Clive Crook on DeLong and Krugman
Here’s Clive Crook:
The substance of DeLong’s complaint about my column and post appears to be that they lack supporting documentation. I asserted (thinking it self-evident) that many Republicans are thoughtful and public-spirited. DeLong is incredulous and finds it revealing that I failed to give examples. I also accused Krugman of letting partisan politics taint his analysis and said he cared as much about undoing the Bush tax cuts as about expanding and extending the fiscal stimulus. At this, DeLong is aghast. He demands to see my evidence.
Will this do? From Krugman’s column, Let’s Not Make a Deal, in December 2010.
Back in 2001, former President George W. Bush pulled a fast one. He wanted to enact an irresponsible tax cut, largely for the benefit of the wealthiest Americans. But there were Senate rules in place designed to prevent that kind of irresponsibility. So Mr. Bush evaded the rules by making the tax cut temporary, with the whole thing scheduled to expire on the last day of 2010.
The plan, of course, was to come back later and make the thing permanent, never mind the impact on the deficit. But that never happened. And so here we are, with 2010 almost over and nothing resolved.
Democrats have tried to push a compromise: let tax cuts for the wealthy expire, but extend tax cuts for the middle class. Republicans, however, are having none of it. They have been filibustering Democratic attempts to separate tax cuts that mainly benefit a tiny group of wealthy Americans from those that mainly help the middle class. It’s all or nothing, they say: all the Bush tax cuts must be extended. What should Democrats do?
The answer is that they should just say no. If GOP intransigence means that taxes rise at the end of this month, so be it.
Krugman proposed raising taxes on all Americans while the recovery was still very weak. He recognized this as a fiscal tightening that would put people out of work. He advocated it because the alternative of retaining the Bush tax cuts would have handed the Republicans a victory, and because — get this — he was worried about the long-term deficit implications. There you have it: Krugman the apolitical Keynesian.
Isn’t putting ideology ahead of pragmatism exactly what Paul Krugman accuses those fools and knaves on the GOP side of doing? Why yes it is.
Am I (and others on my side of the issue) that much smarter than everyone else? No. The key to understanding this is that the anti-Keynesian position is, in essence, political. It’s driven by hostility to active government policy and, in many cases, hostility to any intellectual approach that might make room for government policy. Too many influential people just don’t want to believe that we’re facing the kind of economic crisis we are actually facing.
In many ways Krugman’s position is even less defensible. At least those on the right claim to believe that fiscal stimulus won’t help the unemployed. (And I for one really believe that.) Krugman thinks it will help, but is willing to put his annoyance at the rich paying too little in taxes ahead of the well-being of the unemployed.
Keynesian bloggers are constantly whining about fiscal austerity in America. But most of the austerity came from the tax increase bill that President Obama signed December. I opposed the bill.
PS. I presume that Brad DeLong opposes the effort of a number of GOP senators to reform the immigration laws. After all, there are no examples of public-spirited behavior by the GOP.
PPS. Someone sent me an investment report from a British financial firm that has a market monetarist approach to the BoE. In the previous post I linked to a similar report from Lars Christensen. It seems that MM is making inroads into the investment community.
HT: Caroline Baum
Tags:
10. May 2013 at 13:29
And to play devils advocate:
http://www.washingtonmonthly.com/ten-miles-square/2013/05/clive_crook_doesnt_understand044673.php#
10. May 2013 at 13:41
“It seems that MM is making inroads into the investment community.”
Given that you have said on many occasions that investors and financial managers have always took into account NGDP, this comment is puzzling.
10. May 2013 at 13:43
Geoff,
Hayek’s “the use of information in society” might answer your question.
10. May 2013 at 13:45
Oops. Use of knowledge…
10. May 2013 at 13:52
jor, That sentence before his “update” is just bizarre, and is flatly contradicted by the paragraph that Crook quotes. Saying that Krugman normally supports stimulus is completely beside the point, indeed it actually supports Crook’s charge of hypocrisy.
This is really about which people are grown-ups who see other people the way they really are, and those who view other people as a bunch of cartoon characters–dastardly villains and saintly do-gooders. It’s not something you can teach. Some people (like Crook and Cowen) see the world as it is, and others don’t. There’s really not much more one can say. Either you “get it”, or you don’t.
BTW, Obama raised taxes on the poor, the middle class, and the rich this year. Krugman said the tax increase should have been even bigger.
10. May 2013 at 14:20
kebko,
I didn’t have a question.
10. May 2013 at 14:34
“Democrats have tried to push a compromise: let tax cuts for the wealthy expire, but extend tax cuts for the middle class. Republicans, however, are having none of it.”
I think that is a Compromise. Apparently, we all don’t mean the same thing by Compromise, Pragmatism, & Ideologue. Like Burke, I consider Compromise the basis of Good Govt & Society. I’m willing to offer and consider alternatives. I could imagine a scenario in which I would be a Republican. I’m for the Smallest Govt possible and effective in a political system such as ours. The GOP is a much more Ideologically Rigid Party than the Dem Party from my point of view. For Me, that’s a serious negative. For others, a positive. But not seeing the differences in Rigidity needs some explanation beyond declaring yourself a Centrist or Compromiser.
10. May 2013 at 14:40
I would also be against calling anything that’s “permanent” stimulus.
It is a giveaway. Equating calls for more temporary spending with forever cuts on rich (or anyone) is wrong.
10. May 2013 at 14:50
“…most of the austerity came from the tax increase bill that President Obama signed December.
What bill are you referring to here? The fiscal cliff fix was signed in January IIRC, and almost everyone agreed that it was a net tax cut relative to what would have happened under the law that was on the books at the time. Was there another bill in December?
10. May 2013 at 15:15
Krugman it’s probably the more overrated economist of all time.
10. May 2013 at 15:15
I’m telling ya, the smartest thing the WSJ could do is hire Sumner to blog.
10. May 2013 at 15:46
Paul Krugman is the Ann Coulter of the left.
He spends his days comming up with wild rationalizations why his side is right and the other side is wrong, and will flip-flop of the substance of the issues depending on who is on which side.
There is absolutely no information to be gained from a Paul Krugman article.
10. May 2013 at 16:06
“Keynesian bloggers are constantly whining about fiscal austerity in America. But most of the austerity came from the tax increase bill that President Obama signed December.”
As David Beckworth has pointed out we already had a lot of fiscal austerity before January. The CBO’s March estimates of the cyclically adjusted federal budget balance show it increased by 4.6% of potential GDP between FY2009 and FY2013. The FY 2013 portion of the January tax increase is only equal to 0.5% of GDP. And if you’re talking about just the fiscal austerity in FY2013, the CBO estimates that comes to 1.8% of potential GDP.
10. May 2013 at 16:10
Professor Sumner,
The Krugman quote from Crook’s piece is taken very much out of context. First, Krugman prefers spending to tax cuts because he believes that — and many economists agree with him on this — spending multipliers are higher than tax multipliers. Indeed, Crook acknowledges this possibility.
Second, 2010 was a different time than 2008/2009. By 2010, everyone was shouting about lowering the deficit. Initially, Krugman, like Obama, opposed this. But, if people are going to make demands that the deficit be lowered NOW, then Krugman wanted it to be as little on the spending side as possible because he believes that spending multipliers are higher than tax multipliers.
Finally, if you don’t buy that last argument: If the deficit is going to be lowered, then it becomes a political question. This wasn’t Krugman talking about stimulus. This was Krugman being upset about Republicans refusing to compromise on a variety of issues, and Krugman trying to steer deficit reduction towards his political agenda (put the burden on the richest Americans). Also, he feared that the Bush tax cuts were becoming permanent, and the spending stimulus programs he advocates are clearly temporary.
10. May 2013 at 16:38
Donald, The GOP just voted on a tax increase for the rich, didn’t they?
They are about to cave on immigration.
Andy, Technically yes, but the GOP favored extending the tax cuts and Obama didn’t. So although what you say is technically correct, I think my comment was accurately describing the actual policy debate.
Mark, I don’t follow. Why talk about fiscal years when the tax increase was permanent and began on January 1st?
J, I don’t buy any of your three arguments. Lots of experts think tax changes are more powerful (Romer, etc) and even if they aren’t they are still contractionary. So Krugman still should have opposed them.
Your second argument might apply to the tax increases on the rich, but not the middle class. Why is a tax increase on everyone better than gridlock and no tax increase at all—and a much bigger deficit?
And all of the sorts of arguments you make could just as well be applied to the “fools and knaves” that Krugman is arguing with. They aren’t getting their first-best policies either. They favor small government and have to decide how to trade off one goal and another. The GOP recently swallowed their pride and agreed to a tax increase for the rich only. They could have said “If we don’t get a tax cut for the rich we won’t pass one for anybody,” but fortunately they did not resort to Krugmanian tactics.
I actually don’t have a big problem with Krugman calling GOP Congressman fools and knaves. I am much more disgusted with the way he treats people like Rogoff. And I’m quite sure that the vast majority of economists agree with me on that point.
10. May 2013 at 17:30
Scott,
I’m looking at it purely from a degree of fiscal tightening perspective. However, if one believes that permanent fiscal changes have a larger fiscal multiplier than temporary, what makes the other fiscal changes less permanent than this year’s tax increase (which evidently also has had zero effect)?
Fiscal stimulus advocates didn’t just start complaining about fiscal austerity this year, they’ve been complaining about it for years (and not only at the federal level, but also at the state and local). If you’re going to brag about the monetary offset, making the degree of fiscal austerity appear as small as possible isn’t really going to serve your case.
10. May 2013 at 19:32
Well, look. When the GOP took the House way back in 1994 they instituted certain reforms that were both public-spirited and painful, among them rotating chairmanships rather than based on seniority. When the Dems took over, the old rules went back into effect, which is one reason they only lasted two sessions before losing the House again, this time to a Tea Party infused GOP that was even more public-spirited, to the point of banning earmarks and even cutting defense spending, long a GOP sacred cow. The GOP just cares more about integrity, while Democrats re-elect Jesse Jackson Jr., William Jefferson, and Charlie Rangel.
Krugman and DeLong will claim the debt ceiling debate proves the GOP would rather default than compromise (and the MSM covered it that way) but in fact there was never any risk of default because revenues are many times interest payment and CRS ruled Treasury could prioritize — essentially Obama would have had to order Treasury to default for it to happen. And the GOP views the colossal debt as an existential crisis for the country, so by their lights they’re doing what’s best for the country.
10. May 2013 at 19:44
Also, this whole discussion begs the question of why Krugman and Delong constantly attribute the worst motives to their intellectual opponents. And I think the reason is obvious: if they didn’t, they wouldn’t have the deep support of the left, and would be replaced by other people on the left who were willing to do so.
This is simply what the left is today — they’ve been on the right side of a lot of issues over the decades but progress is by definition movement, so conservatism naturally gains as progress is made. Air and water are now cleaner than ever, the noble civil rights movement has degenerated into a racial spoils system, the formerly underfed poor are now obese, public education gets more money than almost any other country yet produces some of the worst results — all that’s left is identity politics, and for identity politics to work there must an Enemy, and he must be Evil. Misguided or simply wrong isn’t good enough.
10. May 2013 at 19:49
Maybe this is old news, but the latest issue of the The Economist, they said they supported nominal GDP targeting. But much of their coverage still lacks that perspective.
10. May 2013 at 19:56
The Bush tax cuts hugely favored the wealthy. I think Krugman (rightly) believed that the marginal benefits from retaining the Bush tax cuts were relatively small relative to payroll tax cuts and fiscal stimulus (both of which were aimed at the middle class).
10. May 2013 at 20:02
Scott,
“At least those on the right claim to believe that fiscal stimulus won’t help the unemployed. (And I for one really believe that.) Krugman thinks it will help, but is willing to put his annoyance at the rich paying too little in taxes ahead of the well-being of the unemployed.”
You’re suffering from Krugman Derangement Syndrome and you’re confusing questions of pure policy with policy preferences within a political/strategic context. Here’s one plausible preference ordering: 1) best to reduce taxes on all but the top 2%, so as to maximize the stimulus per dollar of lost revenue; 2) better to let all taxes rise now rather than to reduce all taxes now because we’ve got an inequality problem and a long-term revenue problem, as well as an unemployment problem. Moreover, why cave in to Republican demands, reducing all taxes now, when this concession will only embolden Repubicans to demand more in the future?
10. May 2013 at 20:14
I’m sorry to see this blog join the jihad against Krugman — like we need more resources devoted to that. Read his whole column, not just the bit quoted by Crook, and take your own measure of the supposed “hypocrisy”. The longer I play in the academic sandbox, the more I’m amazed at the sheer waste of energy. A true pity.
10. May 2013 at 23:00
Almost choked on my cornflakes reading page 2 of the Fimancial Times this morning:
http://www.ft.com/cms/s/0/7e926fb6-b994-11e2-bc57-00144feabdc0.html#axzz2SxsfsDs6
“High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/7e926fb6-b994-11e2-bc57-00144feabdc0.html#ixzz2SxtLmRl6
“Nominal GDP growth.
When thinking about growth and recessions, the nation is fixated by the quarterly change in real gross domestic product – the volume of goods and services produced in the UK.
This is quite a complex economic indicator. People receive money for the work they do, companies invest cash in new equipment and buildings and the government collects taxes and spends money.
But there is another simpler and equally crucial indicator of economic health: nominal GDP, which measures growth in the value of goods and services produced.
In the fourth quarter of 2012, the growth of annual nominal GDP was only 1.3 per cent, well below the level needed to rebalance the economy. For the burden of private sector debt, public sector debt and the deficit to fall, nominal GDP must rise again at a rate closer to 5 per cent.
It is not an exaggeration to say that Britain’s hopes of escaping the financial crisis depend on much faster nominal GDP growth than recent data have indicated.”
Nominal GDP growth is just a matter of everyday reporting at the FT now. Result!
11. May 2013 at 03:04
James in London, your quote “For the burden of private sector debt, public sector debt and the deficit to fall, nominal GDP must rise again at a rate closer to 5 per cent” – isn’t quite the whole truth. Debt defaults/write downs would also chop off that burden leaving the economy in a position to grow again (eg if insolvent banks etc all went the way of Lehmans). That would be the genuine free market capitalist way that we would avoid/get out of our current pickle. Potentially the government could subsequently intervene by providing full liquidity support for the payment system, increasing universal public pensions if private pensions were too badly impacted etc. BUT critically the debt would not be propped up by the government.
11. May 2013 at 08:30
‘Paul Krugman is the Ann Coulter of the left.’
Speaking as the former proprietor of the Krugman-Coulter Fact-Checking Derby, I can assure you that Coulter makes far fewer, and far less egregious errors in her books and columns than Krugman. She’s never made a whopper anywhere near as big as claiming that Fannie and Freddie were legally prohibited from doing sub-prime (Krugman 2008), taking someone as dubious as Jason Leopold seriously (Krugman, Thomas White, circa 2004), or swallowing whole The Economics of QWERTY (Peddling Prosperity 1994). Other examples provided upon request.
In addition, Ann is funny, charming, and cute.
11. May 2013 at 08:35
‘The Bush tax cuts hugely favored the wealthy.’
The Bush cuts of 2001 and 2003, resulted in many of ‘the poor’ having their taxes cut to zero (100%). Others, slightly less poor, from 15% to 10% (a reduction of 1/3). While the top marginal bracket merely was reduced by about 12%, from 39.6% to 35%
11. May 2013 at 08:36
‘I’m sorry to see this blog join the jihad against Krugman’
What did you think of Imam Paul’s treatment of the infidels Ken and Carmen?
11. May 2013 at 09:40
Reply to Patrick R. Sullivan’s question, “What did you think of Imam Paul’s treatment of the infidels Ken and Carmen?”:
If by his “treatment” you mean what he wrote in his columns and blog posts, I thought it was perfectly civil. I also thought his substantive points in those places were correct. Reinhart and Rogoff made high-profile mistakes, which to their credit they acknowledged. In acknowledging their mistakes, however, they failed to set the record fully straight. In a way this recalls their practice before Herndon, Ash, and Pollin: modestly framed (but not unarguable) points in the more academic paper extended to immodest (and totally unfounded) claims in the popular press. I see from your other posts here, however, that you’re not always modest yourself. The data you present against the claim, “The Bush tax cuts hugely favored the wealthy,” are a small part of that story, and don’t bear posting independently of the rest. Do you acknowledge the explosion in wealth and income disparity in recent years? If you do, is it your view that tax policy has had no part in the phenomenon? I’ve not read your posts outside of this one thread — maybe you’ve made your views on these questions known. If so, I’d be open to following a link. But surely you recognize that more needs to be said?
11. May 2013 at 12:12
[…] brew-ha-ha (the proverbial, hullabaloo) between Paul Krugman, Brad DeLong, Clive Crook, and Scott Sumner. It’s been a whole lot of, ‘your IS-LM models are weak son’, with a […]
11. May 2013 at 12:43
Do you acknowledge the explosion in wealth and income disparity in recent years?
There are several problems with that statement: one, there’s no reason (other than envy) to oppose increased income/wealth disparity per se; two, as Megan pointed out a while back the phenomenon you refer to is largely an artifact of tax changes in the 1980s that have gradually shifted income from corporate to personal; three, the “wealthy” are not a fixed set of persons but a wildly varying group of individuals over time (10% of U.S. wealth changes hands every year); four, the United States does not have the sort of Graustarkian politics that result in wealth distributions being moved around by force — except, of course, for the trillion dollars a year in transfers to the poor.
The biggest problem, though, is something you can see historically — every major economic revolution since Industrial Revolution began has made some new class of “wealthy” even richer than the last and increased income disparities. Why? Because every such revolution has increased value creation at a faster absolute pace. Therefore, it’s quite likely that the end of growing income disparity would also be the end of economic growth.
Our public policy goal should be facilitating a process that is meritocratic and which rewards value creation, not coercing society into a smooth income distribution.
11. May 2013 at 13:12
Stone
“The genuinely free market capitalist” way would be to have money-providing banks (central bank ones as know, or genuinely free market capitalist ones in the future) increase the supply of money in response to an increase in demand for it.
In 3Q 2008 there was a big increase in demand for money and it wasn’t met, an “artificial” shortage occurred with devastating consequences. Not very free market, that.
Occasionally incompetent state-owned money-providing (central) banks would be what we free-marketeers naturally should expect. It’s right for free-marketeers to point out their errors. Sometimes they err the other way, by providing more money when it is already plentiful.
If I were to run a “genuinely free market capitalist” money-providing bank I would use nominal income (or NGDP) as the best guide to how I was doing. Or, better, I would just set an automatic, self-regulating mechanism like NGDP Futures markets to determine the money supply, like Scott Sumner has proposed. And take away the discretion from any one individual or small group.
Bottom line is that there is nothing “genuinely free market capitalist” about a debt-destroying deflationary recession or a hyper-inflationary boom. Better to have a calm, middle way and let everyone get on with earning an honest living free from fear of excessive booms and slumps.
11. May 2013 at 13:48
TallDave, you don’t dispute there’s been an increase in disparity in recent years. In this, it’s possible you differ from Patrick R. Sullivan — but I’ll address myself to your points, and let him speak for himself.
You assume that I think the increase in disparity is mostly bad, although I never actually express this view in my post. In fact, you’re right: I believe that on the whole it’s bad for the country, and that depending on the means chosen to reverse it, it’s better addressed than otherwise. I’m not particularly moved by the reasons you give in favor of your own view. About the first: “There’s no reason (other than envy) to oppose increased income/wealth disparity per se.” Indeed. And no reason to oppose cancer…per se. It’s the consequences wot done it, and of them there are several bad ones following dramatically increased income & wealth disparity. There’s a growing literature on this, including empirical work. Needless to say, it’s not the fact of there being a literature – “per se” – that matters, but what it contains. In this case, the results seem to be robust, and cut against your view.
Two through four: generally I fail to see the relevance of your points. More particularly:
– the literature relating to relative corporate and personal tax rates is large (Slemrod 2000 is a good place to start), but I’m not aware of any definitive results along the lines you (or rather the person you cite) suggest. Even if there were such a result, however – that is, even if “the phenomenon you refer to is largely an artifact of tax changes in the 1980s that have gradually shifted income from corporate to personal” – it’s not clear what that means for the question of disparity. Do you have thoughts about the relation between these two questions?
– the degree of turnover among the wealthy has been studied of late, and as a matter of fact it’s quite low relative to international and recent historical standards. There’s considerable back-and-forth across the threshholds used in such studies, but the magnitude of the difference for the average household is actually quite small.
– your third point is merely polemical: taxation redistributes wealth by force, or anyway under threat of force. Unless you propose to end taxation altogether, I’m afraid the issue becomes one of degree.
– your last point is empirical, but vaguely stated. Insofar as it’s opposed to the following observed fact – which I state roughly, although the qualifications aren’t directly relevant here – your claim is false: standard measures of disparity in wealth and income show a signficant inverse relation to economic growth. Do you acknowledge this fact?
Apologies for the long post.
11. May 2013 at 16:30
“The Bush tax cuts hugely favored the wealthy”.
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456
Average Individual Income Tax Rates, during the Bush tax cut pre-Great Recession Years
____________ 2000 ____ 2007
Top quintile 17.6% 14.4% … -18.2%
4th quintile 8.1% …. 6.1% … -24.7%
3rd quintile 4.9% …. 3.1% … -36.7%
2nd quintile 1.5% ….-0.1% .. -107.7%
Low quintile -4.0% ….-5.8% … -45.0%
~~~~~
Say again?
11. May 2013 at 17:53
Reply to Jim Glass: the relevant tables are here, particularly under “Beneficiaries of the Bush Tax Cuts”:
http://www.taxpolicycenter.org/briefing-book/background/bush-tax-cuts/
11. May 2013 at 18:16
Reply to jackjohnson:
The table I quoted is from there.
If you wish to cite a table of actual numbers for the results of the Bush tax cuts that contradicts the numbers in that table, please do, don’t point to a general topic index but nothing particular in it and say “see!”.
11. May 2013 at 18:33
jj,
Cancer is bad per se because it kills people. Someone else getting rich noncoercively does not injure me — indeed, it likely enriches me.
Income disparities can certainly arise in an injurious, coercive fashion; as Acemoglu laid out so well, many societies are organized in such a way as to forcefully enrich a few people at the expense of everyone else. Income disparity is the result, not the cause — it can and does arise virtuously as well.
See Megan’s post on the tax issue.
The degree of turnover might be smaller, depending how it’s measured, but it’s still far too large to talk of “the wealthy” as a fixed class of people.
Re the coercive transfer of wealth to the poor: even if we agree that the transfer is the best possible use of resources, it’s just a fact the coercive transfers in our society massively disfavor the wealthy. That’s a strong argument against income inequality as a “problem.”
On income inequality vs growthy — again, don’t confuse correlation and causation. It’s pretty easy to look at catch-up growth in poor countries and conclude there’s a correlation to income inequality, but the reasons may not apply elsewhere. Historically, the trend has been for income inequality to increase along with median living standards, and that’s what we should care about.
11. May 2013 at 19:42
Reply to Jim Glass: by “there” I suppose you mean TPC. They’re reliable, but the table you quote isn’t the most relevant to our question (even among the tables on the page you link to, Total Average Federal Tax Rate would be closer to the mark). The tables on the page I link to give what we’re really after. I highly recommend spending a few minutes reviewing all of them — they cover a wide territory, from multiple viewpoints. Anyway, the tables are pdfs so I can’t copy-and-paste them here, but if you’d like a single quote, this one is as good as any (from http://www.taxpolicycenter.org/briefing-book/background/bush-tax-cuts/ignore.cfm):
“The percentage change in after-tax income, TPC’s preferred measure for comparing the benefits of tax cuts across income groups, rises under this scenario [i.e. making the cuts permanent, as against letting them expire] as income rises, from an increase of 0.3 percent in after-tax income in the bottom quintile (see table) to a rise of 4.3 percent in the top quintile. It rises even further within the top quintile, with a 6.4 percent increase for the top 1 percent and a 7.5 percent increase for the top 0.1 percent (not shown). Thus the tax cuts would be regressive, raising after-tax income by a greater percentage for high-income households than for all others.”
They note further on that other measures suggest the tax cuts are progressive. But there are good reasons to take after-tax income more seriously — see here for a brief methodological discussion and links to further reading:
http://taxpolicycenter.org/numbers/displayatab.cfm?DocID=300
11. May 2013 at 21:24
TallDave, thanks for the links (I didn’t know which Megan we were talking about…). What do you mean by “coercive”? Suppose that two people have identical incomes etc., but one pays taxes only because of the threat of sanction while the other pays gladly. Is the one coerced and the other not?
12. May 2013 at 08:34
This thread might be all but dead by now, but in case not here’s a brief follow-up to my previous question to TallDave (so it’s clear where I’m coming from). If the one who pays taxes only grudgingly is coerced and the one who pays them gladly isn’t coerced then there are two obvious ways to address the problem (assuming for the sake of argument that this coersion is a problem): lower the tax rate of the one who’s unhappy (at least to start – seeing this might make the other unhappy etc.), or provide a reasonable argument to the conclusion that the tax rate is appropriate etc.. If after being presented a reasonable argument the individual still cavils, there may be nothing more to do but take a vote (here I assume a democratic process, setting aside possible distortions etc.). My understanding is that the American public favors more progressivity than we have now, but even if I’m wrong about that, it’s my own view that we should favor it. The TPC data I’ve cited in this thread show, I believe, that the tax code has become less progressive in recent years. There is, moreover, reason to believe that progressivity significantly mitigates disparity in income and wealth, and reason to believe that disparity in income and wealth is a significant *causal* factor in a variety of social and political ills. So that’s where I’m coming from.
12. May 2013 at 08:43
“”The Bush tax cuts hugely favored the wealthy”.
If I’m not mistaken, the sentence quoted above is in the past tense. Jim Glass has referenced a table that shows the historical record based on actual IRS filings as to the average tax rates incurred by various income cohorts.
On the other hand, jackjohnson has quoted *estimates* prepared by the TPC based on what they think the effects would be if the Bush tax cuts would not have been extended.
Query: As to the question of whether the “Bush tax cuts hugely benefitted the wealthy” is an accurate statement (leaving aside the issue of what value to assign the adjective “hugely”), which would be more relevant and/or more accurate? The historical record or an estimate as to the unknowable future, the latter based on methodologies and numbers that are largely undisclosed?
I’ve closely followed the TPC’s work for some time now. They play a huge role in how proposed tax legislation is perceived. As to their estimates, I would suggest that they should disclose more details of their methods and actual calculations as spit out by their tax models. If they were to do this, what are the chances that an error such as the one detected in Rogoff and Reinhardt’s work would come to the surface?
12. May 2013 at 20:28
The stimulus is designed to phase itself out; extending a tax credit is the opposite of phasing out.
Krugman’s column is a pretty clear example of partisan political strategizing yes, but I disagree with Crook wholeheartedly when he implies that opposing the extension of the Bush tax cuts on long term deficit reduction grounds is inconsistent with supporting a larger stimulus. Crook should do a luttle fact-checking. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/02/the-legacy-of-the-bush-tax-cuts-in-four-charts/image1-1/
TallDave: “it’s just a fact the coercive transfers in our society massively disfavor the wealthy.”
And the wealthy seem to benefit most from the social institutions that allow them to not only attain their wealth but also keep it. Refer to redistribution as being “coercive” all you want; this doesn’t change the fact that things like relative political stability, a pretty strong military, public education, and local police departments have social benefits (or positive externalities if you will), and by participating in society you are effectively benefiting from these things. People who get more out of this than they pay in are free riders. In America you can earn a million bucks and live in a nice house. In Somalia you probably couldn’t earn much to no fault of your own, and you’d probably get killed or something. Detroit’s a pretty good and less extreme example of what happens when public institutions fail. We sometimes tend to downplay how much positive externalities matter (sociologically speaking) in one breath and then in the other breath tell our friends to be careful walking around Detroit at night.
13. May 2013 at 01:46
“Detroit’s a pretty good and less extreme example of what happens when public institutions fail. We sometimes tend to downplay how much positive externalities matter (sociologically speaking) in one breath and then in the other breath tell our friends to be careful walking around Detroit at night.”
I wonder if Detroit’s problems stem from the fact that its “public institutions” have failed in the sense that seems to have been suggested by that comment. I’ve never set foot in Detroit, much less at night; however, if it is as dangerous as suggested in this comment, I doubt this is because a lack of greater redistribution caused the “failure of its public institutions”. To the extent that public institutions in Detroit are failing, I doubt it is because Detroit failed to coerce enough taxes from its (former) “wealthy” to support them.
To test this theory, one might ask whether, and if so why, “public institutions” are not failing, or at least not failing as much, in places like Dallas or DesMoines (following the alliterative rule of comparison). Is it because DesMoines and Dallas in general have, by popular choice, larger governments? Do they “redistribute” greater resources from the wealthy to the poor? With respect to one “public institution” mentioned in the quote above (local police) Detroit seems to be a real leader, at least as measured by per capita size and spending:
http://www.detroitnews.com/article/20130430/OPINION03/304300354
And, here’s a take on some other aspects of Detroit’s “public institutions”:
http://www.michigancapitolconfidential.com/12832
But, dwr is likely correct that Detroit’s “public institutions” are indeed failing. A better question to ask would be why this is so. It does not appear to be for lack of size, lack of spending or for the failure to coerce higher taxes from the wealthy if, in fact, there are any of them left in Detroit to “coerce”.
13. May 2013 at 06:50
Vivian, I laugh. And Vladimir probably would have too.
13. May 2013 at 12:17
Suppose that two people have identical incomes etc., but one pays taxes only because of the threat of sanction while the other pays gladly. Is the one coerced and the other not?
If someone points a gun at you and demands your money, how happy or unhappy you are about handing your money over isn’t relevant to the question of whether it’s coercion.
And the wealthy seem to benefit most from the social institutions
That depends. It’s true that on an absolute basis the wealthy acquire much more wealth than they could have with worse institutions. It’s also true the poor would starve to death with worse institutions, while the rich would merely be less rich.
that the tax code has become less progressive in recent years.
Nope. It’s now so progressive about half the country has zero to negative income tax rates.
13. May 2013 at 14:47
America’s Tax code is progressive enough to suport a humane, European style welfare state. We have a more progressive code than Europe in general.
So how do they do it ? The difference ? The Europeans have a much more progressive tax distribution system.
It is completely misleading to talk about the progressively of the tax code with out talking about the progressively of the distribution system.
It comes down to this… In America the elite have a much bigger Rent Seeking advantage compared to the common person than the elite in Europe do over their common folk.
Maybe you are OK with America’s elite being as successful at rent seeking they are. But if you’re not… asking for even more progressive tax rates is a legitimate approach in the face of the less progressive distribution system.
This will never happen…but cutting the rent seeking of the elite would be better than raising their taxes.
Oh, Never mind…Time for the two minutes hate…
Remember… Lazy Poor people are getting food stamps! Their jealousy makes them use the government to steal from the noble maker class !
13. May 2013 at 14:49
oops …Progressivity of the tax code…not “progressively” of the tax code.
13. May 2013 at 22:03
“America’s Tax code is progressive enough to suport a humane, European style welfare state. We have a more progressive code than Europe in general.
So how do they do it ?”
The answer is contained in the first paragraph quoted above and has little to do with how benefits are distributed. The defining characteristic of European systems is not the progressivity their tax codes, but the paternalistic nature of their social system. There is very little means testing with respect to major programs such as social security and health care.
Europeans “do it” by taxing their poor and middle classes and taking a much greater percentage of their gross incomes before they are able to blow it on other stuff. *That* is why the tax systems in Europe are not *more progressive*. Not only are the income taxes and social charges on lower income echelons higher, European governments now take, on average, VAT of more than 20 percent of each Euro spent. They then give a part of that back to those same folks in the form of “social benefits”.
The average European does not spend nearly as much as the average American on “non-essential” consumer goods and entertainment—the money that would enable them to match American consumption in that respect is taken away before they are able to squander it. Part of it, after some heavy rent-seeking by bloated bureaucracies (represented by the relatively wealthy), is then given back, in the form of “essential” social benefits.
I’ve long believed, after having witnessed this first-hand for 35 years, that this notion of paternalism in Europe might be a remnant of the old feudal system. European elites still feel some sense of responsibility for their serfs and to protect them from themselves.
14. May 2013 at 04:33
Bill, if you think there’s more rent-seeking in America than Europe than you haven’t been paying attention. Payola is a national pastime in Greece and Spain, unions in France are allowed to block the roads to extort money, and Europe in general has a long tradition of “state industries.” America’s not perfect in this regard, but something like the U.S. ban on earmarks would sound insane to European ears — it’s just how things are done.
14. May 2013 at 06:36
‘In America the elite have a much bigger Rent Seeking advantage compared to the common person’
Even all those guys called over there ‘Count’, Duke, and Lord? All those Eurocrats and ministers in Belgium?
And Vivian is correct again, that ‘humane’ European welfare system is paid for by taxes hitting the middle and lower income people. They’re much more heavily taxed than their American cousins.
15. May 2013 at 05:52
Patrick, that’s not the whole story. here’s dylan matthews: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/15/here-are-315-charts-on-poverty-and-inequality-satisfied-yet/
Well started is only half done.
“But I always find the pre-tax/transfer section of these kinds of reports really interesting. The United States actually has less pre-tax/transfer poverty than a number of places, including France and Germany, and about equivalent pre-tax/transfer inequality to those countries.
It’s government policy that makes the difference, and not mainly tax policy. The United States has one of the most progressive tax systems in the world, but other countries have much more progressive spending habits than we do, so their systems are more progressive on average.”
15. May 2013 at 08:28
@Vivian Darkbloom:
I don’t know the details to why exactly Detroit isn’t doing so well these days and the reason why isn’t my point, so let’s try to stay on topic. My point is to underline the efficacy of strong societal institutions, not only governmental institutions but (perhaps even more importantly) purely social institutions that money can’t buy: safe neighborhoods and cohesive families, for example.
The point is that nobody makes it to the top on his or her own and that things like where you are raised and how good your (public?) school was matter. Yes, your school teachers and your local police department are all paid, but to say that their contributions to society can be accurately measured by their marginal product of value on the labor market is insanity. I’m sure, for example, Steve Jobs had a teacher who really sparked his interest in computers and math and now we have Apple. Or maybe it was one of his peers, but his peers who challenged Jobs had to be educated, too. I’m sure there’s another teacher or group of teachers out there somewhere who inspired a potential gang-banger to stay off the streets, and in some chain of events prevented a few homicides. To use a more mundane example, maybe there’s some kid in rural Indiana who never had access to a computer science class in high school so he never discovered what would have been his passion. I’m not speaking to the efficacy of single teachers, but of the strength of an institution as a whole. This applies to all institutions.
I’m not proposing anything, mind you. I’m not saying to reward these teachers or to bolster police forces. What I’m saying is that success is not entirely born out of the individual. We all go through various institutions in life that shape who we are. And if you end up being a billionaire later on in life, to a large extent it means you had access to the right institutions that gave you the right opportunities.
Unfortunately though, there is a small but growing subset of libertarians who honestly think people only get rich on their own accords.
15. May 2013 at 08:32
And to clarify why I bring all this up in the first place, TallDave contests that taxes disproportionately disfavor the wealthy. I contest that the wealthy more often than not disproportionately benefited from the institutions that rose them to the top, so it’s not the most ludicrous idea for them to pay back to society.
15. May 2013 at 08:46
Dwr,
On that basis, wouldn’t it make more sense for them to pay back to the institutions, rather than “society”?
15. May 2013 at 11:12
“I don’t know the details to why exactly Detroit isn’t doing so well these days and the reason why isn’t my point, so let’s try to stay on topic. My point is to underline the efficacy of strong societal institutions, not only governmental institutions but (perhaps even more importantly) purely social institutions that money can’t buy: safe neighborhoods and cohesive families, for example.”
dwr,
I’m glad you clarified that because per the original comment thread it was very difficult to imagine that *that* was your point. It’s hard to stay “on point” if the original “point” is not clear, or if that point is a moving target. The exchange was, after all, with respect to “transfers” and whether or not those “transfers” were coercive, and who stands to gain from them.
Here was the original context:
“”TallDave: “it’s just a fact the coercive transfers in our society massively disfavor the wealthy.”
—to which you replied—
And the wealthy seem to benefit most from the social institutions that allow them to not only attain their wealth but also keep it. Refer to redistribution as being “coercive” all you want; this doesn’t change the fact that things like relative political stability, a pretty strong military, public education, and local police departments have social benefits (or positive externalities if you will), and by participating in society you are effectively benefiting from these things. People who get more out of this than they pay in are free riders.
“”
I don’t know many people (myself included) who do not favor strong and effective “social institutions” (a rather vague categorization, but never mind). However, I think a fair reading of the above exchange was that you were arguing that these “transfers” (whether “coercive” or not) are the very thing that make these strong “social institutions” possible. Stated another way, consistent with the above exchange, is that *redistribution* (your term–see above) of wealth (coercive or not) is the very thing that makes these strong “social institutions” possible. Or, was the sentence beginning with “this doesn’t change the fact…” just dropped in there as an irrelevant aside?
*My* point about Detroit is that the failure of its “social institutions” (police force, educational system, etc) has little, if anything, to do with the lack of adequate spending or redistribution of wealth.
“Unfortunately though, there is a small but growing subset of libertarians who honestly think people only get rich on their own accords.”
I try to avoid the use of labels (much less subsets of labels), particularly when applied to myself. So, I won’t use a label when I remark that this particular idea seems to echo “you didn’t build that”. For what it’s worth, my advice to anyone listening (particularly in Detroit) is that the only pragmatic answer to that question is, yes, if you want to advance yourself you must assume that you must do it “on your own accord”. You must “build it yourself”.
I will let you in now on a little secret that is relevant, I think, to the current predicament in Detroit (and, alas elsewhere). Going into the 2008 election, I had an initial predilection to support John McCain, who I thought was a known quantity and an upstanding citizen who could, within reason, be trusted to do the “right thing”, irrespective of political or ideological pressures. He was, after all, a “maverick”. But, his first executive decision disabused me of this idea: he chose Sarah Palin as running mate. On the other hand, Barrack Obama seemed to be an intelligent, articulate young African American who, at the time, was occasionally saying the right things to young African American males in Detroit and elsewhere. That message was: Study hard and work hard. Get an education like I did. I thought he could be the example that could help resolve one of the biggest problems facing America and that has everything to do with what has happened in Detroit. So, I changed my allegiance to Obama, partly on the belief that this sort of message from the first African American President of the United States would be just the thing to send the correct message to Detroit and other places.
I have not heard much from our President since is initial election about the need to “get rich on your own accord”. Quite the opposite. The message has changed dramatically, ‘including “you didn’t build that”, which diminishes any idea of personal responsibility. His message has been merely that spending more money and redistributing more wealth is the ticket to getting one out of Detroit (or making Detroit a better place to live by strengthening its “social institutions”). And, I admit: I was wrong. I didn’t realize the person I backed would bear a closer resemblance to Hugo Chavez than the young candidate I had such high hopes for. He now talks more about basketball than he does of the need for kids to get into their books. Apropos that, if you want an example of how the expenditure of money and the redistribution of wealth have on the strength of “social institutions”, I can think of no better example than Venezuela.
So, perhaps we agree after all (“money can’t buy it”) even though you now profess not to know what is wrong in Detroit. My contention is that Detroit does not lack strong “social institutions” because we have not redistributed enough wealth there or because we have not coerced the wealthy to pay enough tax. If that were the case, places like Dallas and DesMoines would have weaker “social institutions” than we have in Detroit (not to mention Caracas). The answer is not easy, but it is certainly not more money or more redistribution or coercing the “wealthy” to pay more tax. My hunch is that if Detroit were able to attract more “wealthy” persons to live there, while at the same time lowering taxes and the extent of redistribution of wealth (there is likely a correlation), it would probably have stronger “social institutions” than it now has. And, everyone in Detroit, not just the wealthy, would benefit. In this respect, I believe it to be true that the “poor” in Detroit and elsewhere suffer the most from crime and other social maladies. I therefore also think it is true that the poor, not the wealthy, have the most to gain from strong “social institutions”.
16. May 2013 at 08:46
dwr,
Again, even if we agree that massive coercive transfer from wealthy to poor makes perfect sense (and doesn’t unintentionally screw the poor by creating bad incentives), my point was that it’s difficult to argue income inequality is a “problem” when the coercion in a society is massively in favor of the poor.
Note that the opposite generally the case in poor countries — there is either a massive fleecing of the population through things like the export boards in many African countries, resource theft as in Niger or Gaddafi’s Libya, or the oligarchic socialism prevalent in Arab countries. There, income inequality is a perfectly valid measure of the coercion going on in favor of the rich.
So my point is just not to confuse the two.
16. May 2013 at 19:17
Patrick R. Sullivan,
You write, “In addition, Ann [Coulter] is funny, charming, and cute.”
See excerpts from Ann’s recent interview with Sean Hannity on the new Star Trek movie below.
I suppose it’s “funny” in a morally obnoxious sort of way – “too many minorities,” thank God the captain “is white” because “the ship would fall apart in a minute without him,” Vulcan “is code for Jewish,” and, moreover, the actor playing Spock “is gay” – but I don’t see the charm, and, with regard to Ann being “cute,” I can only say de gustibus non est disputandum.
“Now Ann, you know I love you,” a puzzled Hannity said, “but I’ve seen the film [new Star Trek movie], and although there were minorities, there were also plenty of whites. So I guess I don’t see your problem.”
“Sean, the only other white people are foreigners,” she retorted, “you got one Communist from Moscow and a lazy, socialist engineer from Scotland. There’s only one red-blooded American white person in the whole movie – and thank god he’s the captain. The ship would fall apart in minutes without him.
“And Spock? The actor’s gay, and the character is ‘Vulcan’ – which is code for Jewish. But its not just the characters. The whole Star Trek thing is a socialist plot to brainwash our children.
“I mean no one actually owns the ship, no one gets paid any money, everybody’s ‘equal’. And they’ve been flying up there for years and still haven’t seen God yet. Karl Marx would have been proud Sean.”
16. May 2013 at 19:35
Just kidding. The interview is a spoof, though it’s not hard to imagine Ann spitting this fire.