I am filling out an online recommendation form for a student who is applying to graduate school at Berkeley. One of the questions is: “Rate the applicant in comparison to others you have known in a similar capacity.” My choices are:
(This is an actual screen capture from the actual form.)
Unless I select one of the options, I am unable to submit the form.
I find myself at a loss for snarky words. What ought to have been the title of this post?
This post is a first attempt to rank the efficiency of the Republican candidates’ tax plans, concentrating on six dimensions:
1) The tax rate on wages and/or consumption. A wage tax and a consumption tax are pretty much interchangeable; you can tax the money as it comes in or you can tax it as it goes out. So I’m treating this as one category. The “right” level for this tax depends on your forecasts for future government spending.
2,3,4,5 and 6) The tax rates on dividends, interest, capital gains, corporate incomes and estates. I believe these tax rates should all be zero. That is not a statement about how progressive the tax system should be. A wage tax and/or a consumption tax can be as progressive (or regressive) as you like. It is instead a statement that while all taxes discourage both work and risk-taking, capital taxes have the added disadvantage that the discourage saving. This simple intuition is confirmed by much of the public finance literature of the past 25 years. (Here is a good example.)
My personal preference is for a system substantially less progressive than the one we’ve got, but for purposes of this exercise I won’t penalize candidates whose preferences differ from mine. For the record, Romney, Huntsman and Santorum are the three who (as far as I can tell) want to maintain substantial progressivity, with Romney, uniquely among the candidates, preferring even more progressivity than we currently have.
Here, then, is a chart, with candidates ranked roughly in order of their willingness to exempt capital income from taxation. I prepared this chart with a few quick Google searches (this is a blog post, not a journal article) and it probably contains errors. I’ll be glad for (documentable) corrections and will update the chart as they come in. Asterisks refer to further explanations, which you’ll find below the fold.
If we care about efficiency, we’re looking for zeroes in the last five columns. On the face of it, Johnson is the clear winner. But Cain’s 9/9/9 plan has two arguments in its favor that don’t appear on this chart. First of all, people are a lot less likely to bother evading one of three 9% taxes than a single 23% tax; therefore we’d have a lot fewer evasion problems under Cain than under Johnson. Second, it’s pretty easy to imagine Congress raising a 23% tax to 24% or 25% or 26%, but it’s a little harder to break the psychological barrier of single-digit tax rates, so Cain’s 9/9/9 might be more politically stable than Johnson’s 23. Therefore I’m calling this a tie between Johnson and Cain.
But the top six are all pretty good, except maybe for Paul, who hasn’t revealed his key number. Santorum is bad, Romney is atrocious, and Bachmann (who, as far as I can tell, has not bothered to release a tax plan) is an enigma.
Some explanations:
Happy birthday to our 7 billionth fellow earthling, who, according to most estimates, is due to be born today.
Welcome to the earth. Congratulations on being born in the 21st century, where the odds are excellent that you’ll live a richer, more prosperous and more fulfilling life than almost any of the 100 billion or so who preceded you — and paved the way for your prosperity with their investments and their inventions. Would that there had been more of them.
As you go through life, you will almost assuredly contribute to the world’s stock of ideas, diversity and love in ways your parents never contemplated — which is why the rest of us are a little sad that you might be their last child.
There’s certainly such a thing as a population that’s too large. Nobody disputes that. The interesting question is: Given the incentives faced by parents, it the population size we actually get too large or too small? And there are good reasons to think it’s too small.
In fact, population growth is a lot like pollution in reverse. Polluters don’t care about the damage they impose on strangers, so they pollute too much. Parents and potential parents don’t care about they joy and prosperity their chidren bring to strangers, so they reproduce too little.
Here is my piece on the death tax in this morning’s Wall Street Journal (subscription probably required); viewers of this video will find the arguments eerily familiar.
Here’s the one passage the WSJ didn’t have room for; one day our children will look back in wonder on an age when the length of an argument was constrained by anything so archaic it could be measured in square inches:
I know you’ve heard it said that spending is good for the economy. That might be true during a recession, if you subscribe to a broadly Keynesian view of the world. But the death tax encourages overspending year in and year out, which is not a good thing no matter what your point of view.
By way of background: Obama says that Republicans favor dirtier air and water. Paul Ryan calls that a petty characterization of an honest policy disagreement. Paul Krugman says that some Republican policies would lead to dirtier air and water (presumably in exchange for some offsetting benefits) and Ryan ought to be man enough to say so.
This is a fair point, I think. There is nothing dishonorable about believing that under current regulations we overclean our air and water, and if that’s Ryan’s view he should own it. Though perhaps Ryan would prefer to respond — also fairly — that he and/or the GOP favors different kinds of regulation that might not leave the air and water dirtier after all.
In any event, Krugman can never be fair for long. Here he is complaining about Ryan’s rhetorical style and defending his own:
If I say that Paul Ryan’s mother was a hamster and his father smelt of elderberries, that’s ad hominem. If I say that his plan would hurt millions of people and that he’s not being honest about the numbers, that’s harsh, but not ad hominem.
And you really have to be somewhat awed when people who routinely accuse Obama of being a socialist get all weepy over him saying that eliminating protections against pollution would lead to more pollution.
Except that, you see, at least as far as I can tell (and do correct me if I’m wrong) Paul Ryan (whose “weepiness” is the primary subject of Krugman’s blogpost) has never accused Obama of being a socialist. So (unless I’m mistaken) what Krugman’s engaging in here is best characterized as neither harsh nor ad hominem but, well, lying.
Two points:
Your inability to construct a functional website does not fill me with confidence about your ability to fly me across the Atlantic Ocean.
Today is the 200th birthday of Evariste Galois, who did not live to celebrate his 21st, but found time in his short 20 years to develop a circle of ideas that permeate modern mathematics. We know of these ideas because Galois spent the night of May 30, 1832 scribbling them furiously in a letter to a friend, in advance of the fatal duel he would fight the following morning. According to the great mathematician Hermann Weyl, “This letter, if judged by the novelty and profundity of ideas it contains, is perhaps the most substantial piece of writing in the whole literature of mankind.”
(If this were a less serious post, I might suggest that this famous letter was the first example of a Galois Correspondence.)
Now, two centuries later, every first year graduate student in mathematics spends a semester studying Galois Theory, and many devote their subsequent careers to its extensions and applications. Many of the greatest achievements of modern mathematics (for example, the solution to Fermat’s Last Theorem) are, at their core, elucidations of Galois’s 200-year-old insight.
Herewith my remarks about the estate tax (with particular reference to its effects on the very rich, and why we should care) to Congressional staffers, presented a couple of days ago under the auspices of the American Family Business Institute. Here is higher quality video. Here is the even higher quality YouTube version. Here is video of the entire event. I particularly recommend the first talk, by Stephen Entin.
Note that all of my remarks apply equally well to all forms of capital taxation. Entin did a better job of focusing on the particular shortcomings of the estate tax.
 |
 |
With a hat tip to our occasional commenter Ron….
Remember those faster-than-light neutrinos? The ones that threatened to overturn relativity, and along with it everything we think we know about how the universe works?
Well, it turns out that maybe they weren’t faster than light after all — they might have only appeared to be faster than light because their arrival time was mismeasured. The mismeasurement was (it seems) caused by the researchers’ failure to account for the effects of ….. relativity!
I hear an echo of the great ongoing debate between Einstein and Bohr on the foundations of quantum mechanics. Continue reading ‘Relatively Speaking’
 |
 |
 |
So Mitt Romney wants to exempt capital gains from taxation — but only for taxpayers who earn less than $200,000 a year. In Tuesday night’s debate, Newt Gingrich asked him (I’m paraphrasing) “Why the cap?”. Romney’s answer — that he’s looking out for the middle class because “the rich can take care of themselves” — was as incoherent as anything I’ve heard this election year.
Here’s why:
I interpret Romney’s answer to mean that he wants to cut capital gains rates not on efficiency grounds, not on supply side grounds, and not on philosophical grounds, but on redistributionist grounds. Well, okay, I myself don’t think very much of redistribution as a primary driver of tax policy, but Romney and I can disagree on that one. But where the incoherence comes in is this: If your goal is to redistribute from the rich to the middle class, why on earth would you do it by cutting the capital gains tax, as opposed to lowering income tax rates in the middle and raising them at the top?
To put this another way: If you care about efficiency, you’ll want to cut the capital gains rate to zero for everyone. If you care about fairness, and if you believe fairness mitigates against double/triple/quadruple taxation, you’ll still want to cut the capital gains rate to zero for everyone. If you care about redistribution, you’ll want to juggle the tax brackets. But I can’t think of a single thing you could care about that would lead you to laser in on cutting capital gains rates for middle income taxpayers only.
Now it might be that somewhere in Romney’s 59 point economic plan there’s an answer to this. If so, Herman Cain was surely right when he intimated that Romney himself can’t be terribly familiar with the contents of that plan. Because, when asked a simple question about the justification, Romney wasn’t able to come anywhere close to making sense.
The IS-LM model is the simplest version of the “old Keynesian” approach to macroeconomics. You don’t hear much about IS-LM in the research literature these days, but it’s been coming up a lot on the blogs. Tyler Cowen tells us what he doesn’t like about the model; Brad DeLong and Paul Krugman rise to its defense; Stephen Williamson takes up the gauntlet, and Scott Sumner weighs in.
None of them, in my opinion, has touched the main issue, which is that IS-LM provides absolutely no framework for policy analysis because it makes no assumptions, and draws no conclusions, about what people are trying to accomplish. If you don’t know what people are trying to do, you can’t possibly know how best to help them.
Suppose, for example, that, as Paul Krugman believes, the current state of the economy is being driven by a “liquidity trap”, which means that people are hoarding money instead of spending it, and therefore consuming less, which is why employment is so low. Two weeks ago on this blog, I posed the following question to the IS-LMers:
Why aren’t you thrilled with the current state of the economy? … Why, as the stock of money continues to grow, shouldn’t the joy of hoarding eventually compensate for the annoyance of not having food on the table?
The IS-LM model provides no answer to that question. A model that can’t decide whether the current US economy is in a state of Nirvana is not a useful model for policy evaluation.
Continue reading ‘IS-LMic Extremism (With a Postscript on the Nobel Prize)’
This one makes me happy!
(Slightly better video here.)
(YouTube version here.)
Incidentally, Paul Krugman made an incisive point last week when he wrote:
Here’s a question I haven’t seen asked: If fear of future regulations and taxes is holding business back, as everyone on the right asserts, why didn’t the Republican victory in the midterms set off a surge in employment?
After all, if you really believed that fears of Obamanite socialism were the key factor depressing employment, the GOP victory — with the clear possibility that the party will take the Senate and maybe the White House next year — should greatly reduce those fears. So, where’s the hiring surge?
I even set out to write a blogpost citing this argument with approval — but around the time I was composing it, Krugman followed up with this bit of idiocy, to which a response seemed more urgent.
Now that that’s out of the way, I can come back to the bit about the missing Boehner Boom. It’s a more-than-fair question. How would you respond to it?
Last week, the highly distinguished Princeton Professor Ed Nelson announced a proof that the Peano axioms for arithmetic are inconsistent — and hence so is arithmetic itself. If true, this would be much bigger news than faster-than-light neutrinos. It would be bigger news than a discovery that the South had won the American Civil War. It would be far, far bigger news than a discovery that all life on Earth was intelligently designed.
There are, after all, multiple proofs that Peano Arithmetic (that is, the fragment of arithmetic described by the Peano axioms) is consistent. Among those, the simplest and most convincing (to the overwhelming majority of mathematicians) is this: The axioms of Peano Arithmetic, and therefore the theorems of Peano Arithmetic, are all true statements about the natural numbers — and a set of true statements cannot contradict itself.
Ed Nelson rejects that argument because (exempting himself from that overwhelming majority) he doesn’t believe in the set of natural numbers — or perhaps even in individual numbers when those numbers are very large. (How do you know that 810000 exists? Have you ever counted to it?)
Paul Krugman’s latest venture into self-parody starts with a recent paper on the cost of air pollution, which finds that said costs are big and heavily concentrated in a few industries. Krugman then links to a New York Times article surveying Rick Perry’s past clashes with the EPA. With no further argument, he concludes that
Today’s American right doesn’t believe in externalities, or correcting market failures; it believes that there are no market failures, that capitalism unregulated is always right. Faced with evidence that market prices are in fact wrong, they simply attack the science.
Where to begin?
MathOverflow turns two years old this week — a milestone in the transformation of mathematical research into a massively collaborative endeavor. It’s happening on blogs, it’s happening on mailing lists, and it’s happening in a big way on MathOverlow, where mathematicians ask and answer the sorts of questions that might come up in the faculty lounge — if the faculty lounge were populated by hundreds of experts pooling their expertise.
If you’re interested in mathematics at the research level, MathOverflow is a place to learn something new and fascinating every single day. (If you are not doing mathematics at a research level, feel free to read but please don’t feel free to join the fray; questions at anything below about a second-year graduate level should be directed to MathStackExchange, another massively collaborative site aimed, roughly, at the college level — which reminds me that it’s not just mathematical research, but also mathematical education, that is being revolutionized before our eyes.)
Well, it took embarrassingly long for me to see this but there’s really a very simple resolution to the quandary I posted Monday. The key point is this:
In a flexible price world, anybody can supply money at a social cost of zero. In a fixed price world, only the government can.
To be more precise: I currently hold $11. Suppose I agree to hold a twelfth. In a flexible-price world, I can get this dollar from the government (which prints it up at zero cost) or I can get it from my friend Jeeter, whereupon the price level adjusts and the rest of the world’s real balances (including Jeter’s) are restored to their original level. No social cost either way. In a fixed-price world, I can get this dollar from the government (which prints it up at zero cost) or I can get it from my friend Jeeter, whereupon prices don’t move and the rest of the world’s real balances are reduced. Zero social cost one way, positive social cost the other way.
Last week I blogged about my perplexity regarding the Keynesian notion of a liquidity trap.
In thinking about this harder, I’ve come to realize that a good part of my confusion has nothing to do with liquidity traps. It comes down to a very specific question about sticky-price models in general.
I expect this discussion will be interesting only to the most wonkish of my readers. The non-wonkish are invited to ask for clarifications, but please don’t jump in claiming to have “definitive” answers unless you’ve got a good grasp of the basics. I’d like to keep this discussion on track, and I’d like to learn something from it. Uninformed noise will be counterproductive.
For what it’s worth, I’ve discussed this offline, at considerable length, with several very good macroeconomists who eventually pronounced themselves as confused as I am. I really am hoping somebody with the right insight will pop up here and set us all straight.
 |
 |
 |
Scientists at CERN have found apparent evidence that neutrinos can travel faster than light.
Suppose that tomorrow historians at Harvard find apparent evidence that the South won the American Civil War — not in some metaphorical “they accomplished their goals” sense, but in the literal sense that it was actually Grant who handed his sword to Lee at Appomatox and not the other way around.
Question: Of which conclusion would you be more skeptical?
Of course your answer might depend on exactly what this new “apparent evidence” consists of. So let me reword: As of this moment, which do you think is more likely — that neutrinos can travel faster than light, or that the South won the Civil War?
 |
 |
 |
I am not well versed in Keynesian business cycle theory. Therefore I have a very naive question for the Keynesian economists:
Here’s why I ask: According to what I take to be an orthodox Keynesian view, we are now in a liquidity trap. (My question does not apply to Keynesians, new or old, who believe otherwise.) That means that people want to hold lots and lots of money instead of spending it. Cool! We can provide money at almost zero cost. So it should be easy to make people very happy. What’s the problem?
Of course, people are working less, but that makes perfectly good sense in a world where people prefer to consume less. Why spend all day on an assembly line churning out widgets that people prefer not to buy?
A quick and obvious answer is that the people who are choosing to accumulate money and the people who are out of work are not the same people. In other words, to put this in slightly more technical language, you can’t address this question in a so-called “representative agent model” — a model that abstracts from interpersonal differences.
Still: The theory, as I understand it, is that vast numbers of people are choosing to hold vast amounts of money. Since money can be produced costlessly, this ought to count as a very good thing — which should offset a lot of very bad things, no?
Whatever answer there is might vary from one Keynesian economist to another, so let me subdivide my question into two:
In sixth grade, I did not read My Side of the Mountain, though it was assigned for class. In eighth grade, I did not read Little Women and in ninth grade I did not read Great Expectations and The Good Earth. As I passed through high school, I worked my way through much of the western canon, not reading The Scarlet Letter, Bartleby the Scrivener, The Return of the Native, and dozens more. In eleventh grade, we were assigned two books by Steinbeck, two by Hemingway, two by Sinclair Lewis and two by William Faulkner. I did not read the Steinbeck, Hemingway or Lewis but for some long-forgotten reason I violated years of established tradition by tackling the Faulkner — specifically As I Lay Dying and The Sound and the Fury.
As I Lay Dying went down pretty easily, but I remember many nights struggling my way through The Sound and the Fury, Cliff notes at my side. It felt like scaling Everest, and the vistas at the top were worth the climb.
A couple of weeks ago, as part of my ongoing project to read great novels, I decided to revisit The Sound and the Fury, and I’m more than glad I did; I finally have an answer to give the next time I’m asked what one novel I’d bring to a desert island. But what I’m flabbergasted by is this: How did this book ever get assigned to high school students in the first place? I ask for at least two reasons:
The Wall Street Journal reports that `daily deal’ sites like Groupon are dying fast, casualties of the expensive competition for new users. Groupon now spends about $8 to lure one active user.
This looks like a good example of Darwinian competition yielding an inefficient outcome — as we should expect. (See Chapter 8 of my book The Armchair Economist for more on why Darwinian competition is nothing like market competition, and far more likely to yield bad outcomes.) Vast sums are being spent in an arms race with relatively little social value. Surely consumers benefit from all this competition, but it’s highly implausible that they benefit enough to justify such high expenditures. Even after the recent Great Winnowing, about 350 of these sites remain; surely consumers (none of whom have the time to visit 350 sites a day) would be almost equally well served by 50 sites, at about 1/7 the cost.
One thing I like about the study of economics is that it fosters compassion. When part of your job is to predict human behavior, you quickly learn the value of understanding other people’s problems. When the other part of your job is ferreting out the unseen global consequences of our choices, you’ve taken the first step toward caring about those consequences.
For example: Suppose a guy with no health insurance and no assets shows up at a hospital emergency room with an urgent life-threatening condition. Should you let him die? Ordinary compassion says no. The heightened compassion of the economist says, at the very least, maybe.
First, a policy of providing emergency health care to everyone is pretty much the same thing as a policy of providing emergency health insurance to everyone. It was specified here that this was a guy who didn’t want health insurance. So let’s recognize for starters that such a policy runs counter to — I am tempted to say runs roughshod over — the guy’s own revealed preference. It’s an odd sort of compassion that forces people to buy things they don’t want.
Now you might object that nobody’s forcing this guy to buy emergency health care; we’re trying to give him emergency health care. Not so fast. Here’s the first place where a little economic training goes to hone one’s sense of compassion: The emergency health insurance we’re foisting on this guy has a cost. We can spend that money on emergency rooms or we can spend it on a myriad of other things the guy might prefer. How is it compassionate to give him one thing when he prefers another?
This is particularly true if the guy happens to be very poor. Poor people have a lot of problems, and emergency health care is only one of them. They need better education, they need better transportation, and they need a little help buying groceries.
There is room for lots of debate and lots of disagreement about how much we as a society should be spending to help poor people. That’s not the issue here. The issue here is: Given that you’ve decided to spend an extra such-and-such many dollars a year helping poor people, why would you spend it in this particular way rather than one of the many other ways they could use it? For God’s sake, why not at least ask them if they’d rather have the cash?
The game of Cats and Dogs works like this: You and your teammate are placed in separate rooms and forbidden to communicate. You are each asked a randomly chosen question: Either “Do you like cats?” or “Do you like dogs?” (Each of your questions is determined by a separate fair coin flip.)
You win if your answers agree — unless you were both asked the “cats” question, in which case you win if your answers disagree.
A little reflection should convince you that if you are allowed to meet with your partner and plot strategy before the game, then the best you can do is agree to always agree — say by both always answering “yes”. That way, you win 75% of the time, and there’s no way to do better. In particular, there’s nothing to be gained by randomizing your answers.
That, at least, is true, in a world governed by the laws of classical physics and probability theory. But in a world governed by the laws of quantum mechanics — which is to say, in the world we live in — you can in principle do better. Namely: You each carry with you one of a pair of entangled “quantum coins” (actually elementary particles, but I prefer to think of them as coins, since you’re going to use them as randomizing devices).
Yesterday’s post on taxation generated a whole lot of comments that deserve responses; unfortunately I’m too swamped right now to respond. Worse yet, I’ll be out of town — and probably not blogging — for the next few days. Sometime next week, I’ll try to craft a new blogpost addressing much of what was said in those comments.
Meanwhile, here, courtesy of our frequent and invariably interesting commenter Mike H, is a puzzle to keep you busy while I’m gone:
I have not read or even skimmed Mitt Romney’s 160-page economic plan; all I know is what I’ve seen in the headlines. So all of this is subject to revision. But:
The ever-insightful philosopher Peter Smith has a number of interesting things to say about abortion, but I found one of those things particularly striking — partly because I don’t recall ever having thought of it before, and partly because, in retrospect, I don’t see how I could have failed to think of it.
Namely: The argument is made that zygotes/embryoes/fetuses, even at a very early stage, have the full moral status of human beings. Yet if that were true, surely we’d want to divert a substantial portion of the medical research budget away from relatively minor scourges like, say, cancer, to the spontaneous abortions that take the lives of something like 30% of these full-fledged humans. In a typical year, there are about 8 million cancer deaths worldwide; the number of early-stage spontaneous abortions must be at least twice that.
In Smith’s words:
very few of us are worried by the fact that a very high proportion of conceptions quite spontaneously abort. We don’t campaign for medical research to reduce that rate (nor do opponents of abortion campaign for all women to take drugs to suppress natural early abortion). Compare: we do think it is a matter for moral concern that there are high levels of infant mortality in some countries, and campaign and give money to help reduce that rate.
Smith is struck by the fact that this attitude is very widespread; I am more struck by the fact that it seems to be very widespread even among those who characterize themselves as pro-life.
Some commenters still seem confused about the locus of disagreement in this week’s back-and-forth with Paul Krugman. I post today not to beat a dead horse, but to clarify the issues for those who are interested in understanding them. Please keep any discussion both civil and on-topic. I’ve numbered the points below for easy reference.
What I like about people in academics is that when we disagree, we actually care about figuring out who’s right — and therefore we have a tendency to reach consensus, though it can take a while.
Anybody who blogs often enough (very much not excluding yours truly) is occasionally going to post something that, at least as written if not as intended, is objectively plain flat out wrong. Paul Krugman did that a couple of days ago, I responded, he’s responded to my response, and at least 4/5 of our disagreement is now resolved. That’s exactly as it should be.
PDF