject.
As in the dining out experience, one would find it just to pay for the food he or she consumed; any other arrangement - split the bill equally, or let rich Uncle Joe treat, for examples - is charity or goodwill.
I should add, obviously any scaling tax has a marginal effect, but step functions exaggerate them. The death of a thousand cuts is the neatest way to collect revenue.
I am still trying to figure out why some commenters thought Megan didn't understand how the income tax brackets work. Only one commenter that I saw in my quick scan made that particular mistake, but nothing Megan wrote could concievably be interpreted that way.
"And the benefits of Social Security are progressive in any case."
I don't know that I buy this; S.S. tends to go to people savvy enough to structure their finances to qualify and who live a long time, i.e.: well-off white people. I don't have any citations handy, but I seem to recall Bryan Caplan pointing to a more in-depth analysis of this. Obviously does not apply to disability benefits.
Maybe this is where I got the idea that Megan is confused about how income tax works. It painted a picture in my mind of a dentist , having cleared $249K last year deciding *not* to see one more patience for fear of tipping over into the next bracket.
I don't think anyone makes decisions "near the ceiling". I think they make them when they've gone well past the ceiling, and then decide fuggit, I'll take Wednesdays off.
You obviously have no idea how tax rates influence business and investment decisions, because your approach would make planning far more difficult and would likely cause businesses and investors to do what they usually do when good data is hard to come by -- nothing! Doing nothing is NOT a way to grow the economy.
"No, step functions have marginal effects even when they don't reduce your income. If you know that once you hit $250K of income, you now only have to give up 50% of your gross in order to consume extra leisure, rather than 60%, you may make decisions about how hard to work or what job to take."
I don't see why this would kick in any more strongly for people near a point where a higher bracket kicks in than for anyone else. All of us make decisions about whether extra leisure is worth the pay cut, whether we're near the edge of a bracket or not. The differences between adjacent brackets are never more than 5 percentage points; between the top two, where people do make these tradeoffs, they're 2 percentage points. Sure, we could make hem smaller still, but it's not a big deal. Even if it does matter, in some cases, there are several hundred things wrong with the income tax that are more worth fixing than this. For a great many taxpayers, the "brackets" that matter most are the various phaseout limits for tax benefits like IRA contributions, college credits, and a variety of other things; not the actual rate brackets.
We had a pretty decent tax law after the 1986 Tax Reform Act. It lasted just a few years.
No, Megan, this is not true[...]You obviously have no idea how tax rates influence business and investment decisions
You know, I'm going to have to call bullshit on the above. I've been reading Megan a long time and it's pretty clear she knows reasonably well how tax rates "influence business and investment decisions".
As a general rule, people use the word "obviously" only when something is not at all obvious and they're trying to pull a fast one.
(Because we're so much alike, of course) To paraphrase Bunker Hunt, 'If you know how much you're making, you're not making very much.' That glide function and $200 will get you a script for cannabis in CA. Two things in general principle: I stopped off at a casual dining place one evening after working and sat at their counter, talked to a well groomed guy who had apparently drive in on his motorcycle. Mentioned something about the hassle/pain of income taxes. He gave a response that suggested 'income tax/smax who cares (he didn't pay them). I think almost everybody should be 'paying' out of income; so you're in the game. It's like if you're going to Church and leaving a quarter; you ought to be a little bit worried it could get to 37.5 cents. On the other end, 'my God yes,' a 5 million dollar income is different form a $250,000 income and should have a little bit higher marginal rate. But maybe the 'glide function' is needed there; toke up.
What I find interesting is no one has mentioned a flat rate income tax. It has lots of advantages-simplicity, treats all form of income the same, including capital gains, isn't subject to political jiggering like tax credits or deductions. And can be made revenue neutral.
You can get all that without a flat rate income tax. Do away with deductions, treat all forms of income the same, use progressive tax rates from .1% to 22%, file your taxes on a postcard.
Maybe CVS won't hire Shawn because he doesn't know what nonetheless means.
Any polynomial or exponential function that models the marginal rates can easily be converted into a function that figures total rates. It's not difficult to calculate.
It's not true, btw, that differing amounts of pay for the same skills are due to effort or excellence. Isn't this exactly what we've learned over the last year or so?
It's not true, btw, that differing amounts of pay for the same skills are due to effort or excellence. Isn't this exactly what we've learned over the last year or so?
Depends on how easy it is to evaluate someone's results. Salesmen who make more probably sell more, i.e., are better at their jobs. Lawyers, CEOs, and purveyors of chi adjustments, not so much.
I would that's a first-order effect, and probably (still)the most important one if the two workers are in the same company or some small set of geographically close businesses.
In the larger context, rating people for putative performance is a tough nut for all but the jobs with the most obvious metrics - sports figures, line workers whose productivity can be measured in units completed sans defects, etc.
Argonaut wrote:
You're right. I engaged in a bit of hyperbole. (So did you. You didn't "have to" do anything. Would you have been arrested or shot had you failed to call BS?) Megan has some idea how tax rates influence business and investment decisions. I just don't think she appreciates the unintended consequences her policy preference would entail.Nor do I think she fully understands how marginal tax rates influence the amount of work expended in our economy. I say that because, like you, I've read Megan's writing for a long time. She's fairly dismissive of the notion that raising rates will have much affect on the number of hours worked. Reasonably, she bases this on studies that show most people will not work less if rates are raised moderately. The problem with these studies is that they ignore that most people don't have a lot of control over the amount of work they do. They may want to work more hours, but they cannot if their employer does not have more work for them to do. It's the (evil) richest 5% who have the most to say about how many hours the rest of us work.
For example, years ago the owner of the furniture mill where I worked decided not to accept a large order from a customer. Why? It would have required him to keep the mill open for 4 Saturdays to get the extra production and he didn't want to miss out on family time. Over 100 employees would have welcomed the overtime. His decision "cost" the local economy the equivalent of a full time job for a year (100 employees x 8 hours x 4 days = 3,200 hours). Make work less attractive for the top 5% and a lot of the rest of us will be working less hours than we might have preferred.
The flip side is that the revenue the government collects can be used to generate jobs. Do the effects cancel out?
'It depends'.
"The flip side is that the revenue the government collects can be used to generate jobs. Do the effects cancel out?"
Considering what a horrible record governments have of creating jobs, no, the effects aren't likely to cancel out. Monopolies generally don't function very well. Monopolies with especially bad incentives are even worse.
One of the biggest lessons of the 20th century was how very, very bad communism was as an economic model, mainly because planned economies don't have good incentives and don't use markets adequately. Competition has created vast amounts of wealth, while government micro-management has destroyed wealth. Why would government micro-management in this particular instance be so much better than it has in others?
What an interesting topic. I definitely agree, a continuous function makes a lot more sense than brackets.
I suppose that, for the mythical creature called perfectly rational worker, tax brackets are a bit inefficient, because with a step function you may not be able to get the equilibrium where your marginal tax rate is equal to your marginal "return on leisure" (or something like that).
Another, more realistic, problem with brackets is that people do make an incredible fuss about them. I have nothing solid to support the following opinion, but I think there are all sorts of tax bracket illusions that come from the existence of thresholds. There are people who don't get that the rate is marginal. There are people who do, but unconsciously exaggerate the importance of the upper bracket rate and income cutoffs. And so we have to put up with things like WHAT, 39.6% ARE YOU FUCKING KIDDING ME? THAT'S IT, YOU BLOODSUCKERS, I'M GOING GALT ON ALL YOUR ASSES.
So eliminating brackets is, I think, a good idea. If you agree, the next question is: what continuous function should be chosen? Some functions are, of course, already a reality in other countries. There the flat tax (unjust for very low income workers. Also boring). There's the interesting negative income tax, basically a flat tax that starts at an income greater than 0. It's not bad, but the marginal rate on this thing is constant, so it's not quite as progressive as I would like (yes, I'm a lefty, and I know I'm a minority around these parts).
Megan stopped short of suggesting a function. What a wuss! :)
Anybody knows other continuous systems, or would like to propose an income tax function?
"Depends on how easy it is to evaluate someone's results. Salesmen who make more probably sell more, i.e., are better at their jobs. Lawyers, CEOs, and purveyors of chi adjustments, not so much."
Aren't most highly-paid laywers, CEOs, and purveyors of chi adjustments salesmen too?
Tony C & Company -- I got the same impression from Megan's original post -- that she believed the higher rate was applied to all income, not just the amount above the threshold.
Also, I am surprised nobody brought up that the top one percent of income earners already pay 1/3 of all income taxes; the top five percent of income earners already pay more than half of all income tax; and the bottom half of all earners pay less than three percent of all income taxes.
Is it moral to those top earners pay even more?
As someone who grew up without much money, but who hopes to make a lot (getting there but not as fast as I'd like). I believe high income tax rates punish people like me. The wealthy kids I went to school with will stay wealthy because they already have their money. But if I'm giving 50 cents on the dollar to the government, how am I ever going to catch up?
Ok, this is an argument that's used over and over again in support of the assertion that the wealthy already pay too much taxes. But keep in mind that this statistic also reflects the profound income inequality in the U.S.
I'll give an hyperbolic example to illustrate my point. Suppose there's a country with a flat tax and population of 100 working citizens. In this country:
- 1 person earns $100 a year
- the other 99 people earn $1 a year
In this country, the top 1% of the population, i.e. the guy with the $100 income, pays half of the total income tax (a little more, actually). Notice that this is independent of the specific flat tax rate, and furthermore this fact has nothing to do with the progressiveness of the tax rate, since it is flat, and everything to do with the income inequality in the example.
Thus, saying that "the top five percent of income earners already pay more than half of all income tax" can be very misleading.
But keep in mind that this statistic also reflects the profound income inequality in the U.S.
Yes, but since income inequality isn't a problem there's no reason to care. I'm not worse off just because Bill Gates is filthy rich.
Dan: income inequality can be a problem if there's any scarcity - especially for services and infrastructure. It can affect the price curves for, to give an example, housing.
You may want to check out the empirical evidence (scandalous, I know!) A two-decade long study, published under the title "Homelessness in California," for example, shows this effect for the housing market.
You should be mad. That you aren't just illustrates why the taxpayers will continue to be played like a bunch of suckers.
Lemmy -
But the main way people become wealthy in the US is through creating more wealth for all. Yes, some people just get lucky, but overall, the way to become wealthy is to contribute to society by, say, technological innovation or building a business. The innovation generally is worth more than the inventor gets from it, plus what the inventor is paid gets taxed heavily, so we're all better off in multiple ways because that person had the incentive to create wealth. Similarly, the company that gets built up creates jobs, gives value to customers, pays suppliers, etc., creating more value than is ever paid to the founder, plus much of that pay to the founder is then taxed.
We all benefit in multiple ways from the wealth creation of the most productive. It's tempting to think that it won't kill the goose that lays the golden eggs if we just rough him up and bleed him a bit here and there, but eventually the goose gets worn out. Are you confident that you know just how much blood you can take from the goose before it becomes counter-productive?
The biggest issue with additional brackets is tax shelters. One of the major effects of the tax reforms of the 80s and 90s was reduction of the top bracket rate to the point where most legitimate tax shelters weren't worth the effort anymore. This is the valid part of the "Laffer curve".
Someone making $10 million a year has plenty of money and incentive to pay clever lawyers to avoid paying even a 60% rate on the second $5 million. So creation of a "super-bracket" wouldn't raise that much extra money after a year or two, once everyone adjusted their financial structures. And in the meantime it would just push up the IRS' costs for audits and litigation.
You'd expect the marginal effects of brackets to be quite small. (I note that you do not provide any figures, but common sense, were you able to employ it, would dictate that the amounts of money are relatively quite small, and obviously salary earners negotiate their salaries upward to compensate for the effects. Most other people affected cannot be sure of their future earnings, so cannot make the decisions you suggest. It's not like a dentist will close their business three days before the end of the financial year because, omg, the last few fillings they do won't be compensated at the same rate as the first few, but will attract slightly less money per tooth. However, if you have cutoff points for deductions, this will have a greater affect and is a bigger issue.)
As for Walser's mill owner, LOL. If we don't let the rich rape us, our economy will suffer? Well dude, let's not tax the mill owner at all and maybe then he'll stay open on Sunday too. Fuck it, let's beg him to let us work 15 hours a day, because then there'll be *scrambles for calculator* a whole three extra jobs!!!1!
you now only have to give up 50% of your gross in order to consume extra leisure, rather than 60%
I'm fully prepared to believe Megan understands the income tax, though I would have been more encouraged had she said '50% of your increment' rather than '50% of your gross.'
Ann,
There's a difference between calling for absolute income redistribution and noting that there are points at which income inequality itself becomes a problem, even if the lower end of the scale are, in absolute terms, better than they used to be.
If we're fidgeting on the upper or lower slopes of the optimum, I'm OK with that. If you want to have a discussion around that, that's fine, and I even accept things like the Laffer curve as a good point of departure for that kind of discussion. However, if you are holding the extreme position that income inequality itself doesn't matter, we have issues.
Even in strictly economic terms, it simply isn't the case that extreme income inequality has no detrimental effects on those on the bottom of the curve. If you add social effects (such as the erosion of social cohesion and self-disenfranchisement from a society which seems to serve only its biggest winners) the costs become greater. If you look at the happiest societies, they aren't the ones with the greatest overall wealth - they are the ones which generally wed democratic and humanistic values to rather low income inequality curves, even if they are poorer in absolute terms than other countries with deeper curves.
We do know from past experience that the goose can take much more abuse than it's taking right now. By today's standards, the goose was in Abu Ghraib until 1984, and still it laid eggs. This doesn't mean it's morally right to do so, but I don't think we're running the risk of screwing up the goose's incentives right now.
Technological innovation is indeed one example that may (although it often does not) lead to prosperity for all. But there are many other examples of incentives to make money that to not lead to wealth creation (think competing divorce lawyers).
Speaking in general, wealth creation has not rewarded everybody for a long time.
You want to rethink who the real goose is.
Sorry, I meant you may want to rethink who the real goose is.
(sigh) This effectively killed the drama.
I think it's useful to think about how we got here. And I think what 'here' is in this discussion is that where the CEOs "own" the company and not the 'creators' of it, i.e. the workers, shareholders, the general economy. An example would be the directors of Fannie Mae, e.g. Jamie Gorelick. A more controversial example might be Jack Welch. Was he worth the $2 billion he walked away with after taxes? This might be as opposed to the Beatles who came up with market clearing music or Bill Gates or Steve Jobs.
But how we got here, the WSJ suggests, generally is in the following manner: A Guy works for Bloat, Inc. Nice job; smooth sailing. Capitalist raider buys the company, sells part of it ... A Guy is/ would be displeased by the passing of the Bloat, Inc. institution, and anti-takeover laws are passed. So the company can't so easily get taken over, but it's market mastery surplus that the market with the sharks can't extract is then controlled by the directors. The 'directors surplus' would by up in play if Bloat, Inc can be taken over 'in a hostile takeover.'
David, given what has happened over the past couple of years, how can you possibly believe this? To turn this around, is there any evidence that would cause you to change your mind? Rephrasing yet again, since you are making this assertion, just what evidence do you bring to the table to convince me of this? Especially since you know I'm going to weigh it against contemporary economic news?
Do you have any evidence for this? Especially given the fact that for decades now, productivity gains which everyone has worked for are being funneled almost exclusively to some small percentage of the electorate?
ScentOfViolets,
productivity gains which everyone has worked for are being funneled almost exclusively to some small percentage of the electorate?
I honestly think "everyone" could capture more of those gains if they made more of an effort to do so. The fact that they don't even bother to make even the slightest effort... I feel they are getting what they deserve.
jmo said
Hmm... So people don't make the slightest effort to capture the gains attained from increases in their own productivity?
Lemmy said:
"If you add social effects (such as the erosion of social cohesion and self-disenfranchisement from a society which seems to serve only its biggest winners) the costs become greater."
You seem to assume that social status is perfectly correlated with income. Is this true? I truly doubt it.
Who has greater income - a controller at a mid-sized firm or a college professor? Probably the controller. Who has greater social status? Probably the professor. Moreover, who has a higher quality of life? Well, that depends on your taste for leisure versus consumption.
Higher marginal tax rates actually have a negative effect that is rarely talked about. Namely, they make unattractive careers (based on working conditions) even more unattractive.
Megan,
Why not a geometric, logarithmic, linear, constant or polynomial scale?
It's all terribly premature. First you need to define the variable you are trying to optimize - the criteria by which you will judge success. After that, deriving the equation becomes a relatively simple exercise.
More to the point, perhaps the "variable" we are trying to optimize is "freedom", and "property rights". Some of us simply do not recognize that a salary belongs to the collective, to be allocated as the collective sees fit.
Finally, and in perhaps most importantly, the first order of business should be solving the principal-agent problem once and for all. Most of the problems we can be described in easily understood terms of executives acting in their own interests, as opposed to the interests of their shareholders. The same can be said of many politicians and regulators.
This is the discussion that is long overdue; the root cause of so many of our current problems.
Why not a continuously scaling function from negative (EITC) to some maximum?
Right, McArdle. But, even as an economist, you must realize there are more functions in life than straight lines, so beloved of your ilk. How about an exponential? Cubic polynomial? Does it have to be differentiable, so your accountant can give you general advice on d(tax)/d(income), or should we assume he'll do a quick Newton-Raphson root-finding on his financial calculator while talking things over with you on the phone?
For that matter, why restrict yourself to deterministic equations? How about a stochastic function that determines your tax based on a probability distribution P(i,t) that your tax will be t if your income is i. That way, we can fold the excitement of the lottery into filling out your taxes. Maybe you'll owe nothing at all this year, even though you earned millions! And maybe you'll have to fork over half what you made, boo hoo ha ha, well better luck next year.
In any system in which the almighty government hoovers up nigh on a half of productive citizens' work value, it's hard to take the concept of democracy seriously. We're all just clowns in the political aristocracy's bread 'n' circuses show. There should at least be more comic absurdity, so we can laugh on our way to history's ash heap.
Megan, I don't like to use snarky expressions like "bwahaha" to short-circuit discussion. So I hope you take it as a sincere contribution when I say that with regard to a proposal to lower taxes on everyone at or under $250,000 and raise them on those above $5 million, this statement:
But the basic concept seems bipartisan.
is firmly in bwahaha territory. Obama's tax proposals do the same thing, except they set the dividing line at $175,000 rather than $250,000. If you think that the GOP calls Obama's tax proposals "socialism" but might somehow be persuaded to embrace yours because they set the dividing line a little higher, you're kidding yourself.
In any system in which the almighty government hoovers up nigh on a half of productive citizens' work value, it's hard to take the concept of democracy seriously. - Carl
Since this is true of every wealthy democracy in the world, I presume you think the only democracies in the world are those of India and Nigeria.
Speaking in general, wealth creation has not rewarded everybody for a long time.
WTF, Nimed? Would you like to assert the proposition that our government and our law have been systematically looting the poorest segments of our society and transferring the value of their labor to the rich? Hopefully even you aren't whacked enough to give that a try.
What then? What is this magic invisible force that is keeping those sad poor poor, and boosting the income of the rich?
Could it be...just grasping here...that some people are smarter, more capable, more thrifty, and more self-disciplined than others? Could it be that not everyone is exactly precisely equal, and, even in an ideal just world, would earn exactly precisely what everyone else does?
Furthermore, let's be daring and suggest that a given technological tool (say a computer) is more productive in the hands of a clever and energetic person. Consider the possibility that a smart guy with a computer will start his own Internet business and sell it to Amazon.com for $5 million in five years, while his lesser-endowed or possibly lazier friend will use the exact same piece of technology merely to download porn and Twitter his friends endlessly.
Which means, good golly, as technological sophistication increases, you can expect the gap between what the "rich" (= hardest-working, smartest) people to earn and what the "poor" (= least-working, dumbest) people to earn to grow.
I mean, seriously, what do you suppose was the gap between "rich" and "poor" when we were all Cro Magnons living in caves and hunting wooly mammoths? Og has a tusk but Bog has two? How much richer can you get in the absence of technology and capital accumulation?
Sheesh. It amazes me how a nearly religious faith that "equal opportunity = equal outcome" blinds people. I'm also amazed it can persist in people who are fond of sports. Weird how Kobe Bryant can hit the basket 99% of the time while Joe Couch Potato can only do it 23% of the time, huh? And they shoot from the same distance! It must be that they cheat somehow in the NBA, use a radio-controlled ball or something. Or maybe it's the fact that Kobe is already on a big famous team, has a big salary, nice uniform. Give Joe those things and his percentage would just shoot up, right? Couldn't have anything to do with talent or hard work, after all.
Since this is true of every wealthy democracy in the world, I presume you think the only democracies in the world are those of India and Nigeria.
Hey, can I play? Since [laughable proposition X] is true, ipso facto and speaking ex cathedra out of my ass, then you clearly think [absurd proposition Y] must be true, too.
That was easy. Cool!
For the imaginatively challenged, let's adduce a more concrete and somewhat different rejoinder:
It's 1810. Since all of the wealthiest, most advanced countries in the world don't let women vote, whereas primitive hunger-gatherer societies typically run by consensus among adult men and women, woman suffrage is a clearly a dangerous, silly, and non-progressive concept.
It's amazing how flexible and powerful logical syllogisms are if you detach from them the annoying requirement that the conclusions follow from the premises.
Brackets were close to this in the '30s. Most people fall in the bottom bracket or two with the millionaires, who were at that time earning 1000x the median income, topping out at 80%. See here.
Carl Pham
Quite an inflamed rethoric there. In your post you argue one straw man and one valid point. You also failed to address my point.
I don't know who are you arguing with, but it's certainly not me. I never said equal opportunity implies equal earnings. I don't find it desirable that everybody would have the same income, and in fact I think such a system pretty much destroys incentives to work. For that matter, I also don't accept the premise of equal opportunity, nor am I convinced this is an attainable goal.
This is the valid point - Most new technology does reward people according to their differences in talent, and so I agree that an increase in inequality can be expected.
However, and this was the main argument of my post, while some benefit more than others from new technology, it is strange that you get no increase in income whatsoever in 30 years for 50% of the population. Income for these people could have increased at a slower pace, but it didn't increase at all.
Regarding your example of Kobe Bryant, why don't you see more exceptional black neurosurgeons, finance geniuses or geneticists? Could it be that basketball is a rare example of a meritocracy based on an initial leveled playing field? It's cheap to play basketball and train in a team, so guys like Kobe Bryant had the opportunity to play a lot from an early age, so talent and work are naturally rewarded. For other careers, you also need a long, expensive education that not many can afford.
In general, there are 2 extreme positions that are pretty indefensible, because they are so obviously false for the vast majority of people: that your income is not at all based on work and talent; and that it is completely dependent on these 2 factors. The last one (the one that you apparently hold) fails miserably at explaining empirical indicators like economic mobility. For instance, children of low income families are more than 20 times less likely to move to the top 5% income percentile than children born from parents in that quintile. The place where you start matters, and luck matters.
Income inequality is not a bad thing on itself. But there is something wrong when one of the wealthiest countries in the world has such an awful record on indicators of a healhty society. It takes quite the brainwash not to be ashamed at this country poverty rate, health care statistics or prison population, just to name a few.
You don't have to steal money from low income people. You can just deny most of them a fair chance from the start, effectively condemning them to work on the lowest paying jobs. This way, when you make more money (and pay more taxes) than them, you can feel good about yourself and make them feel like parasites. And you can tell yourself self-serving little stories about how progressive taxation is so unfair, because we all really live in a social vacuum, and everything people accomplish, they do it all by themselves.
Carl Pham said
Ok, I was taking you seriously, but I read this post and saw the error of my ways. What you need is a good spanking.
The next time you trying to be witty, but really only succeed at being a pretentious ass, make sure you know what your talking about, so you also don't sound like a poser.
Of course, I'm going to have to be a bit of a pretentious ass myself, and note that:
1 - The point of Megan, not really hard to understand, is that you can find easily find free, user-friendly software that calculates your income tax now, so it's not exactly a stretch to assume such software would be available for the income tax function.
2 - Why would you need to find roots in the first place? You don't need it to calculate your tax function, however complicated it turned out to be. You don't need it to calculate the marginal tax rate, you just take a simple derivative of the aforementioned tax function.
3 - Assuming you, for some strange reason, need to find roots, why do you assume you would need a numerical method?
4 - Don't say "do a quick Newton-Raphson root-finding". People who actually work with numerical algorithms in their jobs will conclude you're an idiot (you know, the "root finding" part), and you want to delay that realization as long as possible. Next time just say "run a Newton-Raphson".
5 - Similarly, when you talk about stochastic functions (oh, such sublime parody you write!), you want to avoid too much detail. Because you don't know what you're talking about, you're bound to screw up. And so you did - the probability distribution "that your tax will be t if your income is i" is not P(i,t).
P(i,t) is a joint probability distribution. But, and I'm feeling dumber just by writing this, in this case your income is not a random variable. You see, you already know your income, which is in fact a parameter in the stochastic function. The distribution of the random variable "tax" is, therefore, conditional in your income - P(t|i).
6 - Finally, just because it is a stochastic function, it doesn't have to be a lottery unless you chose a random variable with a pretty big variance (ok, I'll stop now, I'm officially nitpicking).
The take-home message, however, is not "you should work on your bullshit". It's "the comments section should be regarded as a chance to contribute to the discussion, as opposed to an opportunity to feed your starving ego".
...I would recenter the scale so that people making $250,000 a year pay relatively less, and those making $10 million pay relatively more, in order to make the proposal revenue neutral.
Relative to Megan, I suppose. Why do you readers of Megan's blog tolerate such lazy, elitist 'journalism'?
Lemmy, ScentofViolets-
To the extent there is length of life inequality, do you think the government should attempt coercive action to reduce the gap? As MnZ points out, people have myriad preferences - for prestige, consumption, health, lifestyle - and each is gained at the expense of others. If there are particular institutions which create income inequality among those equally interested in maximizing income and equally capable of doing so, we will probably agree those institutions need to been changed. If we are to seek equality of ends without regard to why that inequality arises, why focus on income? I want to live as long as a woman who spends her life working out and watching what she eats, and have the leisure of my college friend who lives in Colorado and skis 5 days a week. These damn consumption preferences just keep getting in the way.
Hey Carl Pham, sounds like you just got served.
"However, and this was the main argument of my post, while some benefit more than others from new technology, it is strange that you get no increase in income whatsoever in 30 years for 50% of the population. Income for these people could have increased at a slower pace, but it didn't increase at all."
What basis do you have for this? This issue has been hashed out in Megan's comment threads before, and median individual incomes have grown over those 30 years. Growth is harder to see when looking at household incomes, but we need to adjust for the fact that average household size has fallen in that time.
Moreover, even though the consumer price index contains some attempted adjustment for new technology and for quality changes, the index still tends to overstate inflation by not fully capturing quality improvements and dramatic price drops early in the lives of new technologies. Thus, the improvement in the lives of low income people is underestimated, after adjusting for inflation through the CPI.
In other words, things have improved for the bottom 50% of the population, just not as quickly as for the top 50%.
In support of Ann - I would point out our office cleaning lady who just picked up my trash did so while talking on her cell phone. That was probably pretty rare 20 years ago.
" no increase in income whatsoever in 30 years for 50% of the population"
Are these the same people, year over year? I would think that the influx of immigrants, occupying low-paying jobs, would indicate that there must be some amount of upward migration among the rest of the population, including earlier immigrants. Also, the more people retire, the more they join the "lower half" of the statistical income population. And perhaps it is the lower half of the income distribution who most value non-cash "income" like leisure.
I have noticed that statistics are frequently deployed in the service of rationalizing a foregone conclusion.
And come to think of it, those recent immigrants presumably have achieved an increase in income high enough to compensate for the difficulty of immigrating.
Well, no. People like you were saying:
With absolutely zero evidence. So it's up to you and people like you to defend it. Not on others to dissuade you from this belief. I merely pointed that this assertion flies in the face of everyday observation. If you have evidence instead of yet more unsupported speculation that what we've seen over the last thirty years is just an illusion, by all means, let's see it.
Nimed:
Hmm... So people don't make the slightest effort to capture the gains attained from increases in their own productivity?
In my experience no. I've worked with people who gained new skills that would take their earnings from 65k to 120k. All they would have to do is move to a different company (in my industry you never get a raise or promotion the only way to move up is to switch jobs) but they refuse.
I've moved to a new job and tried to recruit people by offering them a 50% raise and they could work are home 2 days a week - they refused. I don't know if it's fear or enertia or some combination of the two - but it would just take an e-mail and an hour or two of interviews and they would be making 50% more.
It's really come as a shock to me learning how little effort most people put into making more money.
Nimed wrote:
"Ok, this is an argument that's used over and over again in support of the assertion that the wealthy already pay too much taxes. But keep in mind that this statistic also reflects the profound income inequality in the U.S."
You do realize that the percentage of total income taxes paid by the top 10% is greater than that group's share of total AGI, right? In other words, if we decided to tax based upon the share of AGI earned at each income level, we'd have to increase taxes on the bottom 50% and decrease taxes on the top 50%, particularly the top 5%. In 2005 (don't have the 06 numbers handy) the top 1% paid 39.3% of all income taxes and earned only 21.2% of AGI.
The notion that Bill Gates' wealth has made anyone worse off is absurd. Microsooft created value for the millions of customers who willingly bought its products, the thousands of jobs it created, the investments it has made with the profits it has generated, etc. Just think of the thousands of Microsoft employees who became millionares simply by receiving company stock over the years. Yes, Gates got a very big slice of the pie, but that made absolutely no one worse off than they otherwise would have been. And I suppose we also should point out that he's now giving vast amounts of his wealth away. Same for Buffett.
SOV: "people like [me]" said no such thing. That was someone like somebody entirely different.
Though perhaps not in an important way to "people like you."
Perhaps this could be true in some ideal world, but if you really are "going to weigh it against contemporary economic news" then wouldn't you be noting that that news shows that the government is just as good (if not better) at funneling revenue to their own well-connected few?
You're equating "productivity gains" with dollars (income) only, and making the assumption that the wealth of the very rich is worth just as much now as it was 30 years ago. Is it? Don't we really want to measure utility instead of dollars, especially given that the marginal utility of those dollars declines with increasing wealth?
Yes, you can make a case that the difference (measured in dollars of income) between the 20th & the 90th percentiles is greater now than in 1960. But does that necessarily mean that their actual wealth (what that money can do for them) is that much greater too?
I ask these as questions because I don't know, it seems to be a major factor left out of the discussions, and my uneducated guess is that it matters.
So raf, you agree that the evidence doesn't support the notion that "inequality isn't a problem".
That's good to know :-)
Wait, Megan still claims to be for "small government"? So this means she is against all the bailouts going back to last year, right? All of them. Not dancing around the issue, but out-and-out against those bailouts.
Folks, SoV is a mule. She'll stubbornly stick to his ideas because he's a liberal, and no amount of facts will disprove his theory. Because she thinks Bill Gates's being rich makes her worse off, it is true, in her mind.
How about the wealth of Angelo Mozzilo? Al Dunlap? Richard Fuld? Rick Wagoner? Maurice Greenberg?
Have they made people worse off?
I don't think anyone disputes the fact that people like Thomas Edison, Werner Siemens, Bill Gates, or even John Galt deserve their millions and billions. The switcheroo comes in when people like James Cayne are equated with Bill Hewlett and Dave Packard.
Er, no they're not. It's a pretty conceit, but the only thing it's got going for it is that it justifies the magnificent compensation of some really unheroic entrepreneurs; there is not a lot of evidence that this is actually the reality in most cases.
jmo: "Here is one question I'd like to hear peoples thoughts on: You have four 35yo accountants from the same school. One makes 45k, one makes 90k, one makes 150k, and one makes 440k. Why is that?"
I have a different answer to that riddle.
The guy who makes 440k used to work for Enron. He's one of those "second-tier villains" Fallows talks about: http://jamesfallows.theatlantic.com/archives/2009/03/for_the_netflix_list_smartest.php
He basically got away scot-free and went on to exert his creativity in firms such as Merrill Lynch or Citibank. He has a very good social life at the country club. CEOs say of him: "He can be trusted. He's one of us."
The guy who makes 45k is just a honest loser who won't get creative when needed. He's basically useless.
"It's a pretty conceit, but the only thing it's got going for it is that it justifies the magnificent compensation of some really unheroic entrepreneurs; there is not a lot of evidence that this is actually the reality in most cases. "
---Ah, SoV, once again you fail to show how a private company paying its employees some private money makes you, a non-employee, worse off.
But hey, keep tilting at those windmilss, kid.
Ya know, I just realized that SoV was probably that kid that, when her best friend got a cabbage patch doll for Xmas and she didn't, burned down her friend's house because they were capitalist swine and her friend didn't "deserve" the doll.
SoV: I have my own share of covetousness so, sure, I understand that inequality, or the perception of inequality, can be a social problem. Where we possibly differ is in our belief that it can be eliminated. If income inequality were to be somehow eliminated other things, such as leisure time, living conditions, or condition of servitude would become a cause for outrage. I value fluidity and mobility in economic/social class somewhat more than stability/structure; that does not mean I wholeheartedly embrace/deny either.
Of course, it is also possible that the outrage at inequality is due more to its utility for some in stirring up public sentiment, generating a "crisis" which need not go to waste.
Iow, raf, you don't believe that inequality as it currently manifests in the U.S. is a bad thing on purely pragmatic grounds.
You just don't want to back up your assertion with any evidence, though you wish to disparage the evidence of others that lead them to question this view.
You can't have it both ways.
SoV-
Speaking of having it both ways, I am still interested as to whether you think the government should use coercive means to produce equality in other ends (length of life, leisure, etc.). If not, is it because those who pursue consumption are in some way different from those who choose other ends, or merely because the inequality in health or leisure doesn't have pernicious consequences.
SoV is only interested in inequality when conservatives succeed and liberals fail. When left-leaners have more success in endeavors, she's strangely silent.
It's ok kid; the cabbage patch dolls are on sale now. go buy one.
How about the wealth of Angelo Mozzilo? Al Dunlap? Richard Fuld? Rick Wagoner? Maurice Greenberg?
Have they made people worse off?
------------------
Their poor business decisions ultimatey made people worse off, yes. I am not sure how their wealth made anyone worse off. These guys got rich (save Wagoner, I guess, who is a pauper relative to the others) when their stock prices soared, meaning lots of other people were hetting rich right along side them. And don't forget that some of these guys have also personally lost many millions.
No matter what we do, we're still going to have some bad business managers out there making a lot of money. The ultimate responsibility for keeping CEO pay down is with shareholders. It's not an excuse to start confiscating income regardless of how and why it is earned.
Well, there's certainly a link between social cohesion/social capital and income inequality. Plenty of political thinkers such as Rousseau and Tocqueville discussed the importance of economic equality in a functioning democracy. Income inequality tends to reduce civic cohesion and increase crime levels.
I have no idea what you mean about 'having it both ways'. And looking up above to where you say this:
Where do you get the idea that what you describe in your first sentence pertains to me? Could you quote anything I have wrote that would give you that impression?
I thought about how people may report a high income for very short time after a great deal of work. For example, a person selling a business may report a capital gain of many million in one year, followed by a few years of high income as purchase price payments come in on a buyer holdback note and consulting fees to former owner.
The owner may have worked 30 years to build the company, taking relatively little out for salary during that time. Do you really want to treat that guy like a CEO?
For that matter, do you really want to treat a CEO like he should not get mucho dinero after spending 30 years slogging through a difficult career to achieve a very high income for an average of four years?
SoV-
You accused raf of wanting to have it both ways - hence my use of the phrase, although I think it fits. To have it both ways in this context would be to believe that inequalities in material ends demand remedy, while inequalities in other ends do not. As I said, if you think there is something unique about the one kind of inequality, perhaps it isn't. Either way I didn't think the point that these inequalities can result from the relative values individuals place on wealth, prestige, leisure, etc. was too difficult. I apologize for confusing you.
As for something you have written; I took this:
to mean that you do believe inequality as it currently manifests itself to be a problem worthy of corrective action. If I am mistaken, again, I apologize. But if you do think taking some money from a CEO to reduce the inequality between her income and that of a yoga instructor or school teacher is a good idea; why not take a few years off the life of the yoga instructor to equalize life expectancy, or put the teacher in a labor camp during the summer to equalize leisure time?> But if you do think taking some money from a CEO to reduce the inequality between her income and that of a yoga instructor or school teacher is a good idea; why not take a few years off the life of the yoga instructor to equalize life expectancy, or put the teacher in a labor camp during the summer to equalize leisure time?
Hey, I can answer that!
It's because the CEO basically stole their money and the teacher and the yoga instructor earned their leisure time and life expectancy, respectively.
OK, sorry. It's because the CEO basically stole 98% of their compensation.
"It's because the CEO basically stole their money"
Um, this is not a self-evident thing, you know.
To look less batsh-t crazy, you might want to explain this view a bit.
Well, you've done a couple of bad things here:
No, to have it both ways means to make an assertion with absolutely no supporting, then when people express skepticism, and show why they are skeptical, go on to demand evidence that their evidence isn't faulty.
Now, what you said originally was:
And as far as I know, no one is making that argument. Certainly I am not.
Finally, and again:
Well, no, that's not what I said. I am noting that people are making these flat declarative statements (and very grating that style is) with absolutely no corroborative evidence. And that, really, it seems these are less statements of fact and more statements of religion.
If I claim that all prime numbers greater than three have the form of either 6n+1 or 6n+5, and you express skepticism,who has the burden of proof? Me, the one who made the claim? Or the skeptic?
Most people would say - and quite rightly - that the burden of proof is on the one making the claim.
Irony seems to be something that eludes you:
So to make people like you seem a little less like some religious iconoclasts holed up in a compound somewhere in Utah, why don't you explain your views a bit? And back them up with, you know, evidence? Since you're the ones who made the claim in the first place?
For example, Joseph Cassano head of AIG-FP got $300+ million compensation from AIG in 2008, after he brought the company into bankruptcy.
After he was finally fired, he got $1 million per month from AIG for 'consulting' (until Barney Frank embarrassed AIG enough to have them stop that.)
I maintain that Cassano is not exceptional, but fairly typical, and that furthermore what he got was basically stolen (misappropriated.)
I furthermore maintain that very large compensation of any sort is much more likely to be the result of some sort of incidental (luck, theft, connections, power) than actual value added to our society.
But we don't know that for sure.
So I think it's reasonable for the maximum bracket to be at say 75%.
Plus, after a certain point, the added value from having more money mostly resides in keeping score. Taxing away 75% of marginal income over $375K or over $1000K or w/e won't prevent rich people from keeping score against each other.
To elaborate on that: it's easy to discover that the principal value of money for engendering happiness is in removing causes of unhappiness (hunger, fear, illness, cold, heat, noise, chores, unpleasant encounters, etc etc.) This means that the ability of money to bring about happiness is very finite; after a certain point, most material causes of unhappiness have been removed & all that's left is non-material factors like angst. Given the strictly diminishing returns on happiness per dollar, taxing away 75% of the marginal income of the quite wealthy should reduce their happiness (increase their pain) very little.
"Regarding your example of Kobe Bryant, why don't you see more exceptional black neurosurgeons, finance geniuses or geneticists?"
Nimrod,
The average African American IQ is one standard deviation lower than the average American IQ. That means only 1 in 6 American blacks has an IQ as high as the average white American. Since the high-IQ professionals you mention are already probably two standard deviations above the average white IQ, it should be obvious why there are vanishingly few blacks in those fields.
This is why I love this blog so much. It attracts and concentrates so many nationalists, "white pride" supporters, and out-and-out racist bigots.
You've got quite a following here, Ms. McArdle. Toutes mes felicitations!
--Lou
Don't you just love liberals:
"Why are there so many blacks in the NBA?"
"Natural athletic ability."
"Why are there so few black doctors and CEOs?"
"Racism! And if you say otherwise, you're a racist!"
Lou Bueno, merely stating a fact's existence isn't racism, even if it hurts your belief system.
As stated, people, SoV is a mule. She implies that another's success hurts her, yet fails to show any proof how that happens.
Let her bray all she wants at the moon.
Especially given the fact that for decades now, productivity gains which everyone has worked for are being funneled almost exclusively to some small percentage of the electorate?
Do you have any evidence that everyone has worked for productivity gains? I would agree that productivity has increased, but it's hardly the case that everyone has worked for it. IME, most people have to be dragged kicking and screaming to new tools, new process and increased automation. And it's been a common source of labor disputes and strikes in unionized workplaces.
If people actively resist productivity improvements, what share of those enhancements do you believe they are entitled to?
TheWesson,
Given the strictly diminishing returns on happiness per dollar, taxing away 75% of the marginal income of the quite wealthy should reduce their happiness (increase their pain) very little.
But, that's why people end up making so much. If you're trying to recruit a talented manager( making 150k ) to move from Houston to Seattle to head up your a project you can't offer him 160k. He already has a nice house and a nice car, you haev to offer him 210k or 230k to kick him up to the next lifestyle level. The more people make the more you have to pay them to agree to take on more work and more responsiblity.
As I said, if you have a kid making 36k out of school you can offer him 45k and he'll switch jobs. When you're dealing with more senior people the income slope grows much steeper the higher you go.
What is the basis for this belief in human neurological uniformity? Is it rational to assume that subspecies vary in physical abilities but not in mental abilities? What is the evolutionary explanation for such an assertion?
If you want to argue that the cultural environment plays a large part in the relative success rates of the different subgroups, then I would agree with you. Just accept that this is a strong argument against multiculturalism and doesn't completely explain away the achievement gaps.
On the one hand, the declining marginal utility of money argues in favor of highly progressive tax rates to achieve the perception of fairness. On the other hand, the declining marginal utility of money argues that increasing tax rates will exacerbate the natural tendency to reduce productive activity as income rises. This is the trade off between perceived fairness and standard of living I discussed above. Attempts to make the tax system more fair by soaking the rich reduce the size of the economy. The poor will be poorer still, but they'll have the comfort of knowing that the tax system is perceived to be fairer than it was.
Some might be willing to make that trade, I was poor once and wouldn't have been.
> But, that's why people end up making so much. If you're trying to recruit a talented manager( making 150k ) to move from Houston to Seattle to head up your a project you can't offer him 160k. He already has a nice house and a nice car, you haev to offer him 210k or 230k to kick him up to the next lifestyle level. The more people make the more you have to pay them to agree to take on more work and more responsiblity.
Interesting point, jmo.
Why is that guy getting paid that much? Are there no talented managers in Seattle? Sounds like there is some inefficiency in play (you don't know how to find the right manager in Seattle) and therefore this guy gets a lot of money to move.
And, of course, why not pay him a lot - it's not your money (in a corporate environment.)
If marginal tax rates of 40% are not enough to achieve the mere "perception" of fairness, what will? 40 cents of every marginal dollar is an awful lot to take.
And why are so many assuming money has a declining marginal utility? Maybe it does, but I would think it kicks in only at the very highest levels of wealth, if at all. There is nothing Bill Gates can't afford; more money may mean very little to him. But an income of even $5 million per year is not nearly enough to own a private jet, yacht, etc. So earning substantially more can have a very high marginal utility even for someone who is already quite rich. It is nothing like the marginal utility of another slice of pizza or glass of beer. The extra dollar simply never gives you a stomach ache or hangover. Taxing the average millionare because he doesn't "need" the extra dollar is simply substituting the judgment of a political majority for the millionare's own preferences, even though he earned the money and the majority didn't.
> the declining marginal utility of money argues that increasing tax rates will exacerbate the natural tendency to reduce productive activity as income rises.
That's why we tax them 75% at the margins BUT give them something BETTER than money in return.
For every $100,000 in taxes you pay per year, you get a HERO OF CAPITALISM SILVER STAR.
For every $1,000,000 in taxes you pay every year, you get a HERO OF CAPITALISM GOLD STAR.
etc etc platinum etc
You get small stars to pin on your jacket/dress.
You get big stars to put on your house like weathervanes.
So everybody can see that you're a way better person than they are!!
And here's the part that will prevent AIG/CitiBank type economic disasters:
If you royally screw up the entire capitalist system YOU GET ALL YOUR STARS TAKEN AWAY !!!
That's right! ALL of them!
> the declining marginal utility of money argues that increasing tax rates will exacerbate the natural tendency to reduce productive activity as income rises.
The other point lurking in the background here is that it's extremely beneficial to reduce the 'productive activity' of people like Joe Cassano.
If we could've cut his productive in half, say, then AIG might only be $100 billion underwater.
Let's experiment with reducing the 'productive activity' of all the titans of industry and see what happens.
TheWesson,
"Are there no talented managers in Seattle?"
There are two schools of thought on that. If someone is a "good manager" does that mean they can manage anything or do they need specific experience? Some companies think, if he's a talented guy he could be the CFO of a bank or he could be the CFO or a hospital or the CFO of a software company. Other companies feel that you really need someone who has specific experience in that type of company and industry.
As to why they get paid so much. You might not be able to find anyone in Seattle who has expereince as the CFO of a midsize bank and is willing to switch jobs. You might say fine - hire the guy who is the CFO of an decent size insurance company. However, it's easy to envision how mistakes made by someone at a senior level who doesn't understand the accounting/finanical reporting/regulatory differences between a bank and an insurance company could cause some pretty expensive pretty fast.
Some companies do agree with you and they say - we're not paying 100k more plus a relo, we'll go with the insurance guy. Often they find that learning process ends up costing them far more than just paying the experienced guy more.
I have this crazy idea that taxes are for collecting revenue for necessary government expenditures and should be constructed in a way that harms people as little as possible. I know, I know... that's a radical idea and Congress would never go for it... obviously taxes are a way to punish rich people and force people to behave as they ought to with revenue collection an embarrassing side effect.
I'm curious as to why you're trying to shift the burden of proof over to me. The original claim, flatly stated, was that large inequalities in wealth and income are 'not a problem'. I'm merely being skeptical, pointing out that productivity gains haven't been matched to income for some time now.
So it seems to me that it's on you to show that these inequalities are not a problem, and that it really isn't kosher to demand more evidence or any other supplementary reasons for my skepticism.
Ann said
The basis is the medium household income graph, the one that I linked on my post. I didn't find anything pertaining individual income. Where did you find that data? Please link me to that thread or the data that supports your claim.
Dem said
That sounds about right under a progressive tax. But please, whenever you can provide a link to the data. Anyway, I'll repeat my original point: it is extremely misleading, and yet it's done over and over again in the media, to offer unqualified statements like "the top five percent of income earners already pay more than half of all income tax". This is usually stated to support claims that the tax system is unfair, and that these poor guys are some sort of beasts of burden. Yet, it can be also be the result of inequality, as in the example I provided with a flat tax. Well, if your numbers are right, it is mostly because of inequality that the numbers are so lopsided.
Basic Fact said
ScentOfFarts said
Bearded Spock said
Guys like you still exist? Or did you just time-travel from the 70's? You should catch up on lost episodes of "All in the Family". As for the "neurological uniformity" of "subspecies", I'm sorry to say that there is no such thing as a subspecies in our species. Don't you know about the lousy genetic variability in our species, the one that suggests that mankind may have been close to extinction not so long ago in evolutionary terms? Don't you know that the thing we misleadingly call "race" is a cultural construct and that there is absolutely no biological basis for a human separation between blacks and whites? There is more genetic variability between some tribes in Africa than between those same tribes and white males. This is, in fact, one of the arguments in favor of the "out of africa" hypothesis.
"pointing out that productivity gains haven't been matched to income for some time now"
But what makes you say that productivity gains haven't been matched to the incomes of those responsible for the gains? I believe that this was the point of SG - that one of the most likely explanations for the increased inequality of income is that productivity gains have been rewarded based on contribution, rather than spread evenly among anyone who happened to be in the same country at the time.
DEM said
I think you're confusing things. Marginal utility means added utility calculated per dollar, not per good, as in per slice of pizza or per jet. And I'm sure you know that these two things have very somewhat different prices. After all, congress didn't ask the CEOs of auto-companies to cut back on those luxurious pizza orgies.
I would say that it is almost certain that, for the overwhelming majority of people, the marginal utility of a slice of pizza is much higher than that of a jet.
I do believe that it is fair to assume money has a decreasing marginal utility. I admit this is shaky territory, because of the ethereal quality of utility functions. You start discussing utility, you end up talking about happiness.
But, on a more pragmatic level, the first $10,000 keep you from starving. The 500th $10,000 makes you decide to go for the Porsche instead of the Audi convertible.
"Don't you know about the lousy genetic variability in our species, the one that suggests that mankind may have been close to extinction not so long ago in evolutionary terms?"
That doesn't answer my question. If there are indisputable physical differences that explain black superiority at many sports, then why wouldn't those same evolutionary forces produce mental variation? If there are no subgroups, then why am I required to list my race on so many forms?
The empirical evidence shows that culture doesn't explain everything. Anyone who accepts natural selection would expect that. There is a genetic component to intelligence that is hereditary. Different environments select for different traits. That's simply an observable fact. With any variation, there are winners and losers with respect to procreation success.
The culture excuse is not sincere, because the overwhelming bulk of it's apologists embrace multiculturalism. It's funny how the concept of "separate but equal" is rejected when it suits them and trumpeted at other times.
There's no such thing as separate but equal cultures any more than there are separate but equal schools. It's bullshit to argue that female circumcision is a good thing in the right context or that killing rape victims can ever be a way of protecting their honor.
I'm curious as to why you're trying to shift the burden of proof over to me.
You bear the burden of proof because you made a positive claim ("productivity gains" are something that "everyone has worked for") that is not consistent with my experience or understanding. I'm curious as to why you believe this to be true.
Additionally, I recall you having stated in previous postings that the defender of the status quo does not bear the burden of proof. Since you're challenging the status quo (the current unequal distribution of productivity gains), by that standard ("He who complains"...) that still leaves the burden of proof to you.
Finally, the larger argument that you're contesting is that "income inequality is not a problem". You disagree; you assert that income inequality is a problem. The burden of proof never lies on the person asserting the negative. As you've often stated, the burden of proof is on the person making the positive claim. Again, that's you.
But putting your philosophical burden to the side, it was an honest question. What makes you think we've all worked for productivity gains, and thereby all entitled to share equally, as opposed to gains being driven by a relative few who have then captured most of the return?
I would agree that if everyone has worked equally to improve productivity yet the gains are not shared equally, then there is a problem. So, while I accept that productivity gains have not been shared equally, I see nothing beyond your assertion to show that everyone has worked equally to achieve those gains.
If my conjecture is true, do you consider inequality to still be inherently problematic? What share of the gains deserve to go to those who didn't contribute to (or even resisted) productivity enhancements?
SG, just stop it. You seem to 'accidentally' misread what I very plainly write.
No, you bear the burden of proof for the claim that great income and wealth inequality 'is not a problem'. I'm merely pointing out that from what I've seen and what's been reported on the news, that the fruits of just about all of the productivity gains have flowed to a very few.
You're perfectly free to withdraw the original assertion of course. But please, in the future, don't try to pull stunts like this, not when I say quite clearly:
In fact, you now have the additional onus of demonstrating that you did not intentionally misread what I wrote. For you to 'accidentally' get it wrong is just too hard to believe.
This is also nothing but a willful misreading of what I have said:
NO. I am merely skeptical, and have given excellent reasons for being so, imho. You are making a claim. Defend it.
I would think that this would be easy to do, you seem to be so absolutely sure of it.
Or do you wish to withdraw the claim, since you're working very hard at not defending it ;-)
You don't disappoint. So now it's my job to prove a negative assertion that I didn't make and explicitly don't hold, but not yours to justify the positive assertion you make?
Since you are making this assertion, just what evidence do you bring to the table to convince me of this? You are making a flat declarative statement (and very grating that style is) with absolutely no corroborative evidence. And that, really, it seems this is less a statement of fact and more a statement of religion.
The reason I'm not defending the original blanket assertion ('inequality is not a problem') is because I don't agree with it. As I wrote, "I would agree that if everyone has worked equally to improve productivity yet the gains are not shared equally, then there is a problem." But while I don't accept the initial statement, neither do I accept your formulation (at least just on your say-so). I'm open to being convinced that you're right, but you've got to give me something (anything) to back up your claim that everyone has worked for the productivity improvements over the past few decades. That's grossly inconsistent with both my experience and understanding.
Alternatively, if (as seems clear) you don't want to defend your claim that the labor force has been generally responsible for the productivity improvements over the last few decades, do you believe that even if people didn't contribute to productivity improvements they deserve a more equal share in those gains?
I don't have an axe to grind here. I'm legitimately curious if my experience has been unrepresentative and it's not just a small slice of the population that drives wealth creation. I'm also fascinated by the notion that people have a legitimate claim to wealth they didn't create.
For the third time, can you address my question? Why do you believe that labor force has generally been responsible for productivity gains instead of just a small subset of the labor force? Or do you believe it doesn't matter who was responsible and the gains should be shared (more) equally?
Well, no, as I have explained several times already, I meant something like this:
Or this:
Nowhere have I asserted that, for example, employee X has had a two-fold increase in productivity, yet has had no pay increase since 1998.
What I have said is that on average productivity has gone up. But that those productivity gains are all going to the top. If you want me to give cites for this, no problem. But I think you are asking for more than that. For reasons that aren't very nice.
So, since average productivity has risen, yet the gains in wages have not appeared in the lower quintiles, when someone says that 'wealth and income inequality is not a problem', they mean in part that productivity increases occurred only in the segments of the population that saw their real income increase. You say this yourself:
Thus, if people want to claim that wealth and income inequalities are not a problem, the burden is on them to show that the productivity increases occurred only for those whose wages increased. Not on me to show that that it hasn't. This isn't rocket science, it isn't hard to understand, and I've said this four or five times now (I recall a recent thread where you engaged in exactly the same behaviour.)
Now do you get it? Or do you have yet another way to misunderstand what I have said? As for this:
This is just bizarre. Read my quote again from those Commies, the Dallas Federal Reserve: For the most part, they’re doing it by sharpening and deepening their use of Information Age technologies— scanners, computers, lasers, the Internet and wireless communications, among others. You really don't think that secretaries have had productivity increases from advances in information processing technology? Or how about something from the Washington Post, another Socialist rag:
How about this:
I think it's pretty clear which way the burden of proof flows ;-) I also think that when people go to the lengths that you do to push this off on someone else, what they really want to do is to be in the position to say "What you have provided doesn't convince me - I Win!" Uh, that's kind of why we say that the burden of proof goes to those making the assertion. This business on the right of saying "If you can't make me say I'm wrong I win" has long since gone past being tiresome to outright pathetic.
The premise: "Today's tax code makes no distinction between income above $373,000 and income above, say, $5 million. " is wrong. Tax is calculated by applying a RATE. 35% of $373,000 equals $130,550. While 35% of $5,000,000 is $1,750,000. The dogma that taxes need to accelerate as income rise to be "fair" is a contivance. Yesterday's "fairness" will never be good enough. Some one can always rationaize taking more from some one else just because, and only because, they have it.
Not to worry, Congress will put a new marginal rate on the earnings of those who obey the law as Congress sets it. Yes if you are in the bracket of the handful getting an allowed bonus, they can sock it to you... mind you that class of people is tiny, but if Congress can go after less than... what? 1,000? 100? really a small number of folks... they can go after YOU.
Soon if you do something that is legal and Congress thinks you need to be castigated, they can make a law on just YOUR earnings as an individual. Mind you said law is un-Constitutional as well as being illegal, but the fact that those bozos Upon the Hill would try means that YOU are now the valid target of Congress. Complain and point out Congressional problems... are you sure you won't get socked with a confiscatory tax because of it? Really? That is where proportional taxation has gotten us: where Congress can set the proportions in any way it pleases and if it happens to be on an individual, well it is a very tiny proportion but *still* valid under proportionalism. You would just be stuck in the slim proportion... so sorry.
Better not speak back against the Aristocracy Upon the Hill. They will make you poor for the good of everyone else, but mostly themselves.
Nobody's disputing that productivity has increased. What I'm questioning is if the average secretary did anything to make their productivity increase. Did someone else bought the technology, paid for the training, and developed the business process to make use of the new technology. If the secretary didn't purchase technology or drive the adoption, grumbled through the training, resisted the process changes, and now doesn't work any harder (maybe even works less), yet still is more productive, then the fact that secretary has not seen an equal share of their productivity increase (that they didn't drive and may have resisted) does not strike me as a problem. My experience is that productivity improvements are often hard fought to put in place - people like the status quo and resist efforts to change.
The question I'm asking is not has productivity improved (I agree, everyone's productivity has improved), the question is who *caused* everyone's productivity to improve. It would seem that whoever drove the productivity improvements are entitled to the lion's share of the gain. That's what has to be shown to say the current inequality is a problem.
I think it's pretty clear which way the burden of proof flows ;-)
Yes, and in this particular case it's clearly on you. Not the person making the negative assertion, and not on the person who is now asking you for the fourth time to provide some backing for you assertion that "everyone has worked for productivity gains."
Again, that statement is not equivalent to saying that everyone has become more productive. You've shown that, but no one has disputed that point. The question is 'who *caused* everyone to become more productive?' Is the development and purchase of new technology driving the productivity gains? If so, then it's doesn't seem unreasonable that entrepeneurs developing technology and capital purchasing it have captured most of those gains, and not the broader labor force that simply uses the new technology to be more productive. Doing otherwise would eliminate the incentives to develop new technology.
Thus, if people want to claim that wealth and income inequalities are not a problem, the burden is on them to show that the productivity increases occurred only for those whose wages increased. Not on me to show that that it hasn't.
Nonsense. That's not remotely how the process works. The negative case bears no burden of proof whatsoever. 'income inequality is not a problem' is not provable assertion, it's only falsifiable. It's those who disagree that have to falsify the proposition. I've stated that I would consider your counter-assertion, if shown to be true, to falsify that proposition. Yet rather that actually back up your assertion, you've resorted to this bizarre violet-scented humpty-dumpty logic (burden of proof means just what I choose it to mean, neither more nor less). You're just as guilty of the same bad logic that you so regularly accuse other of. Your hypocrisy is only exceeded by your intellectual dishonesty.
If all you want to do is cast stones at others, then that's your right. But if you actually want to have a conversation, or even a debate, you might want to consider demonstrating even a hint of good faith. I've now asking for the forth time for some evidence that (as you have asserted) everyone has helped drive productivity gains (Again: not simply become more productive through the actions of others). If you can do so, then I would agree with you that income inequality is a problem. Are you that anxious to disagree that you're willing to discard basic logic to get there?
It's hard to imagine more foolishness and ignorance parading as political thought. Some of you don't even have a remote clue about marginal tax rates and your wealth-envy is palpable. Some posters are even lunatic (yes, I chose that term carefully) enough to believe that high pay caused the recession! God save this country from those folks.
But, here my idea for taxes: per capita. Every man, woman, and child (dependent) is assessed taxes upon their person. Period. The only fair way to do it. Why should anyone have more (or less) responsibility to pay for our country? We all enjoy the same benefits. I mean, I’m one of those top tax bracket kinda guys and I just looked outside and my streets are not paved with gold – and, as a matter of fact, could use paving, at that! (Although, pro rata, 'poor' people enjoy everything for greater because they aren't footing the bill. Heck, in too many cases they have zero Federal income tax liability and then get handouts, rebates, earned income, WIC, free 'tax' preparation, SSI, et al. - the list is just too long.)
In closing, let's start killing the ‘poor’. (jk)
'But, here is my idea...'
Mea Culpa
You know what? There would be no problem at all if the people who borrowed money to buy or refinance their homes paid the money back as agreed. No problem at all. But it is so much more fun to blame "wall street" and "the bankers" than it is our greedy neighbor who had to have the flat screen and bass boat and rv and had to go to Hawaii and had to drink expensive wine and drive a new car and be in The Mall every bloody day. Home foreclosures are concentrated in 35 counties located in, guess where, markets where people used their homes as ATM machines. But, of course, it was the evil bankers fault.
The only fair tax systme would be a flat tax rate that everyone across the board would pay. It is the one we should be using.
There is a sure-fire way to make this system fair.
Everybody pays 10% of the gross, no deductions. This includes trust fund clowns like Kennedy and Kerry. If it's good enough for God, it's good enough for the U.S. Government.
There is a dirty little secret about taxation. You CAN'T effectively tax the multi-millionaires. They are too adept at shielding their income.
Taxes come from the 100k-single digit million folks, and the proof is that new taxes are always set up to go after them. Why indeed hasn't someone proposed a 50% bracket on billionaires? Because it would be pointless (as well as fund raising suicide).
It used to be said that only the little people pay taxes. The truth is that a very small percentage of people are available to collect any further taxes from once you exclude the middle class (however you define it). It's just not effective to go after the blindingly rich. It would be like a traffic cop trying to give a ticket to a US army tank.
How about tying the number of votes a person has to their marginal taxation level?
Say if you pay no tax - one vote.
At the 10 / 15% level - 10 or 15 votes.
35% - 35 votes.
==
This proposal wouldn't be any more complex in implementation and administration than the current tax code.
==
It has the benefit that the folks paying more have a little more say at election time.
A person ought to get something for their money, apart from owning the occasional congressman.
Chuckle. SG, thanks for finally admitting that you knew what I was saying all along. And thanks for saying that even if people are more productive, they still shouldn't be paid more. And finally, thanks for this:
Since you've already admitted that the people who say wealth inequality is 'not a problem' are saying productivity only increased for those who are paid more, we know that that you're just blustering about a 'negative claim' - clearly this is negative conclusion based upon a positive claim. Note also how this contradicts the above, wherein SG claims that it's not enough to show productivity increased for certain people - they've got to show that they didn't 'fight' it or some other incoherent nonsense. Finally, thanks for still clinging to ""everyone has worked for productivity gains"" when I've said specifically, several times now that what I meant by that phrase is that "that on average productivity has gone up." You can claim that what I said was poorly phrased, of course, but since I've long since clarified what I meant, it makes you look like a buffoon to be whining about this.
No, SG, I've think we've established to everyone's satisfaction that you're not doing the good faith thing. And that you can't back up any of these claims. And that you're moving heaven and earth to try to thrust an insupportable standard of proof on me rather than admit this simple fact.
Accordingly, I'm putting you in the discard bin. Your childish and nasty behaviour is not something I think should be rewarded with any sort of attention.[1]
Now that we've established that SG is nothing but a nasty low-order troll, does anyone else want to try to claim that wealth and wage inequality "isn't a problem"? Baring in mind that for this to be the case, they've got to show why wages haven't lined up with productivity gains, ie, that they've got to show that the only people whose productivity increased are those whose wages and other compensation increased?
[1]No, I'm not going to make the mistake of believing you again, like I did last time, you're claim that you just 'made a mistake'. This is deliberate, obnoxious behaviour, and you've used up all your chances. You want me to respond to you, you've got some serious crawling to do.
I also note, just as an aside, that the definition of "very rich" seems increasingly to be set at "just above the level a top-notch journalist in a two-earner couple could be expected to pull down".
In the same manner dissent used to be the highest form of patriotism. But since last November 4 dissent has come to equal racism.
The concepts of "very rich", "racism" and others will always be defined in ways to benefit our self-anointed moral betters in Congress, the media, and the White House.
Lets not forget the marriage tax while we are at it.Why should woman pay more because of their decision to say yes to a traditional way of life?
Isn't it an income tax on money she makes and her hubby doesn't have a dang thing to do with it?Isn't the concept of couples being rich by adding incomes kinda anti women in this day and age?
1) Median wages tell us virtually nothing. Wage rates are heavily skewed by the composition of the work force. For example, average hourly earnings are up 3.6% in nominal terms over the 12 months ended February 2009. CPI inflation over that period was 0.2%. By these measures real wages have grown very nicely over the last year. Funny thing, though: we're in the middle of a severe recession and it defies common sense to believe that real wages are rising so fast. Answer: a lot of low wage jobs have been lost over the last year. That has skewed the average up, creating the illusion of wages gains. The process can go the other way, too. When a lot of low wage jobs are created (e.g. in a boom period like the late '90s or mid '00s) the average (and median) wage are artificially depressed.
2) Over the last 20 years there has been an enormous influx of low skill labor into the U.S. -- many if not most being illegal immigrants willing to work for low wages (often in cash, no benefits). They compete with domestic low skill labor for employment, thereby depressing the bottom quintile of labor force income. During the same period hundreds of millions of low skill workers have joined the global economy in China, India and other emerging nations. This has also depressed U.S. lower skilled wages. In fact, it's almost a miracle that the bottom couple of quintiles of income have held their ground in the face of this onslaught.
Actually, you should be a lot angrier with people like Barney Frank and Chris Dodd - who essentially sold their offices for political gain, and are systematically responsible for most of this mess. They give "pond scum lawyers" a bad name.
If you want to fix the tax code, make it a 10% flat tax, no deductions, no brackets. Ten percent is more than enough for the Federal government to do the things its permitted to do by the Constitution.
I don't see why you would think its OK to confiscate more property from those who earn more. "From each according to their ability, to each accroding to their needs". Seems like we've heard that somewhere. Its essentially slavery.
Is it OK to steal BMWs but not Fords?
I am less worried about the upper tax brackets than the lower. When the half of the fed filers contribute less than 4% of the revenue, we have a serious problem. Those people have all the privileges of citizenship, but none of the responsibilities. They, combined with the public sector voters, will continue to vote for benefits that others pay for; that approach will weaken the private sector and eventually destroy the USA.
Personally, I think the love affair between the MSM and Obambi started fraying when they got their monthly investment statements in February. Quite a number of them are feeling pain, not love these days.
Class envy warfare is usually quite productive for liberals because (a) the poor and lower-middle class resent those above them in the economic system (b) the rich know that they can just raise prices on their goods and services to pay any additional taxes (or cash out and leave the country) so it's not really going to hurt them and (c) most of the middle class is too clueless to know what they're doing. The exception is when they've taken it to the "dead horse" stage and can't blame their incompetence on mythical "rich people who don't pay their fair share!" anymmore. We're approaching the tipping point now.
How can you not be a little angry and bitter about the role that huge, unjustified pay played in causing the worst recession in a generation?
Um, how does a "journalist" get so ignorant?
No such thing happened.
productivity gains which everyone has worked for are being funneled almost exclusively to some small percentage of the electorate?
Huh?
How, exactly, is this happening?
With absolutely zero evidence. So it's up to you and people like you to defend it. Not on others to dissuade you from this belief. I merely pointed that this assertion flies in the face of everyday observation.
scentofviolets:
Please explain to the class exactly how Bill Gates' wealth hurts Joe Sixpack.
Further, then provide evidence for this by listing 3 "everyday observations" about how Bill Gates hurts the lower middle class.
Just 3.
I dare you.
I can tell you what happened (and is happening). People took on debt they could not afford ("no doc"mortgages) to buy houses which were blatantly over-priced. They did not pause -because "everyone" "knew" that prices were going up and they needed to jump on the boom before they were left behind. I saw high-school graduate loan brokers making 10-20-35-75-150k per.....month. Yeah - that's sustainable. Now I am supposed to get all outraged over AIG? Ha ha ha ha ha ha ha. What a joke.
Now don't get me wrong - I am a bankruptcy attorney - so financial collapse is not exactly against my interest. However the same Congressional whores who are now acting so pious were the same ones who wanted to give mortgage loans to everyone - EVERYONE.
The same journalists who talked breathlessly about strides in homeownership rates now use the same homeowners as proof that the system is "broken". Oh - and let us tax the bonuses for the past two years - which would include some of Obama's friends.
I'm an assh*** because I bought my house 4 years ago without thinking about fraud and market conditions.
Buying the house doesn't make you an asshole. Losing your job doesn't make you an asshole, either. Failing to make your mortgage payments still doesn't make you an asshole.
Robbing someone else to keep you in that house, or asking the government to do it for you is what makes you an asshole.
-jcr
Ten percent is more than enough for the Federal government to do the things its permitted to do by the Constitution.
Actually, it's way too much.
-jcr
And thanks for saying that even if people are more productive, they still shouldn't be paid more.
I didn't say that. I said if they're more productive through no reason of their own, there's no inherent reason they should be paid more. If I come in to work and find new tools that make me 10x more productive, I don't deserve a 10x raise - the people who created and introduced the new tools does.
This seems common sense. There's risk in creation. There's risk in purchasing new tools and pushing new processes. If the gains are divided equally between those who took the risks and those who didn't, there would be no incentive to take the risk and those improvements won't happen. My conjecture is that this largely explains the current income inequality, and if it does then I don't see the problem. I freely admit that I may be wrong (it may not explain the inequality, or inequality may still be a problem for other reasons even if its justifiable on these grounds), but despite all your invective you can't be bothered to explain why you think I'm mistaken. Where's my flaw? Why are people entitled to share in gains that didn't help create but only happen to coincide with?
But if all you want to do is continue to rant and obfuscate to avoid the fact that you can't hold your side of the debate, then please don't bother replying. I'm too am confident that everyone can see who's posting in good faith, and who is immediately reduced to slinging insults when their assertions are questioned.
SG,
"I said if they're more productive through no reason of their own, there's no inherent reason they should be paid more. If I come in to work and find new tools that make me 10x more productive, I don't deserve a 10x raise - the people who created and introduced the new tools does."
True, but you do have to learn to use the new tools, and then may or may not demonstrate relative aptitude in employing said tools. Therefore, there may be value to your artistry in using the new tools. It would not surprise me, then, that you would get a portion of the wealth created by the increased productivity.
I would think you deserved it in that case, so this squares with your view that no one has a right to wealth gains without contribution.
To the extent employers take actions to capture the wealth created by the employee's unique contributions to the tool use, I think you have the flip side of unions that seek to capture too much of capital's contribution to increased productivity. Employers sometimes do that with onerous noncompetition agreements or keeping employees in a state of anxiety, but by and large I don't think that is really a large problem in America. (Contrary evidence and examples are genuinely welcome, though.)
Until SG learns to behave himself (questioning an assertion is now an assertion, the original assertion is not, and so on and so forth), he'll get no further dialogue from me. However, this was sufficiently bizarre to merit a comment all by itself:
Setting aside the point that a lot of the time these 'risks' seem pretty small, SG seems to be advocating a policy of a business cutting off it's nose to spite the workers.
If equipment X doubles the profits of a firm, but the firm is required to share half the increase with it's employees, SG would have us believe that even with a 50% increase in profits, the company would refuse to invest in equipment X. Uh, if that's how the managers are making decisions, I as a shareholder would move for an emergency meeting so that a vote could be called to fire these incompetents.
Does any other savvy libertarian businessman think the same way SG does? This seems to be of a pattern where the fallback positions of a thoroughly defunct philosophy is becoming increasingly bizarre.
Me, what do I know? Having just had the basic micro and macro econ courses, I would invest in the new equipment up to the point where the marginal cost is equal to the marginal benefit.
No. You're confusing[1] cause & effect.
When someone says that 'wealth and income inequality is not a problem', they mean in part that many of the recipients of the gains may not necessarily have also the causal agents of those gains, and thus may not be entitled to the compensation/rewards for their result.
For example, I may be more productive in my job as an analyst but only because my employer has invested the capital to provide me with a faster computer. Should I be asking for a raise because I can now produce charts faster?
Absolutely. See analyst example above. Productivity increases from advances in information processing technology may spread down to the lowest line workers, but they generally aren't created by them. And when they are, those people tend to become very wealthy because of it.
Really, you're making SG's case for him(/her):
Hmmm...I wonder if those sectors can easily capture productivity increases due to implementation of technology (robots, anyone?)....and whose decisions drove that implementation...and whose capital investment funded it...?
It really is common sense. I am the owner of a farm. I buy two tractors, so the productivity of my farm hands increases because they can now process more ground. Should they get all of the revenue increase because they "are more productive"? [2]
[1] granting you the benefit of the doubt here
[2] likely all farm hands do see an increased benefit anyway in the form of cheaper food
Let's experiment with reducing the 'productive activity' of all the titans of industry and see what happens.
Let's reduce that same activity of Congress first (not that much of it is productive, mind you). Six months' vacation, on their own dime. I bet they'd be surprised with how many things got fixed in their absence. (I wouldn't be surprised at all, by the way.)
Everybody pays 10% of the gross, no deductions. This includes trust fund clowns like Kennedy and Kerry. If it's good enough for God, it's good enough for the U.S. Government.
Works for me; we don't really need any more federal government than that. It seems like 10% would be more than enough to defend the shores, help make the proverbial trains run on time, etc. Anything above that is either wasteful excess or the actual job of the States in the first place.
True, but you do have to learn to use the new tools, and then may or may not demonstrate relative aptitude in employing said tools. Therefore, there may be value to your artistry in using the new tools. It would not surprise me, then, that you would get a portion of the wealth created by the increased productivity.
I don't disagree with you. I think that employees will (and should) get some of the gains if for no other reason than a more profitable industry will eventually bring in competitors which will in turn cause competition for labor. It's also the case that technology has raised the skill level required to perform a given task. Decreasing the potential labor pool will drive wages up too. But even leaving all that aside, more profitable companies give larger raises. Being a good, reliable and productive employee is valuable and is usually rewarded - just not necessarily tracking productivity increases.
My only point is that an unequal distribution of gains is not ipso facto evidence of a problem. You can't just point to an unequal distribution and think you've identified a problem, you have to either show an problematic root cause for the inequality or identify some problem that stems from it.
If equipment X doubles the profits of a firm, but the firm is required to share half the increase with it's employees, SG would have us believe that even with a 50% increase in profits, the company would refuse to invest in equipment X.
No, SG would have you believe that if you cut the ROI on equipment X by 50%, then for some companies X ceases to be a worthwhile use of funds. This in turn reduces the total available market to the people developing X, making it harder for them to get capital (which makes it less likely that ever develop X, or that they continue to develop Y) and causes them to have to raise prices. Since X just got more expensive, this in turn further decreases the ROI on X, decreasing the number of purchases of X. You've created a negative feedback loop that retards the development of X (and Y and Z).
Does the feedback loop drive the innovation rate to 0? I'd don't think so, but I'm confident that it gets a whole lot smaller than what it is today.
But why share 50%? That would still be an unequal distribution. If inequality is a problem, then an equal distribution would only give the owner 1/n (n = owner + workers) of the increased profit. Does X get purchased in that case? If that's the societal model, what's the likelihood X even exists?
If you don't want to go to that extreme, then you don't have a problem with income inequality in the abstract either. It might even mean that some income inequality is unavoidable and possibly even a good thing. In that case we're back to my original question: What's the cause of the current inequality? Is it disproportionate to the contributions? Why do you think it's a problem?
Yes! If you produce now, say, what 2 employees produced before, you should get some increase in income...
All? A little sleight of hand there. But a part, sure.
I don't know if you realize this, but you're effectively defending that only capital should be rewarded by new technology. So, taking your example, a faster, more efficient computer is released to the market. I buy a bunch of them for my company. My employees are now producing more. Should they not get at least some of the new gains? If they never share the productivity gains, then you have a society where one group of people gets richer and richer (the ones who happen to have the money in the first place), while others stay stagnant. That is my and ScentOfViolets point.
Of course, a different matter is that employers do not, in fact, share gains in productivity increases out of the kindness of their heart. Why would they, if they don't have to? For the last 30 years, these gains have not been shared. So, something's wrong.
Paint me red, but I believe the problem is that the bargaining power of workers is too low right now. Unions in the workplace are weak to non-existent, and work is not getting a fair compensation. Hopefully, things will change a bit with EFCA, but I'm not so sure.
"If equipment X doubles the profits of a firm, but the firm is required to share half the increase with it's employees, SG would have us believe that even with a 50% increase in profits, the company would refuse to invest in equipment X."
You seem to think that the only possibilities are that managers keep all the gains as profits, or that employees get part or all of it. But if there's competition, some other company can make the same investment, charge less for the product or service, and take away market share from the company that's paying above-market wages to its employees (and/or shareholders).
In your example, it's the producer of the more efficient equipment that should capture a significant portion of the excess created. Early industry adopters of the new equipment may temporarily get higher returns, but competition will drive that away.
As has been discussed before in Megan's comment threads, much of the gains from increased productivity have gone to consumers, through lower prices, higher quality, better selection, more choice all around. That's why a comparison of daily lives now versus a few decades ago yields a picture of increased overall prosperity, even though statistics of median household income can be used to make it appear that there has been stagnation.
Yes! If you produce now, say, what 2 employees produced before, you should get some increase in income...
True, but in that case your increased typically comes from the other guy who's just been made redundant...
Paint me red, but I believe the problem is that the bargaining power of workers is too low right now. Unions in the workplace are weak to non-existent, and work is not getting a fair compensation. Hopefully, things will change a bit with EFCA, but I'm not so sure.
I agree with you that workers (at the low end of the wage distribution curve) have lost their bargaining power, but I think they've lost it to a billion Chinese workers and 15 million illegal immigrants. Increased unionization isn't going to help that problem, it's going to exacerbate it.
"you're effectively defending that only capital should be rewarded by new technology"
Again, our problem is the simplistic basic micro course idea that everything goes to either 'capital' or 'labor'. The real question is whether we should have competition and let the market decide, or should rig things through, for example, unions that can impose wages and work rules that distort the market, and managers with golden parachutes that don't mind slowly sinking their companies?
If we let the market decide, then neither capital nor labor will get excess returns unless they can somehow outperform the competition, forcing them all to constantly strive to find a way to do things better. Such a world is hard for both capital and labor because both have to always work to keep up, but it pays off for society overall through constant innovation and improvement and increased efficiency.
The alternative is illustrated by the Big Three automakers - unions and management can together decide to stagnate, charge high prices without offering much in return, and slowly sink while trying to buy off enough politicians to subsidize their decline.
Ann said
But it does! Simplistic but convenient.
I'm sorry? A golden parachutes is a perfect instance of competition and letting the markets decide, they are not forced down anybody's throat. Unions also work through market mechanisms. Workers decide if they want to associate or not, and unions and companies are free to negotiate worker compensation. There is no libertarian principle that stops unions from forming, or executives from negotiating parachutes. Free market forces are at work in both these cases.
We have better products, sure. Lower prices? Kind of. Some technological products did get much, much cheaper. Other commodities, like education, energy, and housing got more expensive. If prices were lower overall, real median household income would have gone up, not stagnated. I get your point - overall, stuff is much better in our days. To which I must reply - more and more stuff is going to less and less people.
Hmmm... I think you just reified capital and labor.
That's right if you live in equilibrium world with perfect competition. But in equilibrium world with perfect competition, there are also no profits.
There is a market tendency to equilibrium, but we always live in an off the equilibrium, "meanwhile" world. And in this meanwhile world, the "temporarily" higher returns are what should be more fairly distributed.
Well, unions undeniably played a role in the process. But there were many other factors. Gas prices in the last years rose much more than expected (remember, oil prices were predicted to go down with the Iraq War), which really hurt SUV sales. Also, these companies are stuck with health care and pension expenses that you choose to blame on unions or lack of universal health care.
I think unions should play a bigger role in general. They probably played too much of a role in The Big Three. I'm sure a balance can be achieved.
By the way, you never responded to my post requesting evidence of median earnings by individual instead of median household. If anybody knows where I can find official numbers on this, I would be grateful for the link.
SG said
Right, these are very serious problems. There are some less than perfect answers: not competing with anything that the Chinese produce; and putting a price on capital flight, so that you don't have a global race to the bottom.
Progressive income taxes are fundamentally unfair. In what universe is it fair for more productive, wealthy, folks to pay a higher percentage of their income to the government than less productive, poorer folks. The wealthy will still pay more, because they _earn_ more.
Reform of our government can only be achieved through a flat, no exemptions, income tax and Congressional term-limits. If it takes a Constitutional Amendment it's worth it! The question is whether the wrath of the average American can provoke enough fear in the current, mostly insipid, members of Congress, to turn off their gravy train.
There are a few members, Coburn, Flake, Bayh and even the reviled McCain, who might expend their political capital on this, and then retire. The rest are too busy enriching themselves, at our expense, to represent us (they _are_ supposed to represent _our_ interests).
While the mess we are in is complex, with many recent, proximate, causes, in my opinion three federal government seizures of power, over many years have precipitated our current crisis:
1) the de facto repudiation of the precious metal standard for currency (coin), as described in the Constitution, by Lincoln and Roosevelt
2) the institution of mandated federal tax withholding by private enterprises (could the federal government possibly have reached its current size if every taxpayer had to write a ginormous check on April 15th, rather than being delighted by their "refund"?)
3) the government's entitlement programs and the identity politics of the past sixty years, in direct defiance of our country's founding principles
The American ideal is, "government of the people, by the people, for the people". The current state of affairs is, "government for the government, at the expense of the people".
I worry that our administrations, both Democratic and Republican, have no respect for the Constitution or for our founding principles:
"We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator (not _by_ the Government, but in _opposition_ to the Government) with certain unalienable Rights, that among these are Life, Liberty, an the Pursuit of Happiness."
Read the Declaration of Independence and the Constitution. These founding documents clearly limit the power of government, and particularly the federal government.
But I'm being taxed by a gigantic federal government that barely represents _my_ interests in any significant way. I'm a cash cow, contributing to the rape of American ideals, and I'm losing patience with what passes for our representatives in state capitols and in Washington, DC.
"Unions also work through market mechanisms. Workers decide if they want to associate or not, and unions and companies are free to negotiate worker compensation."
One union was allowed to represent all workers for all of the Big 3 automakers. How is that a market mechanism? Anti-monopoly legislation should apply to unions, so that there's true competition. People should be free to either join or not join a union (no closed shops), and no union should be allowed to have a monopoly in any industry.
"But in equilibrium world with perfect competition, there are also no profits."
No, in equilibrium, everyone gets profits. No one gets excess profits or 'economic rents', but of course workers get competitive pay and stockholders get a competitive expected return.
"There is a market tendency to equilibrium, but we always live in an off the equilibrium, "meanwhile" world. And in this meanwhile world, the "temporarily" higher returns are what should be more fairly distributed."
First, if you're going to use wildly subjective terms such as "fairly", you should give your own personal definition. Those who talk about 'fairness' without defining their personal spin on the term are trying to manipulate the discussion, since it's obvious that there's no universal standard.
As for temporary profits going to early adopters of new technology (the off equilibrium example I gave earlier), if it is the management that sees the opportunity, weighs the costs and benefits and makes the correct decision to implement the change, then presumably it would be 'fair' for the managers to get much of the temporary benefits of their own actions. This benefit should be shared with the stockholders, since they are taking the risk and will lose if the investment doesn't work out.
Besides the fact that you seem to be advocating that those who played no role whatsoever in the process deserve excess returns simply for having been standing there at the time, there's the problem that any raises given to workers in exchange for this temporary advantage will be translated to permanently higher wage levels, persisting after competition has driven away the excess returns. Your idea of "fairness" seems to be that the stockholders take the risks, the managers make the decisions, and the workers walk away from any losses but lock in permanently higher rewards every time there's a brief upturn in conditions. I could see paying workers partly through stock options, so that they would actually share in both the gains and the losses, but that doesn't seem to be what you favor.
Getting back to the main claim that median household incomes have stagnated over the last 30 years, I don't have time to look up the numbers and am basing this on the discussion of these issues in earlier threads on Megan's blog (if anyone has the link to the official statistics, please post). In those earlier discussions, even SoV agreed that "stagnated" meant only growing by around 1% a year over the last 30 years (i.e. there was growth, although it was moderate).
Others pointed out that median household size has gone down in that time, which was behind my claim that per person numbers would show even more growth. And still others have pointed out that part of what has held back these numbers is large numbers of legal and illegal immigrants coming to the US and actually increasing their own household income relative to what they had in other countries, while also pulling down the median here in the US.
Boo fucking hoo. Just try complaining about the highest marginal rate at $350K/year when Average Joe is struggling to pay the rent on his rat-infested craphole they call an "apartment".
Ann said
That's not correct. In perfect competition there is no economic profit, no "excess" qualification about it. Workers certainly don't get profits by any definition - salaries are incorporated into costs. Expected value of shareholder return is equal to 0, or, in a model with an interest rate, "profit" is equal to the opportunity cost of money. In other words, owning stock is the same as having money in a bank. If you define profit without taking in account the opportunity cost of money, well, ok, in that case you have profit, but this is not a very orthodox or useful definition.
Of course, while the very unrealistic assumptions of the perfect competition model is used to defend the virtues of real markets, shareholders don't act as if they really believe it, and expect to do better than (interest rate /inflation rate). And they are, of course, quite right.
You're quite right that many workers don't participate in the decision process, nor do they lose stock money like shareholders. That doesn't mean, of course, that workers don't take risks of decisions made by others in a company. Most microeconomic models, and certainly those you seem to consider, simply don't take into account the very evident real world cost to the worker of losing his job. So shareholders, management and workers all pay a price for bad decisions, but only management and shareholders get the rewards for good decisions.
So yes, I do advocate "that those who played no role whatsoever in the process deserve excess returns simply for having been standing there at the time". "Standing there" meaning, of course, working in the company and contributing to revenues. They take some of the fall for decisions they don't make, they should be able to get some of the rewards too.
Actually, I have no problem with stock options. I don't know why you assume I do.
I'll take that in good faith: It seems compatible with this.
We've been here before. Maybe this is true. I looked for it myself and couldn't find it. I certainly wouldn't take on faith what people write in a comments section.
Ok, I agree with you on this, there should be some kind of intermediate solution between no unions and union monopolies. I'm at a loss here, I don't know what this should be. But...
There are 2 consistent options on this: either you are a libertarian purist and say that there's no moral right for any third party to restrict economic freedom by interfering on voluntary contracts - by "moral" I mean you take the good with the bad when it comes to free market consequences, like monopolies in businesses and in unions, golden parachutes, costly social dilemmas, etc.; or you accept that this would pretty much lead to Hell on Earth, and you recognize that a democratically elected government can interfere in these contracts, specifically if it has the popular support to do so.
Which means that, given the 30 year 1% growth in median household income, with real GDP per capita growing at an average of 2,3%, and the 99th percentile growing at 3.6% - times and a half more than the 50% percentile per year - if a majority of voters have a problem with this, government is justified to fix this. People can disagree about the justice and soundness of specific interventions. They shouldn't whine about government interference itself.
Right, these are very serious problems. There are some less than perfect answers: not competing with anything that the Chinese produce; and putting a price on capital flight, so that you don't have a global race to the bottom.
Not competing with China is not a viable long-term strategy, it's at best a fighting retreat. Putting a price on capital flight sounds intriguing, but I'd want to see the details. My initial thought is that it would be self-defeating - capital will flee in advance if you tried to enact it, and good luck selling $-denominated treasuries under such a plan. My gut says we'd be cutting off our nose to spite our face.
I think the single best thing we could do for the lowest income workers is to define and enforce an immigration policy. I don't particularly care what it is (I think we should have a lot more legal immigration than we currently do), but as long as the bottom end of work force is competing against an essentially bottomless labor pool with effectively no legal rights, they are not going to have any bargaining power.
As far as China goes - given that their government doesn't have the consent of the people and their currency doesn't float, they shouldn't have been granted MFN status and it never should have been made permanent. As a nation, we sold out our poorest workers for a bunch of Happy Meal toys. But that's in the past, and now we depend on the Chinese to carry our debt. I don't really know what can be done now.
Which means that, given the 30 year 1% growth in median household income, with real GDP per capita growing at an average of 2,3%, and the 99th percentile growing at 3.6% - times and a half more than the 50% percentile per year - if a majority of voters have a problem with this, government is justified to fix this.
If you're trying to justify governmental redistribution of wealth, I'd want to see more data. Total compensation instead of just income, for example. My understanding is that total compensation (income + benefits) has basically tracked productivity growth.
From the link:
So while I agree there is a gap between productivity and compensation, I see some gap as necessary and possibly even good - we want to retain incentives. Are we at the optimal balance of retained incentives vs return to labor? I don't claim to know, but I don't think we're obviously at a bad level.
It's my opinion that the lowest income strata is hurt more by (and to some extent defined by) our immigration (non)policy than it is by rapacious capitalists. Well, excepting the fact that our immigration (non)policy is in no small part shaped by those same rapacious capitalists.
Sigh. What to do with people who deny basic reality? And why do 'conservatives' still have the idea that they are the best-informed people in the room when their actions clearly show they're not? Look at this bit of tripe:
We have people like Ann who claim to have some sort of knowledge of finance, and don't even recognize that this flies in the face of basic - and I mean basic - economics(of course, she also claims that FF was never privatized, that's a whacking big clue stick right there that she isn't exactly what she claims to be.)
But the larger point is that none of these oh-so-knowledgeable (by their own lights) conservatives even recognize what a stupid, stupid remark this is. Why bother talking with them if they can't even get the easy stuff right?
SoV:
You said you weren't going to respond to me, yet you've addressed my comments twice since. Apparently your threats are as dishonest as your arguments. And yet still nowhere in all this time, despite all the name calling and dishonest restatements, have you even attempted to explain why I'm wrong, or even why you're right.
Please explain why drastically cutting the expected ROI on productivity improvements and technology development will have no effect. I've written business plans, I've created and worked at technology startups. That's basically the only thing that matters. Whatever you may have learned on your intro micro and macro courses (and at this point it's not clear that you've learned anything), it's not a valid representation of the real world.
You're wrong (and I suspect you know you're wrong) so apparently you've been reduced to calling me stupid. Is "doody-head" next? My 9 year old does a better job of arguing a position than you.
Your name calling isn't convincing. Your flat assertions aren't convincing. Your bad faith and bad logic wrapped in condescension isn't convincing. People may agree with you, you might even be right, but you're not remotely persuasive. As our president might say, you're like the Special Olympics of debate.
Either bring something to game, or live up to your word and stop addressing me and my comments.
You owe me an apology, SG, a big one. You also need to actually respond to what I write, instead of what you wish I had written.
For example, this:
For the rest of the brigade not so comprehension-challenged, the point is not SG and his rather shockingly wrong statement (why do I get the impression that SG thinks he brings way more to the table at his place of business than he really does); the point is that no supposedly well-informed business-savvy conservative has said one peep about this unmitigated drivel.
And yet, they want to think of themselves as the 'serious' people. Anybody wonder why the financial sector crashed and burned if these types are representative of the industry?
Either bring something to game, or live up to your word and stop addressing me and my comments.
You owe me an apology, pal. And you've got it backwards - you've got to convince me, not vice versa. That's why I've moved you from the wrong-headed bin into the dishonest weasel bin.
I'll point out again, that your words, idiotic as they are, are not the reason for my post - it's that no 'conservative' has come forward to say that they are quite, quite stupid (indeed, actionable if this policy were actually carried out). Despite the fact that there has been massive claims by these parties to some sort of business expertise.
Now, since we're not talking about you, would you kindly just go away? The conversation from here on out, as I've explained for the second or third time now, doesn't concern you.
I really don't know how to make it any plainer than that.
And you still can't give any reason as to why it's stupid to say ROI matters (It really does matter - a lot.) Given how vigorously you've doubled down on this, apparently you honestly don't believe it. I thought you were just being argumentative, but apparently you're truly that ignorant.
Either bring something to the game, or live up to your word and stop addressing me and my comments. How many times are you going to threaten to ignore me only to immediately charge back with your your special brand of ad hominems and other logical fallacies? If you're as incapable of constructing a reasoned argument and as filled with bad faith as you appear, I ask you to be a man of your word and ignore me.
Perhaps you could ignore everyone else too...
Go away, SG. You don't belong here any more, and this is not about you.
Unless your name is "Mcardle, Megan", what makes you think you've got any business declaring who does and doesn't belong here? You said you were going to ignore me and I was happily ignoring you and having a polite exchange with Nimed when you apparently felt compelled to charging back in with more of your insults and bad faith. Tired of your crap, I have only responded in kind. If you don't like the tone (and frankly, *I* don't like the tone), then change yours and I'll match whatever tone you choose (may I suggest respectful disagreement?). Or just ignore me, and I'll be more than pleased to resume ignoring you.
Nimrod:
"Don't you know that the thing we misleadingly call "race" is a cultural construct and that there is absolutely no biological basis for a human separation between blacks and whites?"
Balderdash. "Race" is no more a "social construct" than skin color is. Black people have darker skin and and a different texture of hair -- have you noticed this? This is due to biological differences between the races.
"There is more genetic variability between some tribes in Africa than between those same tribes and white males."
That's like saying that there is more variation in height among women than there is between the average woman and the average man. That's true, but it doesn't change the reality that men and women are two different genders.
Hey ScentOfViolets and SG. So, it seems your discussion has become somewhat heated in the last few posts. I would very much enjoy diving in the whole who's-got-to-prove-who's-assertion-to-the-other-part issue, but I'm doing some work this weekend, and I can't afford to get sucked into this right now. Yes, I know, this is a cowardly, solomonic cop-out, but I feel I've exhausted my share of rants for one thread. Well, perhaps one more for our friend ScentOfFarts.
2 notes:
- Generally, on the whole equality and sharing of gains issue, I believe my views are closer to ScentOfViolets, though not necessarily for the same reasons (see my last post to Ann).
- SG, a link in one of your posts is dead. It's the one in which you have a quote beginning with the text "According to Feldstein". You linked the word "understanding". If you would be so kind as to repost...
I strongly suspect that the whole inequality/income-distribution/role-of-government subject will come up again very soon, so no great loss.
ScentOfFarts said
(this is also addressed to Bearded Spock and other like-minded individuals)
Really? They have darker skin? Black people? You don't say...
So let's try a different version of that text:
"Balderdash. "Race" is no more a "social construct" than hair color is. Redheaded people have red hair and more freckles -- have you noticed this? This is due to biological differences between the races [e.g. blond and redheaded]."
You see, what I mean by race being a social construct is not, obviously, that black people don't have any physical differences from other human beings. Instead, what I meant is that there is no biological basis for:
1) Dividing humans in races (like, say, dogs or cats), because our genetic variability is extremely low for a species. It's so low that most scientists are now convinced that our species has undergone a population bottleneck very recently (by evolutionary standards). One cool hypothesis is that our ancestors may have been close to extinction at some point, with dramatic consequences to our genetic pool.
2) Using current classification. If, nevertheless, you insist in placing humans into racial categories, you want to maximize inter-categorical allelic variability - to find the best possible candidate categories for "race". In this case, current "race" division does a lousy job at reproducing these categories. For instance, there would be various "races" in Africa. They are all black, yet genetically more different between themselves that any of them is from European-American caucasians. If you "force" our current definition of race on data, this is what you find:
Now, I will engage in a little exercise that I like to call "stating the obvious": the origins of the modern classification of races is a social construct. It emerged long before our current knowledge of genetics. It has a quite understandable tendency to focus on salient physical features, like skin and hair pigmentation. It also has very important historical roots, and race distinctions served evident political interests.
Saved the best for last.
Yes, average height differs in men and women. It's even better at separating pygmies from Germans.
Genders, you know, differ genetically by one whole chromosome. That, by the way, is approximately "a lot" of genes.
One final note about gender differences: know that you're in trouble if people have to point out to you that, when it comes to distinguishing between men and women, there are better criteria than height. In case you failed to miss those, don't worry, it's not too late. There's a whole world out there for you to explore. You wanna take small steps - googling "birds bees pollen" should get you started.
SG, a link in one of your posts is dead. It's the one in which you have a quote beginning with the text "According to Feldstein". You linked the word "understanding". If you would be so kind as to repost...
The link's not dead, I just screwed it up. Try here.
My apologies for my side of the poo-flinging with SoV. It's just that I've been through this same exercise with him numerous times and I've just grown tired of it. Frankly, I don't think anybody here has an obligation to prove anything (this isn't a court of law, and there's no debate judge awarding points) - we're just trying to have a conversation with people who have different opinions in order to better understand how everybody sees the world. Part of that process is explaining what we think and part of it is challenging and justifying when those explanations don't make sense to others. Nobody has to (or should expect to) "prove" anything to some random stranger's satisfaction - that's a fool's errand. I'm just hoping to get a little better understanding of the world and the people in it. And procrastinate on real work.
In any case, I appreciate our exchange. You've given a good reason why labor, even if not the agent of productivity improvement, might deserve a slice of the productivity increase (because they bear the downside risk of the decisions of funded by capital and made by management). My initial thought was that's priced into the cost of labor (I price it into mine), but the more I think about it, the more I think you're right. You only have one time to really negotiate compensation, at the start, but those factors are ongoing. I'm not (easily) able to renegotiate when management has made a bad decision, I can only leave.
I'd say it's still an open question as to what share would be appropriate and whether or not they've been receiving that share, but you've convinced me that labor does deserve some share of the productivity gains.
Nimed -
"In perfect competition there is no economic profit, no "excess" qualification about it. Workers certainly don't get profits by any definition - salaries are incorporated into costs. Expected value of shareholder return is equal to 0, or, in a model with an interest rate, "profit" is equal to the opportunity cost of money. In other words, owning stock is the same as having money in a bank."
You seem to have in mind a model in which all agents are risk-neutral. Simply add risk aversion, and yes, profit compensates for the opportunity cost of money, including the risks taken.
Similarly, when workers accept a job, they have to be adequately compensated for the risks and opportunity costs of their job. If one company is expected to be riskier than another (greater probability of being laid off), that company has to pay more to compensate for the risk. For instance, one factor in the high pay at investment banks (which I believe is too high altogether) is that people there know that they get paid a lot in good times but are extremely likely to be let go as soon as their own particular specialty slows down. There's little job security, high variability in total pay, long hours and tons of stress, but a lot of money in the good times. All relevant factors that affect the desirability of a job, relative to alternatives, should be factored into pay even under 'perfect competition'.
Overall, you argue that people have to choose between two models of government - anarchy, or no limits to what the government can do. I would argue that there's a difference between government intervention to set the rules and try to ensure a level playing field (i.e. rules prevent monopolies, fraud, etc.) and the government being allowed to pick winners and losers.
'Free markets' is equivalent to a sports competition in which the government sets rule in advance that both sides agree to, and then acts as a neutral referee to enforce the rules. If one team earns more points than the other, it's not up to the government to prevent this inequality of outcome as long as the rules were followed.
Socialism can be thought of as a sports competition where the government allows people to compete but then reallocates the points based on 'need' and other priorities such as not wanting one team to get too far ahead of the other. [The extreme, of course, is communism, where all points must be shared equally between the two sides.]
These are two models which both allow government intervention, but there's a big difference in when and how it should intervene. If the growing inequality is because the rules weren't designed well enough to allow people to keep points that they legitimately earned, then I'm all for changing the rules so that they give better incentives in the future. And I also support a safety net for those who can't compete, and a relatively high proportion of the cost of government paid by the more successful.
But personally, I don't support the second model where the government intervenes simply because the spectators don't like to see one team earn too many points relative to the other, perhaps because it hurts the feelings of the losing team to know that they didn't try as hard or weren't able to perform as well. That's a different type of intervention that seems to be behind people complaining about inequality as being fundamentally unfair, in itself.
Debate about the rules and whether they give the right incentives is always appropriate. But the evidence that there's a problem with the rules has to be more than simply arguing that, ex post, people didn't like the final score.
SoV -
I never denied that the government claimed to have privatized Fannie and Freddie. You denied that they still held a strange, in-between status in which they were considered to be backed by the government even though there was no formal guarantee. What you've never explained is why they were able to borrow at such incredibly low interest rates if they were just normal, private companies with no implicit government backing. Even Franklin Raines admitted that the reason they could borrow so cheaply was because of this implicit government guarantee.
Sigh. Ann, you know I can quote you on this:
It's quite easy to go through and find this stuff, that they weren't 'really private' or that they were 'supposedly private'. Eh, no. I've even posted the definition of what it means to be privatized and yet somehow, even though what happened is in strict accordance to the definition, you're still cavilling.
Nor have you said anything about SG's incredibly stupid statement, even though if that sort of procedure was actually followed, it could easily lead to a lawsuit for failure to consider the fiduciary interests of the firm.
And I'm supposed to believe you really do have the sort of expertise you claim?
You're an ideologue. Nothing more.
Nimed -
If you look up above, I really haven't voiced an opinion[1]. What I have stated is that there is a disparity between productivity gains on average and who the gains went to. That's simply stating a fact.
If people want to claim that 'wealth and income inequality isn't a problem', they've got to explain why this is. That is, the burden of proof is on these people to explain and provide cites, references, etc. Not I. And no, this is not me making a positive claim; people who insist otherwise are people trying rather desperately trying to duck their responsibilities.
This is what threw me off on the tangent of conservatives and cognitive dissonance. Here is an oldie but goodie from Scott Aaronson on Religon's Rules of Inference:
Which led to this bit:
and:
This is where it seems the overwhelming majority of conservatives seem to reside, in that space where they are quite comfortable with holding all three propositions at once: point out that the compensation for certain managerial types is absurdly large, you get that this is because of what they bring to the table; point out that the compensation is then absurdly small for some other workers(especially given the fact that we know that a lot of these Top Men did not in point of fact contribute anything of value. Quite the contrary.) and you get sneered at for advocating a 'discredited' labor theory of value. This sort of contradictory wrangling, like with productivity gains going to a very small class of people, seems to be endemic.
[1]Although actually, I tend to agree with you for approximately the same reasons you came up with. I'm a Galbraith 'countervailing forces' kind of guy as far as this sort of stuff goes and think that a lot of theory to justify the sorts of inequalities we see is just a comforting story certain people tell themselves.
SoV -
I don't see how my statements have been inconsistent. Perhaps you could stop sighing long enough to spell it out?
I agree that Fannie and Freddie were technically, legally private, with no official government ownership. But the point that so many have tried to make with you is that everyone who watched Fannie and Freddie, including the managements of Fannie and Freddie themselves, assumed that they had an implicit guarantee from the government. This allowed them to borrow at well below the market rate that similar, truly independent, unbacked companies could have borrowed at. They also received government protection (mainly from Democrats) when caught cooking their books, and in return they gave substantial campaign contributions to their protectors and allowed those protectors to guide their policies, a mistake that we're now all paying for. For all practical purposes, they were government-controlled.
Either you're not arguing honestly, or else you never took my suggestion and looked up the subject in pretty much any US-focused money and banking textbook, since it was standard for such textbooks to rank Fannie and Freddie in a special category - not officially government agencies, yet not truly private either. You won't take anyone else's word, and you won't look it up for yourself. And yet you constantly accuse others of not arguing in good faith.
Sigh. Do I really have to post more quotes? You've claimed repeatedly that these entities are not 'really' private (note that what I have posted in no way contradicts anything out of your textbooks; they don't claim that the FF's aren't 'really' private either), that they're somehow government-run, and thus that - somehow - the current financial debacle is the governments fault because of those lib'ral FF's making bad gov-type decisions.
That's just insane. There is no 'technically' about it (and that's not what you were saying before either; you want to have your cake and eat it too by saying you weren't 'really' wrong). The FF's were 'really' privatized and were 'really', not 'technically' private.
This is just ideological of course, like your refusal to admit that SG really did say something quite stupid. We could go the other way if you prefer, that you really don't know that this is the case. Which would then imply that you don't have any financial expertise at all. Your call.
And in any event, entirely in keeping with my side thread.
Nimrod,
Is it difficult for you to continually ignore reality?
Is it a social construct that East Africans dominate marathons? Is it a social construct that West Africans dominate sprinting events? Is it a social construct that sub-Saharan Africa has long been the most backward of regions, despite being one of the richest in natural resources (and please do yourself a favor here and don't bring up Jared Diamond's ridiculous rationalizations).
Is it a social construct that East Asian societies with similar histories of colonization are far more advanced and prosperous than African ones? Is it a social construct that blacks score lower on average on IQ tests?
Please stop using your bad faith misreadings of my comments. Or at least justify your ridiculously stupid claim that ROI is irrelevant. You wrong, and you're so ignorant that you don't even realize that you're wrong.
Or live up to your word and ignore me. That means not referencing me in every single comment you make.
Nimed -
I've changed my mind again. It's not that workers "deserve" a share of the productivity gains (that they aren't an agent of); it's that I think it would be good business practice to cut them in on a share of the gains.
When I think back on my employment history, if I was treated well in good times, I was more inclined to stick around in not-so-sood times. When I wasn't treated well, I look for a new job when times get hard. The old days of real employee (and employer) loyalty are gone, probably never to return, but that doesn't mean it's good for business to have lots of labor turnover.
"it's that I think it would be good business practice to cut them in on a share of the gains"
Sharing gains with employees and with other stakeholders such as customers and suppliers is certainly consistent with maximizing shareholder value. As I pointed out earlier, there are problems with raising base pay in response to temporary excess returns. But if there's a permanent shift in productivity, it may make sense for the firm to raise pay.
And, as far as we can tell, companies have done that. SG has already posted an (updated) link that describes an NBER working paper by Feldstein. Here’s a quote from that:
“Feldstein notes that the level of productivity doubled in the U.S. non-farm business sector between 1970 and 2006. Wages, or more accurately total compensation per hour, increased at approximately the same annual rate during that period -- if nominal compensation is adjusted for inflation in the same way as the nominal output measure that is used to calculate productivity. The use of an incorrect inflation adjustment has confounded prior research, according to Feldstein, resulting in skewed findings showing a large and increasing gap between productivity and wages.”
SoV -
“This is just ideological of course, like your refusal to admit that SG really did say something quite stupid.”
I’m not sure what exactly you’re referring to, but as far as I can tell, the dispute goes back to this false claim of yours:
“If equipment X doubles the profits of a firm, but the firm is required to share half the increase with it's employees, SG would have us believe that even with a 50% increase in profits, the company would refuse to invest in equipment X…….Me, what do I know? Having just had the basic micro and macro econ courses, I would invest in the new equipment up to the point where the marginal cost is equal to the marginal benefit.”
Perhaps you should take a corporate finance class, where we teach about capital budgeting. Relative to the original, undistorted calculation of costs and benefits for this investment, you’re proposing a significant increase in costs (having to pay employees substantially more, probably permanently and for all workers, not just those directly involved) without any increase in benefits (or perhaps some benefits through more loyalty or higher retention rate, but that trade-off was there already and presumably was taken into account at previous wage rates).
At the margin, many investments that would otherwise have had positive net present values will instead have negative net present values if a main cost (employee pay) increases substantially. You’re using a mental compartmentation where paying employees more out of money that has been mentally labeled “profits” is completely different from paying them more out of money mentally labeled “costs”.
As for Fannie and Freddie, they relied on their effectively subsidized cost of capital - being allowed to borrow at below-market rates because of the implicit guarantees by the government. Given the power that Barney Frank and Chris Dodd had, even when they were in the minority, a simple public comment from either of them that the lower rates were unjustified because the government had no intention of backing up the GSEs would have been enough to dramatically increase their costs. Thus, those politicians had substantial power over Fannie and Freddie, and both sides knew it.
Fannie and Freddie fall into a category that was (but unfortunately no longer is) relatively unique. Their profits were privatized, but the losses remained public. I don't know the term is for that, but I really would like to know because it's a term that now needs to be used a lot.
Sigh. I have been perfectly clear. All other things being equal, afterexpenses have been met, including payroll but before doing anything else, we look to see if the profits have doubled. Just like in the year prior to purchasing equipment X. If indeed they have been, then the excess over the previous is split, half going to the employees, half going to the shareholders.
So, no, there has been a substantial increase in benefits, as stipulated in the original problem.
This isn't difficult to understand. And if some Red-headed Stranger appears with this mysterious equipment, and offers to sell it only on condition of those terms, per SG, you would be in egregious breach of your fiduciary duties if you turned him down(assuming you knew that he was correct) - you're shorting the shareholders by 50% of what they made the year before.
As I said, egregious stupidity.
For the rest, I think it's pretty obvious that what I said earlier about your ideologically-inspired comments concerning the - what are some of the terms you've used - the supposedly 'private'(the tic marks are yours) FF's, the 'quasi-govermental' FF's, was exactly correct ;-)
And, ironically enough, note that for all of those supposed preferential treatments, it is the FF's that are now nationalized. AIG, the private firm that supposedly couldn't count on any government support, implicit or otherwise? I think that all I need note is:
;-) ;-) ;-) ;-) ;-) ;-) ;-) ;-) ;-) ;-)
Just one more time where someone who is supposedly a 'liberal' is right 'by accident' I guess.
SoV -
Thank you for clarifying your example. Our problem was that I was looking at the general effect of companies feeling obligated to raise pay every time a (possibly temporary) increase in productivity occurred, while you were discussing only one incredibly specific, extreme example (one equipment purchase so large that it can literally double profits, with apparently no risk) and pointing out that, if for some unspecified reason companies faced only two choices - give up the profits completely or follow the pay increase plan that you suppose - they would prefer to raise pay as the better of the only two choices we're allowing them.
And then you made a different statement, that the company should invest in the new equipment up to the point where the marginal cost equals the marginal benefit. It was this that I was responding to. Having to raise pay every time productivity increases will, at the margin, cause some projects to be rejected that would otherwise have been accepted or, where the project can be scaled up or down (for example by buying less equipment), will decrease the size of the investment.
The comparison that I gave before was between the potential project without the added cost that you propose (higher base pay) and the same potential project with the added cost. In such a comparison, the risky potential future gains don't change but the costs increase, lowering the net present value.
"And, ironically enough, note that for all of those supposed preferential treatments, it is the FF's that are now nationalized."
The "supposed preferential treatments" that I noted are that politicians protected them from added regulation when they were caught cooking the books in 2004-2005, and that they were able to borrow at low rates, because everyone thought that the government would step in if needed to prevent a default. The fact that the government did in fact step in to prevent a default, as expected, is hardly proof that everyone was wrong.
It seems to me that the endless parsing of marginal tax rates to derive some utopian level of fairness is a lot of dithering in the wind. If the top half of income tax payers pay 97% of all income taxes collected, then I'm really having trouble understanding how any call to increase the marginal rates, even just a percentage point or two, equate in any way, shape, or form to the word "fair".
http://www.house.gov/jec/news/2008/Oct/pr110-50.pdf
It's one of the most frustrating events in recent memory - watching the faux outrage of politicians, playing to cameras, for what amounts to a fraction of percent of overall federal spending, all based on the outcomes that this same outraged congress had the largest hand in creating. And now it's being used as a justification for wage controls. This is what happens when we throw close to two trillion dollars annually in tax revenues in the vague direction of 535 politicians - we are getting exactly what we paid for. A parade of middle-aged boobs with no idea of the economic destruction they are causing.
SOV:
Please stop lying about my what I've written. As I stated:
My comment was a reductio ad absurdum of what I understand your position to be. If you disagree, or I have misunderstood you poistion, then feel free to correct the misunderstanding, but that's no excuse to lie about what I've written. Is lying the only way you can hold up your side of a debate? Don't you have any sense of shame?
Please go away. Either that or apologize - and admit I don't have to explain a single thing. The burden of proof is on you and yours no matter how you duck and twist and try to distort what I've plainly said at least five times.
Can't do that? Then go away.
A troubling phrase:
"when far less of the nation's income went to millionaires."
Is it not individual's income going to the nation?
The social compact is perhaps rightly fraying a bit, but to say "the nation's income" is to claim individual effort amounts to nothing.
This is a web forum; of course you don't have to explain a single thing if you don't want to. Likewise, neither do I. But if you were interested in having an actual conversation instead of just braying at each other like a couple of jackasses, then when you make a claim that doesn't sound right or make sense, someone might ask you for more explanation. The proper response would be to explain the reasoning behind your claim, not to start ranting about not needing to prove your statements.
Of course, that assumes you were actually interested in having a conversation, which doesn't seem to be the case. It seems you seem believe you're on some mission to vanquish conservative & libertarians. I highly doubt that you're convincing anyone, but you're louder, so I guess that counts for something.
So, as I have offered multiple times, if you'll just ignore me (which means stop making dishonest references to me in every single one of your posts), I would be more than happy to ignore you. You can go back to sighing and lying till your heart's content, and I won't challenge you on the apparently indefensible bullshit you spew.