Here is the cost of the current GOP tax bill placed in the context of other really expensive things. Although it’s not quite enough money to solve world hunger, it’s enough to end US homelessness four times over or fund nine simultaneous Apollo Programs.
I’m writing this post sort of as penance. During the primaries, I wrote a post arguing that Sanders’ college plan was bad. And compared to any reasonable use of the money, I still think that’s true.
But I worry that people – including me – focus way too much on the kind of bad idea that tries to help people but ends up being too expensive, and not enough on the kind of bad idea where there’s only the thinnest veneer of a claim anyone will be helped at all. If Sanders had been elected, and we were debating his college plan, people would be worried. The affordability of every piece of it would get run over with a fine-toothed comb. Its irresponsibility would be noticed.
Well, instead of Sanders we got Trump. I won’t say nobody’s talking about the tax plan – the problems with it have been all over the news – but are our fiscal irresponsibility detectors being triggered twice as strongly as they would if it was Sanders’ college plan we were considering?
There must be a toxoplasma effect going on here, where things that are possibly bad get debated to pieces, because debating them is so much fun – but things that are definitely bad, things that nobody likes, get through much more easily. Even more pessimistically, if Sanders proposed free college for everybody, it would get a lot of resistance precisely because the fact that so many people would benefit would make sure everyone knew about it and was thinking about it a lot and understood how big a deal it was. Since nobody except a few corporations benefits from the GOP tax plan, how do we even get a feel for how big and important it is?
Next election, if he’s running, I’m probably going to support Sanders, who seems like a decent person who really wants to help the poor. This is going to be a weird choice for someone who flirts with identifying as libertarian, given the whole socialism thing. But the thing is, we have antibodies to socialism. When people push socialism, we give it the scrutiny it deserves. I’m more worried about the things we don’t have antibodies to, and one of them is going to be passed by a joint session of Congress in the next week or two.
Can somebody give the arguments in favor of this tax bill? There have to be some, right?
The decisionmakers get benefits from the big corporations in some form?
Expanding the standard deduction will allow people to keep more of their own money while simplifying tax preparation. Lowering the corporate rate will make it more attractive for businesses to stay here because the new rate is closer to the global average. Estimates are 40-80% of the corporate tax rate will go towards higher wages. Changes to the repatriation tax will encourage companies to bring their money back to the US and will cut incentives for companies to move headquarters overseas. Cutting taxes for pass through corps will encourage entrepreneurs and small businessmen. Getting rid of the SALT deduction will stop poor states from subsidizing rich states and stop the penalty of consumption taxes which are better way to tax.
It increases the debt, but rates are at a historic low so it is cheap to borrow money.
That’s not a good way of putting it. The net subsidy flows from rich states to poor states. The SALT deduction goes in the opposite direction but it isn’t nearly large enough to change the the sign. When it is eliminated the magnitude of the net subsidy flows will increase, not decrease.
Maybe “Stop taxpayers in states with low taxes subsidizing the local government budgets of spendthrift states” or something like that?
The thing about SALT is that it lets states (not necessarily the rich ones, but in practice the rich ones – well, the ones with big tax bases anyway) raise their local taxes higher than they normally would (because <100% of the additional tax is a net expense for the taxpayer) while simultaneously taking money out of the federal budget. That seems not quite right, though I lack the expertise to claim to know the actual impact of this.
It’s very hard to look at SALT as anything but a red/blue tug-of-war, but try to imagine starting with a blank slate federation and trying to decide whether to tax-exempt state and local taxes. Should someone who makes 100k and pays 10k in state and local taxes be taxed like someone who makes 100k and pays no such taxes, or like someone who makes 90k and pays no such taxes?
Presumably living in the high-tax locale comes with some benefits paid for by those taxes–insofar as the taxes are approximately a quid pro quo, as especially seen in elite public school districts, it’s silly to be able to deduct them.
On the other hand, if your state’s taxes are high because it has a very strong welfare program (or other things you don’t directly benefit from), then your taxes are more analogous to charitable gifts, and probably should be deductible.
In an ideal world we wouldn’t have a SALT deduction. I just don’t think sourcreamus’ description was accurate. And it was inaccurate in a way that is in my experience not uncommon. Within my state (NY) we have many people under the very much mistaken impression that upstate subsidizes downstate when there are very large flows in the opposite direction.
It is a subsidy to the state government. The government may subsidize people in poor states but the SALT deduction subsidizes the actual state.
Is subsidy defined by anything more than where money is spent?
If the Federal government gives Alabama a billion dollars to spend providing healthcare to its citizens (imaginary example) that’s a subsidy. If the federal government spends a billion dollars in California hiring coders to create the software for Obamacare, or a billion in Iowa buying corn, that isn’t a subsidy. Nor is it a subsidy if the feds spend a billion dollars in Virginia running a military base. In all of those cases, the benefit to people in the state isn’t the amount of money spent, it’s only whatever profit they make on selling what the feds are buying.
Is there a defensible definition of subsidy that your claim is based on?
I don’t think it is as simple as that. If there’s a factory in Virginia making widgets and the government buys $1 billion of them because the Senators from Virginia insisted, but no one gets any benefit from these widgets, then the entire amount less whatever materials were imported from other states should be credited as a subsidy to Virginia. The income of the workers in those factors is welfare by another name. Likewise the dividends to the shareholders of the widget making company.
After having written this comment it occurs to me that you may have been using ‘profit’ in a broader sense than is common to include the above. In which case I guess we agree.
Determining which States are subsidizing other States is highly dependent on the sources and destinations of money you consider. If you look at the “New York’s Balance of Payments in the Federal Budget” (pdf):
You see the OFFICE OF THE NEW YORK STATE COMPTROLLER making the argument that
When you look at the calculations, you see that (on page 11)
Then,
Amazingly, the money sent to individuals (table on page 26) Florida is second, NY is #33, and ND and Utah at the bottom. Who’d have thunk a lot of people retire in Florida.
Looking at money actually paid to the State of NY for grants (table on page 27) NY is fourth.
I personally think that when discussing Federal government policy you should ignore the payments made from the Federal government directly to individuals and focus on the money given to the State governments. I can understand why people would choose differently since a lot of the money given to the State is then given by the State to people.
If this were clearly and obviously true, shouldn’t New Yorkers be rallying for secession?
It’s not like we haven’t thought about it. The last civil war didn’t go very well for anyone though. More seriously there have been proposals for NYC to secede from New York state. My personal favorite was a 1969 independent ticket with the chutzpah to say we’d leave the state and _they_ would have to change their name to Buffalo.
https://en.wikipedia.org/wiki/Partition_and_secession_in_New_York#1969
I just estimated that 0% will go towards higher wages, so now “estimates are” that 0-80% will go towards higher wages.
But maybe we should focus on credible estimates.
Who did the corporations supporting the tax cut think would end up with most of the benefit?
Are you arguing that corporations wouldn’t support the tax cut if they only got 20% of it? That $300,000,000,000 or so isn’t enough incentive, and that they would only support it if they were going to get 100%?
Are you familiar with Ricardian equivalence? If find it implausible with respect to individuals, but you’ll find it underlying a lot of those 40-80% models, so it’s important.
It implies that corporations won’t be in favour of an unfunded tax cut if they get 20% of the benefit and expect to be on the hook for >20% of the future obligations it creates. Certainly they won’t be wildly in favour if the difference between benefit and expected future costs is positive but small, and yet they were. Workers seemed less excited.
I am familiar with Ricardian equivalence, I do not believe the following
1. That the average voter/poll respondent is familiar with RE or
2. That the people running the corporations now that would benefit from the tax cut will expect to be in the same situation when rates are raised
3. That those people can predict who will be in power and what types of taxes will actually be raised with enough surety to pass over what certainly looks like a solid deal up front.
I agree with you on 1, baconbacon, but, as I pointed out, that doesn’t really apply here.
2 confuses ownership and control, and is, I believe, wrong in either form. Corporations are built to be forward-looking, with forward-looking calculations baked into their share prices.
3. Is probably true, but substitutes “losses of uncertain expected value” with “losses of zero expected value”. These are pretty different. Given the much-heralded risk aversion of investors, the fact that the future costs of increased present deficits are uncertain should increase their impact on current owners.
You stated
If workers aren’t aware of RE then using their mood/reaction to gauge if the result will be good for them isn’t useful.
This confuses the real and the ideal. For example some shareholders aren’t just shareholders but are employees whose bonuses are tied to short(er) term performance. Share holders also skew older than the general population, and these older people often have a preference for streams of income (dividends) over asset prices. There are a dozen different ways in which the long terms stock price effect could be different from the short term incentives of the shareholders.
Additionally RE only holds if taxes are expected to eventually rise, it could still be rational to support the bill if you expected it to be a net boom for the economy, pushing up revenues across the board or keeping a political party who is (allegedly) in favor of lower spending/taxes, which would neutralize the RE issue.
Realistically though all these explanations, starting with RE are unnecessarily complex as the majority of shareholders, workers and tenured professors aren’t familiar with RE nor are the engaging in the type of complex projections that would be necessary to make truly ‘rational’ choices. There is simply to much stuff going on with the rest of their lives to be able to dedicate to such projections.
I do not know who you are, could you provide a link to your research so we can evaluate how good your estimate is?
There aren’t any links in any of these posts, sourcreamus. That only now seems to have become a problem for you.
For what it’s worth, I’m a PhD economist working with no general model of taxation and the economy, no professional focus on the area and an ideological prior against reduction in corporate taxation, ceteris paribus.
Go look at your “80% of the benefit goes to workers” studies and you’ll find much the same, I suspect, but in reverse. Then post the links with comparable summaries, maybe.
pd,
Expert consensus is fairly overwhelmingly against you, so there really is no reason for anyone to give any weight to what you are saying on the basis you provide, is there?
pdbarnsley is here questioning how expert the opinion is that disagrees with him. It is probably not very convincing to simply assert they are experts, but perhaps a few links or other citations might lend credence.
Considering even elite economists admit that the vast majority of their models aren’t based on reality and use a bunch of handwaving:
https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf
It might make sense to listen to the CEO’s who will actually be making the decisions. Only 35% say they will increase investments and wages. The rest will just hand it over to their already wealthy shareholders via stock buybacks.
https://www.bloomberg.com/news/articles/2017-11-29/trump-s-tax-promises-undercut-by-ceo-plans-to-reward-investors
Here are some links
Labor and Capital Shares of the Corporate Tax
Burden: International Evidence
International Burdens of the Corporate Income Tax
The ABCs of Corporation Tax Incidence
@userfriendlyyy:
Your Romer quote is about macroeconomics. I like to say that a course in macro is a tour of either a cemetery or a construction site.
The division of the burden of a tax among those affected, however, is straightforward microeconomics, more accurately labeled as price theory. The relevant analysis goes back at least as far as Marshall, which is to say well over a hundred years.
@DavidFriedman
I don’t care how long the profession has been counting angels on the head of a pin. When you are using Toy Models you aren’t operating in reality. No model anywhere can make CEO’s not pour the whole tax cut into stock buybacks to the exclusive benefit of the billionaire class.
@userfriendlyyy
Models suck. But the alternative (conjectures) sucks more.
Scott Sumner initially had some good things to say about the bill:
http://www.themoneyillusion.com/?p=32709
Although he’s less a fan of the Senate version, especially after republicans might keep the AMT:
http://www.themoneyillusion.com/?p=32734
The status quo corporate tax is a conceptual and practical disaster. It has one of the highest nominal marginal rates in the world but collects a middle of the pack percentage of GDP. It hits different companies in wildly different ways and massively rewards spending on accountants and tax lawyers. The US is one of only two significant economies that taxes companies incorporated in the country on worldwide income instead of only on income earned in the country. This amounts to a serious advantage for companies incorporated elsewhere. In order to partially mitigate the harshness of this unique rule we have a crazy system of deferred taxation which ends up encouraging foreign investment over domestic investment and also excessive borrowing.
The tax bills reform the corporate tax code. Not nearly as comprehensively as I would like, the resulting system is still a mess, but nonetheless significantly. It couples these reforms with a big cut, and that I don’t think is especially needed, but given the reforms that exist I wouldn’t say it is all bad.
On the passthrough side, which amounts to another part of the corporate tax code, the system is actually made worse — more irrational and complicated and rewarding of game playing. That anti-reform is in service of more cuts, which again were probably not needed.
As to the individual income tax there’s a mix of reform measures (e.g. eliminating credits and deductions especially in the House bill, less so in the Senate) and anti-reform measures (e.g. eliminating the AMT in the House bill or making it apply to less returns in the Senate bill). How to judge the overall effort is complicated by the fact that some of these provisions are set to sunset in ten or fewer years. The Republicans ask that we take for granted that they won’t be allowed to expire while the Democrats say we should look at the bill as it is. Like with the other parts reform here is only a part of the overall cut story.
Finally, there’s the elimination, or increase in the exemption for, the estate tax. I’m not an especially enthusiastic supporter of the estate tax, particularly given how it is so often evaded, but if it was going to be eliminated I would very much have liked to see the elimination of the step up basis for the capital gains tax for transfers on death. If taxes aren’t going to be owed by estates at the very least deferred taxes owed on capital gains shouldn’t just disappear into thin air because the person that owed them died. They should follow the asset.
TL;DR Overall I don’t think it is a good bill and don’t support its passage, but there are some parts of it that are okay solutions to legitimate problems.
That seems fine – my biggest beef against the estate tax is that you’re effectively taxing things that have already been taxed at least once, and often more than that. I’m fine with capital gains getting taxed at a fair rate that follows the asset once.
What does your ideal corporate tax reform (presumably revenue neutral, among other things) look like?
I’ve been trying to work out for years a way to replace the tax on corporations with taxes on the beneficiaries of corporations. I think that would be conceptually much simpler. You’d still probably want to have some kind of nominal tax on corporations (probably on revenue) to act as a frictional force and prevent the endless multiplication of every more elaborate nested corporate forms. But in terms of revenue I’d think if you could tax ways that companies pay out (in cash or otherwise) than you wouldn’t need to worry about how to define profit or where it was earned.
Unfortunately there is a hole that I can’t think of any way to plug. Companies have {domestic, foreign} {shareholders, debt holders, employees}. If the united states was the whole world you could put in place income taxes for individuals (including benefits) to cover employees, tax dividends and bond coupons, and tax capital gains. Then you wouldn’t need to worry about a corporate tax. Anyone that benefited from corporate profits would have reportable income which could be taxed on their level.
However given the existence of foreign shareholders how do you tax the capital gains they earn by buying and selling shares in your domestic companies? For dividends it’s easy, just make the companies withhold, but I can’t see how you could do it for capital gains. Even if you require share transactions to be registered they’d just form a foreign company to hold shares and buy and sell interests in that company, which would not have to be registered.
Alternatively we could decide that foreign shareholders don’t owe us anything. But I think most people’s intuition is that if someone is e.g. living in Barbados and is getting $100mm a year in dividends / realized capital gains from Apple, then he is benefiting significantly from goods and services provided by the USG (and CA government) and ought to pay something towards them.
Unless and until I come across some solution to that problem my second best choice is a territorial taxation system along the lines of what is common in the EU with a series of treaties and accounting conventions to try to stop the transfer pricing problem from making the systems a joke. And the elimination of various loopholes, exemptions, incentives, credits, deductions, etc. If we going to have social engineering I’d rather see it done on the spend side. With the possible exception of very clear and clean Pigovian cases.
Accidentally reported this post when I meant to click reply… I think the ability of both corporations and individuals to change jurisdictions is obviously the biggest problem to taxation in the world and a huge contributor to inequality. It drives governments into a spiral to compete on cutting taxes to retain corporate revenues and jobs. As money producing assets get more and more intangible this becomes a bigger problem, especially with tax evasion masquerading as intellectual property licensing deals. Big companies and extremely wealthy individuals will always be better equipped to follow the lower rate, which will drive the burden on people with less mobility and strain the middle class and governmental budgets.
Governments around the world need better coordinating mechanisms for taxation to stop this power imbalance. I’m encouraged somewhat by the rulings against Apple in Ireland because it seems like a step in the right direction.
Remember. The US still has the most powerful government in the world. If the Americans can’t even get the taxes that they’re owed, what chances do other countries have of getting their share of corporate profits to maintain their systems?
This can’t be stressed enough, zenmore. If even the mighty U.S. cannot be truly sovereign (in that it has to constantly cater to capital owners seeking the best returns, and thus has strict limits on what voters can actually have their government do), then that should be a sign of how democracy and capitalism mix (they don’t).
Unless, of course, you had a world government that could deal with global capitalism on an even footing.
Or, given that national governments seem here to stay, you could have “Capitalism in One Country.” Capital controls, autarky, etc. Then, theoretically, you could hold existing domestic capital hostage, force it to play ball with the only game in town on whatever terms the populace of that country, wants, and still have national sovereignty…although capital would still try to play different parts of that country against each other (as Amazon is doing now, shopping around for the lowest bidder, making cities pathetically kowtow to it one by one).
So, then I suppose you could institute capital controls in each state, or city…etc., forcing it to not flee Detroit, MI for Lansing, MI. But by that point you are talking about so many restrictions on what capital owners can do with their capital, that the government might as well take over that capital and decide how it will be invested.
Doesn’t that argument also imply that democracy and freedom–specifically freedom to leave–don’t mix? After all, the ability of a government to tax labor income is strictly limited by the threat that individuals might vote with their feet.
Democracy is a way in which governments make decisions. Those governments, like non-democratic ones, still face lots of other constraints.
Every time you spend your after tax income on consumption taxed goods you’re being taxed twice. The goal of a tax system is to raise the target amount of revenue as efficiently and equitably as possible, but the equity goal relates to treating persons, not dollars, equitably.
The “double taxation” thing is an unhelpful red herring. You need to show the an estate tax deters productive behaviour more than a practical alternative tax and/or that it hits a group who are deserving of special accommodation. I think that’s a hard sell.
But “I already paid my taxes” is just question begging.
@ pdbarnlsey
The estate tax is a tax on people who are bad at planning or are unusually unlucky. Last I looked, the costs related to litigating over the estate tax were a substantial fraction of the total tax collected.
In theory one could get a lot of money from taxing the estates of rich people, except that rich people have lawyers and are often willing to waste $99 on expensive lawyers and dubious money-losing tax-avoidance schemes in order to save $100 in taxes. People with lots of money and power and lawyers in practice can get loopholes enacted and arrange their affairs to maximize the use of these loopholes or can fritter away their profits in ways that are hard to tax. So you only get the big bucks from people who die unexpectedly early or are really bad at planning or are unlucky in that their affairs suddenly change in a way that breaks their prior tax-avoidance strategy right before dying.
If you ignore the cost to the economy of bad investments made only for tax-avoidance purposes and ignore the cost of the estate’s legal team and count the government’s legal efforts as basically free then the estate tax does bring in some net income, but not very much. Near as I can tell, the reason people like the estate tax is not that it’s a practical or cost-effective way to raise revenue, but merely that it feels like a way to stick it to (some) rich people. Though naturally not the most deserving ones. 🙁
Glen is certainly correct that estate tax collection is wildly inefficient. That said, there are much better reasons to support it than simply to stick it to rich people.
First, it is silly to call it double taxation, as it’s not a tax on the individual passing the money on. It is clearly a tax on those who inherit the money.
We’re always worried about the incentives of taxation. The only incentive the government should be concerned about wrt to inheritance tax is the that it discourages people with money they won’t spend in this lifetime from being productive. This is an important incentive, I will not deny, but I might point out it is unlikely to be as strong as the incentive of someone to make money which they will consume during their lifetime.
I’m not certain, but the one group of people who seem to spend money MORE inefficiently than the federal government are the heirs of multi million dollar estates. Even worse, it disincentivizes them from being productive themselves. If you think that there is correlation with becoming wealthy and being productive in the economy, and you think there is correlation across generations in being productive, this is even worse. I don’t have anything against rich people, they’re my friends and family!. I just think that passing money along down the line is bad policy.
I’m usually a very quantitative guy, but I have no numbers to back any of this up. It’s one of very very few opinions I allow myself based off anecdote. I’ve seen some very smart people in my family and in families I am friendly with rest on money that is comfortable, but far less than the average taxable estate. It really is a waste.
Glen, these sound like people with extremely low marginal utility of income and/or really bad priorities. I can live with transferring money from them to their lawyers as a cost of transferring some other money to the State. Some lawyers are quite nice people.
You are confusing revenue with profit. The fact that clients spend ten thousand dollars on lawyers does not mean that the lawyers are better off by ten thousand dollars. To get that money they have to spend time doing work, time that they could have spent doing work for some other client, perhaps at a slightly lower rate. Or reading a book, playing a video game, skin diving, … .
Seen on a longer time scale, money spent on lawyers is pulling talented people into being lawyers instead of doing something else with their lives.
The mistake you are making is a very common one–the same mistake I recently pointed out here in the context of claims about the amount by which the federal government subsidized different states.
Revenue is not profit.
In the hypothetical as stated, a person has the choice between A: handing over $100 to a tax collector, or B: paying $99 to a lawyer and keeping $1 as income. How does Plan B reflect “low marginal utility of income”? For any positive marginal utility of income, Plan B is objectively better.
And your “bad priorities” crack just hides an assumption that all good people must always place a positive value on handing money over to tax collectors. If you can “live with” taking people’s money because they don’t place a positive value on handing it over willingly, why, that seems mighty convenient for you.
Isn’t this a general argument against taxing rich people in any way? I don’t see how it is specific to the estate tax at all.
Maybe that really is your argument, but it seems deeply flawed – rich people are better at avoiding taxes, sure, but taxing them still seems important given that they have all the money.
On the passthrough side, which amounts to another part of the corporate tax code, the system is actually made worse — more irrational and complicated and rewarding of game playing. That anti-reform is in service of more cuts, which again were probably not needed.
As someone who has used passthrough entities, I internalized that the whole point was to substitute the individual return for the corporate return, which seems a fair trade-off. Now it looks like you’ll get to use passthrough but then still use the corporate rate if that ends up better. Maybe it’s status quo bias on my part, but that looks like a tax giveaway (one that benefits Trump personally) and not really a fair way of allocating out the tax burden.
Holding as a constant the corporate (C corp) changes it made sense to have a small cut to the overall top rate. Because under the new rates the double taxation rate (assuming qualified dividends or long term cap gains): 1- [(1 – .2) * (1 – .238)] = 39.04%
came out to be lower than the top passthrough rate of 39.6%.
But there was no reason for such a large cut and especially no reason for such a complicated structure with favored and disfavored passthroughs.
What is the point of making changes like this expire at all (if not to pretend it’s a permanent change because the expiration is in the fine print)?
The reason they expire is because of the the Byrd rule. Those rules in turn exist because a prior congress wanted to bias things in the direction of smaller deficits. If you think that deficits are a very big deal, then there’s your point.
Personally, I don’t think much of the filibuster and am not overly worried about deficits. So for me there isn’t much of a point.
It’s a cross between an accounting game, designed to work around restrictions put in place to avoid adding to the deficit, and a shell game, designed to disguise huge corporate tax cuts as a gift to the middle class.
Paul Krugman’s take:
Maybe I’m missing something but….why doesn’t Krugman’s argument work exactly the same the other way? IOW, as a rebuttal of Democrat criticisms of the bill? Arguments of that format have always struck me as a bit silly, and entirely unpursuasive to anyone who isnt on Team A or Team B.
“It only cuts taxes if it raises the deficit” and “It only raises the deficit if it doesnt cut taxes” should be just as good for either side of the argument, right?
On a strictly logical level: suppose I told you that an upcoming bill was either going to poison you or stab you, but not both. It would not be a good defense of the bill to say: “Ah, but on the flip side, either it will not stab you, or it will not poison you!” Either way, something bad is happening.
Regarding the details of the bill: even before the temporary tax breaks expire, the bill heavily favours the rich. This WaPo article has a number of graphs demonstrating the overall tilt of the tax cut, and comparing it to historical tax cuts. Even in 2019, before any of the provisions sunset, half of the tax cut goes to people earning more than 20K. By 2027, the top 0.6% would be claiming 60.7% of the cut, and people making $10K-$40K would actually pay more in 2027 than under the status quo.
In other words: the current bill is ridiculously regressive. Preserving the temporary provisions would bring it down to merely “very regressive”, at the cost of a significant hit to the deficit.
Hmm, that doesnt seem quite right to me. I like the analogy and I’m a strong believer in the “Yes, and” school of analogizing, embracing the offered analogy and trying to conduct the conversation in that framework, so I apologize that I’m not quite clever enough to express what I mean using the stabbing and poisoning metaphor, and will have to abstract it a bit.
To me, it seems more like they are saying you will either get:
Good Thing A, at the cost of Bad Thing B
or
Good Thing Not-B, at the cost of Bad Thing Not-A
And Krugman is, rightly, criticizing the proponents of this deal for trying to have it both ways….while trying to have it both ways himself. The supporters focus on Good Things, the detractors on Bad Things, but both are making the same error.
The only way out of this hypocrisy-trap, it seems to me, is to simply conclude (as, to be fair, you personally seem to be doing) that what matters is that the tradeoff between Good Things and Bad Things favor the Bad Things, and so whichever way it ends up working out, the net result is negative. But that isnt what Krugman is doing.
All major bills are written this way, the CBO has guidelines that it follows and everyone knows how the score will come out ahead of time. The ACA was written with provisions in the back half to give it a better score but that no one writing expected to be initiated.
@Chad:
It’s more like “Tolerable Thing Not-A, at the cost of Intolerable Thing B” vs “Tolerable Thing Not-B, at the cost of Intolerable Thing A”.
More concretely: “It only raises the deficit if it doesn’t cut taxes” is false. It raises the deficit either way, to the order of a trillion dollars over ten years. If the temporary tax cuts are preserved, it will raise the deficit even more. In this case, Tolerable Thing Not-A is “it raises the deficit, but only temporarily, and not so much that the Byrd Rule prohibits it from being passed with 50 votes”, and Intolerable Thing A is “it raises the deficit in the long term, and it can’t pass without Democratic votes”.
In the other direction, Tolerable Thing Not-B is “half of the tax cut goes to people making more than $200K“. (I said 20K in my previous post; that was a typo.) Intolerable Thing B is “60% of the tax cut goes to people making more than $1m.”
The asymmetry is that supporters of the bill need it to be acceptable on both axes — neither fiscally insane, nor a giveaway to the rich — while critics only need it to fail along one of the axes. There are more ways for a bill to fail than succeed.
Question about the estate tax: Why isn’t it just taxed as part of the income tax (you’re receiving money from another person)?
In general gifts are not taxable income to the recipient.
But they are to the giver. Since the giver’s dead in this instance, You could just take the tax out of the inheritance.
That’s the estate tax. The gift and estate taxes are part of the same scheme. Your estate tax exemption for example can also be used as a lifetime gift tax exemption above the annual exclusion.
Tyler Cowen doesn’t go as far as endorsing it, but suggests a rationale: it’s about attracting investment to the US.
Like Reaganomics/supply-side, but focused on corporations rather than individuals.
This.
At the margin, a lower corporate tax rate in the U.S. attracts additional foreign investment and incentivizes U.S. based firms to send less capital overseas.
If you actually do the math on this, the size of the effect is unimpressive. Krugman has been banging his drum about this for a while. A few highlights:
If you are attracting foreign investment, then by definition you are increasing the trade deficit. Moreover, your foreign investors will demand a return on their investment, meaning that a good chunk of any GDP growth will leave the country and not be reflected in national income. If you look at the actual mechanisms for how this works, many of the gains are small and could take decades to materialize. Simple models show wage growth, but the effect is significantly weakened if you consider that the US economy is a non-trivial fraction of the overall world economy.
But don’t trust my non-economist’s summary: go read the articles.
And that is a bad thing why?
Fair point: an increase in the trade deficit is not necessarily an economic problem (although Trump certainly seems worked up about it.) That said, as I understand it — and there is a good chance I have missed something — the resulting increase in the value of the dollar plays an important role in the story Krugman lays out in the third link about why any increase in the capital stock would be a very slow process.
I’m not in favor of this bill (or more technically, these bills, since there are still two that have to be reconciled), but I’ll offer the best defense I can think of. There are aspects to the bill that do make sense. Eliminating deductions reduce distortionary effects, and that’s overall a good reform. For example, the home mortgage interest deduction causes the IRS to collect more from a renter than an otherwise identical homeowner. The state-and-local tax deduction causes the IRS to collect more from someone who hires their own recycling service over an otherwise identical person who pays for recycling services through their town’s property taxes. The reduction in those distortionary deductions are a reasonable and good part of this bill. The reduction in rates without an equivalent reduction in spending is dangerous. So fast-forward to 2020 when we’re likely to have democratic majorities, what are they likely to do? I’d wager that they would raise the rates (or even more likely, add in new very high brackets with much higher rates), but not reinstate deductions. So if we take the long view, the tax policy in 2020 might be slightly better than it is today, not solely because of this bill, but taking this bill and the likely response in tandem.
There seem to be two arguments in favor of the bill, the practical and the moral.
The practical argument is as follows:
This can be steelmanned to:
This argument is, broadly speaking, true, but it ignores the crucial fact that the advantage an individual actor’s purchasing power provides for the economy has diminishing returns. The tax bill is aimed at relieving tax burden on actors who already have a great deal of purchasing power, and who in some cases have outright admitted that they don’t need any more and plan on pocketing the money saved and using it for signalling games instead of doing something useful.
The bill won’t have zero positive impact on the economy, but based on the current best available data the positive impact it has on the economy will not outweigh the cost of the bill.
The moral argument goes like this:
This argument is valid, but only if you’re a deontologist.
The bill will also help out certain people immensely in their signalling games, which is probably a big motivator for a lot of its supporters even though nobody wants to admit it.
Eh. It’s only perfect if all of the assumptions of perfect markets are met and some of those are physically impossible. Theory of the second best tells us that sometimes we get closer to the advantages of a perfect market if we have a government that violates more of the assumptions of perfect markets.
Which is to say that in addition to your correct point about diminishing returns and status games, the steelmanning is in some situations also incorrect.
Theory of the Second Best gives us no reason to believe that government intervention will, on average, move the market outcome closer to the optimum rather than farther from it. All it implies is that there are changes that could be made that would do that.
To put the point a little more strongly… . Economics tells us that, to first approximation, the market gives us the perfect result (defined in terms of economic efficiency–I’m ignoring the legitimate criticisms of that criterion, which are ultimately more philosophy than economics). For various familiar reasons that result breaks down in the second approximation, where we allow for externalities and similar problems, which is why there are things government could do that would push the system closer to optimum.
But there is no comparable argument to imply that government, even in a similar first approximation, will produce the perfect outcome. You are choosing between a system where market failure exists but is the exception and one where it is the norm. For more details see …
Lower corporate taxes will mean more investment and less money going into the government. Long term, it will limit the amount of money the government will spend, which will be a good thing depending on how actively destructive you view the government programs the Left would like to spend money on. My own view is that taxes should be if anything higher, with the money going to direct redistribution to the lower and middle classes. But I still see this as a step in the right direction. The government can always tax the money back later if necessary but elimination of the deductions will be more permanent.
Elimination of special interest deductions? LOL not in this country,
https://www.wsj.com/articles/gops-late-changes-to-tax-bill-buoy-key-industries-1512404092
Best I can do is that this is half of a reasonable tax reform bill, and we’ll have to hope the Democrats can pass the second half in 2021. The US has the underlying framework of a reasonable progressive income tax system with rates safely on the good side of the Laffer Curve, and a small library’s worth of special cases tacked on because each and every one of them is good for some small but very interested group of voters. Individually, removing any one of them does harm to the group that has become accustomed to their benefit, and will feel like an attack. Collectively, any real reform will involve getting rid of a whole lot of these special cases. And politically, we aren’t in a place where we can get a bipartisan solution where everybody shares the pain at once.
The GOP is doing its level best to cut out all the special cases that generally favor Democratic constituencies (see e.g. tax-deductible tuition remission for grad students); I trust that if the Democrats can retake the government in 2020 they’ll return the favor. And then we’d need to reduce the baseline tax rates to achieve something close to revenue-neutrality when the deductions and exemptions go away. The GOP has helpfully front-loaded this part for us, as I don’t expect the Democrats to be as big on tax “cuts” as opposed to tax reform.
However, as Scott notes, front-loading the rate cuts makes this a revenue-negative bill and I’m not part of the team that thinks we can just paper that over by printing dollars. So if the Democrats don’t make a clean sweep in 2020, this gets ugly.
As far as I can tell, the tax deduction for graduate students is basically a way for universities to fleece the Federal government (and other granting agencies) and donors. If I understand correctly, the university charges tuition and the department (which is funded by donors and the institutional portion of grants) or the lab budget (grants) remits tuition to graduate students. Removing it will probably force this to change, causing much wailing and gnashing of teeth among university administrators, but perhaps helping more money earmarked for science go to science, not new rock climbing walls?
I was only a graduate student for six weeks, so I’m low confidence on all this though.
The tyler cowen and Scott sumner lines are fairly good.
http://marginalrevolution.com/marginalrevolution/2017/11/new-gop-tax-bill.html
http://econlog.econlib.org/archives/2017/11/better_than_exp.html
In sum, far from ideal, but a few solid steps in the right direction.
One of these guys likes it: https://www.youtube.com/watch?v=A9zDDkOPjQA
Interesting argument. Last year I read someone who made nearly the exact opposite argument – they were a Sanders-liberal but declared their vote for Trump because they thought Clinton’s shenanigans would mostly go unnoticed by an apathetic/supportive press while Trump’s would be brightly exposed for all to see… (Is there something going on with varying expectations about the relationship between awareness and effects?)
Has that strategy ever worked out in the entire history of democracy?
It has already worked. Allegations of sexual assault by Trump have led the media to expose other sexual predators. When there were allegations against Bill Clinton the supportive press covered up for him.
You’re stretching. The floodgate moment was the Harvey Weinstein stories coming out; until that happened, Trump had faced as much in the way of consequences as Bill Clinton did. Less, even. Still has.
When the other team does something bad it is easy to admit it is bad. When your team does the same thing it is easy to brush it off. If Hillary had been elected making a big deal about sexual harassment would be providing her enemies a cudgel to use against her and the press would have made less of a deal of it.
Clinton only faced consequences when the legal cases were adjudicated. Trump may face consequences yet.
I’m having a very hard time following exactly how you can possibly credit Trump for The Reckoning, as the cool kids are calling it. Most of the people who’ve fallen are in the left-leaning entertainment industry, not on the right.
When? Is there anything other than pure fantasy and wishful thinking that leads you to say this? We had an accountability moment last year; the verdict came back ‘eh’.
I mean, they weren’t wrong. Trump’s shenanigans have definitely been well-covered by the press. It just didn’t help. A full sketch of the argument would also have to include having a hostile Congress and some sense of shame that makes you not do things when everyone is against them.
It didn’t help because the press didn’t pillory WJC for it, and so lost their ability to aim that particular gun at the other side of the house.
I for one, am willing to give DJT a pass for exactly as many years as WJC was given.
Nothing works like that. People are judged for their misdeeds at the time they come to light, and again, later, maybe, if they’re still in the public eye, viz., Harvey Weinstein but not Roman Polanski being expelled from the Academy. (Previous Reddit thread about the subject.)
Still, an accountability moment may be coming for Bill Clinton; in the same way that Democrats care deeply about the deficit because Republicans pretend to, Democrats will clean their own house because the Republican party now pretends to care deeply about sex crimes while funneling money to Roy Moore, just as Mike Cernovich is really sincerely upset about jokes using the word ‘rape’ enough to get Sam Seder fired over them.
I don’t think anyone on the right gets to high-horse it up over Bill Clinton at this point.
When you say it didn’t help what do you mean? What has actually been passed into law under Trump that shouldn’t have?
Muslim ban?
It’s a seven-country ban that happens to include Muslim-majority countries. It is not immediately based in religion, it originated from a list of countries considered by past administrations.
While I don’t know the numbers, I’m guessing the majority of the world’s Muslims are not from those seven countries.
Say instead that it was a ban on a group of majority-Catholic Central and South American countries that include many drug cartels. Would you call it a Catholic ban, a Central/South American ban, a drug-cartel ban?
The law is almost definitely pointless, but smearing it for what it isn’t is not a good way to discuss it.
You are correct. The countries on the list contain somewhat less than ten percent of the Muslim population of the world.
To be fair, I’d argue that this actually [i]did[/i] happen. The media has historically had a very friendly relationship with most recent presidents, and probably would have had a friendly relationship with Clinton, but it’s developed a strongly adversarial one with Trump. Mostly because Trump went out of his way to antagonize them.
I do question whether this was worth Trump’s shenanigans actually happening, though.
Is that true in general or is Obama an anomaly? I’m too young to remember anything before late Bush-43, but my impression was that Bushes, Reagan, Carter, and Ford did not get very good treatment from the media, and for Clinton is varied* a LOT.
* @Randy M — should this also be “veried a lot”? 😛
It was definitely true in the case of Bush Jr. The media was willing to criticize him in some ways, but it didn’t have nearly the openly antagonistic relationship that it has with Trump, and it was quite happy to, e.g., cheerlead for the Iraq War.
The elite media has a hostile relationship to Trump. The “prole” media, for lack of a better word – i.e. Fox News, National Enquirer, most news outlets owned by Sinclair or by iHeartMedia – is pro-Trump. That is to say, the media that most Americans actually consume on a daily basis is pro-Trump. Network news is probably more anti-Trump, but declining in importance. Trump has learned what Putin, Orban, and Kaczynski already know. Freedom of the press for small circulation outlets that only appeal to high IQ dissidents doesn’t really affect the ability of an authoritarian to rule, and probably reduces the overall level of dissent among the masses by creating the appearance of an internal enemy the ruler can blame for his problems.
If you’re describing Blue Tribe media as “elite” and Red Tribe media as “prole”, you’ve already accepted a number of false Red Tribe assumptions.
The lowest rated network news, CBS, has twice as many viewers as Fox News’s top rated show. Combined the network news shows have 8 times as many viewers as Fox News. The combined subscriptions to the various NY Times modalities are 10 times the circulation of the National Enquirer.
Comparing top shows on CBS to Fox News ignores that Fox News runs news for many more hours per day Over 10 times more hours, I assume.
And if you only count the parts of the news that have a partisan political message or bias, Fox News probably spends at least 100x more time per day than CBS. (10 times as much news programming, and 10 times the density of partisan messaging.)
The error here seems to be considering the press a more important check than Congress.
Sometimes you just can’t predict the simpering cravenness of congress.
I mean, I can’t say it’s a good tax plan, but surely it’s clearly better than Sanders’ college plan. Spending on tulips is equivalent to just burning the money. This money will actually go to people who can spend it on real stuff, capital will get cheaper so there will be an increase in investment, etc. Almost certainly insufficient to cover the cost, but way better than tulips.
Obviously going to college does have *some* real benefit, even if it’s not much, so it’s not entirely tulips.
Especially since Sanders is proposing making *tuition* at *public* colleges/universities free, not entirely paying for people to go to any university. Public schools are already much cheaper than private schools and the tuition isn’t nearly the entire cost. For example, at UMass Amherst, tuition and fees are around $15,000 for in-state students, which is about half the total cost.
Sanders also wants colleges to focus much more on work study programs, which are productive both for the economy and building job skills.
On net? This is not obvious, certainly not generalized across the population.
I have heard very little opposition to this idea, but I’m somewhat against it. First of all, it seems a bit like saying, “Well, if we only require one tulip instead of two, it will cost half a much and all of our problems will be solved!”
More importantly, if you believe at all in the mission of liberal arts, the idea of throwing away the last opportunity to teach most people about the world is a disgrace. And worse, throwing it away in pursuit of the Almighty dollar!
Wait, that’s not what I’ve seen ‘Work-study’ to mean. It just means you have a job while you’re studying. My liberal-arts school had work-study programs, and you had better believe those people were not skipping out on anything.
I never understand how it is possible to believe that government-funded college provision will be better for people than consumer-funded provision. Clearly Sanders had conditions for colleges to focus on work study programmes, but the fact colleges do not do this now is actually significant. Since students select to pay fees, and are not paying fees to support work study programmes at the level that Mr Sanders believes appropriate, then the obvious conclusion (unless we assume widespread elitist mismanagement) is that work study programmes are not actually that popular amongst people wanting to go to College.
If Mr Sanders’ plans were implemented however, then he would be able to insist on more programmes being offered that are not wanted, presumably (because government is not likely to increase funding) at the expense of the programmes currently wanted. It is the central planning fallacy in action, and government funding of college education leaves the whole sector wide open to this sort of thing, or the ever-present threat of not funding ‘non-productive’ programmes.
The work-study programs in this context would be intended to benefit the people who do not currently attend college, because the need to work prevents them. It is only a side-benefit that current attendees would also have more work opportunities.
Fees? What fees do you mean? It is more to do with scheduling both the classes and the work opportunities to be compatible, and also making the work opportunity guaranteed (employer of last resort). Students cannot pay a fee in order to obtain the advantages of this kind of opportunity. There is no fee to pay that guarantees them an employer for the duration of their degree.
I think that the Federal Work-Study Program fills up so that there are more applicants than spots for them. If true then these spots are wanted. If the spots were unwanted and not taken, though, then so what? What is the loss?
You’re going to have to explain this one to me.
Free college helps the following groups:
1. Poor kids who can’t currently afford to go to college: they get to go to college, this makes them earn more money later in life.
2. Middle and upper middle class families who can afford to send their kids to college but not without taking on significant debt or saving a significant portion of their income: they get to spend that money on other stuff.
3. Universities that give out financial aid to help poor and middle class kids attend: they get to redirect that money towards other stuff, like research funding or additions to the medical center or what have you.
Tax cuts for the wealthy/major corporations just go straight into the c-suite hookers and blow budget.
This sort of argument is whybasic economics should be required in schools. Who actually pays the tax depends on economic conditions outside the government’s control, not who nominally gives you the money. CEOs can claim they’ll give themselves bonuses with the tax cut, but they’ll be outcompeted by corporations that invest and attract talent.
Moreover, the corporate income tax is highly distortionary. As Scott Sumner pointed out in a blog post linked in this thread, reducing it does actually cause growth.
Except CEOs have been giving themselves bonuses with tax cuts for decades now and this has conspicuously failed to happen.
Amazon appears to me to spend it’s tax cuts on technology hiring and capital goods. They are notoriously stingy with cash bonus all the way up the ladder upto and including the CEO, who has to sell off slices of his ownership of the company that he founded, to pay for “hookers and blow”, or in his case, funding a space program, underwriting the Clock of the Long Now, and saving a major newspaper from shutting down. His personal “hookers and blow” hobbies appear to consist of getting swol lifting hard and heavy, and spending evenings cooking dinner with his family.
“CEO bonuses” is a red herring. In the books of any large organization, it doesn’t matter to the workers or the shareholders if the CEO pay gets doubled or distributed to the workers/shareholders, because there are so many of the latter.
CEOs are probably overpaid relative to their worth to the company, but arguments to reduce their pay or stop it from going up are just applause lights.
What decades? The corporate tax rate has not been cut since 1988.
This.
Walmart may be an unusual case, but when I recently ran the numbers, I found that if you cut the CEO’s pay to nothing, you’d be able to pay workers approximately $0.01 more per hour… or $10 a year.
This is uh, not the slam dunk people normally treat it like.
I’m not convinced of your three points. I think that college is *way* overblown nowadays, where it seems that almost every job requires it. Free college for all is just going to make this problem worse.
It’s one thing for doctors, engineers, lawyers, scientists, teachers, college professors, etc. to require a college degree. I’m an engineer, for example, use significant portions of what I learned in my college coursework every day and have kept and used many of my textbooks as references. It’s another matter for needing a college degree to be a secretary, where the degree requirement is “whatever”. Do we really need somebody to spend 4 more non-earning years if the coursework isn’t actually on point for the job?
Point 1 seems to be trying to get more people to go to college. There are probably one or two Einsteins out there remaining undiscovered because they just haven’t experienced college, but for the most part, if you want to see what those additional college students would look like: look at the bottom 10% of our college class. It will be more students like this. Even burning the money would be better, because we wouldn’t be humiliating these students.
Point 1 is trying to get more people who currently can’t go to college because they can’t afford it to go to college, not trying to get more people who currently can’t go to college because they’re too stupid to go to college.
Cities that have implemented free college programs (like Kalamazoo MI) seem to think it’s had a positive effect on high school performance as well, since if college is an attainable goal for poor kids they’ll be more likely to get their act together in high school.
What’s the dropout rate for kids from the Kalamazoo Promise?
Not appreciably higher than for demographically similar students from elsewhere in the state, and test scores, high school graduation rates, and college graduation rates have been steadily improving since the program was implemented.
You meant to say “50%.”
Yeah, which is not not appreciably higher than demographically similar student from elsewhere in the state, so the Promise does not appear to be encouraging idiots who have no interest in going to college to go to college just because it’s free – those people are already going to college and flunking out because there’s tremendous social pressure to go to college. And a student who flunks/drops out of college doesn’t cost the Promise anything going forward, so it’s not like they’re living the high life for four years: if anything, the Promise is allowing kids to try out college for a year to see if it’s right for them without taking on debt, which seems like an unalloyed public good.
Worth mentioning for some of those (Like Doctors and Lawyers) requiring an undergraduate degree is exactly as pointless as the secretary, which I think was explicitly pointed out in Scott’s tulip subsidies post.
Yeah, but this is an argument that law degrees and medical degrees should be undergraduate degrees in the first place
College has benefits certainly, the problem is that the benefits aren’t as much a slam dunk as they used to be due to rising costs, and adding more subsidies to the “tulips” will probably just raise the cost more. That is, we agree that college is unaffordable, but the argument should be over why it costs so much, not who should foot the ludicrous bill.
Lower corporate taxes will certainly have benefits beyond hookers and blow (hey, hookers and drug dealers need income too). Much of the money will probably go to increased wages or capital investment. Or it will go to the shareholders and be taxed as capital gains anyway. It doesn’t disappear into the ether.
The question is, as always, whether those benefits will be worth the reduced budget / increased taxes elsewhere.
But we’re arguing about relative cost-benefit. Neither option is “no benefit at all”.
The closest comparison to Bernie’s free college proposal is probably Scotland’s free college system, where universities have to agree to limit their underlying tuition rates to x + inflation for the government to pick up the tab for their students. You’re not going to see much tulip speculation in that sort of a setup, because universities can’t actually raise their tuition rates at will without jeopardizing their stream of free government money
…or raise their fees to reflect rising costs, which inevitably are rising at a higher than inflation rate.
They can’t raise their fees above inflation or they lose their government money.
Correct me if I’m wrong, but isn’t the very reason American college are so expensive that they get subsidies in the first place?
Like, the more the government pays for college, the more colleges can drive up their prices without loosing customers since students have no incentive to look for cheap colleges since they know the government is the one paying the price?
For some reason, when either college or health care comes up, this point is lost on most. (though it’s discussed a lot here).
Subsidies without caps will do that.
Burning the money would be better than Sanders’ college plan. When money is burned, nothing is wasted. It simply increases the value of the remaining money proportionally.
Using money for unproductive purposes is worse than burning it, since this wastes real, scarce resources.
Sending people to college is no more an unproductive purpose than sending people to high school, and we’ve already decided that sending people to high school is a productive use of our resources.
That’s not entirely fair. Obviously making everyone in the US get a PhD wouldn’t be a good idea, so there has to be a cut-off at some point. Now, where that cut-off is, I’m not sure, but you can’t just state for certain that it’s not at the end of highschool.
Surely the cut-off should be based on academic standards, not on ability to pay.
Nobody I’ve seen is proposing college for people of every IQ, only college for people of every income level.
We decided incorrectly. And its becomes more incorrect each year, and importantly, its becoming apparent that it was incorrect to more people each year.
My first major step into the Red Pill was discovering what had happened to high schools since I had graduated.
I may regret asking this, but what happened to high schools after you graduated?
His political enemies obtained increased cultural significance of course.
The fact that we’ve decided to send kids to high school doesn’t magically make it productive to do so. We decide to do unproductive things all the time.
It’s not a solid argument, since different amounts (and directions!) of education are optimal for different career paths of people.
The first year of schooling is useful/needed/economically worthwhile for almost everyone, the twentieth year of schooling is useful/needed/economically worthwhile only for a small fraction of the population. The society benefits if almost everyone is able to read; the society doesn’t particularly benefit if everyone gets a tertiary degree instead of becoming productive as soon as they’ve reached the schooling level they need; above that level more people spending more years in college is an expensive hobby that’s great and useful for self-improvement if you can afford it, but has no reason to be subsidized by others.
At what marginal year of education spend does the average person not see enough lifetime salary increase to make the tuition cost worthwhile?
It’s definitely not senior year of high school.
Currently ~35% of US adults go to college. A noticeable portion of them (mostly depending on the major) *already* have a negative lifetime salary effect by this choice, and if we’re talking about the average (I’m assuming median) person, then we’re talking about what would be the marginal student if college enrollment increased by half – and yes, I do assume that for them the optimum point would likely be the senior year of high school (or possibly two years of trade school after that), it’d be reasonable to expect that *in aggregate* getting four years head start in a job or apprenticeship would get them a lifetime salary increase over spending those four years on a college degree that’s essentially irrelevant for their career.
It’s worth noting that this is a “tragedy of commons” situation – when facing that choice individually, any one of them could gain some extra benefit by having those credentials, but when looking at the effects of such choice, it’s a zero sum game – their competitors will also have the same credentials, so there’s no benefit, but all of them have spent four years on that.
Also note that simply comparing the lifetime salary of college graduates and non-graduates is *highly* misleading, since what we’d want is comparing the lifetime salary of college / non-college of people *with the same innate qualities*, everything from conscientiousness and intelligence to socioeconomic status. You can’t compare someone who graduated a good school with someone who didn’t attend any; you need to compare them with someone who was accepted to the same school but didn’t join for financial reasons, and also had the qualities and conditions necessary to graduate.
Again, all kinds of factors count – in addition to the obvious issues of high school education quality and general intelligence, the simple measure of college/noncollege cohort income also “counts” the effect of socioeconomic status. Yes, someone who drops out because they were raising a child as a single parent or because they couldn’t combine studies with a day job they needed to feed themselves is going to have a much lower lifetime income than a successful graduate – but they’re also going to have a much lower lifetime income *anyway*, even if college admission is free and equal, since they have all these other difficulties to fight through; you can’t just assume that if they receive free tuition then their lifetime income is going to jump to the level of currently successful graduates, it won’t happen more often than not.
This is the right question for the individual, but the wrong question for society; if education is mostly a positional good (for instance, if the signaling theory of education is mostly right), then the social effects will be negative long before the individual effect.
@jonathanpaulson
It’s even worse if it’s only partially a positional good. Say every dollar spent on post-highschool education produces 50 cents worth of benefit in terms of better skills leading to greater productivity. If half the cost is subsidized, then it not just in the self interest of every person in society to get as much education as possible, it’s in the self interest of every employer to hire the most overeducated people they can find. If education is purely signalling/positional, some natural contrarians can defect, not lose much, and hope to inspire others. If education does produce some value, but less than it costs to get, then the trap gets much stickier.
Do we really need government supplied day care for the 17-26 yo cohort now as well?
If 17-26 year olds who go to four years of daycare have significantly higher earnings over the course of their lives than 17-26 year olds who don’t go to four years of daycare – yeah, probably the government should supply that good.
Yeah, I’ve seen the numbers on lifetime earnings vs. tuition cost too; I could hardly have avoided them, they were literally posted on the walls in my high school.
Thing is, those numbers are hopelessly corrupt. It’s not just the usual correlation/causation issue, either, although that is an issue; there’s a deeper question of whether whatever real difference in earnings remains after that is driven by employers using college as a proxy for intelligence/conscientiousness, which you can’t avoid weakening if you make college more ubiquitous. Or, worse, as a proxy for pure social status.
To the extent that college provides productive skills, subsidizing it could be worthwhile. But I don’t know that extent (though I suspect it’s small), and neither do you. And subsidizing credentialism is a spectacularly bad idea.
Do we really need government supplied day care for the 17-26 yo cohort now as well?
That demographic group — well, the male part of it — commits most of the crime, so that’s a good argument for babysitting them.
Supply and Demand, I’d like to introduce you to Qays, Qays, Supply and Demand. You two have a lot to talk about.
Or, politely, it seems to me that if more people go to college, the the relative value of a degree will fall. If everyone goes to college, it will fall to the level equal to the average (or perhaps the lowest point) of the knowledge and skills picked up there. I don’t think that is anywhere near the amount of money that will be spent for it, especially with the price inflation that will come.
Is it too early to get into the spirit of the season?
Are there no prisons? Are there no workhouses?
@Nornagest
Making college free only weakens its utility as a proxy for intelligence/conscientiousness if you simultaneously make it easier to graduate from.
Make college free absolutely weakens its utility as a proxy for pure social status, but that’s a good thing.
If anything, free + rigorous college = college that’s actually more useful as a proxy for intelligence/conscientiousness than it is today, while simultaneously less useful as a proxy for social status.
False. If college is expensive, choosing to start it means you were smart and dedicated enough to get a scholarship, hard-working enough to pay for it yourself, serious enough about it to mortgage your future for it, or rich and connected enough for Daddy’s money to pay for it. All four are correlates of intelligence and conscientiousness, more or less in that order of strength. If college is free, choosing to start it just means you chose to start it.
I don’t think its actual academic difficulty has much to do with its signaling value at all.
@Nornagest
College is expensive, to the point that it’s financed almost exclusively by 1) rich parents 2) debt and 3) need-based financial aid, in that order. The only rung of the university system that it’s feasible for a student to pay their way through is community college. Merit-based aid has no effect at determining whether poor students can go to college or not, since any student smart enough to be getting merit-based aid at a school that doesn’t guarantee to meet financial need could simply have gone to a school that meets financial need in the first place.
If college is free, choosing to start it just means that you chose to start it, yes. But finishing college means you were capable of finishing college, which is a strong signal for intelligence/conscientiousness.
At present the actual academic difficulty of college is a relatively minor part of its signaling value because college is just as much about signaling family wealth as it is signaling intelligence. But if college is no longer about signaling family wealth (since it’s free), all that it will signal will be intelligence.
That’s basically just a restatement of your last post, so I guess all I can say at this point is that I disagree for reasons already given.
Nornagest, you stated that signalling structure IS something. Qays said it would HAVE TO BECOME something. You did not provide any reasons against this reasoning.
Mainly I was just interested in showing that the oft-cited numbers about college graduates’ earnings are bogus — or, to put it more politely, not germane to a debate about whether we should be funding college education.
I guess I got off in the weeds a little with the signaling discussion there, but if we’re talking about a hypothetical future in which graduating college is a pure signal of intelligence, then we’ve already left those earnings numbers far behind. I think I’m much less sanguine about what a college education represents than Qays is, but that’s really beside the point.
@Qualys
What incentive is there to keep colleges as rigorous as it is now? Grade inflation has been a problem for decades, and it will only get worse if colleges accept more students. Colleges and professors have strong incentives to keep students happy so that more will apply and the professor makes tenure, and failing students does not help that. Likely the grade distribution will remian where it is, if not inflate further, while the couse rigor decreases to the level of the bottom student.
@Qays
The disconnect between what you’re saying and what some commenters here are saying is due to the relationship between college credentials and economic success. (or measurable success defined some other way)
Most people here subscribe to the view that education is a positional good which signals some combination of a person’s intelligence, conscientiousness, and social networking/clout. In other words, having certain traits makes you more likely to attend university rather than the other way around.
Increasing the number of people that attend university through one financial mechanism or another does not, therefore, produce individuals of the same caliber as existed prior to the change. It simply dilutes the job market signal
This is why pointing to the increased earnings of college graduates is meaningless. Just as pointing to the increased earnings of people that drive sports cars is meaningless.
Aside: if there are high IQ people born into poor families that would benefit from having their abilities known to universities and employers, a program of the kind described could conceivably help them. However, most people that are classified as impoverished that are capable of doing college level work qualify for full or partial scholarships [both from the feds and from many prominent universities] So any further boosting of enrollment is likely superfluous.
This model predicts the observed outcomes of college graduates in relation to the labor market:
1. College material becomes watered down to accommodate less academically gifted individuals
2. Jobs now require college degrees that previously didn’t (Because not only is the average college graduate less gifted but so is the average HS graduate)
3. More people are compelled to take post-graduate degrees in order to distinguish themselves. Which can be financially ruinous for people who are too rich to qualify for full scholarships but too poor not to need them.
For more information I recommend SSC’s ‘Against Tulip Subsidies’ and/or Bryan Caplan’s lecture ‘The case against education’
@aristides
Colleges currently have an incentive to attract rich students because they’re the ones whose families can afford to pay full freight. This means colleges have an incentive to cater to rich students, which means there’s an incentive not to flunk students, since if your school gets a reputation for being too rigorous you’ll have trouble attracting the most profitable class of students (look at what’s been happening with UChicago, which has been trying very hard to shed its old reputation of academic rigor in order to attract “normal Ivy+ applicants”).
If college is free (that is to say, paid for by the government) universities will have no incentive to prioritize rich students over any other sort of student. Flunking a student out won’t matter, since that student will just be replaced by another student of equal economic value to the school at the start of the next academic year. Acquiring a reputation as a tough school won’t actually be bad for a college’s bottom line, which means grade inflation will decrease. It’s telling that grade inflation is more of a problem in the US, where colleges compete to attract wealthy students, than it is in countries where college is free or heavily subsidized (Canada, Germany, the UK, etc), where colleges compete to attract intelligent students.
@RalMirrorAd
Having certain traits makes you more likely to attend college if you have the money to attend college in the first place. Many students have the personality traits that would incline them to attend college but cannot attend college due to lack of funds. Many other students do not have the personality traits that would incline them to attend college but would be more likely to acquire those traits in high school if college were a financially realistic goal for them to strive towards.
Saying that most people who are impoverished but capable of doing college level work qualify for full scholarships is ludicrous, and partial scholarships don’t help much if you’re impoverished. There are only a few score universities in the entire country that guarantee to meet financial need for all applicants, and these schools are extremely difficult to get into. Poor students generally do not have the time or the mentoring necessary to chase down all the hidden merit scholarships at schools that don’t guarantee to meet financial need, and there are plenty of poorer students who are smart enough to do college level work but not smart enough to qualify for merit scholarships. And then there are all the poor students who do manage to go to college but wind up heavily indebted and unable to have kids/buy a house/start a business/etc for a decade afterwards. Financial barriers to higher education are huge.
If college is paid for by the government, universities will prioritize students who can effectively complain to their congressmen and/or the relevant bureaucrats. This probably correlates with wealth.
Doubtful. Public universities in most states are pretty well-insulated from political pressure – certainly they’re well-insulated enough that an individual student isn’t going to be able to prevail on his congressman to get him better grades.
Again, the experience of other countries is relevant: grade inflation is less of a problem in countries where college is free or very cheap than in the US. The cause and effect is relatively straightforward: American universities compete to attract rich students, universities in other countries compete to attract intelligent students.
decision or not, it’s not actually a productive use of resources
Is there a reason why it makes more sense to think corporations will get this tax money and use it to build more stores and hire more workers (and so help everyone out), than to think colleges will get Bernie Sanders’ money and use it to build more dorms and hire more professors (and so help everyone out)? Either way, we’re giving X billion dollars to some institution that will have to spend it on other stuff in the economy.
(I could be totally off on this point; I genuinely don’t understand this)
I’m sure they’d build extra dorms, the question is if those dorms would actually do anything genuinely productive.
They’re a place for people to live and therefore productive of shelter. The students who live in them would otherwise be occupying scarce housing elsewhere.
Check out the corporate tax rates in Europe: Finland … 20%, Sweden … 22%, Norwary … 24% (places Bernie is a big fan of). As Scott Sumner points out, you really think all these left wing welfare states in Northern Europe would have slashed their corporate income taxes … if these moves merely helped the rich?
Also, the big thing about free college plans is that they’ll distort price signals (even more then they already are). Seems like the last thing we need is another area where people are making cost-benefit decisions without actually having to pay for any of the costs. Quickest way to get tuition prices (even if student isn’t actually paying any of it) to rise even more.
It’s misleading to point to the Scandinavian countries as being unusually left-wing in this context. They’ve got a big welfare state, but their tax policy is arguably more business-friendly than ours; their welfare is instead paid for by income, consumption, and capital gains taxes. Certainly they’re less progressive in the technical sense: Swedish top marginal income tax rates are comparable to American high-tax states, but the Swedes have the usual European value-added tax (which is flat or regressive in practice relative to income) on top of that.
America is the only G20 without a VAT. Democrats and Republicans are united in making sure we can’t get the thing that works going on here.
In one case, paid for with oil money.
You can’t compare the rate of a single part of corporate taxation in isolation. The big tax in EU is VAT, since that’s ~20%(depending on the country) that’s applied to all value created instead only the profit as the corporate income tax.
But VAT is a personal tax and not chargable on business expenses in Europe (in reality this means it is normally reclaimed in tax calculations), so it is irrelevant to discussion of corporate tax rates. It relates to discussions of income tax.
The most obvious reason to think this might be the case is that private industry is more competitive (for most verticals) than the university system, and that university tuition is heavily subsidized for many students.
I think you are off on this.
If I give you $100, you spend it on stuff that benefits you; if I keep it, I spend it on stuff that benefits me; either way someone gets the benefit of the money. But if I pay you $100 to spend $100 worth of your time digging holes and filling them in, I am worse off and you are no better off; no one has gotten the benefit of the money.
Giving corporations money is like the first case. College subsidies (under the tulips model) are like the second: the colleges have to expend those resources on a thing that doesn’t actually benefit anyone.
Companies invest until the marginal return on a dollar invested equals the cost of capital (i.e. the going interest rate).
In case 1, cutting the corporate tax lowers the cost of capital and therefore increases investment.
In case 2, you’re subsidizing purchase of education, so demand will increase, which will raise the marginal return on investment, and thus raise investment.
The difference is that in case 1 you’re removing a distortion by eliminating a tax. The tax made the (after-tax) cost of capital perceived by firms higher than the true cost of those funds. So you’re bringing the economy closer to an efficient outcome, of equating the marginal value of a use of funds to the marginal cost of those funds.
By contrast, in case 2 you’re subsidizing a good, so at the margin people are paying more for it than the value they receive from it (since government is paying the difference). Thus the subsidy will induce *inefficient* investment. It will induce colleges to build dorms and hire professors that allow them to teach students who are getting less benefit from that education than the cost of providing it.
Shorter version: cutting corporate taxes and subsidizing college both increase investment, but the first will reduce distortions in the capital market, causing more efficient investment, while the latter increases distortions in the capital market, causing less efficient investment.
(And of course capital that’s being used to build new dorms isn’t building new factories or office buildings, so you’ll raise the cost of capital for other sectors if you subsidize one. Plus you have to raise the revenue by raising taxes somewhere causing more distortions, etc.)
Incentives; also history.
Sander’s bill gives money to whomever can get past the accreditation committee. Once you get on the “free college” gravy train the only check on your continued access to a large flow of resources to build your petty fiefdom are a small clutch of easily captured regulators. We saw this play out many times over – back when draft deferments created a huge subsidy for fly by night “divinity” schools, when the GI bill began paying online education (where Ashford University paid on commission to fleece veterans with brain injuries to burn through their GI benefits), and of course the whole interest rate break and special bankruptcy carve outs for educational loans. Under a Sanders style plan the incentive lies in providing volume and maintaining access. Anything related to quality is strictly about getting past the goalie.
With a corporate tax cut and doubled personal deduction you only get to keep raking in cash if you do something that turns a profit or earns wages. Corporations have gobs of cash, ultimately, because they sell something somebody put cash out for. In order to keep the money flowing, you need to convince customers to part with cash; typically millions of customers.
I suspect that regulators are less corruptible and more knowledgeable than the average consumer. However I suspect that consumers collective skills aggregate with the root of their number. Millions of consumers will provide much better incentive structures than hundreds of regulators.
…Sanders’ proposed plan was only for public colleges/universities, other than some changes to the structure of the already existing loan program.
Yes because somehow public colleges are magically immune to capture.
Also lobbyists, court cases, and the like are utterly unable to expand the scope of programs.
Elite colleges have a strong revealed preference for not expanding and increasing undergraduate enrollments.
There’s an argument that in countries where a large portion of population go to college, extra stimulus for college is a bad thing, since most of the “marginal” person (i.e. one that doesn’t go to college now but would go to college with the stimulus) would be better off not going to college at all because but spend those years doing something productive. Being able to can afford tuition doesn’t mean that you can afford these years off your life; we do need some kind of filter (accurate signaling?) to verify if that particular education is sufficiently useful to you in order to justify spending your years and society’s resources on that.
If someone gets an advanced degree and goes on to work as a truck driver, then that’s a huge waste of resources that should be avoided, if (e.g.) only 40% of jobs need a college degree, then we definitely shouldn’t subsidize more than, say, 45-50% (to account for switching careers) people going to college. After that limit, having more people go to college otherwise is *worse* than burning money or spending it on tulips, since it also “burns” millions of man-years of those students.
I remember this Planet Money episode where a panel of economists allegedly “from all sides of the spectrum” agreed on several no-brainer policies. One of them – no corporate tax at all. https://www.npr.org/sections/money/2016/10/26/499490275/episode-387-the-no-brainer-economic-platform
Their arguments made sense to me – corporations making stuff is good. Economic activity is good. Why tax it? If you tax somehting, there will be less of it. If you want to tax rich people – tax rich people. Don’t like that the superrich waste money on luxury yachts – tax luxury yachts. Taxing corporations in order to tax the rich is weird and inefficient. It hits the workers, it hits the consumers it hits the pensioners who (indirectly) hold corporate stocks.
Making higher education – or any other good – free is very different from cutting corporate tax. Both can be seen as ‘giving money’ to someone but it matters a lot what are the conditions of giving the money, more than the amount. Lower corporate tax = higher returns from a dollar = more incentive to invest (but only in stuff that already generates a profit – something that consumers are already buying). On the other hand making X free guarantees that people will consume too much of it. It’s not incentivising normal economic activity but distorting it.
That is just my understanding of econ 101, I’m not following Trump’s specific proposals and have no opinion about them (other than generic distrust for everything Trump).
This also makes a lot of sense to me. Can someone who disagrees with this lay out the counter arguments?
I have one practical counterargument, which is that “Don’t like that the superrich waste money on luxury yachts – tax luxury yachts.” doesn’t really engage with the reality of superrich with no fixed abode, access to a bunch of lawyers, international tax havens, and shell corporations.
If Bermuda doesn’t tax luxury yachts, then we have no way to sanction this behaviour. Unless we set naval vessels to patrolling the high seas and inspecting yachts for evidence of the yacht tax. But that seems an unusually expensive method of tax compliance.
Taxing corporate incomes is a messy and collateral damage prone way of making sure we get some cut of this money before people use it to do stupid status signally things. We can also lessen the collateral damage by providing tax-advantaged savings options. Here in Canada, you can invest 18% of your income (up to incomes of ~$140,000, when you hit the maximum limit of $25,000 per year) in a retirement account (with any accredited investment firm able to offer these, there’s excellent competition and many great options) and have tax on that money returned to you, with tax on withdrawals when you make them (presumably in retirement). We also offer tax-free savings accounts, which have a $5,000 yearly contribution limit, have the same excellent provider diversity, and allow you to invest without paying any taxes on the income from investment ever. Combined, someone making $100,000 can put 23% of their income into tax advantaged accounts. Someone making $1,000,000 can put only 3% of their income into these accounts. Thus ensuring they get some taxation before they use it for maybe-stupid things.
I don’t support free college tuition and agree it does lead to overcompsumption. I am a favour of the Canadian model of heavily subsidizing college, but capping maximum spending increases very aggressively. This prevents a race to the bottom between colleges competing on amenities. Having done some school in both Canada and the US, I was blown away at the difference in dorms. In Canada, I stayed in a tiny room in a dreary (but perfectly functional) building. In the US, THERE WAS A BOWLING ALLEY IN THE DORM. This was at an R1 public university too, not a small private school. It also had a football stadium bigger than any in ALL OF CANADA. I think subsidizing that sort of largesse is definitely bad.
This is all, I think, very centre left in the Joseph Heath school of centre-left: “the government should address market failures and do so in a way that is fundamentally redistributive; the government shouldn’t impose its aesthetic preferences on the population”. Free university seems like an aesthetic preference. Corporate taxation seems redistributive.
I can’t tell whether your “help everyone out” means “help out the people they hire or the people who build the stores and dorms” or “help out the consumers of what those people and things produce.”
For the first there is no difference–between those two cases or a third case where you hire some people to dig holes and others to fill them in. For the second, the difference is that corporations, unless they make a mistake, only build factories to produce stuff that people are willing to pay at least the cost of for. Under a free college plan, the money is spent providing goods that people value at more than zero and less than the cost of providing them.
Eh, I’d say it’s the other way around. Spending on tulips isn’t actually equivalent to just burning the money – yes, college is mostly a stupid money-wasting signalling game, but it does have some side-effects that are a net benefit to society. Whether or not it’s worth it to subsidize tulips instead of just using daffodils is largely a question of how much you value the existence of an intellectual class.
By contrast, this money will go primarily to people who will use it for economically unproductive signalling games.
The existence of an intellectual class doesn’t require expansion of college – we had an intellectual class in early 20th century with <5% of people holding a college degree; we had an intellectual class in the 1980s with <20% of people going to college, we have an intellectual class now with ~35% people having a degree, and it won't disappear if we keep it at this level instead of increasing that rate to 50%.
You think that a full 15% of the population is not going to college only because of tuition costs?
It seems to me that this ignores scope. Say giving money to corporations is better than giving it to people who can’t afford to go to college (which I suspect is true). This does not imply that the Tax bill is better than Sander’s college plan. That depends on
a) How many new people will actually go to college? It is clear that a portion of the gains will go to people who would have gone to college anyway. Is there a reason why giving them money is bad? Otherwise, only the money given to the first portion is bad, which cuts a big (how large?) slice out of the badness pie. If giving money to people who would have gone to college anyway but perhaps with significant debt is actually positive, that further mitigates the damage.
b) If the Sanders plan is 3 units bad per dollar and the tax bill 2 units bad per dollar, the tax bill is worse because it spends over twice as much money.
I’d argue that if you know the bad per dollar rate, then you perhaps should use that to make your decisions without consideration of the spend, because if you allow a scheme that has a higher bad per dollar rate to pass on the basis that it has less bads overall, you are depending on that scheme not then having funding increased. In other words, if something is a worse idea then surely it should be opposed regardless of costs.
Also, can government do good per dollar at all?
In the case of the Sanders bill, it seems unlikely that funding would increase because it already makes them free. You won’t get cheaper than free.
We don’t have the luxury of choosing on every issue. I am arguing that the tax bill should be more of a reason not to vote for Trump than the college bill should be a reason not to vote for Sanders (given they are 3 / 2 units bad per dollar). Or if you have different badness values per dollar, then calculate with those. But do include scope. Some additional consideration of growth potential makes sense, I agree with that.
For me personally, both take the backseat to more important considerations.
This seems quite short sighted.
Yes, they won’t pay anymore as a percentage of an individual’s cost once they agree to pay the entire cost.
No, this doesn’t mean the cost cannot increase. It might even be incentive to do so!
@Randy M
Except it does mean that the cost can’t increase. Allowing the government to set tuition rates is a core component of every country’s free college regime.
Yeah, price controls, there’s an idea with a successful pedigree.
Problem solved, then.
The number for the tax bill is “misleading” in the same way as the number for universal health care, only more so. Every penny of the revenue lost to the government is also a gain for private individuals.
ETA: In terms of first-order effects at least, this is true of all tax cuts and transfer payments, including Sanders’ college plan and much of the Obama stimulus.
Yes, it it very strange (to me) that people represent losses in revenue to the government as if they are automatically losses. It is even more bizarre that a rationalist would post something that posits the costs of doing things we have no concrete evidence of being able to do. End world hunger for 267 billion a year for 15 years? How would that remotely work? What happens in year 15 that means you can defund in year 16?
A person could reasonably take the “automatically losses” view if the state of the government’s finances were their one big concern– say, if they were worried about the debt-to-GDP ratio. But in that case they’d also have to accept the big circle for universal health care as the true story.
Sure, but which private individuals? Why is increasing the income of a rich CEO who can already afford everything he wants an efficient allocation of resources?
You mean why is transferring resources to people who on average make poor decisions with the resources they have an efficient allocation of resources?
Yes, actually, that is exactly what I mean.
Assuming, of course, that you’re talking about people who on average make poor decisions for the benefit of society as a whole, rather than people who on average make poor decisions for the benefit of themselves personally.
I remember a comment on here saying the rise of Trump is as though some liberal asked an unfriendly AI for a Republican who doesn’t care about social issues.
Does it count as caring about social issues if he seems to see them mostly as opportunities to piss off liberals? Because if so, then I’d say he actually cares a great deal about social issues.
As an argument for Sanders this is crazy. You think the tax bill adds too much to the deficit so you want to elect someone whose two biggest programs would add at least twice as much to the deficit?
I’ve heard tell that Sanders might favor raising tax rates just a skosh
I think his point is that adding to the deficit is bad, but when comparing two programs that both add to the deficit, one of which adds more to the deficit but also has significant public policy upside while the other adds to the deficit less but has no significant public policy upside it makes more sense to be more concerned about the latter than the former
Having less money taken from me is a significant upside.
Alexander has already shown that spending more on college is just a waste. However just because a program does not have one big benefit it does not mean it has no benefit. Millions of Americans will have more money to spend however they see fit. That is a significant benefit unlike free college which would actually makes things worse.
What do you mean by “spending more money on college is a waste”?
If you mean that a student who decides to go to a $50k/year private college instead of his local $15k/year public college is wasting his money: yes.
If you mean that the government that decides to cover public college tuition up to $15k/year for any of its citizens is wasting its money: I’m not sure this has been proven at all.
More money spent on college means less money spent on something else. At current levels of government spending on college, for the current marginal college student, and for plausible lists of things that would receive less money in favor of college spending, spending more money on college is a waste.
Plausible lists of things including, say, $100b/year in tax cuts for plutocrats?
Are you referring to cuts in the corporate tax rate? Do you have any reason to believe that most of the benefit goes to plutocrats?
Corporations are legal persons but they aren’t actual persons–Apple or GM is not a rich man spending his income on yachts and caviar. The savings from a cut in corporate taxes end up going to some mix of stockholders, employees, and customers. Unless you have some reason to believe that most of it goes to stockholders, employees, or customers who are very rich, which you don’t, or unless your hundred billion doesn’t include the reduction in the corporate income tax, your comment is nonsense.
Demagogic nonsense.
The GOP tax bill includes income tax cuts in the top brackets, a massive S-corp loophole, and repeal of the estate tax, not just corporate tax cuts. And corporations have a pretty reliable track record of turning tax cuts into executive compensation.
Out of stockholders, customers, and employees, it looks like much of the value of the tax cuts is expected to go into stock buybacks. (As that article notes, companies already have plenty of cash on hand to invest.) That money goes to stockholders. The top 1% of Americans own 38% of stock market wealth; the next 9% own an additional 44%. (Source, citing this paper)
See also here, which makes the distributional comparison to previous tax cuts. If the bill stands as currently written, 60% of the gains in 2027 will go to the top 0.6%.
Saying that plutocrats are getting $100B/year in tax cuts is hyperbolic, but the cold hard facts are nearly as bad.
@Iain
THe biggest stockholders, by far, are pension funds
@cassander:
I don’t understand where I’m supposed to be looking in that link to find support for your claim. Can you explain which part of it you think contradicts anything I said?
@Iain
that appears to be the wrong study. I meant this one. Sorry about that.
That’s more relevant, but I still don’t see how it contradicts anything I said.
If you look at section 6.3 in the NBER paper I linked:
And on pension accounts in particular:
@Iain says:
That’s more relevant, but I still don’t see how it contradicts anything I said.
Wealth is heavily skewed by age. If you have a perfectly equal society, where everyone starts at the same salary, gets the same raise every year, saves the same amount of money, and gets the same rate of return, the richest 1/5 end up owning 2/3s of the wealth in that society purely through cohort effects. If you aren’t looking at lifetime earnings or adjusting for age in some way, saying “X percent control y of the wealth” isn’t particularly meaningful.
I was sloppy in my language. I didn’t mean to privilege pensions over other sorts of retirement savings.
@cassander: Your link talks a great deal about the role of stocks in pension funds, but does not deal with other holders of stocks and so does not support or even address the claim that pension funds are “the biggest stockholders by far”. This source suggests that pension funds, broadly defined, hold 16% of the market whereas (mostly rich) households hold 34%.
@Iain: Your source, insofar as it deals with stock ownership at all, deals only with the subdivision of that 34% of the market which is held by households. And some but not all of the 20% in mutual funds, but pension funds are explicitly in a separate category per your source. So, of the roughly half of the stocks which are held by households, yes, the very rich hold the lion’s share and everyone outside the top 10% has to settle for leftovers. But the roughly one-sixth of stocks which are held by pension funds, are held primarily for the middle three quintiles. That doesn’t result in a flat distribution (News flash: rich people are richer than the rest), but one not nearly as lopsided as you are implying.
You don’t figure out tax incidence by tracing where dollar bills go. For that particular case, consider that when a corporation gives me a hundred dollars to buy back a share of its stock whose market value yesterday was ninety-nine dollars, I’m not getting a hundred dollar benefit even if I traded a stock certificate for a hundred dollar bill.
Look at the article you pointed at. It says the number 1 use of the money will be to pay down debt. If a corporation pays down debt, the lender now has money available to lend somewhere else. The more money there is on the supply side of the capital market, the lower the real interest rate, hence the greater the opportunities for profitable investment.
It also says that corporations “have plenty of money on hand” to invest with. Does the author believe that Apple has a stack of a hundred million hundred dollar bills in a warehouse somewhere? “Money on hand” means liquid assets–the other side of someone else’s debts.
To figure out tax incidence, you need to know how the equilibrium shifts as a result of the tax (in this case a change in taxes).
If you read to the end of the post, it assumes that Sanders won’t be able to fulfill his plans, because “we have antibodies to socialism.”
We have antibodies to actual socialism but not to spending huge amounts of government money on programs that don’t work.
Erm…what do you believe the significant differences between those two things are? Do you believe that instituting free higher education would not be a socialist policy?
Socialism is state ownership. Giving people money to buy something from a third party is not socialism.
Both involve state management of economic behavior, and are fraught with error–but this remains a CRAZY IMPORTANT DISTINCTION.
The state having control of the money functionally means that the state owns the money. At best it is a ‘soft’ facism, where the state doesn’t direct production, it just heavily subsidizes certain types of production and then (conveniently) demands more money to ‘help’ people pay for ever increasing costs.
That is not even remotely close to what Scott is saying.
Scott’s point as that Sanders wouldn’t be able to get his wild plans through congress. Certainly not a Republican congress, but even a Democrat congress would have lots of economical centrists like Clinton who would resist large parts of it. There would be a lot of back and forth and negotiating a compromise that would turn out much better that what we are getting.
Rrrgh, circles bad! Here’s a slightly less awful graph, with the healthcare value omitted for being possibly misleading: https://i.imgur.com/ZoWWuMc.png
Thanks for fixing that chart
There should be a special circle of hell reserved for people who represent one-dimensional data as two-dimensional, with only enough space for the square root of the number of people condemned to it.
I’m glad you are willing to do the work to fix these visualization issues. Comparison is much easier now.
Some of this is a matter of basic perspective. To me, simply returning tax dollars to the people and letting people spend it how they wish is always a good default. The burden on proof should be on the government to show how spending is uniquely necessary and effective, otherwise people should keep the money and spend it how they see fit. Since I think college is actually a net negative on average, spending money on tuition subsidies is worse than a tax cut.
Also — it is easier to change taxes than to eliminate an entitlement. Taxes went up a bit under Clinton, down under Bush, up a bit under Obama, down a bit under Trump. The top bracket after these Trump cuts is almost identical to what they were after Clinton’s hikes. Whereas once a new type of entitlement is created, they become very hard to roll back since people have arranged their lives to dependent on them, and the dependency creates a constituency. So if I am correct and college subsidies are a waste, that $60 billion becomes a permanent black hole, a piece of the economy forever dedicated to waste. Whereas money given back to the people gives people freedom to change how they spend that money in the future.
How would you feel about something like a Universal Basic Income? It accomplishes your goal of leaving money with the people instead of the government – the only difference is who has the money.
It doesn’t accomplish that any more than taxing and then hiring people to work for the government “leaves the money with the people”.
Hiring people to “Work for the government” implies wasting peoples time with a(n implied to be) pointless job. If the hypothetical job was “Do nothing, don’t even show up, and receive a paycheck anyway”, then yes, UBI is exactly that “job” for everyone.
No, the government dolling out money implies that they have the right, ability and power to decide the how’s and the why’s of the distribution. The fact that you can posit a hypothetical that ignores the government as an actor will not prevent the government from being an actor once the cash is in their hands.
The day after (well the day before) a UBI passes you will have politicians arguing that $x,000 isn’t enough and it needs to be increased, you will have some yelling about “this poor woman has $100,000 in medical bills this year, government needs another net to cover unlucky people” on one side and on the other side (well both sides) there will be entrenchment by those determined to keep immigrants as a segregated class, and every political argument starts from the question or not “should the government do X”, but “given that the government is responsible for X, how much more money should we spend on it”.
This is probably overly optimistic though.
I’d rather a UBI than subsidies for college tuition. I might prefer a wage subsidy to a UBI though, as I don’t think most people can handle idleness well, and are better off psychologically working.
UBI versus tax cuts comes down ultimately to views on how much redistribution via the tax system is ideal. I don’t really have a principled opinion on this, except that you don’t want taxes on the profits from risk taking to be too high, otherwise you will kill entrepreneurship and investment. I think current levels are fine for now, I wouldn’t want to see them raised too much though.
That’s be a sound argument if this bill took dollars from the government. I might disagree with your argument, but it would be valid.
But this bill doesn’t do that. This bill takes $1T from taxpayers, spends it, and then returns it to them. And that’s in the best-case scenario where personal tax cuts rebound to their current levels in 2027, and where these cuts generate measurable growth.
True. I was arguing as if these tax cuts were actually tax cuts. Without a matching spending cut, a tax cut is simply tax shifting. An income tax cut that raises deficits essentially turns the income tax into a seigniorage tax, until inflation pushes up the tax brackets, which resets the taxes to where they were. So the whole thing ends up being a nothing burger.
This only really works for a funded tax cut. This one is not funded. The government is borrowing money in order to return it to people. That probably requires an affirmative defence, beyond “people like money”.
The government is borrowing money in order to spend it. The difference in the amount of money it could have taken under the old tax plan and is taking under the new tax plan is not money being “returned”; it is money not being taken in the first place.
Two things changed last week, Nybbler, as a result of the legislation passed by the senate. One is that the government now plans to collect less taxes, mostly from the already rich. The other is that it now plans to borrow more, to make up for the revenue they will no longer be raising.
You can try for some sort of state-of-nature framing and pretend that’s not really what happening, but you would sound like less of an ideologue if you went with something like “money is just a social construct, no ‘money’ is changing hands because money isn’t even real!”.
That’s at least creative.
I’m confused (honestly) as to what you’re taking issue with in Nybbler’s comment.
That’s exactly what he said in the comment you replied to. And the distinction between “returning” and “not taking” is pretty important, I think, at least as far as the emotional impact of the phrasing is concerned.
I think the word ‘we’ might be a bit misleading here.
I’m going to a very liberal college right now, and I don’t think I’ve met anyone who feels actual negative feelings toward Socialists, or, for that matter, Communists. I’m not sure I’d know if they did- I get the feeling saying so out loud would be something of a faux pas.
Stay with me, I’ve got a point to make.
The Red Tribe really, really doesn’t like Al Quaida. A lot of them extend that feeling to cover moderate muslims as well. You could say the Red Tribe has really strong antibodies against anything sufficiently ‘islam-y’. But this attitude doesn’t seem to be leaking over into the Blue Tribe at all- if anything, it seems to be triggering the opposite reaction.
You called it three years ago, Scott. There are two Americas, and one of them gets chills at the thought of socialists in power. And that America has been using ‘socialist’ as a metonym for everything it hates for decades now, long enough for the Foster-Misra/Projective Identification to set in.
I’m pretty sure you’re smarter than I am, and if you can tell me you’ve thought this through and adjusted accordingly, and you’re >80% sure you’re not just projecting the attitudes of the nice, reasonable people in your bubble onto the country at large- then I’ll be very uncomfortable. I will make a variety of faces. And noises. And I will, if nothing else, have to start prefacing my political opinions with ‘I know Scott Alexander disagrees with this, but I still think-.’ And maybe, eventually, I’ll grudgingly update.
Can you?
Also, thanks so much for this- for all this. I don’t want to make this awkward for you, but I’m a big fan of practically everything you’ve ever written.
> You called it three years ago, Scott. There are two Americas, and one of them gets chills at the thought of socialists in power. And that America has been using ‘socialist’ as a metonym for everything it hates for decades now, long enough for the Foster-Misra/Projective Identification to set in.
From experience in large parts of Red Tribe America, this attitude is mostly gone and is fading fast.
By ‘this attitude’ do you mean the general hostility to socialism, or the tendency to use the term as a catch-all? Or both?
(Honest question with no meta-message/implicature.)
(Also, in case my earlier comment didn’t make it clear, I think the chills are an entirely appropriate immunological response.)
This is something I’ve noticed recently as well.
Of course, the Blue Tribe’s reaction isn’t entirely out of spite. To some extent, it’s people genuinely being fooled by Red Tribe propaganda, but lacking the necessary negative affect to see it as demonization. When you have people telling you day-in and day-out that universal health care and a social safety net are socialism, socialism starts to sound pretty good.
The Red Tribe has been trying for some time to conflate Canada with the Soviet Union. It apparently did not occur to them that this would not only make Canada look worse, but would also make the Soviet Union look better.
There’s a distinction between antibodies to “socialism” as a boo-word, and antibodies to large government spending (which in practice, we seem to have – look at the rise of the tea party because of fear of government debt).
government spending goes up, every year, almost without fail. The tea party rather famously failed to achieve any serious deficit reduction. They got some minor trimmings to discretionary spending, most of which are gone, and got nothing on entitlement spending.
In real terms, yeah, but as a proportion of GDP it’s been more-or-less flat since about 1980, modulo a spike around the beginning of the Great Recession. See here.
I don’t think spending as a proportion of GDP is irrelevant, but I think the absolute measures, like inflation adjusted spending per capita, matter as well.
You know, if they’d even followed the American Society of Clinical Oncology and the AARP’s advice and just not stood in the way of meaningful end-of-life care discussions between physicians and patients, that could have made a serious dent in entitlement spending.
Or we could have cost-effectiveness reviews and stuff, which would definitely make a difference. (Remember how much money the feds wasted on Nexium?)
I am skeptical about these supposed deficit hawks’ commitments when they can’t be bothered to find any savings that would possibly inconvenience any of their rentier backers.
It could be time for a booster shot. Venezuelan refugees, anyone?
The problem with your graph is that almost all of the numbers are fictional.
You note that problem for the final case of universal health care–the cost isn’t the amount the government has to spend, it’s that net of what consumers save. But on the same basis, the cost of the tax bill isn’t the reduction in federal tax receipts, it’s that net of the reduction in price of goods produced by corporations in competitive industries that are now taxed less, net of any increase in dividends, net of the savings to individuals due to lower state expenditure due to the elimination of the subsidy to state expenditure implicit in deductibility (reverse the sign if you think states presently spend too little), net of reductions in tax payments by individuals, net of … .
What about ending world hunger? I haven’t read the article you got the number from, but the conclusion can’t be right because we can’t know. Suppose the figure is the cost of the additional calories needed to make up a calculation of the current world calorie deficit. The U.S. produces an adequate quantity of maize, wheat, soybeans, … and ships it to the poor countries where people are hungry. The kleptocrats ruling those countries willingly accept the food and sell it, transferring its value to their Swiss bank accounts. The increased output reduces world food prices, which reduces hunger by some but also reduces output by everyone other than the U.S., so the increased number of calories for the world is less, perhaps much less, than the extra U.S. production. And that final effect would be true even if you eliminate the kleptocrats.
I could run through similar arguments for almost all of the numbers on that graphic. So could you.
Back on election day, I commented on my blog that I thought the least bad outcome would be Hillary with a Republican House and Senate. Along similar lines, following out your argument, if you are going to vote for Bernie in 2020, shouldn’t you also be voting for Republican candidates for Congress? That way Congress blocks all Bernie’s bad ideas and Bernie vetoes all their bad ideas.
A Democratic Congress is much more likely to block Bernie’s bad ideas than a Republican Congress is to go along with his good ones.
I may be misrepresenting him here, but I think David Friedman feels that any change is much more likely to be bad than good from any of the current political actors, and so is much more concerned with blocking Benie’s bad ideas than letting through his good ones (if David even thinks he has any).
You are correct.
I wouldn’t be astonished if Bernie had some good ideas, but I don’t know his views well enough to say. But I think preventing government from doing bad things is more important than getting it to do good things. Breaking is easy, building is hard.
Your claim that no one but a few corporations benefit from the tax cuts is simply flatout false. I’m surprised that you say this, since you’re usually very thorough and well-informed. There have been lots of empirical studies in recent years that show that labor absorbs between 25% to 75% of corporate taxes in a global economy where capital has the freedom to move. It is indisputable that economic growth in general benefits everyone and it is indisputable that this bill grows the economy. What is disputable is by how much and whether that growth will be worth the cost. One could reasonably argue that the growth of the debt, which will increase cost of borrowing and “crowd out” some investments, can counteract many or all of the growth effects of the stimulus, but saying that it benefits no one but a few corporations is nowhere near being true.
Even if you ignore the growth effects, the bill cuts taxes for all brackets. How can you say it doesn’t benefit those who get tax cuts? What is your definition of benefit anyway?
While that doesn’t seem unlikely, it doesn’t logically follow that labor will absorb between 25% to 75% of corporate tax cuts.
Actually it does mean that, you have to actively assume other things to get a model which would block that from happening, and there is a question as to how long it will take the flows to reach workers.
However, perhaps more to the point, it seems likely that labor will absorb somewhere around 100% of labor tax cuts. If the goal is to benefit labor, cutting corporate taxes doesn’t look like the most efficient strategy.
Why?
The most common error in discussions of tax policy is identifying the burden of taxes with who hands over the money. To see the error, try working through the logic of the social security tax using a supply curve for labor and a demand curve for labor. It’s pretty easy to see that the effect of collecting $X per employee doesn’t depend on whether the money is handed over to the government by the employer before paying wages or by the worker after receiving wages or, as it is actually done, half by one and half by the other.
Similarly here. A cut in taxes on labor mean that the after-tax wage is higher than before. A higher price calls out a higher quantity. Quantity supplied is now greater than quantity demanded, so the price of labor, the wage, falls. How much of the tax cut actually ends up as a benefit to the employee, how much to the employer or his customers, depends on the relative elasticity of the relevant supply and demand curves.
Fine, I’ll put it in the form of a dilemma. If the labor supply is at the margins largely inelastic, as I am inclined to suspect, somewhere close to 100% of labor tax cuts will go directly to labor. If instead the labor supply has significant elasticity, as in your scenario, the amount of money that goes to labor will be lower, but labor tax reduction will reduce unemployment, and unemployment is known to have all sorts of negative effects. Either way, sounds to me like a better policy than reducing taxes on capital, which seems to have a poor empirical track record of producing the always promised increased productive investment.
No one here has stated that this is the goal, the pushback is against the idea that a tax break which initially benefits corporations must only (or overwhelmingly) benefit the ‘rich’, and therefor is bad for reasons X, Y and Z.
This would only follow that a relatively SMALL tax cut would go 100% unless you are positing extreme rigidity in the labor response.
It is also pretty hard to defend that labor is inelastic, as the labor force continually shifts at the margins without such cuts.
Does “largely inelastic” mean elasticity almost zero, which doesn’t seem very likely, or elasticity less than unit–a 1% increase in price produces a less than 1% increase in quantity–which is plausible enough? The two senses of “inelastic” are often confused in casual use.
If you are using “inelastic” in the second (and correct) sense, then you need an additional assumption about the elasticity of the demand curve.
Your further point does not justify the original claim of yours that I questioned. If you now believe that that claim was mistaken, you might want to retract it before offering a new argument for your conclusion.
I’m pretty sure you can get there by assuming that A, the current economic leadership class is incredibly self-absorbed and B, there are enough barriers to entry that the current economic leadership class can keep themselves in that position indefinitely. Both of these seem to describe the current economy pretty well.
It’s annoying that all those reference links are in an image so one can’t click them OR select the text to copy/paste to see where these numbers are coming from. Does somebody have the links in a more convenient form?
The reason I wanted to click through is that chart seems at first glance…ridiculous. To the point that I’m not even sure what these circles are supposed to mean. For instance, the Apollo program involved an economic cost to the economy in that real resources were spent on going to the moon which couldn’t then also be spent on something else – it made the nation a bit poorer. But a “Bush tax cut” isn’t at all the same type of thing as that. When the government cuts taxes, the government has less tax income but the taxpayers have more – its a wash. It’s not a cost to the economy. To a first approximation, the same amount of resources are available to the economy right after a tax cut as were prior to it.
The expensive part of a big tax bill is the spending part, not the cutting-taxes part. But the chart doesn’t seem to distinguish between those.
It looks like a photoshop of a previously existing chart, with the 2017 tax bill pasted over the cost of “Iraq” (which lives on as a ghost in the footnotes).
I will be incorporating in the US instead of another country because of this tax bill. I’ll still have to move to another country because of US financial regulations, but at least I’ll be paying the corporate tax only to the US government. I know it’s just one anecdote, but I thought I’d throw that in there.
I don’t know what the aggregate effect will be from this bill, and I don’t know how accurate the cost per year predictions are. Is there some easily available data on historical track record for these types of predictions? I hear numbers like “this will increase the deficit by $1T over 10 years”, and I’m *incredibly* skeptical. So skeptical that the number almost means nothing to me. But perhaps my skepticism is misplaced. I’d like to see how accurate such projections have been in the past.
Historically, the deficit-increasing effects of tax cuts calculated using dynamic scoring have been greatly understated.
The Apollo program had an actual “cost” because money was spent buying stuff and paying people. The Obama stimulus had a “cost” for the same reason. Bernie’s “free” college will involve paying more people to do stuff and maybe building more college classrooms. These may be good or bad investments, depending on whether or not what we get out of them appears worth the cost, but they certainly have a cost.
Those things all have a cost because real resources (labor, materials, and capital equipment) are diverted from someplace else. A tax cut has no cost whatsoever in that sense. Some money that would have been transferred from people’s bank accounts to the government instead stay where they are. The money is still there in the banks, the ownership just remains with the taxpayers rather than moving to the government.
If you are going to say the government getting less money from the public is a cost to it, then it is an equal benefit to the public. Why are you counting one and not the other? That is different when the government gets it in its head to spend a lot of money on something. The benefit may or may not be greater than the cost, and it truly has a cost.
The issue of whether or not the tax cut is a good idea depends on what one thinks will happen with that money in the taxpayers’ pockets rather than the government’s pockets. That has a very wide range of possible outcomes and nobody, especially the CBO which I presume is where you came up with your $100B/year “cost”, is any good at predicting what it will be.
What happens depends on exactly who pays less in taxes, who pays more, what changes in plans people make to offset increased taxes, etc. Moreover, the effects play out over a long period of time. For example, if taxes are cut and people save rather than spend what they have gained in take home pay, economists will jump up and down and say that the tax cut was a failure. That reflects the Keynesian bias toward only looking at short term effects, since “in the long run we are all dead” as the master said. But if those extra savings get recycled into loans that help finance startups that in a couple years hire lots of people, then maybe the tax cut wasn’t a failure after all. It is not possible to come up with a non-arbitrary correct time at which one should blow the whistle and say all the effects of a tax cut are complete.
I’ll add that the CBO is nonpartisan and tries to be unbiased, but it is forced to make predictions using certain assumptions that have little connection to the real world. As a result their forecasts are useless and should not be relied upon. And no, I don’t know anyone better, but that doesn’t make theirs any good.
So you are arguing that adding 1T to the debt balances out, because it’s going to “the public”? Heck, then why don’t we scale it up by 10x? Add 10T to the debt. No worries, it’s going to the public.
As for your arguments that there’s no way to know if a tax cut has worked, that’s pretty handy. It makes it impossible to point to failed tax cuts in Kansas, because who knows, some day they might succeed. So I’m stuck pointing out that low interest rates indicate there’s not a shortage of $ for loans to help finance startups, and that IMHO adding money to that pile is unlikely to increase hiring. (Let alone increasing hiring at better paying jobs: unemployment is currently fairly low.)
“So you are arguing that adding 1T to the debt balances out, because it’s going to “the public”? Heck, then why don’t we scale it up by 10x? Add 10T to the debt. No worries, it’s going to the public.”
No, I said the CBO’s estimates are garbage. Tax take by the government over those ten years could as easily be $1T higher versus the $1T less. Its predictions are based on an assumption of 1.9% real growth, but it could easily be 1% or 3%. Tax cuts tend to bring in more revenue than CBO estimates, and increases bring in less.
“As for your arguments that there’s no way to know if a tax cut has worked, that’s pretty handy.”
The fact that you can’t get the answers you want doesn’t mean that an answer derived from bad methodology and false assumptions should be taken seriously.
You said:
Nothing to do with the CBO there.
Re lack of knowledge, you declare (without providing evidence) that CBO’s estimate are garbage, and that real world experience is useless because things might get better tomorrow. So in the face of this unknowability, we might as well make wild, dramatic changes, because who knows, it might work out. That’s…not very conservative.
And being willing to spend other people’s money helping the poor is not very liberal in the non-political sense. Nor is support for higher taxes and greater regulation liberal in the original political sense.
Everyone is in favor of progress, hence everyone is a progressive. The disagreement is over what changes qualify.
In case you haven’t noticed, the current right/left labels have very little to do with the ordinary meanings of the words.
The issue is that while there’s some benefit to the public for (some of) the public, it’s not a very big benefit. Tax cuts for the rich are an extremely inefficient way to improve the economy.
The issue is not that there’s something immoral about corporations having more money, but that this bill comes with an enormous opportunity cost that it doesn’t even come close to paying for.
For this reason, calling tax cuts “costs” has always rubbed me the wrong way.
We wouldn’t say, for example, that the government’s failure to tax everyone at the maximum possible revenue-generating rate “cost” the government x dollars. It implies that, by default, all wealth generated by society already belongs to the government, which “spends” money by allowing taxpayers to keep more than absolutely necessary.
It’s weird to say that failing to demand the maximum possible revenue from its citizens was an “expensive” choice on the government’s part. But that’s just a quibble about language.
More importantly, if tax cuts are not accompanied by spending cuts, which they very rarely are, it doesn’t mean government programs foregone, at least not in the near future. It just means higher deficit spending, which some people think is a good idea.
There’s certainly an argument to be made that it’s better to pay for government programs with taxation than deficit spending, but that’s a different issue. The tax cuts alone are not causing the government to forego anything.
Why would you include the revenue-depleting aspects of Sander’s plan but not include any of revenue-raising aspects? He specifically states that Universal Healthcare would be tied to tax increases (https://berniesanders.com/issues/medicare-for-all/). If this graph is supposed to represent additions to the deficit, it is highly misleading in that regard.
It’s like:
a: “Our plan is to collect $100 dollars, then spend $20″
b” So you are saying your plan would cost $20? I’ll put you down for wanting to add $20 to the deficit”
Um, he wasn’t going to be able to raise taxes with a republican party in control of both houses of congress.
Then his bill wouldn’t get passed? That doesn’t effect how much it would be projected to add to the deficit.
Even if the graph represents “costs to the economy”, the Universal Healthcare circle should still be near-zero, since it would be offsetting the costs we spend on healthcare in the private market. For example, there is no difference being taxed $1000 to pay for healthcare, and spending $1000 on health insurance on the private market in terms of “cost to the economy”.
So if the graph is about deficits, or about “cost to the economy”, either way the bubble is near-zero. It’s just as misleading as say, homing in on the CHIP aspect of the Trump Tax bill as evidence that it decreases the deficit, while ignoring the rest of the text.
There is dead weight loss to taxation that private spending does not have. Also that is only true if having the government pay does not affect utilization which is unlikely.
The government also has the ability to control prices in a way that the private sector does not have. We could come up rationales to fit our just-so stories all day long. Why not look at the empirical evidence instead? See here. This evidence points to a private market of healthcare increasing your costs (and not increasing your lifespan)
The concept of “deadweight loss” relies on ideological assumptions of market efficiency, assumptions that neither me, not the populist wing of the Democratic Party share.
Yes, but exercising that ability also results in deadweight losses. These losses are incurred whether or not populist Democrats believe in them.
Three questions, who spends more on healthcare, healthy people or sick people? Who has better life expectancy, healthy people or sick people? Who told you that the correlation would be the exact opposite of the obvious answers above?
@John Schilling
Then calculate the deadweight loss, and make that the size of the bubble. It doesn’t change the inaccuracy of the 1.5 trillion number that was given.
@baconbacon
So your argument is that the U.S. has one of the most unhealthy populations in the developed world? And this is entirely unrelated to also having one of the most privatized healthcare systems in the developed world? It seems like the more obvious answer is that health and access to healthcare are connected, not that we are being priced out of having healthcare by just happening to also be really unhealthy.
@Guy in TN
The U.S. population is not massively more unhealthy than other developed countries due to anything much to do with the health care system. Well I wouldn’t have went with massively as the adjective there either, but obviously it’s a subjective thing. Let’s look at life expectancy since it’s reliable to measure, relatively hard to fudge, and broadly related to what we’re interested in.
First, the U.S. has a shorter life expectancy than most European countries and a lot of those deaths are due to car accidents, homicides, or drug overdoses (and all of these things will rack up very expensive hospital bills even if death is averted) . Also note how well life expectancy counties of the U.S. is correlated with risky behaviors in the last graph which include more than just the previous three causes. https://randomcriticalanalysis.wordpress.com/2017/05/16/the-explanatory-power-of-drugs-car-accidents-and-homicides-on-us-life-expectancy-gaps/
Second, note that the U.S. also has a much worse diet than many countries and poor exercise habits to boot. The terrible effects this has on heart disease etc. can hardly be ignored since that’s the leading cause of death.
Third, remember that any comparison of the entire U.S. at once to Sweden etc. should be adjusted for ethnic and racial confounds since these are correlated with genetic (like diseases, predisposition to obesity) and behavioral factors (like diet) that influence general health and life expectancy a lot. Or better yet, only compare a similar U.S. subpopulation to the European country of interest.
On a per-procedure basis, the U.S. still more expensive than other countries (link). So once you factor in unhealthy lifestyles, and population differences, the failure of the market to drive down the price is still there.
Nope, my point was that you don’t even know what the correlation should be and you can’t claim a relationship to be empirical evidence without that. Instead you jumped from ’empirical’ to ‘musing without much basis’ rather that admit you could be wrong.
That is possible, but you posted about life expectancy, which is very different. Life expectancy stats are driven heavily by early death, which are not driven by access or non access to health care. Beyond a modest gap in infant mortality, the life expectancy gap between the US and other developed nations is mostly (and maybe entirely) driven by fatal injuries like murder and car accicents, which probably has to do at least as much with very high gun and car ownership rates as it does access to health care.
The US also has better outcomes in a lot of areas.
As i recall, when you compare total social spending to health outcomes, the United States is actually pretty middle of the road. We spend more on healthcare yes, but we also spend a lot less on social programs, which averages out to America getting about as much bang for its buck as everyone else. It just doesn’t look it because we distribute our expenditures in a lopsided manner.
Also, i found a research paper that does not find evidence of under-performance in the US health system when looking at health outcomes for illnesses that are little affected by individual behaviour. Here’s the abstract:
“Life expectancy in the United States fares poorly in international comparisons, primarily because of high mortality rates above age 50. Its low ranking is often blamed on a poor performance by the health care system rather than on behavioral or social factors. This paper presents evidence on the relative performance of the US health care system using death avoidance as the sole criterion. We find that, by standards of OECD countries, the US does well in terms of screening for cancer, survival rates from cancer, survival rates after heart attacks and strokes, and medication of individuals with high levels of blood pressure or cholesterol. We consider in greater depth mortality from prostate cancer and breast cancer, diseases for which effective methods of identification and treatment have been developed and where behavioral factors do not play a dominant role. We show that the US has had significantly faster declines in mortality from these two diseases than comparison countries. We conclude that the low longevity ranking of the United States is not likely to be a result of a poorly functioning health care system.”
http://repository.upenn.edu/cgi/viewcontent.cgi?article=1012&context=psc_working_papers
Those better cancer survival outcomes are largely driven by overdiagnosis in the U.S., so doctors are “curing” cancer that wouldn’t have hurt the patients anyway (link) .
Looking at health outcomes is important, but cancer survival isn’t the smoking gun. We’re paying so much more- what is it for?
@Lillian
Thanks for sharing that. I’ve been presented with a lot of good evidence that the U.S. low lifespan in not a result of its healthcare system, and I’ll admit to being wrong about this.
@Guy in TN
I have two problems with those graphs. One is the number of procedures is undoubtedly much higher than those graphs so it’s hard for me to draw a broader conclusion from them. Two is that hospitals and doctors are well known to engage heavily in price discrimination to attempt to make up for losses on some patients. If you look at total healthcare consumption rather than procedure by procdure, it appears to be driven partly by the fact that richer nations (as in nations who actually consume more) consume more and more healthcare as a fraction of total consumption. See randomcriticalanalysis again https://randomcriticalanalysis.wordpress.com/2017/07/27/health-care-prices-do-not-play-the-role-most-believe/
You could maybe shave costs some by attacking individual procedures costs, but you’ll probably squeeze a lot of costs over to somewhere else. The problem is more systemic than that.
A lot of this consumption is probably irrational from an economic point of view. So there is some argument for adjusting things one way or another to avoid this.
I’d argue there are some issues with how U.S. healthcare is structured. But they mostly have to do with the tax favored employer healthcare making the best insurance tied to continuous employment and leading to a bias to consume more healthcare than if people payed for healthcare after tax, and to how health insurance is partly like pre-paying for routine treatment which is a bad idea (especially if you want to discourage unnecessary consumption rather than encourage it). I’m not sure how common the sort of failures are where young people get screwed because they have a tragic accident and lack insurance are, but these would be pretty cheap to fix without tweaking much else because young people are pretty healthy overall.
He also wasn’t going to be able to pass most of his revenue-depleting aspects with a republican party in control of both houses of congress.
I’m struck by the number of people arguing that a tax cut shouldn’t be counted as a cost, because the money goes straight to taxpayers, but failing to grasp that if you want to apply that argument to tax cuts you need to apply it to college spending too. Government spending isn’t just burning the money, it’s giving it to people, who then have it and spend it, just like a tax cut.
The two questions about a change in government spending are “who does it benefit” and “what sorts of behaviour does it incentivise?”
In the case of free college education, the beneficiaries are a) people who get to go to college, and b) people who work for colleges; the behaviour incentivised is “going to college” (with the incentive change being especially strong if you’re poor and couldn’t otherwise afford to).
In the case of Trump’s tax reform, the beneficiaries are the poor (a little, not nearly as much as they would benefit from other things the money could be used for) and the rich and businesses (a lot); the behaviours incentivised include “doing business in America”, but not necessarily “keeping the profits there”.
Free college education will increase social mobility; cuts in tax that primarily benefit the rich will decrease it.
I think that the former is a far, far better approach (I don’t support it, because I think there are other things the money could still better be spent on, but it’s far better than tax cuts).
Should the top marginal tax rate be 100%? Why or why not?
No, for the obvious reasons.
Redistributive taxation has positive first-order effects (redistribution of wealth) but negative second-order effects (reduced incentive to create wealth); setting a tax rate is about finding the point where d(good done)/d(tax rate) = 0, which is clearly well below 100%.
This seems like an extremely strange question to ask. Nobody has suggested that the top marginal tax rate should be 100%.
Several people have, however, suggested that the top marginal tax rate should be 0%. This notably includes the signatories to the Taxpayer Protection Pledge, which is logically equivalent to endorsing a top marginal tax rate of 0%.
What?
Let’s work this out for a second.
Let’s say you have the current tax rate X, and your desired tax rate Y. If X is lower than Y, you’ll raise taxes. If X is higher than Y, you’ll lower taxes. That seems pretty straightforward.
In reality, of course, Y is less an exact number and more a pair of bounds – your lowest acceptable tax rate (Y-1) and your highest acceptable tax rate (Y-2). If you raise taxes, that means X is below Y-1. If you lower taxes, that means X is above Y-2.
The Taxpayer Protection Pledge is, in effect, a commitment to never raise taxes. That means it’s also a commitment to never believe that X is below Y-1. All signatories to the TPP have a Y-1 of 0.
Now, granted, it does not logically follow that they also have a Y-2 of 0, but this doesn’t actually matter. The Y-1 of 0 means that there’s a ratcheting effect – it’s possible to lower taxes, but not to raise them. If X can go down, but never go up, then over time X will tend toward 0.
There are at least two fatal flaws to this
1.
This implies that you have the unilateral ability to raise or lower taxes, this isn’t remotely true. If there is no unilateral ability to raise or lower taxes then a correct stance is to base your position on the other representatives position. I can think that a rate of X+1 is correct when the current rate is X, and still sign the pledge as a way to try to prevent those who think the current rate should be X+10 from pushing us farther away from my preferred equilibrium.
2.
This would only be true if the pledge was a legal and lifetime binding proposition, not a pledge. Since signatories can rescind this doesn’t hold at all.
So you agree that pledge signatories do endorse a 0% rate. They just don’t really mean it, or they’ll be unable to enact it.
It means the pledge should be taken to hold for the situation here and now. It reflects a belief that tax rates should not be raised from their current point, not that they should be lowered to zero.
No. As I said the interpretation only holds if they individually controlled tax rates and the pledge was binding forever. Since neither is true and no one thinks either is true the logical conclusion is a fantasy.
No. Say the current tax rate is 20%, every single signatory thinks that the best rate would be 19%, if they actually got enough momentum to get the rate cut to 19% what would happen? They would remain signatories right? They think 19% is ‘correct’ and do not want to raise taxes, but they also do not want to lower taxes! Then lets say that different group was formed and got the rate cut to 18.5%, now the same guys who signed the pledge want taxes increased! The implication that they favor a 0% rate is baked into the assumption that they would not change their stance as the tax rate changes. You could ‘logically’ conclude that I want zero kids if I state after having my 2nd kid that I don’t want “any more kids” with this kind of nonsense.
Nah, the prospect of making more money can serve as an incentive. I seem to recall reading some economic research, maybe on Worthwhile Canadian Initiative (I can’t keep all my economic blogs straight) that suggests that very wealthy people are most productive at around a 60% tax rate. Since that seems plenty for revenue generating purposes as well, that seems like a good number to aim for.
@ Tatterdemalion:
A question you left out: How does this change impact the deadweight loss of taxation?
If there weren’t such a thing as a deadweight loss and there weren’t any transaction costs and we had omnipotent benevolent bureaucrat-gods to make decisions about what to spend on, then having the government tax people to spend the money on useful stuff might plausibly be equivalent to letting people spend the money on useful stuff directly. But in the real world deadweight costs do exist and people tend to know better what they need than others do on their behalf. And bureaucrats are corruptible and aren’t always benevolent or well-informed. As a result of these sorts of factors, letting people spend their own money is unambiguously so much better than having the government tax to spend on their behalf, that we ought to reflexively err on the side of letting people keep their money unless there are hugely compelling reasons not to.
I totally agree that people tend to know what they need better than others; the only situation where taxing Peter to pay Peter makes sense is as a Moloch-avoidance exercise, spending money on things where collective action is more efficient than individual (e.g roads).
But, left to themselves, people do, as you imply, spend their money on things that they need, or want. The main reason I prefer progressive taxation is to take money away from people and to spend it on things that they personally don’t need, but that other, poorer people do.
The main choice is not between having people spend their own money and having the government spend it on their behalf; it’s between having people spend their own money and having the government spend it on behalf of others.
@Tatterdemalion
I’ve used the phrase deadweight loss of taxation a few times in the comments here, but I haven’t explained; I think I need to. So…please indulge me for a moment to consider the story of Amy and Bill.
Bill is a farmer who grows artisanal apples and brings them to the farmer’s market; Amy is a customer who drops by Bill’s booth.
Bill has an apple on display that cost him $1 to grow and transport so he wants to sell the apple for at least $1. Bill is indifferent between having the apple and having $1.
Amy is hungry and loves apples. Amy likes the look of that apple so much that she would be willing to pay as much as $1.50 for that apple, but no more than that.
Scenario #1: no taxes – this is an under-the-table transaction. Bill and Amy agree on a mutually-beneficial price between the two of them and a transaction occurs. For simplicity, let’s say the price they pick is $1.25. Bill gets $1.25; Amy gets an apple; both sides benefit from the transaction.
How much did they benefit? There’s a producer surplus of 25 cents and a consumer surplus of 25 cents, so the economy as a whole is made better off by 50 cents due to this transaction.
Scenario #2 – light taxes – Suppose the government passes a ten cent transaction tax on single-apple sales. Bill and Amy can probably still reach an agreement but now there’s only 40 cents rather than 50 cents of surplus available to divide between them. The transaction still happens, there’s still 50 cents of net benefit to the economy from apples seeking their highest-valued purpose, but the breakdown in who benefits is: 20 cents producer surplus to Bill, 20 cents consumer surplus to Amy, 10 cents tax to the government.
Biill and Amy are worse off than they were in Scenario #1, but the government is better off which is an offsetting benefit – assuming the tax is spent for good purposes it might be fine.
Scenario #3: heavier taxes – Now suppose the government passes a 60 cent transaction tax on single-apple sales. Since 60 cents is larger than the summed surplus on this transaction, there is no price that Amy and Bill can agree on. There is no price whereby Amy and Bill both feel like they have been made better off by the trade, if making that trade requires they give 60 cents to the government. So the trade doesn’t happen. Since the transaction doesn’t happen, no transaction tax is paid. Compared to Scenario #1, Amy and Bill are worse off and the taxpayers/government doesn’t win either. Amy and Bill’s loss here has no offsetting benefit; it is a deadweight loss. In implementing this tax on this transaction we have hurt the economy by 50 cents – full stop – without making anybody better off.
Whenever you raise taxes, you reduce the amount of economic activity. (Heck, even the ten-cent tax increase in scenario #2 deterred some trades, just not the one we were looking at!)
Taxation itself has costs – some obvious, some much more subtle. The higher the tax rates are, the more certain it is that you are making people – including poor people! – worse off by having the tax at all, regardless of what you plan to spend it on.
Thus when the government spends resources on behalf of others there are simply fewer resources to spend than when people spend resources on behalf of themselves.
Does that make sense?
I was halfway through a lovely detailed response to this, and then lost it to a rat-on-keyboard error (letting your pet rats out to play while discussing economics is less foolish than letting them out while playing a computer game, but still not a great idea, alas); I’ll attempt to reconstruct it.
——
That makes perfect sense, but I think you’re trying to prove a weaker point that I’m not disputing, and that doesn’t justify the tax cuts: “taxes have some negative effects” vs “taxes have sufficient negative effects to outweigh the positive ones”.
I think that the goal of economics should be to maximise the average of a function of living standard that is massively sublinear – that is, the worse off someone is the more improving their live matters.
Economic growth that contributes to falling unemployment and rising wages (especially rising wages for lower-paid jobs) helps that, as does government spending. But what we’ve seen over the past few decades is wages stagnating even as the economy grows; the vast majority of the gain has gone to the already rich. I think that at this point it’s pretty clear that the trickle-down effect is very, very weak at best. And unemployment is already pretty low.
Your analogy captures this nicely: in the extra trades that will happen because of these tax cuts, most of the apples will be priced not at $1.25, but at $1.45 or $1.49. So Amy won’t actually gain very much, and while Ben will, Ben is already rich, and I view value that goes to him as wasted (or, for some contexts, set the price to $1.01 or $1.05 and assume Amy is the rich one – the actually axis of split to be more about capital vs labour than buyer vs seller).
So yes, I fully agree that tax cuts will help grow the overall size of the economy (although not by anywhere near as much as the Republicans claim), and that they will increase the mean wealth of Americans. But I think the mean wealth is a lousy measure; they will decrease the mean weighted wealth, because most of the benefits of the tax cuts will go to the rich whereas most of the benefits of the spending they’ll replace would have gone to the poor, and that’s what matters.
What America needs is to bite the nettle and embrace measures that will shrink the pie, but enlarge the smallest pieces of it.
This does not follow from your example, because people don’t participate in the economy equally. If you tax stocks to pay for welfare, for example, this would not make poor people worse off because they rarely hold stocks to begin with.
When you start incorporating perceived values into the equation, you also have to incorporate the value of what the government is spending that money on. If I am a poor person, and my life depends on a life-saving medical procedure I cannot pay for, I may value that procedure at $1,000,000,000 dollars (if I could afford to pay it). It doesn’t matter whether I can actually afford it or not, that is still my “consumer surplus”, just like the perceived value of apples in your scenario. Thus, when the government gives me this this life-saving procedure for $10,000, it adds a net value of just under 1,000,000,000 to the economy! By your reasoning, at least.
Really, any decline in welfare spending results in deadweight loss. Observe:
Every government/welfare recipient transaction occurs because it is mutually beneficial to both parties. If the government didn’t see welfare as a benefit, it would stop offering it. And if the recipients didn’t see it as a benefit, they would stop applying for it. So each government/welfare recipient transaction adds net value to the economy.
But when a third party comes in, say a voter, and decides to take a cut of the available money, it reduces the total amount the government can offer. At some point, the amount left to offer might be so small, that the government isn’t willing to occur the costs of setting up the welfare office, or the recipient isn’t willing to incur the costs of filling out paperwork to receive such a small amount. Thus, it results in deadweight loss, losing the potential gains from a transaction that would have otherwise taken place.
It appears that every time taxes are reduced, deadweight loss occurs!
But if government didn’t see tax cuts as a benefit, it wouldn’t pass them!
Seriously, this is an awkward moment for anyone on the left to be arguing in favor of the general efficiency of government decision-making.
@ Tatterdemalion
The way I set it up there’s no reason to think Bill is richer than Amy. (If I had to pick, I would have guessed Amy to be richer, in that Bill seems to be the one selling apples on Saturdays as a side hustle. 🙂 ) Regardless, there’s no reason to think either one can capture nearly all the benefit. To see why that is you need to think about how pricing works with more than one customer.
Since it matters to you, we’ll postulate that Bill is richer. Since Bill is the proprietor Bill is the one who writes the price tags.
So now if the only person Bill ever sold apples to was Amy, then yeah, he could capture all the gains to trade. Since Amy seems really happy to take today’s deal at $1.25, he could bump the price by 5 cents next week, notice she still seems happy so bump it again until some week she doesn’t buy the apple, showing by revealed preference her true valuation, whereupon he drops the price a bit and henceforth sells at $1.49.
HOWEVER…Bill can’t actually do this.
Why not? Because Amy is not the only customer, and different customers have different utility functions.
Amy loved the deal she got on apples so she told her friends about it. Bill is covering his costs and making a profit, so next time he brings more apples to sell; he’s got enough for everyone.
Alas, most of Amy’s friends don’t like apples quite as much as she does. Let’s say that Kathy is willing to pay $1.35, Margaret is willing to pay $1.15, and Lisa is willing to pay $1.05.
Given those numbers, Bill makes more money by setting the price at $1.34 (and selling two apples, for 68 cents profit) than he does by setting it to $1.49 (selling one, for 49 cents profit).
Even if Bill is a monopoly provider (nobody else is around selling apples or apple near-substitutes) and is motivated by pure greed, wanting as much profit as possible without regard for how much customers benefit, his best bet is a price somewhere in between his cost and the valuation his best customer puts on the good. On the margin there are some customers who will buy an apple and get almost no net benefit from it, but (by construction) Amy is not such a customer – she benefits too.
So both Bill and Amy gain from trade, which means everybody they do business with also gain from trade. Economic progress is just the sum of lots of little transactions like that.
The important insight from thinking about deadweight losses isn’t just “taxes have some negative effects” it’s “the negative effects taxes have are somewhat proportional to the size of the tax.” Some kinds of taxes do more economic harm than other kinds; within any given type of tax a large tax burden does more net economic harm than a smaller one. The bigger that apple tax, the more of Amy’s friends simply can’t buy an apple no matter how good they are at negotiating. Make the tax big enough and Bill has to give up and stop selling apples entirely.
@Paul Zrimsek
“The government” is not a monolithic entity. State governments can be bound by the decisions of federal government, county government by state, ect. And any of them can be bound by a popular referendum.
This is the type of “igneous rocks are bullshit” that I don’t expect to see at SSC.
Followed by:
I mean, just brilliant. Pure brilliance. First, the gov’t is a monolithic entity, with a utility function and everything. Then, it’s, uh, not. Of course, if it’s not, then we probably can’t construct a meaningful utility function for it… or try to root any “value to the economy” in said utility function.
A non sequitur. You’re clearly not capturing “value to the economy”. You’re saying, “There is a benefit to welfare spending.” Yes. Everyone agrees with that. Deadweight loss is still a thing. It’s a bog standard thing that is extremely simple, has an agreed-upon definition, and is not disputed by any serious economists… only deniers of igneous rocks. The question is always whether the value of welfare spending is more or less than deadweight loss.
?
@ Nornagest I googled it and came up with
Thank you.
No part of my analysis requires the government to be a monolithic entity, and in no part did I suggest it was. When I said “If the government didn’t see welfare as a benefit, it would stop offering it.”, that could be a city government, state government, county government, ect. But each component can, of course, have its own goals, which sometimes coincide with each other. A corporation can have a utility function, despite being made up of separate people, no?
You’re going to have to explain this one. How does a transaction between two private entities add value to the economy, but a transaction between the government and a private individual not?
Of course deadweight loss is a thing. It just cuts both ways. It happens every time a third party interferes in a mutually beneficial government/welfare recipient transaction. Now, if you have any argument for why this is wrong (rather than utter incredulity that someone would deviate from neoliberal dogma), feel free to chime in.
And this is exactly the sort of libertarian condescension that I do expect to see. If every tax made people worse off, as Glen Raphael implies, then all economists would be anarcho-capitalists. Since this isn’t the case, there clearly must be something else going on?
A government is an entity with a utility function. The U.S. government is made up of smaller governments, separate entities, with their own utility functions.
Not all governments are the same entity. This is why Paul Zrimsek’s “but the government does it to itself!” response makes no sense. Surprised so many people got hung up on this.
I bet this is even less true for governments than it is for people, and it’s not very true for people. People don’t really follow the VNM axioms (consistency is the usual problem), but they look at least intuitively plausible, and they do mostly follow them most of the time; aggregations of people with different goals and priorities, on the other hand, have no reason to even in principle.
@Nornagest
You are probably right that people are not actually utility-maximizes, and their ability to do so decreases when aggregated into groups. But doesn’t this apply to corporations as well? In the examples used it’s always “John has an Apple…”, but in reality, sole proprietorship isn’t the norm.
I would think that some local-level government agencies likely have a smaller decision-making staff than large corporations?
I’d expect most corporations to be closer to having a coherent utility function than most governments, because they’re usually smaller and have a less complicated decision-making structure, but less so than individuals. This is probably a major contributor to diseconomies of scale.
Small departments are hard to evaluate. It doesn’t just depend on their size, but also on their independence — a small-town mayor’s office is probably about the same size as a local branch of the state department of agriculture, but it’s much less closely tied to higher levels of government.
@Controls Freak:
I suspect calling deadweight loss “extremely simple” is a strategic error – it’s not all that simple. There’s nuance. It’s simple if you already have certain intuitions and background knowledge that not all people have. By emphasizing how simple it is, you’re helping people maintain their belief “if it’s so simple, I probably already understand it!”
@Guy in TN:
No, it really doesn’t.
I’m pretty sure that you do not understand what deadweight loss is, but I’m at a loss for how to help you understand it better. I have the impression you’re wanting to disagree with, well, most of mainstream economics. Some of what you say seems Not Even Wrong, some of it just broadcasts that there is a vast inferential distance to cross. Sadly, I don’t have the energy to try to bridge that distance just now, but maybe somebody else can do better?
UPDATE: Okay, I’ll make one last attempt, doomed though it might be.
Warning: oversimplifications galore…
When Amy buys an apple from Bill, we have reason to believe this entire transaction is a Pareto improvement. Amy wouldn’t buy the apple if she didn’t value the apple more highly than the resources she spends buying it – and she is the OWNER of those resources so her interests as money-owner are aligned with her interests as apple-buyer. Bill wouldn’t sell the apple if he didn’t value the money being received more than the apple, and again, Bill is the OWNER of the relevant resources so he himself benefits by a good trade or is harmed by a bad trade. Both Amy and Bill are acting voluntarily – no force compels or prohibits the trade – and no third party has an ownership interest in the result. These kinds of considerations let us tell just by looking at Bill and Amy that their trade is net-positive.
A transaction with the government lacks several of these attributes. The government has no owner capturing the benefit when it does well and the government only has resources to spend as a result of forcibly taking those resources from other people whose interests are also involved in the transaction. There are benefits and costs here not fully captured by just looking at two entities, “government” and “welfare recipient”. So in this case we cannot simply sum the results to those two entities and thereby determine the trade is a Pareto improvement.
To offer another oversimplified analogy: if the government robs Peter to pay Paul, would we just look at two actors: (1) government choosing to pay Paul and (2) Paul choosing to accept the payment, and say “gee, both sides must be benefitting, so that’s an improvement, and thus anybody who stops it is causing a deadweight loss?”
Hang on…we’ve left out Peter! Including Peter in the initial transaction makes it less clearly a benefit; even if it is a benefit, putting a stop to the transaction can’t be considered a deadweight loss (a loss with no offsetting direct benefit) because there is a direct offsetting benefit…to Peter.
Does any of that help?
I’m getting to that part- just one step at a time. Got to cross that inferential distance somehow.
@Guy in TN:
Let me see if I can show why your argument, although entertaining, is wrong.
Consider a bill to pay ten thousand dollars each to a million people. It makes those people better off, but not necessarily by ten thousand dollars each, because there is some condition they have to meet, say being unemployed, to get the money. Some would be unemployed anyway so benefit by ten thousand, others prefer being unemployed at ten thousand to being employed at some poorly paid job so benefit by ten thousand minus the value to them of having that job (income minus disvalue of working).
Meanwhile, the hundred million taxpayers who pay for the money are losing $100 each, but this time the standard dead weight argument, which I will assume you are familiar with, goes the other way–actual cost to them is at least $100 each.
But, you say, there is the additional benefit to the government. That’s already being counted–the reason the bill was passed was to buy the votes of the million beneficiaries. You are treating the government as if it was an independent actor, rather than an institution whose actions are the result of the preferences of the individual players.
The final question is whether, given the logic of the political market, we would expect that transfers would only occur if the value to the gainers was larger than the cost to the losers. That seems to make intuitive sense, on the theory that how much political pressure people employ will depend on their gains or losses. But it’s wrong.
The reason it is wrong is the public good problem. Lobbying to get a benefit for members of your group or prevent a cost to them faces the usual problem of producing a public good–if I spend resources doing it, all other members of the group share the benefit. If the beneficiaries are a small and well organized group they can largely solve that problem–I’ll do my part if and only if you agree to do yours. For a large and poorly organized group that doesn’t work.
So it will be politically profitable to pass a law that benefits a concentrated group at the cost of a dispersed group even if the total benefit is considerably smaller than the total cost. The standard example is a tariff.
@Glen Raphael
The government owns the resources it gives out, and it owns the agencies it sets up. If a government gives out $100 in preventive care, in hopes of recovering the cost in $120 less in emergency treatment, then of course there is an entity that reaps the benefits of that.
And private corporations only have resources to spend, because they have forcibly taken those resources from the workers via property law. It’s force all around, nothing unique about the government in this regard.
But have you considered your third party? Before the initial appropriation of property (in a world without property law), resources were available to everyone. But when a resource is privatized, then everyone who is not the owner is made worse off by this move. Your hypothetical example does not involve just the two apple growers, but everyone else who would otherwise have access to that resource, if not for property law.
Including this third party in your example casts doubt on how clearly beneficial your apple transaction is. How about the people who were excluded from accessing these apples because of property law? Does their loss of utility not factor into your equation?
You say that I cannot simply sum up welfare/taxation and determine that it is a Pareto improvement because of the third party losses due to taxation. This is because a third party was made worse off in acquiring the tax revenue.
But can you simply sum up the Bill/Amy apple transaction and determine Pareto improvement? Because you too have a third party that was made worse off during the process of acquiring property in the apple.
@DavidFriedman
You are relying on the assumption that government agencies will be large and poorly organized, compared to private institutions. A good rule of thumb perhaps. But it is fairly easy to imagine a small, largely autocratic government agency being better organized than a giant corporation. So your argument can’t be applied as a principle here.
Hey now, including third parties in your deadweight analysis mucks the whole thing up! We didn’t include the people who lost out when the distributive institution of private property was created in the apples example, so there’s no need to include the people who lose out when we create the distributive institution of taxation here. After all, Amy can’t trade apples without first making people worse off via property law, and the government can’t give welfare without first making people worse off via tax law.
I’m sorry. It’s literally a 101 topic. There is no debate among economists on the definitions of deadweight loss. Nobody has a problem saying, “There is value to Gov’t Spending Program Y, and that value is larger than the deadweight loss of Tax X used to support it.” No one as problem with saying, “When we cut Gov’t Spending Program Y, it causes a loss in value.” That doesn’t require redefining deadweight loss… and doing so poorly.
Why just “welfare”? Why not other gov’t spending? “Every time a third party interferes in a mutually beneficial government/corporate giveaway transaction…”
This is an example where you can imagine the benefit flowing back to the gov’t. A lot of the things gov’t does aren’t like this. Hell, preventive care isn’t actually like this. No one serious actually thinks that the government pays for emergency treatment… and they definitely don’t think preventive care makes this better than 1:1 cheaper. Instead, this is one of many examples of government spending purely to make others better. And this isn’t a bad thing! A big point of the gov’t is to help with certain public good problems, providing value over cost to the populous where other incentives may not necessarily provide it. When the gov’t creates a national park, it’s not to bring value to the government. It’s to bring value to the people.
Let’s put it this way: Donald Trump is the Executive. He’s literally the person responsible, by law, for writing the welfare checks. Now, he delegates this authority to subordinates, but it is his authority alone. When he writes those checks, he’s not thinking, “Yay! Today, the government gained value from this!” Instead, the point of law/gov’t is to force him to write those checks, even when he doesn’t think the gov’t gains value from it, because the people have collectively decided that it’s a valuable thing. (If you really want to go down the route of making the gov’t into a “largely autocratic government agency” in order to make sure that the benefits of government spending accrue to Donald Trump, you’re going to invite all the Stalin comparisons on your own.)
Anyway, now you’re in a bind. It’s possible for you to swoop in and say, “But don’t you see! It’s this value determination by the people which is the inherent source of the value, and thus, creates deadweight loss.” However, if we say that, then cutting taxes and gutting welfare is also a value determination by the people, inherently determining that it was not of value.
…much better to stick with the standard definitions. Keep taxation/spending separate. Taxation causes deadweight loss to private individuals. Spending can produce value (perhaps overcoming the deadweight loss). And yes, private transactions can have externalities, too. You can still make precisely the same argument without mucking everything up.
But have you considered your third party? Before the initial appropriation of property (in a world without property law), resources were available to everyone. But when a resource is privatized, then everyone who is not the owner is made worse off by this move. Your hypothetical example does not involve just the two apple growers, but everyone else who would otherwise have access to that resource, if not for property law.
The institution of private property exists to solve another, related problem. Yes, the people in general loses when an apple tree that had been public property gets fenced off as private property so Bill can sell the apples, but that applies to very few apple trees. In most cases, the tree only exists because Bill labored to plant and nurture the tree to the point where it could grow apples. Assuming all trees are the naturally occurring type eliminates the utility of people to plant more trees to provide more apples, and the public benefits from the ability to incentivize people to plant more apple trees.
The initial shift of land from public to private back when it was possible to just go out and claim land can be said to be unfair, but for most of the world, it’s a historical fait accompli, and without the ability to separate the value of the land itself from the labor spent since the initial land claim to improve the value of the land, there’s no way to undo that. Today, governments representing the public are typically reimbursed for the sale.
Further, while any individual piece of private property could be said to deprive the public, it’s offset by a gain from the aggregate value from the property people own. Owning all of one apple tree is more valuable than owning a public 1/100th stake in 100 apple trees, because you avoid the tragedy of the commons problem.
There are a couple of other losses in the tax scenario. Society loses from having to spend labor and resources on running the tax system that could be used productively.
That’s a valid point as far as it goes: the Department of Education can probably manipulate the system to benefit the Department of Education about as well as Archer Daniels Midland can manipulate the system to benefit Archer Daniels Midland. (The relevant poli-sci buzzword for the process is “state autonomy”.) Now all I’ve got to figure out is why I’m expected to be happy about that.
@Controls Freak
While I’d like to think that the government provides welfare just out of the goodness of their heart, there is also a real monetary value to it. Extremely unhappy people tend to become revolutionaries, and the government has a real financial incentive not to have angry mobs of starving people roaming around. Think about it this way: would the be no financial loss for the government if there were to cease all welfare/disability/unemployment payments immediately? The ensuring social chaos would disrupt everything.
I would definitely not say this, because as you correctly point out, this is not how deadweight loss works. It’s not two parties and one party changes their mind. It’s two parties, and then a third party interferes with their transaction.
In my initial example, I specifically mention that it is a transaction between two parties, then a third party comes in to alter the situation. That we have multiple governments, and one government can be beholden to the decisions of another government, makes this a realistic scenario. Use the city government of Washington D.C. as an example if you have to, who are beholden to congress, despite them and their constituents not being able to participate in congressional elections.
@Civilis
Yes, we created the institution of property for a reason, (and that reason is good!) So you say we can discount the harms done via the initial appropriation of property in our analysis.
But I would contend that we also created the institution of taxation for a reason, and that the reason is good. So why not let the harms done by the initial distribution of taxes slide too?
Its also hard to separate the money the government acquired from taxation, and the money they have earned from investing that money. This is doubly true when the government has bought productive things (such as factories, farms, businesses).
And while any individual taxation could be said to deprive the public, it is offset by the transfers from the rich to the poor, which due to the declining marginal utility of income, actually add net utility.
I’m not very interested in arguing any of these specific policy positions regarding the net value of private property law vs. taxation. Rather, I would like to point out that your arguments are relying on assumptions that the initial harms done prior to the transaction are probably outweighed by the long-term benefits, therefore they shouldn’t be included in our Pareto improvement. But this means it all has to be investigated on a case-by-case basis! In order to say that taxation negates the Pareto improvement, you now have to make the case that society is net-harmed by the existence of taxation. Since not every mainstream economist is an anarchist, I would say this position can’t be taken for granted.
Either you are joking or you have not thought very clearly about the concept of deadweight costs. The fact that if you take money from A and give it to B the result is to make B better off does not imply that the transfer is, on net, an improvement.
I was making no such assumption.
@Guy in TN
That’s sounding a lot like appeasement, or Danegeld, to me. There are better ways of dealing with people who say “pay us or we’ll kill you” than paying them.
@DavidFriedman
And the fact that you privatize a resource that was previously available for A and give it to B, resulting in B being better off, does not imply that the transfer is, on net, an improvement.
Does your deadweight loss concept really rely on the assumption that taxes are always net loss, while privatization is a net gain? Seems like a pretty critical error.
But I would contend that we also created the institution of taxation for a reason, and that the reason is good. So why not let the harms done by the initial distribution of taxes slide too?
Taxes and spending are entirely different things, and the moral value of the service provided by the government, if any, is completely unrelated to how that money was acquired. You can argue that taxes are the least destructive way for the government to get money to spend, and I may even agree with you. Still, that doesn’t negate that taxes do damage in the form of deadweight loss.
I’m not very interested in arguing any of these specific policy positions regarding the net value of private property law vs. taxation. Rather, I would like to point out that your arguments are relying on assumptions that the initial harms done prior to the transaction are probably outweighed by the long-term benefits, therefore they shouldn’t be included in our Pareto improvement. But this means it all has to be investigated on a case-by-case basis! In order to say that taxation negates the Pareto improvement, you now have to make the case that society is net-harmed by the existence of taxation. Since not every mainstream economist is an anarchist, I would say this position can’t be taken for granted.
But the point you’re responding to is the simple assertion that there is a net loss of economic value due to taxes, which the fact that those taxes may be necessary does not change. Taxes are not a zero-sum transfer; you’ll always destroy some value, so you’d better make sure that the taxes you want are structured to minimize that destruction.
@Civlis
You won’t get any disagreement from me that taxes do damage in the form of deadweight loss. My argument has been that reducing taxes also does damage in the form of deadweight loss. Deadweight loss cuts both ways.
This is because a deadweight loss analysis examines only the relationship between two people. In the analysis of Amy/Bill, they incur deadweight loss when taxes are increased. In the analysis of government/welfare recipient, they incur deadweight loss when taxes are decreased.
The fact that the initial appropriation of taxes involves other people is irrelevant to the analysis. After all, the initial appropriation of private property involves other people in the Amy/Bill transaction, and this wasn’t included in the analysis either.
You seem to be trying to make a distinction between things with “economic value” and things that are merely “necessary for society”. To me, things that are necessary for the functioning of human society have immense economic value.
Like the institution of private property, creating the institution of taxation harms people in the immediate, but provides long-term benefits. Once again, you are relying on the assumption that taxes are always a net loss for economic value. I don’t buy that, and I don’t think most mainstream economists buy that.
That’s not important. Suppose you have the most perfect, rational President who is thinking exactly along your lines. He desperately wants to pay all those payments. So do all other federal government employees. Nevertheless, the state legislatures just called for a Constitutional Convention, and then passed/ratified an an amendment banning them. The President… “the government”… would not be able to do it, even if the President and every gov’t official agreed with your valuation.
All you’re saying is, “In the abstract, I think there is value to the country in Spending X. Part of that value comes from lack of angry mobs of starving people or whatever.” I have absolutely no objection to you claiming this. In fact, I agree. I disagree with you redefining basic economics terminology to do so, with zero reasoning for why your definition is any better.
So, uh, federalism? You’re launching a full-throated defense of federalism? I mean, I’m a fan, but …*hides mouth behind hand*… are you prepared to be called a racist?
In any event, your attempt to talk about two-party versus three-party doesn’t help any. Laws can be made directly or indirectly by the people. There isn’t really a “the government” party between them. In the case of the current tax bill (not bringing in a State gov’t), this is abundantly clear. The choice to engage in certain tax/spend-welfare was made by a past Congress, indirectly representing the will of the people. The choice to now stop taxing is being made by Congress, indirectly representing the will of the people. Unless we start identifying that this Congress is the true party involved and that Congress is the third-party just mucking everything up, we only have two parties. If we take your attempt at using what Congress actually does as revealing “the government’s utility function”, then we can only conclude that this tax cut is considered beneficial by “the government”.
Even if they did something you thought was crazy, like getting rid of all welfare (and risking angry starving mobs), then “the government” would be saying that they thought it was beneficial. In that case, it’s clear that you’re simply expressing, “I think their valuation of that policy is wrong,” not that it inherently creates/destroys a deadweight loss. It would be more akin to saying, “I think Alice is crazy to spend $1.50 on an apple. Apples have tons of risks, and I wouldn’t value them any more than $0.50 (hell, maybe you value them negatively).” It should be pretty clear why we don’t bake in any individual’s personal valuation into the definition of deadweight loss.
Items you dropped:
This is relevant for why we don’t bake in an individual’s personal valuation into the definition of deadweight loss. If someone genuinely thought this type of transaction was a Good Thing(TM) for the gov’t, they could give exactly the same rationale you just gave in order to claim that taking away corporate giveaways was a deadweight loss… by definition or something. I refuse to bake that into my terminology.
I’m going to dig in my heels here. But also, admit that I made too broad of an initial statement when I said that all tax decreases result in deadweight loss. You are absolutely right, that in cases such as the recent tax changes, the government has made a decision themselves. The statement I want to defend is that government and welfare recipients can, in theory, experience deadweight loss from tax cuts.
From what I can gather, your primary objection to applying deadweight loss to the government, is that the voters changing the tax code comprise the government, therefore it does not match “deadweight loss” as the concept is traditionally used. And since this is a two-party scenario, and I am calling it “deadweight loss”, you assume I must be doing so based upon my individual valuation of the change in taxes.
So it seems like you are insisting that deadwight loss only applies in true 3-party scenarios- and I am agreeing with you! It really is the crux of the matter. If you could identify a government that had to respond to the dictates of another government, and the people under the first government had no voting rights under the second, that would be a true third party interference. The best case I can think of the city government of Washington D.C. having to respond to the dictates of congress (since D.C. residents have no voting rights in congressional elections). That would wholly sever the ties, a government that truly did not “do it to themselves”.
But I’m also going to equivocate here. You say that government/welfare deadweight loss scenario is flawed, because the voters that change the tax code are members of the government. And since the government theoretically comprises of the people, it’s “the government” simply changing its valuation. This looks accurate enough.
But yet! In the Amy/Bill apple scenario, when the government steps in and institutes a tax, aren’t Amy and Bill also members of this government? Can’t it be said that they “democratically consent” to this action? (at least as much as “the government” has to consent to the will of the people, in the first example)?
It seems that due to the government-citizen connection, neither “the government” nor Amy/Bill are truly third parties, and deadweight loss (either way) may be tangled with adjustments in valuation.
I’m cool with expanding this concept to every government transaction. People’s valuations can be ethically wrong, but that doesn’t them any less real, in terms of evaluating deadweight loss.
Really, torpedoing the idea that all transactions are a “good thing” if they are viewed as such by the two parties involved, would be excellent progress IMO. For example, If you were strongly opposed to state, causing it deadweight loss would be productive for your goals and definitely a Good Thing. (And similarly for those who are opposed to corporate entities.)
The evaluation of economic actions is always going to inseparable from your normative goals. “Progress” to one person is “destruction” to another.
Obviously true in the more general setting. The trivial case is cutting what was a correctly designed Pigouvian tax.
But that doesn’t seem to be the sort of thing you are talking about.
What does consent have to do with it? Sure, it has to do with legal/political legitimacy, but it doesn’t have anything to do with how to analyze changes in utility.
I don’t even know how to make sense of this. Basically, it would kill the entire concept of deadweight loss for all cases except when the government or third party was truly completely disconnected from the main two. We have to stop talking about deadweight loss entirely when it involves federal law and non-territorial citizens of the US? You think this makes the term better? I think the root of the problem is that you’re stuck on the 2/3-party distinction. I think it’s mostly a distraction, and I’d like to move to what I think is the more core misconception:
That's not the assumption behind deadweight loss. Instead, it’s pretty much a tautology: all transactions which are viewed as a good thing by the two parties involved are a good thing to the two parties involved. There are potential gains-from-trade to those parties that are lost. This is important in standard taxation theory. It’s easy to think, “Oh, the lost gains just entirely went to the government. Therefore, if the gov’t uses that money to create value at at least a 1:1 rate, overall welfare is no worse.” On the contrary, while a portion of the lost gains-from-trade goes to the government, another portion does not. It disappears. The implication is that the government must do better than 1:1 in creating value in order for overall welfare to remain constant. (This is sometimes really really easy to do, such that concluding that a trade is simultaneously “a bad thing” and “a good thing to the two parties involved” is pretty trivial. I think the terminology, “The policy produced value that overcame the deadweight loss,” captures this sentiment just fine, and I still have no idea why you want to jettison it.)
So, the core of my complaint is not that we don’t have three totally-disconnected parties; it’s that I have no clue how to model what “the government” thinks is a good thing. You proposed one plausible mechanism by which a government could benefit from welfare payments: increased stability. Ok, let’s start from there. Maybe a different government thinks that impoverished people won’t have the strength to revolt, so if they just give “welfare payments” to some rich guys who efficiently run labor, uh, organizations and are willing to enforce local stability to keep the gravy train running…
On the other hand, I do have a half-decent, mostly not-stupid model for what individuals and profit-maximizing firms think are good things for them. Not perfect, but broad concepts like downward sloping demand curves and upward sloping supply curves are mostly universal (economics isn’t a crystal ball with 4K resolution). Get enough people in your population, and I can say things like, “There is probably both a supplier and buyer who would trade an apple for a price between $1 and $1.50.”
I can’t do this for governments. There are just too many competing theories of government and too few actual governments that could be subject to across-the-board, ceteris peribus intervention. Sure, there is variation among individuals as to how to best conduct one’s own economic affairs, but they seem vastly more conceptually clustered. I can’t say, “I bet there are some US Governments who would engage in welfare transactions between $X-Y.” We’ve only got the one! How do we know which trades “it” thinks provides value to “it”? Uhhhh…. we pretty much have to just operate on revealed preference. “Well, they cut/raised taxes. I guess they valued cutting/raising taxes.” What counts as “an intervention”? Clearly not “the government doing things like cutting/raising taxes”, because from the above, we have just roll that in to, “I guess that means they valued lower/higher taxes?” Note that this isn’t a problem for the type of loose connection you’re trying to use to torpedo the entire concept unless the parties are totally disconnected – I can still go ask Alice and Barb and Carol how much they’d pay for an apple and model the lost gains from trade even if they vote for the governmental candidates (or even if they vote directly for/against a policy!).
Notice that the factors in play here perhaps cut a little differently when we consider state governments. There’s a bit more uniformity in theories of state governance; and as a bonus, there are more of them. If I can go collect data and justify a supply/demand type model for welfare payments at the state level, and then the feds decide to tax said transactions, I could perhaps be justified in claiming a deadweight loss (maybe; I’d still need a lot of convincing). I just don’t see how it could reasonably be done for a unique entity like USG, and I especially don’t see how it could be done for “all tax cuts/raises”, “all welfare cuts/raises”, or any similarly broad class of USG policies.
And finally, I still really really really don’t understand why you seem insistent on trying to change standard terminology in what appears to be a misguided normative quest. We really can describe these things with standard language. For example:
No. Causing it a loss would. The purpose of “deadweight” is to point out that those lost gains-from-trade are not captured by the gov’t that is implementing the policy (and there still may be externalities, even affecting the implementing gov’t! …but we shouldn’t call them “deadweight loss”).
My quest is one of consistency. And because people are not consistently applying the concept of deadweight loss, it is leading people to reach what I see as wildly incorrect conclusions. You captured the definition of deadweight loss here, when you said:
Yes, I agree, that is it. Here’s where people are going wrong: they are assuming that non-government entities are the only ones engaging in trade, and that the “the state” is the only entity with any regulatory power. The inconsistency of the application, is that governments engage in trade all the time, and private regulatory power (i.e. the authority granted via property ownership) is indistinguishable from state regulatory power.
So if you assume that trade occurs exclusively by private entities, and regulation occurs exclusively by the state, then you would say that deadweight loss can only occur when the state interferes in the private market. But this is plainly not the case. In fact, increasing taxes is a regulatory action, just as much as decreasing taxes is! (this is because $10 tax “decrease” for the public is essentially a $10 tax increase for the state, and vice versa)
It’s more difficult to model, yes, but that doesn’t make the deadweight loss less real. In the standard application, we have people trading for currency, so that makes the calculation pretty straightforward. But lets say that instead of trading apples for dollars, two parties were trading apples for pears. And then the government comes along and institutes a $1 per fruit trade tax. Is there no deadweight loss in this scenario? It’s harder to model, yes, but it’s still there.
Right. But that’s not how people have been approaching it in this thread. The argument we are being presented with is:
transactions are mutually beneficial->deadweight loss reduces the utility of the two parties in the transaction->therefore deadweight loss reduces our utility, and we hope that it is outweighed by the good the tax is doing. But even if the tax does absolutely nothing, causing deadweight loss could be a good thing (i.e. increase my utility), because my goals do not necessarily correspond with your goals. What is “utility” to you could be “anti-utility” to me.
…I have no idea where you’re going with this. If we abolish property ownership, then basically all of the assumptions of trade and markets fail. This is not, “Using the term ‘deadweight loss’ inconsistently.” This is saying, “Here is a term for a phenomenon in markets where people have money and goods and can trade them.” That’s not inconsistent at all. I can say, “A jet turbine’s propulsive efficiency is primarily determined by the temperature ratio at the beginning of the turbine section,” and not be inconsistent in refusing someone’s protest, “But why aren’t you calling it ‘propulsive efficiency’ when we twist chapstick out of a tube?!”
I have no problem with calling it a regulatory action. But when we go to compute “deadweight loss”, we walk over to our supply and demand curves, and oh; there it is.
The whole point is that most of the time, “the state” isn’t an actor for which we can model utility, supply and demand, etc. That’s the fundamental difference. In the bit about states/feds, I clearly acknowledged that if you can take appropriate data to support such modeling, I’m on board with calling it “deadweight loss”. It does no good to repeat, “But maybe it’s possible!” I agree that it’s possible. Now, you have to go show me that it’s true.
Wrong type of modeling error. “More difficult” doesn’t get you to, “I don’t know if things like the basic concepts of supply and demand even work in this space.” I’m alleging the latter for governments.
I added the words you’ve missed and moved the emphasis.
THAT’S CALLED AN EXTERNALITY AND YOU’VE GIVEN ME ZERO REASON TO CALL IT ANYTHING BUT AN EXTERNALITY!
Look. The murder-for-hire market is like this. If we ban murder-for-hire, we’re likely stopping trades that the parties involved would consider mutually beneficial. Thus, we’re causing a deadweight loss. Good news! Those transactions had large negative externalities, so banning them has easily provided enough value to overcome the deadweight loss. This is extremely simple to talk about using standard language (and I’m pretty sure most 101 courses do an example very much like this). It’s not like the language is cryptically hiding away assumptions that inherently exclude you (and only you, for maximum nefarious eCONomists!) from including your goals in your estimation of externalities.
It’s just the old socialist and (left-)anarchist idea that the public enforcement of private property rights means that private property rights are contingent on political organization. It’s a pretty standard leg of the family of arguments tying the state (and therefore whatever abuses of state power we’re currently upset with) to capitalism. Socialists usually run it in that direction, anarchists in both directions.
I’ll leave tearing it down as an exercise to the reader.
The government of Saudi Arabia trading oil to the U.S. can be modeled with supply/demand. Could you expound on why you think supply/demand can only very rarely be modeled for the state, but it can easily be for private actors (such as corporations)?
I’m just pointing out that the state can be a property owner, and that private entities can regulate. You are right, if we abolish property, none of this makes sense at all because there would be no more markets. That’s not a position I’m arguing for.
Idk, that seems pretty inconsistent to me. If you have a standard definition of propulsion like “the action of pushing forward”, and I want to apply that definition to something else besides airplanes, that’s pretty normal behavior. Unless you have baked into the definition of “propulsion” that can it only apply to jet engines, then the word can be applied to novel things. No part of the definition of “deadweight loss”, from my understanding, requires the two parties in the transaction to call themselves “private” and the outside party to call itself “the state”.
It was a tangent. I’m not calling the loss of utility incurred by the third party “deadweight loss”. Sorry if this misled you. I’m calling the loss of utility loss from potential trades between the two parties (state/citizen) deadweight loss, because externalities don’t cover this. No one was going around in this thread saying “taxes cause externalities”, because they had something much more specific in mind, namely how taxes reduced potential gains in utility via trade. This is what I have in mind too.
When I pointed out that gains in someone else’s utility can cause loss of utility for myself, I was just mentioning that many of these posters in this thread had been missing this. It has nothing to do with my primary argument.
There is an established market for trading oil with many participants, most of which (on both the supply and demand sides) are non-State actors. That means that when the State purchases or sells a good on this market, it’s likely constrained in some way by the dynamics of that market.
This is very different from a “welfare for stability market”. In fact, to speak about this market in traditional supply/demand, quantity/price terms, I think we have to view it as a market for stability. There isn’t really an established market for this. Pretty much no one “buys” it. And it’s much more of an indirect thing. It’s not really a “good”; it’s not really a “service”. It’s actually more of an externality which could be “attached” to multiple types of transactions (as I mentioned above). And it’s clearly a public good. Most individuals don’t want to buy a little piece of societal stability, because it accrues to everyone, and not just them.
So on the one hand, I kind of want to say, “It’s not that it’s the State, per se; it’s the type of transaction the State is engaging in.” But at the same time, as I said way above, this type of transaction is why we have a government. It kind of is an inherent part of why we created the State – to enter in public goods transactions. We realized it needed an entity with a unique nature. It is precisely both the unique nature of the transactions and the unique nature of the entity engaging in those transactions that make this pretty foreign to any of the typical market models we have.
…as someone with multiple degrees from aerospace engineering departments, can I please punt on this one saying only, “You’re not even wrong, and I don’t have the patience right now to explain how wrong you are to be not even wrong”? (Hint: it’s basically that the term is “propulsive efficiency”, and you can’t pull the words apart, say, “This thing kind of looks like propulsion if we squint really hard,” and then try to put them back together… kind of like how the term here is “deadweight loss”, and you can’t pull the words apart, say, “This thing kind of looks like a loss,” and then try to put them back together. I mean you “can”, but I don’t have to let you say that they’re the same thing.) Yes, there are some things baked in (like in the present case, that we’re talking about something that looks like a market good with sensible supply/demand curves, sufficient numbers of actors, etc.). We’re not baking in, “Welfare is just bad, m’kay.”
I didn’t claim that, and I even hypothesized a situation where a State might experience deadweight loss.
The core problem is still that we need to have “gains to the state” well-defined here, and we need a model of the relevant market, and how whatever intervention you have in mind prevents those trades that the parties would still like to engage in. We have basically none of that for a unique entity like a government passing a law deciding that it doesn’t want to make unique-looking transactions like welfare (with no real ‘market’ that seems to make sense) anymore.
This does make sense. But, I wonder if you would agree with the conclusion it reaches. Would you then also say that taxes on activities or goods that do not have markets (as they are traditionally understood) do not have deadweight costs? For example taxes on drivers licenses, taxes on voting, taxes on access to national parks, ect.
I think voting is pretty much right out. There’s not really any such thing as a market in voting. Maybe there’s a market between politicians and voters for votes, but even that is messy and complicated.
There is somewhat of a market for drivers licenses. The state charges for them, and people pay. Drivers’ behavior probably follows a downward sloping demand curve, but we run into two problems, still. First, the state is a monopoly. Now, with profit-maximizing firms, we can still model their cost structure and determine the market clearing price and the monopolist price. It’s sensible to say that there is deadweight loss there. But the big thing is that we can’t really model the state like this. What are the state’s incentives? What are it’s goals with issuing driver’s licenses? Who decides? It’s clearly not just maximizing profit, and it probably doesn’t have an upward sloping supply curve. Sure, I can imagine federal taxes intervening with a state’s licensing program, but how does it actually affect the supply and the desired transactions among the parties? I don’t really know. Maybe there’s deadweight loss somewhere in there, but I would need a solid effort in modeling and data to support those models before I’ll believe it.
Access to national parks is similar. The demand side is probably sensible – there’s even a possible substitute good in state/local parks (where there really isn’t any substitute for a driver’s license). However, I still don’t really know how to model its behavior. A big problem is that’s it’s part of a whole weird basket of “governmental issues”. Should national parks have to pay for themselves in the budget? Uhhh… who gets to answer this? That can change a lot. My understanding was that for a long time, there were no access fees, and it wasn’t really much of a market at all. Maybe it’s becoming more of a market (somewhat monopolistic, subject to the state/local parks caveat), and maybe we’ll end up in a situation where it can be analyzed with these tools, but I don’t think we’re there yet. Plus, for nat’l parks, the “intervention” still isn’t clear. I think it’s more likely that some state parks would find themselves in a situation where enough of the prerequisites exist for us to identify a deadweight loss (likely due to federal intervention).
“Free college education” is a giveaway to the above-median family.
In some ways, certainly (that’s one of the reasons there are other things I’d prefer to see money spent on).
The majority of the beneficiaries will be above-median, certainly. On the other hand, the benefit per beneficiary will be significantly greater for the below-median minority – getting into college when you wouldn’t have been able to otherwise changes your life much more than coming out of college with less debt than you would have otherwise.
And while I would bet against it, the possibility that with a few generations of less rationed access to higher education the extent to which qualifying for it correlated with parental wealth would weaken doesn’t strike me as wholly absurd.
It’s possible that it could work, which is where most of the proponents hang their hats.
But there are more efficient ways to improve the lives and incomes of the below-median households, especially those that don’t have the mental chops to hack college.
Absolutely – I’d far rather see money targetted at primary and secondary education, especially in deprived areas, than at tertiary.
But tertiary would still be a better target than tax cuts whose benefits will predominantly go to the already-rich, I think.
A quote that seems relevant: “If something has a direct benefit to an individual or a class of people, and a theoretical, abstract, or amorphous benefit to everybody else, realize that the proponent’s intentions are to benefit the former, not the latter, no matter what bullshit they try to feed you.”
(I would add that this doesn’t necessarily imply that it’s a bad idea in general)
Everything I spend my money on has the value equal to what I spent. Everything the government spends on has less value than what’s spent because it isn’t worth the price to all the taxpayers paying it.
You may think ferraris are worth their price and say a tax that purchases farraris for everyone is a good use of spending. But that would just be applying your subjective view of value to everyone which is not true. Many people may not like ferraris and prefer to spend money on a different car, or no car and spend it on their house or something else.
The same is true for taxpayer funded college. It’s not a good value if people don’t think it’s worth the money. Unless 100% of the people funding it think it’s a good value then it isn’t.
Many people may not agree with what I choose to spend my money on. The house I own, the car I drive, the vacations I take, but confiscation my money and spending it on things that I don’t want will not make me or anyone else wealthier. Just saying “it’s for your good” isn’t at all persuasive. Nobody knows what’s for my own good better than myself.
So taking money out for college is not the same as a tax cut, and the benefit of doing so is totally subjective based on the things every person wants- which is something nobody knows.
I think you’re making one, and possibly two, mistakes.
The first is that you may be conflating economic value and utility value. $1000 has the same economic value to everyone – after all, I’d happily trade my $1000 for your $1000. But it has far more utility value to someone poorer than someone richer.
The second, and more important, is that you’re completely missing the main justification for taxation. It’s not “it’s for your good”, it’s “it’s for other people’s good”. When you say “the confiscation of my money and spending in on things I don’t want will not make me or anyone else wealthier, you’re half mostly right (modulo some important qualifications about roads and moloch and collective efficiencies and so on), but half totally, utterly wrong. If I confiscate your money and spend it on someone else, I really have made them wealthier.
Money spent by the rich on themselves adds very little utility; taking it away from them and either giving it to or spending it on the poor, who need it more, provides much more.
Taking money from the rich and spending it on free college education is not nearly the most efficient form of wealth redistribution because a) a lot of the beneficiaries will be quite rich, and b) tertiary education spending provides less utility per dollar than many other things. But it still probably produces more total utility than these tax cuts, that let rich people keep the money to spend on themselves.
It’s not “it’s for your good”, it’s “it’s for other people’s good”. When you say “the confiscation of my money and spending in on things I don’t want will not make me or anyone else wealthier, you’re half mostly right (modulo some important qualifications about roads and moloch and collective efficiencies and so on), but half totally, utterly wrong. If I confiscate your money and spend it on someone else, I really have made them wealthier.
The problem is that even setting aside the money you have to keep for yourself as a processing fee to cover the costs of moving the money and the labor I have to spend making sure I comply with your system, there’s no way to ensure that by spending $1000 on someone else that they’re getting $1000 worth of value. They don’t care what they get, because it’s a net increase for them; they’re not giving anything in return. They’re happy with getting $500 worth of value, and yet $500 worth of value is gone.
Money spent by the rich on themselves adds very little utility; taking it away from them and either giving it to or spending it on the poor, who need it more, provides much more.
Most money made by the rich isn’t spent on mansions and yachts, it’s invested. The utility of $1000 successfully invested is much greater than $1000 spent on the poor or the rich. One of the side-effects of investment is that investments make money by increasing the size of the economy, meaning more value to be distributed. A system where people can’t invest money is an economy that stops growing, which is an economy that’s going to be lousy to live in in the long term.
In my mind, there are a few separate issues here, and I’m only barely qualified to touch on them:
1) What should the government spend money on? Among other things, is it the responsibility of the Federal government to provide education or cure 3rd world poverty. What should the role of our military be, and what do we need to buy in order to fulfill that mission? How do we properly handle the rising costs of healthcare as it applies to Medicare and Medicaid? There is a *huge* amount to debate here.
2) How should the government raise revenue? Straight-forward VAT/income tax/property tax solutions are pretty transparent. But they don’t provide the government the ability nearly as much to shift the economy around as they think is needed. For example, if you have pure percentage-of-the-above based taxation scheme, you don’t provide tax credits for eg. solar energy. Some economists might think those are bad market distortions. Some politicians might like the idea of accelerating technological development or improving the environment for their constituents.
3) Should deficit spending be used absent a catastrophe? Some would point out that failing to borrow money at occasionally negative interest rates is a very poor business choice. Others would prefer to reduce the risk associated with owing debt.
Personally, I think that the corporate income tax should go away. It’s highly complicated and mostly serves to micro-manage the activities of companies. The one down-side is that it removes a source of data provided by a company which can be referenced against eg. SEC filings in order to minimize corporate fraud. I’d combine this with the removal of the capital-gains special rate. Though people like to think that corporations are all about rich fat-cats, I’d point out that for most companies the largest shareholders are institutional investors. Eg. pension funds. So improving returns there helps those who are looking to collect pensions, retirement savings, etc.
More broadly, I don’t like the idea of financing a tax cut off of deficit spending. Someone (cite?) pointed out to me that do so is no different than “Quantitative Easing” other than it simply changes who the initial beneficiaries are. QE benefits the government, the tax cut benefits those who are producing something of value for others already. I’m personally more interested in spending cuts than in tax cuts. I’d rather the plan be revenue-neutral by decreasing the bottom tax rate(s), and broadening the tax base by eliminating the basic deductions. That is, everybody should pay some net income tax.
The proposed tax plan doesn’t simplify things. It simply shifts them around. I like some of the ideas, like getting rid of the deduction for State taxes. I’d rather it be revenue neutral with a vast cleanup of the cruft. Instead, we’re shifting to deficit financing for the government.
I don’t think the comparison of a tax cut to a spending program simply as “things that are very expensive” is appropriate. The only context in which it is appropriate is discussion of the deficit and long term budget constraint of the government. Otherwise they are apples and oranges.
Spending means directing real resources towards a particular end. The headline number of how much money went out the door to pay for it is really how much it costs.
Tax cuts are not spending, they are refraining from collecting revenue from the public. That money (and the real wealth it represents) doesn’t disappear, it is used by members of the public for their own purposes.
In a certain sense, from the perspective of the aggregate assets and liabilities of the public; tax cuts cost exactly zero, because at the same time you are allowing the public to keep more money, you are saddling them with exactly the same amount of extra debt that will eventually be paid for. That’s assuming you’re changing only taxes while holding spending constant.
In another sense, from the perspective of the assets and liabilities of the government, excluding the tax power itself as an asset; tax cuts cost exactly what it says on the sticker.
When you just lump tax cuts together with spending as “expensive things”, you’re conflating those two senses.
What people are worried about with spending really is, well, the spending.
What people are worried about with tax cuts is the distributional effects. They want to know how the tax cuts affect transfers of wealth between various members of the public. And those effects are very complicated and cannot be summarized by the sticker price of the tax cut at all.
@ Lawrence D’Anna:
And also the deadweight costs. All else being equal, having the government spend and tax less tends to makes the whole economy more productive and efficient compared to not doing that.
@Glen
Good point.
+1
Yeah the idea that money not given to the government is “cost” is a silly assumption. I guess we are all a giant cost burden to the government by keeping any of its money. If only the government didn’t have citizens so selfish they would get 100% of our money then the government would have no costs.
+1 Very well put. Clearly Scott is not “well inoculated” against socialism as he seems to have a complete lack of understanding about dead weight losses and the difference between the government cutting taxes and spending money that D’Anna explains so well.
For some reason even intelligent people have a hard time understanding that every unit of value consumed, destroyed or redistributed by the government is one unit of value that can’t be consumed or saved by the people.
If you have 10 people on a island that produces nothing but coconuts and one person functions as the government, printing money, setting tax rates and spending for the general welfare, what matters is 1) how many of the total coconut he SPENDS and to a much lesser extent 2) how efficiently he collects taxes/prints money. If the island king is consuming 30% of the coconuts, how he gets those coconuts is, in the aggregate, mainly just funny money.
Of course, the corollary to this important distinction between REAL government consumption and IMAGINARY tax cuts, as Devin Helton pointed out that it’s impossible to cut taxes without cutting spending. So the only point we’re left with is the efficiency/distributional effect of the tax shift.
This begs the question of why Alexander doesn’t do the real apples to apples comparison and ask if the giant bubble that would dwarf the others, the $5 trillion of current federal spending might be better spent on the absurd pie-in-the-sky items inaccurately compared to the tax shift.
While I’d prefer to see spending cuts to eliminate the horrific wasted value/dead weight losses inherent in having government spend 1/3 of the economy, I’m still in favor of the Trump Tax Shifts. I agree with the NPR’s five ideological diverse economists and the rest of the G20 that corporate taxes are inefficient, creating large distortions. I also don’t see why “rich” taxpayers in high-tax states should be subsidized by taxpayers in low-tax states or in fact anything that causes pain for people who want a large coercive government that takes and consumes a large portion of our lives by force.
Unfortunately, I live in the most heavily taxed state in the country (depending on how you measure it), so I’ll be getting punished along with my fascist/democratic socialist NYC metro neighbors!
I’m surprised to see an EA use this as a metric, especially given this intention’s terrible track record.
Imagine that some relatively left-wing politician somehow became president – not Sanders, but someone like Dennis Kucinich. He massively cuts the military, dismantles the TSA, etc. You’d expect a normal conservative to disagree with these policies. But if a left-sympathizing communitarian said something like “Next election, I’m voting for McCain because he seems like a decent person who really wants to protect this country”, there’d be good reason to see it as naive or poorly motivated.
I’m not really sure I follow. Scott isn’t saying that Sanders is an effective altruist, he’s saying that Sanders is an altruist. This is not as good as being an effective altruist, but it is certainly better than the alternative.
I bring up EA because they should know how poor of a guide altruistic motivations are. Altruism without effectiveness isn’t a virtue – it’s wasteful when done privately and even worse when government is involved.
I’m not sure I follow. How does destroying and spending other people’s money make one an even remotely altruistic?
By your standard, all of the worst monsters of the 20th century were altruist.
Two possible conclusions:
a) Scott really does just like to break things and watch people writhe in agony.
b) Scott is clueless when it comes to how politics and people actually work. Especially mainstream people on a national scale.
c) Scott is temporarily overreacting and will regret that bit.
d) Scott put it there for mainstream consumption and expects long-term readers to notice that it’s so incongruous with his normal thoughts that he probably doesn’t really mean it. (After “Kolmogorov Complicity”, his posts should be read with this possibility in mind.)
If (d) is true, then I would pretty much conclude that Scott can’t be trusted. Not because of the egregiousness of that one thing, but because of how much he plays on the “honest searcher” as a type.
I think d is a stretch. Maybe if this was Eliezer, but Scott doesn’t strike me as the type of person to “troll” his readers by giving a false endorsement, and seems to value honesty too much to signal support to a candidate he doesn’t approve of.
c seems likely enough.
It’s not about “trolling”, it’s about protecting himself.
e) Scott is a liberal. He has repeatedly told you he is a liberal. Bernie is a liberal, albeit more of one than Scott. Scott would rather vote for someone goes a bit too far in the direction he wants, than someone who goes much too far in the opposite direction.
It’s common sense if you don’t go around assuming Scott is secretly a Trumpist.
Scott supporting Sanders would only be moderately surprising, since he’s a progressive (albeit more pro-market than many) and not a Trump supporter. The strange part is using Sanders’s apparent general intentions as a justification.
Leaders doing things to help people has probably killed more people the last 100 years than any other cause.
Wanting to help people is meaningless. Whether they can is what matters. I have little doubt Mao, or Maduro or Lenin wanted to help people. If anything, I find those expressing these things to be dangerous utopians who’s ideas are proudly unmoored to reality.
I’m not calling this tax bill good, but I think it’s substantially better than Sanders’ proposed college plan.
Sanders was advocating that government tax people to provide a good for free. So the cost is not just the revenue, but the resulting distortion in the market for that good (higher education). Moreover, if applied only to public universities this plan would effectively kill most private universities, leaving the government as the main provider of higher education. This would have had predictably bad results for the usual reasons.
By contrast, the basic idea of the GOP tax bill (eliminate loopholes, lower rates, cut corporate taxes) is right out of standard economic theory, and should reduce distortions in the economy. Though I agree that the revenue and distributional implications are troubling.
What distortion in the market are you referring to, exactly?
This plan would effectively kill most private universities, but is this a problem? Is there a particularly good reason for most private universities to exist? I’ll also point out that free public primary and secondary school hasn’t exactly killed the market for private elementary and high schools.
The distortion is from people who otherwise would not have went to college will now go. Sometimes it will be someone who really wanted to go and couldn’t get enough in loans, financial aid and scholarships to be able to go. Other times it will be people who have no academic interest or abilities at all, but someone else is paying for them to screw around for four years so they major in american studies and spend four+ years of their youth in college.
I think the wants-to-go-but-poor is much much smaller than its-free-so-why-not group. That’s a very expensive and large distortion.
The wants-to-go-but-poor group seems to be pretty sizable, if we go by the experience of cities that have implemented free college programs.
People with no academic interest or ability at all will just flunk out after a year or leave halfway through with an Associate’s.
There’s also the doesn’t-want-to-go, but if he doesn’t go, will be told by potential employers, “with so many college graduates around (even more than before), why should I risk hiring you?”
When there’s no subsidy, people buy a good if the benefit they receive from that good exceeds the benefit they would receive from the best alternate use of the money.
On the supply side, companies produce a good if they can produce it at a lower cost than the price at which they can sell it.
The result is that the economy produces goods that people value more than the cost of producing them. This is what economists mean by the word “efficient”.
When you subsidize a good, you cause people to buy it who value it less than its (unsubsidized) price. Thus goods are produced and bought by people who value them less than the cost of producing them. This is inefficient.
This is what is meant by “distortion in the market”.
College doesn’t behave like a normal good. Demand for college on the part of people who are financially capable of paying for college is extremely inelastic: the issue is that a lot of people can’t afford to pay for it in the first place. It’s like healthcare in this respect.
This sort of market is less distorted when the government just foots the bill and imposes price controls on the providers than if the government lets the providers charge whatever they want to rich people while refusing to provide the service to poor people.
Okay, yes, maybe economics is all wrong, or this case is a special exception. That idea has a great track record.
@Eponymous
It has a great track record for healthcare, which you’d know if you actually understood economics. The question is: does it also have a great track record for college? Is college more like healthcare (a good with inelastic demand for which people will pay whatever they are literally capable of paying) or more like, I don’t know, a 4K TV?
TULIPS FOR EVERYONE!
@Edward Scizorhands
Note that universal healthcare is an example of when the “tulips for everyone” model works objectively better than the “let the market decide” model.
Marriage is a human right! No one should make do with daffodils!
For the same reason that we have private companies that produce product X, for any X. If people want to buy X, usually it’s best to have private companies that produce it.
It has, at least relative to the world in which there weren’t free public schools. You don’t get private schools that compete toe-to-toe with public schools, because nobody would send their kids there. You only get highly differentiated goods (elite prep schools and religious schools).
By contrast, when you allow vouchers you get a whole host of private schools popping up that compete with public schools, trying to provide better education at a lower cost.
There’s no evidence that private universities do a better job of producing product X (education and research) than public universities, is there? Especially since most public universities are run like private universities anyway.
Private universities that compete toe-to-toe with public universities in the same market niches are almost universally terrible value for money as it stands currently. Who cares if private universities only exist in the elite research university (Ivy+) and religious university niches after Bernie’s free college plan is passed? Will we really mourn the passing of the DePauls and Fordhams of the world?
I don’t endorse Qays’ position, but private universities — those with any meaningful status as such, anyway — are only private companies in the loosest sense of the word. They occupy a cultural and legal space that has very little to do with your average goods-and-service provider, and I’m not sure any meaningful consumer discrimination is happening on quality of education for them.
Of course, quality of education isn’t what most consumers are buying — the credential is. That functions as a Veblen good, so subsidizing it is likely to have perverse effects.
I predict that if this plan is passed in approximately its current form, 80% of private non-profit universities that presently exist in the United States will still exist in five years, and that their collective enrollment in five years’ time will be at least 80% of its present value.
I would expect the percentage of people foregoing the public university for a private one they pay out of pocket to will be equivalent to the number of people foregoing the public high school for a private one.
I would also expect that in the future a bachelors degree would hold the same value as a high school diploma and we’ll kick around the idea that graduate school should be free.
Lots of people here are saying tax cuts are a wash because it just keeps money in people’s hands instead of government.
Can anyone knowledgeable expand on the real world costs of running larger deficits in the US?
The issue usually cited is the interest payments on debt which becomes a future obligation (“making our children pay for it”).
I don’t have a good feel for what really matters. Presumably there’s also a long-term risk of running the US finances into the ground to the point where either the government defaults on debt and/or debases the currency. I’m not sure what exactly that would mean either.
edit: I’ve seen some say that basically nothing is a cost because it’s all just money transferring around. It’s clearly not a wash in a moral sense: you have the conflict between government forcibly depriving people of their private property, and the liberal socialist ideal of wealth redistribution. There’s also generally assumed to be a significant real economic loss due to government’s inefficient allocation of resources.
As you say the two biggest risks are increased interest payments and the possibility of default. The other big problem is that by borrowing we are getting more government than we pay for. This makes government bigger than it otherwise would be.
Tax cuts are an end in themselves for the people passing them, but in the longer term, deficit-financed tax cuts at a time of rising GDP and near-full employment may seem like a stupid idea, but they’re really smart. Because when the economy sours again, cuts will have to be made, likely to safety-net programs like Social Security and Medicare. The cuts will probably be structured so that they won’t hit currently-old people, but future recipients will get less and less.
I’m old enough to remember the last couple of cycles. “Starve the beast” is a real thing: you cut taxes, which blows a hole in the deficit. You then insist that your hands are tied and fiscal responsibility requires cutting social programs. When you get back into office, you cut taxes some more. Reagan did it, W Bush did it, and now Trump is doing it. Analogously, Clinton balanced the budget and Obama made sure the ACA was painstakingly deficit-neutral. Whatever Democrat succeeds Trump will take the usual bullshit about how important deficits are seriously, and neuter their ambitions accordingly. (Cost disease makes this all much easier, or worse, depending on how you look at it.)
Will Wilkinson argues that “Starve the Beast” debt-financed tax cuts are counterproductive: you can’t muster support for cutting spending if people aren’t feeling any pain from high taxes. He cites a few studies to back this up, although I haven’t looked into them.
I vaguely recall research that when taxes are low people want more government, since it’s so cheap.
It’s another reason I hate America’s lack-of-VAT-ness. In European countries, everyone pays, so everyone has incentive to make government efficient. The US has very strong feelings that you can just make Someone Else pay the tax for whatever program you want.
That said, grendelkhan’s theory also holds up as well. I’m not sure of the right answer.
Eventually, you become greece circa 2008. You’ve promised way more than you can pay, borrowed all that you can, and the house of cards collapses. A whole lot of people who were promised money don’t get it (or get it in hyper-inflated currency worth far less than expected) and you get an incredibly painful recession. And by painful, I don’t mean “gee, 2009 was rough in the US.” I mean, greek GDP is STILL down 45% lower than it was in 2008, almost a decade later.
And since we’re talking about the US, which has 1/5 of global GDP, not greece which has .2%, you don’t just wreck the greek economy, you take down pretty much the entire world’s economy and wreck a geopolitical order that has prevailed for decades, with entirely unpredictable consequences. Now, precisely because the US is larger and more important than greece, it can borrow more. But because the US position is unique, no one can say how much more.
Since the US values its debts in dollars, and dollars can devalue to reduce the real costs of overseas debt, the comparison to Greece (debts in Euros mainly, which would not devalue because the much larger northern-European economies were providing a much larger signal to keep the currency strong) is not useful. I’m going to ignore your predictions if you miss the importance of a floating currency (which should be well known in the US, which didn’t float its currency in 1930-31, and missed the resultant economic upturn the European countries that did this experienced).
Commonly asserted, but not true. In a default, people get back fewer dollars than they expect, in this sort of inflation, they get back dollars that are worth much less than they expected. the economic consequences are identical, all of a sudden there is much less money (in the sense of actual value, not units of currency) than everyone expected and a huge contraction follows.
So yesterday’s post is gone in one day…..
It would be interesting to hear what really caused the posts removal, but I understand that to live where you live and espouse THOSE viewpoints is very dangerous.
It was a great and thoughtful post that said something important and many of us who commented on it really appreciated it. That it couldn’t remain says that we as a society are in more danger than we even think we are…..
The comments were a trainwreck.
I read all the comments as of this morning, and that was not my impression overall.
I just hid it for a few hours while I wait for the Instapundit link to burn itself out.
You could redirect people coming from places you don’t like to something else, like a 404 error, an entirely different essay, or even a short piece explaining why you don’t like the referrer.
He should redirect to the version without comments:
?comments=falseThat just leads to people clicking on the “comments” link in the header and commenting there. Though far fewer, granted.
This is vastly simpler as well as much better than my idea. You want them to read, you don’t want them to pollute.
What do you have against instapundit?
I have this feeling what caused the hiding of the other post has something to do with the posting of this one…
This isn’t costing anything since it isn’t the government’s money in the first place.
This is possibly a bit misleading. Yes, the effect on the deficit will be significantly negative, but it’s also going to move a lot of money around. Some taxes (mostly on capital gains, corporate income and estates) will drop by about $6 trillion, while other taxes (mostly on individuals via inflation-counting shenanigans as well as getting rid of most deductions) go up by $4.5 trillion.
It’s worth also asking what we could get by raising taxes by $450 billion a year. We could get a giant estate-tax cut etc. plus one and a half trillion dollars in debt, which is what we’re getting now. We could also get a third of a universal healthcare, or an eleven-thousand ton solid gold statue of the President. (Every year!) Or solve world hunger, run three Apollo programs, end homelessness and do the stimulus again, plus send everyone a free toaster.
And that’s demonstration enough that the numbers are just silly. If world hunger and homelessness could be ended by throwing such “modest” amounts of money at the problem, it’d be done by now. Unfortunately hunger and homelessness work like everything else… you subsidize it, you get more of it.
I have a giant rant I wrote about why college is so expensive a few years back that’s relevant to other parts of this discussion, but I didn’t want to hang it off somebody’s nested comment.
——-
I can’t blame the universities for the mess the higher education system is in. They’re just responding to market forces. Really, everybody is. It’s just that the market has been circumvented by a well-meaning government.
The problem is that unlimited money is flowing into the higher educational system and there is no negative feedback loop to limit it. It’s just one big positive feedback loop driving up attendance and cost.
1) Take as a given that “you have to go to college or else you’ll have a shitty job.” More on this later. The number of students going to college has been steadily increasing since forever. Part of this is because of the nature of our increasingly specialized and technical world, and partly due to social changes, like the progress made by women and minorities. I’m not in any way implying that’s bad, I’m just saying there are more people going to school.
2) The government first issued direct loans to poor students in 1958. This method upset congress, though, because from a budgetary standpoint it showed as a loss the year the loan was issued, even though it would be paid back later. Instead, from 1965-2010, the government guaranteed student loans made by private lenders. If the student defaulted, the government would make the lender whole. This makes the rule that student loan debt cannot be discharged by bankruptcy especially petty. The lenders were at no risk, anyway. From 1993 on the government also issued loans directly. Also, as time has gone on, loans have become increasingly easy to obtain. Originally only poor students who could show financial need qualified for government-backed loans, but those requirements were dropped in the 80s.
3) Since there is no risk to the private lender, there is no incentive not to grant any loan request. As for government loans, there’s no political will to deny students seeking money for education. So, there’s no brake on the money flowing into the system. And the lenders aren’t necessarily doing anything wrong here. There have been some scandals involving kickbacks to schools, but it’s mostly unnecessary as people are lining up for these loans. Why would the lender say no? They’d just get called out for ruining some kid’s dream of an education.
4) If the lender had to take a risk, they would be careful about issuing loans. Today a D student seeking a degree that might land him a $30k/year job (if he’s lucky) can get a loan for $40k. With risk involved, the lender would consult actuarial tables. What are the student’s chances of completing the degree? What are his chances of getting a job? What’s his expected income? What’s the chance of default? No such brake exists. (Note, I’m not saying degrees not tied to a high-paying job are worthless. More on this later).
5) Without the loan, the D student would go learn a trade, instead, or get a job that doesn’t require a degree, like say work in a call center (yes, I’m aware of the current situation in which ads for low-level jobs like call center work have starting requiring degrees. It’s part of the loop and I’ll get to it later). A student seeking a degree that costs more than what’s reasonable given their earning potential would also be turned away (this would be an incentive to keep tuition costs down. If liberal arts students can’t get loans, your school doesn’t get their money).
6) Since the number of students and amount of money they can borrow is unbounded, there’s no incentive to keep tuition costs down.
7) How are students with options deciding what school to attend? We would hope they would decide based on the quality of the education, but that’s difficult to measure objectively. Generally it just has to be “good.” Also, many students don’t know what they want to major in when they arrive, anyway, so it’s difficult to make a decision based on the quality of a program. As long as they’re reasonably confident in the quality of the education, they’re making their decision based on amenities. How nice are the dorms? The recreational facilities? How pretty is the campus?
8) College administrators need to attract students to their schools. It’s their job. Since students are making decisions based on the facilities, they improve the quality of the facilities. And they’re in competition with other schools for the $40,000 checks the students are walking in with. They’re going to spend it somewhere. Might as well be here. When I went to [major university redacted] in the mid 90s when tuition was a quarter what it is now, we still had dorms without air conditioning. In [extremely hot southern state]. Six story walk-up buildings with concrete floors, dual-occupancy rooms the size of prison cells with metal beds, communal showers, one stove for the floor, and you’d all have to take turns scrubbing toilets. Today the new dorms look like condos, with private rooms and carpeting and bathrooms and recreation rooms and janitorial services. There have been huge expansions to the recreation centers and the student union. There’s a “wellness center” now. And since the budgets are so flush, there’s room for each department to get a little taste. There’s a nice new glass and steel building for the parking administration instead of the trailer they had when I went here.
9) Since the new facilities cost more to build and maintain, plus there are new employees to maintain and administer to these buildings, tuition must increase. But it’s no problem because the students have no trouble getting larger loans. This doesn’t happen over night, but slowly over two decades. If a liberal arts degree used to cost $10k and the college tried to bump that to $15k and lenders had to make decisions about default rates, they might balk. Enrollment would drop, and the administrators would know this, so perhaps the amenities wouldn’t be improved quite so much and the cost of that degree would stay reasonable. There’s a common refrain on the Internet that you have to get a STEM degree because liberal arts degrees are worthless. That’s crap. Liberal arts degrees are not worthless. But they’re not worth $40,000. If it weren’t for the unlimited money flowing into the system, that degree would still cost an affordable $10k. This is troubling, because we need anthropologists and art history majors and all that for a functioning society, but people pursuing these degrees may be unable to repay their loans. If they stop pursuing these degrees, who will curate our museums?
10) “But couldn’t they spend that money on improving education instead?” Why? If you double a professor’s salary, is he going to teach better? And there’s supply and demand. There is a huge glut of Ph.D.s competing for jobs. Are more students going to come to your school because you pay the teachers more? No. They come for the amenities, and now colleges have turned into “education resorts.”
11) You can’t blame students for considering amenities when choosing a school. If it’s going to cost you $40k no matter where you go, and the education will be of similar quality, why not go to the school with the nicer dorms? It’s rational.
12) And you can’t blame the college for improving facilities. If you’re the Director of Student Housing, do you want to build shitty dorms, or nice dorms? And the students will like them, and pay for them. Everybody’s happy. Why not? Multiply that incrementally across all aspects of college across decades. No one snowflake feels responsible for the avalanche.
13) “But these are public universities! Non-profits!” There’s a common misconception that “non-profit” means “charity.” It does not. It just means you have trustees instead of shareholders, and the “profits” go to the employees and to improvements in the organization rather than being dispersed to shareholders. If you work at a non-profit organization, you absolutely want every dollar possible flowing into it. It pays your salaries and pays for your benefits and expands your facilities. If you work for a non-profit, do you not still want a high salary? Good benefits? A nice place to work? Would you keep around a CEO who has no interest in expanding and improving the organization? And those things take money.
14) Since no one is turned away at the start, you now have lots more people with degrees. That call center job that the D student back in step 5 should have taken now “requires” a degree. You don’t need a degree to do the job, but you need one to get the job. Why? Well, the hiring manager at the call center gets ten applicants for a job. Seven of these people have degrees. Why would you hire one of the three who doesn’t? Ideally there should be concern about an underemployed employee leaving, but in this market that’s less likely, and the hiring manager may not be a rocket scientist anyway. And if she hires one of the people without a degree and they turn out to be a screw-up, the boss wants to know why, reviews the hiring manager’s procedures and says, “Wait, you had seven people with 4-year degrees apply, and you picked the drop-out? You’re fired!” She’s got to cover her ass, so now that call center job requires a degree.
15) 18-year-olds read these horror stories. “If I don’t have a degree, I can’t even get a job at a call center! I better go to college. $45k now? Well, whatever it takes…” And we’re right back to step 1.
I don’t know how to fix it. The cost of maintaining all the new buildings and services at our resort colleges is so high now, administrators couldn’t lower tuition if they wanted to. I guess they’d have to shutter the Wellness Center? Fire the janitors at the new dorms? Close down part of the rec center and the student union? It’s not going to happen. You can’t put the genie back in the bottle.
And it sucks because if you just want an education but don’t care about the amenities, what can you do? You can’t opt out. “No, I’m only paying the part of my tuition that goes for education, and I just won’t use the rec center.” If you want an education, you’re stuck paying for the massive overhead of the resort and the administration.
The only thing I can think of is perhaps a philanthropic billionaire might want to endow a new university that emphasizes no-frills, high quality education. You could double teacher salaries and get the best and the brightest (it would be cheap, too, because the competition is paying them peanuts). Bring back the low-rent dorms with the communal showers. But make the education really world-class and attract the best and most serious students. And let the traditional resort colleges burn.
Or perhaps online universities, but there’s a host of other problems with that paradigm.
Oh and yes, I neglected to mention the deep cuts in state funding to higher education. In my state we’re down about 50% in state funding since 2008. But while cuts have increased the price of tuition, state funding doesn’t do anything to reduce the cost of college. If the state used to pay half your tuition and now it pays none, that doesn’t change the fact the college has spent millions on facilities and services. It’s the free money pouring into the system that’s created the problem. Giving colleges more free money won’t make things better, it’ll just encourage them to spend more. There is a floor to government funding, but there is no ceiling to college spending.
You gotta starve the beast. Otherwise costs will continue to soar and young people will be perpetually chained to debt. I don’t envy kids these days. I walked out of school with a Master’s debt free (helps I had scholarships and helpful parents). I don’t know what I’d do if I were saddled with $40k+ today. Good luck and God bless.
This comment is wonderful. But I, too, have no idea how we get off this hamster wheel.
The thing about tax cuts that is alway missed in tax cuts is that taxes always, ALWAYS, impact the economy.
With respect to the deficit there are only two ways out. One is to increase the economy and increase revenue without increasing spending beyond the growth, or two to hyper-inflate the currency to enable the payment of the debt with the cost being the economy left in tatters.
I think this tax cut, especially the corporate side is a growth play, and will have benefits way beyond what would happen if the government spent that money directly.
Growth is the only way out of the crater that Social Security and Medicare are digging for us.
Progressive always think “if we don’t have enough money, just raise taxes” and if its still not enough “raise them again”. Eventually economic growth dies. There is a limit to what can be brought in to the federal coffers.
The libertarian equivalent of your chart of “spending” options (I hate the concept of “paying for tax cuts”), is one that shows that no matter the tax rate the government brings in around 18-20% of GDP. Always. Raise taxes, and GDP shrinks. Lower taxes and GDP grows. The charts I’ve seen go back a ways and stay true through Reagan, Bush, Clinton, Bush and Obama.
Fairly simple(istic) libertarian case for Sanders: all of the things on which Sanders is un-libertarian (mainly, taking money from rich people and spending it on social programs) is stuff that requires approval from Congress, which is probably going to be Republican (and certainly going to be to Sanders’ right) forever. All of the stuff on which Sanders is, if not philosophically libertarian, at least much more aligned with libertarian policy prescriptions than other candidates – stuff like foreign policy and civil liberties – are areas where the President has a ton of discretion. There are exceptions to this – the executive branch has a lot of discretion over how federal regulations are applied, for instance – but it’s the general pattern.
(More broadly, I suspect the ways US policy end up to the right of other Western democracies have a lot less to do with voter preferences than they do with the institutional framework putting a lot more veto points in front of moving money around than throwing bombs around.)
Kevin Hassett, the Chairman of the Council of Economic Advisors, recently laid out the logic for such tax reform in a very accessible way here: https://www.whitehouse.gov/sites/whitehouse.gov/files/documents/TPC%20-%20Hassett%20Speech%20-%20FINAL%20FINAL.pdf
Two other quick (but important) points about the above:
1) Reducing taxes is not a “cost”; it’s a reduction in cost. Deficit spending is a cost, but the issue then is the spend, and if unchanged how the composition of payers of that cost was altered.
2) Corporations ultimately own no money–only people do, and corporations simply act as pass-through tax collectors. A reduction in corporate taxes is one or a combination of 3 things: a reduction in hidden payroll taxes, a reduction in hidden capital gains taxes, or a reduction in hidden sales taxes. To put it another way, if a corporation has a lower tax burden (cost) and is thus more profitable, it has only 3 options: pay employees more (which could include investing / hiring more), pay shareholders more, or lower the price of goods. Or conversely if corporate tax rates go up, the only available options are less money to employees, less money to stockholders, and/or higher prices to consumers.
You appear to be comparing a dynamically-scored tax cut with a non-dynamically scored Obama stimulus. That’s incredibly misleading, especially because you would expect the dynamic effects of a stimulus bill in the middle of a recession to vastly outpace the dynamic effects of a tax cut at a time of near-full employment.
(It’s also misleading because the GOP tax bill is designed from the ground up to game the scoring windows. The actual deficit impact is going to be >>100 billion a year. But that’s more on the Republican leadership….)
This… is a very surprising article to see on SSC. I am used to seeing explanations of why the public discourse is neglecting important facts, and better analysis of the issues. Instead you just say the tax bill is “obviously bad” without analysis and quote surveys of the public to justify it based on consensus?
You seem mind-killed on this topic. I agree with the commenters above that “cost” is not the correct way to think about this, since revenue lost by the government is revenue gained by private citizens, net zero. A tax bill is good or bad based on whether it makes the tax code more efficient or not, and there are pieces that clearly do (lower corporate income tax, lower deductions of SALT, removal of penalty for not having health insurance). So which parts do you have a problem with?
Then you are going to vote for Bernie because he will be scrutinized more? I mean… so… you are voting for him because people will realize his ideas are bad and then universal college will NOT pass, since everyone knows they are bad? But with Trump, you said earlier in the article that everyone knows his ideas are bad too… but they pass because they are a different kind of bad which makes everyone ignore their preference for good ideas in the first place? I think? I don’t understand Scott, this thinking is very cloudy and hard to follow. Politics is the mind-killer and it is getting to you on this issue. If you analyze the components of the tax code and say why you like/don’t like them, I would love to read it- but this is just a tribal signal.
Yes, agree with sabre51 100% here. Given how thorough, informative and nuanced SSC is on medical topics, this article was a jarring departure when it came to macroeconomics.
I think this is much more a microeconomic question. The plural of microeconomic question is not macroeconomic question.
That’s not obviously true. It’s my [admittedly low confidence] understanding that some unorthodox economists like Arnold Kling would disagree.
Yes, that money is going back to private citizens. If you view spending on/by all private citizens as being of equal value, that’s a net zero. But I think that’s an extremely hard view to defend.
My view is that money spent by/on poor people, who will derive immeasurably more utility from it, is worth far more than money spent by/on the rich.
The reason I think this tax cut is so awful is that money that would otherwise have being spent predominantly on poor citizens is, instead, being left in the hands of rich ones, where it will do far less good.
Yes, it’s true that (with some really important provisos about roads and Moloch and things) people can generally spend their money on themselves more efficiently than the government can. But the point of taxation is precisely to *stop* them doing that, and to ensure that it’s spend on the poor, who need it more, instead.
There are significantly more efficient ways to do that than free tertiary education. But that would still be better than a tax cut most of whose direct benefits will go to people who don’t need it much.
I suspect that Scott isn’t “mindkilled”, he just recognises that money spent on the poor has much higher marginal utility than money spent on the rich.
Actually the “net zero” just depends on spending by all citizens, on average, being of equal utility value as all government spending, on average. It has nothing to do with rich vs. poor, except that the group of citizens would not be representational of all citizens and instead of the beneficiaries of the tax cut. Even if the tax cut goes ONLY to the rich (which it doesn’t), then you just need private spending by rich people to be as valuable as government spending. In my opinion, it clearly is- government spending is a disaster, rich people and building companies, buildings, etc. that provide ongoing benefit, the government pays people to investigate your business and hassle you about having the correct number and orientation of parking spaces, among a million other things. Some government spending is extremely valuable, especially when the government is small and lacking basic services. But we are WAY past the saturation point of government doing useful things instead of harmful things. Your suggestion that government spending is “money spent on the poor” is laughable if you are actually familiar with the budget and work of our loving caretakers in Washington. If you want that, then push for a UBI.
But even if you think government spending is more valuable, the only way to justify Scott’s valuation is to assign literally ZERO value to the money left in the hands of private citizens. That is why I say he is mind-killed, that position is clearly indefensible and from Scott’s previous posts on econ and libertarianism, I know he would not hold this position if he sat down and really thought it through.
To your point on free tertiary education, describing it as a tax and “money spent on the poor” shows that that concept is meaningless. Yes, it is spent on (on average) the left side of the bell curve, but it does not get them anything useful. It lets them sit in a classroom instead of being productive. The arguments that college causes higher income, instead of just selecting for productive potential already there, is extremely tenuous. If you want to help them, give them that money and let them choose whether to attend college. Mandating that the money be spent on unproductive pursuits and then saying “Look, we are helping the poor!” is exactly the type of mind-killed argument I have a problem with.
This article and the last seem so out of character for Scott! It’s been on my mind all day. I keep thinking this is another Asches to Asches where he’s going to jump out in his next post and say “Surprise! I copypasta’ed median red and blue team facebook posts and now I have a devilishly clever statistical technique I worked out with Robin that’s going to perfectly characterize commenter bias, except double surprise we can also show that this precisely correlates with β-epinephrine pituitary reuptake deinhibition and triple surprise I preregistered this hypothesis as a kabbalistic acrostic in unsong!”
Anyway, Scott we love you and whether we’re just off base or you’re having a bad week or whatever, thanks for being the benevolent tyrant in our human flourishing mine!
Being a bit pedantic here, but wouldn’t solving world hunger also necessarily include solving population growth? Carrying capacity, and all that…There are several countries still way above replacement rate, and many of them have hunger issues. Solving their hunger will just raise their population to their new carrying capacity. Hunger is a symptom. There are deeper issues that need resolving.
Most of those countries had hunger issues even when they didn’t have replacement rate reproduction. It’s important to not confuse correlation with causation.
Plus, the world’s carrying capacity is far from being tapped out. In particular, we have far more room to grow our food base by increasing the productivity of already farmed land in low productivity areas than by (more marginally) increasing the production of first world nations.
Finally – hunger isn’t much of a population capper these days – wealthy nations aren’t heartless enough to make that work. The larger issue is disease.
Do tell. Got sources? I’m looking at this and cross-referencing with this.
Literally every time economics is spoken about there is an anti-socialist circle jerk.
I’m not exactly sure what the problem with socialism is. I never really learned economics or paid particular attention to it though.
This is what I heard:
– It is somehow related to tyrrany.
– It doesn’t work on a large scale, only for small communities where basically everyone knows everyone else involved.
– It’s a soviet thing or so and therefore evil and just because they act like the cold war is over doesn’t mean it is.
I personally like the thought of the state taking care of those who can’t take care of themselves (because illness, other desasters or unemployment).
I don’t see capitalism in its current form persisting with increasingly faster automation and fewer and fewer workers required to do stuff without it being some dystopian future like in the movie Elysium (never mind all the flaws, just the setting is what I mean).
A lot of the problems we have today (well, I don’t know exactly about the US tbh but in germany we have too few people doing jobs that don’t pay well like kindergardener or taking care of the elderly in nursing homes for example) is that you have to be competitive in every job somehow. You have to take care of this many people in that amount of time or some competitor is cheaper and money is all that seems to count. People get burned out, quit and then do something else while some say “if I didn’t need the money I would quit today and volunteer to do the same thing without an overcrowded timetable leaving no time for conversations and actual human contact”.
Something else: I don’t think “socialist” is an insult anywhere outside the US. Maybe in GB but I’m not sure, I think it depends a lot on who’s talking to whom.
At this point, I think that anyone who says “socialism is …” is pretty much wrong – it’s a word that has been used by lots of different groups to mean lots of different things, many of them with reasonable weight of authority behind them at one time or another.
Am I a socialist? On the one hand, I think the NHS is great. That’s socialised medicine, so arguably. On the other hand, I think communism, for which I believe socialism was originally a synonym, is awful, so arguably not.
For most purposes, I think it’s a word best tabooed.
Socialism came first, though not by much. It originally referred to any of several left-wing communitarian political ideologies developed in the early-to-mid 1800s, of which communism is one.
My only objection to this comment is that you should taboo ‘communism’ for the same reasons.(Oops, should have been a reply to Tatterdemalion.)
NHS is nationalised, not socialised. There’s a massive difference
Can you explain it?
@Incurian
Socialisation is where the means of production and it’s products are owned by the workers and they decide what happens.
Nationalisation is just the government owning something.
Thanks.
So in other words socialism never actually happens so it never fails. If the ‘workers’ own production, and one worker spends his share and another worker saves his the latter becomes a ‘capitalist’ immediately, and its not socialism. If the government steps in to prevent such savings then its ‘fascism’, and that is ignoring all of the trouble of getting the workers to own production in the first place (can’t have it distributed by the government, again that is ‘fascism’).
@baconbacon
1.A capitalist is not a ricj person or someone with more money than the average person
2.If a worker saves up his “share” (if you want to call it that) he starves because how else will he eat? That’s his only means of getting things.
In socialist philosophy (particularly Marxist) the value of goods is proportional to the value of the labor put into them. ‘Capitalism’ exploits the worker by withholding the capital that would allow him to maximize his labor value unless the capitalist gets his cut. You can technically become rich in a socialist society through savings as long as you don’t earn income on that savings, which is practically impossible.
This is often true in communist countries, because they destroy so much wealth that people are perpetually on the brink of starvation, but most socialists envision a society with a similar level material wealth which clearly is high enough to allow for eating and savings simultaneously.
>In socialist philosophy (particularly Marxist) the value of goods is proportional to the value of the labor put into them.
The vast majority of Socialists would say the labor theory of value is only applicable in capitalist societies.
>the capital that would allow him to maximize his labor value unless the capitalist gets his cut.
What? Maximise his labour value? No Marxist has ever said anything about maximising labour value.
>you don’t earn income on that savings, which is practically impossible.
Earn income on savings? What?
>This is often true in communist countries, because they destroy so much wealth that people are perpetually on the brink of starvation, but most socialists envision a society with a similar level material wealth which clearly is high enough to allow for eating and savings simultaneously.
You were talking about a scenario where a worker didn’t spend anything at all or at least you implied it when you said
“and one worker spends his share and another worker saves his the latter becomes a ‘capitalist’ “
My only objection to this comment is that you should taboo ‘communism’ for the same reasons.
See venezuela.
Power corrupts. A socialist government, by definition, has control over the economic lives of its people. that leads to tyranny.
Is your contention that the soviet union and its imitators weren’t evil? Because, again, 100 million murders.
And I like the idea of spending all day doing cocaine and partying. But I know that there will be bad consequences if I do.
You mean we might put, say, 90% of people out of work? the exact same way we did with farmers a century ago? the lump of labor fallacy remains a fallacy.
Or they might be using “socialism” to mean “social democracy”. Not for the first time.
Considering they thought the NHS was an example of socialism I think you are right there.
1.70% of the Venezuela economy is under private ownership. Clearly not socialism.
2.Even if Venezuela was socialist how do you know socialism is causing it’s problems?
>Power corrupts. A socialist government, by definition, has control over the economic lives of its people. that leads to tyranny
Same goes for capitalism, just it’s the capitalists not the government with the power.
>Because, again, 100 million murders.
There’s no evidence socialism is responsible for those deaths, assuming that number is even accurate.
the ruling party in venezuela is openly dedicated to a bolivarian socialist revolution, their words, and proclaims the socialism they’re bringing on a daily basis. I can show you hundreds of articles from socialists around the world praising the glorious socialist experiment in venezuela before the shit hit the fan.
No capitalist has anywhere near as much power as even a weak government. capitalists cannot arrest you, cannot tax you, cannot send armies to conquer you.
At this point, this is simply holocaust denial. Tens of millions died as a direct result of agricultural collectivization along, one of the most straightforward and doctrinaire examples of socialism ever.
True, but more to do with the nature of government than the nature of capitalists.
@TheAncientGeekAKA1Z
“lions are less dangerous than lambs”
“Yeah, but that’s just due to the nature of lions, not because lambs are better people. It doesn’t mean you shouldn’t follow the pride around!”
the fact that capitalism channels human ambition into less dangerous avenues is a feature, not a bug.
@cassander
>the ruling party in venezuela is openly dedicated to a bolivarian socialist revolution, their words, and proclaims the socialism they’re bringing on a daily basis
1.Not true the government says they are on a path to socialism, not that they have socialism.
2.It doesn’t matter what the government says, what matters is what they do.
>No capitalist has anywhere near as much power as even a weak government. capitalists cannot arrest you, cannot tax you, cannot send armies to conquer you.
Ok maybe they don’t have the exact same power but it’s certainly a similar level of power in terms of economics.
“Yes, friends, governments in capitalist society are but committees of the rich to manage the affairs of the capitalist class” – James Connolly
>At this point, this is simply holocaust denial. Tens of millions died as a direct result of agricultural collectivization
I don’t deny many died. I deny the number is anythig near 100 million
How is that better?
they’ve constantly taken more and more control over the economic life of the nation. that they are not taking former ownership of the means of production does not mean that they do not control them, nor that it isn’t socialist central planning.
In terms of economics, the largest capitalists have less money than all but the smallest governments. the power difference is orders of magnitude.
more holocaust denial.
The fact that governments don’t like rivals, and therefore don’t allow corporation to get too powerful is likewise.
Starving peasant 1: Good thing there aren’t any large corporations exploiting us, eh comrade?
Starving peasant 2 (Lies motionless on the ground)
Starving peasant 1 (takes shoes off peasant 2’s feet): All hail Stalin, way to keep those corporations off our backs.
@cassander
>How is better?
The path to finishing a marathon is excruciating, finishing it however is brilliant
Regardless you have not provided any evidence venezuela’s troubles are due to its policies.
>that they are not taking former ownership of the means of production does not mean that they do not control them, nor that it isn’t socialist central planning.
1.Consider 70% of the economy is under private hands I think it’s safe to say Venezuela does not control very much.
2.What exactly do you think socialism is?
>In terms of economics, the largest capitalists have less money than all but the smallest governments. the power difference is orders of magnitude.
The capitalist class as a whole has unprecedented power. The Capitalists who run the health service literally can decide who lives and dies. Americans have died due to lack of affordability
>more holocaust denial
Throwing accusations around that don’t back up your claims isn’t really helping you here.
I’ve heard before that socialism can’t fail, it can only be failed, but I’m not sure I’ve seen it this overtly before.
apollocarmb says:
Seriously? We’re back to omelets and eggs? You realize you’re literally parroting a stalinist talking point?
If every marathon ever run resulted the marathoner dying, people would eventually stop trying. Every attempt to create socialism has ended in famine, poverty and death. How many more people need to die before you reconsider your priors?
Again, really? fine, it’s very easy. The national oil company used to be fairly well run, the chavez started stacking it with his cronies and diverting money from it to pay for his other programs. Consequently, and exactly as was predicted, production has collapsed. And no, this was not a response to the drop in the price of oil, the production decline started before.
This is as pure example as you can get of socialism, it’s literally government owning and operating the means of production, and it’s a catastrophe.
what part of ” that they are not taking former ownership of the means of production does not mean that they do not control them, nor that it isn’t socialist central planning.” did you not understand?
Note how the goalposts have shifted! We’ve gone from individual capitalists having power to capitalists as a class.
However, I will indulge you. Let’s say you’re right, the healthcare capitalists as a class, get to decide who lives and who dies. How, exactly does that make them more powerful than a government run healthcare system? That system would have the same power to decide life and death.
of course, to exercise that power, all the healthcare capitalists would need to regularly get get together in a big meeting and hash out who lives and who dies, or build bureaucracies to do the same. Governments do that sort of thing all the time, we call the gatherings parliaments and the bureaucracies ministries of health.
Capitalists, however, don’t do these things. they each run their own little corner of the world. If the minister of health decides you don’t get healthcare, you’re SOL, but if one capitalist says no, you can go to the next. So even if we assume that capitalists, as a class, have exactly as much power as an all powerful state, they don’t have the means at hand to EXERCISE that power, and are thus, in practice, less powerful. On top of that, we have the numbers. There are millions of capitalists involved in providing healthcare, so if you divide the power among them, it is far more diluted than in any government.
In sum, you moved the goal posts, and still missed your shot.
Accusations? There’s nothing to accuse you of, I’m just repeating your words. You flat out denied that tens of millions died. That is an extraordinary claim that you have provided zero evidence for.
>If every marathon ever run resulted the marathoner dying, people would eventually stop trying. Every attempt to create socialism has ended in famine, poverty and death. How many more people need to die before you reconsider your priors?
There is no evidence that is caused by socialism. In case you haven’t noticed there have been plenty of famines and deaths in capitalist countries.
>Again, really? fine, it’s very easy. The national oil company used to be fairly well run, the chavez started stacking it with his cronies and diverting money from it to pay for his other programs. Consequently, and exactly as was predicted, production has collapsed. And no, this was not a response to the drop in the price of oil, the production decline started before.
Right but unless you can see de some sort of evidence for that it is going to be continually dismissed.
>This is as pure example as you can get of socialism, it’s literally government owning and operating the means of production, and it’s a catastrophe.
If you can’t distinguish between nationalisation and socialism there is no hope for you.
>they are not taking former ownership of the means of production does not mean that they do not control them,
Please do explain how the government can control something that is privatised.
>Note how the goalposts have shifted! We’ve gone from individual capitalists having power to capitalists as a class
No goalpost shifting. By “capitalists” I meant ALL capitalists. I probably should have been more clear.
>However, I will indulge you. Let’s say you’re right, the healthcare capitalists as a class, get to decide who lives and who dies. How, exactly does that make them more powerful than a government run healthcare system? That system would have the same power to decide life and death.
1.”Healt care capitalists” are not a class.
2.I was giving some examples of what the capitalist class as a whole can do.
The Capitalist class as a whole have more power than the governments in capitalist societies. They own almost everything.
I have no idea why it matters that the “healthcare capitalists” don’t all come together and make plans. It is simply a fact that “healthcare capitalists” have individually decided what prices they want and those prices are too much for some and they die. This is just extremely obvious.
>Accusations? There’s nothing to accuse you of, I’m just repeating your words. You flat out denied that tens of millions died. That is an extraordinary claim that you have provided zero evidence for.
You have repeatedly just compared me to a holocaust denier as opposed to providing any sort of evidence. You made the claim, it’s up to you to back it up.
Is anyone else starting to feel a little trolled?
@Nornagest
Sadly, no. I can think of few things more depressing than that there are still sincere Stalinists walking among us.
@Nornagest
I never once made that argument. Have yiu understood a word I have said?
Yes.
There have also been plenty of Jews killed outside of Nazi camps. Not sure what exactly that proves about the Nazis.
@baconbacon
Is it centrism or pluralism you are not understanding?
@ apollocarmb,
I’ll give you the respect of assuming you’re a thinking person who just hasn’t examined their sources properly. Because I can’t think of a capitalist country (with a sufficiently developed economy to be so defined – so a non-agrarian basis to the economy) where a famine leading to numbers of deaths has happened. Even the US Great Depression of the 1930s (when the Federal Government was running a fairly socialist set of policies) was not noted for mass startvation. This has the look of a standard response based on no actual evidence. It also makes me question the accuracy some of your other (unlinked) assertions.
@Watchman
>where a famine leading to numbers of deaths has happened.
Can you give an example of a non-agrarian society that was socialist where that happened?
The Soviet Union had a megadeath famine in the 1930s, and you just below describe the Soviet Union of the 1930s as an “industrial powerhouse”
There are two rather different problems with socialism. One is that as Orwell, who was a socialist, pointed out, it puts enormous power in the hands of the government. If the government runs the paper industry, paper doesn’t get allocated to the production of books the government disapproves of. If everyone works for the government, then people the government disapproves of get unpleasant, dangerous jobs. Or are unemployed.
The other problem is that it doesn’t work–more precisely, scales very badly. To coordinate a very large number of people you need a decentralized system in which each person does a tiny bit of the decision making–the particular bit he is most competent to do and has an interest in doing right. Private property and exchange is such a system, with prices as the signals that coordinate, although of course not a perfect one.
Nobody has come up with a workable equivalent for socialism, although Abba Lerner et. al. certainly tried, and the versions actually attempted worked very badly. When China switched from socialism to capitalism (still calling it socialism) over the decades after Mao’s death, per capita real income increased about twenty-fold. That was an extreme case, but West Germany vs East Germany, South Korea vs North Korea and Taiwan vs Maoist China provide further evidence of how badly socialism works.
All of this is about socialism in the standard economist’s sense: Government ownership and control of the means of production. The word gets used in a lot of other ways as well. In particular, it is sometimes used as a label for welfare states, which are capitalist economies in which the government taxes some people in order to give the money collected to others. They may have long term problems but work tolerably well at least in the short term.
Orwells critique only applies to Leninist socialism, not socialism in general.
>West Germany vs East Germany, South Korea vs North Korea
Those comparisons aren’t really fair.
The only reason South Korea is so far ahead is because they are getting drenched with money from America while North Kidea is isolated.
That’s not real socialism.
One, North Korea got drenched with money from the USSR. They didn’t get ahead. Two, the US doesn’t drench south korea with money, and hasn’t since the 1960s.
@Edward Scizorhands
I never made that argument.
@cassander
1.They were never drenched. They certainly were funded though.
2.Actually they did get ahead. Prior to the 60 I believe North Korea were ahead of South Korea. Only when North Korea lost many of its allies and the rich countries started throwing money at the south Koreans did south Korea finally get ahead.
3.No, USA give lots of money to South Korea. https://en.m.wikipedia.org/wiki/South_Korea–United_States_relations
Almost all the money we send to South Korea is payment for the cars and memory chips they have to send us as part of our ruthless capitalist exploitation.
@apollocarmb
Unless you have a meaningful defintion of drenched, this is bad faith semantics.
The north was more developed before the partition, yes.
the late 60s is when the south STOPPED getting money, not when it started.
No, it doesn’t. Your source doesn’t even claim that it does.
The US sells Korea a lot of weapons, but it gives them very little money.
@cassander
>The north was more developed before the partition, yes.
And after. If socialism was to blame you would think things woukd have went south before then, no?
>Unless you have a meaningful defintion of drenched, this is bad faith semantics.
Well it was not on par with what the south Koreans got anyways.
>No, it doesn’t. Your source doesn’t even claim that it does.
The US sells Korea a lot of weapons, but it gives them very little money.
Read the economic relations section
@apollocarmb says:
things DID go south more or less immediately, despite soviet subsidies. they started further ahead, then failed to grow. But the North failing to develop further doesn’t somehow automatically life up the south.
Show figures to this effect, or stop claiming it.
that the south has a large, successful economy is not the US “drenching them with money”. that you would claim such a thing is, frankly, ludicrous.
@cassander
>things DID go south more or less immediately, despite soviet subsidies. they started further ahead, then failed to grow. But the North failing to develop further doesn’t somehow automatically life up the south.
1.Source?
2.Proof that was as a result of socialism. States stagnate all the time, just look at capitalist Japan.
>show figures
Here is a source regarding the extensive aid given to south Korea that transformed its economy.
https://books.google.ie/books?id=XQO1eiuP-MIC&pg=PA329&dq=us+aid+to+south+korea&hl=en&sa=X&ved=0ahUKEwjml-akrfbXAhUHIMAKHeQGCRgQ6AEIKTAC#v=onepage&q=us%20aid%20to%20south%20korea&f=false
I can’t find a source on the Soviet aid to North Korea but considering the state North Korea is in now I doubt it was close. Now I know you will respond to this saging “that’s becuase it’s socialsit!” but that doesn’t really cut it becuase socialist Soviet Union did well for itself and rivalled the US economy.
The second reason I doubt it us because the Soviets were known for being stingy with their aid. East Germany was famously underfunded. There was also no Marshall Plan type thing for the eastern bloc after world war 2
>that the south has a large, successful economy is not the US “drenching them with money”. that you would claim such a thing is, frankly, ludicrous
The links I provided showing the extensive aid it received and how much money the US gives them via trade speaks for itself.
Let me ask you this. How is Thailand doing? How is Indonesia doing? Don’t you think it extremely odd that every other country bar China and Japan (which are rich for their own special reasons) that are not funded by the US are very poor?
@cassander
I hate Stalin. I am not a Stalinist. In fact I never once expressed any sort of likeing for stalin. Stop pulling things out of your arse.
I notice you have ignored everything I said. How convenient, it’s almost as if you have no counter arguments.
That claim is wildly false. The socialist Soviet Union was a third world country with a first world military. In Moscow, which people elsewhere in the country tried to get into, ordinary people were living a family to a room–for a nice picture I recommend the book _The Russians_.
Checking Wikipedia, as of 1989 the per capita income of the USSR was almost exactly half that of the U.S.
If the Soviets were doing so well, why did they need a wall to keep people from leaving?
@DavidFriedman
>Checking Wikipedia, as of 1989 the per capita income of the USSR was almost exactly half that of the U.S.
yeah, 1989. Regardless if you compare the Russian Empire to the Soviet Union the Soviet Union was leaps and bounds ahead. Socialism saved Russia from the peasant country that it was and turned it into an industrial powerhouse. It makes you wonder by a so-called third world country beat the United States to both the moon and to getting the first man in space.
>If the Soviets were doing so well, why did they need a wall to keep people from leaving?
The eastern bloc was not the Soviet Union.
And if you compare Hong Kong under British rule to Hong Kong under the Qing Empire, British administration and laissez faire capitalism, laissez faire was leaps and bounds ahead. But mostly, if you compare anyplace in the 20th century with the same place in the 19th, the 20th-century version comes out well ahead.
The few exceptions mostly do involve Nazis or communists; Soviet Russia is fortunate in that the Tzars set such a low baseline.
@ apollocarmb
Can I suggest you think carefully before describing Russia as an industrial powerhouse. What industrial products do you own or use built in Russia? What is the Russian economy built upon now? Hint – it’s resource extraction, not industrial production, hence the governments dependence on gas and oil prices. There is a Stalinist myth that the Soviet Union was an industrial powerhouse, its factories churning out goods. Yet in the end they were being outproduced by Japan and South Korea, never mind France, West Germany and even the UK. Even during World War II, the Soviet Union’s supposedly finest hour, it was the supply of US military equipment that kept them in the war whilst they transformed their limited industrial base east of the Urals to a war footing.
@John Schilling
Can you give an example of a society that improved as much as Russia did in the space of time that Russia did?
I know I certainly cant
@apollocarmb says:
Russia DIDN’T improve that much in a short space of time. The soviet regime used 1913 production figures as a baseline. Most were not surpassed for decades after the soviet takeover, many not until after ww2. Stalin built up a military machine by starving peasants, selling the grain, and buying factories from the west, but it did precious little to improve the standard of living of the average russian. Soviet collective farming was so inefficient that a land that under the czars was the breadbasket of europe had to import grain for most of its existence. And soviet russia is the absolute best case for communist economies, benefitting from extraordinary natural resource endowments and extraordinary luck in the great depression, which meant bargain basement prices for capital goods in the 30s.
I already mentioned Hong Kong under the British. I can easily add China once Mao’s death allowed them to adopt
socialism with chinese characteristicscapitalism. Japan in the 1960s and 1970s. South Korea in the 1970s and 1980s. The United States during the Industrial Revolution.Are you retracting your previous claim, that ” socialist Soviet Union did well for itself and rivalled the US economy”?
I believe that if you compare growth rates, late Tsarist Russia was doing better than the USSR did, not worse. Do you have sources to the contrary?
I asked:
You replied:
The Soviet Union was part of the eastern bloc. Are you suggesting that Soviet citizens were free to leave?
Sometimes for devolved systems of workers’ co-operatives.
Imagine that.
One very expensive thing that really ought to be on that list, because it sort of encompasses all the rest, is the cost of repaying the US debt. Which, if we do it using the standard 10-year T-bill at current rates, comes to $2.3 Trillion/year for ten years.
If you’re the sort of person who thinks that national debt doesn’t matter because we owe the money to ourselves and governments whose debt is denominated in their own currency can never go broke and developed economies are magically immune to hyperinflation, fine, just borrow a bit more to pay for this tax plan and we’re golden.
For those of us who think excessive debt is a problem that governments aren’t magically immune to, then the GOP has just taken a big, potentially catastrophic problem, and made it about 5% worse. I’m not happy about that. But I’ve got a sense of perspective about it as well, and you need that $2.3T/year number to get the necessary perspective.
Every single Principled Conservative, every single Libertarian Wonk, signed onto this monstrosity. You may have consumed their Kool-Aid, but they were never on your side. I hope you’ll take that into account in the future.
You’ll pardon me for being a bit salty about being told, over and over again, that we can’t have nice things (e.g., more transit, research, healthcare, basic income) because of the deficit, but it turns out that we can afford to take four and a half trillion dollars from regular people plus one and a half trillion from nowhere and send it all to the aristocracy.
(But hey, in future, let’s talk about what we can get for our debt, about how growth can moderate the debt-to-GDP ratio, which is what really matters, and about cost disease–the cause of, and solution to, most of our problems.)
You can’t have nice things (I mean besides being richer that almost any one else who has ever lived, with great life expectancy and all kinds of neat toys) because the US government is pretty terrible at providing these things when it has the money. The US spends more dollars per capita on a lot of these things than some ‘socialist’ countries when you combine federal, state and local dollars.
I don’t think you get to tell me how good I have it when the context is that people who have it several orders of magnitude better will be enriched at my expense, and nearly everyone else’s to boot.
As for it being pointless to spend money on (rather, via) government, the short answer is, well, our host had something to say about that, but the longer answer is that I would love to have some kind of debate going on between parties where each of them thought they could run things better. It seems like we have one party which wants to run things well, and one which wants to smash the system and thus prove that it can’t run at all. I don’t know how to fix this.
Anyway, I’d like to have Alon Levy run the Department of Transportation and Ben Goldacre run the FDA and so on. I really would. I don’t have a big, general solution to this. We did pretty much put Mikey Dickerson in charge of government IT, as well as doing some other things (see also).
I get the sense that conservatism doesn’t really help with this. I’ve been in contact with traditionally-structured federal IT, and all the layers of independent contractors and accountability paperwork and on and on just make things more complicated than just having in-house staff. Far from keeping the liberals honest, the conservatives seem to just make things worse, to throw sand in the gears, to make the system ever more sclerotic.
That statement is trivially false, and because you insist on making false statements like that you not only can’t have nice things, you can’t have my attention for a discussion of why you can’t have nice things. Please go away.
Pardon me, let me revise that: every single Principled Conservative and Libertarian Wonk in Congress signed onto this. The Republicans who didn’t were one retiring Senator, plus a few Representatives upset about getting rid of SALT.
Paul Ryan voted for this. Rand Paul voted for it. Steve Womack and Mark Meadows and nearly everyone else who was very concerned about deficits voted for it. You can’t No True Scotsman your way out of this without jettisoning the entire Republican Party.
There are Libertarian Wonks in congress? Name them, or I affirmatively disbelieve your attempted retcon.
I already cited Paul Ryan, widely acclaimed on the right as a thoughtful Ayn Rand devotee and wonk–he of the debt crisis graphs–as well as Rand Paul, “budget hawk” and small-government libertarian.
@grendelkhan
Republican vice-presidential nominee Paul Ryan once credited Rand as the reason he entered public service, but now says, ‘I reject her philosophy.’
Maybe you think he’s full of shit, maybe you don’t, but you can’t say he’s “widely acclaimed on the right as a thoughtful Ayn Rand devote.”
cassander, that’s news to me. But “swear[ing] fealty to the Pope and to Catholic doctrine” at the expense of Objectivist cred doesn’t exactly undo the thing where he acts like one. (The main concern seems to be the whole atheism thing.)
The Republican presidential nominee naming him the ‘intellectual leader of the GOP’ seems plenty of wonk respect to me. And here’s the Weekly Standard (the whole article is like this):
If a Democratic congresscritter had their interns read The Communist Manifesto and kept referring to the eternal class conflict between the evil bourgeoisie and the virtuous proletariat, saying that Marx’s predictions are coming to pass and so his ideas are sorely needed in our time… you’d be forgiven for thinking they were a Communist, even if they coyly explained when pressed that they were Catholics, see.
That one’s a bit more complicated – urban transit is cheaper to build than highways, so it’s not about costs.
it’s not really 5% worse. the issue isn’t so much the current debt, but looming structural deficit of unfunded liabilities, which is several times larger in net present value terms. Granted, the trump plan doesn’t make them better either.
Probably the wrong place to ask, but what happened to the previous post (overgendering harassment)?
It was linked to from Instapundit, and the influx of comments was as terrible as you’d expect. I think he’ll put it back up once the hubbub dies down.
Do you mean over Trump (or another republican if Trump isn’t running), or over a generic democrat primary opponent?
I had the same question – over a Hillary Clinton-like Democrat in the primaries? Elizabeth Warren? Trump in the general? Pence? I assume the answers are yes, maybe, definitely, and yes.
Although if Warren chooses to run, I think Sanders will choose not to run and will instead just support her.
You can think of the current tax bill as a maxed-out credit card.
No, this is like one of the classic American Express cards where there’s no defined limit to “max out”, but you can still be sitting at a restaurant trying to pay a bill and find out that AmEx has decided to cut you off. You usually have to be recklessly extravagant to have that happen, but having gotten away with reckless extravagance so long before it will come as a shock when you suddenly can’t any more.
Wait, but from the tulip subsidies post:
The price of tulips was in the hundreds of guilders when the subsidization began. Subsidies made the price grow even more. So why talk about Bernie’s college plan now as though the price of college would stay the same?
Frankly, this strikes me as borderline delusional. I’m shocked to read it here.
We will put aside, for now, the massive difficulties with bullet point like “end homelessness: 23 billion dollars”, as if the way policy worked was if you dump enough money in the right bucket, problems are magically solved. There are more fundamental issues here.
That’s not the failure case AT ALL. the failure case is what we see with the ACA, we spend 100 billion dollars a year and get……basically nothing. zero measurable impact on the health of the country, which is exactly what we would expect, given past experiments with giving people health care. At best, you can claim that it made some of the recipients financially better off, but if that is all we wanted to do, we could just give them money instead of creating a byzantine network of rent seekers who set up hoops for them to jump through.
Actually, no, that’s not the failure case either, the real failure case is you spend a hundred billion dollars and actually make things WORSE, where spillover effects from the rent seeking network you’ve built up screw people outside their system, or just add enough friction to make everything just a little bit less efficient.
Right, that’s why the ACA was subject to the most rigorous of scrutiny, why its supporters poured over every square inch looking for flaws so they could iron them out. It definitely wasn’t definitely wasn’t written first and foremost to meet the arbitrary rules of senate procedure, or shaped by the desire to achieve a low CBO score regardless policy costs. ANd it definitely didn’t resort to out and out bribery of major senators and interest groups.
So the better ideas sound the MORE scrutiny they get? That’s quite literally the OPPOSITE of how it works. Ideas that sound broadly popular get little scrutiny, it’s less obviously popular things that get poured over in detail.
This shibboleth here? I need to remind someone who claims to be libertarian leaning that corporations are accounting boxes, and that any taxes they pay are born by their owners, workers, and customers, not some all powerful corporate bogeyman? I need to remind him that most studies of corporate taxation show that the bulk of cost is born by workers?
We don’t have anti-bodies to tax cuts? Government revenues grow every year, almost without exception, and have been for decades. There is not a single state government taxing less than it did 5 years ago today, adjusted for inflation. the trend at the state level is even stronger upwards. The same is true of spending. Automatically increases every year, again almost without exception. Trump will not change that. WE have no antibodies against socialism. At most, we have antibodies against increasing the rate at which the government share of the economy is growing. And we have absolutely massive antibodies against it actually shrinking, as shown by the fact that the last time it happened, eisenhower was president.
Come on, this is hardly fair. Here you go, and here, and if you’re going to complain that costs aren’t contained, then blame Sarah Palin and meditate on why ICER has no political power.
And more to the point, the ACA was a series of compromises that was frozen in amber because Ted Kennedy died and every single Republican was dead-set against voting for it no matter the compromises made. That’s not a recipe for good governance, but I don’t think you can pin all of the blame for that one on the Democrats–they had a choice of passing a flawed bill, or nothing for the next generation at least.
Are you failing to adjust for population, GDP growth and inflation, or something? The last time government spending fell as a percentage of GDP was around 2012. Total spending as well as federal spending as a percentage of GDP has essentially been flat since the early 1980s.
what, seriously? Abortion rates? Abortion has been declining for decades. And the article even includes the rather laughable sentence “Though the study did not look at the reasons for the decline, the authors and other experts suggested that improved access to contraception played a big role by preventing unintended pregnancies.” Please, show me evidence the ACA led to increased use of contraceptives.
Once again, we get a study that conflates insurance with access, as if people signing up for medicaid the day before they go to the hospital have more access to care than those that are signed up once they get there. and we get “and one new study demonstrated a positive association between expansion and health outcomes.” meaning many others did not show that, including the oregon medicaid study.
Yes, and?
No compromises were offered, that is not the same as saying they would have accepted none. Harry Reid wrote the bill, and he wrote it to ensure that there were no defections on his left. He was completely unwilling to do what bush did to pass NCLB, to abandon the votes of a big chunk of his caucus in order to bring over a larger chunk of the opposition.
So, their attitude was we prefer bad policy to no policy and I’m somehow NOT supposed to hold that against them? If I can’t hold choosing to pass bad policy against politicians, what can I hold against them?
No.
Every other good gets cheaper every year. Only with government do we measure it against literally everything else everyone does. Absolute measures, like inflation adjusted spending per capita, matter. They are not the only measure that matters, but you’re wrong to dismiss them entirely
This is also false: https://www.theatlantic.com/politics/archive/2015/07/the-real-story-of-obamacares-birth/397742/
I’ve read this article before. Putting aside that it was written years after the fact, it claims that negotiations were started with Baccus, they didn’t go anywhere, in substantial part because the administration had no interest, and backed reid’s efforts (which were based on an entirely different bill) instead. In fact, the article openly criticizes him for not shutting them down sooner ..
That is a . . . strained reading of that article. In particular, your claim that the Baucus talks didn’t go anywhere due to a lack of support from the administration is simply wrong. The Democrats had the votes to push the bill through on a party line vote once Franken was seated. If they were not genuinely interested in obtaining Republican support, why continue the talks? As the article points out:
@cassandrus
I said that was a substantial reason. Not the only one.
Tradition, mostly. Also so that, if they failed, people could have this conversation, and if they succeeded, they could claim to be bi-partisan. They never actually offered any meaningful concessions, their effort amounted to republicans today telling the democrats “see how reasonable we are, you can offer any suggestions you want to our tax bill, as long as the final result gets Ted Cruz’ vote.”
Again, I think the passing of NCLB is illustrative. Note, this is not an endorsement of the content of that law.
Originally the bill had two main pillars, school choice for public schools (not vouchers, just letting kids go to different public schools) and more testing and standards. The democrats balked, and so bush offered to drop the school choice provisions if ted kennedy would come on board with a bunch of democratic senators. This cost him a big chunk of his right wing support, but brought on more left wing support than it cost, and passed the bill. That is what compromise looks like, and nothing like that was ever offered on the ACA.
The ACA mandated zero-cost contraceptive access regardless of method. Doing that on a small scale increased usage of long-acting reversible contraception, which reduced unintended pregnancy and, concordantly, abortion. It’s reasonable to conclude that it works on a broader scale.
This is mentioned in the other thread, but really? Do you remember the Stupak-Pitts Amendment, or the Gang of Six, who weren’t exactly all there in good faith?
Republicans got the Democrats to bend over backwards for them, and then presented a unified front against the very idea of the bill for the next seven years while conspicuously failing to come up with a better idea. (“Undo the ACA” is, it turns out, really unpopular.) I refuse to blame Republicans’ addiction to “death panel” bullshit on the Democrats.
I submit to you that there’s an important difference between passing suboptimal legislation that still improves matters, and passing something that makes things worse because you want to be able to say that you passed something. And to grease your owners’ palms. (“Drain the swamp”, am I right?)
Housing, education, childcare, and surprisingly, food all got more expensive than overall inflation over the last two decades. (You may complain that government is to some extent involved in these things, but you can’t exactly show which is cause and which effect; note that the government also heavily regulates the manufacture of cars and of generic drugs.)
One, it really isn’t. how many people even know about that particular clause in the ACA?
Two, as I already said, the abortion rate has been declining for decades, is there any evidence the rate of decline changed post ACA?
the gang of 6 worked on a different bill that had no bearing on what became the ACA. Stupak-Pitts was necessary up to secure the votes of centrist democrats, it was not a concession to republicans.
You’re saying “republicans” but what I think you mean to say is “ben nelson, joe lieberman, and Bart Stupak”, all of whom are democrats.
.
Except for Mccain’s plan. Or Romney’s plan. Or just plain repal. All would have been better. That none happened isn’t proof that they were bad plans, and repeating this demonstrably false talking point is not in good faith.
I agree, and I think democrats did the latter, not the former.
Every other good gets cheaper every year.
.
We consume more, and more expensive versions, of those things. Except for education, which as you say, is hard to separate from government, none of them have gotten more expensive. An MRI or loaf of bread doesn’t cost more today (in inflation adjusted terms), than in the past, we get more MRIs and eat fancier bread.
This is false.
http://www.pnhp.org/excessdeaths/health-insurance-and-mortality-in-US-adults.pdf
http://www.mitpressjournals.org/doi/pdf/10.1162/AJHE_a_00080
https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2016.0607
Point of order: we did actually measure an impact to the health of the country: it got worse. American life expectancy dropped for the first time in decades, reversing a long, slow, steady rise.
Still waiting for the numbers on 2017 to see the latest on that trend.
I find the conclusion that “access to healthcare is bad for your health” to be interesting.
If you really believe this, it suggests that rising healthcare costs are a good thing- and if the government found a way to make healthcare more inaccessible, that would be the be the best route to take. Anyone who sincerely believed this should support politicians who are supporting measures that they think would destroy the healthcare market.
That is very obviously not the only conclusion you could draw from that data.
robin_hanson_nodding.gif
I hope no one attempts to draw this conclusion. But I’ve seen it done- around these part too.
Aren’t costs and access somewhat decoupled in healthcare?
This is a great comment, I’m sorry it got derailed. I think a “byzantine network of rent seekers who set up hoops for them to jump through” sums up the ACA pretty well, and probably the tax code/much of the changes in this new tax plan plan too. Why anyone would expect something even larger like free college to go any better (nevermind the distortions and and unintended consequences even if it was implemented perfectly) is beyond me.
Ideally, people should agree to disagree.
The federal government’s lowering of taxes shouldn’t prevent Democrat states from raising theirs in compensation.
Since in fact many people like living in NY, SF, Chicago, LA, Seattle, Boston, and in other such places situated near large bodies of water, this need not even cause a taxpayer exodus.
In fact, I’d even suggest capping the Federal income tax rate at 5% or 10%. Then everyone could have what they want.
Why shouldn’t California take the lead, raise its own top income tax rate threefold or fourfold, and serve as a laboratory for eradicating hunger in the US, in Mexico, and even worldwide? Why shouldn’t Omaha lower its tax rate practically to zero and send all those unable to pay for currently “free” government services to Hawaii and NY?
I think there might have been a recent experiment with radical reductions in taxation in Kansas.
That would be inaccurate. I’m on my phone, so can’t link, but all the budget docs are online. Kansas under Brownback saw revenues fall for, iirc, one year, maybe two. They were back above earlier peaks before the end of his first term. Spending, of course, never fell. But that’s just the general fund, which is only one third of Kansas State spending, though most news reports report it as if it were the whole thing. Non general fund revenues weren’t cut, and neither was their spending.
The whole Kansas kerfuffle came about over what amounted to a one or two year deficit of a couple percent of state spending. It got blown massively out of proportion because it benefited Brownback to exaggerate what he was doing when the cuts were happening, because it suited the ideological proclivities of his opponents to do so once it blew up on his face, and because general innumeracy meant neither got called in it.
Not “of course” Cassander, particularly since you’ve been caught lying about this exact thing before.
I don’t think we can even pin this one on general, or specific, innumeracy. It’s just repeating an argument in bad faith. You can do better.
I’ve linked you to the budget docs before, I believe. in 2009, kansas spent slightly under 14 billion. the budget for FY 17 is a hair under 17 billion.
Here’s state and local spending in Kansas from 2010 to 2015; it really did drop by about ten percent in each category. (Projections of doom are much easier to make when you don’t adjust for GDP, inflation or population.) It’s the equivalent of cutting $380 billion from the annual federal budget.
Sadly, US Government spending is not as reliable as one would like, and they’ve goofed here.
here are the official budget docs. In 2009, kansas spent slightly under 14 billion. the budget for FY 17 is a hair under 16.
@Grendelkhan:
Measured in dollars, which is what levels of spending mean if you don’t qualify them as “inflation adjusted” or “per capita” or something similar, your source shows both state and local spending constant, so far as one can read a bar chart, from 2010 to 2011. In 2012 state goes up a little, local goes down a little, total about the same as before. 2013 state goes back down to where it was in 2011, local stays where it was in 2012, so the sum is a tiny bit lower–eyeballing it maybe 2%. In 2014 both state and local are higher than in any of the previous years, and 2015 higher still.
So Cassander’s “spending never fell” isn’t quite right, assuming the data you linked to is correct. It fell in one year by about two percent, was constant or rising for every other year 2010-2015.
If you want to argue not about the level of spending but about the level of spending per capita and inflation adjusted, your claim is closer to correct. It’s falling 2010-2013, then rising. But the total fall from 2010 to 2013 is less than your ten percent.
Judging by your source, pd’s claim that Cassander is lying is a considerable overstatement, since Cassander’s statement was about spending in billions, not about spending per capita in billions of constant dollars. I have no objection to pd arguing that Cassander’s statement is misleading and the relevant numbers should be different than the ones he reported, but that isn’t the same thing as lying.
Cassander offers a different source of information, but I have not yet figured out how to extract from his link year by year expenditure figures.
Again, this sort of comparison makes no sense when you don’t even adjust for inflation, let alone population size or GDP. Watching absolute, unscaled numbers go up is very striking, but it’s not a very accurate view of what matters.
The taxes rates in Kansas went down 1.55% of income. Not really radical. There are still 13 states with lower tax rates than Kansas. They went from a moderately high tax state to a moderately low tax state.
And how did it work out for them? They’re certainly rich in Republicans lying about them on the internet.
NC also cut taxes and it has worked for them just fine.
Of course NC also cut spending instead of borrowing like the Feds are doing.
General problem: The federal government is significantly more efficient because of economies of scale. Also, Red states would just bus over homeless people to blue states (basically the worst of Trump’s theories would come true, except for Kansas instead of Mexico).
Specific problem: Republicans are eliminating state income tax deductions, which disincentivises this.
There are no economies of scale in administration, there are massive diseconomies. Comparing “overhead” figures in wildly different accounting schemes is….not reliable evidence of anything. Most measures show that large countries are worse governed than small ones.
Except in those super-efficient public healthcare systems.
Response to the general issue:
Why shouldn’t poor Kansans move to California? More to the point, why shouldn’t the Kansas state government incentivize them to do so? Californians presumably subsidize Kansans by tax transfers anyway, so why not drop the intermediary?
Actually, I read a novel, “Black Man” (2007), which issued such a warning: that in a future America divided along sectional lines, the most religiously bigoted and ignorant immigrants to future California would be those coming from the flyover states. They wouldn’t be kept out by a border wall (Californians are too open-minded for that), but, conveniently enough, by their own prejudice and authoritarian government, as well as by their illiteracy, which would prevent them from taking any but the basest manual labor jobs in the technologically advanced coastal states.
So the alarm about the danger of Kansans going to California predates Trump. The novel might have exaggerated a bit, but many Californians would probably agree with its vision, especially after Trump’s election.
This goes both ways. Californians don’t seem to be quite welcome in the middle states, either.
So why not have each state do its own thing? People who complain that taxes are too high could move to Kansas, while those who complain that taxes are too low could move to California and vote for state tax increases there, which could then be used to provide free college at the state level, end world hunger, etc..
This sort of amiable compromise seems, in the short and medium term, better than the alternative.
Response to the specific issue:
By eliminating the state income tax deductions, Republicans are making state tax level disparities more visible. However, there is nothing wrong with having such disparities in the first place. Some might prefer higher tax levels together with better public services and more welfare, while others might prefer the opposite. I see no fatal problem with either position.
Unlike conservatives, liberals tend to believe in assimilation. Plenty of Kansans (or whatever) already do move to California (or Texas, or Florida) in search of a nice place to retire or better opportunities, and if you’re looking for work, the cities are the future. Cities tend to make people more liberal (for a variety of reasons).
And speaking as a liberal, I’m all for emptying out the hinterlands, full of people I disagree with, and bringing them into newly bustling cities, where they’ll learn to love our pride parades and public transit. Oh, they’ll have some trouble fitting in, but it’s hard to live in a city without becoming less… well, less country. The more people move to the cities, the sooner we can outvote the countryside and turn the nation into the happy, prosperous European-style social democracy we’ve always wanted it to be.
There are some potential issues with variable mobility of jobs and labor, but if it really becomes a problem, we can always use residency-requirement delays, like we already have on in-state tuition. This is already happening, and I’m all for it.
Are you sure you aren’t getting your strategy backwards? California, New York, and Illinois tend to be net exporters of people to other states when you look at flows between states. For CA and NY at least this is partly balanced by larger inflows of foreigners.
See this article. https://www.forbes.com/sites/joelkotkin/2016/09/06/the-states-gaining-and-losing-the-most-migrants-and-money/2/#
Or if you want a detailed breakdown. See the census data. https://www.census.gov/data/tables/time-series/demo/geographic-mobility/state-to-state-migration.html
Who is “we”? I don’t understand this insistence that every developed country should be run in exactly the same manner. If one wants European-style social democracy, why not go to Canada or California? Why should Kansas or the UK necessarily have it too?
This is not even to mention that, in practice, this uniformity is usually achieved in a violent and brutal manner, such as when Paris imposed its rule over the provinces during the Revolution or as when in the name of War Communism Moscow and St. Petersburg despoiled the Russian countryside during the civil war.
I at least believe that there is room for both Sweden and Singapore or Hong Kong in this world. It’d be even better if the experiments all took place under one roof, that of the US, because being part of the same country might smoothen some asperities and amortize the shocks.
Maybe after California ends up like Venezuela the US will finally be “inoculated” against the communism virus, which is far from the case currently.
However, if all of the US (and/or the entire developed world) end up like that, I’m afraid that’s too big a price to pay. What’s the point of a vaccine that kills the patient? Unless that is the very point — many left-wing people think the US and the developed world need to expiate their historical sins by being utterly destroyed.
If Venezuela was Communist, it’d make a weaker argument against socialism, because there have already been lots of Communist governments that failed but those failures could be attributed to flaws specific to Marxism or even just Leninism. But because Bolivarian socialism or whatever the Maduro government is calling itself now isn’t Marxist, it becomes more likely that the stuff bringing it down is foundational to socialist ideology.
In case this isn’t just a Modest Proposal, states don’t have real borders between them. I mean, the California housing crisis does prevent people from moving there, but it’s not quite the same.
But more to the point, we’re an archipelago of very different states, kind of like the EU. But our Greece isn’t California or New York; it’s the Deep South. Despite the federal government’s economies of scale, California certainly could try and reproduce a European welfare state within the United States. It’s certainly trying at this point.
It’s not the deep Southern states racing up massive pension bills they have no hope of repaying, it’s Illinois, be York, and California.
It looks like it’s nearly every state; Louisiana, Kentucky and Mississippi are all less than two-thirds funded in terms of their public pensions, well below New York and California. (Though not Illinois; Illinois is pretty much SOL.)
In any case, sad public-employee retirees are a gnarly political problem (as I understand it, the Great Recession was mainly weathered by kicking the ‘fully-funded public pensions’ can down the road), but even California’s retirement system crashing won’t turn the place into Mississippi; this is a non sequitur.
every state is running up debts, but some are worse than others. The relevant figure isn’t the percentage funded. If your overall bill is small, you can afford a larger gap, if it’s huge, even a small gap will kill you. the figure you needs is absolute size of the funding gap per capita (or per per capita income). You also need to look at where the funding percentage is coming from, as some pension funds make more heroic assumptions than others.
the worry isn’t that they’ll become mississippi, the worry is that they’ll become greece, which is a distinct possibility.
I know you’re talking just about pension liabilities, but poor choice of words, there.
It looks like, for example, New York is paying down its (projected) future liabilities at this point. As for California, I’m not sure how to read these numbers; is “$133 billion” an integral from now until the end of time of all the additional revenue or debt that will need to be raised? That’s about three thousand dollars per Californian, or, over (a completely arbitrary) twenty years, about a hundred and fifty dollars per person.
To put it lightly, I don’t think the state is going to fall apart for want of a hundred and fifty dollars per person per year. Yes, this is a real problem. No, I don’t think it means California is doomed to a sub-Mississippi future. And yes, this is still a non sequitur.
@grendelkhan
Again, I’m not saying they become mississippi, I said they would become greece, and the economic consequences of an economy the size of california experiencing that sort of shock are huge.
The figure is probably the net present value of the funding gap, that is the amount you need TODAY to make up the shortfall. The shortfall will not be made up today, it will grow and grow and grow until there is a crisis or until politicians decide to take present pain in exchange for future benefit and fix it. My money is on the former.
A strategic attempt to influence Instapundit traffic? The mind boggles!
Can someone steelman setting the corporate income tax rate to be equal to the corporate AMT rate, as was done in the Senate version of the bill? Because it looks like to me like the Senate was trying to shuffle too many amendments at once and accidentally eliminated a bunch of deductions and credits.
I thought the Republicans’ objection to the legislative process that went into Obamacare was that it was too partisan, hasty, and opaque. Instead, they were saying “hold my beer.”
I don’t think one can reasonably steelman it. It’s obviously a mistake; no one involved actually wanted that to happen.
But yes, this is all very “hold my beer”. Those promising to “drain the swamp” have filled the administration with industry flacks. Those promising middle-class tax cuts and higher taxes for hedge fund managers have done the reverse. Self-proclaimed deficit hawks are passing deficit-financed tax cuts at 4% unemployment. And the emails.
Republicans’ objections to the entire process, so far as I can tell, was that they couldn’t cut taxes for extremely wealthy heirs. And our discourse is debased enough that that this sounds like a partisan attack, because in general, people don’t believe these policies could be real. I really, really don’t have a solution for this.
Somebody did remember. I lose the bet with myself.
People need to stop pretending that “partisan attacks” have nothing to do with actual policy. It’s a political party, not a fucking football team. If their tax plan is a deficit-financed giveaway to wealthy heirs that fucks over productive business and the working class, then that’s what it is. “They’re both the same” isn’t a fact about reality, it’s a cheap rationalization for supporting “your team” no matter what.
Well, those may be your partisan Blue Facts, but if you listen to Red Facts, the tax cuts will pay for themselves and we’ll have China-in-the-early-aughts levels of growth.
“This is cost to the government only”
This is not the reason to worry about “expensive” government programs. We only need to worry about costs to regular people. And the only additional costs from cutting taxes are potential interest the government will have to pay on its deficit. I suspect this is MUCH less than the cost of paying for everyone’s college expenses.
I know it’s already been said a million times, but for the purposes of emphasis, I would like to add that characterizing tax cuts as a “cost” is incredibly incorrect and probably even dishonest.
Even putting aside completely legitimate points such as “This assumes the tax cuts immediately go into the gold coin vaults of rich people and never do any good for anyone”, on the face of it, taxes are revenue, and a reduction in revenue is not the same thing as a cost. Any private company that tried to claim that on its accounting books would be convicted of fraud by the very same politicians who are perpetuating this obviously false notion. Revenue and expenses are different. They are categorized differently for a very good reason. There is no good sense in confusing this issue.
It’s kind of funny that we assume that budget changes which send more money to poor people go into their gold coin vaults, though, right? (Via such wacky ideas as ‘aid to people in sucky situations to make those situations suck less is a subsidy which will make them enjoy the thing that sucks’.)
I’m tempted to interpret this as trolling, but on the off-chance that you actually believe what you’re saying: incentives operate on the margins of categories, not on their central examples. When you hear something like “welfare incentivizes unemployment”, you should not imagine that giving subsidized food to some poor desperate bum living under a bridge magically makes him happy to be a poor desperate bum living under a bridge; you should imagine a regular guy who’s been out of work for two weeks, working just a little less hard to find a new job because his unemployment benefits are keeping him afloat. Subtle stuff, but on a population level it adds up, especially after you iterate a few times.
The right doesn’t own this kind of thinking, of course; strong arguments for gun control, carbon taxes, soda taxes, etc. could be made along very similar lines.
I’m mostly being sassy, though the assumption that the costs of ameliorating suffering are generally greater than the benefits is pretty loathesome. Sure, there’s deadweight losses, but we shouldn’t just assume they dominate.
The serious part of the comment is the first bit, the one where if you apply more money to rich people, they spend it on things we want it to be spent on, like investments and goods, but if you do so with poor people, it’s… not?
Trickle-down economics is rightly disparaged*, but no one really considers the obvious possibilities of trickle-up economics.
* could be different if we were facing a genuine shortage of investment capital, but that’s hardly the case now or any time in the recent past
“Trickle-down economics” is a term of abuse, not any sort of coherent philosophy.
The “end homelessness” and “solve world hunger” claims seem really harmful to me. Like sabre51 said, it’s jarring coming from the author who taught me about Moloch, Baumol and tulips.
$23B/year is 2% of our current $1200B/year spending on welfare. Are both parties so incompetent that neither of them can manage to write a check that’ll completely end homelessness forever for 2% of the money they’re already spending on poor people? Similarly for world hunger, it feels really dangerous to say “we could just fix this eternal civilizational inadequacy if we wrote a big check”, because that’s exactly the kind of bullshit politicians are constantly getting elected on.
Huh, I see it the other way. If a politician promised to end world hunger or end national homelessness they could never get elected because people would assume it would cost the Earth and never actually analyze the figures.
Compare the massive amounts of money people think gets spent on foreign aid versus the puny amount that actually does. https://www.npr.org/sections/goatsandsoda/2015/02/10/383875581/
Agreed that there are also cases where people overestimate how much we spend. Both are harmful. Another common example are the facebook memes about “if we care about education, why do we spend so much more on the military?”, when in fact we *do* spend about $1T per year on each of those things in combined federal and state spending.
Failure to raise taxes by 100% is costing the government universal health care for the whole world.
Come on, Scott, this is a really disappointing post. Yeah, we all know Trump sucks. And this bill will be a hot mess by the time he finishes ramming it through Congress. But if you can steelman the Time Cube guy, you can show at least a little charity to the Republicans here.
There are arguments floating around that this bill would help companies repatriate money to the US by bringing down the corporate tax rate. The US’s corporate tax rate of 35% is higher is higher than that of “socialist” countries like France (34.4%), Italty (27.5%) and Spain (25%). As a consequence, Apple has 252 billion dollars stashed overseas, Microsoft has 127 billion, Alphabet has 52 billion, and so on, and so forth. Repubs are hoping that lower corporate tax rates will encourage these companies to bring some of that cash back home. Will it work? I don’t know, but it should be at least discussed!
There are also arguments that this bill will simplify the tax code. By all accounts, the number of people who will simply take the standard deduction rather than itemized deductions will go way up. If they do succeed in killing the alternative minimum tax (AMT) that will eliminate another bureaucratic nightmare. It may not seem like a lot, but it will cut the frustration and uncertainty that middle class people have in the current system. If you multiple that small gain in utility by a huge number of people, it starts to really add up. Again, this needs to be quantified or measured somehow. But you’re not even discussing it at all.
There are a lot of good reasons to hate the tax bill: it screws California and New York, screws graduate students, and adds a lot of stupid tax loopholes related to pass-through corporate taxation. But that graphic of costs captures none of them. If Obama’s stimulus was 80 billion, and Trump’s is 100 billion, were you 80% as outraged at Obama as at Trump? Something doesn’t add up here. We need a more dispassionate look at this tax bill. Now more than ever.
Being able to steelman Time Cube is evidence that steelmanning sucks. Time Cube is insane. Things which are insane do not deserve “charity”. They are insane. They remain insane no matter how many kind words you write, no matter how much you contort yourself to avoid the insanity.
Crazy people who cause us to find hidden wisdom have been a staple of literature since the dawn of civilization. This John Stuart Mills quote from “On Liberty” isn’t really about crazy people per se, but I love it so I’m going to quote it anyway:
I think you might over relying on the IGM economic expert panel when you say “nobody” likes this bill. The forum asked economists two questions: assuming no other changes, (1) will this bill substantially raise GDP? and (2) will it increase the debt to GDP ratio? Go through and read some of the economists’ individual responses. On the first question, many (most?) that leave comments basically say something like, “the tax code doesn’t have a strong impact on GDP” and so vote “no”.
On the second, assuming “no other changes” basically makes this question a mathematical identity. But many of the people who’ve expressed positive views on the bill fully expect changes (e.g. that the estate tax won’t really get repealed, which is why republicans don’t have it going through until 2024).
Though the bill definitely has issues, and the political sausage making is definitely making them worse (though there’s no reason to expect a larger, free college giveaway would be any different) I don’t think this poll of economists on a related but not same as asking whether the bill is good question is sufficient enough to say nobody likes it. As others have said, would be nice to see you steelman it. Currently, I doubt you’d be able to pass an ideological Turing test.
Taxes are not spending. The government refraining to take money from ‘us’, does not cost ‘us’ anything.
I know that from a fiscal, government budgeting point of view, taxes and spending can be treated like arithmetical negatives to each other, so that a tax cut can be accounted for as a spending increase. But that’s just an accounting fiction, and it does not hold to the kind of comparison you are doing here.
Let’s say there is a community of people living in an anarchic/libertarian/objectivist ‘paradise’ where there is no government, and everyone just works and keeps what they earn. How would you measure what they ‘spent’ in total on any given thing? You would take what each one of them spent on that thing, and then add all those amounts together to get the total.
Now let’s say they realize that there are some collective action problems that can’t be solved unless there is communal spending. So they all agree to give 10% of their income to a central authority that spends money addressing those problems. Now how do you measure what they spend on any given thing? You take what each of them spends on that thing just like you did before, and add in what the central authority spends on that thing, sum up all the numbers, and you have your answer to what they spend in aggregate on the thing. Note that you don’t add in the raw number that they all give to the central authority – that’s besides the point of what they spend on actual things, it just tells you the mechanism of how they spend it, collectively or individually. If they decide the central authority is taking in more than it needs, and thereafter it only takes in 5% of everyone’s income, they haven’t ‘spent’ anything: they have just decided that their future spending will have a different allocation of collective vs. individual.
Or, look at it another way: if Bernie is elected and is able to enact his free college plan, then money will be spent, wealth will be consumed. A vast amount of person-hours, raw-materials, and energy would be taken up in implementing this plan. The Apollo Program likewise consumed the time and energy of many smart people, and consumed resources: it was ‘spending’, it ‘cost’ something to society as a whole. Note, I’m not here talking about its returns: free college may or may not end up generating more wealth than it consumes, and the Apollo Program very likely did, my point is that these things were actually spending, actually incurring costs, actually consuming our resources – time, energy, raw materials. This is true for stimulus spending, spending to end world hunger, universal health care, and ending homelessness: these things may be good things that we should do, but all of them would involve actually incurring costs. Tax cuts are not like these things. The government refraining from taking as much money from the private sector than it had previously intended to take does not involve the consuming of actual wealth, it just involves allocating the future power to spend – the power to consume wealth – in a different way.
Yes, if you think “we” means “the government”, then a tax cut looks like ‘we’ are spending money, because the government will have less than it would have had without the tax cut. But if you think ‘we’ means all of us, collectively in all our capacities and roles: the government, plus income earners, plus shareholders, plus pensions-holders, etc. then a tax cut does not look like spending, because it is zero sum among all of these, and more importantly because nothing is spent: no person-hours are labored, no electricity or fuel is consumed, no trees are harvested, nor metal forged.
So, you have six apples and two oranges up there.
I’d suggest the reason the fiscal microscope was taken to Sander’s plan and not to the tax cuts is because Sander’s plan was spending. The tax cuts only ‘costs’ the government money in the sense that it will not take that money in. It makes sense to say it costs the government money from an accounting perspective. But from a practical one, the question of whether the two are the same is philosophical. Is that the government’s money that it’s now giving back to people, or is it the individual’s money that the government is now not taking?
I suspect Republicans would generally say the latter. This is also why the balanced budget hawks are quieter, etc.
I’m not sure that’s a bad thing either. Taxes can be raised if they were lowered too far but spending programs tend to be rather permanent. It’s easy to imagine, “We’re going to war, raise taxes for five years.” Hard to imagine, “We’re going to war, no more government funded college or healthcare for five years!” The less reversible an action, the more it deserves scrutiny.
That’s a “socialism” thing.
Re: the 1.4 trillion figure. From that article.
“So, oddly, our calculation produced exactly the same amount of federal health spending — $1.38 trillion a year — as Sanders’ own estimate for his single-payer plan.
However, if you use the higher cost estimates — the ones in the $2.4 trillion to $2.8 trillion range — then Trump has a point that a single-payer plan would be more expensive than what the government is already paying for health care.”
Now, in a sane world that wouldn’t actually be all that absurd. the US is already spending a little under twice as much taxpayer money vs the UK’s NHS on healthcare counting medicare/medicaid/ACA and Tax deductions for health insurance so the fact that you’re not already getting universal coverage for the price you’re already paying is a sign that you’re having trouble organizing a piss-up in a brewery.
Sure, more spread out population explains some costs being higher but if you reach the point where you apparently are incapable of doing something for less than 4X the cost it takes other similarly developed nations…. you start to question competence in the same way you would with a car factory that apparently is utterly incapable of producing cars for less than 4x the cost of a similar plant in japan, the UK or France.
Wait, US healthcare costs more than solving world hunger? That doesn’t sound right.
so, apparently about 12-13% of the worlds population is undernourished so about 900 million people.
That doesn’t mean they have no food, just not enough. So we’re not even talking about the full balance of food needed to feed 900 million people.
A lot of it’s related to infrastructure problems or politics where if you solve those the people themselves can mostly sort out enough calories. most vitamins and minerals aren’t terribly expensive and people don’t actually need much to remain healthy, for example: having some cast iron cooking pots can be enough to solve a groups iron deficiencies for years.
Footnotes.
1. Assuming that we don’t accidentally torpedo relatively fragile economies with massive amounts of intervention, causing the problem to perpetuate and grow over time.
2. Assuming that everyone uses the good exactly as we envision and don’t ever butcher/sell/melt down their free cows/cast iron pans in the pursuit of other desires.
3. Assuming that these programs don’t lead to population explosions necessitating more and more aid.
4. Assuming that the environmental impacts of dramatically changing the eating/waste management of a billion people don’t cause significant problems.
> Assuming that we don’t accidentally torpedo relatively fragile economies
I mean, we’re several trillion dollars into a war we started in the middle east because we couldn’t persuade some governments over there to do what we wanted. So yeah, getting N. Korea on board with our “end world hunger” program may be a tad complicated.
I’m pretty sure we could just give the supreme emperor of North Korea $500 for every person in his country that needs food every year and he would have that shit fixed very quickly.
One possible etymology for “technical”, in the sense of a 1990s-era Toyota pickup with a heavy machine gun mounted in the bed, is that the hardware was often paid for by “technical assistance grants” — bribes paid by NGOs distributing food and medicine in impoverished countries to local warlords for physical protection.
So yeah, there are some possible side effects here.
“Technical” in that context refers to local
mercenariessecurity professionals hired off-book to protect aid workers and supplies from warlords, not danegeld paid to the warlords. There may have been some of the latter as well, but it didn’t spawn a snazzy neologism.As Murphy says, plus healthcare is really expensive. It sounds obviously true to me.
I feel like it’s depends how you count the cost of solving world hunger. If you include the part where a bunch of horrible government setups need to be reformed and wars ended as mentioned above, it may be more expensive. But on the other hand, you then also get a lot of other very good benefits too! So maybe we can say the marginal cost of solving world hunger after solving horrible political problems that are necessary to fix first is cheaper than U.S. healthcare costs.
Our track record for fixing other people’s horrible political systems is not that great. And our financial returns for doing that are even worse.
Reductions in taxation are not the same thing as spending programs, and far more complicated to evaluate (from a non-libertarian perspective anyway, the libertarian analysis as usual is simple). That 100B isn’t being spent on a specific thing, it’s not the government spending it at all anymore– it becomes a ridiculously large number of separate “spending programs” (or savings programs) by individuals and corporations on who-knows-what.
I think the dot size is supposed to be proportional to the dollar amount, but to the naked eye 80 billion and 100 billion look like EXACTLY the same dot size. Or is that just me?
I’m pretty sure if you try buying “11 Apollo programs” that “cost disease” demon Scott’s written about a few times before is going to pop out of a box laughing at the expectation that each one will be “12 billion dollars in 2017 dollars.” “2017 dollars” is rated for official inflation, which tells you how to buy a batch of standard household goods, which prices unlike some prices are actually determined mostly by market pressures.
The end-homelessness numbers seem kind of perfect-worldy– they just took how much money you would have to add to people’s incomes to make them afford current rents right? That’s not how actual markets respond to a subsidy unless governed by a single omniscient being with perfect intentions that is also a 100% efficient engine and no entry or other barriers to increasing supply. Prices go up, people find workarounds to convert the subsidy to things other than the intended problem, there’s new construction costs to cover, rising expectations bait people into increasing regulatory standards further increasing those construction costs… The federal government currently spends about 50 billion on housing assistance of various kinds, and the total across 50 states of state and local spending on that is also that. By asspull I’m going to assume half the federal number goes into subsidizing state programs so let’s call it 75 billion total.
If 23 billion per year is enough to end homelessness, then, assuming static government efficiency, it logically follows that if everyone in the government stopped pretending to care about homelessness and spending any money on it etc, our any-given-time homelessness numbers would jump from the current roughly 650,000 to roughly 2.75 million.
I don’t think that it is the case that the marginal impact of current US housing programs is 2 million people not being homeless.
Same is probably true of the single-payer and world hunger numbers, but I am not going to go into those right now.
Of course, when Scott criticized the Bernie college plan I vaguely recall him saying very similar things so I think he knows this.
Take out the letters T-R-U-M-P, ignore the partisan nonsense and it’s hard to see why anyone objects to this tax reform on policy grounds.
Correct me if I’m wrong but my understanding is that it does the following:
1. Moves the corporate tax rate towards the rate in Denmark, Sweden and in line with the rates in the rest of the industrialized world, a move towards the rate of 0% endorsed by all five economists chosen to represent a broad swath of the ideological spectrum on a 2012 NPR panel.
2. Eliminates a number of corporate tax loopholes as well as negative incentives that push American companies and American jobs overseas.
3. Encourages investment and repatriation of corporate profits back into the USA.
4. Eliminates loopholes used by rich people with expensive homes and with rich state and local governments to avoid paying their fair share that they would otherwise be obligated to pay. Many of these are the very same people who constantly virtue-brag about how they want to pay higher taxes.
5. Decreases the taxes paid by the middle class
6. Removes the government subsidies encouraging people to own large, environmentally destructive million dollar homes and favors rich property owners over those who can’t afford to own or who choose to rent.
7. Eliminates a small portion of the massive loophole that allows giant $37 billion hedge funds to pay no taxes on their profits as long as they have an affiliated educational component as part of their operation.
8. Asks rich people who received government-subsidized student loans to give a little back to the community by eliminating a loophole that currently allows them to pay less taxes than someone who didn’t receive this type of government help.
9. Doesn’t touch vitally important spending for education, health care*, the environment, scientific research or anything else. *the Senate plan reduces health care spending only to the extent that low and middle class people will no longer be forced to purchase Obamacare and will therefore choose to forego the subisidy.
If Obama had proposed this, perhaps articulating that he was asking rich people living in expensive homes, residing in richly funded states and enjoying a high income thanks to help from Uncle Sam with their college tuition to all dig a little deeper, I’ll bet most Democrats would endorse it without reservation!
Don’t the overwhelming majority of professional economists think this is a terrible tax bill?
I don’t think it’s a good tax bill on balance — its reform measures are a step in the right direction but they don’t make up for its macro deficiencies — but I rather suspect that the “economic consensus” on it depends on who’s doing the reporting.
“Don’t the overwhelming majority”
Professional economists aren’t above partisan hackery but more fundamentally that’s an awful way to think about an issue. There’s not shortcut to delving into the specifics. If you’re going try to measure a consensus it needs to be about specific details not an entire bill. There’s a pretty broad consensus that the corporate tax puts a country in a weak competitive position globally and is inefficient.
I’m still waiting for someone to make the argument that the Swedes and Danes adopt low corporate taxes because they’re all a bunch of right-wingers.
I like how you used some clever word use to obscure some of the provisions.
Even putting aside the idea that less people having access to health care is a bad thing, you’re of course forgetting the parts where the tax bill massively cuts the estate tax, cuts taxes for “pass through business” (like the Trump Organization), lowers the top tax rate, cuts Medicaid, treating tuition waives as income, etc.
There’s plenty of good arguments to eliminate various deductions, lower the corporate tax rate, tax endowments, and so on, and so forth. However, doing all those things to cut taxes for Donald Trump Jr. when Trump Sr. dies or to make sure hedge fund managers don’t have to pay even lower taxes on their capital gains is not a reason to do so.
As far as economists, the IGM, which is a nonpartisan survey of top economists surveyed them about the Trump tax bill – http://www.igmchicago.org/surveys/tax-reform-2
Only 2% agreed and 52% disagreed with the question, “If the US enacts a tax bill similar to those currently moving through the House and Senate — and assuming no other changes in tax or spending policy — US GDP will be substantially higher a decade from now than under the status quo..”
OTOH, 88% agreed with the question, “Question B: If the US enacts a tax bill similar to those currently moving through the House and Senate — and assuming no other changes in tax or spending policy — the US debt-to-GDP ratio will be substantially higher a decade from now than under the status quo.”
Not to obscure. I’m trying to state it using leftist language to break out of the Trump obsession and partisan talking points.
It’s a huge bill and most of those are smaller ticket items. If 9 major items isn’t enough, I can address all of those one-by-one.
a nonpartisan survey of top economistsSorry, don’t believe it and even if I did, I wouldn’t be interested. Surveying economists about a complex bill like this is a recipe for an irrational and shallow partisan hack fest. That’s why I’m looking at the major components item by item. I specifically referenced the panel that NPR put together for one item — the corporate tax rate.
What was the first thing I said? Remove the letters T-R-U-M-P. What Trump pays couldn’t be less relevant from the policy discuss and the White House didn’t even write the bill.
1. The effective corporate tax is much lower than the official corporate tax rate, right? So if you lower the official tax rate to what it is in other countries, you lower the effective tax rate far below what the official tax rate is in other countries. This is very expensive.
2. As I understand it, the tax benefit primarily goes to big corporations and rich people rather than small corporations and middle class or poor people. Is this wrong?
3. Based on 2. it is not clear to me that the benefits are enough to outweigh 1. Listing a lot of points is one thing, but even combined, do they even come close to providing a sensible return on investment?
I imagine if Obama had proposed this, a lot of corporate democrats would have backed it. There are democrats who are backing it even now. But I also think there would have been outrage from the left.
they are lowering the rate AND eliminating deductions and exemptions at the same time.
It’s precisely the big corporations and rich people who benefit most from a complicated tax code.
They eliminated revenue negative provisions but not very many on the corporate side. And they added in a few extra ones like an even more accelerated deprecation schedule. The effective rate is expected to go down under the this bill. Per the JCT that’s going to be partially offset by additional growth (and per a bunch of Senators that apparently all along were macroeconomic geniuses fully offset and then some) but that’s doesn’t change the fact that it is expected to be an effective rate cut, not a neutral broaden the base, lower the rates reform.
I agree with both of those things, but what by what percentage will eliminating deductions mitigate the cost of lowering taxes? What I have heard suggests that it is much closer to 1% than 100%.
If it was 100% – if the official tax rate was lowered but the effective tax rate stayed the same – I would for sure be in favor of the bill.
I mean, it’s a tax cut, they’re selling it as a tax cut, it’s definitely not 100%. But I’d much rather have a world where we get these deductions eliminated and get lower rates, only to have the next democratic administration raises rates back up a bit then continue with the high rate/high deduction silliness we have now.
Yes, it is both tax reform and a tax cut.
The important number is that the JCT calculates that ONE THIRD of the tax cut, $500 billion, will pay for itself in increased growth.
But that’s from the government’s perspective. For the entire system, that’s $500 billion created out of thin air. Jason Furman (Obama’s econ chair) believe it will be less but everyone agrees that taxes destroy value in the form of dead weight losses.
I believe the rule of thumb is that you square the marginal rate to determine the dead weight loss. That’s why lowering marginal rates and broadening the tax base is the bedrock of tax reform.
That’s also why new spending items cost more than the sticker price while tax cuts cost less. As David Friedman said you have to take X + a value from people to collect X dollars and when you redistribute those dollars you deliver X – b of value to someone else. It’s like a Christmas gift exchange forced at gunpoint for people you don’t know.
Ah, but Mercy, didn’t you say the only real way to cut taxes is by cutting spending? Yes, and that’s why $500 billion isn’t the real value created by this tax shift. The government is still spending the same amount. The question is how much value is destroyed using the alternative methods for getting a hold of the spending. So a more complete analysis would look at the losses created by the alternative method for funding the government via borrowing, future taxes and inflation.
That raises an interesting question that’s above my pay grade: How does an inflation tax compare with say a 39% top marginal income tax or a 40% corporate tax rate in terms of efficiency? After all, we “paid off” our WW2 debt by printing money and that’s also how we’ll “pay off” our current debt.
Intuitively, it seems that it’s a fairly efficient and broad based tax. The problem is that it tends to lead to runaway inflation and I don’t think this country has another Paul Volker/Ronald Reagan duo on deck.
Ok, but how much? You can say “it eliminates some deductions” if it reduces deductions by 30% and you can say “it eliminates some deductions” if it reduces deductions by 1%, and until you attach a number, both sounds equally convincing, but one is actually only 0,033 times as good of an argument as the other.
You’re making it sound like your conclusion is valid irregardless of that number, which sends very bad signals to me.
@sty_silver
I think we’re coming at this from alternative angles. Your approach seems to be “we need to raise X dollars, so a tax plan needs to raise that much, then we can quibble about how to do that.”
My attitude is that the feds have been collecting about 18% of GDP in taxes since the korean war, and that no bill under discussion is going to move that needle much one way or the other. Since the amount of money to be raised is fixed within reasonable limits, the shape of how that money raised matters much more to me than 10 year projections of cost. This goes double because removing deductions (which often have concentrated benefits and thus motivated and organized supporters) is much harder than raising rates.
No, no, no. No.
My approach is “question every argument that seems flawed and see how much there is to it”.
You keep coming to reasons why the tax bill is good. I’m not, and have at no point in this conversation, argued about whether the tax bill overall is good. I responded to a post claiming there was nothing bad about it.
I said, well it raises costs, isn’t that bad?
You said, it also removes deductions.
I said, okay by how much?
You said something about why the bill is good regarless.
I said, okay but please answer my previous question, by how much does it reduce deductions?
And now you’re talking again about why the bill is good. And I still want to know how much the removing-deduction part matters. Then maybe at some point I will have a confident belief about whether the bill as a whole is good, but not right now.
How would you like that quantified? I could talk about dollar values, but I’m not sure what that tells you, because as I’ve said elsewhere, the political difficulties of removing deductions is large.
Well, the official tax rate deduction would make corporations pay X fewer dollars (than before) after the bill passes. But counting deductions, they’ll actually pay Y fewer dollars, where Y < X.
The percentage by how much deductions mitigate cuts I would define as (X-Y)/X (but if that is not a good way to do it for reasons you haven't addressed so far, I'm open to hearing why). So if in reality they only pay 200$ less, even though the official cut yields 1000$, then the deductions mitigate the cuts by 80%.
Separate for rich people and corporations, if it is different.
How old will Sanders be? I like his political style, but there is a good point in noticing the oddity if putting the very oldest with all dat potential health and memory issues into the world’s most demanding job.
79. For comparison, Donald Trump would be 75, Joe Biden 78, Harris 56 and Warren 71 (all calculated without looking at their particular month of birth).
I think this is a legitimate concern, but I also think signs of health or memory issues, or lack thereof, should count for something. I’ll just be frank and say that I suspect Sanders is more healthy than Trump based on lifestyle, despite a 4 year difference.
PredictIt seems to think he is somewhat likely to run: https://www.predictit.org/Contract/5624/Will-Bernie-Sanders-run-for-president-in-2020#data