I Don’t Get It

The frequently brilliant David Henderson seems to me to have fallen off a cliff in his (limited) defense of the recent tax bill. David thinks it’s a (relatively) good thing that under the new bill, income taxes rise only for those making over $400,000 and the estate tax is locked in only for estates over $5 million. (Relative, that is, to an across-the-board increase.)

David, in other words, seems to be saying that it’s a good thing that the tax code just got more progressive, and that a very small number of people are now going to bear a significantly greater share of the burden. I disagree.

Taxes are too high because spending is too high. But taking the path of spending as given (and David is right when he says that the delay of the sequester bodes very ill for that path), the question is not “how high should taxes be?”; that question is settled. Over time, taxes will be high enough to cover the spending. The only question is “how should the tax burden be distributed?”. The answer the politicians have agreed on is “a whole lot less equally”. They’re taking less now than they might have, but they’ll have to take more in the future, and when that time comes, they’ll have set a precedent that the rich should bear a greater fraction of the burden than they did a month ago.

I think that making the system more progressive is a bad thing. I suspect that David Henderson agrees with that. But then it’s hard for me to see what he thinks is good about this deal — unless he believes that the limited increase in tax revenues will eventually put a brake on spending. But his blog post doesn’t even mention that argument. So color me baffled.

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107 Responses to “I Don’t Get It”


  1. 1 1 Maurizio

    Can I ask you why in your analyses you never consider defaulting the debt as one of the options? (for example in The Armchair Economist you seem to say that the only options are to repay the debt and to keep it forever paying interests, and you go on explaining why there is no difference. But a reader is puzzled why you don’t consider the third alternative, default.)

  2. 2 2 Andy

    Perhaps he wants to reduce crime by reducing economic inequality?

    http://www.bloomberg.com/news/2013-01-06/want-to-fight-crime-address-economic-inequality.html

    Sorry, I don’t know how to make the above a link.

  3. 3 3 Andy

    Oh, looks like the site did that for me, great!

  4. 4 4 Kirk

    That’s great news, Andy! I didn’t realize social inequality was falling dramatically in the US over the last 20 years. But it must have, since crime has been falling dramatically!

  5. 5 5 Manfred

    Maurizio: I do not want to second guess Steve, I let him give you an answer. Here is mine: default on debt is an option, but it should always be the worst option, the very worst. Debt is a contract, like any other contract – and like any other contract, it should be honored. Default means that the contract will not be honored, and (possibly) that the debtor does *not care* about honoring the contract. And this leads to dangerous moral hazard issues, which in turn, can lead to very difficult issues in capital markets. [What if all or a vast majority of debtors just default on their debt contracts? Creditors will be *very* reluctant to lend in the future, and thus, capital markets basically break down.]

  6. 6 6 Ken B

    I believe David thinks politics is the art of the possible, and that half a shit sandwich is better than a whole one.

  7. 7 7 Steve Landsburg

    Ken B:

    I believe David thinks politics is the art of the possible, and that half a shit sandwich is better than a whole one.

    This makes no sense to me. Nothing was done to reduce the present value of long run tax revenues. The only change is that now a larger fraction of those revenues will come from those at the top.

    I (and I’d have guessed David, but maybe I’m wrong) want two things: lower taxes and less progressivity. This deal (relative to going over the cliff) did nothing to lower taxes and it increased progressivity. So in what way should we prefer it to going over the cliff?

  8. 8 8 ThomasBayes

    Hi Steve: I hope you can respond to–or provide pointers to previous responses or writings on–the following questions:

    1. How do you measure progressiveness of the tax code?

    2. Based on your measure of progressiveness, how progressive should the tax code be? (And why?)

    I’ve seen a few measures of progressiveness, but I’d like to know how you prefer to measure it.

    Thanks.

  9. 9 9 iceman

    #6 – OK I think I’m skipping lunch today

  10. 10 10 Ken B

    @Steve: I don’t read DRH as defending the substance. I think his point is that considering how bad it could have been, and was in the democrat’s original version, using the criteria you mention, that the gop did pretty well ameliorating the damage. He is assessing the politics of it. For a riven rump the gop did well. I don’t think David would deny it’s still a shit filled comestible (David would use a politer term).

  11. 11 11 Manfred

    ThomasBayes:
    Let me give you what mainsteam Public Finance says in the textbooks.
    As for your Question 1:
    Here is a short quote from Harvey Rosen’s textbook “Public Finance”, 9th Edition (2010), Chapter 14, page 305, under the subtitle “Tax Progressiveness Can Be Measured in Several Ways”:
    “Defining progressive and regressive is not easy, and, unfortunately, ambiguities in definition sometimes confuse public debate. A natural way to define these words is in terms of the *average tax rate*, the ratio of taxes paid to income. If the average tax rate increases with income, the system is progressive; if it falls, the tax is regressive. … Confusion arises because some people think of progressiveness in terms of the marginal tax rate – the *change* in taxes paid with respect to a change in income.”
    Rosen goes on to give a very simple example of a constant marginal tax rate but an increasing average tax rate – thus, according to his definition, a progressive tax, even though it has a constant marginal tax.

    As for your question 2: that is a normative question, and subject to (huge) debate. Martin Feldstein has a paper in the J of Public Econ “On the Optimal Progressivity of the Income Tax” (1973). There is another paper by Conesa & Krueger in the J of Monetary Econ (2005) “On the Optimal Progressivity of the Income Tax Code”.

  12. 12 12 Ken B

    I just twigged. Steve is comparing the bill passed to the cliff default. David is noting that you were never going to get the cliff default, so he is comparing the bill passed to the bill proposed.

  13. 13 13 nobody.really

    Nothing was done to reduce the present value of long run tax revenues.

    The absolute present value of long run tax revenues (a/k/a spending)? Perhaps not.

    But mostly people focus on the net present value of future events. If you subscribe to Keynesian theory that we’re in a liquidity trap and we need stimulus to put idle assets back to productive use, you might conclude that by reducing current tax burdens and maintaining spending (relative to going off the fiscal cliff) we can stimulate the economy (relative to going off the cliff), which will increase the returns on current after-tax income. Arguably, this increased productivity today, compounded over time, may leave people with greater buying power in the future, even after paying taxes, than if we’d had no Fiscal-Cliff-Fix Stimulus. (Say that ten times fast!)

    This deal (relative to going over the cliff) did nothing to lower taxes and it increased progressivity.

    The progressivity part is inconsistent. Yes, after-tax earnings will decrease for those earning $200K-$500K, but those earning $30K – $200K will experience a greater rate of decrease in after-tax income. So there’s a little tasty morsel of regressively to tide you over until we can implement the head tax.

    Moreover, I sense an inconsistency in these semantics. In evaluating levels of taxation, Landsburg does not focus on the current tax rates but on spending. (I favor this line of thought.) But when addressing progressivity, Landsburg reverts to focusing on current tax rates. To be conceptually consistent, we’d want to focus on ultimate or long-run tax rates – rates we can’t know.

    Deficit spending is a game of Musical Chairs: Everybody knows that somebody will get stuck when the music ends – and everyone hopes that the person getting stuck will be someone else. Landsburg’s analysis of progressivity depends on the idea that a change in the progressivity of today’s tax rates will have some bearing on progressivity in the longer run. He may be right. But it’s pretty much conjecture as far as I can tell.

  14. 14 14 Jack

    As I understand it, most people are looking at the debate in a static sense. What happens this year, what could have happened this year. So higher taxes for a few is better than higher taxes for all. But as Prof. Lansburg says (I think), over time taxes will HAVE to rise to cover spending. So thinking dynamically, it is irrelevant what happens this year only. The only question is who pays. And the answer is, a small group pays proportionately more, and most pay proportionately less.

    What about the payroll tax increase, though? For lower-middle income workers, 2% more tax is not trivial. I suppose that was not so much a tax increase as simply the end of the temporary reduction, which was bound to happen

  15. 15 15 Ted Levy

    I disagree with Manfred that there is nothing worse than a US government default because it’s like a contract violation. Taxing people is worse than a contract violation. This is true morally because taxes are paid compulsorily while accepting a contract with the government that hinges on its future willingness to tax people is done voluntarily. One is done under point of a gun and the other in the hope the gun will be pointed. And it’s true economically because, as has been attributed to David Friedman, a default is simply a balanced budget with teeth. Some of us like the idea of a US government less able to raise funds. Economist and historian Jeffrey Hummel points out the many salutary results of US state level defaults in the 19th century. And since a default lowers the future anticipated tax expenditures of all Americans who pay taxes, it would immediately cause the expected future earnings of many Americans to rise.

    I raised this third alternative of default on another recent post here, and referenced Hummel’s work then. I wouldn’t be surprised, since Henderson often works with Hummel, that Henderson accepts this third alternative, and thus doesn’t agree with SL that the only alternative to taxes now is taxes later.

  16. 16 16 Maurizio

    @Manfred

    Creditors will be *very* reluctant to lend in the future, and thus, capital markets basically break down.

    Creditors will be reluctant to lend to the government. How does it follow that “capital markets will brake down”?

    All that seems to follow is that government will have to spend less. And this is bad why?

  17. 17 17 Steve Landsburg

    Jack:

    Thank you for your comment. It’s a completely accurate and well worded expression fo what I meant to say.

  18. 18 18 Steve Landsburg

    KenB:

    I don’t read DRH as defending the substance. I think his point is that considering how bad it could have been, and was in the democrat’s original version, using the criteria you mention, that the gop did pretty well ameliorating the damage.

    But DRH specifically points to keepinig tax rates down for the many as an amelioration of the damage. I view it as an aggravation of the damage (given that keeping tax rates down for the many entails eventually taking even more from the few).

  19. 19 19 Mark

    I agree with ThomasBayes. It’d be interesting to know your views on why the tax code should be less progressive than it is now.

  20. 20 20 iceman

    #15 – indeed seems like one could argue that running a deficit (via spending) and then seeking more revenue is breaking an implicit contract?

  21. 21 21 Jonathan Kariv

    First thought of way to measure progressive/regressivity of things is gini coefficent done on amount of taxes paid. Compute proportion of taxes paid by the portion x contributing least and intergrating with respect to x. Most of the arguments I hear about how progressive/regressive the tax code should be tend to
    a. Be appeals to some kind of moral aethetic (fairer distribution of societal costs, less suffering on the poor etc). In both cases one issue is disagreement about this moral aesthetic. It strikes me as hard to argue convincingly for either view for the same reason it’s hard to argue for chocolate or vanillia (chocolate wins).
    b. These arguments don’t really make precise how regressive/progressive things “should” be. Because well people’s aethetics are usually not that precisely defined.

  22. 22 22 Manfred

    Maurizio – I was talking in general, if *every* debtor decides not to honor the contract. Maybe I misunderstood your comment.
    If government decides to default, well, there surely have been government defaults throughout history, but I think most of them not without pain. Nowadays, probably the biggest black sheep of debtor nations is Argentina, which has monumental problems to gain access to capital market financing.

  23. 23 23 Ken B

    @Steve 18:
    Well I think DRH admits he doesn’t like that but then adds:
    “That’s bad, but look at what the Republicans got in return.”
    And amongst what he lists as in return is a lower death tax and lower cap gains taxes and lower dividend taxes (than without the deal). Those taxes are components of what you see as excessive progressivity and tax on investment I believe. Certainly these are part of the tax on capital formation which is a (the?) core part of your reason for wanting less progressive taxes in the first place. Am I confused on this?

    Again I think you two are using different baselines. The fiscal cliff default was never a realistic baseline David is arguing, so don’t compare to that. Compare to the dems’ bill.

  24. 24 24 Manfred

    Ted –
    what you recount of the 19th century and several states in the Union is correct; some states defaulted, some refinanced, especially in the crisis of the 1840s.
    Now, I remind you also that it was Alexander Hamilton who very strongly proposed that the Revolutionary War debt *needed* to be paid. And it was Hamilton who successfully advocated the assumption by the Federal Gov the debt that the states incurred during the Rev War. Why? Because, so Hamilton reasoned, it was very important for the young republic to have access to capital markets in the future, and thus, it was very important to send to them a signal that the debts that the US incurred *would be paid*. [BTW - read Thomas Sargent's Nobel Prize Lecture, it is a great account of this and other issues.]
    Ted, I do disagree a bit on your characterization that taxes are paid “at gun point”. No – in the US American elect a Congress, and if Congress decides to raise taxes, you have to live with it. Why? Because Americans do live under a contract, called the Constitution.

  25. 25 25 Freelancelot

    WHY should the tax code be made less progressive? Let’s see…

    1) A progressive tax code is Marxist. (If I need to splain you why Marxism is evil, I think that you can reasonably be considered a dupe. Please see “Frederic Bastiat” for more on that.)
    2) A progressive tax code is a perverse incentive against production and becoming a top producer.
    3) A progressive tax code is a perverse incentive against expanding businesses which in turn discourages creating the need to hire more employees while also discouraging the creation of opportunities for advancement for current employees.
    4) A progressive tax code is a disguised form of avarice rooted in malignant envy. Sound healthy?
    5) A progressive tax code is a perverse incentive keeping “the many” ever more dependent on that coldest of cold-hearted beasts–the State.
    6) A progressive tax code gives more and more power to the politicians and lobbyists (the insatiable State) while impoverishing all private citizens (who refuse to be cronies) more and more.
    7) A progressive tax code is tyranny (if you don’t understand why, please see “all of the above”). I can only hope that you comprehend that tyranny is evil.
    8) A progressive tax code is a perverse incentive against an entrepreneur “going for it all” personally and professionally, which is wrong on many tiers. Here, I will just say that choking off the entrepreneurial spirit is the surest singular way to destroy the United States. And if you don’t understand why it is evil to try to destroy the United States then I must advise you to cease and desist from riding bicycles that have no seats.)
    9) A progressive tax code is a perverse incentive encouraging delusions of class warfare, anti-intellectualism, mob rule, and cronyism.
    10) A progressive tax code steals money from those who are most capable of spending it for the benefit of society (highly productive private citizens and businesses) and puts it in the incapable hands of those least likely to be able to or to desire to spend it for the benefit of society (the politicians).

  26. 26 26 Al V.

    @Jonathan Kariv #21, that’s an excellent point. It would be interesting to look at the ratio of countries’ Gini coefficient of taxes vs. the Gini coefficient of income.

  27. 27 27 David R. Henderson

    Actually, RL nails it in comment 15 above. (Sorry to take so long. I’ve been working on my day job.) If I agreed with Steve that all spending will necessarily result in equal taxes (in present value terms), then I would agree that it would have been better to let the tax cuts expire. Also, I’m ambivalent about the “starve the beast” theory. The late Bill Niskanen had convinced me one way, but I’m not as sure now.
    Also, though, Ken B, in comment 23 above, nails it on the death tax.

  28. 28 28 David R. Henderson

    @Steve,
    Oh, and by the way, thank you for your compliment.

  29. 29 29 Max

    When I read this post, I wondered whether Landsburg was equally upset by the Bush tax cuts, which also (I think, not sure) increased progressivity.

    A little googling uncovered that, indeed, he was!

    “Bush’s Tax Cuts Are Unfair …
    To the rich.”
    http://www.slate.com/articles/arts/everyday_economics/2004/10/bushs_tax_cuts_are_unfair_.single.html

  30. 30 30 Maurizio

    Manfred, why do you call the Constitution a contract?

  31. 31 31 Manfred

    Maurizio – I call it a contract because this is what Americans determined among themselves how they will be governed. The President, the Legislators and the judges swear to uphold it, because it is the main law of the land. If this is true, why would it not be a contract?

  32. 32 32 Ken B

    @25: You forgot one: “for the children.”

  33. 33 33 Ted Levy

    Manfred, re the contract theory of the Constitution, you may wish to read a little piece by Lysander Spooner called No Treason #6, easily available online.

  34. 34 34 Ken B

    @Ted Levy 33:
    In what way does that argument not apply to law itself not just the constitution?

  35. 35 35 Will A

    @ Freelancer #25:

    What makes a progressive income tax tyrannical vs. a non-progressive tax income tax?

    If everyone paid 75% of their income tax to the state would this be less tyrannical?

  36. 36 36 neil wilson

    Mr. Landsburg:

    One serious and one silly question for you

    Serious question: What specific spending do you think should be cut?

    Silly question: Which of the above spending cuts do you think would manage to get even 40 Senators and 150 Congressmen to vote for them?

  37. 37 37 Al V.

    @neil wilson #26, Steve has previously argued that he wants to eliminate the Commerce Department, Dept. of Labor, and one other I can’t recall off the top of my head (Education?). I might add Agriculture, SBA, HUD, and consolidate Veterans Affairs into Defense.

    Realistically, we can’t eliminate all of these departments. For example, Commerce includes NWS and the Census, which we should continue.

  38. 38 38 Ted Levy

    Ken B, re #34. Fascinating question, though no doubt it would get us far afield and risk hijacking this thread. Let me say merely that to my thinking it depends on what you mean by “law”. Do you refer only to US statutory law, or do you speak more broadly?

  39. 39 39 Ken B

    Ted,
    Either, both. Any law Lysander Spooner dislikes.

    My point is that the argument seems to apply to any law, certainly any statute law, so he (and you?) are claiming that law does not and should not bind. Rather than poking holes I am conducting a reductio on the whole thing.

  40. 40 40 Ken B

    @neil wilson:
    I think you have your serious and silly labels reversed!

  41. 41 41 Ken B

    @Will A: Worth noting, we seem (if I read between your lines and you between mine) to be in complete agreement here. Is it a full moon?

    :)

  42. 42 42 Manfred

    Ted Levy:
    Says the Wikipedia entry on Spooner:
    “His activism began with his career as a lawyer, which itself violated Massachusetts law.”
    And says the Wikipedia entry on No Treason:
    “In this lengthy essay, Spooner argues that the United States Constitution is a contract of government (see: social contract theory) which was irreparably violated during the American Civil War, and is thus void.”
    Come on Ted – in this audience you know better. How mainstream are Spooner’s ideas?

  43. 43 43 Jack

    “I think that making the system more progressive is a bad thing.” I don’t understand why people think this.

    First, most people think that losing 10% of your income if you make 10K makes you a lot worse off than losing 10% if you make 10 million. In terms of well-being, these rates are not equivalent.

    Second, what evidence is there that high income earners actually will stop working or work less at a 40% rate? Are they really going to think: “Now that I’ll make $2.4 million instead of $2.6 million, I should just stop working and make 0″? Is there any evidence that these kinds of incentive effects become measurably worse at 40% than 35%? And even if such people do work less, do we really believe that there aren’t just as many qualified people who will be able to step-in and take their place?

    Third, when factoring in payroll taxes, state and local taxes, the tax code is far less progressive than critics make it out to be. This chart (http://www.washingtonpost.com/blogs/wonkblog/wp/2012/09/19/heres-why-the-47-percent-argument-is-an-abuse-of-tax-data/) shows that we definitely don’t live in a nation of takers vs. makers.

  44. 44 44 Steve Landsburg

    Jack:

    First, most people think that losing 10% of your income if you make 10K makes you a lot worse off than losing 10% if you make 10 million. In terms of well-being, these rates are not equivalent.

    Most people also think that working an extra hour is a whole lot harder after you’ve just put in a 60-hour week than after you’ve put in a 10-hour week. Does it follow that the 10-hour workers should be forced to mow the lawns of the 60-hour workers?

  45. 45 45 Ken B

    Jack: “First, most people think that losing 10% of your income if you make 10K makes you a lot worse off than losing 10% if you make 10 million. In terms of well-being, these rates are not equivalent.”
    To paraphrase *ahem*, that’s an argument for making taxes progressive, not more progressive.

  46. 46 46 Jack

    “Does it follow that the 10-hour workers should be forced to mow the lawns of the 60-hour workers?”

    I would agree that it doesn’t follow. But the person who makes a lot more doesn’t necessarily work a lot more hours. Also, there isn’t an equivalency among income groups between hardship of work (as there is in your example – lawnmowers to lawnmowers). If anything, working the extra hour if you are in a low income group (e.g. landscaper) is a lot more taxing than working an extra hour if you are in a high income group (e.g. sitting in an office).

  47. 47 47 Ken B

    @Jack: The most beautiful 1% of the population monopolize 99% of the pulchritude. Should we redistribute a bit?

  48. 48 48 Jack

    @KenB

    “To paraphrase *ahem*, that’s an argument for making taxes progressive, not more progressive.”

    Agreed.

  49. 49 49 Jack

    @KenB

    “The most beautiful 1% of the population monopolize 99% of the pulchritude. Should we redistribute a bit?”

    It depends on what the relationship between well-being and beauty is.

  50. 50 50 Economiser

    Jack,

    Why are you assuming there is a direct correlation between hours worked and income earned? For high income workers, I expect that is true only in the very narrow sense.

    For example, high earners investing in capital base their investment decisions on the expected net profit, which decision is highly dependent on the marginal tax rate. An increase from 35% to 40% will change some decisions.

    The same applies to high income professionals (think doctors and lawyers). Only in the narrow sense does a doctor think “I can work an extra hour, see another patient, and earn $X.” In the broader sense the doctor thinks, “I can work an extra hour to learn a new skill, which will then let me raise my rates.” That second decision is clearly affected by the marginal tax rate.

    Lastly, you’re ignoring the value of leisure. Excepting those on the cusp of retirement, a high income earner doesn’t think, “Now that I’ll make $2.4 million instead of $2.6 million, I should just stop working and make 0.” Instead the high income earner thinks, “Instead of working 60 hours a week, 50 weeks a year, I’ll take more vacation and only make $2.0 million. The marginal leisure is worth more than the marginal income. That’s where the slight changes in the tax rate really hit economic productivity.

  51. 51 51 ThomasBayes

    Jack: (Comment #43)

    Ezra Klein is correct to include state and local taxes. However, if you want to be complete, you should should also include cash transfers from the government. Here’s CBO data that shows those for the federal government:

    http://www.cbo.gov/publication/43373

    If you look at tab 6 in the xls spreadsheet, you’ll see average federal taxes and transfers by income group. Here’s the transfers (as a percentage of market income) by group for 2009:

    0-20: 57%
    20-40: 51%
    40-60: 31%
    60-80: 17%
    80-90: 9%
    90-95: 7%
    95-99: 4%
    Top 1: <1%

    Factor those into the mix, and the "Total Tax Bill minus Transfers" becomes a NEGATIVE percentage for the bottom 60%. I think that makes the total tax policy very progressive, regardless of the definition of progressivity. That also explains why some people may believe we have a society of makers and takers. (Although I believe the simple maker vs. taker arguments usually miss the fact that today's taker is often tomorrow's maker, and today's maker is often tomorrow's taker.)

  52. 52 52 Ken B

    @49: I can only speak for myself, but this being a family blog I won’t. :)

  53. 53 53 johnson85

    Manfred,

    First, the constitution (and democratic laws in general) are not contracts because a contract requires acceptance. There is no meaningful way to reject laws. People usually use the contract issue as an excuse to make themselves feel better about serving a shit sandwich to the minority.

    The constitution was actually recognition that democracy was no guarantee (and sometimes an impediment) to just laws and was intended to minimize the number and size of shit sandwiches the majority served to the minority. Unfortunately, we basically interpreted a lot of its provisions out of existence, which limits its effectiveness.

  54. 54 54 David Wallin

    r44 Steve: “Most people also think that working an extra hour is a whole lot harder after you’ve just put in a 60-hour week than after you’ve put in a 10-hour week. Does it follow that the 10-hour workers should be forced to mow the lawns of the 60-hour workers?” I will probably use this line a lot in upcoming weeks. I’ll give proper attribution, but I suspect they’ll give me the credit….

  55. 55 55 Jack

    @ThomasBayes

    “Factor those into the mix, and the “Total Tax Bill minus Transfers” becomes a NEGATIVE percentage for the bottom 60%.”

    Agreed, thanks for posting. I do think that info is important. But it has nothing to do with tax rates and the progressiveness of the tax code. Benefits are a different conversation: if the problem is with the benefit and not the rate, then we should address the benefit itself, not adjust the rate to make-up for the benefit received.

    @Economiser

    “High earners investing in capital base their investment decisions on the expected net profit, which decision is highly dependent on the marginal tax rate. An increase from 35% to 40% will change some decisions.”

    Agreed. What comes to mind for me is the store owner who wants to make a capital investment to expand his store. He’ll obviously be looking at his after tax return. To the extent these types of investments don’t happen needs to be considered. But what does “some decisions” entail? Any rate increase will have some effect, but exactly how much of an effect will the difference between 35% and 40% have? It’s really hard to say.

    “Instead the high income earner thinks, ‘Instead of working 60 hours a week, 50 weeks a year, I’ll take more vacation and only make $2.0 million.’”

    This is true in theory, but do we have evidence that this is actually how people operate in the real world? E.g. plenty of people have bosses and job requirements that they have to live up to. These people can’t just say, “Excuse me boss, my rates just went up, so I’m taking an extra week of vacation this year.” And if you try to skimp at work, you’ll get canned and replaced. Another example: people also have psychological motivations for succeeding at work beyond their compensation – e.g. maybe they are genuinely passionate about their work, maybe they enjoy the social distinction of being promoted. While decisions are strongly influenced by payout, it isn’t the only consideration.

    Also, even if the high income earner decides to work less, aren’t there just as well-qualified people willing to step up to the plate? Realistically, those potential profits aren’t going to be just left on the table. That high income earner would have to be somebody who is so special that that he is the only one capable of making that profit, he is literally irreplaceable. This also applies to investment decisions – e.g. the store owner decides not to make the investment to expand, but if the demand and opportunity for profit is there, maybe somebody else with worse alternatives decides to open a competing convenient store and meets that demand.

  56. 56 56 Ken B

    Jack: “This is true in theory, but do we have evidence that this is actually how people operate in the real world?”

    Actually we do, but I want to look at another hole in your logic. The constraints you list — demanding bosses, billable hours — apply LESS the more you earn. The very rich are the entrpeneurs or investors who don’t work for wages. And the more we load all the new taxes on the the MORE likely are we to discourage innovation and very high value productivity. The effects you rely on cutt against your argument.

  57. 57 57 nobody.really

    Most people also think that working an extra hour is a whole lot harder after you’ve just put in a 60-hour week than after you’ve put in a 10-hour week. Does it follow that the 10-hour workers should be forced to mow the lawns of the 60-hour workers?

    It might. I suspect the reason we don’t have such a policy is 1) we don’t have strong enough feelings about lawn mowing, and 2) personal service obligations are harder to administer than financial transfers. Thus, if we want to promote lawn mowing it’s easier to reduce the obligation to a financial one — and having done so, it’s easier to tax people on the basis of their finances rather than their leisure.

    Yup, these administrative conveniences distort behavior relative to a world in which we seek to compel personal services. It’s all a question of whether the benefit of the policy, and of the policy’s financing mechanism, is worth the cost.

    I offer the following hypothetical to explore the distinctions between taxation of money and personal services:

    Should government be able to compel women to engage in acts that result in them having sex with people they otherwise would not have, even if the women find these acts revolting and stomach-churning?

    Consider Libertarian Sue, a prostitute in Nevada. She finds the idea of government wealth transfers revolting; it violates her values, turns her stomach, and sears her soul. Yet Nevada adopts a welfare policy which has the effect of taxing Libertarian Sue $X and transferring $X to Indigent Bob. Bob chooses to use these funds to hire Sue for sex, and she readily accepts.

    Fair? Foul? You make the call.

    (And if this hypothetical doesn’t end up in Landsburg’s next book, I’ll be really pissed.)

  58. 58 58 Ken B

    @nobody.really:
    1. See 47. We are thinking similar thoughts. One of us should be scared!
    2. This belongs in a book on General Relativity??

  59. 59 59 nobody.really

    This belongs in a book on General Relativity??

    With my grasp of General Relativity, I’m not qualified to say. I might be the only part of the book I’d understand.

    And with my grasp of public finance, Landsburg would probably dispute even that assertion.

    But how else is Landsburg gonna get sex into the book? When I consider my General Relatives, I gotta say, the task seems bleak.

  60. 60 60 neil wilson

    I always find comments like Al V @37 rather funny because the amount of cuts are so immaterial.

    Consolidating Veterans Affairs into Defense will save how much?
    Do you really think that we can eliminate the Agriculture Department when the Ag bill is one of the biggest pork bills in Congress?

    I am not saying you don’t have good ideas but how many billions a year could we save? More or less than $10 Billion??

    Nobody in this thread has come up with any substantial savings that has the slightest chance of getting passed into law.

  61. 61 61 Will A

    @ Ken B.

    I think that eventually people can find common ground. In my case it really helps to read rational folks who have a different point of view from mine.

    As you know, I’m a tree-hugging left wing nut Christian and Prof. Landsburg’s Scrooge post has me wondering why others like me aren’t in favor of generating revenue by taxing consumption more.

    Would Americans on average be willing to swap a 3% income tax cut with an increased tax on gas? Which tax policy would be better for the earth that so many claim to love? Which tax policy would be more likely to spur innovation?

    I guess in general my frustration (and possibly yours) is that we have so many ways to have a national conversation on how to pay for what we want and all we can discuss is whether the marginal rate should be 36% (Radical Conservative rate) or 39.6% (Radical Liberal rate).

  62. 62 62 Ted Levy

    Well, it seems Manfred at #42, having at least perused the Wiki version of Lysander Spooner, now finds himself a sufficient expert to chide me for trying to play a fast one with this group. Yet I suspect many people in this group find Spooner’s argument, a reductio on viewing the Constitution as a contract, compelling. It is a contract no one now living has signed, by which we were allegedly bound by long-dead ancestors. These are, to those familiar with contract law, gross dissimilarities between the Constitution and actual contracts, and these are only two of many that Spooner discusses in some detail. And of course much more beyond Spooner has been written–see Michael Huemer’s latest book on political philosophy, for example–about the deficiencies of the contract theory of the State.

    Having noted this, I further note I granted Manfred’s assumption at the start. In #15 above, I assumed for argument’s sake the Constitution is a contract. Manfred seems to have a contract fetish, such that nothing more horrid than violating a contract can be imagined. But of course contracts are violated daily, and the society does not crumple. But societies have been taxed into destruction. That’s why I pointed out (#15) there are things worse than violating a contract, like increasing taxes. It appears (see #27) David Henderson agrees.

    Manfred can imagine Bruno, the local enforcer, coming into Luigi’s restaurant, and breaking his legs. “I don’t wanta do this, Luigi,” he says as the femurs crack. “But I gotta. You understand. The big boss, he has obligations. They’re of a contractual nature, so of course he can’t possibly default. So raising your payments was the ONLY alternative. And he has to collect, and you’ve not paid. Enough. And the big boss, he’s protected your business, and you didn’t object. So you should have paid up. It was an implied contract. What? You don’t read constitutional legal theory?” Me, I don’t find Bruno’s argument as compelling as Manfred must…

  63. 63 63 Ted Levy

    To Ken B at #39: My apologies, as I’m not following. Spooner’s piece (No Treason #6) can be read as a reductio itself, of the view the Constitution is best viewed as a contract. So I’m not following how you’re setting up a reductio of a reductio. Since I usually find your comments quite clear, I assume I’m missing something…

  64. 64 64 Harold

    56 – “The constraints you list — demanding bosses, billable hours — apply LESS the more you earn”

    I think that there are a great many high earners who would be happier working less and making proportionaltely less, but they do not get the chance. If you do not put in 2/3 the hours, you get far less than 2/3 the rewards. You won’t make partner if you are seen as a slacker.

    This may be a stereotype – I am not sure where the evidence would be found. I am certain that there are some people in this position, I suspect there are many.

  65. 65 65 Ken B

    @nobody.really on General Relativity:
    “But how else is Landsburg gonna get sex into the book?”

    Oh man, do you ever need to read up on tensor contractions.

  66. 66 66 Ken B

    @Ted Levy:
    I am arguing Spooner’s argument, if one accepts it, proves too much. His states his case only against one particular law — you know the one, the one that guarntees free speech, equal treatement, fair trial, that one — but it seems it should apply to any law. Certainly any statue law or any constitution. It’s a rejection of law.

    In this respect it reminds me of a taliban I saw interviewed. He would only obey “god’s law not man’s law”. No man made law could bind him or anyone.

    (Inflammatory enough?)

  67. 67 67 Ken B

    @Ted Levy & Manfred:
    Obviously, having compared him to a taliban, I am no Spooner fan. But I don’t buy the contract argument. A democratic law has elements of a contract, but clearly differs in important ways. Law binds and can have legitimacy ands worth (pace the talibanistas) but you can’t get it from contracts.

  68. 68 68 iceman

    johnson85 – “People usually use the contract issue as an excuse to make themselves feel better about serving a shit sandwich to the minority.”

    Inelegantly beautiful.

    Spooner raised an important challenge to the myth of popular consent / sovereignty and what ultimately “binds” us to obey a constitution (and all laws thereby enacted): imputed consent can in fact only justify a system that respects the rights of all, i.e. a government of limited powers, since “an unjust government must have victims, and the victims cannot be supposed to give their consent”. A good read on this is Randy Barnett’s “Restoring the Lost Constitution”, which tries to address Spooner’s challenge by arguing that laws can bind us “in conscience” (only) if the *process* by which they are enacted ensures the resulting laws are just; he believes the US Constitution *as originally conceived* was one example of such a system. BTW in the process he also nicely puts to bed the residency = consent trap.

    The less satisfying “barrel of the gun” (hyperbolic but technically accurate) is a useful reminder that everything the govt does ultimately derives from its legal monopoly on coercive force, so we should have very good (legitimate and just) — reasons for raising every $ of precious revenue. It’s not enough to say “aw these people can afford it”…the first question is what exactly empowers us to take it? Similar to the libertarian talking point that taking part of someone’ income is literally taking part of their life (e.g. the Tax Freedom Day calculation).

  69. 69 69 j m rodney (rod)

    any tax that requires one citizen to pay more than any other citizen is progressive

  70. 70 70 Ken B

    “serving a shit sandwich to the minority.”
    What’s that old Sicilian saying? “Revenge, like a shit sandwich, is a dish best served cold.”

  71. 71 71 Al V.

    @neil wilson #60, of course you are correct. Given that we can divide the federal budget approximately into quarters: 25% Social Security, 25% Medicare, 25% Defense, and 25% everything else, cutting everything else is only a band aid. And don’t forget, there is as much pork in the Defense budget as there is in agriculture or any other department.

    A few years ago (at the time when Simpson-Bowles was in negotiation, the NY Times had a tool online that allowed anyone to seek to balance the budget. And it was actually pretty easy, but it required means testing Social Security and Medicare and raising the age of eligibility, the third rail of politics today.

  72. 72 72 Mike H

    #71 as much pork in defense as in agriculture?? What’s this?? Is it the army bringing home the bacon now??

  73. 73 73 Ken Arromdee

    Most people also think that working an extra hour is a whole lot harder after you’ve just put in a 60-hour week than after you’ve put in a 10-hour week. Does it follow that the 10-hour workers should be forced to mow the lawns of the 60-hour workers?

    I think that given that you have already decided that you’re going to have someone mow someone else’s lawn, you’re probably better off doing it that way rather than the other way around.

  74. 74 74 Al V.

    #72, yes they do bring home the bacon for Lockheed Martin, Grumman, General Dynamics, and Boeing.

  75. 75 75 Economiser

    @ Harold #64: In the $2m+ earner range (where this hypothetical started), we’re talking about the partners, not those trying to make partner. The partners themselves definitely do have the opportunity to work less and make less.

  76. 76 76 Russell

    “What about the payroll tax increase, though? For lower-middle income workers, 2% more tax is not trivial. I suppose that was not so much a tax increase as simply the end of the temporary reduction, which was bound to happen.”

    You could also think of the Bush/Obama tax cut as a temporary reduction, because it had a sunset provision. I view the payroll tax increase as an honest-to-goodness tax increase. There is no way around the fact that this year I will pay more in taxes than I did last year. I believe that qualifies as a real tax increase.

  77. 77 77 Ken B

    @75: yes, and my point is that the smaller we make the tax base the higher percentage of that base is people like this. There are people who cannot easily slack off, but they are part way up the pole, not at the top. So the original commenter’s argument on that point is backwards.

  78. 78 78 KS

    Just saw this, sorry for the delay.

    “Taxes are too high because spending is too high.”

    How do we know ‘spending is too high’? What’s the criteria here?

  79. 79 79 Ken B

    KS: “Just saw this, sorry for the delay.”
    Please KS, never feel you need to apologize for not posting.

    “How do we know ‘spending is too high’? What’s the criteria here?”
    Most of us would cite skyrocketing deficits that are leading to credit downgrades as suggestive, but your question is a fair one. It’s a value judgment, there is not canonical answer. “How do we know Stalin had too much power?”, same kind of thing.

  80. 80 80 KS

    @Ken B–

    “Most of us would cite skyrocketing deficits that are leading to credit downgrades as suggestive.”

    So spending is “high” because deficits are “skyrocketing”? Seems tautological.

    Also, a credit downgrade by one agency is irrelevant (in medicine, we could call this a “proxy indicator”, which is another term of saying “BS”). If you want to understand how much confidence the free market you love so dearly has in the ability of the US government to pay its obligations — which IS the most relevant thing a concerned citizen should think about — then you need to look at the interest rate on US bonds.

    Which, by the way, are near all-time lows.

    So the argument that deficits are skyrocketing and one agency downgraded our credit rating implies that the US is spending too much is, um, wrong. For the time being, the market has spoken — there is no fear of the US being unable to pay its obligations.

    So, back to my original question. Why is spending too high?

  81. 81 81 neil wilson

    So, everyone seems to think that spending is the problem or spending is too high or …. whatever.

    Nobody has mentioned anything more than very minor changes in spending that have the slightest chance of getting signed into law.

    Just sayin’

  82. 82 82 Ken B

    @neil wilson: Everyone is concerned about the other guy’s spending.

  83. 83 83 iceman

    Question – spending as a % of GDP is often presented as if there’s some ideal / “average” historical level. But why should the target be some magic constant? Arguably shouldn’t the # go down as the standard of living increases (i.e. fewer people require public services)?

    #80 – Agree mkt signals are typically better than ratings. But some would say current rates are low because of unprecedented steps by the Fed, which could end badly (e.g. inflating demand for riskier debt, equities etc., by design). Or our economy / budget is simply in less bad shape than others, which is kinda like being the best bobsledder in Jamaica. Either way, god forbid our “global reserve currency” or “global safe haven” status ever starts to slip. If you do the math based on past Treasury yields things look much worse.

    #81 – I am more convinced than ever that creating real or perceived crises over deficits / debt is the only way to have any hope of achieving meaningful cuts.

  84. 84 84 Ken B

    KS:

    So the argument that deficits are skyrocketing and one agency downgraded our credit rating implies that the US is spending too much is, um, wrong. For the time being, the market has spoken — there is no fear of the US being unable to pay its obligations.

    Only if the criterion is confidence in the ability of the USD to pay its debts.

  85. 85 85 KS

    @ iceman–

    “But some would say current rates are low because of unprecedented steps by the Fed, which could end badly (e.g. inflating demand for riskier debt, equities etc., by design). Or our economy / budget is simply in less bad shape than others.”

    Maybe. I’m not contesting this. I am contesting the argument that debt is an IMMEDIATE problem. It is not. Almost everyone, including myself, Paul Krugman, and the evil socialist overlord Obama agrees that the US has a long-term budget deficit problem.

    What separates me from Ken B is his belief the US has a short-term deficit problem as well. And empirically, it does not, unless you rely on voodoo credit ratings and “confidence fairy” myths.

    @ Ken B–

    “Only if the criterion is confidence in the ability of the USD to pay its debts.”

    Ummmm, why else does debt matter, other than undermining other investors’ confidence in the ability of the debtor to pay his or her obligations? How else do you define how much debt is good or bad?? (Unless there’s some natural law which says if we hit a X ratio of debt to GDP the world explodes or something).

    Btw, I don’t necessarily disagree with Dr. Landsburg here. I’m just saying he stated it so matter-of-factly, and it seems to be a case where the premise might be questionable. How do we as a society know whether spending is high or low?

  86. 86 86 Ken B

    @KS: Because it can mean higher taxes or awkward cuts now or in the future. Why after all do bond buyers seem confident that the bonds will be payed back? Because they are confident that the political culture will reject default. But the debt still must be paid. So taxes will need to be paid, or spending cut later, more deeply, and in a panic. Just as two possibilities: they will be steeply progressive and so have bad incentives, or they will be steeply regressive and hurt the poorest.
    Plus of course there are already incentive effects at work.
    High debt also restricts governmental options in the future. There are lots of issues besides how happy we want the bond market to be.

  87. 87 87 KS

    @ KS–

    “But the debt still must be paid. So taxes will need to be paid, or spending cut later, more deeply, and in a panic. ”

    Sure, eventually. And not necessarily “in a panic”. No-one disagrees that there is a long-term deficit issue. People disagree that there is a short-term issue, and some people argue that deficit spending NOW might actually be beneficial for helping our long-term deficit crisis down the road, as counter-intuitive as it might seem.

    “There are lots of issues besides how happy we want the bond market to be.”

    But you still haven’t given me an objective criteria for determining if a certain level of debt is good or bad or too much or too high, other than your first reference to credit ratings (debunked), or simply claiming that deficits are “skyrocketing” (tautological).

  88. 88 88 Ken B

    “But you still haven’t given me an objective criteria for determining if a certain level of debt is good or bad or too much or too high,”

    1. You asked about spending not debt.
    2. I answered there is n o objective answer.

    However since this time you do seem to be serious, and I like to encourage people when they try new things, I’ll sketch an answer on why I think spending is too high.

    I think govt is needed to provide somne things: defence, rule of law, a social safety net. The safety net is pretty variable in size, and I am not per se against a generous welfare state (more below) but I am against a nanny state, which we are becoming. Beyond that core govt spending is mostly harmful. We can see this is several ways.
    First it increases govt power and control. I think people should be able to make their own decisions, and will generally do a better job of it. This seems particularly compelling when we have a safety net.
    Seconf govt spending is almost by definition not spent the way a pareto optimal market would spend it, and thus represents misallocation. Once we wonder past the bounds of what only govt can supply, or past welfare, then that is pretty clearly a waste.
    Govt spending and taxing create and destroy incentives in ways that impoverish us.
    Spending must be tied to a willingness to pay. In Greece it was not, and they were saved only by bailouts. No-one will bail us out. You can have high spending with a high willingness to pay, as in Denmark or Sweden, but not with a low willingness to pay like Greece or Portugal. We have exceeded our willingness to pay.
    The only way the electorate seems willing to pay, and a way enabled by huge deficits, is to make our very progressive tax system more progressive. I think Steve has laid out superbly why that’s a bad idea.
    All of these reasons argue for less spending.

  89. 89 89 neil wilson

    @88
    We are not Greece.

    We cannot become Greece.

    We have a printing press and Greece doesn’t, period.

    Maybe people in the future will stop lending the US money in US Dollars at absurdly low interest rates. Maybe the value of the Dollar will go down.

    You are against a “nanny state”. Fine. Please explain what first world country that is less of a “nanny state” than the US.

    I assume that none of the EU countries would qualify with the generous welfare programs and state supported health care. Canada? Japan?

    I suppose you could talk about Singapore and Hong Kong.

    So, I believe we are the LEAST “nanny state” of any rich country.

    Am I wrong????

  90. 90 90 Ken B

    @neil wilson:
    Sure you can spare all those question marks?
    Or perhaps I should say
    Sure you can spare all those question marks?????????????

    You might note I drew a distinction between a nanny state and a welfare state. So there’s that. And just as a point of logic, being the LEAST nanny state is no arguemnt for being more of one. We are probably the LEAST homophobic major oil produc er in the world; should we become more so? Sorry, I mean ????

    When the local government puts limits on the size of pop drinks you can sell, or bans new restaurants in poor neightborhoods, do you count that as welfare or nannying? When governments enforce strict age drinking rules, forbid kids taking aspirin to school, and ban pot even for medical purposes do you count that as welfare or nannying? Sorry, I mean ???

  91. 91 91 iceman

    89 – “we are the LEAST “nanny state” of any rich country”

    Again, this could simply mean we’re the best bobsledder in Jamaica. And the gap seems to be closing.
    And running the printing press = raising taxes

    85 – Arguing there’s no near-term problem because the market is acting as though there’s no near-term problem seems like a thin reed.
    Any shock to interest rates could make this an immediate problem. Kinda like basing your mortgage amount on a teaser rate.
    So may be prudent not to take things too close to the brink e.g. the 90% debt to GDP empirical red flag offered by Rogoff et al.
    Even if spending in the name of ST smoothing (stimulus), or the common good.

    Obviously the “right” level of spending (within levels that don’t lead to potential debt crisis) gets philosophical.
    Some think our constitution tried to speak to this, and that the differences between the US and other countries explains a lot about our superior economic performance & living standards over time.

  92. 92 92 Ken B

    I wrote: “I am not per se against a generous welfare state (more below) but I am against a nanny state”

    I imagined that this would make it plain that
    1. I am not against a generous welfare state necessarily
    2. I distinguish between a welfare state and a nanny state. I do think the distinction is widely made and not arcane
    3. I oppose the nanny state.

    Apparently my writing was insufficiently clear. Let me amend for clarity:
    I am not against a generous welfare state per se (more below) but I am against a nanny state.

    I hope this will avert any more confusion.

  93. 93 93 KS

    @ Ken B–

    “2. I answered there is n o objective answer.”

    Well, at first you cited credit ratings; I think you’ve realized the folly of your ways there. And there IS an objective answer to determine if a current level of debt is harmful — the interest rate on US bonds. (This does not rule out that a current level of debt sustained indefinitely is or is not harmful, that’s a separate question.)

    Objectively, the free market has spoken — investors are not currently worried about the US’s current levels of spending (or debt, which is just spending minus income). So, once again, on what basis does Dr. Landsburg claim that current spending is too high?

    “Seconf govt spending is almost by definition not spent the way a pareto optimal market would spend it, and thus represents misallocation.”

    This is more of a philosophical argument. I don’t necessarily disagree with you. But in some cases a free market does not achieve a Pareto optimal outcome, and in some of those cases increased government spending — even if not Pareto optimal itself — can help produce that outcome.

    “Govt spending and taxing create and destroy incentives in ways that impoverish us.”

    This is a blanket statement which is almost meaningless. You need to provide more context. How and what type of spending affects incentives, and how does it affect incentives? There are costs to government spending, but there are benefits too. Simply citing the effect on incentives means you are only citing the costs. It would be like me, a physician, arguing against aspirin use to prevent stroke as it increases a patient’s weight and therefore increases their risk of stroke.

    “We have exceeded our willingness to pay.”

    Once again, your premise is your conclusion.

    Let me state my beliefs simply, as you did:

    1. Our current level of spending is not too high, as evidenced by the interest rate on US bonds.
    2. If our current level of spending continues indefinitely for the next decade or so, that will be too high.
    3. Nonetheless, deficit spending now can actually increase our long-term budget outlook by augmenting inadequate demand. (Keynesian.

    #1 and #2 I assert with complete confidence. #3 I assert with less confidence, but still believe.

  94. 94 94 Will A

    @neil wilson #89

    We can become Greece, it just isn’t very likely.

    @ Ken B
    I do think that nannying should be allowed as it relates to social services. E.g. You can’t buy chips, candy, cigarettes, bottled water, haggis, etc. with government food stamps.

  95. 95 95 Mike H

    @WillA – how do you imagine the USA could become Greece? Tell us a hypothetical sequence of events….
    @iceman – what do you mean when you say “running the printing press = raising taxes” ??

  96. 96 96 Harold

    Ken B (88): “Second govt spending is almost by definition not spent the way a pareto optimal market would spend it, and thus represents misallocation.”

    Whilst it may not actually be spent in this way, I argue that it is not almost by definition – that is as long as you define Pareto optimum in what to me seems the proper way. That is, Pareto optimum is what fully informed, rational actors would arrive at. It is quite possible that consistent errors could be recognised through research, and corrected for by legislation or spending. Then Govt spending would be taking us towards a Pereto optimum.

    The “almost” in your statement suggests that you think the population is almost fully informed and almost rational. I am not so sure. I think we are almost certainly a long way away. That still leaves the question of whether the research can identify which way we should go, but I think the “almost by definition” is too strong.

    Alternatively, I may have got the definition of Pareto optimum wrong, but I keep seeing references to informed and rational in the definition. I think this is often taken to mean “as informed as one could reasonably be expected to be”, but that is not what it actually means.

  97. 97 97 Ken B

    @Will A: I always suspected I was to the left of you!
    I favor more of a neagative income tax way of doing things. Will some recipients spend foolishly? Yes. But there will be costs and waste and foolishness with a larger oversight apparatus too. People spending their time just monitoring the spending of recipients is pure overhead — waste.

  98. 98 98 Ken B

    @Harold: I mean markets aren’t perfect, and govt spending isn’t always misallocated. But markets respond to incentives and govts not so much. So over time even a good program will drift into being inefficient, when the market would adjust. There are a lot of examples in regulated industries like phones used to be but one I like if an Austrian govt program to edit the symphonies of Bruckner. There are a limited number of source materials, all the serious editing was done decades ago, and the various versions where there is real doubt published and oft performed. But that department still exists, and still puts out new editions of every possible minor variation.

  99. 99 99 Harold

    Ken B. I tend to agree – but as you mention phones, I heard a commentator on the radio saying that Europe was helped very much by regulation imposing a single format for mobile phones, whereas the USA was held back by lots of competing ones. I do not havce the time to follow that one up atthe moment, but maybe food for thought.

    One problem with Govt programs is that oince they are in place it is difficult to remove them because somebody will be made worse off. It doesn’t matter if somebody else would be made better off, the attention tends to be focused on the sector than is made worse off. This means we tend to be stuck with policies that have outlived their usefulness.

  100. 100 100 Will A

    @ Mike H #94

    Never is an absolute. If you start looking for the largest prime number, you can never find it.

    Here is a hypothetical:
    The U.S. continues to have fun with the debt ceiling and the world decides the the Euro is the currency of choice over the next 100 years. The European Union becomes more powerful. Turkey, Israel, Russia and Japan join.

    After another 200 years the U.S. realizes it needs to join the E.U. for its economic stability. The U.S. would then be Greece – another country of the E.U.

    I place the odds at better than 1 to 10000000000000000000000000000000^1000000000000000000000000 (Neil likes ?’s I like 0′s)

    @ Ken B. #96
    I would agree that you are more libertarian than me and that libertarians are the to left of me on most issues. “Left” in the sense of maximizing options for what a person can do.

    I would consider myself to be toward the “right” on the freedom scale. My thought is that if someone is going to rely on the state for food and medical coverage, we try to save money. I.e. only allow food to be bought that leads to lower medical costs.

    For sure though I am more “left wing” than you are because “Left wing” is a media term used for those who are more willing to restrict the freedoms of themselves and others in exchange for perceived security.

  101. 101 101 Ken B

    @Will A: Maybe though that’s a created problem? You want to pay for medical care (which is not what Obamacare does of course) AND give money (script) fro food, and then restrict one due to costs in the other. Multiply that by all the channels you use to funnel wealth to the the poor. If you let them choose their own levels of some of these things, and accept the consequnces, you’d get better results overall with less cost and waste. (And note I support a minimal saftey net that would be there even if they make a mess of it. That is where I might favor tighter oversight. Already tried the other and failed.)

  102. 102 102 Henri Hein

    @Harold #99: “I heard a commentator on the radio saying that Europe was helped very much by regulation imposing a single format for mobile phones, whereas the USA was held back by lots of competing ones”

    This mechanism can go both ways. Sure, a government-imposed standard can improve things in the short run. The cost is that it then locks in the technology and closes of other avenues of exploration. One consequence of the European standards regulation was that Wifi was must slower to adopt in Europe, compared to the US.

    France’s Minitel program is a great example of the issue. Sure, they were ahead in access, and maybe even content, for a brief period — but they quickly got left behind by the rapid evolution of Internet technologies, most of them coming from the unregulated, unstandardized US.

  103. 103 103 Henri Hein

    @KS: “Ken B [believes] the US has a short-term deficit problem as well”

    Does he actually believe this? I cannot speak for Ken B, but that was not my impression.

  104. 104 104 Henri Hein

    @KS: “How do we know ‘spending is too high’? What’s the criteria here?”

    Evidence is mounting that maximum economic growth is achieved when public expenditures are somewhere in the 15%-25% range. The Federal government is now in the high end of this range by itself. Total public spending in the US is now about 40%.

    See for instance http://thinkbynumbers.org/economics/gdp/ideal-level-of-government-spending/

  105. 105 105 Ken B

    @93: Check your chronology KS. Anyway HH is right, you clearly do not get, or willfully misrepresent, what I said.

  106. 106 106 KS

    @HH–

    “Evidence is mounting that maximum economic growth is achieved when public expenditures are somewhere in the 15%-25% range. The Federal government is now in the high end of this range by itself. Total public spending in the US is now about 40%.”

    I like that you’re being scientific and at least providing a criteria. This “evidence” still has issues, however, mostly related to the endogenous effect. If we expect governments to spend more in times of recession to pump up growth, we would expect to see a correlation between government spending and lesser economic growth. This is the reason correlation is so tricky, and why it’s helpful to look for natural experiments.

    @ Ken B–

    “Most of us would cite skyrocketing deficits that are leading to credit downgrades as suggestive, but your question is a fair one. It’s a value judgment, there is not canonical answer. “How do we know Stalin had too much power?”, same kind of thing.”

    This leads me to believe you would argue that the US has a short-term deficit issue (ie, the US’s current annual debts are too high). Maybe I misinterpreted you. But the moralizing equivalence with Stalin kind of sealed the deal in my mind. Also the term “skyrocketing”.

  107. 107 107 Ken B

    KS, it seems to me you are always confusing debt, deficit, and spending.

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